UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒
☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
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)
45-2771978
(I.R.S. Employer Identification No.)
650 Fifth Ave., 30 Floor, New York, NY 10019
______________________________________________________________________________________ _________________________________________________________________________
(Address of principal executive offices) (Zip Code)
th
Registrant’s telephone number, including area code: (212) 415-6500
Securities registered pursuant to section 12(b) of the Act:
Title of each class
Trading Symbols
Name of each exchange on which registered
Common Stock, $0.01 par value per share
7.25% Series A Cumulative Redeemable Preferred Stock, $0.01 par
value per share
6.875% Series B Cumulative Redeemable Perpetual Preferred Stock,
$0.01 par value per share
Preferred Stock Purchase Rights
GNL
GNL PR A
GNL PR B
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
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 ☐ No ☒
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. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☒
☐
Accelerated filer
Smaller reporting company
Emerging growth company
☐
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $1,497,043,496 based on the closing sales price on the New York Stock
Exchange as of June 30, 2020, the last business day of the registrant’s most recently completed second fiscal quarter.
On February 19, 2021, the registrant had 90,574,467 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 2021 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, 2020
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
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
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 15.
Item 16.
Exhibits and Financial Statement Schedules
Form 10-K Summary
SIGNATURES
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Forward-Looking Statements
Certain statements included in this Annual Report on Form 10-K are forward-looking statements. Those statements include statements regarding the intent,
belief or current expectations of Global Net Lease, Inc. (“we,” “our” or “us”), Global Net Lease Advisors, LLC (the “Advisor”) 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.
These forward-looking statements are subject to risks, uncertainties and other factors, many of which are outside of our control, which could cause actual
results to differ materially from the results contemplated by the forward-looking statements. 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 are set forth in “Risk Factors” (Part I,
Item 1A of this Annual Report on Form 10-K), “Quantitative and Qualitative Disclosures about Market Risk” (Part II, Item 7A), and “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” (Part II, Item 7).
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Item 1. Business.
Overview
PART I
We are an externally managed real estate investment trust for U.S. federal income tax purposes (“REIT”) that focuses on acquiring and managing a globally
diversified portfolio of strategically-located commercial real estate properties, which are crucial to the success of our roster of primarily “Investment Grade”
(defined herein) tenants. We invest in commercial properties, with an emphasis on sale-leaseback transactions and mission-critical, single tenant net-lease assets.
As of December 31, 2020, we owned 306 properties consisting of 37.2 million rentable square feet, which were 99.7% leased, with a weighted-average
remaining lease term of 8.5 years. Based on the percentage of rental income on a straight-line basis as of December 31, 2020, 64% of our properties were located in
the U.S. and Canada and 36% of our properties were located in Europe. In addition, our portfolio was comprised of 49% industrial/distribution properties, 46%
office properties and 5% retail properties. These percentages are calculated using straight-line rent converted from local currency into the U.S. Dollar (“USD”) as
of December 31, 2020. The straight-line rent includes amounts for tenant concessions.
Investment Strategy
Our investment strategy is to own and acquire a portfolio of commercial properties that is diversified in terms of geography, industry, and tenants.
We seek to:
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generate stable and consistent cash flows by acquiring properties, or entering into new leases, with long lease terms;
acquire properties, 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., Canada, and Europe and
leveraging the market presence of our Advisor.
In evaluating prospective investments, our Advisor considers relevant real estate and financial factors, including the location of the property, the leases and
other agreements affecting it, the creditworthiness of its major tenants, its income producing capacity, its physical condition, its prospects for appreciation and
liquidity, tax considerations and other factors. In this regard, the Advisor has substantial discretion with respect to the selection of specific investments, subject to
board approval and any guidelines established by our board of directors.
We may also originate or acquire first mortgage loans, mezzanine loans, preferred equity or securitized loans (secured by real estate) but do not currently own
any of these asset types.
We own assets located in ten different countries. As of December 31, 2020, we leased space to 130 different tenants doing business across 48 different
industries. During the year ended December 31, 2020, no industry represented more than 10% of our portfolio’s rental income on a straight-line basis. We strive to
acquire income producing, stand-alone commercial properties with long-term leases tied to indices such as consumer price index for annual increases focusing on
tenant, sector, and geographic diversification. As of December 31, 2020, our portfolio was 99.7% occupied.
Tenants and Leasing
We focus on acquiring strategically located industrial and distribution facilities in the U.S. and strong sovereign debt rated countries in Continental Europe.
We continuously monitor improving or deteriorating credit quality for asset management opportunities which we review in-house using Moody’s analytics. Our
portfolio is leased to primarily “Investment Grade” rated tenants in well established markets in the U.S. and Europe. A total of 67.0% of our rental income on a
straight-line basis for the year ended December 31, 2020 was derived from Investment Grade rated tenants, comprised of 36.5% leased to tenants with an actual
investment grade rating and 30.5% leased to tenants with an implied investment grade rating. “Investment Grade” includes both actual investment grade ratings of
the tenant or guarantor, if available, or implied investment grade. Implied investment grade may include actual ratings of the tenant parent, guarantor parent
(regardless of whether or not the parent has guaranteed the tenant’s obligation under the lease) or tenants that are identified as investment grade by using a
proprietary Moody’s analytical tool, which generates an implied rating by measuring an entity’s probability of default. Ratings information is as of December 31,
2020.
As of December 31, 2020, our portfolio had a weighted-average remaining lease term of 8.5 years (based on square feet as of the last day of the applicable
quarter), up from 8.3 years as of December 31, 2019. A total of 93.9% of our leases based on square footage as of December 31, 2020 contain contractual rent
increases.
Our business is generally not seasonal.
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Acquisitions
We leverage direct relationships with landlords and developers to generate high-quality global opportunities at what we believe to be better than market
pricing. During the year ended December 31, 2020, we acquired 28 properties for $464.1 million, including capitalized acquisition costs. We utilize a well-defined
investment strategy and rigorous underwriting process to identify and select high-quality net lease investment opportunities. We look for tenants with logistical and
local advantages, strong operating performance, strong business financials, financial visibility, and corporate-level profitability.
Financing Strategies and Policies
We use various sources to fund our business including acquisitions and other investments as well as property and tenant improvements, leasing commissions
and other working capital needs. These sources have recently consisted of: (1) offerings of common and preferred stock; (2) property-level financing secured by
the underlying property or properties; and (3) draws on our senior unsecured multi-currency credit facility (the “Revolving Credit Facility,), and a senior unsecured
term loan facility (the “Term Loan” and, together with the Revolving Credit Facility, the “Credit Facility.”). In addition, on December 16, 2020, we and the
operating partnership completed a private placement of $500.0 million aggregate principal amount of 3.75% Senior Notes due 2027 (the “Senior Notes”). The
Senior Notes are guaranteed by certain of our subsidiaries, were issued at par and mature on December 15, 2027. We expect to incur additional indebtedness in the
future. and issue additional equity to fund our future needs including acquisitions. 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 have entered into, and expect to continue to enter into, these types of transactions in order to manage or mitigate our interest rate risk on
variable rate debt. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” herein for
further discussion
Our board may reevaluate and change our investment and financing policies in its solo discretion without a stockholder vote. Factors that we would consider
when reevaluating or changing our debt policy include among other things, current economic conditions, the relative cost and availability of debt and equity
capital, our expected investment opportunities, and the ability of our investments to generate sufficient cash flow to cover debt service requirements.
Impact of the COVID-19 Pandemic
We have taken several steps to mitigate the impact of the pandemic on our business. We have been in direct contact with our tenants since the crisis began,
cultivating open dialogue and deepening the fundamental relationships that we have carefully developed through prior transactions and historic operations. Based
on this approach and the overall financial strength and creditworthiness of our tenants, collected approximately 99% of the original cash rent due for the quarter
ended December 31, 2020 across our entire portfolio, including approximately 100% from our top 20 tenants (based on the total of annual cash rent due from our
top 20 tenants), representing 49% of our annual cash rent, approximately 99% of the original cash rent due in our assets in the United Kingdom and approximately
100% of the original cash rent due from our assets in the rest of Europe.
Organizational Structure
Substantially all of our business is conducted through Global Net Lease Operating Partnership, L.P. (the “OP”), a Delaware limited partnership, and its
wholly-owned subsidiaries. Our Advisor manages our day-to-day business with the assistance of our property manager, Global Net Lease Properties, LLC (the
“Property Manager”). Our Advisor and Property Manager are under common control with AR Global Investments, LLC (“AR Global”) and these related parties
receive compensation and fees for providing services to us. We also reimburse these entities for certain expenses they incur in providing these services to us.
Tax Status
We elected to be taxed as a REIT 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. We believe that, commencing with such taxable year, we have been organized and have operated in a manner so that we
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 can provide no assurances
that we will operate in a manner so as to remain qualified as a REIT. To continue to qualify for taxation as a REIT, we must distribute annually at least 90% of our
REIT taxable income (which does not equal net income as calculated in accordance with generally accepted accounting principles (“GAAP”)), determined without
regard for the deduction for dividends paid and excluding net capital gains, and must comply with a number of other organizational and operational requirements.
If we continue to qualify for taxation as a REIT, we generally will not be subject to federal corporate income tax on the portion of our REIT taxable income that we
distribute to our stockholders. Even if we qualify for taxation as a REIT, we may be subject to certain state, and local taxes on our income and properties, and
federal income and excise taxes on our undistributed income.
In addition, our international assets and operations, including those owned through direct or indirect subsidiaries that are disregarded entities for U.S. federal
income tax purposes, continue to be subject to taxation in the foreign jurisdictions where those assets are held or those operations are conducted.
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Competition
The commercial real estate market is highly competitive. We compete for tenants in all of our markets based on various factors that include location, rental
rates, security, suitability of the property’s design for a tenant’s needs and the manner in which the property is operated and marketed. The number of competing
properties in a particular market could have a material effect on our occupancy levels, rental rates and on the operating expenses of certain of our properties.
In addition, we compete for acquisitions with other REITs, specialty finance companies, savings and loan associations, banks, mortgage bankers, insurance
companies, sovereign wealth funds, mutual funds and other entities. Some of these competitors, including larger REITs, have greater 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.
Competition from these and other third-party real estate investors may limit the number of suitable investment opportunities available to us and increase prices
which will lower yields, making it more difficult for us to acquire new investments on attractive terms.
Regulations - General
Our investments are subject to various federal, state, local and foreign laws, ordinances and regulations, including, among other things, the Americans with
Disabilities Act of 1990, 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.
Regulations - 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 capital expenditures, competitive position, 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.
Employees and Human Capital Resources
As of December 31, 2020, we have one employee is based in Europe. We have retained the Advisor pursuant to a long-term advisory contract to manage our
affairs on a day-to-day basis. We have also entered into an agreement with our Property Manager to manage and lease our properties. The employees of the
Advisor, Property Manager and their respective affiliates perform a full range of services for us, including acquisitions, property management, accounting, legal,
asset management, investor relations and all general administrative services. The employees of the Advisor, Property Manager and their respective affiliates are
also eligible to participate in our stock option plan and our employee and director incentive restricted share plan. We depend on the Advisor and the Property
Manager for services that are essential to us. If the Advisor and the Property Manager were unable to provide these services to us, we would be required to provide
these services ourselves or obtain them from other sources.
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. You may read and copy any materials we file with the SEC at the SEC’s Internet address at http://www.sec.gov. The website
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 our website 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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Item 1A. Risk Factors
Set forth below are the risk factors that we believe are material to our investors and a summary thereof. The occurrence of any of the risks discussed in this
Annual Report on Form 10-K could have a material adverse effect on our business, financial condition, results of operations and ability to pay dividends and they
may also impact the trading price of our common and our preferred stock. The risk factors contained herein are not necessarily comprehensive and we may be
subject to other risks.
Summary Risk Factors
• We may be unable to acquire properties on advantageous terms or our property acquisitions may not perform as we expect.
• Our ability to continue implementing our growth strategy depends on our ability to access additional debt or equity financing on attractive terms, and
there can be no assurance we will be able to so on favorable terms or at all.
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Provisions in our Credit Facility may limit our ability to pay dividends on Common Stock, our 7.25% Series A Cumulative Redeemable Preferred Stock,
$0.01 par value per share (“Series A Preferred Stock”), our 6.875% Series B Cumulative Redeemable Perpetual Preferred Stock, $0.01 par value per share
(“Series B Preferred Stock”), or any other stock we may issue.
If we are not able to generate sufficient cash from operations, we may have to reduce the amount of dividends we pay or identify other financing sources.
Funding dividends from other sources such as borrowings, asset sales or equity issuances limits the amount we can use for property acquisitions,
investments and other corporate purposes.
• Market and economic challenges experienced by the U.S. and global economies may adversely impact aspects of our operating results and operating
condition.
• We are subject to risks associated with our international investments, including uncertainty associated with the U.K.’s withdrawal from the European
Union, compliance with and changes in foreign laws and fluctuations in foreign currency exchange rates.
Inflation may have an adverse effect on our investments.
•
• We are subject to risks associated with a pandemic, epidemic or outbreak of a contagious disease, such as the ongoing global COVID-19 pandemic,
including negative impacts on our tenants and their respective businesses.
• We depend on tenants for our rental revenue and, accordingly, our rental revenue is dependent upon the success and economic viability of our tenants. If a
tenant or lease guarantor declares bankruptcy or becomes insolvent, we may be unable to collect balances due under relevant leases.
• Our tenants may not be diversified including by industry type or geographic location.
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In owning properties we may experience, among other things, unforeseen costs associated with complying with laws and regulations and other costs,
potential difficulties selling properties and potential damages or losses resulting from climate change.
• We depend on the Advisor and Property Manager to provide us with executive officers, key personnel and all services required for us to conduct our
operations.
• All of our executive officers face conflicts of interest, such as conflicts created by the terms of our agreements with the Advisor and compensation
payable thereunder, conflicts allocating investment opportunities to us, and conflicts in allocating their time and attention to our matters. Conflicts that
arise may not be resolved in our favor and could result in actions that are adverse to us.
• We have long-term agreements with our Advisor and its affiliates that may be terminated only in limited circumstances and may require us to pay a
termination fee in some cases.
• We have substantial indebtedness and may be unable to repay, refinance, restructure or extend our indebtedness as it becomes due. Increases in interest
rates could increase the amount of our debt payments. We may incur additional indebtedness in the future.
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The stockholder rights plan adopted by our board of directors, our classified board and other aspects of our corporate structure and Maryland law may
discourage a third party from acquiring us in a manner that might result in a premium price to our stockholders.
Restrictions on share ownership contained in our charter may inhibit market activity in shares of our stock and restrict our business combination
opportunities.
• We may fail to continue to qualify as a REIT.
Risks Related to Our Properties and Operations
We may be unable to enter into contracts for and complete property acquisitions on advantageous terms or our property acquisitions may not perform as we
expect.
Our goal is to grow through acquiring additional properties, and pursuing this investment objective exposes us to numerous risks, including:
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competition from other real estate investors with significant capital resources;
we may acquire properties that are not accretive;
we may not successfully manage and lease the properties we acquire to meet our expectations or market conditions may result in future vacancies and
lower-than expected rental rates;
we may be unable to obtain debt financing or raise equity required to fund acquisitions on favorable terms, or at all;
we may need to spend more than budgeted amounts to make necessary improvements or renovations to acquired properties;
agreements to acquire properties are typically subject to customary conditions to closing that may or may not be completed, and we may spend
significant time and money on potential acquisitions that we do not consummate;
the process of acquiring or pursuing the acquisition of a new property may divert the attention of our management team from our existing business
operations; and
we may acquire properties without recourse, or with only limited recourse, for liabilities, whether known or unknown.
We rely upon our Advisor and the real estate professionals employed by affiliates of our Advisor to identify suitable investments, there can be no assurance
that our Advisor will be successful in doing so on financially attractive terms or that our objectives will be achieved. If our Advisor is unable to timely locate
suitable investments, we may be unable to meet our investment objectives.
Our ability to continue implementing our growth strategy depends on our ability to access capital from external sources, and there can be no assurance we will
be able to so on favorable terms or at all.
In order to meet our strategic goals, which include acquiring additional properties, we will need to access sources of capital beyond the cash we generate from
our operations. Our access to capital depends, in part, on:
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general market conditions;
the market’s view of the quality of our assets;
the market’s perception of our growth potential;
our current and expected debt levels;
our current and expected future earnings;
our current and expected cash flow and cash dividend payments; and
market price per share of our Common Stock, Series A Preferred Stock, Series B Preferred Stock and any other class or series of equity security we
may seek to issue.
We cannot assure you that we will be able to obtain debt financing or raise equity on terms favorable or acceptable to us or at all. If we are unable to do so, our
ability to successfully pursue our strategy of growth through property acquisitions will be limited.
If we are not able to increase the amount of cash we have available to pay dividends, we may have to reduce dividend payments or identify other financing
sources to fund the payment of dividends at their current levels.
We cannot guarantee that we will be able to pay dividends on a regular basis on Common Stock, our Series A Preferred Stock, our Series B Preferred Stock or
any other class or series of stock we may issue in the future. Decisions regarding the frequency and amount of any future dividends we pay on our Common Stock
will remain at all times entirely at the discretion
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of our board of directors, which reserves the right to change our dividend policy at any time and for any reason. Any accrued and unpaid dividends payable with
respect to our Series A Preferred Stock and Series B Preferred Stock must be paid upon redemption of those shares.
As noted herein, our debt agreements, including the indenture governing the Senior Notes and our Credit Facility, contain various covenants that limit our
ability to pay dividends. For example, our Credit Facility prohibits us from paying distributions, including cash dividends payable on our Common Stock, Series A
Preferred Stock, Series B Preferred Stock or any other class or series of stock we may issue in the future, or redeem or otherwise repurchase shares of any of these
outstanding securities, or any other class or series of stock we may issue in the future, that exceed 100% of our Adjusted FFO as defined in the Credit Facility
(which is different from the definition of AFFO disclosed in this Annual Report on Form 10-K) for any period of four consecutive fiscal quarters, except in limited
circumstances, including that for one fiscal quarter in each calendar year, we may pay cash dividends and other distributions and make redemptions and other
repurchases in an aggregate amount equal to no more than 105% of our Adjusted FFO. We used the exception to pay dividends that were between 100% of
Adjusted FFO to 105% of Adjusted FFO during the quarter ended on June 30, 2020.
Our ability to pay dividends in the future and maintain compliance with the restrictions on the payment of dividends in our debt agreements such as the Credit
Facility depends on our ability to operate profitably and to generate sufficient cash flows from the operations of our existing properties and any properties we may
acquire. In the past, the lenders under our Credit Facility have consented to increase the maximum amount of our Adjusted FFO we may use to pay cash dividends
and other distributions and make redemptions and other repurchases in certain periods. There can be no assurance that they will do so again in the future if we need
to do so.
Our cash flows provided by operations were $176.9 million for the year ended December 31, 2020. During this period, we paid total dividends of $172.9
million, including payments to holders of our Common Stock, Series A Preferred Stock, Series B Preferred Stock and distributions to holders of LTIP Units. Of
these payments, 100.0% was funded from cash flows provided by operations. However, in prior periods, we have funded a portion of the amounts required to fund
the dividends we pay from cash on hand, consisting of proceeds from borrowings, and we may need to do so in the future.
If we are not able to generate sufficient cash from operations, we may have to reduce the amount of dividends we pay or identify other financing sources.
There can be no assurance that other sources will be available on favorable terms, or at all. Funding dividends from other sources such as borrowings, asset sales or
equity issuances limits the amount we can use for property acquisitions, investments and other corporate purposes.
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. These conditions may materially affect the
commercial real estate industry, the businesses of our tenants and the value and performance of our properties and the availability or the terms of financing that we
may utilize, among other things. 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.
Our operating results and value of our properties are subject to risks generally incident to the ownership of real estate, including:
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changes in general, economic or local conditions;
changes in supply of or demand for similar or competing properties in an area;
changes in interest rates and availability of mortgage financing on favorable terms, or at all;
changes in tax, real estate, environmental and zoning laws;
the possibility that one or more of our tenants will be unable to pay their rental obligations;
decreased demand for our properties due to significant job losses that occur or may occur in the future, resulting in lower rents and occupancy levels;
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 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 in 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 may limit our ability to obtain debt financing secured by our properties;
a need for us to establish significant provisions for losses or impairments;
reduction in the value and liquidity of our short-term investments and increased volatility in market rates for such investments; and
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reduction in cash flows from our operations as a result of foreign currency losses resulting from our operations in continental Europe, the United Kingdom
and Canada if we are unsuccessful in hedging these potential losses or if, as part of our risk management strategies, we choose not to hedge some or all of
the risk.
We are subject to additional risks from our international investments.
Based on the percentage of annualized rental income on a straight-line basis as of December 31, 2020, 36% of our properties were located in Europe, primarily
in the United Kingdom, Germany, The Netherlands, Finland, France and Luxembourg, and 64% of our properties were located in the U.S., Puerto Rico and
Canada. 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 U.S. Foreign investments pose several
risks, including the following:
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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; and
the Advisor’s limited experience and expertise in foreign countries relative to its experience and expertise in the U.S.
Investments in properties or other real estate investments outside the U.S. subject us to foreign currency risk.
Investments we make outside the U.S. are generally subject to foreign currency risk due to fluctuations in exchange rates between foreign currencies and the
USD. Revenues generated from properties or other real estate investments located in foreign countries are generally denominated in the local currency. As of
December 31, 2020, we had $1.4 billion ($689.8 million, £221.2 million and €315.4 million) of gross mortgage notes payable. Further, as of December 31, 2020,
we had $111.1 million ($105.0 million and €5.0 million) in outstanding debt under the Revolving Credit Facility and $303.0 million (€247.1 million) of gross
outstanding debt under the Term Loan.
We may continue to borrow in foreign currencies when purchasing properties located outside the Unites States, including draws under our Revolving Credit
Facility. Changes in exchange rates of any of these foreign currencies to USD may affect our revenues, operating margins and the amount of cash generated by
these properties and the amount of cash we have available to pay dividends. Any positive impact to revenue from tenants in prior years may not continue in the
future. Changes to exchange rates have affected and may continue to affect the book value of our assets and the amount of stockholders’ equity.
Changes in foreign currency exchange rates may impact the value of our 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;
the prevailing interest rates in one country as compared to another country;
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in a country or an investment by residents of a country in other countries);
trade restrictions and other factors that could lead to changes in balances of payments and trade, including the status of the ongoing trade negotiations
between the U.S. and Chinese government, as well as other tensions that could be characterized as, or increase the potential for an international trade war;
and
currency devaluations and revaluations.
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Also, governments from time to time intervene in the currency markets, directly and by regulation, in order to influence exchange rates. These events and
actions are unpredictable.
We have used and may continue to use foreign currency derivatives including options, currency forward and cross currency swap agreements to manage our
exposure to fluctuations in GBP-USD and EUR-USD exchange rates, but there can be no assurance our hedging strategy will be successful. If we fail to effectively
hedge our currency exposure, or if we experience
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other losses related to our exposure to foreign currencies, our operating results could be negatively impacted and cash flows could be reduced.
We are subject to risks associated with a pandemic, epidemic or outbreak of a contagious disease, such as the ongoing global COVID-19 pandemic, which has
caused severe disruptions in the U.S., Canadian, European and global economy and financial markets and has already had adverse effects and may worsen.
The COVID-19 pandemic has had, and another pandemic in the future could have, repercussions across many sectors and areas of the global economy and
financial markets, leading to significant adverse impacts on economic activity as well as significant volatility and negative pressure in financial markets.
The impact of the COVID-19 pandemic has evolved rapidly and has triggered a decrease in global economic activity. In many geographic locations where
our tenants operate their businesses and where our properties are located, preventative measures have been taken, including “shelter-in-place” or “stay-at-home”
orders issued by relevant governmental authorities and social distancing measures that have resulted in closure and limitations on the operations of many
businesses. As cases surged in some countries, these types of orders have been reimplemented. For example, governmental authorities in the United Kingdom,
France and Germany issued new orders limiting access to, and requiring closure of, certain non-essential businesses. A number of our tenants operate businesses
that require in-person interactions. Even for businesses that have not closed or have closed and reopened, concern regarding the transmission of COVID-19 has
impacted, and will likely continue to impact, the willingness of persons to engage in in-person commerce which has and may continue to impact the revenues
generated by our tenants. For our office tenants, limitations on in-person work environments could lead to a sustained shift away from in-person work
environments and have an adverse effect on the overall demand for office space across our portfolio in the event a significant number of businesses determine to
continue to utilize large-scale work-from-home policies as the COVID-19 pandemic continues and thereafter. In addition, the COVID-19 pandemic has also led to
disruptions in operations at manufacturing facilities and distribution centers in many countries, which could impact supply chains and the operations of certain of
our tenants. This could make it difficult for us to renew or re-lease our properties at rental rates equal to or above historical rates. We could also incur more
significant re-leasing costs, and the re-leasing process with respect to both anticipated and unanticipated vacancies could take longer. All of these factors could
impact the ability of our tenants to pay their rent when due. Our ability to lease space and negotiate and maintain favorable rents could also be negatively impacted
by a prolonged recession in our market areas. Moreover, a significant downturn in the U.S., Canadian and European economies and resulting job losses could
substantially reduce the demand for leasing space in our properties which could result in a decline in our occupancy percentage and reduction in rental revenues.
Our tenants may also be negatively impacted if the outbreak of COVID-19 impacts their workforce or otherwise disrupts their management. Further, certain
of our U.S. tenants may not have been eligible for or may not have been successful in securing funds under government stimulus programs during 2020, and may
similarly be unsuccessful in securing funds under any other government stimulus programs in the future.
As a result of these and other factors, certain tenants have been, or may be in the future, unwilling or unable to pay rent in full or on a timely basis due to
bankruptcy, lack of liquidity, lack of funding, operational failures, or for other reasons. The impact of the COVID-19 pandemic on the amount of cash rent that we
collect going forward cannot be determined at present and the amount of cash rent collected last fiscal year may not be indicative of what we collect in any future
period. In addition, there is no assurance that we will be able to collect the cash rent that is due in future months including rent that was due in 2020 but deferred
under deferral agreements we have entered into with our tenants.
The impact of the COVID-19 pandemic on our tenants and thus our ability to collect rent in future periods cannot be determined at present. We may face
defaults and additional requests for rent deferrals or abatements or other allowances. Furthermore, if we declare any tenants in default for non-payment of rent or
other potential breaches of their leases with us, we might not be able to fully recover and may experience delays and additional costs in enforcing our rights as
landlord to recover amounts due to us. Our ability to recover amounts under the terms of our leases may also be restricted or delayed due to moratoriums that have
been or may be imposed by various jurisdictions limiting landlord-initiated commercial eviction and collection actions. If any of our tenants, or any guarantor of a
tenant’s lease obligations files for bankruptcy proceedings pursuant to Title 11 of the United States Code, or an insolvency or bankruptcy regime in a foreign
jurisdiction, we could be further adversely affected due to loss of revenue but also because the bankruptcy may make it more difficult for us to lease the remainder
of the property or properties in which the bankrupt tenant operates.
Because substantially all of our income is derived from rentals of commercial real property, our business, income, cash flow, results of operations, financial
condition, liquidity, prospects, our ability to service our debt obligations, our ability to consummate future property acquisitions and our ability to pay dividends
and other distributions to our stockholders would be adversely affected if a significant number of tenants are unable to meet their obligations to us.
In addition to the impacts on us related to the impacts on our tenants described above, the COVID-19 pandemic has also impacted us in other ways and
enhanced certain risks that could have a significant adverse effect on our business, financial condition and results of operations and our ability to pay dividends and
other distributions to our stockholders including:
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difficulty accessing debt and equity capital on favorable terms, or at all, if global financial markets become disrupted or unstable or credit conditions
deteriorate;
disruption and instability in the global financial markets or deteriorations in credit and financing conditions could have an impact on the overall amount of
capital being invested in real estate and could result in price or value decreases for real estate assets, which could negatively impact the value of our assets
and may result in future acquisitions generating lower overall economic returns;
the volatility in the global stock markets caused by the COVID-19 pandemic and its effects on our stock price could dilute our stockholders’ interest in us
if we sell additional equity securities at prices less than the prices our stockholders paid for their shares;
we may reduce the number of properties we seek to acquire;
our ability to maintain sufficient availability under our Credit Facility to fund the purchase of properties and meet other capital requirements and comply
with restrictions on paying dividends in our Credit Facility, which may be adversely affected to the extent the decreases in cash rent collected from our
tenants cause a decrease in availability of future borrowings under our Credit Facility;
if we are unable to comply with financial covenants and other obligations under our Credit Facility and other debt agreements, including restrictions on
the payment of dividends, we could default under those agreements which could potentially result in an acceleration of our indebtedness or foreclosure on
our properties and could otherwise negatively impact our liquidity;
we may need to recognize impairment charges on our assets;
one or more counterparties to our derivative financial instruments could default on their obligations to us or could fail, increasing the risk that we may not
realize the benefits of utilizing these instruments;
with respect to our leases, we may be required to record reserves on previously accrued amounts in cases where it is subsequently concluded that
collection is not probable;
difficulties completing capital improvements at our properties on a timely basis, on budget or at all, could affect the value of our properties;
our ability to ensure business continuity in the event our Advisor’s continuity of operations plan is not effective or is improperly implemented or deployed
during a disruption;
increased operating risks resulting from changes to our Advisor’s operations and remote work arrangements, including the potential effects on our
financial reporting systems and internal controls and procedures, cybersecurity risks and increased vulnerability to security breaches, information
technology disruptions and other similar events; and
complying with REIT requirements during a period of reduced cash flow could cause us to liquidate otherwise attractive investments or borrow funds on
unfavorable conditions.
The extent to which the COVID-19 pandemic, or a future pandemic, impacts our operations and those of our tenants will depend on future developments,
including the scope, severity and duration of the pandemic, one or more resurgences of the virus which could result in further government restrictions, the efficacy
of the vaccines or other remedies developed or are or may be developed in the future, the actions taken to contain the pandemic or mitigate its impact, and the
direct and indirect economic effects of the pandemic and containment measures, among others, which are highly uncertain and cannot be predicted with confidence
but could be material. The situation has changed and could continue to change rapidly and additional impacts to the business may arise that we are not aware of
currently. The continued rapid development and fluidity of this situation precludes any prediction as to the full adverse impact of the COVID-19 pandemic, but a
prolonged or resurgent outbreak as well as related mitigation efforts could continue to have a material impact on our revenues and could materially and adversely
affect our business, results of operations and financial condition. Other risk factors contained in this Annual Report on Form 10-K should be interpreted as
heightened risks as a result of the impact of the COVID-19 pandemic.
Reliance on major tenants make us more susceptible to adverse events with respect to those tenants.
The value of our investment in real estate assets 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. As of December 31, 2020, no single tenant
accounted for 5% or more of our consolidated annualized rental income on a straight-line basis.
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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.
As of December 31, 2020, the following countries and states accounted for 5% or more of our consolidated annualized rental income on a straight-line basis:
Country
European Countries:
United Kingdom
The Netherlands
Other European Countries
Total European Countries
United States, Puerto Rico and Canada:
Michigan
Texas
Ohio
California
Other States, Puerto Rico and Canada
Total United States, Puerto Rico and Canada
Total
December 31, 2020
17%
5%
14%
36%
15%
7%
6%
5%
31%
64%
100%
A high concentration of our tenants in a similar industry magnifies the effects of downturns in that industry and would have a disproportionate adverse effect
on the value of 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. As of December 31, 2020, the following industries had concentrations of properties accounting for 5.0% or more of our
consolidated annualized rental income on a straight-line basis:
Industry
Financial Services
Healthcare
Technology
Auto Manufacturing
Consumer Goods
Aerospace
December 31, 2020
13%
7%
6%
6%
5%
5%
Any adverse situation that disproportionately affects the industries listed above may have a magnified adverse effect on our portfolio.
Brexit and other events that create, or give the impression they could create, economic or political instability in Europe could adversely affect us.
On December 24, 2020, the European Union (“EU”) and the United Kingdom (“UK”) reached an agreement governing the UK’s exit from the EU, known as
“Brexit,” ending the UK’s membership in the EU single market on December 31, 2020. The agreement attempts to establish a new bilateral trade and cooperation
deal between the UK and the EU and has been approved by both the EU member states and the UK parliament. The agreement is expected to be formally ratified
by the EU parliament during the first quarter of 2021.
The agreement is intended to govern the relationship between the UK and the EU in matters of trade and cooperation. Uncertainties related to Brexit and the
new relationship between the UK and EU, however, exist and could cause volatility in currency exchange rates, interest rates, and in EU, UK or worldwide
political, regulatory, economic or market conditions. This could contribute to instability in political institutions, regulatory agencies, and financial markets and may
impact our properties and operations in these markets in unforeseen ways.
The inability of a tenant in single-tenant properties to pay rent will materially reduce our revenues.
Substantially all of our properties are occupied by single tenants and, therefore, the success of our investments is materially dependent on the financial stability
of these individual tenants. Many of our single tenant leases require that certain property level operating expenses and capital expenditures, such as real estate
taxes, insurance, utilities, maintenance and repairs (other
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than, in certain circumstances structural repairs, such as repairs to the foundation, exterior walls and rooftops) including increases with respect thereto, be paid, or
reimbursed to us, by our tenants. A default of any tenant on its lease payments to us would cause us to lose the revenue from the property and potentially increase
our expenses and cause us to have to find an alternative source of revenue to fund related mortgage payment and prevent a foreclosure if the property is subject to a
mortgage. We may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment including potentially leasing
the property to a new tenant. 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.
Single-tenant properties may be difficult to sell or re-lease.
If a lease for one of our single-tenant properties is terminated or not renewed or, in the case of a mortgage loan, if we take possession through a foreclosure
action, 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. Some of our
properties are “special use single-tenant properties” that may be relatively illiquid compared to other types of real estate and financial assets limiting our ability to
quickly change our portfolio in response to changes in economic or other conditions.
A sale-leaseback transaction may be recharacterized in a tenant’s bankruptcy proceeding.
We have entered and may continue to enter into sale-leaseback transactions, whereby we purchase a property and then lease the same property back to the
seller, who then becomes a tenant. In a bankruptcy of a tenant, a transaction structured as a sale-leaseback may be recharacterized as either a financing or a joint
venture, either one of which may negatively impact us. If the transaction was recharacterized as a financing, we might not be considered the owner of the property,
and as a result would have the status of a creditor. 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. If confirmed by the bankruptcy court, we would be bound by the new terms. If the transaction was recharacterized
as a joint venture, we would be treated as a joint venture partner with our tenant changing the nature of our legal relationship regarding the property. We could, for
example, be held liable, under some circumstances, for debts incurred by the tenant relating to the property.
If a tenant or lease guarantor 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 United States Code. A bankruptcy filing of our tenants or any guarantor of a tenant’s lease obligations would result in a stay of all efforts by us to collect pre-
bankruptcy debts from these entities or their assets, unless we receive an enabling order from the bankruptcy court. Post-bankruptcy debts would be required to be
paid currently. If a lease is assumed by the tenant, all pre-bankruptcy balances owing under it must be paid in full. If a lease is rejected by a tenant in bankruptcy,
we would only 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 as of the date of the bankruptcy filing (post-bankruptcy rent would be payable in full). This claim could be paid only if
funds were available, and then only in the same percentage as that realized on other unsecured claims. There is no assurance the debtor in possession or bankruptcy
trustee will assume the lease in a bankruptcy proceeding.
Highly leveraged tenants that experience downturns in their operating results due to adverse changes to their business or economic conditions may have a
higher probability of filing for bankruptcy or insolvency. In bankruptcy or insolvency, a tenant may have the option of vacating a property instead of paying rent
reducing our revenues and limiting our options until the impacted property is released from the bankruptcy or insolvency proceeding.
A bankruptcy could delay efforts to collect past due balances under the relevant leases, and could ultimately preclude full collection of these sums and may
decrease or eliminate rental payments from the impacted tenant reducing our cash flow.
For any foreign tenant or lease guarantor, the tenant or lease guarantor could become insolvent or be subject to an insolvency or bankruptcy proceeding
pursuant to a foreign jurisdiction instead of Title 11 of the United States Code. The effect of the insolvency or bankruptcy proceeding on us will depend in each
case on the relevant jurisdiction and its own insolvency regime or code but in all events we will face difficulties in collecting amounts owed to us with respect to
the applicable lease under these circumstances.
The credit profile of our tenants may create a higher risk of lease defaults and therefore lower revenues.
Based on annualized rental income on a straight-line basis as of December 31, 2020, 33% of our tenants were not evaluated or ranked by credit rating
agencies, or were ranked below “investment grade,” which includes both actual investment grade ratings of the tenant and “implied investment grade rating,”
which includes ratings of the tenant’s parent (regardless of whether or not the parent has guaranteed the tenant’s obligation under the lease) or lease guarantor.
Implied Investment Grade ratings are also determined using a proprietary Moody’s analytical tool, which compares the risk metrics of the non-rated company to
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those of a company with an actual rating. As of December 31, 2020, 37% of our tenants have actual investment grade ratings and 31% have “implied investment
grade” ratings. Leases with certain of these tenants may therefore pose a higher risk of default than would long-term leases with tenants who have investment grade
ratings.
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, 2020, 17% of our annualized rental income on a straight-line basis was
generated from net leases, with remaining lease term of more than ten 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.
Some 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.
Properties may have vacancies for a significant period of time.
A property may have vacancies either due to tenant defaults or the expiration of leases. If vacancies continue for a long period of time, we may suffer reduced
revenues resulting in less cash available for things such as dividends. In addition, because the market value of a property depends principally on the cash generated
by the property, the resale value of a property with prolonged vacancies could decline significantly.
We generally obtain only limited warranties when we purchase a property and would therefore have only limited recourse if our due diligence did not identify
any issues that lower the value of our property.
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 may have to obtain financing from sources such as
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 be unable 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, as a REIT, 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 have acquired or financed, and may continue to 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, such as the provisions contained in certain mortgage loans we have entered into, could materially restrict our ability to sell or otherwise
dispose of or refinance properties, including by requiring a yield maintenance premium to be paid in connection with prepaying principal upon a sale or
disposition. Lock-out provisions may also 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 also impair our ability to take
other actions during the lock-out period that may otherwise 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. Payment of yield maintenance premiums in connection
with dispositions or refinancings could adversely affect our cash flow.
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Rising expenses could reduce cash flow.
The properties that we own or may acquire are 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 fund these expenses.
Property expense may increase because of changes 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 these 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 expenses, or if tenants fail to pay required tax, utility and other
impositions, we could be required to pay these costs which would, among other things, limit the amount of funds we have available for other purposes, including to
pay dividends or fund future acquisitions.
Real estate-related taxes may increase and if these increases are not passed on to tenants, our cash flow will be reduced.
Some local real property tax assessors may seek to reassess a property that we acquire, and, from time to time, our property taxes may 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 the cash flow generated by the impacted property.
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, as of December 31, 2020, 5% of our properties, based on annualized rental income
on a straight-line basis, were retail properties. Our retail tenants face competition from numerous retail channels such as discount or value retailers, factory outlet
centers and wholesale clubs as well as from alternative retail channels, such as mail order catalogs and operators, television shopping networks and 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 to maintain competitiveness.
We may incur significant costs to comply with governmental laws and regulations, including those related to environmental matters.
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 them, may adversely affect our ability to
sell, rent or pledge a property as collateral for future borrowings.
Some of these laws and regulations have been amended 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. 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.
State and federal laws, and various foreign laws and regulations, in this area are constantly evolving, and we monitor these laws and take commercially
reasonable steps to protect ourselves from the impact of these laws, including obtaining environmental assessments of most properties that we acquire; however,
we do 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 reveal that a prior owner of a property created a material environmental condition unknown to us. We may incur significant costs to
defend against claims of liability, comply with environmental regulatory requirements, remediate any contaminated property, or pay personal injury claims.
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Damage from catastrophic weather and other natural events and climate change could result in losses to us.
Certain of our properties are located in areas that may experience catastrophic weather and other natural events from time to time, including hurricanes or
other severe weather, flooding, fires, snow or ice storms, windstorms or, earthquakes. These adverse weather and natural events could cause substantial damages or
losses to our properties which could exceed our insurance coverage. In the event of a loss in excess of insured limits, we could lose our capital invested in the
affected property, as well as anticipated future revenue from that property. We could also continue to be obligated to repay any mortgage indebtedness or other
obligations related to the property.
To the extent that significant changes in the climate occur, we may experience extreme weather and changes in precipitation and temperature and rising sea
levels, all of which may result in physical damage to or a decrease in demand for properties located in these areas or affected by these conditions. Should the
impact of climate change be material in nature, including destruction of our properties, or occur for lengthy periods of time, our cash flow may be adversely
affected.
Changes in federal and state legislation and regulation, including foreign laws and regulation, on climate change could result in increased capital expenditures
to improve the energy efficiency of our existing properties or to protect them from the consequence of climate change.
If we sell properties by providing financing to purchasers, we will be exposed to defaults by the purchasers.
In some instances, we may sell our properties by providing financing to purchasers. If we provide financing to purchasers, we will bear the risk that the
purchaser may default, which could negatively impact our cash flow. 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.
We may incur costs associated with complying with the Americans with Disabilities Act.
Our domestic properties must also comply with the Americans with Disabilities Act of 1990 (“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. A determination that a property does not comply with the
Disabilities Act could result in liability for both governmental fines and damages. If we are required to make unanticipated major modifications to any of our
properties to comply with the Disabilities Act which are determined not to be the responsibility of our tenants, we could incur unanticipated expenses that could be
material.
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 own and 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 Terrorism Risk Insurance Act, which was designed for a sharing of terrorism losses between insurance companies and the federal government, will
expire on December 31, 2027, and there can be no assurance that Congress will act to renew or replace it.
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 us and our properties.
Inflation may have an adverse effect on our investments.
Inflation, both real or anticipated and resulting governmental policies, has had significant negative effects in the past and could occur again in the future.
Inflation could erode the value of long-term leases that do not contain indexed escalation provisions and increase our expenses including those that cannot be
passed through under our leases. An increase in our expenses or a failure of revenues to increase at least with inflation could adversely impact our results of
operations. Certain of our leases, for properties located in foreign countries are adjusted upward to fair market value only once every five years or contain capped
indexed escalation provisions. Future leases may not even contain these provisions and these provisions may not be sufficient to protect our revenues or expenses
from the adverse effects of inflation.
Conversely, low inflation can cause deflation, or an outright decline in prices. Deflation can lead to a negative cycle where consumers delay purchases in
anticipation of lower prices, causing businesses to stop hiring and postpone investments as sales
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weaken. Deflation would have a serious impact on economic growth and may adversely affect the financial condition of our tenants and the rental rates at which
we renew or enter into leases.
We depend on the Advisor and Property Manager, to provide us with executive officers, key personnel and all services required for us to conduct our
operations and our operating performance may be impacted by any adverse changes in the financial health or reputation of the Advisor.
We have one employee based in Europe. Personnel and services that we require are provided to us under contracts with the Advisor and its affiliate, the
Property Manager. We depend on the Advisor, any entities it may engage with our approval, and the Property Manager to manage our operations and to acquire
and manage our portfolio of real estate assets.
Thus, our success depends to a significant degree upon the contributions of our executive officers and other key personnel of the Advisor and its affiliates
including James L. Nelson, our chief executive officer and a member of our board of directors and Christopher J. Masterson, our chief financial officer. Except for
the agreement between Mr. Nelson and AR Global, neither our Advisor nor any of its affiliates has an employment agreement with these key personnel and we
cannot guarantee that all, or any particular one, of these individuals will remain employed by the Advisor or one of its affiliates and otherwise available to continue
to perform services for us. If any of our key personnel were to cease their affiliation with the Advisor, our operating results, business and prospects could suffer.
Further, we do not maintain key person life insurance on any person. We believe that our success depends, in large part, upon the ability of the Advisor to hire,
retain or contract services of highly skilled managerial, operational and marketing personnel. Competition for skilled personnel is intense, and there can be no
assurance that the Advisor will be successful in attracting and retaining skilled personnel. If the Advisor loses or is unable to obtain the services of key personnel,
the Advisor’s ability to manage our business and implement our investment strategies could be delayed or hindered.
Any adverse changes in the financial condition or financial health of, or our relationship with, the Advisor or its affiliates, including any change resulting from
an adverse outcome in any litigation could hinder their ability to successfully manage our operations and our portfolio of investments. Additionally, changes in
ownership or management practices, the occurrence of adverse events affecting the Advisor or its affiliates or other companies advised by the Advisor and its
affiliates could create adverse publicity and adversely affect us and our relationship with lenders, tenants or counterparties.
We may terminate the agreements with our Advisor and Property Manager in only limited circumstances, and may have to pay a termination fee in some cases.
We have limited rights to terminate the Advisor. The initial term of the advisory agreement expires on June 1, 2035, but is automatically renewed upon
expiration for consecutive five-year terms unless notice of termination is provided by either party 365 days in advance of the expiration of the term. Further, we
may terminate the agreement only under limited circumstances. If we terminate the agreement based on a change in control of us or the Advisor’s failure to meet
performance standards as set forth in the agreement, we would be required to pay a termination fee that could be equal to up to two and a half times the
compensation we paid the Advisor in the previous year, plus expenses. We may only terminate the property management and leasing agreement with the Property
Manager by giving 12 months prior notice. The limited termination rights contained in the advisory agreement and the notice requirement in the property
management and leasing agreements may make it difficult for us to renegotiate the terms of either agreement or replace the Advisor or Property Manager even if
the terms of the relevant agreement are no longer consistent with the terms generally available to externally-managed REITs for similar services or terminating
these parties is otherwise in our best interest.
Our business and operations could suffer if 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 cybersecurity.
The internal information technology networks and related systems of our Advisor and other parties that provide us with services essential to our operations are
vulnerable to damage 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 result in a material disruption to our business. We may
also incur additional costs to remedy damages caused by these disruptions.
As reliance on technology has increased, including as a result of greater participation in working remotely due to COVID-19, so have the risks posed to those
systems. Our Advisor and other parties that provide us with services essential to our operations must continuously monitor and develop their networks and
information technology to prevent, detect, address and mitigate the risk of unauthorized access, misuse, computer viruses, and social engineering, such as phishing.
Our Advisor is continuously working, including with the aid of third party service providers, to install new, and to upgrade existing, network and information
technology systems, to create processes for risk assessment, testing, prioritization, remediation, risk acceptance, and reporting, and to provide awareness training
around phishing, malware and other cyber risks to ensure that services essential to our operations are protected against cyber risks and security breaches and that
we are therefore also so protected. However, these upgrades, processes, new technology and training may not be sufficient to protect us from all risks. Even the
most well protected information, networks, systems and facilities remain potentially vulnerable because the techniques
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and technologies used in attempted attacks and intrusions evolve and generally are not recognized until launched against a target. In some cases, attempted attacks
and intrusions are designed not to be detected and, in fact, may not be detected.
The remediation costs and lost revenues experienced by a subject of an intentional cyberattack or other event which results in unauthorized third party access
to systems to disrupt operations, corrupt data or steal confidential information 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. Additionally, any failure to adequately protect against unauthorized or unlawful processing of personal data, or to take appropriate action in cases of
infringement may result in significant penalties under privacy law.
Furthermore, a security breach or other significant disruption involving the information technology networks and related systems of our Advisor or any other
party that provides us with services essential to our operations could:
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result in misstated financial reports, violations of loan covenants, missed reporting or permitting deadlines;
affect our ability to monitor 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 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 and investors generally.
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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.
We may in the future acquire or originate commercial real estate debt or invest in commercial real estate-related securities which would expose us to additional
risks.
We may in the future acquire or originate mortgage debt loans, mezzanine loans, preferred equity or securitized loans, CMBS, preferred equity and other
higher-yielding structured debt and equity investments. Doing so would expose us not only to the risks and uncertainties we are currently exposed to through our
direct investments in real estate but also to additional risks and uncertainties attendant to investing in and holding these types of investments, such as:
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risk of defaults by borrowers in paying debt service on outstanding indebtedness and to other impairments of our loans and investments;
increased competition from entities engaged in mortgage lending and, or investing in our target assets;
deterioration in the performance of properties securing our investments may cause deterioration in the performance of our investments and, potentially,
principal losses to us;
fluctuations in interest rates and credit spreads could reduce our ability to generate income on our loans and other investments;
difficulty in redeploying the proceeds from repayments of our existing loans and investments;
the illiquidity of certain of these investments;
lack of control over certain of our loans and investments;
the potential need to foreclose on certain of the loans we originate or acquire, which could result in losses additional risks, including the risks of the
securitization process, posed by investments in CMBS and other similar structured finance investments, as well as those we structure, sponsor or arrange;
use of leverage may create a mismatch with the duration and interest rate of the investments that we financing;
risks related to the operating performance or trading price volatility of any publicly-traded and private companies primarily engaged in real estate
businesses we invest in; and
the need to structure, select and more closely monitor our investments such that we continue to maintain our qualification as a REIT and our exemption
from registration under the Investment Company Act of 1940, as amended.
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Risks Related to our Indebtedness
We have substantial indebtedness and we will have the ability to incur significant additional indebtedness and other liabilities.
As of December 31, 2020, we had $2.3 billion of total indebtedness outstanding, including $1.4 billion of secured indebtedness, $111.1 million
outstanding under the Revolving Credit Facility, $303.0 million outstanding under our Term Loan, and $500.0 million of our Senior Notes. We had availability to
borrow an additional $94.5 million, under our Revolving Credit Facility as of December 31, 2020. Our high level of indebtedness may have the following
important consequences to us including:
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requiring us to dedicate a substantial portion of our cash flow to make principal and interest payments on our indebtedness, thereby reducing our cash
flow available to fund working capital, capital expenditures and other general corporate purposes;
requiring us to maintain certain debt coverage and other financial ratios at specified levels, thereby reducing our financial flexibility;
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increasing our vulnerability to general adverse economic and industry conditions or a downturn in our business;
exposing us to increases in interest rates for our variable rate debt;
limiting, along with the financial and other restrictive covenants in our indebtedness, our ability to borrow additional funds on favorable terms or at all to
expand our business or ease liquidity constraints;
limiting our ability to refinance all or a portion of our indebtedness on or before maturity on the same or more favorable terms or at all;
limiting our flexibility in planning for, or reacting to, changes in our business and our industry;
placing us at a competitive disadvantage relative to competitors that have less indebtedness;
increasing our risk of property losses as the result of foreclosure actions initiated by lenders under our secured debt obligations;
requiring us to dispose of one or more of our properties at disadvantageous prices in order to service our indebtedness or to raise funds to pay such
indebtedness at maturity; and
resulting in an event of default if we fail to pay our debt obligations when due or fail to comply with the financial and other restrictive covenants
contained in the agreements governing our debt obligations which event of default could result in all of our debt becoming immediately due and payable
and could permit certain of our lenders to foreclose on our assets securing the debt.
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We may be unable to service our indebtedness.
Our ability to make scheduled payments on and to refinance our indebtedness depends on and is subject to our future financial and operating performance,
which in turn is affected by general and regional economic, financial, competitive, business and other factors beyond our control. Our business may fail to generate
sufficient cash flow from operations or future borrowings may be unavailable to us under the Credit Facility or from other sources in an amount sufficient to enable
us to service our debt, to refinance our debt or to fund our other liquidity needs. If we are unable to meet our debt obligations or to fund our other liquidity needs,
we will need to restructure or refinance all or a portion of our debt. We may be unable to refinance any of our debt, including the Credit Facility, on commercially
reasonable terms or at all. If we were unable to make payments or refinance our debt or obtain new financing under these circumstances, we would have to
consider other options, such as asset sales, equity issuances or negotiations with our lenders to restructure the applicable debt. The Credit Facility and the indenture
governing the Senior Notes restrict, and market or business conditions may limit, our ability to take some or all of these actions. Any restructuring or refinancing of
our indebtedness could be at higher interest rates and may require us to comply with more onerous covenants that could further restrict our business operations. In
addition, the Credit Facility and the indenture governing the Senior Notes permit us to incur additional debt, including secured debt, and the amount of additional
indebtedness incurred could be substantial.
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 volatility, resulting in, from time to time, the tightening of underwriting
standards by lenders and credit rating agencies and reductions in the availability of financing. If our overall cost of borrowings increases, either due to increases in
the index rates or due to 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. If there is a disruption the debt markets, our ability to borrow monies to finance the purchase of, or other
activities related to, our real estate assets may be negatively impacted.
If we are unable to borrow monies on terms and conditions that we find acceptable, our ability to purchase properties or, meet other capital requirements may
be limited, 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.
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Furthermore, the state of the debt markets could have an impact on the overall amount of capital being invested in real estate, which may result in price or
value decreases of real estate assets and could negatively impact the value of our assets.
Increasing interest rates could increase the amount of our debt payments and we may be adversely affected by uncertainty surrounding the LIBOR.
We have incurred, and may continue to incur, variable-rate debt. Increases in interest rates on our variable-rate debt would increase our interest cost. If we
need to repay existing debt during periods of rising interest rates, we may need to sell one or more of our investments in properties even though we would not
otherwise choose to do so.
As of December 31, 2020, approximately $60.4 million (representing approximately 3% of our $2.3 billion in total gross outstanding debt) was variable-rate
debt indexed to London Interbank Offered Rate (“LIBOR”) and not fixed by swap. In July 2017, the Financial Conduct Authority (the authority that regulates
LIBOR) announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. As a result, the Federal Reserve Board and the
Federal Reserve Bank of New York organized the Alternative Reference Rates Committee which identified the Secured Overnight Financing Rate (“SOFR”) as its
preferred alternative to LIBOR in derivatives and other financial contracts. On November 30, 2020, the Financial Conduct Authority announced a partial extension
of this deadline, indicating its intention to cease the publication of the one-week and two-month USD LIBOR settings immediately following December 31, 2021,
and the remaining USD LIBOR settings immediately following the LIBOR publication on June 30, 2023. We are not able to predict when LIBOR may be limited
or discontinued or when there will be sufficient liquidity in the SOFR market. We are monitoring and evaluating the risks related to potential changes in LIBOR
availability, which include potential changes in interest paid on debt and amounts received and paid on interest rate swaps. In addition, the value of debt or
derivative instruments tied to LIBOR could also be impacted when LIBOR is limited or discontinued, and contracts must be transitioned to a new alternative rate.
In some instances, transitioning to an alternative rate may require negotiation with lenders and other counterparties and could present challenges. The
consequences of these developments cannot be entirely predicted and could include an increase in the cost of our variable rate debt.
While we expect LIBOR to be available in substantially its current form until at least the end of 2021, it is possible that LIBOR will become unavailable prior
to that time. This could occur, for example, if a sufficient number of banks decline to make submissions to the LIBOR administrator. In that case, the risks
associated with the transition to an alternative reference rate would be accelerated or magnified. Any of these events, as well as the other uncertainty surrounding
the transition to LIBOR, could adversely affect us. The Credit Facility also contains terms governing the establishment of a replacement index to serve as an
alternative to LIBOR, if necessary. To transition from LIBOR under the Credit Facility, the Company anticipates that it will either utilize the Base Rate or
negotiate a replacement reference rate for LIBOR with the lenders
Covenants in our debt agreements restrict our activities and could adversely affect our business.
Our debt agreements, including the indenture governing the Senior Notes and the credit agreement governing the Credit Facility, contain various covenants that
limit our ability and the ability of our subsidiaries to engage in various transactions including, as applicable:
incurring or guaranteeing additional secured and unsecured debt;
creating liens on our assets;
entering into transactions with affiliates;
creating restrictions on the ability of our subsidiaries to pay dividends or other amounts to us;
selling assets;
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• making optional prepayments of indebtedness during a payment default or an event of default under the Credit Facility;
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These covenants limit our operational flexibility and could prevent us from taking advantage of business opportunities as they arise, growing our business or
competing effectively. In addition, the Credit Facility requires us to comply with financial maintenance covenants, consisting of a maximum debt to asset value
ratio, a minimum fixed charge coverage ratio, a maximum unencumbered leverage ratio, a minimum debt service coverage ratio, a maximum secured debt to asset
value ratio, a maximum secured recourse debt to asset value ratio, and a minimum consolidated tangible net worth test. We will also be required to maintain total
unencumbered assets of at least 150% of our unsecured indebtedness under the indenture governing the Senior Notes. Our ability to meet these requirements may
be affected by events beyond our control, and we may not meet these requirements. We may be unable to maintain compliance with these covenants and, if we fail
to do so, we may be unable to obtain waivers from the lenders or amend the covenants.
effecting a consolidation or merger or selling all or substantially all of our assets; and
amending certain material agreements, including material leases and debt agreements.
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A breach of any of the covenants or other provisions in our debt agreements could result in an event of default, which if not cured or waived, could result in
such debt becoming due and payable, either automatically or after an election to accelerate by the required percentage of the holders of the indebtedness or by an
agent for the holders of the indebtedness. This, in turn, could cause our other debt, including the Senior Notes and the Credit Facility, to become due and payable
as a result of cross-default or cross-acceleration provisions contained in the agreements governing the other debt and permit certain of our lenders to foreclose on
our assets, if any, that secure this debt. In the event that some or all of our debt is accelerated and becomes immediately due and payable, we may not have the
funds to repay, or the ability to refinance our debt.
We may not have the funds necessary to finance the repurchase of the Senior Notes in connection with a change of control offer required by the indenture
governing the Senior Notes.
Upon the occurrence of a “Change of Control Triggering Event” defined in the indenture governing the Senior Notes, we are required to make an offer to
repurchase all outstanding Senior Notes at 101% of the principal amount thereof, plus accrued and unpaid interest on the Senior Notes, if any, but not including,
the date of repurchase. However, it is possible that we will not have sufficient funds, or the ability to raise sufficient funds, at the time we are required to make this
offer. In addition, restrictions under future debt we may incur, may not allow us to repurchase the Senior Notes upon a Change of Control Triggering Event, and
we expect that a change in control will result in an event of default under the Credit Facility, which could result in such debt becoming immediately due and
payable and the commitments thereunder terminated. If we could not refinance such senior debt or otherwise obtain a waiver from the holders of such debt, we
would be prohibited from repurchasing the Senior Notes, which would constitute an event of default under the indenture governing the Senior Notes, which in turn
would constitute a default under our Credit Facility. In addition, certain important corporate events, such as leveraged recapitalizations that would increase the
level of our indebtedness, would not constitute a “Change of Control” under the indenture governing the Senior Notes although these types of transactions could
affect our capital structure or credit ratings and the holders of the Senior Notes. Further, courts interpreting change of control provisions under New York law
(which is the governing law of the indenture governing the Senior Notes) have not provided clear and consistent meanings of change of control provisions which
leads to subjective judicial interpretation of what may constitute a “Change of Control.”
A lowering or withdrawal of the ratings assigned to our debt securities by rating agencies may increase our future borrowing costs and reduce our access to
capital.
Any rating assigned to debt securities that we or our OP issues could be lowered or withdrawn entirely by a rating agency if, in that rating agency’s judgment,
future circumstances relating to the basis of the rating, such as adverse changes, so warrant. Any lowering of the ratings likely would make it more difficult or
more expensive for us to obtain additional debt financing.
Risks Related to Conflicts of Interest
The Advisor faces conflicts of interest relating to the purchase and leasing of properties, and these conflicts may not be resolved in our favor, which could
adversely affect our investment opportunities.
We rely on the Advisor and the executive officers and other key real estate professionals at the Advisor to identify suitable investment opportunities for us.
Several of these individuals are also the key real estate professionals at AR Global and other entities advised by affiliates of AR Global. Many investment
opportunities that are suitable for us may also be suitable for other entities advised by affiliates of AR Global. For example, American Finance Trust or “AFIN,”
an entity advised by an affiliate of our Advisor seeks, like us, to invest in sale-leaseback transactions involving single tenant net-leased commercial properties, in
the U.S. An investment opportunity allocation agreement to which we and AFIN are parties states that we will be given first opportunity to acquire office or
industrial properties, and AFIN will have the first opportunity to acquire one or more domestic retail or distribution properties with a lease duration of ten years or
more. However, there can be no assurance the executive officers and real estate professionals at our Advisor or its affiliates will not direct attractive investment
opportunities for which we do not have contractual priority to AFIN, or other entities advised by affiliates of AR Global.
We and other entities advised by affiliates of AR Global also rely on these executive officers and other real estate professionals to supervise the property
management and leasing of properties. These individuals, as well as AR Global, as an entity are not prohibited from engaging, directly or indirectly, in any
business or from possessing interests in other businesses and ventures, including businesses and ventures involved in the acquisition, development, ownership,
leasing or sale of real estate investments.
The Advisor faces conflicts of interest relating to joint ventures, which could result in a disproportionate benefit to the other venture partners at our expense.
We may enter into joint ventures with other entities advised by affiliates of AR Global. The Advisor may have conflicts of interest in determining which entity
advised by affiliates of AR Global enters 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, the Advisor may face a conflict in structuring the terms of the relationship between our
interests and the
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interest of the affiliated co-venturer and in managing the joint venture. Due to the role of the Advisor and its affiliates, 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.
Certain of our executive officers, including James Nelson, chief executive officer and president, and Christopher Masterson, chief financial officer, treasurer
and secretary, also are officers of the Advisor and the Property Manager. Mr. Masterson also serves as the chief financial officer and treasurer of New York City
REIT, Inc., an entity for which an affiliate of AR Global, serves as its advisor and property manager. Certain of our directors also are directors of other REITs
advised by affiliates of AR Global. All of these individuals owe duties to these other entities which may conflict with the duties that they owe to us.
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) the allocation of new investments and management time and services between us and the other entities; (b)
compensation to the Advisor and its affiliates, including the Property Manager; (c) our purchase of properties from, or sale of properties, to entities advised by or
affiliated with AR Global; (d) development of our properties by affiliates of AR Global; and (e) investments with affiliates of the Advisor.
Moreover, involvement in the management of multiple REITs by certain of the key personnel of the 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.
The Advisor faces conflicts of interest relating to the structure of the compensation it may receive.
Under the advisory agreement, the Advisor is entitled to substantial minimum compensation regardless of performance as well as incentive compensation if
certain thresholds are achieved. The variable portion of the base management fee payable to the Advisor under the advisory agreement increases proportionately
with the cumulative net proceeds from the issuance of common, preferred or other forms of equity by us. In addition, under our multi-year outperformance
agreement with the Advisor, the Advisor is entitled to earn LTIP Units if certain performance conditions are met over a three-year performance period that began
in July 2018. These arrangements, coupled with the fact that the Advisor does not maintain a significant equity interest in us, may result in the Advisor taking
actions or recommending investments that are riskier or more speculative than an advisor with a more significant investment in us might take or recommend. In
addition, these fees reduce the cash available for investment or other corporate purposes.
Risks Related to Our Corporate Structure, Common Stock and Preferred Stock
The trading prices of our Common Stock and preferred stock may fluctuate significantly.
The trading prices of shares of our Common Stock, Series A Preferred Stock and Series B Preferred Stock may be volatile and subject to significant price and
volume fluctuation in response to market and other factors, many of which are outside our control. Among the factors that could affect these trading prices are:
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our financial condition and performance;
our ability to grow through property acquisitions, the terms, and pace of any acquisitions, we may make and the availability and terms of financing for
those acquisitions;
the financial condition of our tenants, including tenant bankruptcies or defaults;
actual or anticipated quarterly fluctuations in our operating results and financial condition;
the amount and frequency of dividends that we pay;
additional sales of equity securities, including our Common Stock, Series A Preferred Stock or Series B Preferred Stock, or the perception that additional
sales may occur;
the reputation of REITs and real estate investments generally and the attractiveness of REIT equity securities in comparison to other equity securities, and
fixed income debt securities;
our reputation and the reputation of AR Global and its affiliates or other entities advised by AR Global and its affiliates;
uncertainty and volatility in the equity and credit markets;
fluctuations in interest rates and exchange rates;
changes in revenue or earnings estimates, if any, 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;
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failure to meet analyst revenue or earnings estimates;
strategic actions by us or our competitors, such as acquisitions or restructurings;
the extent of investment in our securities by institutional investors;
the extent of short-selling of our securities;
general financial and economic market conditions and, in particular, developments related to market conditions for REITs and other real estate related
companies;
failure to maintain our REIT status;
changes in tax laws;
domestic and international economic factors unrelated to our performance; and
all other risk factors addressed elsewhere in this Annual Report on Form 10-K for the year ended December 31, 2020.
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Moreover, although shares of both the Series A Preferred Stock and Series B Preferred Stock are listed on the New York Stock Exchange (“NYSE”), there can
be no assurance that the trading volume for these shares will provide sufficient liquidity for holders to sell their shares at the time of their choosing or that the
trading price for shares will equal or exceed the price paid for the shares. Because the shares of our preferred stock have at a fixed dividend rate, their respective
trading prices in the secondary market will be influenced by changes in interest rates and will tend to move inversely to changes in interest rates. In particular, an
increase in market interest rates may result in higher yields on other financial instruments and may lead purchasers of our preferred stock to demand a higher yield
on their investment, which could adversely affect the market price of shares of those securities.
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.
We conduct, and intend to continue conducting, all of our business operations through our OP and accordingly, we rely on distributions from our OP and its
subsidiaries to provide cash to pay our obligations. There is no assurance that our OP or its subsidiaries will be able to, or be permitted to, pay distributions to us
that will enable us to pay dividends to our stockholders and meet our other obligations. Each subsidiary of the OP’s 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 OP 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.
We may issue additional equity securities in the future thereby diluting the holdings of existing stockholders.
Holders of our Common Stock do not have preemptive rights to any shares issued by us in the future. Our charter authorizes us to issue up to 280 million
shares of stock, consisting of 250 million shares of common stock, par value $0.01 per share and 30 million shares of preferred stock, par value $0.01 per share. As
of December 31, 2020, we had the following stock issued and outstanding: (i) 89,614,601 shares of Common Stock, (ii) 6,799,467 shares of Series A Preferred
Stock, and (iii) 3,861,953 shares of Series B Preferred Stock. The Series A Preferred Stock ranks on parity with Series B Preferred Stock with respect to dividend
rights and rights upon our voluntary or involuntary liquidation, dissolution or winding-up. Subject to the approval rights of holders of our Series A Preferred Stock
and Series B Preferred Stock regarding authorization or issuance of equity securities ranking senior to the Series A Preferred Stock and Series B Preferred Stock,
our board of directors, without approval of our common stockholders, 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 obtaining stockholder approval and establish the preferences, conversion or other rights, voting powers, restrictions, limitations as to
dividends or other distributions, qualifications or terms or conditions of redemption of the stock.
All of our authorized but unissued shares of stock may be issued in the discretion of our board of directors. The issuance of additional shares of our Common
Stock could dilute the interests of the holders of our Common Stock, and any issuance of shares of preferred stock senior to our Common Stock, such as our Series
A Preferred Stock and Series B Preferred Stock, or any incurrence of additional indebtedness, could affect our ability to pay dividends on our Common Stock. The
issuance of additional shares of preferred stock ranking equal or senior to our Series A Preferred Stock and Series B Preferred Stock, including preferred stock
convertible into shares of our Common Stock, could dilute the interests of the holders of Common Stock, Series A Preferred Stock and Series B Preferred Stock,
and any issuance of shares of preferred stock senior to our Series A Preferred Stock and Series B Preferred Stock or incurrence of additional indebtedness could
affect our ability to pay dividends on, redeem or pay the liquidation preference on our Series A Preferred Stock and Series B Preferred Stock. These issuances
could also adversely affect the trading price of our Common Stock, our Series A Preferred Stock and Series B Preferred Stock.
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We may issue shares in public or private offerings in the future, including shares of our Common Stock issued as awards to our officers, directors and other
eligible persons, pursuant to the advisory agreement in payment of fees thereunder, or in connection with the Advisor earning LTIP Units pursuant to our multi-
year outperformance agreement entered into with the Advisor in July 2018 (the “2018 OPP”). LTIP Units are convertible into OP Units after they have been earned
and subject to several other conditions. We may also issue OP Units to sellers of properties we acquire. OP Units may be redeemed on a one for one basis for, at
our election, a share of Common Stock or the cash equivalent thereof. We also may issue shares of our Common Stock or Series B Preferred Stock pursuant to our
existing at-the-market programs or any similar future program.
Because our decision to issue equity 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.
The limit on the number of shares a person may own may discourage a third party from acquiring us in a manner that might 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.
The terms of our Series A Preferred Stock and Series B Preferred Stock, and the terms other preferred stock we may issue, may discourage a third party from
acquiring us in a manner that might result in a premium price to our stockholders.
The change of control conversion and redemption features of our Series A Preferred Stock and Series B Preferred Stock may make it more difficult for a party
to acquire us or discourage a party from seeking to acquire us. Upon the occurrence of a change of control, holders of Series A Preferred Stock and Series B
Preferred Stock will, under certain circumstances, have the right to convert some of or all their shares of Series A Preferred Stock and Series B Preferred Stock into
shares of our Common Stock (or equivalent value of alternative consideration) and under these circumstances we will also have a special optional redemption right
to redeem shares of Series A Preferred Stock and Series B Preferred Stock. These features of our Series A Preferred Stock and Series B Preferred Stock may have
the effect of discouraging a third party from seeking to acquire us or of delaying, deferring or preventing a change of control under circumstances that otherwise
could provide the holders of our Common Stock with the opportunity to realize a premium over the then-current market price or that stockholders may otherwise
believe is in their best interests. We may also issue other classes or series of preferred stock that could also have the same effect.
We have a classified board, which may discourage a third party from acquiring us in a manner that might result in a premium price to our stockholders.
Our board of directors is divided into three classes of directors. At each annual meeting, directors of one class are elected to serve until the annual meeting of
stockholders held in the third year following the year of their election and until their successors are duly elected and qualify. The classification of our board of
directors 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 result in a premium price for our stockholders.
The stockholder rights plan adopted by our board of directors may discourage a third party from acquiring us in a manner that might result in a premium
price to our stockholders.
In April 2020, our board of directors adopted a stockholder rights plan and authorized a dividend of one preferred share purchase right for each outstanding
share of our Common Stock. In February 2021, the expiration date of these rights was extended to April 8, 2024. If a person or entity, together with its affiliates
and associates, acquires beneficial ownership of 4.9% or more of our then outstanding Common Stock, subject to certain exceptions, each right would entitle its
holder (other than the acquirer, its affiliates and associates) to purchase additional shares of our Common Stock at a substantial discount to the public market price.
In addition, under certain circumstances, we may exchange the rights (other than rights beneficially owned by the acquirer, its affiliates and associates), in whole or
in part, for shares of Common Stock on a one-for-one basis. The board may choose to further extend the term of the stockholders rights plan. The stockholder
rights plan could make it more difficult for a third party to acquire us or a large block of our Common Stock without the approval of our board of directors, which
may discourage a third party from acquiring us in a manner that might result in a premium price to our stockholders.
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Maryland law prohibits certain business combinations, which may make it more difficult for us to be acquired and may discourage a third party from
acquiring us in a manner that might 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 of directors.
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 the
Advisor or any affiliate of the Advisor. Consequently, the five-year prohibition and the super-majority vote requirements will not apply to business combinations
between us and the Advisor or any affiliate of the Advisor. As a result, the Advisor and any affiliate of the 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.
Our bylaws designate the Circuit Court for Baltimore City, Maryland as the sole and exclusive forum for certain actions and proceedings that may be initiated
by our stockholders.
Our bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Circuit Court for Baltimore City, Maryland, or, if that court
does not have jurisdiction, the United States District Court for the District of Maryland, Northern Division, is the sole and exclusive forum for (a) any derivative
action or proceeding brought on our behalf, other than actions arising under federal securities laws; (b) any Internal Corporate Claim, as such term is defined in the
Maryland General Corporation (the “MGCL”), or any successor provision thereof, including, without limitation, (i) any action asserting a claim of breach of any
duty owed by any of our directors, officers or other employees to us or to our stockholders or (ii) any action asserting a claim against us or any of our directors,
officers or other employees arising pursuant to any provision of the MGCL, our charter or our bylaws; or (c) any other action asserting a claim against us or any of
our directors, officers or other employees that is governed by the internal affairs doctrine. Our bylaws also provide that unless we consent in writing, none of the
foregoing actions, claims or proceedings may be brought in any court sitting outside the State of Maryland and the federal district courts are, to the fullest extent
permitted by law, the sole and exclusive forum for the resolution of any complaint asserting a cause of action under the Securities Act. These choice of forum
provisions may limit a stockholder’s ability to bring a claim in a judicial forum that the stockholder believes is favorable. Alternatively, if a court were to find these
provisions of our bylaws inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs
associated with resolving these matters in other jurisdictions.
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 third party
from acquiring us in a manner that might 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 the stockholders by the affirmative vote of two-thirds of all the votes entitled to be cast on the matter,
excluding all shares of stock owned by the acquirer, by officers or
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by employees who are directors of the corporation. “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.
Our board of directors may change our investment policies without stockholder approval, which could alter the nature of our stockholders’ investments.
Our board of directors may change our investment policies in its sole discretion. 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 our stockholders’
investments could change without their consent.
We indemnify our officers, directors, the Advisor and its affiliates against claims or liability they may become subject to due to their service to us, and our
rights and the rights of our stockholders to recover claims against our officers, directors, the Advisor and its affiliates are limited.
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 permits us to indemnify our directors and officers from liability and advance certain expenses to them in connection with
claims or liability they may become subject to due to their service to us, and we are not restricted from indemnifying our Advisor or its affiliates on a similar basis.
We have entered into indemnification agreements consistent with Maryland law and our charter with our directors and officers, certain former directors and
officers, the Advisor and AR Global. We and our stockholders may have more limited rights against our directors, officers, employees and agents, and the Advisor
and its affiliates, than might otherwise exist under common law, which could reduce the recovery of our stockholders and our recovery against them. In addition,
we may be obligated to fund the defense costs incurred by our directors, officers, employees and agents or the Advisor and its affiliates in some cases. Subject to
conditions and exceptions, we also indemnify our Advisor and its affiliates from losses arising in the performance of their duties under the advisory agreement and
have agreed to advance certain expenses to them in connection with claims or liability they may become subject to due to their service to us.
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.
We elected to be taxed as a REIT 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 inadvertently, or if our board of directors
determines that doing so is in our best interests. 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 to qualify 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 satisfy all requirements for 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.
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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 the corporate rate. 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 distribution to
stockholders because of the additional tax liability. In addition, amounts paid to stockholders that are treated as dividends for U.S. federal income tax purposes
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 as a REIT, in certain circumstances, we may incur tax liabilities that would reduce our cash available for distribution
to our stockholders.
Even 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 and that do not meet a safe harbor available under the Code (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 gains 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 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 the OP or at the level of the other companies
through which we indirectly own our assets, such as any taxable REIT subsidiaries (“TRSs”), which are subject to full U.S. federal, state, local and foreign
corporate-level income tax. Any taxes we pay directly or indirectly will reduce our cash flow.
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 and reduce our stockholders’ overall return.
In order 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 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.
We will use commercially reasonable efforts to structure any sale-leaseback transaction we enter into so 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 this characterization. In the event that any 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 the 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 distribution
requirement for a taxable year.
Certain of our business activities are potentially subject to the prohibited transaction tax.
For so long as we 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 and
provided we do not meet a safe harbor available under the Code, we will be subject to a 100% penalty tax on the net income from the sale or other disposition of
any property (other than foreclosure property) that we own, directly or indirectly through any subsidiary entity, including the OP, but generally excluding TRSs,
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 (a) conducting activities that may otherwise be considered prohibited transactions through a
TRS (but such TRS will incur corporate rate income taxes with respect to any income or gain recognized by it), (b) conducting our operations
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in such a manner so that no sale or other disposition of an asset we own, directly or indirectly through any subsidiary, will be treated as a prohibited transaction, or
(c) 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 the OP, but generally excluding TRSs, will not be treated as inventory or property held
primarily for sale to customers in the ordinary course of a trade or business.
TRSs are subject to corporate-level taxes and our dealings with TRSs may be subject to a 100% excise tax.
A REIT may own up to 100% of the stock of one or more TRSs. Both the subsidiary and the REIT must jointly elect to treat the subsidiary as a TRS. A
corporation of which a TRS directly or indirectly owns more than 35% of the voting power or value of the stock will automatically be treated as a TRS. Overall, no
more than 20% (25% for our taxable years beginning prior to January 1, 2018) of the gross value of a REIT’s assets may consist of stock or securities of one or
more TRSs. A TRS 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 one or more TRSs 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 TRS is subject to applicable U.S. federal, state, local, and
foreign income tax on its taxable income, as well as limitations on the deductibility of its interest expenses. In addition, the Code imposes a 100% excise tax on
certain transactions between a TRS and its parent REIT that are not conducted on an arm’s-length basis.
If the OP 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 the OP as a partnership or disregarded entity for U.S. federal income tax purposes, the OP would be
taxable as a corporation. In such event, this would reduce the amount of distributions that the OP could make to us. This also would result in our failing to qualify
as a REIT, and becoming subject to a corporate-level tax on our income. This substantially would reduce our cash available to pay dividends and other
distributions to our stockholders. In addition, if any of the partnerships or limited liability companies through which the OP 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, the partnership or limited liability company would
be subject to taxation as a corporation, thereby reducing distributions to the OP. Such a recharacterization of an underlying property owner could also threaten our
ability to maintain our REIT qualification.
We may choose to make distributions in shares of our Common Stock, in which case our stockholders may be required to pay U.S. federal income taxes in
excess of the cash portion of distributions they receive.
In connection with our 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 with respect to our Common Stock 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 distribution received.
Accordingly, U.S. stockholders receiving a distribution of shares of our Common Stock 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 shares 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 the shares 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.
The taxation of distributions can be complex; however, distributions to stockholders that are treated as dividends for U.S. federal income tax purposes
generally will be taxable as ordinary income, which may reduce our stockholders’ after-tax anticipated return from an investment in us.
Amounts that we pay 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 treated as dividends for U.S. federal income tax purposes and will be taxable as ordinary income. Noncorporate stockholders
are entitled to a 20% deduction with respect to these ordinary REIT dividends which would, if allowed in full, result in a maximum effective federal income tax
rate on these
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ordinary REIT dividends of 29.6% (or 33.4% including the 3.8% surtax on net investment income); however, the 20% deduction will end after December 31, 2025.
However, a portion of the amounts that we pay to our stockholders generally may (a) be designated by us as capital gain dividends taxable as long-term capital
gain to the extent that they are attributable to net capital gain recognized by us, (b) be designated by us as qualified dividend income, taxable at capital gains rates,
to the extent they are attributable to dividends we receive from TRSs, or (c) constitute a return of capital 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 tax basis of a stockholder’s
investment in shares of our stock. Amounts paid to our stockholders that exceed our current and accumulated earnings and profits and a stockholder’s tax basis in
shares of our stock generally will be taxable as capital gain.
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 23.8%,
including the 3.8% surtax on net investment income. Dividends payable by REITs, however, generally are not eligible for this reduced rate and, as described
above, through December 31, 2025, will be subject to an effective rate of 33.4%, including the 3.8% surtax on net investment income. Although this 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 stock of non-REIT
corporations that pay dividends, which could adversely affect the value of the stock of REITs, including shares of our 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 TRS. This could
increase the cost of our hedging activities because the TRS 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 TRS generally will not provide any tax benefit, except for being carried forward against future
taxable income of the TRS.
Complying with REIT requirements may force us to forgo or liquidate otherwise attractive investment opportunities.
To maintain our qualification 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 securities that qualify for the 75% asset test and securities of
qualified REIT subsidiaries and TRSs) generally cannot exceed 10% of the outstanding voting securities of any one issuer, 10% of the total value of the
outstanding securities of any one issuer, or 5% of the value of our assets as to any one issuer. In addition, no more than 20% of the value of our total assets may
consist of stock or securities of one or more TRSs and no more than 25% of our assets may consist of publicly offered REIT debt instruments that do not otherwise
qualify under the 75% asset test. 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.
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 our stockholders.
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 interests to continue to qualify as a REIT. While we intend to maintain our qualification as a REIT, we may terminate our
REIT election if we determine that qualifying as a REIT is no longer in our best interests. If we cease to be a REIT, we would become subject to corporate-level
U.S. federal income tax on our taxable income (as well as any applicable state and local corporate tax) 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 shares of our stock.
30
Table of Contents
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 shares of our stock.
Changes to the tax laws may occur, and any such changes could have an adverse effect on an investment in shares of our stock or on the market value or the
resale potential of our assets. Our stockholders are urged to consult with an independent tax advisor with respect to the status of legislative, regulatory or
administrative developments and proposals and their potential effect on an investment in shares of our stock.
Although REITs generally receive better tax treatment than entities taxed as non-REIT “C 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 non-REIT “C 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 non-REIT “C corporation”, without the vote of our stockholders. Our board of directors has
duties to us and could only cause such changes in our tax treatment if it determines that such changes are in our best interests.
The share ownership restrictions for REITs and the 9.8% share ownership limit in our charter may inhibit market activity in shares of our stock and restrict
our business combination opportunities.
In order 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 the issued
and outstanding shares of our 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 shares of our stock under this requirement. Additionally, at least 100 persons
must beneficially own shares of our 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 shares of our stock.
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 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 outstanding shares of our stock and more than 9.8% (in value or in number of shares, whichever is more restrictive) of any class or series of the
outstanding shares of our 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 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 interests to continue to qualify as a REIT or that compliance with the restrictions is no
longer required in order for us to continue to so 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 shares of our stock or otherwise be
in the best interests 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 dividends and other distributions
received from us and upon the disposition of shares of our stock.
Subject to certain exceptions, amounts paid to non-U.S. stockholders will be treated as dividends for U.S. federal income tax purposes 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 dividends are treated as “effectively connected” with the conduct by the non-U.S. stockholder of a U.S. trade or
business. 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 fund,” certain entities wholly-owned by a “qualified foreign pension fund,” and certain foreign publicly-traded entities) as
if such gain were effectively connected with a U.S. trade or business. However, a capital gain distribution 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 U.S. and (b) the non-U.S.
stockholder does not own more than 10% of any 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 shares of our stock generally will not be subject to U.S. federal income taxation
unless such stock constitutes a USRPI. Shares of our 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 shares of our stock,
gain arising from such a sale or exchange would not be subject to U.S. taxation as a sale of a USRPI if: (a) the shares are of a class of our stock that is “regularly
traded,” as defined by applicable Treasury regulations, on
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Table of Contents
an established securities market, and (b) such non-U.S. stockholder owned, actually and constructively, 10% or less of the outstanding shares of our stock of that
class at any time during the five-year period ending on the date of the sale.
Potential characterization of dividends and other 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 shares of our stock, or
(c) a holder of shares of our stock is a certain type of tax-exempt stockholder, dividends on, and gains recognized on the sale of, shares of our 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.
32
Table of Contents
Item 2. Properties.
The following table represents our portfolio of real estate properties as of December 31, 2020:
Portfolio
Acquisition Date
McDonald's
Wickes Building Supplies I
Everything Everywhere
Thames Water
Wickes Building Supplies II
PPD Global Labs
Northern Rock
Wickes Building Supplies III
XPO Logistics
Wolverine
Encanto
Rheinmetall
GE Aviation
Provident Financial
Crown Crest
Trane
Aviva
DFS Trading I
GSA I
National Oilwell Varco I
GSA II
OBI DIY
DFS Trading II
GSA III
GSA IV
Indiana Department of Revenue
National Oilwell Varco II
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
Valassis
GSA VII
AT&T Services
PNC - 2-Pack
Fujitsu
Continental Tire
(3)
Oct. 2012
May 2013
Jun. 2013
Jul. 2013
Jul. 2013
Aug. 2013
Sep. 2013
Nov. 2013
Nov. 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
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
Jul. 2014
Jul. 2014
Jul. 2014
Jul. 2014
Jul. 2014
Jul. 2014
Number of Properties
Square Feet (in
thousands)
(1)
Average Remaining
Lease Term
(2)
1
1
1
1
1
1
2
1
7
1
18
1
1
1
1
1
1
5
1
1
2
1
2
2
1
1
1
1
1
1
3
6
3
1
2
4
2
2
7
1
1
3
1
1
1
1
1
2
3
1
9
30
65
79
29
77
86
28
105
469
65
320
369
117
806
25
132
240
135
24
25
144
39
28
33
99
23
462
27
539
136
80
214
23
70
143
19
42
295
7
165
339
154
32
101
26
402
210
163
91
3.2
3.7
6.5
1.7
6
4
2.7
7.9
2.9
2.1
4.5
3
5
14.9
18.1
2.9
8.5
9.2
1.6
2.6
2.1
3.1
9.2
2
4.5
2.0
9.2
7.8
2.2
5.7
5.8
8.0
3.9
12.0
4.5
5.9
8.0
3.3
3.9
3.3
0.8
2.1
5.6
4.3
2.3
3.9
5.5
8.6
9.2
1.6
Country
UK
UK
UK
UK
UK
US
UK
UK
US
US
PR
GER
US
UK
UK
US
UK
UK
US
US
US
GER
UK
US
US
US
US
US
US
US
US
US
US
US
US
US
US
US
UK
US
US
US
US
US
US
US
US
US
UK
US
33
Table of Contents
Portfolio
Acquisition Date
BP Oil
Malthurst
HBOS
Thermo Fisher
Black & Decker
Capgemini
Merck & Co.
GSA VIII
Waste Management
Intier Automotive Interiors
HP Enterprise Services
FedEx II
Shaw Aero Devices, Inc.
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
Onguard
Metro Tonic
Axon Energy Products
Tokmanni
Fife Council
GSA IX
KPN BV
Follett School
Quest Diagnostics
Diebold
Weatherford Intl
AM Castle
FedEx VI
Constellium Auto
C&J Energy II
Fedex VII
Fedex VIII
Crown Group I
Crown Group II
Mapes & Sprowl Steel, Ltd.
JIT Steel Services
Beacon Health System, Inc.
Hannibal/Lex JV LLC
FedEx Ground
Office Depot
Finnair
Auchan
Pole Emploi
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
Oct. 2014
Oct. 2014
Oct. 2014
Oct. 2014
Oct. 2014
Oct. 2014
Oct. 2014
Oct. 2014
Nov. 2014
Nov. 2014
Nov. 2014
Nov. 2014
Dec. 2014
Dec. 2014
Dec. 2014
Dec. 2014
Dec. 2014
Dec. 2014
Dec. 2014
Mar. 2015
Mar. 2015
Apr. 2015
Aug. 2015
Aug. 2015
Sep. 2015
Sep. 2015
Sep. 2015
Sep. 2015
Sep. 2015
Sep. 2015
Sep. 2015
Dec. 2016
Dec. 2016
Number of Properties
Square Feet (in
thousands)
(1)
Average Remaining
Lease Term
(2)
1
2
3
1
1
1
1
1
1
1
1
1
1
21
2
1
1
2
2
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
2
2
1
2
1
1
1
1
4
1
1
3
4
36
115
71
90
146
24
84
153
99
12
131
200
221
90
200
374
255
102
82
121
176
76
96
120
636
26
801
37
28
133
487
224
158
20
128
28
321
125
12
26
204
411
61
127
50
109
91
206
656
152
41
4.8
4.9
4.6
3.7
1.1
2.3
4.7
3.6
2.0
3.4
5.2
3.2
1.7
7.2
3.6
3.7
3.5
2.0
2.1
2.0
4.2
8.8
4.2
3.5
1.0
3.0
4.8
3.8
12.7
3.1
1.3
6
4.0
3.7
1.0
4.8
8.8
3.7
8.9
2.8
3.8
3.8
3.0
14.7
9.0
9.0
5.2
8.8
4.5
8.2
10.2
2.6
2.5
Country
UK
UK
UK
US
US
UK
US
US
US
UK
UK
US
US
US
US
US
US
US
US
US
US
UK
GER
US
US
US
GER
US
FIN
UK
US
NETH
US
US
US
US
US
US
US
US
US
US
US
US
US
US
US
US
US
NETH
FIN
FR
FR
34
Table of Contents
Portfolio
Acquisition Date
Sagemcom
NCR Dundee
FedEx Freight I
DB Luxembourg
ING Amsterdam
Worldline
Foster Wheeler
ID Logistics I
ID Logistics II
Harper Collins
DCNS
Cott Beverages Inc
FedEx Ground - 2 Pack
Bridgestone Tire
GKN Aerospace
NSA-St. Johnsbury I
NSA-St. Johnsbury II
NSA-St. Johnsbury III
Tremec North America
Cummins
GSA X
NSA Industries
Chemours
FCA USA
Lee Steel
LSI Steel - 3 Pack
Contractors Steel Company
FedEx Freight II
DuPont Pioneer
Rubbermaid - Akron OH
NetScout - Allen TX
Bush Industries - Jamestown NY
FedEx - Greenville NC
Penske
NSA Industries
LKQ Corp.
Walgreens
Grupo Antolin
VersaFlex
Cummins
Stanley Security
Sierra Nevada
EQT
Hanes
Union Partners
ComDoc
Metal Technologies
Encompass Health
Heatcraft
C.F. Sauer SLB
SWECO
Viavi Solutions
Faurecia
Dec. 2016
Dec. 2016
Dec. 2016
Dec. 2016
Dec. 2016
Dec. 2016
Dec. 2016
Dec. 2016
Dec. 2016
Dec. 2016
Dec. 2016
Feb. 2017
Mar. 2017
Sep. 2017
Oct. 2017
Oct. 2017
Oct. 2017
Oct. 2017
Nov. 2017
Dec. 2017
Dec. 2017
Dec. 2017
Feb. 2018
Mar. 2018
Mar. 2018
Mar. 2018
May 2018
Jun. 2018
Jun. 2018
Jul. 2018
Aug. 2018
Sep. 2018
Sep. 2018
Nov. 2018
Nov. 2018
Dec. 2018
Dec. 2018
Dec. 2018
Dec. 2018
Mar. 2019
Mar. 2019
Apr. 2019
Apr. 2019
Apr. 2019
May 2019
Jun. 2019
Jun. 2019
Jun. 2019
Jun. 2019
Aug. 2019
Sep. 2019
Sep. 2019
Dec. 2019
Number of Properties
Square Feet (in
thousands)
(1)
Average Remaining
Lease Term
(2)
1
1
1
1
1
1
1
1
2
1
1
1
2
1
1
1
1
1
1
1
1
1
1
1
1
3
5
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
2
1
1
1
1
6
1
2
1
265
132
69
156
509
111
366
309
964
873
97
170
162
48
98
87
85
41
127
59
26
83
300
128
114
218
1,392
22
200
669
145
456
29
606
65
58
86
360
113
37
80
60
127
276
390
108
228
199
216
598
191
132
278
3.1
5.9
2.7
3
4.5
3.0
3.6
3.8
3.9
4.7
3.8
6.1
5.7
6.6
6.0
11.8
11.8
11.8
6.8
4.4
9.0
12.0
7.1
7.2
7.8
6.8
7.4
11.7
7.9
8.1
9.7
17.8
12.1
7.9
17.9
10.1
4.9
11.8
18.0
7.9
7.5
8.3
9.5
7.8
8.3
8.4
13.4
12.3
7.5
18.6
14.4
11.7
8.3
Country
FR
UK
US
LUX
NETH
FR
UK
GER
FR
UK
FR
US
US
US
US
US
US
US
US
US
US
US
US
US
US
US
US
US
US
US
US
US
US
US
US
US
US
US
US
US
US
US
US
US
US
US
US
US
US
US
US
US
US
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Table of Contents
Portfolio
Plasma
Whirlpool
FedEx
NSA Industries
Viavi Solutions
CSTK
Metal Technologies
Whirlpool
Fedex
Klaussner
Plasma
Klaussner
NSA Industries
Johnson Controls
Broadridge Financial Solutions
ZF Active Safety
FCA USA
Total
______________
Acquisition Date
Dec. 2019
Dec. 2019
Dec. 2019
Dec. 2019
Jan. 2020
Feb. 2020
Feb. 2020
Feb. 2020
Mar. 2020
Mar. 2020
May 2020
Jun. 2020
Jun. 2020
Sep. & Dec. 2020
Nov. 2020
Dec. 2020
Dec. 2020
Country
US
US
CN
US
US
US
US
IT
CN
US
US
US
US
UK, SP & FR
US
US
US
Number of Properties
Square Feet (in
thousands)
(1)
Average Remaining
Lease Term
(2)
9
6
2
1
1
1
1
2
1
4
6
1
1
4
4
1
1
125
2,924
20
116
46
56
31
196
29
2,195
79
261
48
156
1,248
216
997
306
37,175
9.5
11.0
8.5
19.0
11.7
9.2
14.2
5.4
19.3
11.2
10.7
19.3
19.5
11.8
9.0
12.8
9.6
8.5
(1)
(2)
Total may not foot due to rounding.
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 is calculated based on square feet as of December 31, 2020.
(3)
Of the three properties, one location is vacant while the other two properties remain in use.
The following table details distribution of our portfolio by country/location as of December 31, 2020:
Country
Canada
Finland
France
Germany
Italy
Luxembourg
Spain
The Netherlands
United Kingdom
United States
Puerto Rico
Total
_______________
Acquisition Period
Dec. 2019
Nov. 2014 - Sep. 2015
Dec. 2016 - Dec. 2020
Jan. 2014 - Dec. 2016
Feb. 2020
Dec. 2016
Sep. 2020
Jul. 2014 - Dec. 2016
Oct. 2012 - Dec. 2020
Aug. 2013 - Dec. 2020
Dec. 2013
Number of
Properties
3
5
8
5
2
1
1
3
44
216
18
306
Square
Feet (in thousands)
49
1,457
1,664
1,584
196
156
29
849
4,126
27,000
65
37,175
Percentage of
Properties by Square
Feet
0.1%
3.9%
4.5%
4.3%
0.5%
0.4%
0.1%
2.3%
11.1%
72.6%
0.2%
100.0%
Average Remaining
Lease Term
(1)
6.7
11.6
3.7
4.0
11.2
3.0
11.7
5.6
8.2
9.0
4.5
8.5
(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 is calculated based on square feet as of December 31, 2020.
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Table of Contents
The following table details the tenant industry distribution of our portfolio as of December 31, 2020:
Industry
Financial Services
Healthcare
Technology
Auto Manufacturing
Consumer Goods
Aerospace
Freight
Government
Telecommunications
Logistics
Metal Processing
Energy
Engineering
Pharmaceuticals
Automotive Parts Supplier
Metal Fabrication
Discount Retail
Retail Food Distribution
Publishing
Home Furnishings
Specialty Retail
Food Manufacturing
Restaurant - Quick Service
Other
[2]
Total
Number of Properties
14
20
12
13
12
9
28
15
4
6
12
29
1
4
5
14
22
3
1
5
8
6
19
44
306
$
$
Annualized Straight-
Line Rent
(1)
thousands)
(in
Annualized Straight-
Line Rent as a
Percentage of the Total
Portfolio
Square Feet (in
thousands)
Square Feet as a Percentage
of the Total Portfolio
42,743
23,191
21,610
21,177
17,009
15,377
14,984
14,528
14,442
14,432
14,331
12,731
11,596
10,805
9,560
8,346
8,168
7,816
7,005
5,977
5,679
3,979
3,403
31,389
340,278
13 %
7 %
6 %
6 %
5 %
5 %
4 %
4 %
4 %
4 %
4 %
4 %
3 %
3 %
3 %
2 %
2 %
2 %
2 %
2 %
2 %
1 %
1 %
11 %
100 % $
3,291
1,049
1,084
3,397
4,061
1,416
1,494
536
865
2,269
2,472
1,043
366
476
964
1,208
1,001
1,128
873
2,456
486
598
74
4,568
37,175
9 %
3 %
3 %
9 %
11 %
4 %
4 %
1 %
2 %
6 %
7 %
3 %
1 %
1 %
3 %
3 %
3 %
3 %
2 %
7 %
1 %
2 %
— %
12 %
100 %
________
[1]
Annualized straight-line rent converted from local currency into USD as of December 31, 2020 for the in-place lease in the property on a straight-line basis, which includes tenant concessions
such as free rent, as applicable. Assumes exchange rates of £1.00 to $1.37 for GBP, €1.00 to $1.23 for EUR and $1.00 Canadian Dollar (“CAD”) to $0.78, as of December 31, 2020 for
illustrative purposes, as applicable.
[2]
Other includes 25 industry types as of December 31, 2020.
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, 2020:
Region
United States
Michigan
Texas
Ohio
California
New Jersey
Tennessee
North Carolina
Indiana
Missouri
Alabama
Illinois
New York
South Carolina
Pennsylvania
Kentucky
Florida
Connecticut
Colorado
Massachusetts
Minnesota
Kansas
Maine
Mississippi
Georgia
New Hampshire
South Dakota
Vermont
Nebraska
Iowa
Louisiana
West Virginia
North Dakota
Maryland
Oklahoma
New Mexico
Wyoming
Montana
Idaho
Delaware
Nevada
Utah
Virginia
United Kingdom
The Netherlands
Finland
France
Germany
Luxembourg
Puerto Rico
Italy
Canada
Spain
Total
____________
Number of Properties
Annualized Straight-Line
Rent
(1)
(in thousands)
Annualized Straight-Line Rent as a
Percentage of the Total Portfolio
(2)
Square Feet (in thousands)
(2)
Square Feet as a Percentage of the
Total Portfolio
(2)
216
$
214,809
22
35
18
7
3
5
9
9
5
2
8
4
6
7
4
4
1
2
3
4
7
2
2
2
3
2
3
5
3
4
1
3
1
8
5
1
1
1
1
1
1
1
44
3
5
8
5
1
18
2
3
1
52,083
24,416
19,247
18,176
8,322
8,247
8,210
6,935
6,810
5,606
5,369
5,254
4,912
4,223
4,175
2,742
2,703
2,384
2,143
2,118
1,889
1,878
1,580
1,557
1,457
1,289
1,166
1,150
1,117
1,111
980
884
785
699
556
498
441
441
362
344
315
235
57,570
15,317
15,142
14,309
10,588
5,984
3,212
2,240
753
354
306
$
340,278
63.2 %
15.3 %
7.2 %
5.7 %
5.3 %
2.5 %
2.4 %
2.4 %
2.0 %
2.0 %
1.7 %
1.6 %
1.5 %
1.4 %
1.2 %
1.2 %
0.8 %
0.8 %
0.7 %
0.6 %
0.6 %
0.6 %
0.6 %
0.5 %
0.5 %
0.4 %
0.4 %
0.3 %
0.3 %
0.3 %
0.3 %
0.3 %
0.3 %
0.2 %
0.2 %
0.2 %
0.2 %
0.1 %
0.1 %
0.1 %
0.1 %
0.1 %
0.1 %
16.8 %
4.5 %
4.5 %
4.2 %
3.1 %
1.8 %
0.9 %
0.7 %
0.2 %
0.1 %
100 %
27,000
5,878
1,926
4,316
1,226
349
1,125
2,657
1,521
656
257
963
760
801
459
523
305
87
192
150
292
50
179
314
492
247
54
213
101
236
112
104
47
120
79
46
37
58
22
10
14
12
10
4,127
849
1,457
1,663
1,584
156
65
196
49
29
37,175
72.6 %
15.9 %
5.2 %
11.6 %
3.3 %
0.9 %
3.0 %
7.2 %
4.1 %
1.8 %
0.7 %
2.6 %
2.0 %
2.2 %
1.2 %
1.4 %
0.8 %
0.2 %
0.5 %
0.4 %
0.8 %
0.1 %
0.5 %
0.8 %
1.3 %
0.7 %
0.2 %
0.6 %
0.3 %
0.6 %
0.3 %
0.3 %
0.1 %
0.3 %
0.2 %
0.1 %
0.1 %
0.2 %
0.1 %
— %
— %
— %
— %
11.1 %
2.3 %
3.9 %
4.5 %
4.3 %
0.4 %
0.2 %
0.5 %
0.1 %
0.1 %
100 %
(1)
Annualized straight-line rent converted from local currency into USD as of December 31, 2020 for the in-place lease in the property on a straight-line basis, which includes tenant concessions
such as free rent, as applicable. Assumes exchange rates of £1.00 to $1.37 for GBP, €1.00 to $1.23 for EUR and $1.00 CAD to $0.78 as of December 31, 2020 for illustrative purposes, as
applicable.
(2)
Totals may not foot due to rounding.
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, 2020:
(In thousands)
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
Thereafter
Total
Future Minimum
Base Rent Payments
(1)
334,858
324,706
303,737
267,943
226,047
195,178
178,979
164,548
132,085
94,226
318,934
2,541,241
$
$
_______
(1)
Assumes exchange rates of £1.00 to $1.37 for GBP, €1.00 to $1.23 for EUR and $1.00 CAD to $0.78 as of December 31, 2020 for illustrative purposes, as applicable.
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, 2020:
Year of Expiration
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
Total
Number of Leases
Expiring
Annualized Straight-
Line Rent
(In thousands)
(1)
Annualized Straight-
Line Rent as a
Percentage of the Total
Portfolio
Leased Rentable
Square Feet
(In thousands)
Percent of Portfolio
Rentable Square Feet
Expiring
3
16
28
38
38
18
19
39
23
19
241
$
$
5,879
23,240
26,146
49,156
39,426
21,851
7,899
28,623
34,885
24,511
261,616
1.7 %
6.8 %
7.7 %
14.4 %
11.6 %
6.4 %
2.3 %
8.4 %
10.3 %
7.2 %
76.8 %
419
1,630
2,223
4,598
3,237
2,079
788
4,084
4,076
1,958
25,092
1.1 %
4.4 %
6.0 %
12.4 %
8.7 %
5.6 %
2.1 %
11.0 %
11.0 %
5.3 %
67.6 %
________
(1)
Assumes exchange rates of £1.00 to $1.37 for GBP, €1.00 to $1.23 for EUR and $1.00 CAD to $0.78 as of December 31, 2020 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, 2020, we did not have any tenant whose rentable square footage or annualized rental income represented greater than 10% of total
portfolio rentable square footage or annualized rental income, respectively.
Significant Properties
As of December 31, 2020, we did not have any property whose rentable square footage or annualized rental income represented greater than 5% of total
portfolio rentable square footage or annualized rental income, respectively.
39
Table of Contents
Property Financings
See Note 4 — Mortgage Notes Payable, Net, Note 5 — Revolving Credit Facility and Term Loan, Net and Note 6 — Senior Notes to our consolidated financial
statements included in this Annual Report on Form 10-K for property financings as of December 31, 2020 and 2019.
Item 3. Legal Proceedings.
Not applicable.
Item 4. Mine Safety Disclosures.
Not applicable.
40
Table of Contents
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
PART II
Market Information
Our Common Stock is traded on the 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 our Common Stock, with the FTSE National Association of Real Estate Investment Trusts Equity Index
(“NAREIT”), Modern Index Strategy Indexes (“MSCI”), and the New York Stock Exchange Index (“NYSE Index”) for the period commencing June 2, 2015, the
date on which we listed shares of our Common Stock on the NYSE and ending December 31, 2020. The graph assumes an investment of $100 on June 2, 2015
with the reinvestment of dividends.
Holders
As of February 19, 2021, we had 90.6 million shares of Common Stock outstanding held by 1,490 stockholders of record.
Dividends
We elected to be taxed as a REIT, commencing with our taxable year ended December 31, 2013. As a REIT, we are required, among other things, to distribute
annually at least 90% of our REIT taxable income to our stockholders. Our ability to pay dividends in the future is dependent on our ability to operate profitably
and to generate cash flows from our operations. The amount of dividends payable to our common stockholders is determined by our board of directors and is
dependent on a number of factors, including funds available for dividends, our financial condition, provisions in our Credit Facility or other agreements that may
restrict our ability to pay dividends, capital expenditure requirements, as applicable, requirements of Maryland law and annual distribution requirements needed to
maintain our status as a REIT.
For additional information on the restrictions on dividends and other distributions in our Credit Facility, see Note 5 — Revolving Credit Facility and Term
Loan, Net to our consolidated financial statements included in this Annual Report on Form 10-K and “Item 1A. Risk Factors - If we are not able to increase the
amount of cash we have available to pay dividends, we may have to reduce dividend payments or identify other financing sources to fund the payment of dividends
at their current levels.”
41
Table of Contents
For tax purposes, of the amounts distributed during the year ended December 31, 2020, 77.5%, or $1.34 per share per annum, and 22.5%, or $0.39 per share
per annum, represented a return of capital and ordinary dividends, respectively. During the year ended December 31, 2019, 69.1%, or $1.23 per share per annum,
and 30.9%, or $0.55 per share per annum, represented a return of capital and ordinary dividends, respectively. All dividends paid on Series A Preferred Stock in
2020 and 2019 were considered 100% ordinary dividend income. All dividends paid on Series B Preferred Stock in 2020 were considered 100% ordinary dividend
income. No dividends were paid on Series B Preferred Stock in 2019. See Note 9 — Stockholders' Equity to our consolidated financial statements included in this
Annual Report on Form 10-K for further discussion on tax characteristics of dividends. For a discussion of the dividend of preferred share purchase rights to
common stockholders in April 2020 in connection with our short-term stockholder rights plan see Note 9 — Stockholders' Equity to our consolidated financial
statements included in this Annual Report on Form 10-K.
Dividends to Common Stockholders.
Historically, and through March 31, 2020, we paid dividends at an annualized rate of $2.13 per share or $0.5325 per share on a quarterly basis. In March 2020,
the board of directors approved a change in the dividend to an annual rate of $1.60 per share or $0.40 per share on a quarterly basis. Dividends have been, and we
anticipate will continue to be, paid on a quarterly basis in arrears on the 15th day of the first month following the end of each fiscal quarter (unless otherwise
specified) to common stockholders of record on the record date for such payment.
Dividends to Series A Preferred Stockholders
Dividends on our Series A Preferred Stock accrue in an amount equal to $0.453125 per share per quarter to holders of Series A Preferred Stock, which is
equivalent to 7.25% of the $25.00 liquidation preference per share of Series A Preferred Stock per annum. Dividends on the Series A Preferred Stock are payable
quarterly in arrears on the 15th day of January, April, July and October of each year (or, if not on a business day, on the next succeeding business day) to holders of
record on the close of business on the record date set by our board of directors, which must be not more than 30 nor fewer than 10 days prior to the applicable
payment date.
Dividends to Series B Preferred Stockholders
Dividends on our Series B Preferred Stock accrue in an amount equal to $0.429688 per share per quarter to holders of Series B Preferred Stock, which is
equivalent to 6.875% of the $25.00 liquidation preference per share of Series B Preferred Stock per annum. Dividends on the Series B Preferred Stock are payable
quarterly in arrears on the 15th day of January, April, July and October of each year (or, if not on a business day, on the next succeeding business day) to holders of
record at the close of business on the record date set by our board of directors.
Unregistered Sales of Equity Securities
None.
Item 6. Selected Financial Data
The following is selected financial data as of and for the years ended December 31, 2020, 2019, 2018, 2017, and 2016:
Balance sheet data (In thousands)
Total real estate investments, at cost
Total assets
Mortgage notes payable, net
Revolving credit facility
Term loan, net
Senior notes, net
Mezzanine facility, net
Total liabilities
Total equity
2020
2019
December 31,
2018
2017
2016
$
3,763,264
3,701,605
1,272,154
199,071
397,893
—
—
1,991,647
1,709,958
$
3,420,899
3,309,478
1,129,807
363,894
278,727
—
—
1,880,732
1,428,746
$
3,172,677
3,038,595
984,876
298,909
229,905
—
—
1,624,352
1,414,243
2,931,695
2,891,467
747,381
616,614
—
55,383
1,535,486
1,355,981
$
$
4,318,954
3,967,014
1,363,698
111,132
300,154
490,345
—
2,412,735
1,554,279
42
Table of Contents
Year Ended December 31,
Operating data (In thousands, except share and per share data)
Revenue from tenants
Operating expenses
(Loss) gain on dispositions of real estate investments
Operating income
Total other expenses
Income tax expense
Net income
Net income attributable to non-controlling interest
Preferred stock dividends
Net (loss) income attributable to common stockholders
Other data:
Cash flows provided by operations
Cash flows (used in) provided by investing activities
Cash flows provided by (used in) financing activities
Per share data:
Common stock dividends declared per common share
Series A Preferred stock dividends declared per common share
Series B Preferred stock dividends declared per common share
Net (loss) income per common share attributable to common
stockholders — Basic
Net (loss) income per common share attributable to common
stockholders — diluted
Weighted-average number of common shares outstanding:
Basic
Diluted
$
$
$
$
$
$
$
$
2020
2019
2018
2017
2016
330,104
(230,708)
(153)
99,243
(83,496)
(4,969)
10,778
—
(18,553)
(7,775)
176,851
(470,527)
140,680
1.73
1.81
1.72
(0.09)
(0.09)
$
$
$
$
$
$
$
$
306,214
(214,935)
23,616
114,895
(64,087)
(4,332)
46,476
—
(11,941)
34,535
145,999
(294,476)
300,003
2.13
1.81
0.17
0.40
0.39
$
$
$
$
$
$
$
$
282,207
(208,436)
(5,751)
68,020
(54,689)
(2,434)
10,897
—
(9,815)
1,082
144,597
(457,946)
312,192
2.13
1.81
—
0.01
0.01
$
$
$
$
$
$
$
$
$
259,295
(173,247)
1,089
87,137
(60,411)
(3,140)
23,586
(21)
(2,834)
20,731 $
130,954
(78,978)
(30,657)
2.13
1.81
—
0.30
0.30
$
$
$
$
$
$
214,174
(153,892)
13,341
73,623
(21,624)
(4,422)
47,577
(437)
—
47,140
114,394
134,147
(236,700)
2.13
—
—
0.82
0.82
89,473,554
89,473,554
85,031,236
86,349,645
69,411,061
69,663,208
66,877,620
66,877,620
56,720,448
56,720,448
43
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 are an externally managed REIT that focuses on acquiring and managing a globally diversified portfolio of strategically-located commercial real estate
properties, which are crucial to the success of our roster of primarily “Investment Grade” (defined herein) tenants. We invest in commercial properties, with an
emphasis on sale-leaseback transactions and mission-critical, single tenant net-lease assets.
As of December 31, 2020, we owned 306 properties consisting of 37.2 million rentable square feet, which were 99.7% leased, with a weighted-average
remaining lease term of 8.5 years. Based on the percentage of rental income on a straight-line basis as of December 31, 2020, 64% of our properties were located in
the U.S. and Canada and 36% of our properties were located in Europe. In addition, our portfolio was comprised of 49% industrial/distribution properties, 46%
office properties and 5% retail properties. These percentages are calculated using straight-line rent converted from local currency into USD as of December 31,
2020. The straight-line rent includes amounts for tenant concessions.
Substantially all of our business is conducted through the OP, a Delaware limited partnership, and its wholly-owned subsidiaries. Our Advisor manages our
day-to-day business with the assistance of the Property Manager. Our Advisor and Property Manager are under common control with AR Global and these related
parties receive compensation and fees for providing services to us. We also reimburse these entities for certain expenses they incur in providing these services to
us.
Management Update on the Impacts of the COVID-19 Pandemic
The economic uncertainty created by the COVID-19 global pandemic has created several risks and uncertainties that has impacted and may continue to impact
our business, including our future results of operations and our liquidity. The ultimate impact on our results of operations, our liquidity and the ability of our
tenants to continue to pay us rent will depend on numerous factors including the overall length and severity of the COVID-19 pandemic. Management is unable to
predict the nature and scope of any of these factors. These factors include the following, among others:
•
•
•
•
•
•
The negative impacts of the COVID-19 pandemic has caused and may continue to cause certain of our tenants to be unable to make rent payments to us
timely, or at all. However, we have taken proactive steps with regard to rent collections to mitigate the impact on our business (see “ — Management
Actions” below) and the adverse impact of tenants failing to timely pay rent has not at this point been material.
There may be a decline in the demand for tenants to lease real estate, as well as a negative impact on rental rates. As of December 31, 2020, our portfolio
had a high occupancy level of 99.7%, the weighted-average remaining term of our leases was 8.5 years (based on annualized straight line rent) and only
8.5% of our leases were expiring in the next two years (based on annualized straight-line rent).
Capital market volatility and a tightening of credit standards could negatively impact our ability to obtain debt financing. However, as of December 31,
2020, we do not have a significant amount of debt principal repayments that come due in 2021 ($13.2 million) or 2022 ($20.5 million).
Renewed volatility in the global financial market could negatively impact our ability to raise capital through equity offerings, which as a result, could
impact our decisions as to when and if we will seek additional equity funding.
The negative impact of the pandemic could impact our ability to comply with covenants in our revolving credit facility (our “Revolving Credit Facility”)
and the related term loan facility (our “Term Loan”), which together comprise our senior unsecured multi-currency credit facility (our “Credit Facility”)
Credit Facility and the amount available for future borrowings thereunder.
The potential negative impact on the health of personnel of our Advisor, particularly if a significant number of our Advisor’s employees are impacted,
could result in a deterioration in our ability to ensure business continuity.
For additional information on the risks and uncertainties associated with the COVID-19 pandemic, please see Item 1A, “Risk Factors — We are subject to risks
associated with a pandemic, epidemic or outbreak of a contagious disease, such as the ongoing global COVID-19 pandemic, which has caused severe disruptions
in the U.S., Canadian, European and global economy and financial markets and has already had adverse effects and may worsen”.
The Advisor responded to the challenges resulting from the COVID-19 pandemic by, beginning in early March 2020, taking proactive steps to prepare for and
actively mitigate the inevitable disruption resulting from COVID-19 such as, enacting safety measures, both required or recommended by relevant governmental
authorities, including remote working policies,
44
Table of Contents
cooperation with localized closure or curfew directives, and social distancing measures at all of our properties. There has been no material adverse impact on our
financial reporting systems or internal controls and procedures and the Advisor’s ability to perform services for us. In light of the current COVID-19 pandemic, we
are supplementing the historical discussion of our results of operations for the year ended December 31, 2020 with a current update on the measures we have taken
to mitigate the negative impacts of the pandemic on our business and future results of operations.
Management’s Actions
We have taken several steps to mitigate the impact of the pandemic on our business. For rent collections, we have been in direct contact with our tenants since
the crisis began, cultivating open dialogue and deepening the fundamental relationships that we have carefully developed through prior transactions and historic
operations. Based on this approach and the overall financial strength and creditworthiness of our tenants, we believe that we have had positive results in our rent
collections during this pandemic. We have collected approximately 99% of the original cash rent due for the fourth quarter of 2020 across our entire portfolio,
including approximately 100% from our top 20 tenants (based on the total of fourth quarter cash due from our top 20 tenants), representing 49% of our annual cash
rent.
The table below present additional information on our cash rent collection for the fourth quarter of 2020 and is based on available information as of February
22, 2021. With respect to fourth quarter data previously reported, the amount of cash rent in the various categories described herein increased or decreased as a
result of additional payments of cash rent and changes in the status of negotiations. This information may not be indicative of any future period and remains subject
to changes based on ongoing collection efforts and negotiation of additional agreements. Moreover, there is no assurance that we will be able to collect the cash
rent that is due in future months including the deferred 2020 rent amounts due during 2021 under deferral agreements we have entered into with our tenants. The
impact of the COVID-19 pandemic on our tenants and thus our ability to collect rents in future periods cannot be determined at present. We collected
approximately 99% of the original cash rent due for the quarter ended December 31, 2020 across our entire portfolio, including approximately 100% from our top
20 tenants (based on the total of annual cash rent due from our top 20 tenants), representing 49% of our annual cash rent, approximately 99% of the original cash
rent due in our assets in the United Kingdom and approximately 100% of the original cash rent due from our assets in the rest of Europe.
Fourth Quarter 2020 Cash Rent Status
United States
(1)
United Kingdom
Europe
Total Portfolio
(2)
Cash rent paid
Approved deferral agreement
Deferral in negotiation
Other
(5)
(4)
(3)
98 %
— %
— %
2 %
100 %
99 %
— %
— %
1 %
100 %
100 %
— %
— %
— %
100 %
99 %
— %
— %
1 %
100 %
(1)
Also includes Canada and Puerto Rico.
(2)
Includes both cash rent paid in full and in part pursuant to rent deferral agreements or otherwise.
(3)
Represents an amendment to the original lease agreement, or any lease amendments executed prior to this amendment, executed or approved by the tenant and landlord in light of the COVID-
19 pandemic to defer a certain portion of cash rent. The typical Deferral Agreement defers a portion of the payment of the cash rent due during the fourth quarter 2020, with payment due
during 2021. We retain all our rights and remedies upon default under the lease, including the right to accelerate the unpaid portion of deferred amounts if those amounts are not repaid in
accordance with the rent deferral agreements.
(4)
Represents active tenant discussions where no deferral agreement has yet been reached. There can be no assurance that we will be able to enter into deferral agreements on favorable terms, or
at all.
(5)
In general, this represents tenants that have made a partial payment and/or tenants without active communication on a potential deferral agreement. There can be no assurance that the cash
rent will be collected.
In addition to the proactive measures taken on rent collections, we have taken additional steps to maximize our flexibility related to our liquidity and minimize
the related risk during this uncertain time. In March 2020, consistent with our plans to acquire additional properties, we borrowed $205.0 million, under our Credit
Facility. Additionally, we reduced the amount we pay in dividends on our common stock beginning in the second quarter of 2020, reducing the cash needed to fund
dividend payments by approximately $48.0 million per year based on the number of shares of common stock outstanding at that time. For additional information
on our financing activity during the year ended December 31, 2020 and subsequent to December 31, 2020, see the “Liquidity and Capital Resources -
Borrowings” section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations.
45
Significant Accounting Estimates and Accounting Policies
Set forth below is a summary of the significant accounting estimates and 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 accounting policies include:
Update on the Impacts of the COVID-19 Pandemic
The financial stability and overall health of our tenants is critical to our business. The negative effects that the global COVID-19 pandemic has had on the
economy has impacted the ability of some of our tenants to pay their monthly rent. We have taken a proactive approach to seek mutually agreeable solutions with
its tenants where necessary and, in some cases in the second quarter of 2020, we executed rent deferral agreements on leases with several tenants. For accounting
purposes, in accordance with ASC 842, normally a company would be required to assess the modification to determine if the modification should be treated as a
separate lease and if not, modification accounting would be applied which would require a company to reassess the classification of the lease (i.e. operating, direct
financing or sales-type). However, in light of the COVID-19 pandemic due to which many leases are being modified, the FASB and SEC have provided relief that
will allow companies to make a policy election as to whether they treat COVID-19 related lease amendments as a provision included in the pre-concession
arrangement, and therefore, not a lease modification, or to treat a lease amendment as a modification. In order to qualify for the relief, the modifications must be
COVID-19 related and cash flows must be substantially the same or less than those prior to the concession. We elected to use this relief where applicable. In those
circumstances, we have accounted for these arrangements as if no changes to the lease contract were made. For those leases that do not qualify for the relief, we
perform a lease modification analysis and if required, use lease modification accounting.
Revenue Recognition
Our revenues, which are derived primarily from lease contracts, which include rents that each tenant pays in accordance with the terms of each lease
agreement and are reported on a straight-line basis over the initial term of the lease. As of December 31, 2020, these leases had an weighted-average remaining
lease term of 8.5 years. Since many of our leases provide for rental increases at specified intervals, straight-line basis accounting requires us to record a receivable
for, 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. As of December 31, 2020 and 2019, our cumulative straight-line rents receivable in the consolidated balance sheets was $61.0 million, which
includes amounts related to deferral agreements noted above, and $51.8 million, respectively. For the years ended December 31, 2020, 2019 and 2018, our revenue
from tenants included impacts of unbilled rental revenue of $7.9 million, $6.8 million and $6.3 million, respectively, to adjust contractual rent to straight-line rent.
For new leases after acquisition of property, the commencement date is considered to be the date the lease modification is executed. 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 for purposes of this calculation, for all leases in place at the time of acquisition. In addition to base rent, our lease agreements generally
require tenants to pay or reimburse us for all property operating expenses, which primarily reflect insurance costs and real estate taxes incurred by us and
subsequently reimbursed by the tenant. However, some limited property operating expenses that are not the responsibility of the tenant are absorbed by us. Under
ASC 842, we elected to report combined lease and non-lease components in a single line “Revenue from tenants.” For comparative purposes, we also elected to
reflect prior revenue and reimbursements previously reported under ASC 840 on a single line as well. For expenses paid directly by the tenant, under both ASC
842 and 840, we reflected them on a net basis.
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. Under the leasing standard adopted on January 1, 2019 (see Note 2 — Summary of Significant Accounting Polices - Recently Issued Accounting
Pronouncements to our consolidated financial statements included in this Annual Report on From 10-K), we are required to assess, based on credit risk only, if it is
probable that we will collect virtually all of the lease payments at lease commencement date and we must continue to reassess collectability periodically thereafter
based on new facts and circumstances affecting the credit risk of the tenant. Partial reserves, or the ability to assume partial recovery are no longer permitted. If we
determine that it is probable that we will collect virtually all of the lease payments (rent and common area maintenance), the lease will continue to be accounted for
on an accrual basis (i.e. straight-line). However, if we determine it is not probable that we will collect virtually all of the lease payments, the lease will be
accounted for on a cash basis and a full reserve would be recorded on previously accrued amounts in cases where it was subsequently concluded that collection was
not probable. Cost recoveries from tenants are included in Revenue from tenants on the accompanying consolidated statements of operations in the period the
related costs are incurred, as applicable.
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Under ASC 842, uncollectible amounts are reflected as reductions in revenue. Under ASC 840, we recorded such amounts as bad debt expense as part of
property operating expenses. During the year ended December 31, 2018, such amount was $0.8 million. We did not record any uncollectible amounts as reductions
of revenue during the years ended December 31, 2020 or 2019.
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.
At the time an asset is acquired, we evaluate the inputs, processes and outputs of the 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. See the Purchase Price Allocation section below for a discussion of the initial accounting for investments in real estate.
Disposal of real estate investments representing a strategic shift in operations that will have a major effect on our operations and financial results are required
to be presented as discontinued operations in our consolidated statements of operations. No properties were presented as discontinued operations as of
December 31, 2020 and 2019. Properties that are intended to be sold are designated as “held for sale” on our 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, most significantly that the sale is probable within
one year. We evaluate probability of sale based on specific facts including whether a sales agreement is in place and the buyer has made significant non-refundable
deposits. Properties are no longer depreciated when they are classified as held for sale. As of December 31, 2020 and 2019, we did not have any properties
designated as held for sale.
As more fully discussed in Note 2 — Summary of Significant Accounting Policies - Recently Issued Accounting Pronouncements - ASU No. 2016-02 Leases to
our consolidated financial statements included in this Annual Report on Form 10-K, all of our leases as lessor prior to the adoption of the new leasing standard on
January 1, 2019 were accounted for as operating leases and we continued to account for them as operating leases under the transition guidance. We evaluate new
leases originated after the adoption date (by us or by a predecessor lessor/owner) pursuant to the new guidance where a lease for some or all of a building is
classified by a lessor as a sales-type lease if the significant risks and rewards of ownership reside with the tenant. This situation is met if, among other things, there
is an automatic transfer of title during the lease, a bargain purchase option, the non-cancelable lease term is for more than major part of remaining economic useful
life of the asset (e.g., equal to or greater than 75%), if the present value of the minimum lease payments represents substantially all (e.g., equal to or greater than
90%) of the leased property’s fair value at lease inception, or if the asset so specialized in nature that it provides no alternative use to the lessor (and therefore
would not provide any future value to the lessor) after the lease term. Further, such new leases would be evaluated to consider whether they would be failed sale-
leaseback transactions and accounted for as financing transactions by the lessor. During the three year period ended December 31, 2020, we had no leases as a
lessor that would be considered as sales-type leases or financings under sale-leaseback rules.
We are also the lessee under certain land leases which were previously classified prior to adoption of lease accounting and will continue to be classified as
operating leases under transition elections unless subsequently modified. These leases are reflected on the balance sheet and the rent expense is reflected on a
straight-line basis over the lease term.
Purchase Price Allocation
In both a business combination and an asset acquisition, we allocate the purchase price of acquired properties to tangible and identifiable intangible assets or
liabilities based on their respective fair values. Tangible assets may include land, land improvements, buildings, fixtures and tenant improvements on an as- if
vacant basis. Intangible assets may include the value of in-place leases, and 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 (in a
business combination) 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. In a business
combination, the difference between the purchase price and the fair value of identifiable net assets acquired is either recorded as goodwill or as a bargain purchase
gain. In an asset acquisition, the difference between the acquisition price (including capitalized transaction costs) and the fair value of identifiable net assets
acquired is allocated to the non-current assets. All acquisitions during the years ended December 31, 2020, 2019 and 2018 were asset acquisitions.
For acquired properties with leases classified as operating leases, we allocate the purchase price of acquired properties to tangible and identifiable intangible
assets acquired and liabilities assumed, based on their respective fair values. 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.
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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.
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. Fair value estimates are also made using significant
assumptions such as capitalization rates, discount rates, fair market lease rates, and land values per square foot. Identifiable intangible assets include amounts
allocated to acquire leases for above- and below-market lease rates, and the value of in-place leases, 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 initial term of the lease for above-market
leases and the remaining term plus the term of any below-market fixed rate renewal options for below-market leases.
The aggregate value of intangible assets related to customer relationships, 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.
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.
Gain on Dispositions of Real Estate Investments
Gains on sales of rental real estate are not considered sales to customers and are generally recognized pursuant to the provisions included in ASC 610-20,
Gains and Losses from the Derecognition of Nonfinancial Assets (“ASC 610-20”).
Goodwill
We evaluate goodwill for 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. We determined that the potential impact of the COVID-19 pandemic
represented a triggering event, and, as such, performed an updated goodwill assessment during the first quarter of 2020. Based on our assessment, we determined
that the goodwill was not impaired at the time of the triggering event evaluation. We also evaluated goodwill impairment in the fourth quarter of 2020 and
determined that the goodwill was not impaired as of December 31, 2020. There were no material changes to this assessment as of December 31, 2020.
Depreciation and Amortization
We are required to make subjective assessments as to the useful lives of the components of our real estate investments for purposes of determining the amount
of depreciation to record on an annual basis. These assessments have a direct impact on our results from operations because if we were to shorten the expected
useful lives of our real estate investments, we would depreciate these investments over fewer years, resulting in more depreciation expense and lower earnings on
an annual basis.
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.
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.
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The value of customer relationship intangibles is amortized to expense over the initial term of the lease 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 accelerated through the termination date or the date the tenant vacates the space to
expense.
Assumed mortgage premiums or discounts are amortized as an increase or reduction to interest expense over the remaining terms of the respective mortgages.
Above and Below-Market Lease Amortization
Capitalized above-market lease values are amortized as a reduction of revenue from tenants over the remaining terms of the respective leases and the
capitalized below-market lease values are amortized as an increase to revenue from tenants 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.
Above-market intangibles and below-market intangibles will also be treated in the same way as in-place intangibles upon a lease termination.
If a tenant modifies its lease, the unamortized portion of the in-place lease value, customer relationship intangibles, above-market leases and below market
leases are assessed to determine whether their useful lives need to be amended (generally accelerated). Generally, we would not extend the useful lives of their
intangible values upon a modification that is an extension.
The amortization associated with our operating lease right-of-use asset (“ROU”) is recorded in property operating expenses on a straight-line basis over the
terms of the leases. Upon adoption of ASC 842 effective January 1, 2019, intangible balances related to ground leases were reclassified to be included as part of the
operating lease ROU presented on our consolidated balance sheet with no change to placement of the amortization expense of such balances.
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. In addition, all foreign currency denominated borrowings under our Credit Facility are designated as
net investment hedges. 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 (“USD”). We enter into derivative financial instruments to protect the value or
fix the amount of certain obligations in terms of its 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 foreign operations. 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. 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 (or for derivatives that do not qualify as hedges), 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 a derivative is designated and
qualifies for cash flow 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 change in derivative fair value is immediately
recorded in earnings.
Equity-Based Compensation
We have a stock-based incentive plan under which our directors, officers and other employees of the Advisor, or its affiliates who are involved in providing
services to us are eligible to receive awards. Awards granted thereunder are 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 — Equity-Based Compensation to our consolidated financial statements included in this Annual Report on Form 10-K.for additional information).
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Multi-Year Outperformance Agreements
Concurrent with the listing of our Common Stock on the NYSE on June 2, 2015 and modifications to the Fourth Amended and Restated Advisory Agreement
(the “Advisory Agreement”) by and among us, the OP and the Advisor, we entered into a multi-year outperformance agreement with the Advisor in June 2015 (the
“2015 OPP”). Following the end of the performance period under the 2015 OPP on June 2, 2018, we entered into the 2018 OPP with the Advisor. Under the 2018
OPP, effective June 2, 2018, we record equity-based compensation evenly over the requisite service period of approximately 2.8 years from the grant date. Under
accounting guidance adopted by us on January 1, 2019 (see Note 2 — Significant Accounting Polices to our consolidated financial statements included in this
Annual Report on Form 10-K), total equity-based compensation expense calculated as of the adoption of the new guidance is fixed as of that date and reflected as a
charge to earnings over the remaining service period. Further, in the event of a modification, any incremental increase in the value of the instrument measured on
the date of the modification both before and after the modification, will result in an incremental amount to be reflected prospectively as a charge to earnings over
the remaining service period. The expense for these non-employee awards is included in the equity-based compensation line item of the consolidated statements of
operations. For additional information on the original terms, a February 2019 modification of the 2018 OPP and accounting for these awards see Note 13 — Equity-
based compensation to our consolidated financial statements included in this Annual Report on Form 10-K.
Recently Issued Accounting Pronouncements
See Note 2 — Summary of Significant Accounting Policies — Recently Issued Accounting Pronouncements to our consolidated financial statements included
in this Annual Report on Form 10-K for further discussion.
Results of Operations
Below is a discussion of our results of operations for the years ended December 31, 2020 and 2019. Please see the “Results of Operations” section located on
page 48 under Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2019 for a discussion of our results of operations for the year ended
December 31, 2018 and year-to-year comparisons between 2018 and 2019.
In addition to the comparative year over year discussion below, please see the “Overview — Management Update on the Impacts of the COVID-19 Pandemic”
section above for additional information on the risks and uncertainties associated with the COVID-19 pandemic and management’s action taken to mitigate those
risks and uncertainties.
Comparison of the Year Ended December 31, 2020 to the Year Ended December 31, 2019
Net (Loss) Income Attributable to Common Stockholders
Net (loss) income attributable to common stockholders was a loss of $7.8 million for the year ended December 31, 2020, as compared to net income
attributable to common stockholders of $34.5 million for the year ended December 31, 2019. The change in net income attributable to common stockholders is
discussed in detail for each line item of the consolidated statements of operations in the sections that follow.
Revenue from Tenants
In addition to base rent, our lease agreements generally require tenants to pay or reimburse us for all property operating expenses, which primarily reflect
insurance costs and real estate taxes incurred by us and subsequently reimbursed by the tenant. However, some limited property operating expenses that are not the
responsibility of the tenant are absorbed by us.
Revenue from tenants was $330.1 million and $306.2 million for the years ended December 31, 2020 and 2019, respectively. The increase was primarily
driven by the impact of our property acquisitions and the impact of foreign exchange rates. During the year ended December 31, 2020 there were increases of 0.5%
in the average exchange rate for GBP to USD and 2.0% in the average exchange rate for EUR to USD, when compared to the year ended December 31, 2019.
Property Operating Expenses
Property operating expenses were $32.4 million and $28.3 million for the years ended December 31, 2020 and 2019, respectively. These costs primarily relate
to insurance costs and real estate taxes on our properties, which are generally reimbursable by our tenants. The main exceptions are Government Services
Administration (GSA) properties for which certain expenses are not reimbursable by tenants. The increase was primarily due to higher reimbursable expenses
incurred in the year ended December 31, 2020, primarily driven by the impact of our property acquisitions and the impact of foreign exchange rates. During the
year ended December 31, 2020 there were increases of 0.5% in the average exchange rate for GBP to USD and 2.0% in the average exchange rate for EUR to
USD, when compared to last year.
Operating Fees to Related Parties
Operating fees paid to related parties were $35.8 million and $33.3 million for the years ended December 31, 2020 and 2019, respectively. Operating fees to
related parties consist of compensation to the Advisor for asset management services, as well as property management fees paid to the Property Manager. Our
Advisory Agreement requires us to pay the Advisor a
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Base Management Fee of $18.0 million per annum ($4.5 million per quarter) plus a Variable Base Management Fee, both payable in cash, and Incentive
Compensation (as defined in our Advisory Agreement), payable in cash and shares, if the applicable hurdles are met. In light of the unprecedented market
disruption resulting from the COVID-19 pandemic, in May 2020, we amended our Advisory Agreement to temporarily lower the effective thresholds of these
applicable hurdles. The Advisor did not earn any Incentive Compensation during the years ended December 31, 2020 and 2019. The increase to operating fees
between the periods in part results from an increase of $2.1 million in the Variable Base Management Fee resulting from the incremental additional net proceeds
generated by offerings of equity securities since December 2019. The Variable Base Management Fee would increase in connection with any offerings or issuances
of equity securities (see Note 11 - Related Party Transactions to our consolidated financial statements included in this Annual Report on Form 10-K for details).
Our Property Manager is paid fees to manage our properties, which may include market-based leasing commissions. Property management fees are calculated
as a percentage of our gross revenues generated by the applicable properties. For additional information on our property management agreement with the Property
Manager, see Note 11 — Related Party Transactions to our consolidated financial statements included in this Annual Report on Form 10-K. During the years
ended December 31, 2020 and 2019, we paid property management fees of $6.2 million and $5.8 million, respectively. During the year ended December 31, 2020,
we incurred leasing commissions to the Property Manager of $1.5 million, of which $0.1 million was recorded as a property management fee in operating fees to
related parties in our consolidated statement of operations for the year ended December 31, 2020. The remainder of the balance will be recorded over the terms of
the related leases.
Impairment Charges and Related Lease Intangible Write-offs
There were no impairment charges recorded during the year ended December 31, 2020. During the fourth quarter of 2019, we closed on the sale of two
properties in the Netherlands. We had previously concluded that the estimated sales price for these two properties was lower than their respective carrying values,
and we recorded an impairment charge of $6.4 million to reflect the estimated sales price of the properties during the third quarter of 2019.
Acquisition, Transaction and Other Costs
We recognized $0.7 million of acquisition, transaction and other costs during the year ended December 31, 2020, which were primarily related to costs for
terminated acquisitions. We recognized $1.3 million of acquisition, transaction and other costs during the year ended December 31, 2019, which primarily
consisted of litigation costs related to the termination of our former European service provider.
General and Administrative Expense
General and administrative expense was $13.3 million and $10.1 million for the years ended December 31, 2020 and 2019, respectively, primarily consisting
of professional fees including audit and taxation related services, board member compensation, and directors’ and officers’ liability insurance, and including
expense reimbursements of approximately $1.1 million to the Advisor under the Advisory Agreement for the year ended December 31, 2020. The increase for the
year ended December 31, 2020, as compared to the year ended December 31, 2019, was primarily due to an increase in professional fees.
Equity-Based Compensation
During the year ended December 31, 2020 and 2019, we recognized equity-based compensation expense of $10.1 million and $9.5 million, respectively,
which primarily related to the 2018 OPP. Equity-based compensation expense also includes amortization of restricted shares of Common Stock (“Restricted
Shares”) granted to employees of the Advisor or its affiliates who are involved in providing services to us and restricted stock units (“RSUs”) in respect of shares
of Common Stock granted to our independent directors. Equity-based compensation expense related to the 2018 OPP is fixed as of January 1, 2019 and is only
remeasured in subsequent periods if the 2018 OPP is amended. In February 2019, the 2018 OPP was amended in light of the effectiveness of a merger of one
member of the peer group. Under the accounting rules, we were required to calculate any excess of the new value of LTIP Units in accordance with the provisions
of the amendment ($29.9 million) over the fair value immediately prior to the amendment ($23.3 million). This excess of approximately $6.6 million is being
expensed over the period from February 21, 2019, the date our compensation committee approved the amendment, through June 2, 2021, the end of the service
period. For additional information, see Note 2 — Summary of Significant Accounting Policies - Recently Issued Accounting Pronouncements and Note 13 —
Equity-Based Compensation to our consolidated financial statements included in this Annual Report on Form 10-K.
Depreciation and Amortization
Depreciation and amortization expense was $138.5 million and $126.0 million for the years ended December 31, 2020 and 2019, respectively. The increase
was due to the impact of our property acquisitions during 2020 and 2019 and dispositions during 2019. The increase in depreciation and amortization expense for
our European and U.K. properties increased due to increases in the exchange rate on both the GBP to USD and the EUR to USD during the year ended December
31, 2020 of 0.5% in the average exchange rate for GBP to USD and 2.0% in the EUR to USD, when compared to 2019.
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(Loss) Gain on Dispositions of Real Estate Investments
During the year ended December 31, 2020, we did not sell any properties. During the year ended December 31, 2019, we sold 97 located in the United States
(94 Family Dollar retail stores and three industrial properties), for $136.7 million resulting in a gain of $14.0 million, one property located in the United Kingdom
for $9.1 million resulting in a loss of $0.4 million, two properties in the Netherlands and three properties in Germany for $165.5 million resulting in a gain of $10.0
million. These dispositions generated gross sale prices of approximately $311.3 million (based on USD equivalents on the date of sale), resulting in an aggregate
gain of $23.6 million.
Interest Expense
Interest expense was $71.8 million and $64.2 million for the years ended December 31, 2020 and 2019, respectively. The increase was primarily related to an
increase in average borrowings. The amount of our total gross debt outstanding increased from $1.9 billion as of December 31, 2019 to $2.3 billion as of
December 31, 2020, and the weighted-average effective interest rate of our total debt was 3.0% as of December 31, 2019 and 3.3% as of December 31, 2020. The
increase in interest expense was also impacted by increases during the year ended December 31, 2020 of 0.5% in the average exchange rate for GBP to USD and
2.0% in the average exchange rate for EUR to USD when compared to the same period last year. As of the year ended December 31, 2020, approximately 30% of
our total debt outstanding was denominated in EUR and 10% of our total debt outstanding was denominated in GBP, and as of the year ended December 31, 2019,
approximately 40% of our total debt outstanding was denominated in EUR and 18% of our total debt outstanding was denominated in GBP.
We view a combination of secured and unsecured financing sources as an efficient and accretive means to acquire properties and manage working capital. As
of December 31, 2020, approximately 60% of our total debt outstanding was secured and 40% was unsecured. Our interest expense in future periods will vary
based on interest rates as well as our level of future borrowings, which will depend on refinancing needs and acquisition activity.
Loss on Extinguishment of Debt
Loss on extinguishment of debt was $3.6 million and $0.9 million, for the years ended December 31, 2020 and 2019, respectively. The amount in 2020 is
comprised of $2.0 million of expenses related to the repayment of the loan on our Whirlpool properties due to the write-off of deferred financing costs and costs
related to the termination of interest rate swaps, $1.3 million of expenses related to the write-off of deferred financing costs related to the partial paydown of our
Term Loan in December 2020 and $0.3 million of expenses related to the refinancing of the mortgages on our properties located in France. For the year ended
December 31, 2019, this amount was primarily related to the write off of previously recorded deferred financing costs.
Foreign Currency and Interest Rate Impact on Operations
The loss of $2.3 million and gain of $0.8 million on derivative instruments for the years ended December 31, 2020 and 2019, respectively, reflect the marked-
to-market impact from foreign currency and interest rate derivative instruments used to hedge the investment portfolio from currency and interest rate movements,
and was mainly impacted by currency rate changes in the GBP and EUR compared to the USD.
Unrealized (Loss) Income on Undesignated Foreign Currency Advances and Other Hedge Ineffectiveness
During the year ended December 31, 2020, we recorded losses of $6.0 million due to currency changes on the undesignated excess foreign currency advances
over the related net investments. During the fourth quarter of 2020, we identified certain historical errors in the second and third quarters of 2020 related to the
recording of the impact of foreign currency changes on the over-hedged portion of our net investment hedges, which is the portion considered to be ineffective.
The amounts, which totaled $1.3 million and $2.6 million for the second and third quarters of 2020, respectively, were incorrectly recorded as a currency
translation adjustment in AOCI as opposed to being recorded as losses in unrealized (loss) income on undesignated foreign currency advances and other hedge
ineffectiveness in the consolidated statement of operations. We concluded that the errors were not material for any prior quarterly periods presented and we
adjusted the amounts on a cumulative basis in the fourth quarter of 2020. As a result, we recorded $3.9 million in unrealized (loss) on undesignated foreign
currency advances and other hedge ineffectiveness in the fourth quarter of 2020 in order to correct these errors. For additional information on the above or on our
derivative accounting policies and derivatives and hedging activities, see the Note 2 — Summary of Significant Accounting Policies and Note 8 — Derivatives and
Hedging Activities to our consolidated financial statements included in this Annual Report on Form 10-K.
During the year ended December 31, 2019, we recorded a gain of $0.1 million on undesignated foreign currency advances and other hedge ineffectiveness.
As a result of our foreign investments in Europe, and, to a lesser extent, our investments in Canada, we are subject to risk from the effects of exchange rate
movements in the EUR, GBP and, to a lesser extent, the CAD, which may affect costs and cash flows in our functional currency, the USD. We generally manage
foreign currency exchange rate movements by matching our debt service obligation to the lender and the tenant’s rental obligation to us in the same currency. This
reduces our overall
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exposure to currency fluctuations. In addition, we may use currency hedging to further reduce the exposure to our net cash flow. We are generally a net receiver of
these currencies (we receive more cash than we pay out), and therefore our results of operations of our foreign properties benefit from a weaker USD, and are
adversely affected by a stronger USD, relative to the foreign currency. During the year ended December 31, 2020, the average exchange rate for GBP to USD
increased by 0.5%, and the average exchange rate for EUR to USD increased by 2.0%, when compared to the year ended December 31, 2019.
Income Tax Expense
Although as a REIT we generally do not pay U.S. federal income taxes, we recognize income tax (expense) benefit domestically for state taxes and local
income taxes incurred, if any, and also in foreign jurisdictions in which we own properties. In addition, we perform an analysis of potential deferred tax or future
tax benefit and expense as a result of book and tax differences and timing differences in taxes across jurisdictions. Income tax expense was $5.0 million and $4.3
million for the years ended December 31, 2020 and 2019, respectively.
Cash Flows from Operating Activities
During the year ended December 31, 2020, net cash provided by operating activities was $176.9 million. The level of cash flows provided by operating
activities is driven by, among other things, rental income received, operating fees paid to related parties for asset and property management, and interest payments
on outstanding borrowings. Cash flows provided by operating activities during the year ended December 31, 2020 reflect net income of $10.8 million, adjusted for
non-cash items of $149.6 million (primarily depreciation, amortization of intangibles, amortization of deferred financing costs, amortization of mortgage
premium/discount, amortization of above- and below-market lease and ground lease assets and liabilities, bad debt expense, unbilled straight-line rent (including
the effect of adjustments due to rent deferrals), and equity-based compensation). In addition, operating cash flow increased by $4.6 million due to working capital
items, which was partially offset by a lease incentive payment made by us of $4.7 million related to the signing of lease extensions for four properties leased to
Finnair during the year ended December 31, 2020. The incentive was negotiated in exchange for extending the weighted-average remaining lease term on the
properties from 4.7 years to 11.0 years..
During the year ended December 31, 2019, net cash provided by operating activities was $146.0 million. The level of cash flows provided by operating
activities is driven by, among other things, rental income received, operating fees paid to related parties for asset and property management services, and interest
payments on outstanding borrowings. Cash flows provided by operating activities during the year ended December 31, 2019 reflect net income of $46.5 million,
adjusted for non-cash items of $137.3 million, consisting primarily of depreciation, amortization of intangibles, amortization of deferred financing costs,
amortization of mortgage premium/discount, amortization of above- and below-market lease and ground lease assets and liabilities, bad debt expense, unbilled
straight-line rent, and equity-based compensation). In addition, working capital items decreased operating cash flows by $22.6 million.
Cash Flows from Investing Activities
Net cash used in investing activities during the year ended December 31, 2020 of $470.5 million was primarily driven by property acquisitions of $464.1
million, and capital expenditures of $6.4 million.
Net cash used in investing activities during the year ended December 31, 2019 of $294.5 million was primarily driven by property acquisitions of $562.7
million and capital expenditures of $17.3 million. These cash uses were partially offset by net proceeds from asset dispositions of $288.4 million during the year
ended December 31, 2019.
Cash Flows from Financing Activities
Net cash provided by financing activities of $140.7 million during the year ended December 31, 2020 was a result of net proceeds from the issuance of our
Senior Notes of $500.0 million, net proceeds from mortgage borrowings and repayments of $46.0 million and net proceeds from the issuance of Series B Preferred
Stock of $10.2 million. These cash inflows were offset primarily by net payments under our Revolving Credit Facility of $90.6 million, payments of principal on
our Term Loan of $136.7 million, dividends paid to common stockholders of $155.1 million, dividends paid on Series A Preferred Stock of $12.3 million,
dividends paid on Series B Preferred Stock of $5.1 million and payments of financing costs of $14.2 million.
Net cash provided by financing activities of $300.0 million during the year ended December 31, 2019 primarily related to net borrowings on our Revolving
Credit Facility of $165.6 million, proceeds from mortgage notes payable of $579.3 million, net proceeds from issuance of Common Stock of $258.4 million, net
proceeds from the issuance of Series A Preferred Stock of $34.6 million, net proceeds from the issuance of Series B Preferred Stock of $83.1 million and proceeds
from our Term Loan of $125.0 million. These cash inflows were partially offset by payments on mortgage notes payable of $433.6 million, dividends paid to
common stockholders of $150.8 million, dividends paid on Series A Preferred Stock of $10.7 million and payments of financing costs of $19.1 million.
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Liquidity and Capital Resources
The negative impacts of the COVID-19 pandemic has caused and may continue to cause certain of our tenants to be unable to make rent payments to us
timely, or at all, which impacts the amount of cash we generate from our operations. During the year ended December 31, 2020, we took proactive steps to collect
rent and to otherwise mitigate the impact on our business and liquidity. The future impact of the pandemic on our results of operations, our liquidity and the ability
of our tenants to continue to pay us rent will depend on numerous factors including the overall length and severity of the COVID-19 pandemic. Management is
unable to predict the nature and scope of any of these factors. Because substantially all of our income is derived from rentals of commercial real property, our
business, income, cash flow, results of operations, financial condition, liquidity, prospects our ability to service our debt obligations, our ability to consummate
future property acquisitions and our ability to pay dividends, and other distributions to our stockholders would be adversely affected if a significant number of
tenants are unable to meet their obligations to us.
In addition to the discussion below, please see the “Overview — Management Update on the Impacts of the COVID-19 Pandemic” section above for
additional information on the risks and uncertainties associated with the COVID-19 pandemic and management’s actions taken to mitigate those risks and
uncertainties.
As of December 31, 2020 and December 31, 2019, we had cash and cash equivalents of $124.2 million and $270.3 million, respectively. See discussion above
our how our cash flows from various sources impacted our cash. Principal future needs for use of our 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, operating and
administrative expenses, continuing debt service obligations and dividends to holders of our Common Stock, Series A Preferred Stock and Series B Preferred
Stock, as well as to any future class or series of preferred stock we may issue. Management expects that operating income from our existing properties
supplemented by our existing cash will be sufficient to fund operating expenses, and the payment of quarterly dividends to our common stockholders and holders
of our Series A Preferred Stock and Series B Preferred Stock. Our other sources of capital, which we have used and may use in the future, include proceeds
received from our Revolving Credit Facility, proceeds from secured or unsecured financings (which may include note issuances), proceeds from our offerings of
equity securities (including Common Stock and preferred stock), proceeds from any future sales of properties and undistributed funds from operations, if any.
During the year ended December 31, 2020, cash used to pay our dividends was generated from cash flows provided by operations.
Acquisitions and Dispositions
We are in the business of acquiring real estate properties and leasing the properties to tenants. Generally, we fund our acquisitions through a combination of
cash and cash equivalents, proceeds from offerings of equity securities (including Common Stock and preferred stock), borrowings under our Revolving Credit
Facility and proceeds from mortgage or other debt secured by the acquired or other assets at the time of acquisition or at some later point (see Note 4 — Mortgage
Notes Payable, Net and Note 5 — Credit Facilities to our consolidated financial statements included in this Annual Report on Form 10-K for further discussion). In
addition, to the extent we dispose of properties, we have used and may continue to use the net proceeds from the dispositions (after repayment of any mortgage
debt, if any) for future acquisitions or other general corporate purposes. The proceeds from asset dispositions of $288.4 million during the year ended December
31, 2019 were primarily used to fund acquisitions during the years ended December 31, 2020 and 2019.
Acquisitions and Dispositions — Year Ended December 31, 2020
During the year ended December 31, 2020, we acquired 28 properties for $464.1 million, including capitalized acquisition costs. The acquisition of seven of
these properties for $293.3 million, including capitalized acquisition costs, was completed during the three months ended December 31, 2020. During the three
months and year ended December 31, 2020, our acquisitions were primarily funded with cash on hand, including proceeds from our underwritten offering of Series
B Preferred Stock on November 20, 2019, borrowings under the Revolving Credit Facility and proceeds from 2019 dispositions. For additional information on
activity related to the Revolving Credit Facility, see “Borrowings” section below.
We did not dispose of any properties during the three months and year ended December 31, 2020.
Acquisitions and Dispositions Subsequent to December 31, 2020 and Pending Transactions
Subsequent to December 31, 2020, we did not acquire any properties. We have signed one definitive purchase and sale agreement (“PSA”) to acquire one net
lease property located in the U.S., for a purchase price of approximately $6.9 million. We have signed two non-binding letters of intent (“LOIs”) to acquire two net
lease properties, located in the United States, for an aggregate purchase price of $22.1 million. The PSA is subject to conditions and the LOIs may not lead to a
definitive agreement. There can be no assurance we will complete these transactions, or any future acquisitions or other investments, on a timely basis or on
acceptable terms and conditions, if at all. Since the onset of the COVID-19 pandemic, the overall amount of available acquisitions has been reduced, and although
we have adjusted our historical capitalization rate target, in many cases
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current sellers have not yet made similar changes to their pricing expectations. We believe that over time, bidding and asking prices will converge to establish a
long-term trend of lower prices.
Equity Offerings
Common Stock
We have an “at the market” equity offering program (the “Common Stock ATM Program”), pursuant to which we may raise aggregate sales proceeds of up to
$250.0 million through sales of Common Stock from time to time through our sales agents. We did not sell any shares of Common Stock through the Common
Stock ATM Program during the year ended December 31, 2020.
Preferred Stock
We have established an “at the market” equity offering program for our Series B Preferred Stock (the “Series B Preferred Stock ATM Program”) pursuant to
which we may raise aggregate sales proceeds of up to $200.0 million through sales of shares of Series B Preferred Stock from time to time through our sales
agents. During the year ended December 31, 2020, we sold 411,953 shares of Series B Preferred Stock through the Series B Preferred Stock ATM Program for
gross proceeds of $10.4 million, before commissions paid of approximately $0.2 million and additional issuance costs of $0.1 million. During the three months
ended December 31, 2020, we sold 226,825 shares of Series B Preferred Stock through the Series B Preferred Stock ATM Program for gross proceeds of $5.7
million and net proceeds of $5.6 million after commissions and fees paid of $0.1 million.
The timing differences between when we raise equity proceeds or receive proceeds from dispositions and when we invest those proceeds in acquisitions or
other investments that increase our operating cash flows have affected, and may continue to affect, our results of operations.
Borrowings
As of December 31, 2020, we had total debt outstanding of $2.3 billion bearing interest at a weighted-average interest rate per annum equal to 3.3% and as of
December 31, 2019, we had total debt outstanding of $1.9 billion bearing interest at a weighted-average interest rate per annum equal to 3.0%. As of December 31,
2020, 96% of our total debt outstanding either bore interest at fixed rates, or was swapped to a fixed rate, which bore interest at a weighted-average interest rate of
3.3% per annum. As of December 31, 2020, 4% of our total debt outstanding was variable-rate debt, which bore interest at a weighted- average interest rate of
2.6% per annum for the year ended December 31, 2020. The total gross carrying value of unencumbered assets as of December 31, 2020 was $1.8 billion, of which
approximately $1.8 billion was included in the unencumbered asset pool comprising the borrowing base under the Revolving Credit Facility and therefore is not
available to serve as collateral for future borrowings. We intend to add certain of these unencumbered assets to the borrowing base under the Revolving Credit
Facility to increase the amount available for future borrowings thereunder.
Our debt leverage ratio was (total debt as a percentage of total purchase price of real estate investments, based on the exchange rate at the time of purchase)
was 57.4% as of December 31, 2020. See Note 7 — Fair Value of Financial Instruments to our consolidated financial statements included in this Annual Report on
Form 10-K for a discussion of fair value of such debt as of December 31, 2020. As of December 31, 2020 the weighted-average maturity of our indebtedness was
5.4 years. We believe we have the ability to service our debt obligations as they come due.
Senior Notes
On December 16, 2020, we and the OP issued $500.0 million aggregate principal amount of 3.750% Senior Notes due 2027. As of December 31, 2020, the
amount of the Senior Notes outstanding totaled $490.3 million, which is net of $9.7 million of deferred financing costs. At closing, the issuers used the net
proceeds from the issuance of the Senior Notes, after deducting the initial purchasers’ discounts and offering fees and expenses, to repay approximately $88.0
million of secured loans, repay amounts borrowed under the Revolving Credit Facility of approximately $266.4 million, and used the remaining proceeds of
approximately $136.3 to partially repay the Term Loan. The Senior Notes were issued in transactions exempt from registration under the Securities Act of 1933, as
amended. See Note 6 — Senior Notes, Net for further discussion on the Senior Notes and related covenants.
Mortgage Notes Payable
As of December 31, 2020, we had secured mortgage notes payable of $1.4 billion, net of mortgage discounts and deferred financing costs.
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On May 14, 2020, we, through certain subsidiaries, entered into a loan agreement with HSBC France (“HSBC”) and borrowed €70.0 million ($75.6 million
based on the exchange rate on that date) secured by the seven properties we own in France. The maturity date of this loan is May 14, 2025 and it bears interest at a
rate of 3-month EURIBOR (with a floor of 0.0%) plus an initial margin of 2.3% per year, with the interest rate for €63.0 million ($68.0 million based on the
exchange rate on that date) fixed by an interest rate swap agreement. The amount fixed by swap agreement represents 90% of the principal amount of the loan and
is fixed at 2.5% per year. The loan is interest-only with the principal due at maturity. At the closing of the loan, €25.0 million ($27.0 million based on the exchange
rate on that date) was used to repay all outstanding indebtedness on four of the properties. Of the remaining proceeds, approximately €20.0 million ($21.6 million
based on the exchange rate on that date) was used to repay amounts outstanding under the Revolving Credit Facility and the remaining balance is available for
general corporate purposes.
On July 10, 2020, we, through certain wholly-owned subsidiaries, borrowed $88.0 million from a syndicate of regional banks led by BOK Financial. In
December, 2020 this loan was repaid, without penalty, with net proceeds from the Company’s newly issued Senior Notes. The loans were secured by six industrial
properties triple-net leased to Whirlpool Corporation and located in Tennessee and Ohio that were simultaneously removed from the borrowing base under the
Revolving Credit Facility. At the time of the closing of the loans in July 2020, approximately $84.0 million was used to repay amounts outstanding under the
Revolving Credit Facility, with the remaining proceeds of approximately $2.2 million, after costs and fees related to the loan, available for general corporate
purposes. The loan bore interest at a floating interest rate of one-month LIBOR plus 2.9%, with the interest rate fixed at 3.45% by swap agreement.
Repayments of principal under the mortgage loan secured by all our properties located in the United Kingdom began in October 2020 based on amounts
specified under the loan. In October 2020, approximately $2.6 million in principal was repaid in accordance with the terms of this mortgage note payable.
Approximately $13.2 million (approximately £9.7 million) in principal is due during the year ending December 31, 2021, which is the only debt we have coming
due during 2021.
Credit Facility
As of December 31, 2020, outstanding borrowings under the Revolving Credit Facility were $111.1 million and the total outstanding balance on our term loan
was $300.2 million, net of deferred financing costs. During the year ended December 31, 2020, we borrowed an additional $338.1 million and repaid
approximately $428.7 million under the Revolving Credit Facility and we repaid $136.7 million of principal on the Term Loan. Subsequent to December 31, 2020,
we borrowed an additional $15.0 million under the Revolving Credit Facility, which we expect to use for general corporate purposes.
As of December 31, 2020, the aggregate total commitments under the Credit Facility were approximately $1.1 billion, based on the USD equivalent on
December 31, 2020. On February 24, 2021, following a request by us, lender commitments under the Credit Facility were increased by $50.0 million with all of the
increase allocated to the Revolving Credit Facility, and the total commitments were approximately $1.2 billion based on prevailing exchange rates on that date.
This increase was made pursuant to the Credit Facility’s uncommitted “accordion feature” whereby, upon our request, but at the sole discretion of the lenders
participating in such increase, total commitments under the Credit Facility may be increased, with the aggregate of such commitments not to exceed $1.75 billion.
Following the effectiveness of the commitment increase completed on February 24, 2021, we may request future additional increases to total commitments of
approximately $565.0 million, allocable to either or both components of the Credit Facility. The increase in lender commitments did not impact the amount
available for future borrowings under the Credit Facility, which is based on the value of a pool of eligible unencumbered real estate assets owned by us and
compliance with various ratios related to those assets.
The Credit Facility consists of two components, a Revolving Credit Facility and a Term Loan, both of which are interest-only. The Revolving Credit Facility
matures on August 1, 2023, subject to two six-month extensions at our option subject to certain conditions, and the Term Loan matures on August 1, 2024.
Borrowings under the Credit Facility bear interest at a variable rate per annum based on an applicable margin that varies based on the ratio of consolidated total
indebtedness and our consolidated total asset value including our subsidiaries plus either (i) LIBOR, as applicable to the currency being borrowed, or (ii) a “base
rate” equal to the greatest of (a) KeyBank’s “prime rate,” (b) 0.5% above the Federal Funds Effective Rate or (c) 1.0% above one-month LIBOR. The applicable
interest rate margin is based on a range from 0.45% to 1.05% per annum with respect to base rate borrowings under the Revolving Credit Facility, 1.45% to 2.05%
per annum with respect to LIBOR borrowings under the Revolving Credit Facility, 0.4% to 1.00% per annum with respect to base rate borrowings under the Term
Loan and 1.40% to 2.00% per annum with respect to LIBOR borrowings under the Term Loan. As of December 31, 2020, the Credit Facility had a weighted-
average effective interest rate of 2.5% after giving effect to interest rate swaps in place.
While we expect LIBOR to be available in substantially its current form until at least the end of 2021, it is possible that LIBOR will become unavailable prior
to that time. The Credit Facility contains terms governing the establishment of a replacement index to serve as an alternative to LIBOR, if necessary. To transition
from LIBOR under the Credit Facility, we anticipate that we will either utilize the Base Rate or negotiate a replacement reference rate for LIBOR with the lenders.
Our Credit Facility requires us, through the OP, to pay an unused fee per annum of 0.25% of the unused balance of the Revolving Credit Facility if the unused
balance exceeds or is equal to 50% of the total commitment or a fee per annum of
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0.15% of the unused balance of the Revolving Credit Facility if the unused balance is less than 50% of the total commitment. From and after the time we obtain an
investment grade credit rating, the unused fee will be replaced with a facility fee based on the total commitment under the Revolving Credit Facility multiplied by
0.30%, decreasing if our credit rating increases.
The availability of borrowings under the Revolving Credit Facility is based on the value of a pool of eligible unencumbered real estate assets owned by us and
compliance with various ratios related to those assets. As of December 31, 2020, approximately $94.5 million was available for future borrowings under the
Revolving Credit Facility. Any future borrowings may, at our option be denominated in USD, EUR, Canadian Dollars, GBP or Swiss Francs. Amounts borrowed
may not, however, be converted to, or repaid in, another currency once borrowed. The Term Loan is denominated in EUR.
Loan Obligations
Our loan obligations generally require us to pay principal and interest on a monthly or quarterly basis with all unpaid principal and interest due at maturity.
Our loan agreements (including the Credit Facility) stipulate compliance with specific reporting covenants. Our mortgage notes payable agreements require
compliance with certain property-level financial covenants including debt service coverage ratios.
During the three months ended September 30, 2020, the borrower entities under the mortgage loan secured by all of our properties located in the United
Kingdom did not maintain the required loan-to-value ratios with respect to the mortgaged properties, and, as a result, a cash trap event under the loan occurred
which was immediately cured when we executed, as required by the terms of the loan, a limited unsecured corporate guaranty of the borrower entities’ obligations
under the loan of £20.0 million (approximately $27.4 million as of December 31, 2020). The guaranty remains in effect and contains a covenant that requires us to
maintain unrestricted cash and cash equivalents (or amounts available for future borrowings under credit facility, such as the Credit Facility) in an amount
sufficient to meet its actual and contingent liabilities under the guaranty.
During the three months ended December 31, 2020, the borrower entities under the same mortgage loan did not maintain the same loan-to-value ratio and
another cash trap event under the loan occurred. This does not constitute a breach of the covenant and is not an event of default under the loan. We are currently in
negotiations to cure the cash trap event. If the value of the underlying portfolio continues to decline, the loan to value ratio may exceed the financial covenant
required under the loan of 55%, which would result in a breach, which could, if not cured, give rise to the lenders’ right to accelerate the principal amount due
under the loan and other remedies. In that event, our intent would be to cure the breach through various remedies available to them per the loan agreement within
the specified time frame under the loan. While we do not anticipate that any arrangement required to cure the cash trap that occurred during the fourth quarter of
2020 will have a material impact on our liquidity, if we are unable to maintain this loan-to-value after the next annual lender valuation in the fourth quarter of
2021, we may experience future cash trap events that could adversely impact our liquidity.
In addition, during the three months ended December 31, 2020, we also triggered a cash sweep event under one of our mortgage loans with a balance of $98.5
million as of December 31, 2020, because a major tenant failed to renew its lease. This is not an event of default and instead triggers a cash sweep event.
Subsequent to December 31, 2020, we cured this event through one of the available options under the loan by putting a $3.2 million letter of credit in place. We
may be required to put additional letters of credit in place up to an aggregate of $7.4 million if we are not able to find a suitable replacement tenant prior to the
fourth quarter of 2021, and the letters of credit reduce the availability for future borrowings under the Revolving Credit Facility.
Non-GAAP Financial Measures
This section discusses the non-GAAP financial measures we use to evaluate our performance including Funds from Operations (“FFO”), Core Funds from
Operations (“Core FFO”) and Adjusted Funds from Operations (“AFFO”). A description of these non-GAAP measures and reconciliations to the most directly
comparable GAAP measure, which is net income, is provided below.
Use of Non-GAAP Measures
FFO, Core FFO, and AFFO 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. 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, or may
calculate Core FFO 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, Core FFO and AFFO calculations exclude such factors as
depreciation and amortization of real estate assets and gain or loss from sales of operating real estate assets (which can vary among owners of identical assets in
similar conditions based on historical cost accounting and
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useful-life estimates), FFO, Core FFO and AFFO presentations facilitate comparisons of operating performance between periods and between other REITs.
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 operating performance including relative to our peers and a more informed and appropriate basis on which to make decisions involving operating, financing,
and investing activities. However, FFO, Core FFO and AFFO are not indicative of cash available to fund ongoing cash needs, including the ability to make cash
distributions. Investors are cautioned that FFO, Core FFO and AFFO should only be used to assess the sustainability of our operating performance excluding these
activities, as they exclude certain costs that have a negative effect on our operating performance during the periods in which these costs are incurred.
Funds from Operations, Core Funds from Operations and Adjusted Funds from Operations
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 FFO, which we believe to be an appropriate supplemental measure to reflect the
operating performance of a REIT. FFO is not equivalent to net income or loss as determined under GAAP.
We calculate FFO, a non-GAAP measure, consistent with the standards established over time by the Board of Governors of NAREIT, as restated in a White
Paper approved by the Board of Governors of NAREIT effective in December 2018 (the “White Paper”). The White Paper defines FFO as net income or loss
computed in accordance with GAAP, excluding depreciation and amortization related to real estate, gain and loss from the sale of certain real estate assets, gain
and loss from change in control and impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to
decreases in the value of depreciable real estate held by the entity. 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. We believe that, because real estate values
historically rise and fall with market conditions, including inflation, interest rates, 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 income.
Core Funds from Operations
In calculating Core FFO, we start with FFO, then we exclude certain non-core items such as acquisition, transaction and other costs, as well as certain other
costs that are considered to be non-core, such as debt extinguishment costs, fire loss and other costs related to damages at our properties. The purchase of
properties, and the corresponding expenses associated with that process, is a key operational feature of our core 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 subsequent operations of the investment. We also add back non-cash write-offs of deferred financing costs and prepayment penalties incurred with the early
extinguishment of debt which are included in net income but are considered financing cash flows when paid in the statement of cash flows. We consider these
write-offs and prepayment penalties to be capital transactions and not indicative of operations. By excluding expensed acquisition, transaction and other 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.
Adjusted Funds from Operations
In calculating AFFO, we start with Core FFO, then 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 early extinguishment of debt and other items excluded in Core FFO as well as unrealized gain and loss, which may not ultimately be realized,
such as gain or loss on derivative instruments, gain or loss on foreign currency transactions, and gain or loss on investments. 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 a direct impact on our
ongoing operating performance. We
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also include the realized gain or loss on foreign currency exchange contracts for AFFO as such items are part of our ongoing operations and affect our current
operating performance.
In calculating AFFO, we exclude certain expenses which under GAAP are characterized as operating expenses in determining operating net income. All paid
and accrued merger, acquisition, transaction and other costs (including prepayment penalties for debt extinguishments) 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, but are not reflective of on-going performance. Further, under GAAP, certain contemplated non-cash fair value and other non-cash adjustments are
considered operating non-cash adjustments to net income. In addition, as discussed above, we view gain and loss from fair value adjustments as items which are
unrealized and may not ultimately be realized and 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
our operating performance. 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 gain or loss, we believe AFFO provides useful supplemental
information. By providing AFFO, we believe we are presenting useful information that can be used to better assess the sustainability of our ongoing operating
performance without the impact of transactions or other items that are not related to the ongoing performance of our portfolio of properties. AFFO presented by us
may not be comparable to AFFO reported by other REITs that define AFFO differently. Furthermore, we believe that in order to facilitate a clear understanding of
our operating results, AFFO should be examined in conjunction with net income (loss) as presented in our consolidated financial statements. AFFO should not be
considered as an alternative to net income (loss) as an indication of our performance or to cash flows as a measure of our liquidity or ability to make distributions.
Accounting Treatment of Rent Deferrals
All of the concessions granted to our tenants as a result of the COVID-19 pandemic are rent deferrals with the original lease term unchanged and collection of
deferred rent deemed probable (see the Overview - Management Update on the Impacts of the COVID-19 Pandemic section of this Management’s Discussion and
Analysis of Financial Condition and Results of Operations for additional information on second quarter rent deferrals). As a result of relief granted by the FASB
and SEC related to lease modification accounting, rental revenue used to calculate net income and NAREIT FFO has not, and we do not expect we will be,
significantly impacted by the deferrals we have entered into. In addition, since we currently believe that these deferral amounts are collectable, we have excluded
from the increase in straight-line rent for AFFO purposes the amounts recognized under GAAP relating to rent deferrals. For a detailed discussion of our revenue
recognition policy, including details related to the relief granted by the FASB and SEC, see Note 2 — Summary of Significant Accounting Policies to the
consolidated financial statements included in this Annual Report on Form 10-K.
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The table below reflects the items deducted from or added to net income attributable to common stockholders in our calculation of FFO, Core FFO and AFFO
for the periods indicated. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect the proportionate share of adjustments for non-
controlling interest to arrive at FFO, Core FFO and AFFO, as applicable.
(In thousands)
Net (loss) income attributable to common stockholders (in accordance with GAAP)
Impairment charges and related lease intangible write-offs
Depreciation and amortization
Loss (gain) on dispositions of real estate investments
FFO (as defined by NAREIT) attributable to common stockholders
Acquisition, transaction and other costs
Loss on extinguishment of debt
Fire (recovery) loss
(2)
(1)
Core FFO attributable to common stockholders
Non-cash equity-based compensation
Non-cash portion of interest expense
Amortization related to above and below-market lease intangibles and right-of-use assets, net
Straight-line rent
Straight-line rent (rent deferral agreements)
(3)
Unrealized loss (income) on undesignated foreign currency advances and other hedge ineffectiveness
Eliminate unrealized losses (gains) on foreign currency transactions
Amortization of mortgage discounts
(4)
AFFO attributable to common stockholders
Summary
FFO (as defined by NAREIT) attributable to common stockholders
Core FFO attributable to common stockholders
AFFO attributable to common stockholders
_____
Year Ended December 31,
2019
2020
(7,775) $
—
138,543
153
130,921
663
3,601
—
135,185
10,065
7,809
791
(7,937)
1,808
6,039
6,752
13
160,525 $
130,921 $
135,185 $
160,525 $
34,535
6,375
125,996
(23,616)
143,290
1,320
949
—
145,559
9,530
6,614
1,655
(6,758)
—
(76)
2,919
260
159,703
143,290
145,559
159,703
$
$
$
$
$
(1)
(2)
(3)
(4)
For the year ended December 31, 2019, acquisition, transaction and other costs primarily related to litigation costs resulting from litigation with our former European service provider.
For the year ended December 31, 2019, primarily includes non-cash write off of deferred financing costs.
Represents the amount of deferred rent pursuant to lease negotiations which qualify for FASB relief for which rent was deferred but not reduced. These amounts are included in the
straight-line rent receivable on our balance sheet but are considered to be earned revenue attributed to the current period, for purposes of AFFO, as they are expected to be collected.
For AFFO purposes, we adjust for unrealized gains and losses. For the year ended December 31, 2020, losses on derivative instruments were $2.3 million which consisted of unrealized
losses of $6.8 million and realized gains of $4.5 million. For the year ended December 31, 2019, gains on derivative instruments were $0.8 million which consisted of unrealized losses of
$2.9 million and realized gains of $3.7 million.
Dividends
The amount of dividends payable to our common stockholders is determined by our board of directors and is dependent on a number of factors, including
funds available for dividends, our financial condition, provisions in our Credit Facility or other agreements that may restrict our ability to pay dividends, capital
expenditure requirements, as applicable, requirements of Maryland law and annual distribution requirements needed to maintain our status as a REIT.
Through March 31, 2020, we paid dividends on Common Stock at an annualized rate of $2.13 per share, or $0.5325 per share on a quarterly basis. In March
2020, our board of directors approved a change in the dividend to an annual rate of $1.60 per share or $0.40 per share on a quarterly basis, which was effective
beginning in the second quarter of 2020 with our April 1, 2020 dividend declaration. Dividends authorized by our board of directors and declared by us are paid on
a quarterly basis in arrears on the 15th day of the first month following the end of each fiscal quarter (unless otherwise specified) to common stockholders of
record on the record date for such payment.
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Dividends on our Series A Preferred Stock accrue in an amount equal to $0.453125 per share per quarter to Series A Preferred Stock holders, which is
equivalent to 7.25% of the $25.00 liquidation preference per share of Series A Preferred Stock per annum. Dividends on our Series B Preferred Stock accrue in an
amount equal to $0.429688 per share per quarter to Series B Preferred Stock holders, which is equivalent to 6.875% of the $25.00 liquidation preference per share
of Series B Preferred Stock per annum. Dividends on the Series A Preferred Stock and Series B Preferred Stock are payable quarterly in arrears on the 15th day of
January, April, July and October of each year (or, if not on a business day, on the next succeeding business day) to holders of record on the close of business on the
record date set by our board of directors. Any accrued and unpaid dividends payable with respect to the Series A Preferred Stock and Series B Preferred Stock
become part of the liquidation preference thereof.
Pursuant to the Credit Facility, we may not pay distributions, including cash dividends payable with respect to Common Stock, Series A Preferred Stock,
Series B Preferred Stock, or any other class or series of stock we may issue in the future, or redeem or otherwise repurchase shares of Common Stock, Series A
Preferred Stock, Series B Preferred Stock, or any other class or series of stock we may issue in the future that exceed 100% of our Adjusted FFO as defined in the
Credit Facility (which is different from AFFO disclosed in this Annual Report on Form 10-K) for any period of four consecutive fiscal quarters, except in limited
circumstances, including that for one fiscal quarter in each calendar year, we may pay cash dividends and other distributions and make redemptions and other
repurchases in an aggregate amount equal to no more than 105% of our Adjusted FFO. We used the exception to pay dividends that were between 100% of
Adjusted FFO to 105% of Adjusted FFO during the quarter ended on June 30, 2020.
Our ability to pay dividends in the future and maintain compliance with the restrictions on the payment of dividends in our Credit Facility depends on our
ability to operate profitably and to generate sufficient cash flows from the operations of our existing properties and any properties we may acquire. There can be no
assurance that we will complete acquisitions on a timely basis or on acceptable terms and conditions, if at all. If we fail to do so (and we are not otherwise able to
increase the amount of cash we have available to pay dividends and other distributions), our ability to comply with the restrictions on the payment of dividends in
our Credit Facility may be adversely affected, and we might be required to further reduce the amount of dividends we pay. In the past, the lenders under our Credit
Facility have consented to increase the maximum amount of our Adjusted FFO we may use to pay cash dividends and other distributions and make redemptions
and other repurchases in certain periods, most recently in connection with the amendment and restatement of our Credit Facility in August 2019. There can be no
assurance that they will do so again in the future. See “Item 1A. Risk Factors - If we are not able to increase the amount of cash we have available to pay
dividends, we may have to reduce dividend payments or identify other financing sources to fund the payment of dividends at their current levels.”
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Cash used to pay dividends and distributions during the year ended December 31, 2020 was generated from cash flows from operations and cash on hand,
consisting of proceeds from borrowings. The following table shows the sources for the payment of dividends to holders of Common Stock, Series A Preferred
Stock, Series B Preferred Stock, and distributions to holders of LTIP Units for the periods indicated:
March 31, 2020
June 30, 2020
September 30, 2020
December 31, 2020
Three Months Ended
Year Ended
December 31, 2020
Percentage of
Dividends
Percentage of
Dividends
Percentage of
Dividends
Percentage of
Dividends
Percentage of
Dividends
$
47,638
$
35,784
$
35,793
$
35,844
$
155,059
3,081
577
135
3,082
1,482
99
3,080
1,482
103
3,082
1,564
104
12,325
5,105
441
(In thousands)
Dividends and Distributions:
Dividends to holders of Common
Stock
Dividends to holders of Series A
Preferred Stock
Dividends to holders of Series B
Preferred Stock
Distributions to holders of LTIP
Units
Total dividends and distributions
$
51,431
$
40,447
$
40,458
$
40,594
$
172,930
Source of dividend coverage:
Cash flows provided by operations
Available cash on hand
Total sources of dividend and
distribution coverage
$
41,895
9,536
81.5 % $
18.5 %
40,447
—
100.0 % $
— %
40,458
—
100.0 % $
— %
40,594
—
100.0 % $
— %
172,930 (1)
— (1)
$
51,431
100.0 % $
40,447
100.0 % $
40,458
100.0 % $
40,594
100.0 % $
172,930
100.0 %
— %
100.0 %
Cash flows provided by operations
(GAAP basis)
$
41,895
$
47,819
$
46,614
$
40,523
$
176,851
Net income (loss) attributable to
common stockholders (in
accordance with GAAP)
$
5,038
$
966
$
(502)
$
(13,277)
$
(7,775)
_____
(1)
Year-to-date totals do may equal the sum of the quarters. Each quarter and year-to-date period is evaluated separately for purposes of this table.
Foreign Currency Translation
Our reporting currency is the USD. 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 equity. We are exposed to fluctuations in foreign currency exchange rates on property investments
in foreign countries which pay rental income, incur property related expenses and borrow in currencies other than our functional currency, the USD. We have used
and may continue to use foreign currency derivatives including options, currency forward and cross currency swap agreements to manage our exposure to
fluctuations in GBP-USD and EUR-USD exchange rates (see Note 8 — Derivatives and Hedging Activities to the consolidated financial statements included in this
Annual Report on Form 10-K for further discussion).
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Contractual Obligations
The following table presents our estimated future payments under contractual obligations at December 31, 2020 and the effect these obligations are expected
to have on our liquidity and cash flow in the specified future periods:
(In thousands)
Principal on mortgage notes payable
(1)
Interest on mortgage notes payable
Principal on Revolving Credit Facility
Interest on Revolving Credit Facility
Principal on Term Loan
(1)
Interest on Term Loan
Principal on Senior Notes
Interest on Senior Notes
Operating ground lease rental payments due
(2)
Total
(3) (4)
________
Total
1,378,686 $
616,079
111,132
5,924
303,036
20,369
500,000
131,250
49,780
3,116,256 $
$
$
2021
2022-2023
2024-2025
Thereafter
13,222 $
52,354
—
2,295
—
5,684
—
18,750
1,510
93,815 $
351,920 $
94,011
111,132
3,629
—
11,368
—
37,500
3,020
612,580 $
323,793 $
64,023
—
—
303,036
3,317
—
37,500
3,033
734,702 $
689,751
405,691
—
—
—
—
500,000
37,500
42,217
1,675,159
(1)
(2)
(3)
(4)
Based on exchange rates of £1.00 to $1.37 for GBP and €1.00 to $1.23 for EUR as of December 31, 2020.
Ground lease rental payments due for our ING Amsterdam lease are not included in the table above as our ground rent for this property is prepaid through 2050.
Amounts in the table above that relate to our foreign operations are based on the exchange rate of the local currencies at December 31, 2020, which consisted primarily of the Euro and the
GBP. At December 31, 2020, we had no material capital lease obligations for which we were the lessee, either individually or in the aggregate.
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.
Election as a REIT
We elected to be taxed as a REIT under Sections 856 through 860 of the Code, effective for our taxable year ended December 31, 2013. We believe that,
commencing with such taxable year, we have been organized and have operated in a manner so that we 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 can provide no assurances that we will operate in a manner so as to remain qualified
as a REIT. To continue to qualify for taxation as a REIT, we must distribute annually at least 90% of our REIT taxable income (which does not equal net income as
calculated in accordance with GAAP), determined without regard for the deduction for dividends paid and excluding net capital gains, and must comply with a
number of other organizational and operational requirements. If we continue to qualify for taxation as a REIT, we generally will not be subject to federal corporate
income tax on the portion of our REIT taxable income that we distribute to our stockholders. Even if we qualify for taxation as a REIT, we may be subject to
certain state and local taxes on our income and properties, as well as federal income and excise taxes on our undistributed income.
In addition, our international assets and operations, including those owned through direct or indirect subsidiaries that are disregarded entities for U.S. federal
income tax purposes, 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 an indexed escalation provision. 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.
Related-Party Transactions and Agreements
Please see Note 11 — Related Party Transactions to our consolidated financial statements included in this Annual Report on Form 10-K for a discussion of the
various related party transactions, agreements and fees.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements 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.
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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 risks or for speculative purposes. However, from time to time, we have entered and may
continue to 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, or otherwise 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. Increases in interest rates may 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 have 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 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 interest payments on the debt obligation. The face amounts on which the swaps or caps, are based are not exchanged. Our objective in
using these derivatives is to limit our exposure to interest rate movements. At December 31, 2020, 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 $19.5 million (see Note 8 — Derivatives
and Hedging Activities to our consolidated financial statements included in this Annual Report on Form 10-K).
As of December 31, 2020, our total consolidated debt, which includes borrowings under the Credit Facility and secured mortgage financings, had a total
carrying value of $2.3 billion, an estimated fair value of $2.4 billion and a weighted-average effective interest rate per annum of 3.3%. At December 31, 2020, a
significant portion (approximately 96%) 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 mortgage debt at December 31, 2020 ranged from 1.4% to 4.9% and the fixed interest rate on our Senior Notes
is 3.75%. In the aggregate, these fixed rate instruments had a weighted-average interest rate of 3.3%.
The contractual annual interest rates on our variable-rate debt at December 31, 2020 ranged from 1.9% to 4.1% and had a weighted-average interest rate of
2.6%. Our interest expense in future periods will vary based on our level of future borrowings, which will depend on our refinancing needs and acquisition activity.
In addition, our interest expense will vary based on movements in interest rates, including LIBOR rates. 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.
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The following table presents future principal cash flows based upon expected maturity dates of our debt obligations outstanding at December 31, 2020:
(In thousands)
2021
2022
2023
2024
2025
Thereafter
Total
____________________
Fixed-rate debt
(1) (2)
Variable-rate debt
(1)
Total Debt
$
$
10,578 $
16,380
370,155
522,823
85,854
1,189,751
2,195,541 $
2,644
4,095
72,422
18,152
—
—
97,313
$
$
13,222
20,475
442,577
540,975
85,854
1,189,751
2,292,854
(1)
(2)
Assumes exchange rates of £1.00 to $1.37 for GBP and €1.00 to $1.23 for EUR as of December 31, 2020, for illustrative purposes, as applicable.
Fixed-rate debt includes variable debt that bears interest at margin plus a floating rate which is fixed through our interest rate swap agreements.
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, 2020 by an aggregate increase of $110.0 million or an aggregate decrease of $92.7 million, respectively.
Annual interest expense on our unhedged variable-rate debt that does not bear interest at fixed rates at December 31, 2020 would increase by $1.1 million and
decrease by $0.6 million, respectively for each respective 1% change in annual interest rates.
Foreign Currency Exchange Rate Risk
We own foreign investments, primarily in Europe but also in Canada and as a result are subject to risk from the effects of exchange rate movements in the
Euro, the GBP and the CAD which may affect future costs and cash flows, in our functional currency, the USD. We generally manage foreign currency exchange
rate movements by matching 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 currency fluctuations. In addition, we have used and may continue to use currency hedging to further reduce the exposure to our net cash flow. We are
generally a net receiver of the Euro, the GBP and the CAD (we receive more cash than we pay out), and therefore our results of operations of our foreign properties
benefit from a weaker USD, and are adversely affected by a stronger USD, relative to the foreign currency subject to any impacts from our hedging activity.
We have designated all current foreign currency draws under the Credit Facility as net investment hedges to the extent of our net investment in foreign
subsidiaries. To the extent foreign draws in each currency exceed the net investment, we reflect the effects of changes in currency on such excess in earnings. As of
December 31, 2020, we did not have any draws in excess of our net investments (see Note 8 — Derivatives and Hedging Activities to our consolidated financial
statements included in this Annual Report on Form 10-K).
We enter into foreign currency forward contracts and put options 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. By entering into forward contracts and
holding them to maturity, we are locked into a future currency exchange rate for the term of the contract. A foreign currency put option contract consists of a right,
but not the obligation, to sell a specified amount of foreign currency for a specified amount of another currency at a specific date. If the exchange rate of the
currency fluctuates favorably beyond the strike rate of the put at maturity, the option would be considered “in-the-money” and exercised accordingly. The total
estimated fair value of our foreign currency forward contracts and put options, which are included in derivatives, at fair value on the consolidated balance sheets,
was in a net liability position of $4.0 million at December 31, 2020 (see Note 7 — Fair Value of Financial Instruments to our consolidated financial statements
included in this Annual Report on Form 10-K). We have obtained, and may in the future obtain, non-recourse mortgage financing in a foreign currency. To the
extent that currency fluctuations increase or decrease rental revenues as translated to USD, the change in debt service, as translated to USD, 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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Scheduled future minimum rents, exclusive of renewals, under non-cancelable operating leases, for our foreign operations as of December 31, 2020, during
each of the next five calendar years and thereafter, are as follows:
(In thousands)
2021
2022
2023
2024
2025
Thereafter
Total
Future Minimum Base Rent Payments (1)
EUR
GBP
CAD
Total
$
$
62,123 $
62,472
61,350
43,472
29,257
111,333
370,007 $
57,049 $
56,304
53,351
46,026
34,302
180,448
427,480 $
753 $
753
753
753
753
1,827
5,592 $
119,925
119,529
115,454
90,251
64,312
293,608
803,079
_______________________
(1)
Assumes exchange rates of £1.00 to $1.37 for GBP, €1.00 to $1.23 for EUR and $1.00 CAD to $0.78 as of December 31, 2020 for illustrative purposes, as applicable.
Scheduled debt service payments (principal and interest) for mortgage notes payable for our foreign operations and the portion of our Term Loan denominated
in EUR as of December 31, 2020, during each of the next five calendar years and thereafter, are as follows:
(In thousands)
2021
2022
2023
2024
2025
Thereafter
Total
(In thousands)
2021
2022
2023
2024
2025
Thereafter
Total
Future Debt Service Payments
(1) (2)
Mortgage Notes Payable
EUR
GBP
Total
7,240 $
7,156
70,320
245,095
93,010
28,625
451,446 $
38,184 $
44,452
283,699
4,475
4,882
19,529
395,221 $
45,424
51,608
354,019
249,570
97,892
48,154
846,667
$
$
Future Debt Service Payments
(1) (2)
Credit Facility (Term Loan Portion)
EUR
Total
$
$
5,684 $
5,684
5,684
306,353
—
—
323,405 $
5,684
5,684
5,684
306,353
—
—
323,405
_______________________
(1)
(2)
Assumes exchange rate of €1.00 to $1.23 for EUR as of December 31, 2020 for illustrative purposes, as applicable. Contractual rents and debt obligations are denominated in the functional
currency of the country of each property.
Interest on variable-rate debt not fixed through our interest rate swap agreements was calculated using the applicable annual interest rates and balances outstanding at December 31, 2020.
We currently anticipate that, by their respective due dates, we will have repaid or refinanced certain of these loans, or extended it, but there can be no
assurance that we will be able to refinance these loans on favorable terms, if at all. If
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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.
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, 2020, 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 our annualized rental income, the majority of our directly owned real estate properties and related loans are located in the U.S. and Canada (64%)
and the remaining are in Finland (5%), France (4%), Germany (3%), Luxembourg (2%), The Netherlands (5%) and the United Kingdom (17%). No individual
tenant accounted for more than 10% of our annualized rental income at December 31, 2020. Based on annualized rental income, at December 31, 2020, our directly
owned real estate properties contain significant concentrations in the following asset types: office (46%), industrial/distribution (49%), and retail (5%).
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 on 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, 2020, 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, 2020. 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, 2020, our internal control over financial reporting was effective.
The effectiveness of our internal control over financial reporting as of December 31, 2020 has been audited by PricewaterhouseCoopers LLP, an independent
registered public accounting firm, as stated on its 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 three months ended December 31, 2020, 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.
Stockholder Rights Plan Amendment
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On February 26, 2021, we amended our rights agreement with American Stock Transfer and Trust Company, LLC, as Rights Agent, solely to extend the
expiration date of the rights under the stockholder rights plan from April 8, 2021 to April 8, 2024, unless earlier exercised, exchanged, amended, redeemed, or
terminated. Please see Note 9 — Stockholder’s Equity —Stockholder Rights Plan for additional information on the plan.
The foregoing description of the material terms of the amendment does not purport to be complete and is qualified in its entirety by reference to the full text of
the amendment, which is filed as an exhibit to this Annual Report on Form 10-K and incorporated herein by reference.
Item 10. Directors, Executive Officers and Corporate Governance.
PART III
We have adopted a Code of Business Conduct and 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 Business Conduct and Ethics may be obtained, free of charge, by sending a written request
to our executive office – 650 Fifth Avenue – 30 Floor, New York, NY 10019, attention Chief Financial Officer. Our Code of Business Conduct and Ethics is also
available on our website, www.globalnetlease.com.
th
The information required by this Item will be set forth in our definitive proxy statement with respect to our 2021 annual meeting of stockholders to be filed not
later than 120 days after the end of the 2020 fiscal year, 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 2021 annual meeting of stockholders to be filed not
later than 120 days after the end of the 2020 fiscal year, 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 2021 annual meeting of stockholders to be filed not
later than 120 days after the end of the 2020 fiscal year, 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 2021 annual meeting of stockholders to be filed not
later than 120 days after the end of the 2020 fiscal year, 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 2021 annual meeting of stockholders to be filed not
later than 120 days after the end of the 2020 fiscal year, and is incorporated herein by reference.
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Item 15. Exhibits and Financial Statement Schedules.
(a) Financial Statement Schedules
See the Index to audited consolidated financial statements at page F-1 of this report.
The following financial statement schedule is included herein at page F-52 of this report:
PART IV
Schedule III – Real Estate and Accumulated Depreciation as of December 31, 2020 and for the years ended December 31, 2020 and 2019.
(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, 2020 (and are
numbered in accordance with Item 601 of Regulation S-K).
Exhibit No.
3.1 *
(1)
3.2
3.3
4.1
(3)
(2)
4.2 *
(2)
4.3
4.4 *
4.5
(4)
10.1
(3)
10.2
(5)
10.3
(6)
10.4
10.5
(5)
(7)
10.6
(8)
10.7
(8)
10.8
(8)
10.9
(8)
10.10
(8)
Description
Articles of Restatement of Global Net Lease, Inc., effective February 24, 2021.
Amended and Restated Bylaws of Global Net Lease, Inc.
Amendment to 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.
Description of Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934.
Rights Agreement, dated April 9, 2020, between Global Net Lease, Inc. and American Stock Transfer and Trust, LLC, as Rights
Agent.
Amendment to Rights Agreement, dated February 26, 2021, between Global Net Lease, Inc. and American Stock Transfer and
Trust, LLC, as Rights Agent.
Indenture, dated as of December 16, 2020, among Global Net Lease, Inc., Global Net Lease Operating Partnership, L.P., the
Guarantors party thereto and U.S. Bank National Association, as trustee (including the form of Notes).
Fourth Amended and Restated Advisory Agreement, dated as of 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 as of 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.).
Global Net Lease, Inc. (f/k/a American Realty Capital Global Daily Net Asset Trust, Inc.) 2012 Stock Option Plan.
Second Amendment, dated as of September 11, 2017, to the Second Amended and Restated Agreement of Limited Partnership of
Global Net Lease Operating Partnership, L.P., dated June 2, 2015.
Loan Agreement, dated as of October 27, 2017, by and among the wholly-owned subsidiaries of Global Net Lease Operating
Partnership, L.P. listed on Schedule I attached thereto, as borrower, and Column Financial, Inc. and Citi Real Estate Funding,
Inc., as lender.
Guaranty Agreement, dated as of October 27, 2017, by Global Net Lease Operating Partnership, L.P. for the benefit of Column
Financial, Inc. and Citi Real Estate Funding, Inc.
Environmental Indemnity Agreement, dated as of October 27, 2017, by Global Net Lease Operating Partnership, L.P. and the
wholly-owned subsidiaries of Global Net Lease Operating Partnership, L.P. listed on Schedule I attached thereto, in favor of
Column Financial, Inc. and Citi Real Estate Funding, Inc.
Property Management and Leasing Agreement, dated as of October 27, 2017, among the entities listed on Exhibit A attached
thereto and Global Net Lease Properties, LLC.
First Amendment, dated as of October 27, 2017, to the Property Management and Leasing Agreement, dated as of April 20, 2012,
among Global Net Lease, Inc., Global Net Lease Operating Partnership, L.P. and Global Net Lease Properties, LLC.
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Exhibit No.
10.11
(9)
10.12
(10)
10.13
(11)
10.14
(12)
10.15
(12)
10.16
(13)
10.17
(14)
10.18
(15)
10.19
(16)
10.20
10.21
(17)
(17)
10.22
(18)
10.23
(17)
10.24
(19)
10.25
(18)
10.26
(20)
10.27
(21)
10.28
(21)
10.29
(21)
10.30
(22)
Description
Third Amendment, dated as of December 15, 2017, to the Second Amended and Restated Agreement of Limited Partnership of
Global Net Lease Operating Partnership, L.P., dated June 2, 2015.
Second Amendment, dated as of February 27, 2018, to the Property Management and Leasing Agreement, dated as of April 20,
2012, among Global Net Lease, Inc., Global Net Lease Operating Partnership, L.P. and Global Net Lease Properties, LLC.
Fourth Amendment, dated as of March 23, 2018, to the Second Amended and Restated Agreement of Limited Partnership of Global
Net Lease Operating Partnership, L.P., dated June 2, 2015.
Fifth Amendment, dated as of July 19, 2018, to the Second Amended and Restated Agreement of Limited Partnership of Global Net
Lease Operating Partnership, L.P., dated June 2, 2015.
2018 Advisor Multi-Year Outperformance Award Agreement, dated as of July 19, 2018, between Global Net Lease, Inc., Global
Net Lease Operating Partnership, L.P. and Global Net Lease Advisors, LLC.
First Amendment to the Fourth Amended And Restated Advisory Agreement, dated as of August 14, 2018, by and among Global
Net Lease, Inc., Global Net Lease Operating Partnership, L.P., and Global Net Lease Advisors, LLC.
Second Amendment to the Fourth Amended And Restated Advisory Agreement, dated as of November 6, 2018, by and among
Global Net Lease, Inc., Global Net Lease Operating Partnership, L.P., and Global Net Lease Advisors, LLC.
Third Amendment to the Fourth Amended And Restated Advisory Agreement, dated as of May 6, 2020, by and among Global Net
Lease, Inc., Global Net Lease Operating Partnership, L.P., and Global Net Lease Advisors, LLC.
Investment Facility Agreement, dated as August 13, 2018, among the borrower and guarantor entities thereto and Lloyds Bank
PLC.
Form of Restricted Stock Unit Award Agreement.
Third Amendment, dated as of February 27, 2019, to the Property Management and Leasing Agreement, dated as of April 20, 2012,
among Global Net Lease, Inc., Global Net Lease Operating Partnership, L.P. and Global Net Lease Properties, LLC.
First Amendment, dated as of February 27, 2019, to 2018 Advisor Multi-Year Outperformance Award Agreement, dated as of July
19, 2018, between Global Net Lease, Inc., Global Net Lease Operating Partnership, and Global Net Lease Advisors, LLC.
Equity Distribution Agreement, dated February 28, 2019, by and among Global Net Lease, Inc., Global Net Lease Operating
Partnership, L.P., UBS Securities LLC, Robert W. Baird & Co. Incorporated, Capital One Securities, Inc., Mizuho Securities
USA LLC, B. Riley FBR, Inc., KeyBanc Capital Markets Inc., BMO Capital Markets Corp., BBVA Securities Inc., SMBC
Nikko Securities America Inc., and Stifel, Nicolaus & Company Incorporated.
Property Management and Leasing Agreement, dated as of April 5, 2019 among the entities listed on Exhibit A attached thereto and
Global Net Lease Properties, LLC.
Amendment No. 1, dated as of May 9, 2019, to Equity Distribution Agreement, dated February 28, 2019, by and among Global Net
Lease, Inc., Global Net Lease Operating Partnership, L.P., UBS Securities LLC, Robert W. Baird & Co. Incorporated, Capital
One Securities, Inc., Mizuho Securities USA LLC (formerly known as Mizuho Securities USA Inc.), B. Riley FBR, Inc.,
KeyBanc Capital Markets Inc., BMO Capital Markets Corp., BBVA Securities Inc., SMBC Nikko Securities America, Inc.,
Stifel, Nicolaus & Company, Incorporated and Ladenburg Thalmann & Co. Inc.
Amendment No. 2, dated as of June 21, 2019, to Equity Distribution Agreement, dated February 28, 2019, by and among Global
Net Lease, Inc., Global Net Lease Operating Partnership, L.P., UBS Securities LLC, Robert W. Baird & Co. Incorporated,
Capital One Securities, Inc., Mizuho Securities USA LLC (formerly known as Mizuho Securities USA Inc.), B. Riley FBR,
Inc., KeyBanc Capital Markets Inc., BMO Capital Markets Corp., BBVA Securities Inc., SMBC Nikko Securities America,
Inc., Stifel, Nicolaus & Company, Incorporated, and Ladenburg Thalmann & Co. Inc.
First Amended and Restated Credit Agreement, dated as of August 1, 2019, by and among the Global Net Lease Operating
Partnership, L.P., as borrower, the lenders party thereto and KeyBank National Association, as agent.
First Amended and Restated Guaranty, dated as of August 1, 2019, by the Company, ARC Global Holdco, LLC, Global II Holdco,
LLC and the other subsidiary parties thereto for the benefit of KeyBank National Association and the other lender parties
thereto.
First Amended & Restated Contribution Agreement, dated as of August 1, 2019, by and among the Company, Global Net Lease
Operating Partnership, L.P., ARC Global Holdco, LLC, ARC Global II Holdco, LLC, the other subsidiary parties thereto.
Loan Agreement, dated as of September 12, 2019, by and among the borrowers party thereto, and KeyBank National Association,
as lender.
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Exhibit No.
10.31
(22)
10.32
(22)
10.33
(22)
10.34
(22)
10.35
(23)
10.36
(24)
10.37
(25)
10.38
(25)
10.39
(19)
(19)
(26)
10.40
10.41
21.1 *
23.1 *
31.1 *
31.2 *
32 *
101.INS *
101.SCH *
101.CAL *
101.DEF *
101.LAB *
101.PRE *
104 *
_________________
*
Filed herewith
Description
Form of Promissory Note, dated as of September 12, 2019, by the borrowers party thereto in favor of KeyBank National
Association, as lender.
Guaranty Agreement, dated as of September 12, 2019, by Global Net Lease Operating Partnership, L.P. in favor of KeyBank
National Association, as lender.
Environmental Indemnity Agreement, dated as of September 12, 2019, by the borrowers party thereto and Global Net Lease
Operating Partnership, L.P. in favor of KeyBank National Association, as indemnitee.
Property Management and Leasing Agreement, dated as of September 12, 2019 among the entities listed on Exhibit A attached
thereto and Global Net Lease Properties, LLC.
Amendment No. 3, dated as of November 12, 2019, to Equity Distribution Agreement, dated February 28, 2019, by and among
Global Net Lease, Inc., Global Net Lease Operating Partnership, L.P., Capital One Securities, Inc., Mizuho Securities USA
LLC, B. Riley FBR, Inc., KeyBanc Capital Markets Inc., BMO Capital Markets Corp., BBVA Securities Inc., SMBC Nikko
Securities America, Inc. Stifel, Nicolaus & Company, Incorporated and Ladenburg Thalmann & Co. Inc.
Sixth Amendment, dated November 22, 2019, to the Second Amended and Restated Agreement of Limited Partnership of Global
Net Lease Operating Partnership, L.P., dated June 2, 2015.
Seventh Amendment, dated December 13, 2019, to the Second Amended and Restated Agreement of Limited Partnership of Global
Net Lease Operating Partnership, L.P., dated June 2, 2015.
Equity Distribution Agreement, dated December 13, 2019, by and among Global Net Lease, Inc., Global Net Lease Operating
Partnership, L.P. and B. Riley FBR, Inc., BMO Capital Markets Corp., Ladenburg Thalmann & Co. Inc., D.A. Davidson & Co.,
and KeyBanc Capital Markets Inc.
First Amendment, dated as of December 31, 2019, to First Amended and Restated Credit Agreement, dated as of August 1, 2019, by
and among the Global Net Lease Operating Partnership, L.P., as borrower, the lenders party thereto and KeyBank National
Association, as agent.
Form of Indemnification Agreement.
Form of Restricted Share Award Agreement.
List of Subsidiaries.
Consent of PricewaterhouseCoopers LLP.
Certification of the Principal Executive Officer of Global Net Lease, Inc. 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.
Certification of the Principal Financial Officer of Global Net Lease, Inc. 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.
Written statements of the Principal Executive Officer and Principal Financial Officer of Global Net Lease, Inc. pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are
embedded within the Inline XBRL document.
Inline XBRL Taxonomy Extension Schema Document.
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
Inline XBRL Taxonomy Extension Definition Linkbase Document.
Inline XBRL Taxonomy Extension Label Linkbase Document.
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL
tags are embedded within the Inline XBRL document.
(1) Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on June 3, 2015.
(2) Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on April 9, 2020.
(3) Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on June 2, 2015.
(4)
Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on December 17, 2020.
(5) 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.
(6) Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on April 9, 2015.
(7) Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on September 11, 2017.
(8) Filed as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2017 filed with the SEC on November 7, 2017.
(9) Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on December 18, 2017.
(10) Filed as an exhibit to our Annual Report on Form 10-K for the year ended December 31, 2017 filed with the SEC on February 28, 2018.
(11) Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on March 23, 2018.
(12) Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on July 23, 2018.
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(13) Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on August 14, 2018.
(14) Filed as an exhibit to our Current Report on Form 10-Q for the quarter ended September 30, 2018 filed with the SEC on November 7, 2018.
(15) Filed as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 filed with the SEC on May 7, 2020.
(16) Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on August 16, 2018.
(17) Filed as an exhibit to our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on February 28, 2019.
(18) Filed as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2019 filed with the SEC on May 10, 2019.
(19) Filed as an exhibit to our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on February 28, 2020.
(20) Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on June 21, 2019.
(21) Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on August 6, 2019.
(22) Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on September 18, 2019.
(23) Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on November 12, 2019.
(24) Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on November 22, 2019.
(25) Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on December 13, 2019.
(26) Filed as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2020 filed with the SEC on November 6, 2020.
Item 16. Form 10-K Summary.
None.
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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 26th day of February, 2021.
SIGNATURES
GLOBAL NET LEASE, INC.
/s/ James L. Nelson
By:
James L. Nelson
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/ Edward M. Weil, Jr.
Edward M. Weil, Jr.
/s/ James L. Nelson
James L. Nelson
Non-Executive Chair of the Board of Directors, and Nominating and Corporate
Governance Committee Chair
February 26, 2021
Director
Chief Executive Officer, President and Director
(Principal Executive Officer)
February 26, 2021
February 26, 2021
/s/ Christopher J. Masterson
Christopher J. Masterson
Chief Financial Officer, Treasurer and Secretary
(Principal Financial Officer and Principal Accounting Officer)
February 26, 2021
/s/ M. Therese Antone
M. Therese Antone
/s/ Edward G. Rendell
Edward G. Rendell
/s/ Lee M. Elman
Lee M. Elman
/s/ Abby M. Wenzel
Abby M. Wenzel
Independent Director, Audit Committee Chair
February 26, 2021
Independent Director, Compensation Committee Chair
February 26, 2021
Independent Director, Conflicts Committee Chair
February 26, 2021
Independent Director
February 26, 2021
73
GLOBAL NET LEASE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2020 and 2019
Consolidated Statements of Operations for the Years Ended December 31, 2020, 2019 and 2018
Consolidated Statements of Comprehensive (Loss) Income for the Years Ended December 31, 2020, 2019 and 2018
Consolidated Statements of Equity for the Years Ended December 31, 2020, 2019 and 2018
Consolidated Statements of Cash Flows for the Years Ended December 31, 2020, 2019 and 2018
Notes to Consolidated Financial Statements
Financial Statement Schedule:
Schedule III — Real Estate and Accumulated Depreciation as of December 31, 2020
Page
F-2
F-4
F-5
F-6
F-7
F-8
F-10
F-50
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.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Global Net Lease, Inc. and its subsidiaries (the “Company”) as of December 31, 2020 and 2019,
and the related consolidated statements of operations, of comprehensive income (loss), of equity and of cash flows for each of the three years in the period ended
December 31, 2020, including the related notes and financial statement schedule listed in the accompanying index (collectively referred to as the “consolidated
financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in
Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December
31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with
accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, 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 the Company’s consolidated financial statements and on the Company's internal
control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United
States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal
control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. 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.
Definition and Limitations of Internal Control over Financial Reporting
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.
F-2
Report of Independent Registered Public Accounting Firm
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or
required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii)
involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the
consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical
audit matter or on the accounts or disclosures to which it relates.
Purchase Price Allocations for Property Acquisitions
As described in Notes 2 and 3 to the consolidated financial statements, the Company completed property acquisitions with cash paid for acquired real estate
investments, net of liabilities assumed, of $464.1 million during the year ended December 31, 2020. For acquired properties with leases classified as operating
leases, management allocates the purchase price of acquired properties to tangible and identifiable intangible assets acquired and liabilities assumed based on their
respective fair values. Tangible assets include land, land improvements, buildings, fixtures and tenant improvements on an as-if vacant basis. Management utilizes
various estimates, processes and information to determine the as-if vacant property value. Estimates of value are made by management using customary methods,
including data from appraisals, comparable sales, discounted cash flow analysis and other methods. Fair value estimates are also made using significant
assumptions such as capitalization rates, discount rates, fair market lease rates, and land values per square foot. Identifiable intangible assets include amounts
allocated to acquire leases for above- and below-market lease rates, and the value of in-place leases, as applicable. 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 principal considerations for our determination that performing procedures relating to purchase price allocations for property acquisitions is a critical audit
matter are the significant judgment by management to develop the fair value estimates of tangible and intangible assets and liabilities. This in turn led to a high
degree of auditor judgment and subjectivity in applying procedures and evaluating audit evidence relating to these fair value estimates. In addition, significant
audit effort was required in evaluating the significant assumptions relating to the discounted cash flows of tangible and intangible assets and liabilities and
capitalization rates, discount rates, fair market lease rates, and land values per square foot. The audit effort involved the use of professionals with specialized skill
and knowledge to assist in performing these procedures and evaluating the audit evidence obtained.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial
statements. These procedures included testing the effectiveness of controls relating to purchase price allocations for property acquisitions, including controls over
management’s valuation of tangible and intangible assets and liabilities and controls over developing the assumptions used in the discounted cash flow model,
related to capitalization rates, discount rates, fair market lease rates, and land values per square foot. Audit procedures also included, among others, (i) reading the
executed purchase agreements and lease documents; (ii) testing management’s process for estimating the fair value of tangible and intangible assets and liabilities;
(iii) testing management’s projected cash flows used to estimate the fair value of tangible and intangible assets and liabilities, using professionals with specialized
skill and knowledge to assist in doing so; and (iv) evaluating the accuracy of discounted cash flow model outputs, using professionals with specialized skill and
knowledge to assist in doing so. Testing management’s process included evaluating the appropriateness of the valuation methods and the reasonableness of the
significant assumptions used in the discounted cash flow model, related to capitalization rates, discount rates, fair market lease rates, and land values per square
foot. Evaluating the reasonableness of the significant assumptions included considering whether these assumptions were consistent with external market data,
comparable transactions, and evidence obtained in other areas of the audit.
/s/ PricewaterhouseCoopers LLP
New York, New York
February 26, 2021
We have served as the Company’s auditor since 2015.
F-3
GLOBAL NET LEASE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
ASSETS
Real estate investments, at cost (Note 3):
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
Derivative assets, at fair value (Note 8)
Unbilled straight-line rent
Operating lease right-of-use asset (Note 10)
Prepaid expenses and other assets
Due from related parties
Deferred tax assets
Goodwill and other intangible assets, net
Deferred financing costs, net
Total Assets
LIABILITIES AND EQUITY
Mortgage notes payable, net (Note 4)
Revolving credit facility (Note 5)
Term loan, net (Note 5)
Senior notes, net (Note 6)
Acquired intangible lease liabilities, net
Derivative liabilities, at fair value (Note 8)
Due to related parties
Accounts payable and accrued expenses
Operating lease liability (Note 10)
Prepaid rent
Deferred tax liability
Taxes payable
Dividends payable
Total Liabilities
Commitments and contingencies (Note 10)
Stockholders’ Equity (Note 9):
7.25% Series A cumulative redeemable preferred stock, $0.01 par value, liquidation preference $25.00 per share, 9,959,650 shares authorized,
6,799,467 shares issued and outstanding as of December 31, 2020 and 2019
6.875% Series B cumulative redeemable perpetual preferred stock, $0.01 par value, liquidation preference $25.00 per share, 11,450,000
shares authorized, 3,861,953 and 3,450,000 shares issued and outstanding as of December 31, 2020 and 2019, respectively
Common stock, $0.01 par value, 250,000,000 shares authorized, 89,614,601 and 89,458,752 shares issued and outstanding as of
December 31, 2020 and 2019, respectively
Additional paid-in capital
Accumulated other comprehensive income
Accumulated deficit
Total Stockholders’ Equity
Non-controlling interest
Total Equity
Total Liabilities and Equity
December 31,
2020
2019
$
$
$
$
$
$
$
476,599
3,124,884
5,486
711,985
4,318,954
(675,200)
3,643,754
124,245
1,448
525
61,007
58,395
43,929
377
2,367
23,089
7,878
3,967,014
1,363,698
111,132
300,154
490,345
32,970
19,984
2,002
28,310
25,350
21,481
12,157
—
5,152
2,412,735
—
68
39
2,227
2,418,659
8,073
(896,547)
1,532,519
21,760
1,554,279
3,967,014
$
414,446
2,685,325
11,725
651,768
3,763,264
(517,123)
3,246,141
270,302
3,985
4,151
51,795
50,211
37,370
351
4,441
21,920
10,938
3,701,605
1,272,154
199,071
397,893
—
30,529
7,507
342
22,903
23,985
17,236
14,975
1,046
4,006
1,991,647
—
68
35
2,225
2,408,353
20,195
(733,245)
1,697,631
12,327
1,709,958
3,701,605
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)
Revenue from tenants
$
330,104 $
306,214 $
282,207
2020
Year Ended December 31,
2019
2018
Expenses (income):
Property operating
Fire (recovery) loss
Operating fees to related parties
Impairment charges and related lease intangible write-offs
Acquisition, transaction and other costs (Note 10)
General and administrative
Equity-based compensation
Depreciation and amortization
Total expenses
Operating income before (loss) gain on dispositions of real estate
investments
(Loss) gain on dispositions of real estate investments
Operating income
Other income (expense):
Interest expense
Loss on extinguishment of debt
(Loss) gain on derivative instruments
Unrealized (loss) income on undesignated foreign currency advances and other
hedge ineffectiveness
Other income (loss)
Total other expense, net
Net income before income tax
Income tax expense
Net income
Preferred stock dividends
Net (loss) income attributable to common stockholders
Basic and Diluted (Loss) Earnings Per Common Share:
Net (loss) income per share attributable to common stockholders — Basic
Net (loss) income per share attributable to common stockholders — Diluted
Weighted average common shares outstanding:
Basic
Diluted
$
$
$
32,372
—
35,801
—
663
13,264
10,065
138,543
230,708
99,396
(153)
99,243
(71,804)
(3,601)
(2,341)
(6,039)
289
(83,496)
15,747
(4,969)
10,778
(18,553)
(7,775) $
(0.09) $
(0.09) $
28,314
—
33,292
6,375
1,320
10,108
9,530
125,996
214,935
91,279
23,616
114,895
(64,199)
(949)
769
76
216
(64,087)
50,808
(4,332)
46,476
(11,941)
34,535 $
0.40 $
0.39 $
28,732
(50)
28,234
5,000
13,850
10,439
2,649
119,582
208,436
73,771
(5,751)
68,020
(57,973)
(3,897)
7,638
(434)
(23)
(54,689)
13,331
(2,434)
10,897
(9,815)
1,082
0.01
0.01
89,473,554
89,473,554
85,031,236
86,349,645
69,411,061
69,663,208
The accompanying notes are an integral part of these consolidated financial statements.
F-5
GLOBAL NET LEASE, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(In thousands)
Net income
Other comprehensive income (loss)
Cumulative translation adjustment
Designated derivatives, fair value adjustments
Other comprehensive income (loss)
Comprehensive income (loss)
Preferred stock dividends
2020
Year Ended December 31,
2019
2018
$
10,778 $
46,476 $
10,897
(3,266)
(8,856)
(12,122)
(1,344)
(18,553)
21,147
(7,430)
13,717
60,193
(11,941)
(17,555)
4,918
(12,637)
(1,740)
(9,815)
Comprehensive income (loss) attributable to common stockholders
$
(19,897) $
48,252 $
(11,555)
The accompanying notes are an integral part of these consolidated financial statements.
F-6
GLOBAL NET LEASE, INC.
CONSOLIDATED STATEMENTS OF EQUITY
Years Ended December 31, 2019, 2018 and 2017
(In thousands, except share data)
Series A Preferred Stock
Series B Preferred Stock
Common Stock
Number of
Shares
Par
Value
Number of
Shares
Par
Value
Number of
Shares
Par Value
Additional
Paid-in
Capital
Accumulated Other
Comprehensive
(Loss) Income
Accumulated
Deficit
Total
Stockholders’
Equity
Non-
controlling
interest
Total Equity
$ —
67,287,231
$ 2,003
$ 1,860,058
$
19,447
$
(468,396)
$
1,413,166
$
1,077
$ 1,414,243
Balance, December 31, 2017
5,409,650
$
Issuance of Common Stock, net
Issuance of Series A Preferred
Stock, net
Dividends declared:
Common Stock, $2.13 per share
Series A Preferred Stock, $1.81
per share
Equity-based compensation
Distributions to non-controlling
interest holders
Net income
Cumulative translation adjustment
Designated derivatives, fair value
adjustments
Balance, December 31, 2018
Adoption of ASU 2017-12
(Note 2)
Adoption of ASU 2016-02 (Note
2)
Issuance of Common Stock, net
Issuance of Series A Preferred
Stock, net
Issuance of Series B Preferred
Stock, net
Dividends declared:
Common Stock, $2.13 per share
Series A Preferred Stock, $1.81
per share
Series B Preferred Stock $0.17
per share
Equity-based compensation
Distributions to non-controlling
interest holders
Net income
Cumulative translation adjustment
Designated derivatives, fair value
adjustments
—
7,240
—
—
—
—
—
—
—
5,416,890
—
—
—
1,382,577
—
—
—
—
—
—
—
—
—
Balance, December 31, 2019
6,799,467
Common Stock issuance costs
Issuance of Series A Preferred
Stock, net
Issuance of Series B Preferred
Stock, net
Dividends declared:
Common Stock, $1.73 per share
Series A Preferred Stock, $1.81
per share
Series B Preferred Stock $1.72
per share
Equity-based compensation
Distributions to non-controlling
interest holders
Net income
Cumulative translation adjustment
Designated derivatives, fair value
adjustments
—
—
—
—
—
—
—
—
—
—
—
Balance, December 31, 2020
6,799,467
$
54
—
—
—
—
—
—
—
—
—
54
—
—
—
14
—
—
—
—
—
—
—
—
—
68
—
—
—
—
—
—
—
—
—
—
—
68
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3,450,000
—
—
—
—
—
—
—
—
3,450,000
—
—
411,953
—
—
—
—
—
—
—
—
3,861,953
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
35
—
—
—
—
—
—
—
—
35
—
—
4
—
—
—
—
—
—
—
—
39
8,793,394
—
—
—
—
—
—
—
—
88
—
—
—
—
—
—
—
—
171,682
(227)
—
—
468
—
—
—
—
76,080,625
2,091
2,031,981
—
—
13,355,773
—
—
—
—
—
22,354
—
—
—
—
—
—
134
—
—
—
—
—
—
—
—
—
—
—
—
258,288
34,590
83,033
—
—
—
461
—
—
—
—
89,458,752
2,225
2,408,353
—
—
—
—
—
—
155,849
—
—
—
—
—
—
—
—
—
—
2
—
—
—
—
(345)
(125)
10,146
—
—
—
630
—
—
—
—
—
—
—
—
—
—
—
(17,555)
4,918
6,810
(332)
—
—
—
—
—
—
—
—
—
—
21,147
(7,430)
20,195
—
—
—
—
—
—
—
—
(3,266)
(8,856)
—
—
171,770
(227)
(147,549)
(147,549)
(9,815)
—
(585)
10,897
—
(9,815)
468
(585)
10,897
(17,555)
—
4,918
—
—
—
—
2,181
—
—
—
—
171,770
(227)
(147,549)
(9,815)
2,649
(585)
10,897
(17,555)
4,918
(615,448)
1,425,488
3,258
1,428,746
332
(1,200)
—
—
—
—
(1,200)
258,422
34,604
83,068
(150,922)
(150,922)
(11,353)
(11,353)
(588)
—
(542)
46,476
—
—
(588)
461
(542)
46,476
21,147
(7,430)
—
—
—
—
—
—
—
—
9,069
—
—
—
—
—
(1,200)
258,422
34,604
83,068
(150,922)
(11,353)
(588)
9,530
(542)
46,476
21,147
(7,430)
(733,245)
1,697,631
12,327
1,709,958
—
—
—
(345)
(125)
10,150
(155,086)
(155,086)
(12,325)
(12,325)
(6,228)
—
(441)
10,778
—
—
(6,228)
632
(441)
10,778
(3,266)
(8,856)
—
—
—
—
—
—
9,433
—
—
—
—
(345)
(125)
10,150
(155,086)
(12,325)
(6,228)
10,065
(441)
10,778
(3,266)
(8,856)
89,614,601
$ 2,227
$ 2,418,659
$
8,073
$
(896,547)
$
1,532,519
$
21,760
$ 1,554,279
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 income
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation
Amortization of intangibles
Amortization of deferred financing costs
Amortization of mortgage discounts and premiums, net
Amortization of below-market lease liabilities
Amortization of above-market lease assets
Amortization related to right-of-use assets
Amortization of lease incentive
Bad debt expense
Unbilled straight-line rent
Equity-based compensation
Unrealized losses (gains) on foreign currency transactions, derivatives, and other
Unrealized losses on undesignated foreign currency advances and other hedge ineffectiveness
Payments for settlement of derivatives
Loss on extinguishment of debt
Loss (gain) on dispositions of real estate investments
Lease incentive payment
Impairment charges and related lease intangible write-offs
Changes in operating assets and liabilities, net:
Prepaid expenses and other assets
Deferred tax assets
Accounts payable and accrued expenses
Prepaid rent
Deferred tax liability
Taxes payable
Net cash, cash equivalents and restricted cash provided by operating activities
Cash flows from investing activities:
Investment in real estate and real estate related assets
Deposits for real estate investments
Capital expenditures
Proceeds from dispositions of real estate investments
(Payments for) proceeds from settlement of net investment hedges
Net cash, cash equivalents and restricted cash used in investing activities
Cash flows from financing activities:
Borrowings under revolving credit facilities
Repayments on revolving credit facilities
Proceeds from mortgage notes payable
Payments on mortgage notes payable
Proceeds from term loan
Payments on term loan
Proceeds from issuance of Senior Notes
Payments on early extinguishment of debt charges
Common Stock issuance (costs) proceeds, net
Series A Preferred Stock issuance (costs) proceeds, net
Series B Preferred Stock issuance proceeds, net
Payments of financing costs
Dividends paid on Common Stock
Dividends paid on Series A Preferred Stock
Dividends paid on Series B Preferred Stock
Distributions to non-controlling interest holders
Year Ended December 31,
2019
2018
2020
$
10,778
$
46,476 $
10,897
80,466
58,077
7,809
13
(3,444)
3,372
863
341
—
(7,937)
10,065
6,752
6,039
—
3,601
153
(4,676)
—
(6,275)
2,074
8,399
4,245
(2,818)
(1,046)
176,851
(464,144)
—
(6,383)
—
—
(470,527)
338,112
(428,715)
163,607
(117,586)
—
(136,702)
500,000
(548)
(345)
(125)
10,150
(14,238)
(155,059)
(12,325)
(5,105)
(441)
140,680
(152,996)
4,402
274,287
125,693
$
69,257
56,739
6,614
260
(3,518)
4,328
845
—
—
(6,758)
9,530
2,919
76
(1,879)
949
(23,616)
—
6,375
(11,299)
(1,148)
(9,730)
1,013
(252)
(1,182)
145,999
(562,733)
(2,795)
(17,346)
288,398
—
(294,476)
209,995
(375,585)
579,285
(433,555)
125,019
—
—
(137)
258,422
34,604
83,068
(19,065)
(150,779)
(10,727)
—
(542)
300,003
151,526
19,068
103,693
274,287 $
64,849
54,733
5,193
1,249
(3,463)
4,614
979
—
835
(6,310)
2,649
(7,127)
434
(1,926)
3,897
5,751
—
5,000
(463)
(2,264)
8,263
(2,312)
(634)
(247)
144,597
(479,648)
—
(1,454)
23,717
(561)
(457,946)
247,000
(177,375)
494,689
(313,225)
60,400
—
—
(2,398)
171,770
(227)
—
(10,601)
(147,444)
(9,812)
—
(585)
312,192
(1,157)
(2,877)
107,727
103,693
Net cash, cash equivalents and restricted cash provided by financing activities
Net change in cash, cash equivalents and restricted cash
Effect of exchange rate changes on cash
Cash, cash equivalents and restricted cash at beginning of period
Cash, cash equivalents and restricted cash at end of period
$
The accompanying notes are an integral part of these consolidated financial statements.
F-8
GLOBAL NET LEASE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash and cash equivalents, end of period
Restricted cash, end of period
Cash, cash equivalents and restricted cash, end of period
Supplemental Disclosures:
Cash paid for interest
Cash paid for income taxes
Non-Cash Investing and Financing Activities:
Loss on extinguishment of debt
Year Ended December 31,
2019
2018
2020
124,245
1,448
125,693
66,861
5,460
$
$
$
270,302
3,985
274,287
58,323
5,043
$
$
$
100,324
3,369
103,693
49,113
4,350
3,053
$
812
$
1,499
$
$
$
$
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, 2020
Note 1 — Organization
Global Net Lease, Inc. (the “Company”) is an externally managed real estate investment trust for U.S. federal income tax purposes (“REIT”) that focuses on
acquiring and managing a globally diversified portfolio of strategically-located commercial real estate properties, which are crucial to the success of the
Company’s roster of primarily “Investment Grade” (defined herein) tenants. The Company invests in commercial properties, with an emphasis on sale-leaseback
transactions and mission-critical, single tenant net-lease assets.
As of December 31, 2020, the Company owned 306 properties (all references to number of properties, square footage and industry types are unaudited)
consisting of 37.2 million rentable square feet, which were 99.7% leased, with a weighted-average remaining lease term of 8.5 years. Based on the percentage of
annualized rental income on a straight-line basis as of December 31, 2020, approximately 64% of the Company’s properties were located in the U.S. and Canada
and approximately 36% were located in Europe. In addition, the Company’s portfolio was comprised of 49% industrial/distribution properties, 46% office
properties and 5% retail properties. These percentages are calculated using annualized straight-line rent converted from local currency into the U.S. Dollar
(“USD”) as of December 31, 2020. The straight-line rent includes amounts for tenant concessions.
Substantially all of the Company’s business is conducted through the Global Net Lease Operating Partnership, L.P. (the “OP”), a Delaware limited
partnership. The Company has retained Global Net Lease Advisors, LLC (the “Advisor”) to manage the Company’s affairs on a day-to-day basis. The Company’s
properties are managed and leased to third parties by Global Net Lease Properties, LLC (the “Property Manager”). The Advisor and the Property Manager are
under common control with AR Global Investments, LLC (the successor business to AR Capital LLC, “AR Global”), and these related parties receive
compensation and fees for various services provided to the Company.
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”).
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, the OP and its subsidiaries. All intercompany accounts and transactions are
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 (“VIE”) for which the Company is the primary beneficiary. Substantially all
of the Company’s assets and liabilities are held by the OP.
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, income taxes, derivative financial instruments, hedging activities, equity-based compensation expenses related
to multi-year outperformance agreements entered into with the Advisor in 2015 (the “2015 OPP”) and 2018 (the “2018 OPP”) and fair value measurements, as
applicable.
F-10
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
Out-of-Period Adjustments
During the fourth quarter of 2020, the Company identified certain historical errors in its accumulated other comprehensive income (“AOCI”) as well as its
consolidated statements operations, statements of comprehensive (loss) income and consolidated statements of changes in equity since the second quarter of 2020.
These errors impacted the previously issued financial statements for the second and third quarters of 2020.
Specifically, the impact of foreign currency changes on the Company’s over-hedged portion of its net investment hedges, which is the portion the Company
considered to be ineffective, was incorrectly recorded as a currency translation adjustment in AOCI in the second and third quarters of 2020. The foreign currency
impacts on the ineffective portion of its net investment hedges should have been recorded in unrealized (loss) income on undesignated foreign currency advances
and other hedge ineffectiveness in the consolidated statement of operations. For additional information on the Company’s derivatives and hedging activities, see
the “Derivative Instruments” section in this Note below and see Note 8 — Derivatives and Hedging Activities. The impact of the errors are as follows:
•
•
AOCI was understated by $1.3 million as of June 30, 2020 and net (loss) income attributable to common stockholders was overstated by $1.3 million for
the three and six months ended June 30, 2020.
AOCI was understated by $3.9 million as of September 30, 2020 and net (loss) income attributable to common stockholders was overstated by
$2.6 million and $3.9 million for the three and nine months ended September 30, 2020, respectively.
The Company concluded that the errors noted above were not material for any prior quarterly periods presented and has adjusted the amounts on a cumulative
basis in the fourth quarter of 2020.
Impacts of the COVID-19 Pandemic
The financial stability and overall health of the Company’s tenants is critical to its business. The negative effects that the global COVID-19 pandemic has had
on the economy has impacted the ability of some of the Company’s tenants to pay their monthly rent. The Company executed rent deferral agreements on leases
with several tenants. For accounting purposes, in accordance with ASC 842, normally a company would be required to assess the modification to determine if the
modification should be treated as a separate lease and if not, modification accounting would be applied which would require a company to reassess the
classification of the lease (i.e. operating, direct financing or sales-type). However, in light of the COVID-19 pandemic due to which many leases are being
modified, the FASB and SEC have provided relief allows companies to make a policy election as to whether they treat COVID-19 related lease amendments as a
provision included in the pre-concession arrangement, and therefore, not a lease modification, or to treat a lease amendment as a modification. In order to qualify
for the relief, the modifications must be COVID-19 related and cash flows must be substantially the same or less than those prior to the concession. For COVID-19
relief qualified changes, there are two methods to potentially account for such rent deferrals or abatements under the relief, (1) as if the changes were originally
contemplated in the lease contract or (2) as if the deferred payments are variable lease payments contained in the lease contract. For all other lease changes that did
not qualify for FASB relief, the Company would be required to apply modification accounting including assessing classification under ASC 842.
Some, but not all of the Company’s lease modifications qualify for the FASB relief. In accordance with the relief provisions, instead of treating these
qualifying leases as modifications, the Company has elected to treat the modifications as if previously contained in the lease and recast rents receivable
prospectively (if necessary). Under that accounting, for modifications that were deferrals only, there would be no impact on overall rental revenue and for any
abatement amounts that reduced total rent to be received, the impact would be recognized ratably over the remaining life of the lease.
For leases not qualifying for this relief, the Company has applied modification accounting and determined that there were no changes in the current
classification of its leases impacted by negotiations with its tenants.
Revenue Recognition
The Company’s revenues, which are derived primarily from lease contracts, which 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. As of December 31, 2020, these leases had a weighted-average remaining lease term of 8.5
years. 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 for, and include in revenue from tenants, unbilled rents receivable that the Company will only receive if the tenant makes all rent payments required
through the expiration of the initial term of the lease. As of December 31, 2020 and 2019, the Company’s cumulative straight-line rents receivable in the
consolidated balance sheets was $61.0 million and $51.8 million, respectively. For the years ended December 31, 2020, 2019 and 2018, the Company’s revenue
from tenants included impacts of unbilled rental revenue of $7.9 million, $6.8 million and $6.3 million, respectively, to adjust contractual rent to straight-line rent.
F-11
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
For new leases after acquisition of a property, the commencement date is considered to be the date the lease is executed and the tenant has access to the space.
The Company defers the revenue related to lease payments received from tenants in advance of their due dates. When the Company acquires a property, the
acquisition date is considered to be the commencement date for purposes of this calculation for all leases in place at the time of acquisition. In addition to base rent,
the Company’s lease agreements generally require tenants to pay or reimburse the Company for all property operating expenses, which primarily reflect insurance
costs and real estate taxes incurred by the Company and subsequently reimbursed by the tenant. However, some limited property operating expenses that are not
the responsibility of the tenant are absorbed by the Company. Under ASC 842, the Company has elected to report combined lease and non-lease components in a
single line “Revenue from tenants.” For expenses paid directly by the tenant, under both ASC 842 and 840, the Company has reflected them on a net basis.
The following table presents future minimum base rental cash payments due to the Company over the next five calendar years and thereafter as of
December 31, 2020. These amounts exclude tenant reimbursements and contingent rent payments, as applicable, that may be collected from certain tenants based
on increases in annual rent based on exceeding certain economic indexes among other items:
(In thousands)
2021
2022
2023
2024
2025
Thereafter
Total
Future Minimum Base Rent Payments
(1)
$
$
334,858
324,706
303,737
267,943
226,047
1,083,950
2,541,241
(1)
Assumes exchange rates of £1.00 to $1.37 for GBP, €1.00 to $1.23 for EUR and $1.00 Canadian Dollar (“CAD”) to $0.78 as of December 31, 2020 for illustrative purposes, as applicable.
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 credit worthiness and 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. Under lease accounting rules, the Company is required to assess, based on credit risk only, if it is probable
that it will collect virtually all of the lease payments at the lease commencement date and it must continue to reassess collectability periodically thereafter based on
new facts and circumstances affecting the credit risk of the tenant. Partial reserves, or the ability to assume partial recovery are no longer permitted. If the
Company determines that it is probable it will collect virtually all of the lease payments (rent and common area maintenance), the lease will continue to be
accounted for on an accrual basis (i.e. straight-line). However, if the Company determines it is not probable that it will collect virtually all of the lease payments,
the lease will be accounted for on a cash basis and the straight-line rent receivable would be written off where it was subsequently concluded that collection was
not probable. Cost recoveries from tenants are included in revenue from tenants on the accompanying consolidated statements of operations in the period the
related costs are incurred, as applicable.
Under ASC 842, uncollectible amounts are reflected as reductions in revenue from tenants. Under ASC 840, the Company recorded such amounts as bad debt
expense as part of property operating expenses. During the year ended December 31, 2018, such amount was $0.8 million. The Company did not record any
uncollectible amounts as reductions of revenue during the years ended December 31, 2020 or 2019.
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.
At the time an asset is acquired, the Company evaluates the inputs, processes and outputs of the asset acquired to determine if the transaction is a business
combination or an 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. See the Purchase Price Allocation section in this Note for a discussion of the initial accounting for
investments in Real Estate.
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. No properties were presented as discontinued operations as of
December 31, 2020 and 2019.
F-12
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
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, most significantly that the sale is probable within one year. The Company
evaluates probability of sale based on specific facts including whether a sales agreement is in place and the buyer has made significant non-refundable deposits.
Properties are no longer depreciated when they are classified as held for sale. As of December 31, 2020 and 2019, the Company did not have any properties
classified as held for sale (see Note 3 — Real Estate Investments, Net for additional information).
As more fully discussed in this Note under “Recently Issued Accounting Pronouncements - ASU No. 2016-02 Leases”, all of the Company’s leases as lessor,
prior to adoption of the new leasing standard on January 1, 2019, were accounted for as operating leases and the Company continued to account for them as
operating leases under the transition guidance. The Company evaluates new leases originated after the adoption date (by the Company or by a predecessor
lessor/owner) pursuant to the new guidance where a lease for some or all of a building is classified by a lessor as a sales-type lease if the significant risks and
rewards of ownership reside with the tenant. This situation is met if, among other things, there is an automatic transfer of title during the lease, a bargain purchase
option, the non-cancelable lease term is for more than major part of remaining economic useful life of the asset (e.g., equal to or greater than 75%), if the present
value of the minimum lease payments represents substantially all (e.g., equal to or greater than 90%) of the leased property’s fair value at lease inception, or if the
asset so specialized in nature that it provides no alternative use to the lessor (and therefore would not provide any future value to the lessor) after the lease term.
Further, such new leases would be evaluated to consider whether they would be failed sale-leaseback transactions and accounted for as financing transactions by
the lessor. During the three-year period ended December 31, 2020, the Company had no leases as a lessor that would be considered as sales-type leases or
financings under sale-leaseback rules.
The Company is also the lessee under certain land leases which were previously classified prior to adoption of lease accounting and will continue to be
classified as operating leases under transition elections unless subsequently modified. These leases are reflected on the balance sheet as right of use assets and
operating lease liabilities and the rent expense is reflected on a straight-line basis over the lease term.
Purchase Price Allocation
In both a business combination and an asset acquisition, the Company allocates the purchase price of acquired properties to tangible and identifiable intangible
assets or liabilities based on their respective fair values. Tangible assets may include land, land improvements, buildings, fixtures and tenant improvements on an
as if vacant basis. Intangible assets may include the value of in-place leases, and 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 (in a
business combination) 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. In a business
combination, the difference between the purchase price and the fair value of identifiable net assets acquired is either recorded as goodwill or as a bargain purchase
gain. In an asset acquisition, the difference between the acquisition price (including capitalized transaction costs) and the fair value of identifiable net assets
acquired is allocated to the non-current assets. All acquisitions during the years ended December 31, 2020, 2019 and 2018 were asset acquisitions.
For acquired properties with leases classified as operating leases, the Company allocates the purchase price of acquired properties to tangible and identifiable
intangible assets acquired and liabilities assumed, based on their respective fair values. 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 preacquisition due diligence in
estimating the fair value of the tangible and intangible assets acquired and intangible liabilities assumed.
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. Fair value estimates are also made using significant
assumptions such as capitalization rates, discount rates, fair market lease rates, and land values per square foot. Identifiable intangible assets include amounts
allocated to acquired leases for above- and below-market lease rates, and the value of in-place leases, 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.
F-13
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
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 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.
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 earnings.
Gain on Dispositions of Real Estate Investments
Gains on sales of rental real estate are not considered sales to customers and are generally recognized pursuant to the provisions included in ASC 610-20,
Gains and Losses from the Derecognition of Nonfinancial Assets (“ASC 610-20”).
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.
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.
The value of customer relationship intangibles is amortized to expense over the initial term of the lease 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.
Assumed mortgage premiums or discounts are amortized as an increase or reduction to interest expense over the remaining terms of the respective mortgages.
Above and Below-Market Lease Amortization
Capitalized above-market lease values are amortized as a reduction of revenue from tenants over the remaining terms of the respective leases, and the
capitalized below-market lease values are amortized as an increase to revenue from tenants 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.
Above market intangibles and below market intangibles will also be treated in the same way as in-place intangibles upon a lease termination.
If a tenant modifies its lease, the unamortized portion of the in-place lease value, customer relationship intangibles, above-market leases and below market
leases are assessed to determine whether their useful lives need to be amended (generally accelerated). Generally the Company would not extend the useful lives of
their intangible values upon a modification that is an extension.
The amortization associated with the Company’s operating lease right-of-use asset (“ROU”) is recorded in property operating expenses on a straight-line basis
over the terms of the leases. Upon adoption of ASC 842 effective January 1, 2019, intangible balances related to ground leases were reclassified to be included as
part of the operating lease ROU presented on the Company’s consolidated balance sheet with no change to placement of the amortization expense of such balances.
F-14
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
Cash and Cash Equivalents
Cash and cash equivalents include 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 U.S. and other countries where we have deposits are guaranteed by the
Federal Deposit Insurance Company (“FDIC”) in the U.S., 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 U.S., United Kingdom,
Luxembourg, Germany, Finland, France and The Netherlands totaling $124.2 million at December 31, 2020, of which $41.7 million, $35.8 million and $35.4
million are currently in excess of amounts insured by the FDIC, FSCS and European equivalent deposit insurance companies including DDGS, respectively. At
December 31, 2019, the Company had deposits in the U.S., United Kingdom, Luxembourg, Germany, Finland and The Netherlands totaling $270.3 million, of
which $213.7 million, $25.3 million and $18.0 million were in excess of the amounts 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, losses are not anticipated.
Restricted Cash
Restricted cash primarily consists of debt service and real estate tax reserves. The Company had restricted cash of $1.4 million and $4.0 million as of
December 31, 2020 and 2019, respectively.
Goodwill
The Company evaluates goodwill for 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. The Company 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. The Company determined that the potential impact of the
COVID-19 pandemic represented a triggering event, and, as such, performed an updated goodwill assessment during the first quarter of 2020. Based on the
Company’s assessment, it determined that the goodwill was not impaired at the time of the triggering event evaluation. The Company also performed our annual
goodwill impairment evaluation in the fourth quarter of 2020 and determined that goodwill was not impaired as of December 31, 2020. There were no material
changes to this assessment as of December 31, 2020.
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. In addition, all foreign currency denominated borrowings under the Company’s Credit
Facility (as defined in Note 5 - Revolving Credit Facility and Term Loan, Net ) are designated as net investment hedges. 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 (“USD”). The Company enters into derivative financial instruments in an effort 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 foreign operations. 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 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 (or for derivatives that do not qualify as hedges), 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 a derivative is
designated and qualifies for cash flow hedge accounting treatment, the change in the estimated fair value of the derivative is recorded in other
F-15
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
comprehensive income (loss) in the consolidated statements of comprehensive income (loss) to the extent that it is effective. Any ineffective portion of a change in
derivative fair value is immediately recorded in earnings.
Deferred Financing Costs, Net
Deferred financing costs, net are costs associated with the Revolving Credit Facility (as defined in Note 5 — Revolving Credit Facility and Term Loan, Net)
and consist of 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
paid down 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.
Equity-Based Compensation
The Company has a stock-based incentive plan under which its directors, officers and other employees of the Advisor, or its affiliates who are involved in
providing services to the Company are eligible to receive awards. Awards granted thereunder are 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 in the 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 — Equity-Based Compensation for additional information).
Multi-Year Outperformance Agreements
Concurrent with the listing of the Company’s common stock, $0.01 par value per share (“Common Stock”), on the New York Stock Exchange (“NYSE”) on
June 2, 2015 and modifications to the Fourth Amended and Restated Advisory Agreement (the “Advisory Agreement”) by and among the Company, the OP and
the Advisor, the Company entered into a multi-year outperformance agreement with the Advisor in June 2015 (the “2015 OPP”). Following the end of the
performance period under the 2015 OPP on June 2, 2018, the Company entered into the 2018 OPP with the Advisor (see Note 13 — Equity-Based Compensation).
Under the 2018 OPP, effective June 2, 2018, the Company records equity-based compensation evenly over the requisite service period of approximately 2.8 years
from the grant date. Under accounting guidance adopted by the Company on January 1, 2019, total equity-based compensation expense calculated as of the
adoption of the new guidance is fixed as of that date and reflected as a charge to earnings over the remaining service period. Further, in the event of a modification,
any incremental increase in the value of the instrument measured on the date of the modification both before and after the modification, will result in an
incremental amount to be reflected prospectively as a charge to earnings over the remaining service period. The expense for these non-employee awards is included
in the equity-based compensation line item of the consolidated statements of operations. For additional information on the original terms, a February 2019
modification of the 2018 OPP, and accounting for these awards, see Note 13 — Equity-based compensation.
Income Taxes
The Company elected 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 and believes it has so qualified. 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 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 annually all of its REIT taxable income. REITs are subject to a number of other organizational and
operational requirements.
The Company conducts business in various states and municipalities within the U.S., Canada, Puerto Rico, the United Kingdom and Western Europe and, as a
result, the Company or one of its subsidiaries file income tax returns in the U.S. federal jurisdiction and various states and certain foreign jurisdictions. As a result,
the Company may be subject to certain federal, state, local and foreign taxes on its 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 the Company’s earnings and available
cash. In addition, the Company’s international assets and operations, including those owned through direct or indirect subsidiaries that are disregarded entities for
U.S. federal income tax purposes, continue to be subject to taxation in the foreign jurisdictions where those assets are held or those operations are conducted.
Significant judgment is required in determining the Company’s tax provision and in evaluating its 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
F-16
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
greater than 50 percent likely of being ultimately realized upon settlement. The Company derecognizes the tax position when the likelihood of the tax position
being sustained is no longer more likely than not.
The Company recognizes deferred income taxes in certain of its subsidiaries taxable in the U.S. or in foreign jurisdictions. Deferred income taxes are generally
the result of temporary differences (items that are treated differently for tax purposes than for 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 taxable income from its real estate operations in the U.S. and has historically distributed all of its REIT taxable income
to its shareholders. As such, the Company’s real estate operations are generally not subject to U.S. 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.
The Company’s deferred tax assets and liabilities are primarily the result of temporary differences related to the following:
•
Basis differences between tax and 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 GAAP
basis, resulting in a deferred tax liability with an offsetting increase to goodwill or the acquired tangible or intangible assets;
Timing differences generated by differences in the 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 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 its taxable income.
The Company’s current income tax provision for the years ended December 31, 2020, 2019 and 2018 was $6.9 million, $4.7 million, and $2.4 million,
respectively. The Company’s deferred income tax (benefit) provision for the years ended December 31, 2020, 2019, and 2018 was $(2.0) million, $(0.4) million,
and $3.3 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 U.S. or in foreign
jurisdictions. For the years ended December 31, 2020, 2019 and 2018 the Company recognized income tax expense of $5.0 million, $4.3 million and $2.4 million,
respectively.
Deferred tax assets on the consolidated balance sheets are net of valuation allowances of $46.6 million and $4.3 million as of December 31, 2020 and 2019,
respectively.
The amount of dividends payable to the Company’s common 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.
Foreign Currency Translation
The Company’s reporting currency is the USD. 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 AOCI in the
consolidated statements of equity.
F-17
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
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 units in
respect of shares of Common Stock (“RSU”) restricted shares of Common Stock (“Restricted Shares”), and long-term incentive plan units of limited partner
interest in the OP (“LTIP 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 14— Earnings Per Share).
Reportable Segments
The Company 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 U.S., United Kingdom, and continental Europe, 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 306 properties totaling approximately 37.2 million square feet substantially all of which were net leased to 130 tenants, with an
occupancy rate of 99.7%.
The Company evaluates its results from operations in one reportable segment by its local currency. Other than the U.S. and United Kingdom, no country or
tenant individually comprised more than 10% of the Company’s annualized revenue from tenants on a straight-line basis, or total long-lived assets at December 31,
2020. The termination, delinquency or non-renewal of leases by any major tenant may have a material adverse effect on revenues.
The following tables present the geographic information for Revenue from tenants and Investments in real estate:
(In thousands)
Revenue from tenants:
United States and Puerto Rico
United Kingdom
Europe (Finland, France, Germany, Luxembourg, and the Netherlands)
Canada
Total
(In thousands)
Investments in real estate:
United States
United Kingdom
Europe (Finland, France, Germany, Luxembourg, and the Netherlands)
Canada
Total
Recent Accounting Pronouncements
Adopted as of January 1, 2019
ASU No. 2016-02 — Leases
Year Ended December 31,
2019
2020
2018
$
$
216,260 $
51,178
61,944
722
330,104 $
180,100 $
51,215
74,881
18
306,214 $
148,588
54,025
79,594
—
282,207
As of December 31,
2020
2019
$
$
2,936,977 $
630,014
740,818
11,145
4,318,954 $
2,496,960
593,845
665,236
7,223
3,763,264
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”) which provides new guidance related to the accounting for
leases, as well as the related disclosures. For lessors of real estate, leases are accounted for using an approach substantially the same as previous accounting
guidance for operating leases and direct financing leases. For lessees,
F-18
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
the new standard requires the application of a dual lease classification approach, classifying leases as either operating or finance leases based on the principle of
whether or not the lease is effectively a financed purchase by the lessee. Lease expense for operating leases is recognized on a straight-line basis over the term of
the lease, while lease expense for finance leases is recognized based on an effective interest method over the term of the lease. Also, lessees must recognize a ROU
and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Further, certain transactions where at inception of the lease
the buyer-lessor accounted for the transaction as a purchase of real estate and a new lease, may now be required to have symmetrical accounting to the seller-lessee
if the transaction was not a qualified sale-leaseback and accounted for as a financing transaction.
Upon adoption, lessors were allowed a practical expedient, which the Company has elected, by class of underlying assets to account for lease and non-lease
components (such as tenant reimbursements of property operating expenses) as a single lease component as an operating lease because (a) the non-lease
components have the same timing and pattern of transfer as the associated lease component; and (b) the lease component, if accounted for separately, would be
classified as an operating lease. Additionally, only incremental direct leasing costs may be capitalized under this new guidance, which is consistent with the
Company’s existing policies. Also, upon adoption, companies were allowed a practical expedient package, which the Company has elected, that allowed the
Company: (a) to not reassess whether any expired or existing contracts entered into prior to January 1, 2019 are or contain leases; (b) to not reassess the lease
classification for any expired or existing leases entered into prior to January 1, 2019 (including assessing sale-leaseback transactions); and (c) to not reassess initial
direct costs for any expired or existing leases entered into prior to January 1, 2019. As a result, all of the Company’s existing leases as of January 1, 2019
continued to be, as all future leases have been classified as operating leases under the new standard. Further, any existing leases for which the property is leased to
a tenant in a transaction that at inception was a sale-leaseback transaction will continue to be treated (absent a modification) as operating leases. The Company did
not have any leases that would be considered financing leases as of January 1, 2019.
The Company assessed the impact of adoption from both a lessor and lessee perspective, which is discussed in more detail below, and adopted the new
guidance prospectively on January 1, 2019, using a prospective transition approach under which the Company elected to apply the guidance effective January 1,
2019 and not adjust prior comparative reporting periods (except for the Company’s presentation of lease revenue discussed below).
Lessor Accounting
As discussed above, the Company was not required to re-assess the classification of its leases, which are considered operating leases under ASU 2016-02. The
following is a summary of the most significant impacts to the Company of the new accounting guidance, as lessor:
• Because the Company elected the practical expedient noted above to not separate non-lease component revenue from the associated lease component, the
Company has aggregated revenue from its lease components and non-lease components (tenant operating expense reimbursements) into one line. Prior
periods have been conformed to this new presentation.
• Changes in the Company’s assessment of receivables that result in bad debt expense is now required to be recorded as an adjustment to revenue from
tenants, rather than a charge to bad debt expense. This new classification applies for the first quarter of 2019 and reclassification of prior period amounts
is not permitted. At transition on January 1, 2019, after assessing its reserve balances at December 31, 2018 under the new guidance, the Company wrote
off accounts receivable of $3.4 million, net of $2.2 million in bad debt reserves as an adjustment to the opening balance of accumulated deficit, and
accordingly rent for these tenants is currently recorded on a cash basis.
• Indirect leasing costs in connection with new or extended tenant leases, if any, are being expensed. Under prior accounting guidance, the recognition
would have been deferred.
Lessee Accounting
The Company was a lessee under ground leases for seven properties as of January 1, 2019. The following is a summary of the most significant impacts to the
Company of the new accounting guidance, as lessee:
• Upon adoption of the new standard, the Company recorded ROU assets and lease liabilities equal to $24.0 million for the present value of the lease
payments related to its ground leases. These amounts are included in operating lease right-of-use assets and operating lease liabilities on the consolidated
balance sheet.
• The Company also reclassified $27.0 million, net related to amounts previously reported as above and below market ground lease intangibles to the ROU
assets. For additional information and disclosures related to these operating leases, see Note 10 — Commitments and Contingencies.
F-19
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
Other Accounting Pronouncements Adopted As of January 1, 2019
In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This standard
simplifies subsequent measurements of goodwill by eliminating Step 2 from the goodwill impairment test. Instead, entities will perform their interim or annual
goodwill impairment testing by comparing the fair value of a reporting unit with its carrying amount and recognizing an impairment charge based on the amount
that the carrying amount exceeds the reporting unit’s fair value. The loss recognized should not exceed the total goodwill allocated to the reporting unit. In 2019,
the Company early adopted this guidance , in connection with the reassessments and impairment of goodwill during the year ended December 31, 2019.
In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging
(Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily
Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-Controlling Interests with a Scope Exception guidance
that changes the method to determine the classification of certain financial instruments with a down round feature as liabilities or equity instruments and clarify
existing disclosure requirements for equity-classified instruments. A down round feature no longer precludes equity classification when assessing whether the
instrument is indexed to an entity’s own stock. As a result, a freestanding equity-linked financial instrument no longer would be accounted for as a derivative
liability, rather, an entity that presents earnings per share is required to recognize the effect of the down round feature when it is triggered. That effect is treated as
a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have
down round features are now subject to the specialized guidance for contingent beneficial conversion features. The revised guidance became effective for the
Company effective January 1, 2019 and it did not have an impact on the Company’s consolidated financial statements.
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (“ASU
2017-12”). The purpose of this updated guidance is to better align a company’s financial reporting for hedging activities with the economic objectives of those
activities. ASU 2017-12 is effective for public business entities for fiscal years beginning after December 15, 2018. The Company adopted ASU 2017-12 on
January 1, 2019 using a modified retrospective transition method, as required, and recognized the cumulative effect of the change on the opening balance of each
affected component of equity as of the date of adoption. The opening balance sheet adjustment specifically related to the elimination of the requirement for
separate measurement of hedge ineffectiveness and resulted in a credit, or decrease, to accumulated deficit of $0.3 million, with a corresponding debit, or decrease,
to accumulated other comprehensive income.
In February 2018, the FASB issued ASU 2018-02, Income Statement- Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects
from Accumulated Other Comprehensive Income. The new guidance addresses the impact of Tax Cuts and Jobs Act signed into law on December 22, 2017, (“Tax
Cuts and Jobs Act”) on items within AOCI which do not reflect the appropriate tax rate. ASU 2018-02 allows the Company to retrospectively reclassify the income
tax effects on items in AOCI to retained earnings for all periods in which the effect of the change in the U.S. federal corporate income tax rate was recognized. In
addition, all companies are required to disclose whether the company has elected to reclassify the income tax effects of the Tax Cuts and Jobs Act to retained
earnings and disclose information about any other income tax effects that are reclassified from AOCI by the Company. The amendments are effective for fiscal
years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. Companies are required to apply the proposed
amendments either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax
rate in the Tax Cuts and Jobs Act is recognized. The revised guidance became effective for the Company effective January 1, 2019 and it did not have an impact on
the Company’s consolidated financial statements.
In July 2018, the FASB issued ASU 2018-07, Compensation- Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment
Accounting (“ASU 2018-07”) as an amendment and update expanding the scope of Topic 718. The amendment specifies that Topic 718 now applies to all share-
based payment transactions, even non-employee awards, in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by
issuing share-based payment awards. Under the new guidance, awards to nonemployees are measured on the grant date, rather than on the earlier of the
performance commitment date or the date at which the nonemployee’s performance is complete. Also, the awards would be measured by estimating the fair value
of the equity instruments to be issued, rather than the fair value of the goods or services received or the fair value of the equity instruments issued, whichever can
be measured more reliably. In addition, entities may use the expected term to measure nonemployee awards or elect to use the contractual term as the expected
term, on an award-by-award basis. The new guidance is effective for the Company in annual periods beginning after December 15, 2018, and interim periods
within those annual periods, with early adoption permitted. The Company adopted the new guidance on January
F-20
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
1, 2019 and began applying the new rules to its non-employee award made to the Advisor pursuant to the 2018 OPP. As a result, total equity-based compensation
expense calculated as of adoption of the new guidance will be fixed as of that date and will not be remeasured in subsequent periods (unless modified). In addition,
the expense is being recorded over the requisite service period from the grant date. See Note 13 — Equity-Based Compensation for additional information on the
awards to the Advisor pursuant to the 2018 OPP and the 2015 OPP.
Adopted as of January 1, 2020:
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,
which changes how entities measure credit losses for financial assets carried at amortized cost. The update eliminates the requirement that a credit loss must be
probable before it can be recognized and instead requires an entity to recognize the current estimate of all expected credit losses. Additionally, the update requires
credit losses on available-for-sale debt securities to be carried as an allowance rather than as a direct write-down of the asset. The amendments become effective
for reporting periods beginning after December 15, 2019. On July 25, 2018, the FASB proposed an amendment to ASU 2016-13 to clarify that operating lease
receivables recorded by lessors (including unbilled straight-line rent) are explicitly excluded from the scope of ASU 2016-13. The revised guidance became
effective for the Company effective January 1, 2020 and it did not have a material impact on the Company’s consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements
for Fair Value Measurement. The objective of ASU 2018-13 is to improve the effectiveness of disclosures in the notes to the financial statements by removing,
modifying, and adding certain fair value disclosure requirements to facilitate clear communication of the information required by generally accepted accounting
principles. The amended guidance is effective for the Company beginning on January 1, 2020 and it did not have a material impact on the Company’s financial
statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial
Reporting. ASU 2020-04 contains practical expedients for reference rate reform-related activities that impact debt, leases, derivatives, and other contracts. The
guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. During the first quarter of 2020, we elected to apply
the hedge accounting expedients related to probability and the assessments of effectiveness for future London Interbank Offered Rate (“LIBOR”) indexed cash
flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these
expedients preserves the presentation of derivatives consistent with past presentation. We will continue to evaluate the impact of the guidance and may apply other
elections as applicable as additional changes in the market occur.
Pending Adoption as of December 31, 2020
In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Topic 470) and Derivatives and Hedging – Contracts in
Entity’s Own Equity (Topic 815). The new standard reduces the number of accounting models for convertible debt instruments and convertible preferred stock, and
amends the guidance for the derivatives scope exception for contracts in an entity's own equity. The standard also amends and makes targeted improvements to the
related earnings per share guidance. The ASU is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.
Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The standard
allows for either modified or full retrospective transition methods. The Company is currently evaluating this guidance to determine the impact it may have on its
consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848). Topic 848 contains practical expedients for reference rate reform related
activities that impact debt, leases, derivatives and other contracts. The guidance in Topic 848 is optional and may be elected over the period March 12, 2020
through December 31, 2022 as reference rate reform activities occur. During the year ended December 31, 2020, the Company elected to apply the hedge
accounting expedients related to (i) the assertion that the Company’s hedged forecasted transactions remain probable and (ii) the assessments of effectiveness for
future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding
derivatives. Application of these expedients preserves the presentation of the Company’s derivatives, which will be consistent with the Company’s past
presentation. The Company will continue to evaluate the impact of the guidance and may apply other elections, as applicable, as additional changes in the market
occur.
F-21
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
Note 3 — Real Estate Investments, Net
Property Acquisitions
The following table presents the allocation of the assets acquired and liabilities assumed during the years ended December 31, 2020, 2019 and 2018, in the
case of assets located outside of the United States, based on the applicable exchange rate at the time of purchase. All acquisitions in these periods were considered
asset acquisitions for accounting purposes.
(Dollar amounts in thousands)
Real estate investments, at cost:
Land
Buildings, fixtures and improvements
Total tangible assets
Acquired intangible lease assets:
In-place leases
Above-market lease assets
Below-market lease liabilities
Total intangible assets
ROU asset
Cash paid for acquired real estate investments
Number of properties purchased
Year Ended December 31,
2019
2018
2020
$
$
53,701 $
364,511
418,212
45,723
156
(4,969)
40,910
5,022
464,144 $
43,259 $
449,745
493,004
70,628
1,051
(1,950)
69,729
—
562,733 $
28
39
34,291
384,603
418,894
70,414
48
(9,708)
60,754
—
479,648
23
The following table summarizes the acquisition by property type during the years ended December 31, 2020, 2019 and 2018:
Property Type
Properties Acquired in 2020:
Office
Industrial
Distribution
Retail
Properties Acquired in 2019:
Office
Industrial
Distribution
Retail
Properties Acquired in 2018:
Office
Industrial
Distribution
Retail
Acquired Intangible Lease Assets
Number of Properties
Square Feet (unaudited)
11
13
4
—
28
12
17
10
—
39
1
16
6
—
23
390
3,569
1,599
—
5,558
682
2,408
3,014
—
6,104
145
3,714
1,100
—
4,959
The Company allocates a portion of the fair value of real estate acquired to identified intangible assets and liabilities, consisting of the value of origination
costs (tenant improvements, leasing commissions, and legal and marketing costs), the value of above-market and below-market leases, and the value of tenant
relationships, if applicable, based in each case on their
F-22
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
relative fair values. The Company periodically assesses whether there are any indicators that the value of the intangible assets may be impaired by performing a net
present value analysis of future cash flows, discounted for the inherent risk associated with each investment. During the year ended December 31, 2018, the
Company wrote off certain lease intangibles related to terminated leases (see the “Impairment Charges and Related Lease Intangible Write-offs” section below).
The Company did not record an impairment to its intangible assets associated with its real estate investments during the years ended December 31, 2020 and 2019.
Dispositions
During the year ended December 31, 2020, the Company did not sell any properties.
During the year ended December 31, 2019, the Company sold 97 properties located in the United States (94 Family Dollar retail stores and three industrial
properties), one property located in the United Kingdom, two properties in the Netherlands and three properties in Germany for a total contract sales price of
$311.3 million, resulting in an aggregate gain of $23.6 million, which is reflected in gain (loss) on dispositions of real estate investments in the consolidated
statements of operations for the year ended December 31, 2019.
During the year ended December 31, 2018 the Company sold two properties for a total contract sales price of $25.3 million. At closing, the Company paid
approximately $1.7 million, net, in excess of proceeds received from the sales for the repayment of mortgage debt and a recorded a loss of $5.8 million, net. Prior
to the sale of one of the properties, the Company agreed to terminate the lease with the existing tenant and received a termination fee of $3.0 million in accordance
with the terms of the lease. This amount is recorded in revenue from tenants in the consolidated statements of operations for the year ended December 31, 2018.
The following table summarizes the aforementioned properties sold in 2019 and 2018. During the year ended December 31, 2020, the Company did not sell
any properties.
Portfolio
State
Disposition Date
Number of Properties
Square Feet (unaudited)
Properties Sold in 2019:
Crowne Group
Crowne Group
Talk Talk
Family Dollar
Family Dollar
Panasonic
Achmea
RWE
Properties Sold in 2018:
Western Digital
Veolia Water
Indiana
Michigan
Manchester UK
Various U.S. States
Various U.S. States
New Jersey
Netherlands
Germany
March 7, 2019
May 17, 2019
May 23, 2019
June 28, 2019
September 20, 2019
September 30, 2019
November 1, 2019
December 27, 2019
California
Ohio
June 8, 2018
July 31, 2018
1
1
1
62
32
1
2
3
103
1
1
2
21,562
92,244
48,415
518,634
265,596
48,497
190,252
198,138
1,383,338
286,330
70,000
356,330
Impairment Charges and Related Lease Intangible Write-offs
There were no impairment charges recorded during the year ended December 31, 2020. In November 2019, the Company sold two properties in the
Netherlands. As of September 30, 2019, the Company concluded that the estimated sales price for these two properties was lower than their respective carrying
values, and as a result, the Company recorded an impairment charge of $6.4 million in the third quarter of 2019 to reflect the estimated sales price of the properties.
During the year ended December 31, 2018, certain related entity tenants in six of the Company’s properties affiliated by a common guarantor were in financial
difficulties. As part of negotiations, the Company terminated the leases for the tenants of four of the properties, while the tenants of the remaining two properties
continue to operate under their existing lease terms. Of these four properties with lease terminations, two were re-leased to other tenants and two were sold. Based
on expected future cash flows, the Company concluded that the carrying amount was in excess of the estimated fair value of one of the properties being sold,
resulting in an impairment charge of $1.6 million. Due to the four lease terminations, the Company wrote-off related lease intangibles of $3.4 million associated
with the original tenants.
F-23
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
Assets Held for Sale
When assets are identified by management as held for sale, the Company stops recognizing depreciation and amortization expense on the identified assets and
estimates the sales price, net of costs to sell, of those assets. If the carrying amount of the assets classified as held for sale exceeds the estimated net sales price, the
Company records an impairment charge equal to the amount by which the carrying amount of the assets exceeds the Company’s estimate of the net sales price of
the assets. As of December 31, 2020 and 2019 the Company did not have any assets held for sale.
Intangible Lease Assets and Lease Liabilities
Acquired intangible lease assets and lease liabilities consist of the following:
(In thousands)
Intangible assets:
In-place leases
Above-market leases
Total acquired intangible lease assets
Intangible liabilities:
Below-market leases
Total acquired intangible lease liabilities
December 31, 2020
December 31, 2019
Gross
Carrying
Amount
Accumulated
Amortization
Net Carrying
amount
Gross
Carrying
Amount
Accumulated
Amortization
Net Carrying
amount
$
$
$
$
678,856 $
33,129
711,985 $
49,154 $
49,154 $
302,383 $
16,963
319,346 $
376,473 $
16,166
392,639 $
620,123 $
31,645
651,768 $
237,585 $
12,816
250,401 $
382,538
18,829
401,367
16,184 $
16,184 $
32,970 $
32,970 $
42,413 $
42,413 $
11,884 $
11,884 $
30,529
30,529
Projected Amortization for Intangible Lease Assets and Liabilities
The following table provides the weighted-average amortization periods as of December 31, 2020 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 as an increase to depreciation and amortization
Above-market lease assets
Below-market lease liabilities
Total to be included as an increase to revenue from tenants
Significant Tenants
Weighted-Average
Amortization
Years
7.5
5.1
10.6
$
$
$
$
2021
2022
2023
2024
2025
62,266 $
62,266 $
58,759 $
58,759 $
51,468 $
51,468 $
41,482 $
41,482 $
31,292
31,292
3,604 $
(4,016)
(412) $
3,566 $
(3,923)
(357) $
3,378 $
(3,896)
(518) $
2,418 $
(3,134)
(716) $
1,027
(2,758)
(1,731)
There were no tenants whose annualized rental income on a straight-line basis as of December 31, 2020 represented 10.0% or greater of consolidated
annualized rental income on a straight-line basis for all properties as of December 31, 2020. The termination, delinquency or non-renewal of leases by any major
tenant may have a material adverse effect on revenues.
Geographic Concentrations
The following table lists the countries and states where the Company has concentrations of properties where annualized rental income on a straight-line basis
as of December 31 2020 represented greater than 10% of consolidated annualized rental income on a straight-line basis as of December 31, 2020, 2019 and 2018.
F-24
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
Country / U.S. State
United States
Michigan
United Kingdom
Note 4 — Mortgage Notes Payable, Net
Mortgage notes payable, net as of December 31, 2020 and 2019 consisted of the following:
2020
63.2%
15.3%
16.8%
December 31,
2019
63.0%
14.6%
18.2%
2018
55.7%
13.7
19.0%
Country
Portfolio
Finland:
Finland Properties
France:
Worldline
DCNS
ID Logistics II
French Properties
Germany
Germany Properties
Luxembourg/ The
Netherlands:
Benelux Properties
Total EUR denominated
United Kingdom:
United Kingdom Properties
Total GBP denominated
United States:
Penske Logistics
Multi-Tenant Mortgage Loan I
Multi-Tenant Mortgage Loan II
Multi-Tenant Mortgage Loan III
Multi-Tenant Mortgage Loan IV
Multi-Tenant Mortgage Loan V
Total USD denominated
Gross mortgage notes payable
Mortgage discount
Deferred financing costs, net of
accumulated amortization
(8)
Mortgage notes payable, net
Encumbered
Properties
5
—
—
—
7
5
3
20
42
42
1
12
8
7
16
12
56
118
Outstanding Loan Amount
(1)
December 31,
2020
(In thousands)
90,760
$
Effective
Interest Rate
December 31,
2019
(In thousands)
$
82,996
1.7%
—
—
—
85,854
63,165
147,178
386,957
301,979
301,979
70,000
187,000
32,750
98,500
97,500
204,000
689,750
5,608
10,655
11,776
—
57,761
134,587
303,383
294,315
294,315
70,000
187,000
32,750
98,500
97,500
204,000
689,750
1,378,686
1,287,448
—
(26)
—%
—%
—%
2.5%
1.8%
1.4%
3.1%
4.7%
4.4%
4.4%
4.9%
4.6%
3.7%
3.3%
—
—
3.3%
118
$
(14,988)
1,363,698
$
(15,268)
1,272,154
Interest Rate
Maturity
Fixed/Variable
Feb. 2024
—%
—%
—%
Fixed/Variable
—
—
—
May 2025
Fixed/Variable
Jun. 2023
Fixed
Jun. 2024
Fixed/Variable
Aug. 2023
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Nov. 2028
Nov. 2027
Feb. 2028
Dec. 2028
May 2029
Oct. 2029
(2)
(3)
(3)
(3)
(4)
(5)
(6)
(7)
(7)
(7)
(7)
(7)
(7)
__________
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Amounts borrowed in local currency and translated at the spot rate in effect at the applicable reporting date.
80% fixed as a result of a “pay-fixed” interest rate swap agreement and 20% variable. Variable portion is approximately 1.4% plus 3-month Euribor. Euribor rate in effect as of
December 31, 2020.
These loans were refinanced in May 2020 as part of the French Refinancing (see below for further details). As a result, the Company terminated an interest rate swap agreement for two of
these properties (see Note 8 — Derivatives and Hedging Activities).
90% fixed as a result of a “pay-fixed” interest rate swap agreement and 10% variable. Variable portion is approximately 2.3% plus 3-month Euribor. Euribor rate in effect as of
December 31, 2020.
80% fixed as a result of a “pay-fixed” interest rate swap agreement and 20% variable. Variable portion is approximately 1.55% plus 3-month Euribor. Euribor rate in effect as of
December 31, 2020
80% fixed as a result of a “pay-fixed” interest rate swap agreement and 20% variable. Variable portion is approximately 2.0% plus 3-month GBP LIBOR. LIBOR rate in effect as of
December 31, 2020. This loan requires principal repayments beginning in October 2020 based on amounts specified under the loan. In October 2020, approximately $2.6 million in
principal was repaid in accordance with the terms of this mortgage note payable.
The borrower’s (wholly-owned subsidiaries of the Company) financial statements are included within the Company’s consolidated financial statements, however, the borrowers’ assets and
credit are only available to pay the debts of the borrowers and their liabilities constitute obligations of the borrowers.
F-25
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
(8)
Deferred financing costs consist of 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 paid down 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.
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, 2020:
(In thousands)
2021
2022
2023
2024
2025
Thereafter
Total
_________
Future Principal
Payments
(1)
$
$
13,222
20,475
331,445
237,939
85,854
689,751
1,378,686
(1)
Assumes exchange rates of £1.00 to $1.37 for GBP and €1.00 to $1.23 for EUR as of December 31, 2020 for illustrative purposes, as applicable.
The Company’s mortgage notes payable agreements require compliance with certain property-level financial covenants including debt service coverage ratios.
As of December 31, 2020, the Company was in compliance with all financial covenants under its mortgage notes payable agreements.
During the three months ended September 30, 2020, the borrower entities under the mortgage loan secured by all the Company’s properties located in the
United Kingdom did not maintain the required loan-to-value ratios with respect to the mortgaged properties, and, as a result, a cash trap event under the loan
occurred which was immediately cured when the Company executed, as required by the terms of the loan, a limited unsecured corporate guaranty of the borrower
entities’ obligations under the loan of £20.0 million (approximately $27.4 million as of December 31, 2020). The guaranty remains in effect and contains a
covenant that requires the Company to maintain unrestricted cash and cash equivalents (or amounts available for future borrowings under credit facility, such as the
Credit Facility) in an amount sufficient to meet its actual and contingent liabilities under the guaranty.
During the three months ended December 31, 2020, the borrower entities under the same mortgage loan did not maintain the same loan-to-value ratio and
another cash trap event under the loan occurred. This does not constitute a breach of the covenant and is not an event of default under the loan. The Company is
currently in negotiations to cure the cash trap event. If the value of the underlying portfolio continues to decline, the loan to value ratio may exceed the financial
covenant required under the loan of 55%, which would result in a breach, which could, if not cured, give rise to the lenders’ right to accelerate the principal amount
due under the loan and other remedies. In that event, the Company’s intent would be to cure the breach through various remedies available to them per the loan
agreement within the specified time frame under the loan. While the Company does not anticipate that any arrangement required to cure the cash trap that occurred
during the fourth quarter of 2020 will have a material impact on its liquidity, if the Company is unable to maintain this loan-to-value after the next annual lender
valuation in the fourth quarter of 2021, it may experience future cash trap events that could adversely impact our liquidity.
In addition, during the three months ended December 31, 2020, the Company also triggered a cash sweep event under one of its mortgage loans with a balance
of $98.5 million as of December 31, 2020, because a major tenant failed to renew its lease. This is not an event of default and instead triggers a cash sweep event.
Subsequent to December 31, 2020, the Company cured this event through one of the available options under the loan by putting a $3.2 million letter of credit in
place. The Company may be required to put additional letters of credit in place up to an aggregate of $7.4 million if the Company is not able to find a suitable
replacement tenant prior to the fourth quarter of 2021, and the letters of credit reduce the availability for future borrowings under the Revolving Credit Facility.
As of December 31, 2020, the Company was in compliance with the covenants pursuant to the Indenture under the Company’s 3.75% Senior Notes due 2027
(the “Senior Notes”) (as described in Note 6 — Senior Notes, Net) Credit Facility and mortgage notes payable agreements.
F-26
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
The total gross carrying value of unencumbered assets as of December 31, 2020 was $1.8 billion, and approximately $1.8 billion of this amount was included
in the unencumbered asset pool comprising the borrowing base under the Revolving Credit Facility (as defined in Note 5 — Revolving Credit Facility and Term
Loan, Net) and therefore is not available to serve as collateral for future borrowings.
Whirlpool Loan
On July 10, 2020, the Company, through certain wholly-owned subsidiaries, borrowed $88.0 million from a syndicate of regional banks led by BOK Financial
Corporation. In December, 2020 this loan was repaid, without penalty, with net proceeds from the Company’s newly issued Senior Notes (as defined in Note 6 —
Senior Notes, Net). As a result of the repayment of this loan, the Company wrote off deferred financing costs and terminated interest rate swap agreements related
to these borrowings, resulting in an aggregate total of $2.0 million of expenses recorded for these items in loss on extinguishment of debt in the Company’s
consolidated financial statement of operations (see Note 8 — Derivatives and Hedging Activities for additional details on the swap terminations).
The loans were secured by six industrial properties triple-net leased to Whirlpool Corporation and located in Tennessee and Ohio that were simultaneously
removed from the borrowing base under the Revolving Credit Facility. At the time of the closing of the loans in July 2020, approximately $84.0 million was used
to repay amounts outstanding under the Revolving Credit Facility, with the remaining proceeds of approximately $2.2 million, after costs and fees related to the
loan, available for general corporate purposes. The loan bore interest at a floating interest rate of one-month LIBOR plus 2.9%, with the interest rate fixed at 3.45%
by swap agreement.
French Refinancing
On May 14, 2020, the Company, through certain of its subsidiaries, entered into a loan agreement with HSBC France (“HSBC”) and borrowed €70.0 million
($75.6 million based on the exchange rate on that date) secured by the seven properties the Company owns in France. The maturity date of this loan is May 14,
2025 and it bears interest at a rate of 3-month EURIBOR (with a floor of 0.0%) plus an initial margin of 2.3% per year, with the interest rate for €63.0 million
($68.0 million based on the exchange rate on that date) fixed by an interest rate swap agreement. The amount fixed by swap agreement represents 90% of the
principal amount of the loan and is fixed at 2.5% per year. The loan is interest-only with the principal due at maturity. At the closing of the loan, €25.0 million
($27.0 million based on the exchange rate on that date) was used to repay all outstanding indebtedness on four of the properties. Of the remaining proceeds,
approximately €20.0 million ($21.6 million based on the exchange rate on that date) was used to repay amounts outstanding under the Revolving Credit Facility
and the remaining balance is available for general corporate purposes.
As a result of the refinancing of this loan, the Company terminated interest rate swap agreements related to these borrowings and incurred additional costs,
resulting in an aggregate total of $0.3 million of expenses recorded for these items in loss on extinguishment of debt in the Company’s consolidated statement of
operations (see Note 8 — Derivatives and Hedging Activities for additional details on the swap terminations).
Multi-Tenant Mortgage Loan V
On September 12, 2019, the Company, through certain wholly-owned subsidiaries, borrowed $204.0 million from KeyBank National Association
(“KeyBank”) secured by a first mortgage on 12 of the Company’s single tenant net leased office and industrial properties located in ten states. Approximately
$86.5 million of the net proceeds from the loan was used to repay outstanding mortgage indebtedness related to the mortgaged properties. Of the remaining net
proceeds, approximately $0.3 million was used to fund deposits required to be made at closing into reserve accounts and approximately $126.5 million was
available for working capital and general corporate purposes. The loan bears interest at a fixed rate of 3.65% and matures on October 1, 2029. The loan is interest-
only, with the principal balance due on the maturity date. From and after November 2, 2021, the loan may be prepaid at any time, in whole but not in part, subject
to certain conditions and limitations, including payment of a prepayment premium for any prepayments made prior to July 1, 2029. Partial prepayments are also
permitted under certain circumstances, subject to certain conditions and limitations.
Benelux Refinancing
On June 12, 2019, the Company, through certain wholly-owned subsidiaries, borrowed €120.0 million (approximately $135.8 million based on the exchange
rate on that date) from Landesbank Hessen-Thüringen Girozentrale, secured by three of the Company’s properties located in the Netherlands and Luxembourg. The
loan bears interest at a fixed rate of 1.38% and matures on June 11, 2024. The loan is interest-only, with the principal due at maturity. At the closing of the loan,
approximately €80.3 million (approximately $90.8 million based on the exchange rate on that date) of the net proceeds was used to repay all outstanding
indebtedness encumbering two of the properties.
German Refinancing
F-27
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
On May 10, 2019, the Company, through certain wholly-owned subsidiaries, borrowed €51.5 million (approximately $57.9 million based on the exchange rate
on that date) from Landesbank Hessen-Thüringen Girozentrale, secured by five of the Company’s properties located in Germany. The loan is interest-only with the
principal due at maturity, which is June 30, 2023. The maturity date may be extended at the Company’s option to February 29, 2024, subject to conditions. The
loan initially bore interest at a rate of 3-month Euribor plus 1.80% per annum, but, following the replacement of an easement on one property, the loan will bear
interest going forward at a rate of Euribor plus 1.55% per annum beginning on October 1, 2019. The amount fixed by swap agreement represents 80% of the
principal amount and the interest rate is fixed at 1.8%, for that portion. The net proceeds from the loan were used to repay all €35.6 million (approximately $40.0
million based on the exchange rate on that date) outstanding in mortgage indebtedness that previously encumbered three of the properties that secure the loan.
Multi-Tenant Mortgage Loan IV
On April 12, 2019, the Company, through certain wholly-owned subsidiaries, borrowed $97.5 million from Column Financial, Inc. and Société Générale
Financial Corporation, secured by 16 of the Company’s single tenant net leased office and industrial properties located in 12 states that were simultaneously
removed from the borrowing base under the Revolving Credit Facility. At closing, approximately $90.0 million was used to repay outstanding indebtedness under
the Revolving Credit Facility, with the remaining proceeds, after costs and fees related to the loan, available for working capital and general corporate purposes.
The loan bears interest at a fixed rate of 4.489% and has a maturity date of May 6, 2029. The loan is interest-only, with the principal balance due on the maturity
date. The Company may prepay the loan in whole or in part at any time, subject to certain fees and any unpaid interest depending on the timing and other
circumstances of the prepayment.
Finland Refinancing
On February 6, 2019, the Company, through certain wholly-owned subsidiaries, borrowed an aggregate of €74.0 million ($84.3 million based on the prevailing
exchange rate on that date) secured by mortgages on the Company’s five properties located in Finland. The maturity date of this loan is February 1, 2024, and it
bears interest at a rate of 3-month Euribor plus 1.4% per year, with the interest rate for approximately €59.2 million ($67.4 million based on the prevailing
exchange rate on that date) fixed by an interest rate swap agreement. The amount fixed by swap agreement represents 80% of the principal amount and the interest
rate is fixed at 1.8% per year. The loan is interest-only with the principal due at maturity. At the closing of the loan, €57.4 million ($65.4 million based on the
prevailing exchange rate on that date) was used to repay all outstanding indebtedness encumbering the five properties, with the remaining proceeds, after costs and
fees related to the loan, available for working capital and general corporate purposes.
Penske Logistics
On November 14, 2018, the Company, through certain wholly-owned subsidiaries entered into a mortgage loan, yielding gross proceeds of approximately
$70.0 million with a fixed rate of 4.6% and a 10-year maturity. Proceeds were used to fund a portion of the $126.6 million purchase price to acquire a cold storage
facility located in Romulus, Michigan. The borrower’s (a wholly-owned subsidiary of ours) financial statements are included within the Company’s consolidated
financial statements, however, the borrowers’ assets and credit are only available to pay the debts of the borrowers and their liabilities constitute obligations of the
borrowers.
U.S. Multi-Tenant Mortgage Loan III
On November 9, 2018, the Company, through certain wholly-owned subsidiaries, entered into a multi-tenant mortgage loan, yielding gross proceeds of $98.5
million with a fixed interest rate of 4.9% and 10-year maturity in December 2028. This multi-tenant mortgage loan is interest-only with a principal balance due on
maturity, and it is secured by seven properties in six states, totaling approximately 651,313 square feet. Proceeds were used to pay down $90.0 million of
outstanding indebtedness under the Revolving Credit Facility.
U.K. Multi-Property Loan
On August 13, 2018, the Company, through certain wholly-owned subsidiaries, entered into a multi-tenant mortgage loan, yielding gross proceeds of
£230.0 million and bearing interest at a rate of approximately 2.0% plus 3-month GBP LIBOR, maturing in August 2023. With respect to the interest, 80% of the
principal amount is fixed by a swap agreement, while the remaining 20.0% of the principal remains variable. The loan is interest-only for the first two years,
followed by scheduled principal amortization of £37.9 million in the final three years of the loan, with the remaining principal balance due on maturity. The loan is
secured by all 43 of the Company’s properties located in the United Kingdom. At closing, £209.0 million of the net proceeds were used to repay all outstanding
mortgage indebtedness encumbering 38 of the 43 properties. The other five properties were unencumbered prior to the loan.
U.S. Multi-Tenant Mortgage Loan II
F-28
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
On January 26, 2018, the Company entered into a multi-tenant mortgage loan, yielding gross proceeds of $32.8 million with a fixed interest rate of 4.3% and a
10-year maturity in February 2028. This multi-tenant mortgage loan is interest-only with a principal balance due on maturity, and it is secured by eight properties
in six states, totaling approximately 627,500 square feet. Proceeds were used to pay down approximately $30.0 million of outstanding indebtedness under the
Revolving Credit Facility and for general corporate purposes and acquisitions.
Note 5 — Revolving Credit Facility and Term Loan, Net
The table below details the outstanding balances as of December 31, 2020 and 2019 under the credit agreement with KeyBank National Association
(“KeyBank”), as agent, and the other lender parties thereto, which provides for a $835.0 million senior unsecured multi-currency revolving credit facility (the
“Revolving Credit Facility”) and a €359.6 million ($303.0 million USD based on the prevailing exchange rate as of December 31, 2020) senior unsecured term
loan facility (the “Term Loan” and, together with the Revolving Credit Facility, the “Credit Facility”). On August 1, 2019, the Company, through the OP, entered
into an amendment and restatement of the Credit Facility to, among other things, increase the aggregate total commitments, lower the interest rate and revise
certain covenants, and the terms of the Credit Facility described below generally reflect this amendment and restatement.
(In thousands)
Revolving Credit Facility
(3)
Term Loan
Deferred financing costs
Term Loan, Net
Total Credit Facility
$
$
December 31, 2020
December 31, 2019
TOTAL USD
(1)
111,132
$
USD
105,000 £
GBP
EUR
TOTAL USD
(2)
USD
—
€
5,000 $
199,071
$
62,211 £
GBP
40,000 €
EUR
75,000
303,036
(2,882)
300,154
411,286
—
—
—
105,000 £
$
—
—
—
—
€
247,075
—
247,075
252,075 $
403,258
(5,365)
397,893
596,964
$
—
—
—
62,211 £
—
—
—
40,000 €
359,551
—
359,551
434,551
(1)
(2)
(3)
Assumes exchange rates of £1.00 to $1.37 for GBP and €1.00 to $1.23 for EUR as of December 31, 2020 for illustrative purposes, as applicable.
Assumes exchange rates of £1.00 to $1.32 for GBP and €1.00 to $1.12 for EUR as of December 31, 2019 for illustrative purposes, as applicable.
In December 2020, the Company paid down €112.5 million ($136.7 million based on the exchange rate on that date of pay down) on the Term Loan. As a result, the Company wrote off
$1.3 million of deferred financing costs, which is recorded in loss on extinguishment of debt in the Company’s consolidated statement of operations.
Credit Facility - Terms
As of December 31, 2020, the aggregate total commitments under the Credit Facility were approximately $1.1 billion, based on the USD equivalent on
December 31, 2020. On February 24, 2021, following a request by the Company, lender commitments under the Credit Facility were increased by $50.0 million
with all of the increase allocated to the Revolving Credit Facility, and the total commitments were approximately $1.2 billion based on prevailing exchange rates
on that date. This increase was made pursuant to the Credit Facility’s uncommitted “accordion feature” whereby, upon the request of the Company, but at the sole
discretion of the lenders participating in such increase, total commitments under the Credit Facility may be increased, with the aggregate of such commitments not
to exceed $1.75 billion. Following the effectiveness of the commitment increase completed on February 24, 2021, the Company may request future additional
increases to total commitments of approximately $565.0 million, allocable to either or both components of the Credit Facility.
The Credit Facility consists of two components, a Revolving Credit Facility and a Term Loan, both of which are interest only. The Revolving Credit Facility
matures on August 1, 2023, subject to two six-month extensions at the Company’s option, and the Term Loan matures on August 1, 2024. Borrowings under the
Credit Facility bear interest at a variable rate per annum based on an applicable margin that varies based on the ratio of consolidated total indebtedness and the
consolidated total asset value of the Company and its subsidiaries plus either (i) LIBOR, as applicable to the currency being borrowed, or (ii) a “base rate” equal to
the greatest of (a) KeyBank’s “prime rate,” (b) 0.5% above the Federal Funds Effective Rate or (c) 1.0% above one-month LIBOR. The applicable interest rate
margin is based on a range from 0.45% to 1.05% per annum with respect to base rate borrowings under the Revolving Credit Facility, 1.45% to 2.05% per annum
with respect to LIBOR borrowings under the Revolving Credit Facility, 0.4% to 1.00% per annum with respect to base rate borrowings under the Term Loan and
1.40% to 2.00% per annum with respect to LIBOR borrowings under the Term Loan. As of December 31, 2020, the Credit Facility had a weighted-average
effective interest rate of 2.5% after giving effect to interest rate swaps in place.
F-29
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
In July 2017, the Financial Conduct Authority (which regulates LIBOR) announced it intends to stop compelling banks to submit rates for the calculation of
LIBOR after 2021. As a result, the Federal Reserve Board and the Federal Reserve Bank of New York organized the Alternative Reference Rates Committee,
which identified the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative to LIBOR in derivatives and other financial contracts. On November
30, 2020, the Financial Conduct Authority announced a partial extension of this deadline, indicating its intention to cease the publication of the one-week and two-
month USD LIBOR settings immediately following December 31, 2021, and the remaining USD LIBOR settings immediately following the LIBOR publication on
June 30, 2023. The Company is not able to predict when LIBOR may be limited or discontinued or when there will be sufficient liquidity in the SOFR market. The
Company is monitoring and evaluating the risks related to potential changes in LIBOR availability, which include potential changes in interest paid on debt and
amounts received and paid on interest rate swaps. In addition, the value of debt or derivative instruments tied to LIBOR could also be impacted when LIBOR is
limited or discontinued and contracts must be transitioned to a new alternative rate. While we expect LIBOR to be available in substantially its current form until at
least the end of 2021, it is possible that LIBOR will become unavailable prior to that time. The Credit Facility contains terms governing the establishment of a
replacement index to serve as an alternative to LIBOR, if necessary. To transition from LIBOR under the Credit Facility, the Company anticipates that it will either
utilize the Base Rate or negotiate a replacement reference rate for LIBOR with the lenders
The Credit Facility requires the Company through the OP to pay an unused fee per annum of 0.25% of the unused balance of the Revolving Credit Facility if
the unused balance exceeds or is equal to 50% of the total commitment or a fee per annum of 0.15% of the unused balance of the Revolving Credit Facility if the
unused balance is less than 50% of the total commitment. From and after the time the Company obtains an investment grade credit rating, the unused fee will be
replaced with a facility fee based on the total commitment under the Revolving Credit Facility multiplied by 0.30%, decreasing as the Company’s credit rating
increases.
The availability of borrowings under the Revolving Credit Facility is based on the value of a pool of eligible unencumbered real estate assets owned by the
Company and compliance with various ratios related to those assets. As of December 31, 2020, approximately $94.5 million was available for future borrowings
under the Revolving Credit Facility. Any future borrowings may, at the option of the Company, be denominated in USD, EUR, Canadian Dollars, British Pounds
Sterling (“GBP”) or Swiss Francs. Amounts borrowed may not, however, be converted to, or repaid in, another currency once borrowed. The Term Loan is
denominated in EUR.
The Company, through the OP, may reduce the amount committed under the Revolving Credit Facility and repay outstanding borrowings under the Credit
Facility, in whole or in part, at any time without premium or penalty, other than customary “breakage” costs payable on LIBOR borrowings. In the event of a
default, lenders have 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 also imposes certain affirmative and negative covenants on the OP, the Company and certain of its subsidiaries including
restrictive covenants with respect to, among other things, liens, indebtedness, investments, distributions (see additional information below), mergers and asset
sales, as well as financial covenants requiring the OP to maintain, among other things, ratios related to leverage, secured leverage, fixed charge coverage and
unencumbered debt services, as well as a minimum consolidated tangible net worth. As of December 31, 2020, the Company was in compliance with all covenants
under the Credit Facility.
Under the terms of the Credit Facility, the Company may not pay distributions, including cash dividends payable with respect to Common Stock, the
Company’s 7.25% Series A Cumulative Redeemable Preferred Stock, $0.01 par value per share (“Series A Preferred Stock”), its 6.875% Series B Cumulative
Redeemable Perpetual Preferred Stock $0.01 par value per share (“Series B Preferred Stock”) or any other class or series of stock the Company may issue in the
future, or redeem or otherwise repurchase shares of Common Stock, Series A Preferred Stock, Series B Preferred Stock, or any other class or series of stock the
Company may issue in the future that exceed 100% of the Company’s Adjusted FFO, as defined in the Credit Facility (which is different from AFFO disclosed in
this Annual Report on Form 10-K) for any period of four consecutive fiscal quarters, except in limited circumstances, including that for one fiscal quarter in each
calendar year, the Company may pay cash dividends and other distributions, and make redemptions and other repurchases in an aggregate amount equal to no more
than 105% of its Adjusted FFO. From and after the time the Company obtains and continues to maintain an investment grade rating, the limitation on distributions
discussed above will not be applicable. The Company used the exception to pay dividends that were between 100% of Adjusted FFO to 105% of Adjusted FFO
during the quarter ended on June 30, 2020.
The Company’s ability to comply with the restrictions on the payment of distributions in the Credit Facility depends on its ability to generate sufficient cash
flows that in the applicable periods exceed the level of Adjusted FFO required by these restrictions. If the Company is not able to generate the necessary level of
Adjusted FFO, the Company will have to reduce the amount of dividends paid on the common and the preferred stock or consider other actions. Alternatively, the
Company could elect to pay a portion of its dividends on the Common Stock in additional shares of Common Stock if approved by the Company’s board of
directors.
F-30
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
The Company and certain of its subsidiaries have guaranteed the OP’s obligations under the Credit Facility pursuant to a guarantee and a related contribution
agreement which governs contribution rights of the guarantors in the event any amounts become payable under the guaranty.
Note 6 — Senior Notes, Net
On December 16, 2020, the Company and the OP (together the “Issuers”) issued $500.0 million aggregate principal amount of 3.75% Senior Notes due 2027.
In connection with the closing of the offering of the Senior Notes, the Issuers and the subsidiaries of the Issuers that guarantee the Notes (the “Guarantors”) entered
into an Indenture (the “Indenture”) with U.S. Bank National Association, as trustee (the “Trustee”). As of December 31, 2020 the amount of the Senior Notes on
the Company’s consolidated balance sheet totaled $490.3 million, which is net of $9.7 million of deferred financing costs.
The Senior Notes, which were issued at par, will mature on December 15, 2027 and accrue interest at a rate of 3.750% per year. Interest on the Senior Notes,
which began to accrue on December 16, 2020, is payable semi-annually in arrears on June 15 and December 15 of each year, beginning on June 15, 2021.
The Senior Notes are fully and unconditionally guaranteed on a joint and several basis by the subsidiaries of each Issuer that are guarantors under the Credit
Facility (the “Note Guarantees”). Subject to certain exceptions, each future subsidiary of each Issuer that subsequently guarantees indebtedness under the Credit
Facility, any other syndicated loan facility or any capital markets indebtedness, in each case, will be required to execute a Note Guarantee. Under certain
circumstances, the Guarantors may be automatically released from their Note Guarantees without the consent of the holders of the Senior Notes.
The Senior Notes are redeemable at the option of the Issuers, in whole at any time or in part from time to time, in each case prior to September 15, 2027, for
cash, at a redemption price equal to the greater of (i) 101% of the principal amount of the Senior Notes to be redeemed or (ii) an amount equal to the sum of the
present values of the remaining scheduled payments of principal and interest on the Senior Notes to be redeemed that would be due if the Senior Notes matured on
September 15, 2027 (exclusive of unpaid interest accrued to, but not including, the date of redemption) discounted to the date of redemption on a semi-annual basis
at the treasury rate plus 50 basis points, plus, in each case, unpaid interest, if any, accrued to, but not including, the date of redemption. In addition, at any time on
or after September 15, 2027, the Senior Notes will be redeemable, at the option of the Issuers, in whole at any time or in part from time to time, for cash, at a
redemption price equal to 100% of the principal amount of the Senior Notes to be redeemed plus unpaid interest, if any, accrued to, but not including, the date of
redemption.
If a Change of Control Triggering Event (as defined in the Indenture) occurs, the Issuers will be required to make an offer to purchase the Senior Notes at a
price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, up to, but excluding, the purchase date.
If the Issuers or any of their restricted subsidiaries sell assets, under certain circumstances the Issuers will be required to make an offer to purchase the Senior
Notes at a price equal to 100% of the principal amount, plus accrued interest and unpaid interest, if any, up to, but excluding, the purchase date.
The Indenture contains covenants that, among other things, limit the ability of the Issuers and their restricted subsidiaries to (1) incur additional indebtedness,
(2) pay dividends and make distributions on the capital stock of the Company and each Issuer’s restricted subsidiaries, (3) make investments or other restricted
payments, (4) create liens on their assets, (5) enter into transactions with affiliates, (6) merge or consolidate or sell all or substantially all of their assets, (7) sell
assets and (8) create restrictions on the ability of their restricted subsidiaries to pay dividends or other amounts to them. These covenants are subject to important
exceptions and qualifications. In addition, if the Senior Notes are rated investment grade by any two of Moody’s Investors Service, Inc., Fitch Ratings Inc. and
Standard & Poor’s Ratings Services, and at such time no default or event of default under the Indenture has occurred and is continuing, many of the covenants in
the Indenture will be suspended or become more lenient and may not go back into effect.
The Indenture contains customary events of default which could, subject to certain conditions, cause the Senior Notes to become immediately due and
payable. As of December 31, 2020 the Issuers are in compliance with the covenants.
Note 7 — 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:
F-31
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
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 and those inputs are significant.
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, 2020 and 2019, 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.
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.
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, 2020 and 2019, aggregated by the level in the fair value hierarchy within which those instruments fall.
(In thousands)
December 31, 2020
Foreign currency forwards, net (GBP & EUR)
Interest rate swaps, net (USD, GBP & EUR)
December 31, 2019
Foreign currency forwards, net (GBP & EUR)
Interest rate swaps, net (USD, GBP & EUR)
Quoted Prices in
Active Markets
Level 1
Significant Other
Observable Inputs
Level 2
Significant
Unobservable Inputs
Level 3
Total
$
$
$
$
—
—
—
—
$
$
$
$
(4,025) $
(15,434) $
2,726 $
(6,082) $
—
—
—
—
$
$
$
$
(4,025)
(15,434)
2,726
(6,082)
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 year ended December 31, 2020.
F-32
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
Financial Instruments not Measured at Fair Value
The carrying value of short-term financial instruments such as cash and cash equivalents, restricted cash, due to/from related parties, prepaid expenses and
other assets, accounts payable, accrued expenses and dividends payable approximates their fair value due to their short-term nature.
The gross carrying value of the Company’s mortgage notes payable as of December 31, 2020 and 2019 were $1.4 billion and $1.3 billion, respectively, which
approximated their fair value. The fair value of gross mortgage notes payable is based on estimates of market interest rates. This approach relies on unobservable
inputs and therefore is classified as Level 3 in the fair value hierarchy.
As of December 31, 2020 the advances to the Company under the Revolving Credit Facility had a carrying value of $111.1 million and a fair value of
$111.2 million. As of December 31, 2019 the advances to the Company under the Revolving Credit Facility had a carrying value of $199.1 million and a fair value
of $211.0 million. As of December 31, 2020 the Company’s Term Loan had a gross carrying value of $303.0 million and a fair value of $304.6 million. As of
December 31, 2019 the Company’s Term Loan had a gross carrying value of $397.9 million and a fair value of $403.6 million.
As of December 31, 2020, the Company’s Senior Notes had a gross carrying value of $500.0 million and a fair value of $512.4 million.
Note 8 — Derivatives and Hedging Activities
Risk Management Objective of Using Derivatives
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 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 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 any counterparty to a contractual arrangement may not be
able to perform under the agreement. To mitigate this risk, the Company only enters into a derivative financial instrument with a counterparty with a high credit
rating with a major financial institution which the Company and its affiliates may also have other financial relationships with. The Company does not anticipate
that any such counterparty will fail to meet its obligations, but there is no assurance that any counterparty will meet these obligations.
F-33
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
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, 2020 and 2019:
(In thousands)
Derivatives designated as hedging instruments:
Interest rate “pay-fixed” swaps (USD)
Interest rate “pay-fixed” swaps (GBP)
Interest rate “pay-fixed” swaps (GBP)
Interest rate “pay-fixed” swaps (EUR)
Interest rate “pay-fixed” swaps (EUR)
Total
Derivatives not designated as hedging instruments:
Foreign currency forwards (GBP-USD)
Foreign currency forwards (GBP-USD)
Foreign currency forwards (EUR-USD)
Foreign currency forwards (EUR-USD)
Interest rate swaps (EUR)
Total
Cash Flow Hedges of Interest Rate Risk
Balance Sheet Location
December 31,
2020
2019
Derivative liabilities, at fair value
Derivative assets, at fair value
Derivative liabilities, at fair value
Derivative assets, at fair value
Derivative liabilities, at fair value
Derivative assets, at fair value
Derivative liabilities, at fair value
Derivative assets, at fair value
Derivative liabilities, at fair value
Derivative liabilities, at fair value
$
$
$
$
(3,829) $
—
(9,000)
—
(2,605)
(15,434) $
198 $
(2,714)
327
(1,836)
—
(4,025) $
(939)
366
(4,524)
228
(1,139)
(6,008)
1,205
(831)
2,352
—
(74)
2,652
The Company’s objectives in using interest rate derivatives 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. All of the changes in the fair value of derivatives designated and that qualify as cash flow hedges are recorded in accumulated other
comprehensive income (“AOCI”) and are subsequently reclassified into earnings in the period that the hedged forecasted transaction impacts earnings. For the year
ended December 31, 2020, such derivatives were used to hedge the variable cash flows associated with variable-rate debt.
Effective January 1, 2019, all of the changes in the fair value of derivatives designated and that qualify as cash flow hedges are recorded in AOCI and are
subsequently reclassified into earnings in the period that the hedged forecasted transaction impacts earnings. During the years ended December 31, 2020 and 2019,
such derivatives were used to hedge the variable cash flows associated with variable-rate debt. Prior to January 1, 2019, the ineffective portion of the change in fair
value of the derivatives was recognized directly in earnings and as a result, during the year ended December 31, 2018, the Company recorded a loss of $0.4
million.
Additionally, during the years ended December 31, 2020, 2019 and 2018, the Company accelerated the reclassification of amounts in other comprehensive
income to earnings as a result of the hedged forecasted transactions becoming probable not to occur. The accelerated amounts were losses of $0.3 million $0.1
million and $0.1 million for the years ended December 31, 2019 and 2018, respectively. Amounts reported in AOCI 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 ending December 31, 2021, the Company
estimates that an additional $7.1 million will be reclassified from other comprehensive income as an increase to interest expense.
F-34
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
As of December 31, 2020 and 2019, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest
rate risk:
Derivatives
Interest rate “pay-fixed” swaps (GBP)
Interest rate “pay-fixed” swaps (EUR)
Interest rate “pay-fixed” swaps (USD)
Total
2020
Number of
Instruments
49
22
3
74
December 31,
Notional
Amount
(In thousands)
$
$
301,210
641,394
150,000
1,092,604
2019
Number of
Instruments
49
16
3
68
Notional
Amount
(In thousands)
$
$
290,965
521,471
150,000
962,436
In connection with the paydown the loans secured by six industrial properties triple-net leased to Whirlpool Corporation during the fourth quarter of 2020, the
Company terminated six interest rate swaps with an aggregate notional amount of $88.0 million for a payment of approximately $0.3 million, which was recorded
in loss on extinguishment of debt in the Company’s consolidated statement of operations. Also, following these terminations, the Company recorded a loss of
$0.3 million in (loss) gain on derivative instruments in the Company’s consolidated statement of operations due to the acceleration of the reclassification of
amounts in AOCI to earnings as a result of the hedged forecasted transactions becoming probable not to occur as noted above.
In connection with a multi-property loan which refinanced all of the Company’s mortgage notes payable secured by its properties located in France during the
second quarter of 2020 (see Note 4 — Mortgage Notes Payable, Net), the Company terminated two interest rate swaps with an aggregate notional amount of €14.5
million for a payment of approximately $0.1 million. Amounts recorded to AOCI and interest expense following these terminations were not significant.
In connection with a multi-property loan which refinanced all of the Company’s mortgage notes payable secured by the Company’s properties located in
Finland during the first quarter of 2019 (see Note 4 — Mortgage Notes Payable, Net), the Company terminated five interest rate swaps with an aggregate notional
amount of €57.4 million for a payment of approximately $0.8 million. Following these terminations, $0.7 million was recorded in AOCI and was recorded as an
adjustment to interest expense over the term of the original EUR hedges and respective borrowings. Of the amount recorded in AOCI following these terminations,
$0.3 million and $0.4 million was recorded as an increase to interest expense for the years ended December 31, 2020 and 2019, respectively. As of December 31,
2020, there is no balance remaining in AOCI related to these terminations.
In connection with a multi-property loan which refinanced all of the Company’s mortgage notes payable denominated in GBP during the third quarter of 2018,
the Company terminated 15 interest rate swaps with an aggregate notional amount of £208.8 million and one floor with a notional amount of £28.1 million.
Following these terminations, the amount relating to GBP borrowings still outstanding of approximately $1.2 million was recorded in AOCI and was recorded as
an adjustment to interest expense over the term of the original GBP hedges and respective borrowings. Of the amount recorded in AOCI following these
terminations, $0.3 million, $0.6 million and $0.4 million was recorded as an increase to interest expense for the years ended December 31, 2020, 2019 and 2018,
respectively. As of December 31, 2020, there is no balance remaining in AOCI related to these terminations.
The table below details the location in the consolidated financial statements of the gain or loss recognized on interest rate derivatives designated as cash flow
hedges for the years ended December 31, 2020, 2019 and 2018:
F-35
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
(In thousands)
Amount of (loss) gain recognized in AOCI from derivatives
Amount of loss reclassified from AOCI into income as interest expense
Amount of loss recognized on derivative instruments (ineffective portion, reclassifications
of missed forecasted transactions and amounts excluded from effectiveness testing)
Total interest expense recorded in the consolidated statements of operations
2020
Year Ended December 31,
2019
2018
$
$
$
$
(14,151) $
(5,646) $
(270) $
71,804 $
(9,047) $
(2,439) $
(128) $
64,199 $
2,739
(3,746)
(559)
57,973
Net Investment Hedges
The Company is exposed to fluctuations in foreign currency exchange rates on property investments in foreign countries which pay rental income, incur
property related expenses and borrow in currencies other than its functional currency, the USD. For derivatives designated as net investment hedges, all of the
changes in the fair value of the derivatives, including the ineffective portion of the change in fair value of the derivatives, if any, are reported in AOCI (outside of
earnings) as part of the cumulative translation adjustment. Amounts are reclassified out of AOCI into earnings when the hedged net investment is either sold or
substantially liquidated. As of December 31, 2020 and 2019 the Company did not have foreign currency derivatives that were designated as net investment hedges
used to hedge its net investments in foreign operations and during the years ended December 31, 2020 and 2019, the Company did not use foreign currency
derivatives that were designated as net investment hedges.
Effective January 1, 2019, for derivatives designated as net investment hedges, all of the changes in the fair value of the derivatives are reported in AOCI
(outside of earnings) as part of the cumulative translation adjustment. Prior to January 1, 2019, the ineffective portion of the change in fair value of the derivatives,
if any, was recognized directly in earnings. Amounts are reclassified out of AOCI into earnings when the hedged net investment is either sold or substantially
liquidated.
Foreign Denominated Debt Designated as Net Investment Hedges
All foreign currency denominated borrowings under the Credit Facility are designated as net investment hedges. As such, the designated portion of changes in
value due to currency fluctuations are reported in AOCI (outside of earnings) as part of the cumulative translation adjustment. The remeasurement gains and losses
attributable to the undesignated portion of the foreign-currency denominated debt are recognized directly in earnings. Amounts are reclassified out of AOCI into
earnings when the hedged net investment is either sold or substantially liquidated, or if the Company should no longer possess a controlling interest. The Company
records adjustments to earnings for currency impacts related to undesignated excess positions, if any. During the year ended December 31, 2020, the Company
recorded losses of $6.0 million due to currency changes on the undesignated excess foreign currency advances over the related net investments.There were no
undesignated excess positions at any time during the years ended December 31, 2019 and 2018.
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 has used and
may continue to use foreign currency derivatives, including options, 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 economically 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 a loss of $2.1 million, and gains of $0.9 million and $7.8 million on the non-
designated hedges for the years ended December 31, 2020, 2019 and 2018, respectively.
F-36
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
As of December 31, 2020 and 2019, the Company had the following outstanding derivatives that were not designated as hedges under qualifying hedging
relationships:
Derivatives
Foreign currency forwards (GBP - USD)
Foreign currency forwards (EUR - USD)
Interest rate swaps (EUR)
Total
Offsetting Derivatives
December 31, 2020
December 31, 2019
Number of
Instruments
41
40
—
81
Notional
Amount
(In thousands)
$
$
41,633
38,634
—
80,267
Number of
Instruments
38
32
1
71
Notional
Amount
(In thousands)
$
$
38,898
27,478
10,655
77,031
The table below presents a gross presentation, the effects of offsetting, and a net presentation of the Company’s derivatives as of December 31, 2020 and
2019. 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
(In thousands)
December 31, 2020
December 31, 2019
Gross Amounts
of Recognized
Assets
Gross
Amounts of
Recognized
(Liabilities)
$
$
525
4,151
$
$
(19,984)
(7,507)
Gross
Amounts
Offset on the
Balance Sheet
—
$
—
$
Net Amounts of
Assets (Liabilities)
presented on the
Balance Sheet
$
$
(19,459) $
(3,356) $
Financial
Instruments
Cash Collateral
Received
(Posted)
—
—
$
$
—
—
Net Amount
(19,459)
$
(3,356)
$
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 has drawn, and expects to continue to draw, foreign currency
advances under the 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.
Credit-Risk-Related Contingent Features
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, 2020, the fair value of derivatives in net liability position including accrued interest but excluding any adjustment for nonperformance
risk related to these agreements was $21.2 million. As of December 31, 2020, 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 — Stockholders' Equity
Common Stock
As of December 31, 2020 and 2019, the Company had 89,614,601 and 89,458,752, respectively, shares of Common Stock issued and outstanding including
Restricted Shares and excluding RSU and long-term incentive plan units of limited partner interest in the OP (“LTIP Units”). LTIP Units may be convertible into
shares of Common Stock in the future.
ATM Program — Common Stock
The Company has an “at the market” equity offering program (the “Common Stock ATM Program”) pursuant to which the Company may sell shares of
Common Stock, from time to time through its sales agents.
•
•
•
The Company did not sell any shares of Common Stock through the Common Stock ATM Program during the year ended December 31, 2020.
During the three months ended March 31, 2019, the Company sold 7,759,322 shares of Common Stock through the Common Stock ATM Program for
gross proceeds of $152.7 million, before commissions paid of $1.5 million and additional issuance costs of $0.8 million. Following these sales, the
Company had raised all $175.0 million contemplated by its existing equity distribution agreement related to the Common Stock ATM Program. In
February 2019, the Company terminated its existing equity distribution agreement and entered into a new equity distribution agreement with substantially
the same sales agents on substantially the same terms. Under the new equity distribution agreement, through December 31, 2019, the Company sold
5,596,452 shares of Common Stock for gross proceeds of $109.9 million, before commissions paid of $1.6 million and additional issuance costs of
$0.4 million. In total, during the year ended December 31, 2019, the Company sold 13,355,773 shares of Common Stock for gross proceeds of
$262.6 million, before commissions paid of $3.2 million and additional issuance costs of $1.2 million.
During the year ended December 31, 2018, the Company sold 164,927 shares of Common Stock through the Common Stock ATM Program for gross
proceeds of $3.5 million, before commissions paid of $35,140 and additional issuance costs of $0.3 million.
Commissions paid and issuance cost are recorded in additional paid-in capital on the consolidated balance sheets.
Underwritten Offerings — Common Stock
On August 20, 2018, the Company completed the issuance and sale of 4,600,000 shares of Common Stock (including 600,000 shares issued and sold pursuant
to the underwriters’ exercise of their option to purchase additional shares in full) in an underwritten public offering at a price per share of $20.65. The gross
proceeds from this offering were $95.0 million before deducting the underwriting discount of $3.8 million and additional offering expenses of $0.3 million.
On November 28, 2018, the Company completed the issuance and sale of 4,000,000 shares of Common Stock in an underwritten public offering at a price per
share of $20.20. The gross proceeds from this offering were $80.8 million before deducting the underwriting discount of $3.2 million and additional offering
expenses of $0.1 million.
Preferred Stock
The Company is authorized to issue up to 30,000,000 shares of Preferred Stock.
•
•
•
The Company has classified and designated 9,959,650 shares of its authorized Preferred Stock as authorized shares of its 7.25% Series A Cumulative
Redeemable Preferred Stock, $0.01 par value per share (“Series A Preferred Stock”), as of December 31, 2020 and December 31, 2019. The Company
had 6,799,467 shares of Series A Preferred Stock issued and outstanding, as of December 31, 2020 and 2019.
The Company has classified and designated 11,450,000 shares of its authorized Preferred Stock as authorized shares of its 6.875% Series B Cumulative
Redeemable Perpetual Preferred Stock, $0.01 par value per share (“Series B Preferred Stock”), as of December 31, 2020 and December 31, 2019. The
Company had 3,861,953 and 3,450,000 shares of Series B Preferred Stock issued and outstanding, as of December 31, 2020 and 2019, respectively.
The Company has classified and designated 100,000 shares of its authorized Preferred Stock as authorized shares of its Series C preferred stock, $0.01 par
value (“Series C Preferred Stock”), as of December 31, 2020. No shares of Series C Preferred Stock were authorized as of December 31, 2019 and no
shares of Series C Preferred Stock were issued and outstanding as of December 31, 2020.
ATM Programs — Series A Preferred Stock and Series B Preferred Stock
In March 2018, the Company established an “at the market” equity offering program for its Series A Preferred Stock (the “Series A Preferred Stock ATM
Program”) pursuant to which the Company was permitted to raise aggregate sales proceeds of $200.0 million through sales of shares of Series A Preferred Stock
from time to time through its sales agents. In November 2019, the Company terminated the Series A Preferred Stock ATM Program.
•
•
During the year ended December 31, 2019, the Company sold 1,382,577 shares of Series A Preferred Stock through the Series A Preferred Stock ATM
Program for gross proceeds of $35.3 million, before commissions paid of $0.5 million and additional issuance costs of $0.2 million. In November 2019,
the Company terminated the Series A Preferred Stock ATM Program.
During the year ended December 31, 2018, the Company sold 7,240 shares of Series A Preferred Stock through the Series A Preferred Stock ATM
Program for gross proceeds of $0.2 million, before commissions paid of $2,724 and additional issuance costs of $0.4 million.
In December 2019, the Company established an “at the market” equity offering program for its Series B Preferred Stock (the “Series B Preferred Stock ATM
Program”) pursuant to which the Company may raise aggregate sales proceeds of up to $200.0 million through sales of shares of Series B Preferred Stock from
time to time through its sales agents. During the year ended December 31, 2020, the Company sold 411,953 shares of Series B Preferred Stock through the Series
B Preferred Stock ATM Program for gross proceeds of $10.4 million, before commissions paid of approximately $0.2 million and additional issuance costs of
$0.1 million. The Company did not sell any shares of Series B Preferred Stock through the Series B Preferred Stock ATM Program during 2019.
Series A Preferred Stock - Terms
Holders of Series A Preferred Stock are entitled to cumulative dividends in an amount equal to $1.8125 per share each year, which is equivalent to the rate of
7.25% of the $25.00 liquidation preference per share per annum. The Series A Preferred Stock has no stated maturity and will remain outstanding indefinitely
unless redeemed or otherwise repurchased. On and after September 12, 2022, at any time and from time to time, the Series A Preferred Stock is redeemable in
whole or in part, at the Company’s option, at a cash redemption price of $25.00 per share plus an amount equal to all dividends accrued and unpaid (whether or not
declared), if any, to, but not including, the redemption date. In addition, upon the occurrence of a Delisting Event or a Change of Control (each as defined in the
articles supplementary governing the terms of the Series A Preferred Stock (the “Articles Supplementary”), the Company may, subject to certain conditions, at its
option, redeem the Series A Preferred Stock, in whole but not in part, within 90 days after the first date on which the Delisting Event occurred or within 120 days
after the first date on which the Change of Control occurred, as applicable, by paying the liquidation preference of $25.00 per share, plus an amount equal to all
dividends accrued and unpaid (whether or not declared), if any, to, but not including, the redemption date. If the Company does not exercise these redemption
rights upon the occurrence of a Delisting Event or a Change of Control, the holders of Series A Preferred Stock will have certain rights to convert Series A
Preferred Stock into shares of Common Stock based on a defined formula subject to a cap whereby the holders of Series A Preferred Stock may receive a
maximum of 2.301 shares of Common Stock (as adjusted for any stock splits) per share of Series A Preferred Stock. The necessary conditions to convert the Series
A Preferred Stock into Common Stock have not been met as of December 31, 2020. Therefore, Series A Preferred Stock will not impact Company’s earnings per
share calculations.
The Series A Preferred Stock ranks senior to the Common Stock, with respect to dividend rights and rights upon the Company’s voluntary or involuntary
liquidation, dissolution or winding up.
If dividends on any outstanding shares of Series A Preferred Stock have not been paid for six or more quarterly periods, holders of Series A Preferred Stock
and holders of any other class or series of preferred stock ranking on parity with the Series A Preferred Stock, including the Series B Preferred Stock, will have the
exclusive power, voting together as a single class, to elect two additional directors until all accrued and unpaid dividends on the Series A Preferred Stock have been
fully paid. In addition, the Company may not authorize or issue any class or series of equity securities ranking senior to the Series A Preferred Stock with respect to
dividend rights and rights upon our voluntary or involuntary liquidation, dissolution or winding-up or amend the Company’s charter to materially and adversely
change the terms of the Series A Preferred Stock without the affirmative vote of at least two-thirds of the votes entitled to be cast on the matter by holders of
outstanding shares of Series A Preferred Stock and holders of any other similarly-affected classes and series of preferred stock ranking on parity with the Series A
Preferred Stock, including the Series B Preferred Stock. Other than the limited circumstances described above and in the Articles Supplementary, holders of Series
A Preferred Stock do not have any voting rights.
Underwritten Offering — Series B Preferred Stock
On November 20, 2019, the Company completed the issuance and sale of 3,450,000 shares of Series B Preferred Stock (including 450,000 shares pursuant to
the underwriters’ partial exercise of their option to purchase additional shares in accordance with terms of the underwriting agreement) in an underwritten public
offering at a public offering price equal to the liquidation preference of $25.00 per share. The gross proceeds from this offering were approximately $86.2 million
before deducting the underwriting discount of $2.7 million and additional offering expenses of $0.5 million.
Series B Preferred Stock - Terms
Holders of Series B Preferred Stock are entitled to cumulative dividends in an amount equal to $1.71875 per share each year, which is equivalent to the rate of
6.875% of the $25.00 liquidation preference per share per annum. The Series B Preferred Stock has no stated maturity and will remain outstanding indefinitely
unless redeemed or otherwise repurchased. On and after November 26, 2024, at any time and from time to time, the Series B Preferred Stock will be redeemable in
whole or in part, at the Company’s option, at a cash redemption price of $25.00 per share plus an amount equal to all dividends accrued and unpaid (whether or not
declared), if any, to, but not including, the redemption date. In addition, upon the occurrence of a Delisting Event or a Change of Control (each as defined in the
articles supplementary governing the terms of the Series B Preferred Stock (the “Series B Articles Supplementary”), the Company may, subject to certain
conditions, at its option, redeem the Series B
Preferred Stock, in whole but not in part, within 90 days after the first date on which the Delisting Event occurred or within 120 days after the first date on which
the Change of Control occurred, as applicable, by paying the liquidation preference of $25.00 per share, plus an amount equal to all dividends accrued and unpaid
(whether or not declared), if any, to, but not including, the redemption date. If the Company does not exercise these redemption rights upon the occurrence of a
Delisting Event or a Change of Control, the holders of Series B Preferred Stock will have certain rights to convert Series B Preferred Stock into shares of Common
Stock based on a defined formula subject to a cap whereby the holders of Series B Preferred Stock may receive a maximum of 2.5126 shares of Common Stock (as
adjusted for any stock splits) per share of Series B Preferred Stock. The necessary conditions to convert the Series B Preferred Stock into Common Stock have not
been met as of December 31, 2020. Therefore, Series B Preferred Stock will not impact Company’s earnings per share calculations.
The Series B Preferred Stock ranks senior to the Common Stock, with respect to dividend rights and rights upon the Company’s voluntary or involuntary
liquidation, dissolution or winding up, and on parity with the Series A Preferred Stock.
If dividends on any outstanding shares of Series B Preferred Stock have not been paid for six or more quarterly periods, holders of Series B Preferred Stock
and holders of any other class or series of preferred stock ranking on parity with the Series B Preferred Stock, including the Series A Preferred Stock will be
entitled to vote together as a single class, will have the exclusive power, voting together as a single class, to elect two additional directors until all accrued and
unpaid dividends on the Series B Preferred Stock have been fully paid. In addition, the Company may not authorize or issue any class or series of equity securities
ranking senior to the Series B Preferred Stock with respect to dividend rights and rights upon the Company’s voluntary or involuntary liquidation, dissolution or
winding-up or amend our charter to materially and adversely change the terms of the Series B Preferred Stock without the affirmative vote of at least two-thirds of
the votes entitled to be cast on the matter by holders of outstanding shares of Series B Preferred Stock and holders of any other similarly-affected classes and series
of preferred stock ranking on parity with the Series B Preferred Stock, including the Series A Preferred Stock. Other than the limited circumstances described
above and in the Articles Supplementary, holders of Series B Preferred Stock do not have any voting rights.
Dividends
Common Stock Dividends
Historically, and through March 31, 2020, the Company paid dividends at an annualized rate of $2.13 per share or $0.5325 per share on a quarterly basis. In
March 2020, the Company’s board of directors approved a change in the dividend to an annual rate of $1.60 per share or $0.40 per share on a quarterly basis,
which became effective in the second quarter of 2020 with the Company’s April 1, 2020 dividend declaration for dividends paid to the applicable record holders on
January 11, 2021.
Dividends authorized by the Company’s board of directors are paid on a quarterly basis in arrears on the 15th day of the first month following the end of each
fiscal quarter (unless otherwise specified) to common stockholders of record on the record date for such payment. The Company’s board of directors may alter the
amounts of dividends paid or suspend dividend payments at any time prior to declaration 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 ordinary units of limited partner interest in the OP (“OP Units”) and LTIP
Units as dividends. In addition, see Note 5 — Revolving Credit Facility and Term Loan, Net for additional information on the restrictions on the payment of
dividends and other distributions imposed by the Credit Facility.
The following table details from a tax perspective, the portion of cash paid for Common Stock dividends, during the years presented, classified as return of
capital and ordinary dividend income, per share per annum:
(In thousands)
Return of capital
Ordinary dividend income
Total
Series A Preferred Stock Dividends
Year Ended December 31,
2020
2019
2018
$
$
1.34
0.39
1.73
77.5 % $
22.5 %
100.0 % $
1.23
0.55
1.78
69.1 % $
30.9 %
100.0 % $
1.57
0.56
2.13
73.7 %
26.3 %
100.0 %
Dividends on Series A Preferred Stock accrue in an amount equal to $0.453125 per share per quarter to holders of Series A Preferred Stock, which is
equivalent to 7.25% of the $25.00 liquidation preference per share of Series A Preferred Stock per annum. Dividends on the Series A Preferred Stock are payable
quarterly in arrears on the 15th day of January, April, July and October of each year (or, if not on a business day, on the next succeeding business day) to holders of
record at the close of business on the record date set by the Company’s board of directors, which must be not more than 30 nor fewer than 10 days
prior to the applicable payment date. All dividends paid during 2020, 2019 and 2018 on the Series A Preferred Stock were considered 100% ordinary dividend
income.
Series B Preferred Stock Dividends
Dividends on Series B Preferred Stock accrue in an amount equal to $0.429688 per share per quarter to holders of Series B Preferred Stock, which is
equivalent to 6.875% of the $25.00 liquidation preference per share of Series B Preferred Stock per annum. Dividends on the Series B Preferred Stock are payable
quarterly in arrears on the 15th day of January, April, July and October of each year (or, if not on a business day, on the next succeeding business day) to holders of
record at the close of business on the record date set by the Company’s board of directors. All dividends paid during 2020 on the Series B Preferred Stock were
considered 100% ordinary dividend income.
Stockholder Rights Plan
In April 2020, the Company announced that its board of directors approved a short-term stockholder rights plan (the “Plan”). The Plan is intended to allow the
Company to realize the long-term value of the Company’s assets by protecting the Company from the actions of third parties that the Company’s board determines
are not in the best interest of the Company. In connection with the adoption of the Plan, the Company’s board of directors authorized a dividend of one preferred
share purchase right for each outstanding share of Common Stock to stockholders of record on April 20, 2020 to purchase from the Company one one-thousandth
of a share of Series C Preferred Stock for an exercise price of $50.00, once the rights become exercisable, subject to adjustment as provided in the related rights
agreement. By the terms of the Plan, the rights will initially trade with Common Stock and will generally only become exercisable on the 10th business day after
the Company’s board of directors become aware that a person or entity has become the owner of 4.9% or more of the shares of Common Stock or the
commencement of a tender or exchange offer which would result in the offeror becoming an owner of 4.9% or more of the Common Stock. In February 2021, the
expiration date of these rights was extended to April 8, 2024. See Note 15 — Subsequent Events for additional information. The adoption of the Plan did not have a
material impact on the Company's financial statements and its earnings per share.
Note 10 — Commitments and Contingencies
Lessee Arrangements — Ground Leases
The Company leases land under nine ground leases associated with certain properties, which includes one additional ground lease acquired during the year
ended December 31, 2020, with lease durations ranging from 15 to 97 years as of December 31, 2020.
As of December 31, 2020 and 2019 , the Company’s balance sheet includes ROU assets of $58.4 million and $50.2 million, respectively, and operating lease
liabilities of $25.4 million and $24.0 million, respectively. In determining the operating ROU assets and lease liabilities for the Company’s existing operating
leases upon the adoption of the new lease guidance on January 1, 2019 (see Note 2 — Summary of Significant Accounting Polices) as well as for new operating
leases entered into after the adoption of the new standard, the Company was required to estimate an appropriate incremental borrowing rate on a fully-
collateralized basis for the terms of the leases. Since the terms of the Company’s ground leases are significantly longer than the terms of borrowings available to
the Company on a fully-collateralized basis, the Company’s estimate of this rate required significant judgment.
The Company’s ground operating leases have a weighted-average remaining lease term of approximately 32.0 years and a weighted-average discount rate of
4.33% as of December 31, 2020. For the years ended December 31, 2020 and 2019, the Company paid cash of approximately $1.5 million and $1.4 million,
respectively, for amounts included in the measurement of lease liabilities. For the years ended December 31, 2020 and 2019, the Company recorded expense of
$1.4 million and $1.3 million, respectively, on a straight-line basis in accordance with the standard. The Company incurred rent expense on ground leases of $1.3
million during the year ended December 31, 2018. The lease expense is recorded in property operating expenses in the consolidated statements of operations.
The following table reflects the base cash rental payments due from the Company as of December 31, 2020:
F-37
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
(In thousands)
2021
2022
2023
2024
2025
Thereafter
Total minimum lease payments
Less: Effects of discounting
(2)
Total present value of lease payments
Future Base Rent Payments
$
(1)
1,510
1,510
1,510
1,514
1,519
42,217
49,780
(24,430)
25,350
$
(1)
Assumes exchange rates of £1.00 to $1.37 for GBP and €1.00 to $1.23 for EUR as of December 31, 2020 for illustrative purposes, as applicable.
(2)
Ground lease rental payments due for the Company’s ING Amsterdam lease are not included in the table above as the Company’s ground rent for this property is prepaid through 2050.
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.
On January 25, 2018, Moor Park Capital Partners LLP filed a complaint against (i) the Company and the OP; (ii) the Property Manager, Global Net Lease
Special Limited Partner, LLC, an affiliate of AR Global that directly owns the Advisor and the Property Manager, and the Advisor; and (iii) AR Capital Global
Holdings, LLC, and AR Global, in the Supreme Court of the State of New York, County of New York. On March 4, 2019, the parties entered into a settlement
agreement pursuant to which the lawsuit was dismissed. The Company recorded a reserve of $7.4 million related to the then anticipated settlement payment during
the fourth quarter of 2018 and subsequently paid the settlement amount during the first quarter of 2019. During the years ended December 31, 2019 and 2018, the
Company incurred approximately $1.0 million and $2.9 million, respectively, in additional legal expenses related to this litigation. These costs are included in
acquisition, transaction and other costs in the consolidated statement of operations.
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, 2020, 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, 2020 and 2019, AR Global and certain affiliates owned, in the aggregate, 35,900 shares of outstanding Common Stock. The Advisor,
which is an affiliate of AR Global, and its affiliates incur, directly or indirectly, costs and fees in performing services for the Company. As of December 31, 2020
and 2019, the Company had $0.4 million and $0.4 million, respectively, of receivables from former affiliates of the Advisor and $2.0 million and $0.3 million of
payables to their affiliates, respectively. The $2.0 million payable relates to the $1.5 million in leasing commissions to the Property Manager and $0.5 million
relates to a payable recorded for the overpayment of invoices in current and prior years for a shared service.
As of December 31, 2020, AR Global indirectly owned 95% of the membership interests in the Advisor and Scott J. Bowman, the Company’s former chief
executive officer and president, directly owned the other 5% of the membership interests in the Advisor. James L. Nelson, the Company’s chief executive officer
and president, holds a non-controlling profit interest in the Advisor and Property Manager.
The Company is the sole general partner of the OP. There were no OP Units held by anyone other than the Company outstanding as of December 31, 2020,
2019 and 2018.
In addition, the Company paid $0.4 million, $0.5 million and $0.6 million in distributions to the Advisor as the sole holder of LTIP Units (as defined in Note
13 — Equity-Based Compensation ) during the years ended December 31, 2020, 2019 and 2018, which are included in accumulated deficit in the consolidated
statements of equity. As of December 31, 2020 and 2019, the Company had no unpaid distributions on the LTIP Units.
F-38
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
During the third quarter of 2020, the Company granted Restricted Shares to employees of the Advisor or its affiliates who are involved in providing services to
the Company, including the Company’s Chief Executive Officer and Chief Financial Officer. For additional information, see Note 13 — Equity-Based
Compensation.
Fees Paid in Connection with the Operations of the Company
The Company has engaged the Advisor to manage the Company’s day-to-day business and operations pursuant to the terms of the Advisory Agreement. The
Advisory Agreement was most recently amended on May 6, 2020 (the “Amendment”) to temporarily lower the effective thresholds of Core AFFO Per Share that
the Company must satisfy for the Advisor to be paid Incentive Compensation (as defined in the Advisory Agreement).
(1)
Under the Advisory Agreement, the Company pays the Advisor the following fees in cash:
(a) a base fee of $18.0 million per annum payable in cash monthly in advance (“Minimum Base Management Fee”); and
(b) a variable fee amount equal to 1.25% per annum of the sum, since the effective date of our Advisory Agreement in June 2015, of: (i) the cumulative net
proceeds of all common equity issued by the Company (ii) any equity of the Company issued in exchange for or conversion of preferred stock or
exchangeable notes, based on the stock price at the date of issuance; and (iii) any other issuances of common, preferred, or other forms of equity of the
Company, including units in an operating partnership (excluding equity based compensation but including issuances related to an acquisition, investment,
joint-venture or partnership) (the “Variable Base Management Fee”).
Additionally, the Company pays the Advisor the Incentive Compensation, an amount earned each quarter, 50% payable in cash and 50% payable in shares of
Common Stock (subject to certain lock up restrictions) except for the period beginning April 1, 2020 and ending December 31, 2020, when it was payable in cash
only. The Incentive Compensation is calculated on an annual basis for the 12-month period from July 1 to June 30 of each year, in quarterly installments. The
Incentive Compensation is subject to a final adjustment after the performance period ends, such that the difference, if any, between the amount of the Incentive
Compensation actually paid to the Advisor in the preceding year under the quarterly installments and the actual amount payable for the year is either repaid by or
paid to the Advisor as applicable. Shares of Common Stock that are issued as a portion of any quarterly installment payment are retained and, for purposes of any
repayment required to be made by the Advisor, have the value they had at the time of issuance and are adjusted in respect of any dividend or other distribution
received with respect to those shares to allow recoupment of the same.
Under the Advisory Agreement, prior to the Amendment, the Incentive Fee Lower Hurdle (as defined in the Advisory Agreement) was (a) $2.15 for the 12
months ended June 30, 2019, and (b) $2.25 for the 12 months ending June 30, 2020. Following the Amendment, the Incentive Fee Lower Hurdle is equal to (i)
$1.6875 per share in the aggregate and $0.5625 per share per quarter for the period that began on July 1, 2019 and ended March 31, 2020; (ii) $1.35 per share in the
aggregate and $0.45 per share per quarter for the period that began on April 1, 2020 and ended December 31, 2020; (iii) $1.125 per share in the aggregate and
$0.5625 per share per quarter for the period beginning January 1, 2021 and ending June 30, 2021; and (iv) $2.25 per share in the aggregate and $0.5625 per share
per quarter for the annual period beginning July 1, 2021. In addition, prior to the Amendment, the Incentive Fee Upper Hurdle (as defined in the Advisory
Agreement) was (a) $2.79 for the 12 months ended June 30, 2019, and (b) $2.92 for the 12 months ended June 30, 2020. Following the Amendment, the Incentive
Fee Upper Hurdle is equal to (i) $2.19 per share in the aggregate and $0.73 per share per quarter for the period that began on July 1, 2019 and ended March 31,
2020; (ii) $1.75 per share in the aggregate and $0.583 per share per quarter for the period that began on April 1, 2020 and ended December 31, 2020; (iii) $1.46 per
share in the aggregate and $0.73 per share per quarter for the period that began on January 1, 2021 and ending June 30, 2021; and (iv) $2.92 per share in the
aggregate and $0.73 per share per quarter for the annual period beginning July 1, 2021. During the years ended December 31, 2020, 2019 and 2018, no Incentive
Compensation was earned by the Advisor.
The Amendment also extended from July 1, 2020 to July 1, 2021, the first date that the annual thresholds are subject to annual increases by a majority of the
Company’s independent directors (in their good faith reasonable judgment, after consultation with the Advisor). The percentage at which independent directors
may so increase the thresholds remains a percentage equal to between 0% and 3%. In addition, commencing in August 2023 and every five years thereafter, the
Advisor has a right to request that the Company’s independent directors reduce the then current Incentive Fee Lower Hurdle and Incentive Fee Upper Hurdle and
make a determination whether any reduction in the annual thresholds is warranted.
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 are subject to varying caps based on assets under management (“AUM”)
, as defined in the Advisory Agreement. The
amount of the Base Management Fee to be paid under the Advisory Agreement is capped at the AUM for the preceding year multiplied by (a) 0.75% if equal to or
less than $3.0 billion; (b) 0.75% less (i) a fraction, (x) the numerator of which is the AUM for such specified period less $3.0 billion and (y) the
(2)
F-39
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
denominator of which is $11.7 billion multiplied by 0.35% if AUM is greater than $3.0 billion but less than $14.6 billion; or (c) 0.4% if equal to or greater than
$14.7 billion.
______________
(1)
For purposes of the Advisory Agreement, Core AFFO Per Share means for the applicable period (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 (as defined in the Advisory Agreement)); (e) other non-cash income and expense items; (f) certain
non-cash interest expenses related to securities that are convertible to Common Stock; (g) gain (or loss) from the sale of investments; (h) impairment loss on real estate; (i) acquisition and
transaction related costs (known as acquisition, transaction and other costs on the face of the Company’s income statement); (j) straight-line rent; (k) amortization of above and below
market leases assets and liabilities; (l) amortization of deferred financing costs; (m) accretion of discounts and amortization of premiums on debt investments; (n) marked-to-market
adjustments included in net income; (o) unrealized gain (loss) resulting from consolidation from, or deconsolidation to, equity accounting, (p) consolidated and unconsolidated partnerships
and joint ventures and (q) Incentive Compensation, (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 a special dividend(s)
related thereto is paid to stockholders.
Under the Advisory Agreement, the Company has also agreed under the Advisory Agreement to reimburse, indemnify and hold harmless each of the Advisor
and its affiliates, and the directors, officers, employees, partners, members, stockholders, other equity holders, agents and representatives of the Advisor and its
affiliates (each, a “Advisor Indemnified Party”), of and from any and all expenses, losses, damages, liabilities, demands, charges and claims of any nature
whatsoever (including reasonable attorneys’ fees) in respect of or arising from any acts or omissions of the Advisor Indemnified Party performed in good faith
under the Advisory Agreement and not constituting bad faith, willful misconduct, gross negligence, or reckless disregard of duties on the part of the Advisor
Indemnified Party. In addition, the Company has agreed to advance funds to an Advisor Indemnified Party for reasonable legal fees and other reasonable costs and
expenses incurred as a result of any claim, suit, action or proceeding for which indemnification is being sought, subject to repayment if the Advisor Indemnified
Party is later found pursuant to a final and non-appealable order or judgment to not be entitled to indemnification.
Property Management Fees
The Property Manager provides property management and leasing services for properties owned by the Company, for which the Company pays fees to the
Property Manager 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 in each case plus market-based
leasing commissions applicable to the geographic location of the applicable property.
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. This oversight fee is no longer applicable to 39
of the Company’s properties which became subject to separate property management agreements with the Property Manager in connection with certain mortgage
loans entered into by the Company in October 2017, April 2019 and September 2019 (the “Loan Property PMLAs”) on otherwise nearly identical terms to the
primary property and management leasing agreement (the “Primary PMLA”), which remains applicable to all other properties.
In February 2019, the Company entered into an amendment to the Primary PMLA with the Property Manager, providing for automatic extensions for an
unlimited number of successive one-year terms unless terminated by either party upon notice. Following this amendment, either the Company or the Property
Manager may terminate the Primary PMLA at any time upon at least 12 months written notice prior to the applicable termination date. This termination notice
period does not apply to the Loan Property PMLAs, which may be terminated by either the Company or the Property Manager upon 60 days’ written notice prior to
end of the applicable term.
If cash flow generated by any of the Company’s properties is not sufficient to fund the costs and expenses incurred by the Property Manager in fulfilling its
duties under the property management and leasing agreements, the Company is required to
F-40
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
fund additional amounts. Costs and expenses that are the responsibility of the Company under the property management and leasing agreements include, without
limitation, reasonable wages and salaries and other employee-related expenses of all on-site and off-site employees of the Property Manager who are engaged in
the operation, management, maintenance and leasing of the properties and other out-of-pocket expenses which are directly related to the operation, management,
maintenance and leasing of specific properties, but may not include the Property Manager’s general overhead and administrative expenses.
Solely with respect to the Company’s investments in properties located in Europe, prior to the effectiveness of the termination of the Company’s former
service provider for its European properties in March 2018, the service provider received, from the Property Manager, a portion of the fees payable to the Property
Manager 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 was 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. Following the termination of the service provider, the service provider no longer receives any
amounts from the Advisor.
During the year ended December 31, 2020, the Company incurred leasing commissions to the Property Manager of $1.5 million, of which $0.1 million was
recorded as an expense in property management fees (see table below). The remainder of the balance will be recorded over the terms of the related leases.
Professional Fees and Other Reimbursements
The Company reimburses the Advisor or its affiliates for expenses paid or incurred by the Advisor or its affiliates in providing services to the Company under
the Advisory Agreement, except for those expenses that are specifically the responsibility of the Advisor under the Advisory Agreement, such as salaries, bonus
and other wages, payroll taxes and the cost of employee benefit plans of personnel of the Advisor and its affiliates (including our executive officers) who provide
services to the Company under our advisory agreement, the Advisor’s rent and general overhead expenses, the Advisor’s travel expenses (subject to certain
exceptions), professional services fees incurred with respect to the Advisor for the operation of its business, insurance expenses (other than with respect to our
directors and officers) and information technology expenses. In addition, these reimbursements are 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, unless the excess amount is otherwise approved by the Company’s board of
directors. The amount of expenses reimbursable for the years ending December 31, 2020, 2019 and 2018 did not exceed these limits.
Fees Paid in Connection with the Liquidation of the Company’s Real Estate Assets
Under the Advisory Agreement, the Company is required to pay to the Advisor a fee in connection with net gain recognized by the Company in connection
with the sale or similar transaction of any investment equal to 15% of the amount by which the gains from the sale of investments in the applicable month exceed
the losses from the sale of investments in that month unless the proceeds from such transaction or series of transactions are reinvested in one or more investments
within 180 days thereafter. (the “Gain Fee”) unless the proceeds of the sale or transaction or series of sales or transactions are reinvested in one or more
investments within180 days thereafter. The Gain Fee is calculated at the end of each month and paid, to the extent due, with the next installment of the Base
Management Fee. The Gain Fee is calculated by aggregating all of the gains and losses from the preceding month. There was no Gain Fee paid during the years
ended December 31, 2020, 2019 or 2018, respectively.
The following table reflects related party fees, as described above, incurred, forgiven and contractually due as of and for the periods presented:
(In thousands)
(1)
:
Ongoing fees
Asset management fees
Property management fees
(2)
Total related party operational fees and reimbursements
______________
F-41
Year Ended December 31,
2020
Incurred
2019
Incurred
2018
Incurred
$
$
29,623
6,178
35,801
$
$
27,530
5,762
33,292
$
$
23,212
5,022
28,234
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
(1)
(2)
The Company incurred general and administrative costs and other expense reimbursements of approximately $1.1 million, $1.1 million and $1.1 million for the years ended December 31,
2020, 2019 and 2018, respectively, which are recorded within general and administrative expenses on the consolidated statements of operations and are not reflected in the table above.
The Advisor, in accordance with the Advisory Agreement, received asset management fees in cash equal to the annual Minimum Base Management Fee of $18.0 million and the Variable
Base Management Fee. The Variable Base Management Fee was $11.6 million, $9.5 million and $5.2 million for the years ended December 31, 2020, 2019 and 2018, respectively.
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, 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, accounting services, investor relations, transfer agency services, as well as other administrative
responsibilities for the Company.
As a result of these relationships, the Company is dependent upon the Advisor and its affiliates. 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.
Note 13 — Equity-Based Compensation
Stock Option Plan
The Company has a stock option plan (the “Plan”) which authorizes the grant of nonqualified Common Stock options to the Company’s directors, officers,
advisors, consultants and other personnel of the Company, the Advisor and the Property Manager and their affiliates, subject to the absolute discretion of the
Company’s board of directors and the applicable limitations of the Plan. The exercise price for any stock options granted under the Plan will be equal to the closing
price of a share of Common Stock on the last trading day preceding the date of grant. A total of 0.5 million shares have been authorized and reserved for issuance
under the Plan. As of December 31, 2020, 2019 and 2018, 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 and
RSUs to directors, officers and full-time employees (if any), of the Company, the Advisor and its affiliates, and certain persons that provide services to the
Company, the Advisor or its affiliates.
The Company pays independent director compensation as follows: (i) the annual retainer payable to all independent directors is $100,000 per year, (ii) the
annual retainer for the non-executive chair is $105,000, (iii) the annual retainer for independent directors serving on the audit committee, compensation committee
or nominating and corporate governance committee is $30,000. All annual retainers are payable 50% in the form of cash and 50% in the form of RSUs 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 RSP, the number of shares of Common Stock available for awards is equal to 10.0% of the Company’s outstanding shares of Common Stock on a
fully diluted basis at any time. If any awards granted under the RSP are forfeited for any reason, the number of forfeited shares is again available for purposes of
granting awards under the RSP.
F-42
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
RSUs
RSUs may be awarded under terms that provide for vesting on a straight-line basis over a specified period of time for each award. RSUs represent a contingent
right to receive shares of Common Stock at a future settlement date, subject to satisfaction of applicable vesting conditions or other restrictions, as set forth in the
RSP and an award agreement evidencing the grant of RSUs. RSUs may not, in general, be sold or otherwise transferred until restrictions are removed and the rights
to the shares of Common Stock have vested. Holders of RSUs do not have or receive any voting rights with respect to the RSUs or any shares underlying any
award of RSUs, but such holders are generally credited with dividend or other distribution equivalents which are subject to the same vesting conditions or other
restrictions as the underlying RSUs and only paid at the time such RSUs are settled in shares of Common Stock. RSU award agreements generally provide for
accelerated vesting of all unvested RSUs in connection with a termination without cause from the Company’s board of directors or a change of control and
accelerated vesting of the portion of the unvested RSUs scheduled to vest in the year of the recipient’s voluntary resignation from or failure to be re-elected to the
Company’s board of directors.
The following table reflects equity awards activity for the years ended December 31, 2020, 2019 and 2018.
Number of
RSUs/Restricted Shares
Weighted-Average Issue
Price
Unvested, December 31, 2017
Granted
Vested
Unvested, December 31, 2018
Granted
Vested
Unvested, December 31, 2019
Granted
Vested
Unvested, December 31, 2020
49,112 $
17,039
(19,799)
46,352
16,543
(22,354)
40,541
28,232
(23,824)
44,949
24.29
18.34
24.40
22.04
18.89
22.58
20.47
13.37
21.71
15.35
The fair value of the equity awards in the form of Restricted Shares granted prior to the listing of the Common Stock on the NYSE on June 2, 2015 was based
on the per share price in the Company’s initial public offering of Common Stock completed prior to the listing, and the fair value of the RSUs granted on or after
the listing is based on the market price of Common Stock as of the grant date. The fair value of equity awards is expensed over the vesting period.
Restricted Shares
Restricted Shares are shares of Common Stock awarded under terms that provide for vesting over a specified period of time. Holders of Restricted Shares
receive cash dividends prior to the time that the restrictions on the Restricted Shares have lapsed. Any dividends to holders of Restricted Shares payable in shares
of Common Stock are subject to the same restrictions as the underlying Restricted Shares. Restricted Shares may not, in general, be sold or otherwise transferred
until restrictions are removed and the shares have vested.
In September 2020, the Company granted 132,025 Restricted Shares to employees of the Advisor or its affiliates who are involved in providing services to the
Company, and including its Chief Executive Officer and Chief Financial Officer. In accordance with accounting rules, the fair value of the Restricted Shares
granted is being recorded on a straight-line basis over the vesting period of four years.
The Restricted Shares were issued in October 2020 at the time the related award agreements were executed and were granted at a price of $17.41 per share.
The awards to the Chief Executive Officer and Chief Financial Officer were recommended by the Advisor and approved by the compensation committee. The
other awards were made pursuant to authority delegated by the compensation committee to Edward M. Weil, Jr., a member of the Company’s board of directors.
Following the grant of these awards there remained an additional 217,975 Restricted Shares that may be awarded in the future pursuant to the delegation of
authority to Mr. Weil. No awards may be made pursuant to this delegation of authority to anyone who is also a partner, member or equity owner of the parent of
the Advisor.
F-43
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
The Restricted Shares granted to employees of the Advisor or its affiliates vest in 25% increments on each of the first four anniversaries of the grant date.
Except in connection with a change in control (as defined in the award agreement) of the Company, any unvested Restricted Shares (but not any cash dividends
paid thereon) will be forfeited if the holder’s employment with the Advisor terminates for any reason. Upon a change in control of the Company, 50% of the
unvested Restricted Shares will immediately vest and the remaining unvested Restricted Shares will be forfeited.
Compensation Expense — RSP
Compensation expense for awards granted pursuant to the RSP was $0.6 million, $0.5 million and $0.5 million for the years ended December 31, 2020, 2019
and 2018, respectively. Compensation expense is recorded as equity-based compensation in the accompanying consolidated statements of operations.
As of December 31, 2020, the Company had $0.5 million unrecognized compensation cost related to RSUs granted under the RSP, which is expected to be
recognized over a weighted-average period of 1.8 years. As of December 31, 2020, the Company had $2.1 million unrecognized compensation cost related to
Restricted Share awards granted under the RSP, which is expected to be recognized over a period of 3.8 years.
Multi-Year Outperformance Agreement
On July 16, 2018, the Company’s compensation committee approved the 2018 OPP, which was subsequently entered into by the Company and the OP with
the Advisor on July 19, 2018. The 2018 OPP was entered into in connection with the conclusion of the performance period under the 2015 OPP on June 2, 2018.
None of the LTIP Units granted under the 2015 OPP were earned and all of those LTIP Units were automatically forfeited without the payment of any
consideration by the Company or the OP effective as of June 2, 2018.
Under accounting rules adopted by the Company on January 1, 2019, the total fair value of the LTIP Units granted under the 2018 OPP of $18.8 million is
fixed as of that date and will not be remeasured in subsequent periods unless the 2018 OPP is amended (see Note 2 — Summary of Significant Accounting Policies
for a description of accounting rules related to non-employee equity awards). The fair value of the LTIP Units that have been granted is being recorded evenly over
the requisite service period which is approximately 2.8 years from the grant date in 2018. In February 2019, the Company entered into an amendment to the 2018
OPP with the Advisor to reflect a change in the peer group resulting from the merger of two members of the peer group. Under the accounting rules, the Company
was required to calculate any excess of the new value of LTIP Units awarded pursuant to the 2018 OPP at the time of the amendment ($29.9 million) over the fair
value immediately prior to the amendment ($23.3 million). This excess of approximately $6.6 million is being expensed over the period from February 21, 2019,
the date the Company’s compensation committee approved the amendment, through June 2, 2021, the end of the service period.
During the years ended December 31, 2020 and 2019 and 2018, respectively, the Company recorded expense of $9.4 million, $9.1 million and $3.3 million
related to the 2018 OPP. Also, during the year ended December 31, 2018, the Company recorded a reduction in expense of $1.1 million for the 2015 OPP, resulting
in net expense recorded of $2.2 million for the year ended December 31, 2018
LTIP Units/Distributions/Redemption
The rights of the Advisor as the holder of the LTIP Units are governed by the terms of the LTIP Units contained in the agreement of limited partnership of the
OP. The Advisor, as the holder of the LTIP Units is entitled to distributions on the LTIP Units equal to 10% of the distributions made per OP Unit (other than
distributions of sale proceeds) until the LTIP Units are earned. The Company paid approximately $0.4 million, $0.5 million and $0.6 million in distributions related
to LTIP Units during the years ended December 31, 2020, 2019 and 2018, respectively, which is included in accumulated deficit in the consolidated statements of
changes in equity. These distributions are not subject to forfeiture, even if the LTIP Units are ultimately forfeited. If any LTIP Units are earned, the Advisor will be
entitled to a priority catch-up distribution on each earned LTIP Unit equal to the aggregate distributions paid on OP Units during the applicable performance
period, less the aggregate distributions paid on the LTIP Unit during the performance period. As of the valuation date on the final day of the applicable
performance period, any LTIP Units that are earned will become entitled to receive the same distributions paid on the OP Units. Further, at the time the Advisor’s
capital account with respect to an LTIP Unit that is earned and vested is economically equivalent to the average capital account balance of an OP Unit, the Advisor,
as the holder of the earned LTIP Unit, in its sole discretion, will in accordance with the limited partnership agreement of the OP, be entitled to convert the LTIP
Unit into an OP Unit, which may, in turn, be redeemed on a one-for-one basis for, at the Company’s election, a share of Common Stock or the cash equivalent
thereof.
F-44
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
2018 OPP
Based on a maximum award value of $50.0 million and $19.57 (the “Initial Share Price”) the closing price of Common Stock on June 1, 2018, the trading day
prior to the effective date of the 2018 OPP, the Advisor was issued a total of 2,554,930 LTIP Units pursuant to the 2018 OPP. These LTIP Units represent the
maximum number of LTIP Units that may be earned by the Advisor based on the Company’s total shareholder return (“TSR”), including both share price
appreciation and Common Stock dividends, against the Initial Share Price over a performance period, commencing on June 2, 2018 and ending on the earliest of (i)
June 2, 2021, (ii) the effective date of any Change of Control (as defined in the 2018 OPP) and (iii) the effective date of any termination of the Advisor’s service as
advisor of the Company (the “Performance Period”).
Half of the LTIP Units (the “Absolute TSR LTIP Units”) are eligible to be earned as of the last day of the Performance Period (the “Valuation Date”) if the
Company achieves an absolute TSR with respect to threshold, target and maximum performance goals for the Performance Period as follows:
Performance Level (% of Absolute TSR
LTIP Units Earned)
Below Threshold
Threshold
Target
Maximum
0 % Less than
25 %
50 %
100 %
Absolute TSR
Number of Absolute TSR LTIP Units Earned
24%
24%
30%
36%
or higher
—
319,366
638,733
1,277,465
If the Company’s absolute TSR is more than 24% but less than 30%, or more than 30% but less than 36%, the percentage of the Absolute TSR LTIP Units
earned is determined using linear interpolation as between those tiers, respectively.
Half of the LTIP Units (the “Relative TSR LTIP Units”) are eligible to be earned as of the Valuation Date if the amount, expressed in terms of basis points,
whether positive or negative, by which the Company’s absolute TSR for the Performance Period exceeds the average TSR of a peer group for the Performance
Period consisting of Lexington Realty Trust, W.P. Carey Inc. and Office Properties Income Trust as follows:
Performance Level (% of Relative TSR LTIP
Units Earned)
Relative TSR Excess
Number of Absolute TSR LTIP
Units Earned
Below Threshold
Threshold
Target
Maximum
0 % Less than
25 %
50 %
100 %
-600
-600
—
600
basis points
basis points
basis points
basis points
—
319,366
638,733
1,277,465
If the relative TSR excess is more than -600 basis points but less than — basis points, or more than — basis points but less than +600 bps, the percentage of
the Relative TSR LTIP Units earned is determined using linear interpolation as between those tiers, respectively.
If the Valuation Date is the effective date of a Change of Control or a termination of the Advisor for any reason (i.e., with or without cause), the number of
LTIP Units earned will be calculated based on actual performance through the last trading day prior to the effective date of the Change of Control or termination
(as applicable), with the hurdles for calculating absolute TSR pro-rated to reflect that the Performance Period lasted less than three years but without pro-rating the
number of Absolute TSR LTIP Units or Relative TSR LTIP Units the Advisor would be eligible to earn to reflect the shortened period.
The award of LTIP Units under the 2018 OPP is administered by the compensation committee of the Company’s board of directors, provided that any of the
compensation committee’s powers can be exercised instead by the Company’s board of directors if the board of directors so elects. Following the Valuation Date,
the compensation committee is responsible for determining the number of Absolute TSR LTIP Units and Relative TSR LTIP Units earned, as calculated by an
independent consultant engaged by the compensation committee and as approved by the compensation committee in its reasonable and good faith discretion. The
compensation committee also must approve the transfer of any Absolute TSR LTIP Units and Relative TSR LTIP Units (or OP Units into which they may be
converted in accordance with the terms of the agreement of limited partnership of the OP).
LTIP Units earned as of the Valuation Date will also become vested as of the Valuation Date. Any LTIP Units that are not earned and vested after the
Compensation Committee makes the required determination will automatically and without notice be forfeited without the payment of any consideration by the
Company or the OP, effective as of the Valuation Date.
2015 OPP
F-45
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
In connection with the Listing, the Company entered into the 2015 OPP with the OP and the Advisor. Under the 2015 OPP, the Advisor was issued 3,013,933
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”). Because no
performance goals under the 2015 OPP were achieved, no LTIP Units issued under the 2015 OPP were earned and all LTIP Units issued under the 2015 OPP were
automatically forfeited without the payment of any consideration by the Company or the OP, effective as of June 2, 2018.
Under the 2015 OPP, the Advisor was 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 June 2, 2015, based on the Company’s achievement of certain levels of absolute TSR and the amount by which the Company’s absolute TSR
exceeded the average TSR of a peer group for the three-year performance period commencing on June 2, 2015 (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” was comprised of Gramercy Property Trust Inc., Lexington Realty Trust, Select Income REIT, and W.P. Carey Inc.
The potential outperformance award was 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 was 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 was 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 were unearned at the end of the Performance Period were to be forfeited.
One third of any earned LTIP Units were to vest, subject to the Advisor’s continued service through each vesting date, on each of the third, fourth and fifth
anniversaries of June 2, 2015. As of June 2, 2016 (end of the first One-Year Period), June 2, 2017 (end of the Two-Year Period) and June 2, 2018 (end of the
Three-Year Period), no LTIP units were earned by the Advisor under the terms of the 2015 OPP. Accordingly, all LTIP Units that had been issued under the 2015
OPP were automatically forfeited without the payment of any consideration by the Company or the OP effective as of the end of the Three-Year Period.
Other Equity-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. If the Company did so, there
would be 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 years ended December 31, 2020, 2019 and 2018.
F-46
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
Note 14 — Earnings Per Share
The following is a summary of the basic and diluted net income per share computation for the years ended December 31, 2020, 2019 and 2018:
(In thousands, except share and per share data)
Net (loss) income attributable to common stockholders
Adjustments to net (loss) income attributable to common stockholders for common share equivalents
Adjusted net (loss) income attributable to common stockholders
Weighted average common shares outstanding — Basic
Weighted average common shares outstanding — Diluted
Net (loss) income per share attributable to common stockholders — Basic
Net (loss) income per share attributable to common stockholders — Diluted
Year Ended December 31,
2019
2018
2020
$
$
$
$
(7,775) $
(468)
(8,243) $
34,535 $
(660)
33,875 $
89,473,554
89,473,554
85,031,236
86,349,645
(0.09) $
(0.09) $
0.40 $
0.39 $
1,082
(689)
393
69,411,061
69,663,208
0.01
0.01
Under current authoritative guidance for determining earnings per share, all unvested 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. The Company’s unvested Restricted Shares, unvested RSUs and unearned LTIP Units
contain rights to receive distributions considered to be non-forfeitable, except in certain limited circumstances, and therefore the Company applies the two-class
method of computing earnings per share. The calculation of earnings per share above excludes the distributions to the unvested Restricted Shares, unvested RSUs
and unearned LTIP Units from the numerator.
Diluted net income per share assumes the conversion of all Common Stock share equivalents into an equivalent number of shares of Common Stock, unless
the effect is anti-dilutive. The Company considers unvested Restricted Shares, unvested RSUs and unvested LTIP Units to be common share equivalents.
The following table shows common share equivalents on a weighted-average basis that were excluded from the calculation of diluted earnings per share for
the years ended December 31, 2020, 2019 and 2018:
Unvested RSUs
Unvested Restricted Shares
(2)
LTIP Units
(1)
Total common share equivalents excluded from EPS calculation
2020
44,949
38,703
2,554,930
2,638,582
December 31,
2019
40,541
—
1,277,465
1,318,006
2018
46,352
—
970,173
1,016,525
1)
There were 132,025 Restricted Shares issued and outstanding as of December 31, 2020. See Note 13 — Equity-Based Compensation for additional information on the Restricted Shares,
including their issuance during the year ended December 31, 2020.
(2)
There were 2,554,930 LTIP Units issued and outstanding under the 2018 OPP as of December 31, 2020, 2019 and 2018. See Note 13 — Equity-Based Compensation for additional
information on the 2018 OPP.
Conditionally issuable shares relating to the 2018 OPP award of LTIP Units (see Note 13 — Equity-Based Compensation ) would be included in the
computation of fully diluted EPS (if dilutive) based on shares that would be issued as if the balance sheet date were the end of the measurement period. No LTIP
Unit share equivalents were included in the computation for the year ended December 31, 2020. Conditionally issuable shares relating to the 2018 OPP award of
LTIP Units (see Note 12 — Equity-Based Compensation) are included in the computation of fully diluted EPS on a weighted-average basis for the years ended
December 31, 2019 and 2018 based on shares that would have been issued if the balance sheet dates were the end of the measurement period.
F-47
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
Note 15 — Quarterly Results (Unaudited)
Presented below is a summary of the unaudited quarterly financial information for years ended December 31, 2020 and 2019:
(In thousands, except share and per share data)
Quarters Ended
2020
Revenue from tenants
Net income (loss) attributable to common stockholders
Adjustments to net income (loss) attributable to common
stockholders for common share equivalents
Adjusted net income (loss) attributable to common stockholders
Weighted average shares outstanding — Basic
Weighted average shares outstanding — Diluted
Net income (loss) per share attributable to common stockholders
— Basic and Diluted
(In thousands, except share and per share data)
2019
Revenue from tenants
Net income attributable to common stockholders
Adjustments to net income attributable to common stockholders
for common share equivalents
Adjusted net income attributable to common stockholders
Weighted average shares outstanding — Basic
Weighted average shares outstanding — Diluted
Net income per share attributable to common stockholders —
Basic and Diluted
$
$
$
$
$
$
$
$
_______
March 31,
June 30,
(1)
September 30,
(1)
December 31,
(1)
79,242 $
5,038 $
(135)
4,903 $
81,109 $
966 $
(129)
837 $
82,711 $
(502) $
(102)
(604) $
89,458,753
89,499,294
89,470,114
90,102,709
89,482,577
89,482,577
87,042
(13,277)
(102)
(13,379)
89,482,577
89,482,577
0.05 $
0.01 $
(0.01) $
(0.15)
Quarters Ended
March 31,
June 30,
September 30,
(2)
December 31,
75,468 $
5,791 $
(160)
5,631 $
76,119 $
12,621 $
(174)
12,447 $
77,942 $
6,860 $
(176)
6,684 $
81,474,615
82,798,432
83,847,120
85,165,549
85,254,638
86,202,582
76,685
9,263
(150)
9,113
89,458,381
90,776,790
0.07 $
0.15 $
0.08 $
0.10
(1)
During the fourth quarter of 2020, the Company recorded a loss of $3.9 million related to certain historical errors in the second and third quarters of 2020 related to the recording of the
impact of foreign currency changes on its over-hedged portion of its net investment hedges, which is considered to be ineffective. The amounts, which totaled $1.3 million and $2.6 million
for the second and third quarters of 2020, respectively, were incorrectly recorded as a currency translation adjustment in AOCI as opposed to being recorded as losses in unrealized (loss)
income on undesignated foreign currency advances and other hedge ineffectiveness in the consolidated statement of operations. For additional information on the above or on the
Company’s derivative accounting policies and derivatives and hedging activities, see the Note 2 — Summary of Significant Accounting Policies and Note 8 — Derivatives and Hedging
Activities.
(2)
During the three months ended September 30, 2019, the Company recorded an impairment charge of $6.4 million for two properties which it sold in the fourth quarter of 2019. For
additional details see Note 3 — Real Estate Investments, Net .
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 or disclosed below.
Stockholder Rights Plan Amendment
In February 2021, the Company amended the stockholder rights plan to extend expiration date of the rights under the plan from April 2021 to April 2024,
unless earlier exercised, exchanged, amended, redeemed or terminated.
F-48
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
Credit Facility Commitment Increase
On February 24, 2021, following a request by the Company, lender commitments under the Credit Facility were increased by $50.0 million with all of the
increase allocated to the Revolving Credit Facility, and the total commitments were approximately $1.2 billion based on prevailing exchange rates on that date,
with such increase allocated solely to the Revolving Credit Commitments under the Credit Facility. This increase was made pursuant to the Credit Facility’s
uncommitted “accordion feature” whereby, upon the request of the Company, but at the sole discretion of the lenders participating in such increase, total
commitments under the Credit Facility may be increased, with the aggregate of such commitments not to exceed $1.75 billion. Following the effectiveness of the
commitment increase completed on February 24, 2020, the Company may request future additional increases to total commitments of approximately $565.0
million, allocable to either or both components of the Credit Facility. The increase in lender commitments did not impact the amount available for future
borrowings under the Credit Facility, which is based on the value of a pool of eligible unencumbered real estate assets owned by the Company and compliance
with various ratios related to those assets.
F-49
Global Net Lease, Inc.
Real Estate and Accumulated Depreciation
Schedule III
December 31, 2020
(dollar amounts in thousands)
Portfolio
McDonalds Corporation
Wickes
Everything Everywhere
Thames Water
Wickes
PPD Global Labs
Northern Rock
Wickes
XPO Logistics
XPO Logistics
XPO Logistics
XPO Logistics
XPO Logistics
XPO Logistics
XPO Logistics
Wolverine
Encanto Restaurants
Encanto Restaurants
Encanto Restaurants
Encanto Restaurants
Encanto Restaurants
Encanto Restaurants
Encanto Restaurants
Encanto Restaurants
Encanto Restaurants
Encanto Restaurants
Encanto Restaurants
Encanto Restaurants
Encanto Restaurants
Encanto Restaurants
Encanto Restaurants
Encanto Restaurants
Encanto Restaurants
Encanto Restaurants
Rheinmetall
GE Aviation
City
Carlisle
Blackpool
Merthyr Tydfil
Swindon
Tunstall
Highland Heights
Sunderland
Clifton
Aurora
Grand Rapids
Riverton
Salina
Uhrichsville
Vincennes
Waite Park
Howard City
Baymon
Caguas
Carolina
Carolina
Guayama
Mayaguez
Ponce
Ponce
Puerto Neuvo
Quebrada Arena
Rio Piedras
Rio Piedras
San German
San Juan
San Juan
San Juan
Toa Baja
Vega Baja
Neuss
Grand Rapids
U.S. State/Territory or
Country
Acquisition
Date
Encumbrances at
December 31, 2020 (1)
Land
Building and
Improvements
Land
Building and
Improvements
Gross Amount at
December 31,
2020
(2)(3)
Accumulated
Depreciation
(4)(5)
Initial Costs
Costs Capitalized Subsequent to
Acquisition
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
KY
United Kingdom
United Kingdom
NE
MI
IL
KS
OH
IN
MN
MI
PR
PR
PR
PR
PR
PR
PR
PR
PR
PR
PR
PR
PR
PR
PR
PR
PR
PR
Germany
MI
$
Oct. 2012
May 2013
Jun. 2013
Jul. 2013
Jul. 2013
Aug. 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
Jan. 2014
Jan. 2014
$
438 $
1,843
3,754
3,754
956
2,001
1,365
1,365
295
945
344
461
380
220
366
719
1,150
—
1,840
615
673
410
600
655
—
843
963
505
391
153
1,235
389
68
822
6,306
3,174
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(6)
(6)
(6)
(6)
(6)
(9)
(6)
(6)
(13)
(13)
(13)
(13)
(13)
(13)
(13)
(13)
(11)
(7)
F-50
$
831
1,841
2,174
4,037
2,031
5,162
4,348
1,777
1,470
1,247
707
1,622
780
633
700
12,027
1,552
2,233
2,485
676
740
862
1,218
1,375
704
1,410
1,609
1,061
631
551
1,358
1,051
536
1,374
17,706
27,076
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
—
—
—
12
—
87
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
79
203
$
1,269
3,684
5,928
7,803
2,987
7,250
5,713
3,142
1,765
2,192
1,051
2,083
1,160
853
1,066
12,746
2,702
2,233
4,325
1,291
1,413
1,272
1,818
2,030
704
2,253
2,572
1,566
1,022
704
2,593
1,440
604
2,196
24,091
30,453
170
517
548
995
552
1,148
1,060
467
438
371
211
483
232
194
197
3,540
428
615
684
186
204
237
307
379
194
388
443
292
159
152
374
290
135
379
3,382
5,053
Global Net Lease, Inc.
Real Estate and Accumulated Depreciation
Schedule III
December 31, 2020
(dollar amounts in thousands)
U.S. State/Territory
or Country
Acquisition
Date
Encumbrances at
December 31, 2020 (1)
Land
Building and
Improvements
Land
Building and
Improvements
Gross Amount at
December 31,
2020
(2)(3)
Accumulated
Depreciation
(4)(5)
Initial Costs
Costs Capitalized Subsequent to
Acquisition
Portfolio
Provident Financial
Crown Crest
Trane
Aviva
DFS Trading
DFS Trading
DFS Trading
DFS Trading
DFS Trading
Government Services
Administration (GSA)
National Oilwell
Government Services
Administration (GSA)
Government Services
Administration (GSA)
OBI DIY
DFS Trading
DFS Trading
Government Services
Administration (GSA)
Government Services
Administration (GSA)
Government Services
Administration (GSA)
Indiana Department of
Revenue
National Oilwell
Nissan
Government Services
Administration (GSA)
Lippert Components
Axon Energy Products
Axon Energy Products
Axon Energy Products
Bell Supply Co
Bell Supply Co
Bell Supply Co
Bell Supply Co
Bell Supply Co
City
Bradford
Leicester
Davenport
Sheffield
Brigg
Carcroft
Carcroft
Darley Dale
Somercotes
Fanklin
Williston
Dover
United Kingdom
United Kingdom
IA
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
TN
ND
DE
Germantown
Mayen
South Yorkshire
Yorkshire
PA
Germany
United Kingdom
United Kingdom
Dallas
Mission
International Falls
Indianapolis
Pleasanton
Murfreesboro
Lakewood
South Bend
Conroe
Houston
Houston
Carrizo Springs
Cleburne
Frierson
Gainesville
Killdeer
TX
TX
MN
IN
TX
TN
CO
IN
TX
TX
TX
TX
TX
LA
TX
ND
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
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
25,543
32,394
1,968
33,606
3,929
4,613
2,270
3,499
2,859
30,083
3,513
1,715
3,573
8,203
1,427
1,860
2,934
3,145
11,182
7,677
1,643
19,573
7,928
6,883
6,132
2,310
5,186
1,445
323
1,054
1,420
1,250
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
22
—
—
—
—
—
63
—
—
—
—
—
2
—
—
—
—
—
—
—
26,920
40,238
2,259
36,572
5,314
5,778
2,586
4,862
3,660
34,243
3,724
2,812
4,692
9,577
1,427
1,860
3,418
3,763
11,595
8,568
1,845
20,539
9,148
10,078
6,960
2,604
5,602
1,705
624
1,314
1,551
1,557
4,503
6,507
440
6,043
795
864
484
723
696
5,399
851
343
641
1,666
385
337
524
594
2,058
1,445
374
3,379
1,372
1,217
1,026
431
938
311
77
313
258
262
1,377
7,844
291
2,966
1,385
1,165
316
1,363
801
4,160
211
1,097
1,097
1,374
—
—
484
618
350
891
202
966
1,220
3,195
826
294
416
260
301
260
131
307
(6)
(6)
(6)
(6)
(6)
(6)
(6)
(6)
(11)
(6)
(6)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(7)
(7)
(7)
—
—
—
—
—
—
—
—
—
—
—
—
—
F-51
Global Net Lease, Inc.
Real Estate and Accumulated Depreciation
Schedule III
December 31, 2020
(dollar amounts in thousands)
U.S. State/Territory
or Country
Acquisition
Date
Encumbrances at
December 31, 2020 (1)
Land
Building and
Improvements
Land
Building and
Improvements
Gross Amount at
December 31,
2020
(2)(3)
Accumulated
Depreciation
(4)(5)
Initial Costs
Costs Capitalized Subsequent to
Acquisition
Portfolio
Bell Supply Co
GE Oil & Gas
GE Oil & Gas
Lhoist
Select Energy Services
Select Energy Services
Select Energy Services
Bell Supply Co
Bell Supply Co
Select Energy Services
Select Energy Services
Select Energy Services
Select Energy Services
Superior Energy Services
Superior Energy Services
Amcor Packaging
Government Services
Administration (GSA)
Nimble Storage
FedEx
FedEx
FedEx
Sandoz
Wyndham
Valassis
Government Services
Administration (GSA)
AT&T Services, Inc.
PNC Bank
PNC Bank
Continental Tire
Fujitsu Office Properties
BP Oil
HBOS
HBOS
HBOS
Malthurst
City
Williston
Canton
Odessa
Irving
DeBerry
Gainesville
Victoria
Jacksboro
Kenedy
Alice
Dilley
Kenedy
Laredo
Gainesville
Jacksboro
Workington
Raton
San Jose
Amarillo
Chicopee
San Antonio
Princeton
Branson
Livonia
ND
OH
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
United Kingdom
NM
CA
TX
MA
TX
NJ
MO
MI
Fort Fairfield
San Antonio
Erie
Scranton
Fort Mill
Manchester
Wootton Bassett
Derby
St. Helens
Warrington
Shiptonthorpe
ME
TX
PA
PA
SC
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
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
Jul. 2014
Jul. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
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
7,005
875
10,795
6,446
7,022
17,756
31,994
3,307
8,119
9,315
41,201
6,195
3,004
14,259
41,726
2,703
6,320
3,581
2,139
2,045
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
300
—
125
—
—
—
—
—
—
—
—
—
—
—
—
—
180
—
—
—
11,962
—
—
—
—
—
—
—
—
—
—
—
—
—
2,485
3,776
4,933
2,452
8,084
8,001
2,052
708
1,859
1,849
2,206
9,170
3,416
802
720
8,193
968
41,202
7,335
8,052
21,039
51,722
4,188
9,854
9,341
46,513
6,437
4,328
15,039
45,581
3,328
6,947
3,819
2,593
2,333
439
611
1,121
472
2,171
1,276
379
195
391
268
422
1,700
285
88
79
1,471
168
1,938
1,361
1,551
3,117
11,324
614
1,382
1,526
6,677
1,025
510
2,354
6,995
482
1,163
664
428
401
162
437
1,611
173
533
519
354
51
190
518
429
815
2,472
322
408
1,188
93
30,227
889
1,030
3,283
7,766
881
1,735
26
5,312
242
1,324
780
3,855
625
627
238
454
288
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(6)
(9)
(13)
(7)
(14)
(9)
(7)
(6)
(6)
(6)
(6)
(6)
(6)
F-52
Global Net Lease, Inc.
Real Estate and Accumulated Depreciation
Schedule III
December 31, 2020
(dollar amounts in thousands)
Portfolio
Malthurst
Stanley Black & Decker
Thermo Fisher
Capgemini
Merck
Government Services
Administration (GSA)
Hewlett-Packard
Intier Automotive
Waste Management
FedEx
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
City
Yorkshire
Westerville
Kalamazoo
Birmingham
Madison
Rangeley
Newcastle
Redditch
Winston-Salem
Winona
Allen
Cherokee
Clearwater
Dexter
Elmore City
Eunice
Gore
Kingston
Lordsburg
Lyons
Mansfield
Neligh
Norman
Peggs
Santa Rosa
Sapulpa
Schuyler
Tahlequah
Townville
Valley Falls
Wymore
Bohemia
Watertown
Naples
St. Louis
U.S. State/Territory
or Country
Acquisition
Date
Encumbrances at
December 31, 2020 (1)
United Kingdom
OH
MI
United Kingdom
NJ
ME
United Kingdom
United Kingdom
NC
MN
OK
KS
KS
NM
OK
NM
OK
OK
NM
KS
LA
NE
OK
OK
NM
OK
NE
OK
PA
KS
NE
NY
NY
FL
MO
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
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
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(6)
(6)
(7)
(6)
(6)
(7)
(9)
F-53
Initial Costs
Costs Capitalized Subsequent to
Acquisition
Building and
Improvements
Land
Building and
Improvements
Gross Amount at
December 31,
2020
(2)(3)
Accumulated
Depreciation
(4)(5)
1,339
6,933
10,179
16,109
32,530
4,746
19,541
9,596
3,235
1,785
793
769
785
585
742
569
813
778
719
970
812
1,045
913
879
575
745
905
925
882
922
872
19,596
4,757
22,332
16,828
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,013
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,849
7,891
11,355
17,808
42,820
7,136
20,715
10,808
3,729
1,868
892
796
875
914
763
838
956
859
931
1,090
981
1,128
953
951
899
888
1,049
1,057
960
973
893
24,434
5,318
23,330
18,327
344
1,185
1,654
2,845
5,255
860
3,239
1,769
549
347
141
139
141
105
135
104
146
141
128
172
145
181
163
156
104
137
159
164
166
160
154
3,530
903
3,631
2,764
Land
510
958
1,176
1,699
10,290
1,377
1,174
1,212
494
83
99
27
90
329
21
269
143
81
212
120
169
83
40
72
324
143
144
132
78
51
21
4,838
561
998
1,499
Global Net Lease, Inc.
Real Estate and Accumulated Depreciation
Schedule III
December 31, 2020
(dollar amounts in thousands)
Portfolio
Kuka Warehouse
Trinity Health
Trinity Health
FedEx
FedEx
GE Aviation
Bradford & Bingley
DNV GL
Rexam
C&J Energy
FedEx
Onguard
Axon Energy Products
Metro Tonic
Tokmanni
Fife Council
Government Services
Administration (GSA)
KPN BV
Follett School
Quest Diagnostics, Inc.
Diebold
Weatherford International
AM Castle
FedEx
Constellium Auto
C&J Energy
FedEx
FedEx
Crowne Group
Crowne Group
Crowne Group
Crowne Group
JIT Steel
JIT Steel
Mapes & Sprowl
City
Sterling Heights
Livonia
Livonia
Hebron
Lexington
Cincinnati
Bingley
Dublin
Reckinghausen
Houston
Lake Charles
Havre De Grace
Houston
Halle Peissen
Matsala
Dunfermline
Rapid City
Houten
McHenry
Santa Clarita
North Canton
Odessa
Wichita
Billerica
Wayne
Houston
Salina
Pierre
Fraser
Jonesville
Logansport
Marion
Chattanooga
Chattanooga
Elk Grove Village
U.S. State/Territory
or Country
Acquisition
Date
Encumbrances at
December 31, 2020 (1)
Land
Building and
Improvements
Land
Building and
Improvements
Gross Amount at
December 31,
2020
(2)(3)
Accumulated
Depreciation
(4)(5)
Initial Costs
Costs Capitalized Subsequent to
Acquisition
MI
MI
MI
KY
KY
OH
United Kingdom
OH
Germany
TX
LA
MD
TX
Germany
Finland
United Kingdom
SD
The Netherlands
IL
CA
OH
TX
KS
MA
MI
TX
UT
SD
MI
MI
IN
SC
TN
TN
IL
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
Nov. 2014
Nov. 2014
Nov. 2014
Nov. 2014
Dec. 2014
Dec. 2014
Dec. 2014
Dec. 2014
Dec. 2014
Dec. 2014
Dec. 2014
Mar. 2015
Mar. 2015
Apr. 2015
Aug. 2015
Aug. 2015
Aug. 2015
Aug. 2015
Sep. 2015
Sep. 2015
Sep. 2015
10,790
16,574
11,568
7,750
7,961
10,490
11,430
3,140
12,173
9,457
7,485
6,585
2,432
52,217
58,456
4,637
7,837
21,154
15,600
69,018
9,142
1,795
6,681
6,674
13,781
21,745
3,447
3,288
3,865
3,136
5,430
7,993
3,122
1,986
4,619
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,075
2,423
109
—
—
—
126
—
—
297
—
—
—
—
—
—
—
—
—
—
—
509
752
7,875
—
—
—
—
—
—
—
—
—
—
12,017
22,922
18,671
8,965
9,079
11,883
15,982
5,775
13,038
13,322
8,037
8,801
2,729
59,670
60,387
4,997
8,341
22,883
19,023
79,732
9,142
2,460
7,616
8,564
22,836
27,941
3,875
3,288
4,215
3,237
7,273
8,379
3,704
2,302
5,573
1,772
3,318
2,794
1,371
1,363
1,727
2,035
567
1,996
1,636
1,450
1,525
391
9,482
10,001
770
1,308
3,312
3,031
10,679
1,699
479
1,048
1,308
5,421
3,305
744
681
579
484
947
1,273
440
274
672
1,227
4,273
4,680
1,106
1,118
1,393
4,552
2,509
865
3,865
255
2,216
297
7,453
1,931
360
504
1,729
3,423
10,714
—
665
426
1,138
1,180
6,196
428
—
350
101
1,843
386
582
316
954
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(6)
(11)
(7)
(14)
(11)
(10)
(6)
(12)
(14)
(13)
(9)
(7)
(7)
(13)
F-54
Global Net Lease, Inc.
Real Estate and Accumulated Depreciation
Schedule III
December 31, 2020
(dollar amounts in thousands)
Portfolio
Beacon Health
National Oilwell
Office Depot
Finnair
Hannibal
FedEx
Auchan
DCNS
Deutsche Bank
FedEx
Foster Wheeler
Harper Collins
ID Logistics
ID Logistics
ID Logistics
ING Bank
NCR Financial Solutions
Group
Pole Emploi
Sagemcom
Worldline SA
Cott Beverages
FedEx
FedEx
Bridgestone Tire
NSA Industries
NSA Industries
NSA Industries
GKN Aerospace
Tremec
NSA Industries
Cummins
Government Services
Administration (GSA)
Chemours
Lee Steel
LSI Steel
City
U.S. State/Territory
or Country
Acquisition
Date
Encumbrances at
December 31, 2020 (1)
Land
Building and
Improvements
Land
Building and
Improvements
Gross Amount at
December 31,
2020
(2)(3)
Accumulated
Depreciation
(4)(5)
Initial Costs
Costs Capitalized Subsequent to
Acquisition
South Bend
Pleasanton
Venlo
Helsinki
Houston
Mankato
Beychac-et-Caillau
Guipavas
Kirchberg
Greensboro
Reading
Glasgow
Landersheim
Moreuil
Weilbach
Amsterdam Zuidoos
Dundee
Marseille
Rueil Malmaison
Blois
Sikeston
Great Falls
Morgantown
Mt. Olive Township
St. Johnsbury
St. Johnsbury
St. Johnsbury
Blue Ash
Wixom
Groveton
Omaha
Gainsville
Pass Christian
Wyoming
Chicago
IN
TX
The Netherlands
Finland
TX
MN
France
France
Luxembourg
NC
United Kingdom
United Kingdom
France
France
Germany
The Netherlands
United Kingdom
France
France
France
MO
MT
WV
NJ
VT
VT
VT
OH
MI
NH
NE
FL
MS
MI
IL
Sep. 2015
Sep. 2015
Sep. 2015
Sep. 2015
Sep. 2015
Sep. 2015
Dec. 2016
Dec. 2016
Dec. 2016
Dec. 2016
Dec. 2016
Dec. 2016
Dec. 2016
Dec. 2016
Dec. 2016
Dec. 2016
Dec. 2016
Dec. 2016
Dec. 2016
Dec. 2016
Feb. 2017
Mar. 2017
Mar. 2017
Sep. 2017
Oct. 2017
Oct. 2017
Oct. 2017
Oct. 2017
Nov. 2017
Dec. 2017
Dec. 2017
Dec. 2017
Feb. 2018
Mar. 2018
Mar. 2018
8,190
3,372
16,915
78,649
11,138
6,780
14,442
15,722
53,884
8,252
78,992
55,087
8,882
6,598
9,652
79,867
8,777
9,218
79,167
5,896
8,291
5,439
8,401
5,088
1,753
3,936
3,858
4,079
17,376
3,517
6,469
6,016
16,149
7,256
1,181
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
733
—
—
—
—
—
—
294
—
—
4,165
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
9,826
3,452
20,740
81,409
13,228
7,252
18,883
17,794
70,459
10,072
107,867
65,871
10,996
9,860
11,112
80,161
11,521
10,092
86,628
7,135
8,747
5,765
13,062
6,004
1,963
4,236
4,128
4,869
18,378
3,576
7,917
6,467
16,531
7,760
4,522
1,213
517
2,690
11,221
1,540
1,202
1,948
1,746
5,584
1,151
8,125
6,132
975
761
1,011
8,112
1,098
945
8,328
833
855
740
902
465
163
412
363
373
1,596
271
608
473
1,389
523
85
1,636
80
3,825
2,760
2,090
472
4,441
2,072
15,842
1,820
28,875
10,784
2,114
3,262
1,460
—
2,744
874
3,296
1,239
456
326
4,661
916
210
300
270
790
1,002
59
1,448
451
382
504
3,341
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(10)
(15)
(15)
(12)
(6)
(6)
(15)
(15)
(11)
(12)
(6)
(15)
(15)
(15)
(9)
(7)
(8)
(8)
(8)
(8)
(8)
(8)
(8)
(8)
(13)
F-55
Global Net Lease, Inc.
Real Estate and Accumulated Depreciation
Schedule III
December 31, 2020
(dollar amounts in thousands)
Portfolio
LSI Steel
LSI Steel
Fiat Chrysler
Contractors Steel
Contractors Steel
Contractors Steel
Contractors Steel
Contractors Steel
FedEx
DuPont Pioneer
Rubbermaid
NetScout
Bush Industries
FedEx
Penske
NSA Industries
LKQ Corp.
Grupo Antolin North
America, Inc.
Walgreens
VersaFlex
Cummins
Stanley Security
Sierra Nevada
EQT
Hanes
Union Partners
Union Partners
ComDoc
Metal Technologies
Encompass Health
Heatcraft
CF Sauer SLB
CF Sauer SLB
CF Sauer SLB
CF Sauer SLB
CF Sauer SLB
City
Chicago
Chicago
Sterling Heights
Belleville
Hammond
Livonia
Twinsburg
Wyoming
Blackfoot
Spencer
Akron
Allen
Jamestown
Greenville
Romulus
Georgetown
Cullman
Shelby Township
Pittsburgh
Kansas City
Gillette
Fishers
Colorado Springs
Waynesburg
Calhoun
Aurora
Dearborn
North Canton
Bloomfield
Birmingham
Tifton
Mauldin
Mauldin
Mauldin
Mauldin
Orange
U.S. State/Territory or
Country
Acquisition
Date
Encumbrances at
December 31, 2020 (1)
Land
Building and
Improvements
Land
Building and
Improvements
Gross Amount at
December 31,
2020
(2)(3)
Accumulated
Depreciation
(4)(5)
Initial Costs
Costs Capitalized Subsequent to
Acquisition
IL
IL
MI
MI
IN
MI
OH
MI
ID
IA
OH
TX
NY
NC
MI
MA
AL
MI
PA
KS
WY
IN
CO
PA
GA
IL
MI
OH
IN
AL
GA
SC
SC
SC
SC
FL
Mar. 2018
Mar. 2018
Mar. 2018
May 2018
May 2018
May 2018
May 2018
May 2018
Jun. 2018
Jun. 2018
Jul. 2018
Aug. 2018
Sep. 2018
Sep. 2018
Nov. 2018
Nov. 2018
Dec. 2018
Dec. 2018
Dec. 2018
Dec. 2018
Mar. 2019
Mar. 2019
Apr. 2019
Apr. 2019
Apr. 2019
May 2019
May 2019
Jun. 2019
Jun. 2019
Jun. 2019
Jun. 2019
Aug. 2019
Aug. 2019
Aug. 2019
Aug. 2019
Aug. 2019
5,615
948
13,623
25,878
8,859
8,554
8,707
12,426
6,882
6,718
17,145
41,486
14,818
9,744
105,826
6,059
3,781
41,648
13,718
7,581
5,470
11,879
16,105
11,126
8,104
11,621
11,645
15,128
9,552
55,568
9,064
343
15,488
4,747
9,488
351
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
6,296
—
1,357
2,500
1,232
—
—
—
—
—
—
—
1,198
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
7,407
3,804
15,478
35,036
10,829
10,844
11,936
14,628
7,232
6,991
18,366
43,601
16,353
10,325
110,527
8,357
3,842
43,589
15,419
8,100
6,667
13,125
16,105
12,001
8,835
12,550
14,673
15,730
9,829
57,314
9,410
383
15,720
5,095
9,678
588
388
74
1,128
2,052
739
758
947
1,047
811
517
1,065
2,544
901
1,109
6,164
432
217
2,307
768
395
325
573
765
549
428
497
520
674
443
2,117
346
14
587
220
358
18
1,792
2,856
1,855
2,862
1,970
933
729
970
350
273
1,221
2,115
1,535
581
4,701
1,100
61
1,941
1,701
519
1,197
1,246
—
875
731
929
3,028
602
277
1,746
346
40
232
348
190
237
—
—
—
—
—
—
—
—
— (13)
—
— (13)
— (9)
— (13)
— (13)
70,000
—
—
—
—
—
— (14)
— (14)
—
— (14)
— (14)
—
— (14)
— (14)
— (14)
— (14)
— (14)
—
—
—
—
—
F-56
Global Net Lease, Inc.
Real Estate and Accumulated Depreciation
Schedule III
December 31, 2020
(dollar amounts in thousands)
Portfolio
CF Sauer SLB
SWECO
Viavi Solutions
Viavi Solutions
Faurecia
Plasma
Plasma
Plasma
Plasma
Plasma
Plasma
Plasma
Plasma
Plasma
Whirlpool
Whirlpool
Whirlpool
Whirlpool
Whirlpool
Whirlpool
FedEx
FedEx
NSA Industries
Viavi
CSTK
Metal Technologies
Whirlpool
Whirlpool
FedEx
Klaussner
Klaussner
Klaussner
Klaussner
Plasma
Plasma
Plasma
City
San Luis Obispo
Florence
Santa Rosa
Santa Rosa
Auburn Hills
Garland
El Paso
Bradenton
Hickory
Irving
Lake Charles
Mission
Meridian
Peoria
Cleveland
Clyde
Clyde
Findlay
Marion
Ottawa
Bathurst
Woodstock
Franklin
Santa Rosa
St. Louis
Bloomfield
Fabriano
Fabriano
Moncton
Asheboro
Asheboro
Asheboro
Candor
Danville
Des Moines
Erie
U.S. State/Territory
or Country
Acquisition
Date
Encumbrances at
December 31, 2020 (1)
Land
Building and
Improvements
Land
Building and
Improvements
Gross Amount at
December 31,
2020
(2)(3)
Accumulated
Depreciation
(4)(5)
Initial Costs
Costs Capitalized Subsequent to
Acquisition
CA
KY
CA
CA
MI
TX
TX
FL
NC
TX
LA
TX
MS
IL
TN
OH
OH
OH
OH
OH
Canada
Canada
NH
CA
MO
IN
ITA
ITA
Canada
NC
NC
NC
NC
VA
IA
PA
Aug. 2019
Sep. 2019
Sep. 2019
Sep. 2019
Dec. 2019
Dec. 2019
Dec. 2019
Dec. 2019
Dec. 2019
Dec. 2019
Dec. 2019
Dec. 2019
Dec. 2019
Dec. 2019
Dec. 2019
Dec. 2019
Dec. 2019
Dec. 2019
Dec. 2019
Dec. 2019
Dec. 2019
Dec. 2019
Dec. 2019
Jan. 2020
Feb. 2020
Feb. 2020
Feb. 2020
Feb. 2020
Mar. 2020
Mar. 2020
Mar. 2020
Mar. 2020
Mar. 2020
May 2020
May 2020
May 2020
2,201
2,080
3,061
3,073
3,310
595
72
185
494
673
301
275
203
206
2,230
1,641
3,559
1,344
1,876
3,155
39
436
237
3,209
3,405
167
223
2,603
310
1,994
3,470
4,102
1,705
434
254
223
12,884
21,924
5,929
7,130
38,278
2,421
2,478
3,747
3,702
3,916
1,730
1,735
2,965
2,578
20,923
20,072
17,283
22,624
27,850
19,919
2,253
3,942
7,968
4,203
8,155
1,034
5,271
15,067
3,090
8,821
19,521
10,420
9,528
2,209
2,827
2,321
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
711
244
1,521
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
290
—
—
—
—
—
—
—
—
—
—
—
—
15,085
24,004
9,701
10,447
43,109
3,016
2,550
3,932
4,196
4,589
2,031
2,010
3,168
2,784
23,153
21,713
20,842
23,968
29,726
23,074
2,292
4,378
8,205
7,702
11,560
1,201
5,494
17,670
3,400
10,815
22,991
14,522
11,233
2,643
3,081
2,544
507
848
222
267
1,155
85
68
108
111
139
55
53
90
74
666
621
627
658
819
600
90
133
247
136
258
32
112
348
75
182
383
226
192
38
45
40
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
F-57
Global Net Lease, Inc.
Real Estate and Accumulated Depreciation
Schedule III
December 31, 2020
(dollar amounts in thousands)
City
U.S. State/Territory or
Country
Acquisition
Date
Encumbrances at
December 31, 2020
(1)
Land
Building and
Improvements
Land
Building and
Improvements
Gross Amount at
December 31,
2020
(2)(3)
Accumulated
Depreciation
(4)(5)
Initial Costs
Costs Capitalized Subsequent to
Acquisition
Youngstown
Dayton
North Las Vegas
Asheboro
Franklin
Las Rozas de Madrid
Manchester
Manchester
El Dorado Hills
Kansas City
South Windsor
Falconer
Findlay
Montigny-Le-
Bretonneux
Detroit
OH
OH
NV
NC
NH
Spain
United Kingdom
United Kingdom
CA
MO
CT
NY
OH
France
MI
May 2020
May 2020
May 2020
Jun. 2020
Jun. 2020
Sep. 2020
Sep. 2020
Sep. 2020
Nov. 2020
Nov. 2020
Nov. 2020
Nov. 2020
Dec. 2020
Dec. 2020
Dec. 2020
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
41
61
707
2,438
161
2,744
—
—
5,484
5,771
6,473
355
1,231
1,197
5,125
4,600
1,796
3,094
3,025
2,857
1,811
1,513
10,805
47,121
27,665
32,490
16,492
21,410
3,151
95,485
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
4,641
1,857
3,801
5,463
3,018
4,555
1,513
10,805
52,605
33,436
38,963
16,847
22,641
4,348
100,610
69
28
49
40
46
12
12
72
215
124
159
66
—
—
—
1,308,686
1,378,686
$
$ 476,599 $
3,081,615
—
$
48,755
$
3,606,969
$
355,855
Portfolio
Plasma
Plasma
Plasma
Klaussner
NSA Industries
Johnson Controls
Johnson Controls
Johnson Controls
Broadridge Financial Solutions
Broadridge Financial Solutions
Broadridge Financial Solutions
Broadridge Financial Solutions
ZF Active Safety
Johnson Controls
FCA USA
Encumbrances allocated based on
notes below
_______
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
These are stated principal amounts at spot rates for those in local currency and exclude $15.0 million of deferred financing costs.
Acquired intangible lease assets allocated to individual properties in the amount of $712.0 million are not reflected in the table above.
The tax basis of aggregate land, buildings and improvements as of December 31, 2019 is $3.8 billion.
The accumulated depreciation column excludes approximately $319.3 million of accumulated amortization associated with acquired intangible lease assets.
Each of the properties has a depreciable life of: 40 years for buildings, 15 years for improvements and five years for fixtures.
These properties collateralize the UK Multi-Property Cross Collateralized Loan of $302.0 million as of December 31, 2020.
These properties collateralize the U.S. Multi-Property Loan I of $187.0 million as of December 31, 2020.
These properties collateralize the U.S. Multi-Property Loan II of $32.8 million as of December 31, 2020.
These properties collateralize the U.S. Multi-Property Loan III of $98.5 million as of December 31, 2020.
These properties collateralize the loan on the Finland properties of $90.8 million as of December 31, 2020.
These properties collateralize the loan on the Germany properties of $63.2 million as of December 31, 2020.
These properties collateralize the loan on the Luxembourg and Netherlands properties of $147.2 million as of December 31, 2020.
These properties collateralize the U.S. Multi-Property Loan IV of $97.5 million as of December 31, 2020.
These properties collateralize the U.S. Multi-Property Loan V of $204.0 million as of December 31, 2020.
(15)
These properties collateralize the loan on the French properties of $85.9 million as of December 31, 2020.
F-58
Global Net Lease, Inc.
Real Estate and Accumulated Depreciation
Schedule III
December 31, 2020
(dollar amounts in thousands)
A summary of activity for real estate and accumulated depreciation for the years ended December 31, 2020, 2019 and 2018:
Real estate investments, at cost:
Balance at beginning of year
Additions-Acquisitions
Asset remeasurement
Asset dispositions
Transfer to assets held for sale
Impairment charge
Currency translation adjustment
Balance at end of the year
Accumulated depreciation:
Balance at beginning of year
Depreciation expense
Asset dispositions
Transfer to assets held for sale
Currency translation adjustment
Balance at end of the year
2020
December 31,
2019
2018
$
$
$
$
3,111,496 $
424,595
—
—
—
—
70,878
3,606,969 $
266,722 $
80,466
—
—
8,667
355,855 $
2,745,348 $
511,378
—
(143,004)
—
(6,299)
4,073
3,111,496 $
220,225 $
69,257
(22,821)
—
61
266,722 $
2,543,052
420,529
—
—
(123,021)
(1,603)
(61,499)
2,745,348
174,452
64,849
(3,861)
(10,633)
(4,582)
220,225
F-59
ARTICLES OF RESTATEMENT
FOR
GLOBAL NET LEASE, INC.
a Maryland corporation
EXHIBIT 3.1
FIRST: Global Net Lease, Inc., a Maryland corporation (the “Company”), desires to restate its charter as currently in effect.
SECOND: The following provisions, together with the descriptions of the preferences, conversion and other rights, voting powers, restriction, limitations as
to dividends and other distributions, qualifications and terms and conditions of redemption of (i) the 7.25% Series A Cumulative Redeemable Preferred Stock,
attached hereto as Exhibit A, (ii) the 6.875% Series B Cumulative Redeemable Perpetual Preferred Stock, attached hereto as Exhibit B and (iii) the Series C
Preferred Stock, attached hereto as Exhibit C, which are incorporated herein by reference and made a part hereof, are all the provisions of the charter currently in
effect:
ARTICLE I
NAME
The name of the corporation is Global Net Lease, Inc. (the “Company”). So far as may be practicable, the business of the Company shall be conducted
and transacted under that name. Under circumstances in which the Company’s Board of Directors determines that the use of the name “Global Net Lease, Inc.” is
not practicable, it may use any other designation or name for the Company.
ARTICLE II
PURPOSES AND POWERS
The purposes for which the Company is formed are to engage in any lawful act or activity (including, without limitation or obligation, qualifying and
engaging in business as a real estate investment trust under Sections 856 through 860, or any successor sections, of the Internal Revenue Code of 1986, as
amended (the “Code”)), for which corporations may be organized under the MGCL and the general laws of the State of Maryland as now or hereafter in force.
ARTICLE III
RESIDENT AGENT AND PRINCIPAL OFFICE
The name and address of the resident agent for service of process of the Company in the State of Maryland is CSC-Lawyers Incorporating Service
Company, 7 St. Paul Street, Suite 820, Baltimore, Maryland 21202. The address of the Company’s principal office in the State of Maryland is c/o CSC-Lawyers
Incorporating Service Company, 7 St. Paul Street, Suite 820, Baltimore, Maryland 21202. The Company may have such other offices and places of business
within or outside the State of Maryland as the Board may from time to time determine.
1
As used in the Charter, the following terms shall have the following meanings unless the context otherwise requires:
ARTICLE IV
DEFINITIONS
“BOARD” means the Board of Directors and the Company.
“BYLAWS” means the Bylaws of the Company, as amended from time to time.
“CHARTER” means the charter of the Company.
“CODE” shall have the meaning as provided in Article II herein.
“COMMON SHARES” shall have the meaning as provided in Section 5.1 herein.
“COMPANY” shall have the meaning as provided in Article I herein.
“DIRECTOR” means a director of the Company.
“DISTRIBUTIONS” means any distributions of money or other property, pursuant to Section 5.2(iii) hereof, by the Company to owners of Shares,
including distributions that may constitute a return of capital for federal income tax purposes.
“MGCL” means the Maryland General Corporation Law, as in effect from time to time.
“PERSON” means an individual, corporation, partnership, estate, trust (including a trust qualified under Sections 401(a) or 501(c)(17) of the Code), a
portion of a trust permanently set aside for or to be used exclusively for the purposes described in Section 642(c) of the Code, association, private foundation
within the meaning of Section 509(a) of the Code, joint stock company or other legal entity and also includes a group as that term is used for purposes of Section
13(d)(3) of the Securities Exchange Act of 1934, as amended, and a group to which an Excepted Holder Limit (as defined in Article V, Section 5.7(i) hereof)
applies.
“PREFERRED SHARES” shall have the meaning as provided in Section 5.1 herein.
“REIT” means a corporation, trust, association or other legal entity (other than a real estate syndication) that is engaged primarily in investing in
equity interests in real estate (including fee ownership and leasehold interests) or in loans secured by real estate or both, as defined pursuant to the REIT
Provisions of the Code.
“REIT PROVISIONS OF THE CODE” means Sections 856 through 860 of the Code and any successor or other provisions of the Code relating to
real estate investment trusts (including provisions as to the attribution of ownership of beneficial interests therein) and the regulations promulgated thereunder.
“SECURITIES” means any of the following issued by the Company, as the text requires: Shares, any other stock, shares or other evidences of equity or
beneficial or other interests, voting trust certificates, bonds, debentures, notes or other evidences of indebtedness, secured or unsecured, convertible,
subordinated or otherwise, or in general any instruments commonly known as “securities” or any certificates of interest, shares or participations in, temporary or
interim certificates for, receipts for, guarantees of, or warrants, options or rights to subscribe to, purchase or acquire, any of the foregoing.
2
“SHARES” means shares of capital stock of the Company of any class or series, including Common Shares or Preferred Shares.
“STOCKHOLDERS” means the holders of record of the Company’s Shares as maintained in the books and records of the Company or its
transfer agent.
ARTICLE V
STOCK
SECTION 5.1 AUTHORIZED SHARES. The total number of Shares that the Company shall have authority to issue is 280,000,000 shares, of which
(i) 250,000,000 shall be designated as common stock, $0.01 par value per share (the “Common Shares”); and (ii) 30,000,000 shall be designated as preferred
stock, $0.01 par value per share (the “Preferred Shares”). All shares shall be fully paid and nonassessable when issued. The aggregate par value of all authorized
shares of stock having par value is $2,800,000. If shares of one class of stock are classified or reclassified into shares of another class of stock pursuant to Section
5.2(ii) or Section 5.3 of this Article V, the number of authorized shares of the former class shall be automatically decreased and the number of shares of the latter
class shall be automatically increased, in each case by the number of shares so classified or reclassified, as the case may be, so that the aggregate number of Shares
of all classes that the Company has authority to issue shall not be more than the total number of Shares set forth in the first sentence of this paragraph. The Board,
with the approval of a majority of the entire Board and without any action by the Stockholders, may amend the Charter from time to time to increase or decrease
the aggregate number of Shares or the number of Shares of any class or series that the Company has authority to issue.
SECTION 5.2 COMMON SHARES.
any series of Preferred Shares.
(i)
COMMON SHARES SUBJECT TO TERMS OF PREFERRED SHARES. The Common Shares shall be subject to the express terms of
(ii)
DESCRIPTION. Subject to Section 5.7 of this Article V and except as may otherwise be specified in the Charter, each Common Share
shall entitle the holder thereof to one vote. The Board may classify or reclassify any unissued Common Shares from time to time into one or more classes or
series of stock.
(iii)
DISTRIBUTION RIGHTS. The Board from time to time may authorize the Company to declare and pay to Stockholders such
dividends or other Distributions in cash or other assets of the Company or in securities of the Company or from any other source as the Board in its discretion
shall determine. The Board shall endeavor to authorize the Company to declare and pay such dividends and Distributions as shall be necessary for the Company
to qualify as a REIT under the REIT Provisions of the Code unless the Board has determined, in its sole discretion, that qualification as a REIT is not in the best
interests of the Company; provided, however, Stockholders shall have no right to any dividend or Distribution unless and until authorized by the Board and
declared by the Company. The exercise of the powers and rights of the Board pursuant to this section shall be subject to the provisions of any class or series of
Shares at the time outstanding. The receipt by any Person in whose name any Shares are registered on the records of the Company or by his or her duly
authorized agent shall be a sufficient discharge for all dividends or Distributions payable or deliverable in respect of such Shares and from all liability to see to
the application thereof.
(iv)
RIGHTS UPON LIQUIDATION. In the event of any voluntary or involuntary liquidation, dissolution or winding up, or any
distribution of the assets of the Company, the aggregate assets available for distribution to holders of the Common Shares shall be determined in accordance with
applicable law. Each holder of Common Shares of a particular class shall be entitled to receive, ratably with each other holder of Common Shares of such class,
that portion of such aggregate assets available for distribution as the number of outstanding Common Shares of such class held by such holder bears to the total
number of outstanding Common Shares of such class then outstanding.
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(v)
VOTING RIGHTS. Except as may be provided otherwise in the Charter, and subject to the express terms of any class or series of
Preferred Shares, the holders of the Common Shares shall have the exclusive right to vote on all matters (as to which a common stockholder shall be entitled to
vote pursuant to applicable law) at all meetings of the Stockholders.
SECTION 5.3 PREFERRED SHARES. The Board may classify any unissued Preferred Shares and reclassify any previously classified but
unissued Preferred Shares of any series from time to time, into one or more classes or series of Shares.
SECTION 5.4 CLASSIFIED OR RECLASSIFIED SHARES. Prior to issuance of classified or reclassified Shares of any class or series, the Board
by resolution shall: (a) designate that class or series to distinguish it from all other classes and series Shares; (b) specify the number of Shares to be included in the
class or series; (c) set or change, subject to the provisions of Section 5.9 and subject to the express terms of any class or series of Shares outstanding at the time,
the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other Distributions, qualifications and terms and conditions of
redemption for each class or series; and (d) cause the Company to file articles supplementary with the State Department of Assessments and Taxation of
Maryland. Any of the terms of any class or series of Shares set or changed pursuant to clause (c) of this Section 5.4 may be made dependent upon facts or events
ascertainable outside the Charter (including determinations by the Board or other facts or events within the control of the Company) and may vary among holders
thereof, provided that the manner in which such facts, events or variations shall operate upon the terms of such class or series of Shares is clearly and expressly set
forth in the articles supplementary or other charter document.
SECTION 5.5 STOCKHOLDERS’ CONSENT IN LIEU OF MEETING. Any action required or permitted to be taken at any meeting of the
Stockholders may be taken without a meeting by consent, in writing or by electronic transmission, in any manner permitted by the MGCL and set forth in the
Bylaws.
SECTION 5.6 CHARTER AND BYLAWS. The rights of all Stockholders and the terms of all Shares are subject to the provisions of the Charter
and the Bylaws.
SECTION 5.7 RESTRICTIONS ON OWNERSHIP AND TRANSFER.
(i)
DEFINITIONS. For purposes of Section 5.7, the following terms shall have the following meanings:
“AGGREGATE SHARE OWNERSHIP LIMIT” means 9.8% in value of the aggregate of the outstanding Shares and 9.8% (in value or
in number of shares, whichever is more restrictive) of any class or series of Shares, or such other percentage determined by the Board in accordance with
Section 5.7(ii)(h) of the Charter.
“BENEFICIAL OWNERSHIP” means ownership of Shares by a Person, whether the interest in the Shares is held directly or indirectly
(including by a nominee), and shall include interests that would be treated as owned through the application of Section 544 of the Code, as modified by Section
856(h)(1)(B) of the Code. The terms “Beneficial Owner,” “Beneficially Owns” and “Beneficially Owned” shall have the correlative meanings.
New York City are authorized or required by law, regulation or executive order to close.
“BUSINESS DAY” means any day, other than a Saturday or Sunday, that is neither a legal holiday nor a day on which banking institutions in
each such organization must be described in Section 501(c)(3) of the
“CHARITABLE BENEFICIARY” means one or more beneficiaries of the Trust as determined pursuant to Section 5.7(iii)(f), provided that
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Code and contributions to each such organization must be eligible for deduction under each of Sections 170(b)(1)(A), 2055 and 2522 of the Code.
“CONSTRUCTIVE OWNERSHIP” means ownership of Shares by a Person, whether the interest in the Shares is held directly or indirectly
(including by a nominee), and shall include interests that would be treated as owned through the application of Section 318(a) of the Code, as modified by
Section 856(d)(5) of the Code. The terms “Constructive Owner,” “Constructively Owns” and “Constructively Owned” shall have the correlative meanings.
“EXCEPTED HOLDER” means a Stockholder for whom an Excepted Holder Limit is created by the Board pursuant to Section 5.7(ii)(g).
“EXCEPTED HOLDER LIMIT” means, provided that the affected Excepted Holder agrees to comply with the requirements established by
the Board pursuant to Section 5.7(ii)(g), and subject to adjustment pursuant to Section 5.7(ii)(h), the percentage limit established by the Board pursuant to
Section 5.7(ii)(g).
“MARKET PRICE” on any date means, with respect to any class or series of outstanding Shares, the Closing Price for such Shares on such
date. The “Closing Price” on any date shall mean the last sale price for such Shares, regular way, or, in case no such sale takes place on such day, the average of
the closing bid and asked prices, regular way, for such Shares, in either case as reported on the principal national securities exchange on which such Shares are
Listed or admitted to trading or, if such Shares are not Listed or admitted to trading on any national securities exchange, the last quoted price, or, if not so quoted,
the average of the high bid and low asked prices in the over-the-counter market, as reported by the principal automated quotation system that may then be in use
or, if such Shares are not quoted by any such system, the average of the closing bid and asked prices as furnished by a professional market maker making a
market in such Shares selected by the Board or, in the event that no trading price is available for such Shares, the fair market value of the Shares, as determined in
good faith by the Board.
“NYSE” means the New York Stock Exchange.
“PROHIBITED OWNER” means, with respect to any purported Transfer, any Person who, but for the provisions of Section 5.7(ii)(a),
would Beneficially Own or Constructively Own Shares, and if appropriate in the context, shall also mean any Person who would have been the record owner of
the Shares that the Prohibited Owner would have so owned.
“RESTRICTION TERMINATION DATE” means the first day on which the Board determines pursuant to Section 7.3 of the Charter that it is
no longer in the best interests of the Company to attempt to, or continue to, qualify as a REIT or that compliance with the restrictions and limitations on Beneficial
Ownership, Constructive Ownership and Transfers of Shares set forth herein is no longer required in order for the Company to qualify as a REIT.
“TRANSFER” means any issuance, sale, transfer, gift, assignment, devise or other disposition, as well as any other event that causes any
Person to acquire Beneficial Ownership or Constructive Ownership of Shares or the right to vote or receive dividends on Shares, or any agreement to take any
such actions or cause any such events, including (a) the granting or exercise of any option (or any disposition of any option), (b) any disposition of any securities
or rights convertible into or exchangeable for Shares or any interest in Shares or any exercise of any such conversion or exchange right and (c) Transfers of
interests in other entities that result in changes in Beneficial or Constructive Ownership of Shares; in each case, whether voluntary or involuntary, whether
owned of record, Constructively Owned or Beneficially Owned and whether by operation of law or otherwise. The terms “Transferring” and “Transferred” shall
have the correlative meanings.
“TRUST” means any trust provided for in Section 5.7(iii)(a).
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“TRUSTEE” means the Person unaffiliated with the Company and a Prohibited Owner, that is appointed by the Company to serve as trustee
of the Trust.
(ii) SHARES.
(a) OWNERSHIP LIMITATIONS. Prior to the Restriction Termination Date, but subject to Section 5.8:
(I) BASIC RESTRICTIONS.
the Aggregate Share Ownership Limit and (2) no Excepted Holder shall Beneficially Own or Constructively Own Shares in excess of the Excepted Holder
Limit for such Excepted Holder.
(A)
(1) No Person, other than an Excepted Holder, shall Beneficially Own or Constructively Own Shares in excess of
(B)
No Person shall Beneficially or Constructively Own Shares to the extent that such Beneficial or Constructive
Ownership of Shares would result in the Company being “closely held” within the meaning of Section 856(h) of the Code (without regard to whether the
ownership interest is held during the last half of a taxable year), or otherwise failing to qualify as a REIT (including, but not limited to, Beneficial or Constructive
Ownership that would result in the Company owning (actually or Constructively) an interest in a tenant that is described in Section 856(d)(2)(B) of the Code if the
income derived by the Company from such tenant would cause the Company to fail to satisfy any of the gross income requirements of Section 856(c) of the
Code).
(C) Any Transfer of Shares that, if effective, would result in Shares being beneficially owned by less than 100 Persons
(determined under the principles of Section 856(a)(5) of the Code) shall be void ab initio , and the intended transferee shall acquire no rights in such Shares.
Constructively Owning Shares in violation of Section 5.7(ii)(a)(l)(A) or (B),
(II) TRANSFER IN TRUST. If any Transfer of Shares occurs which, if effective, would result in any Person Beneficially Owning or
violate Section 5.7(ii)(a)(I)(A) or (B) (rounded up to the nearest whole share) shall be automatically transferred to a Trust for the benefit of a Charitable
Beneficiary, as described in Section 5.7(iii), effective as of the close of business on the Business Day prior to the date of such Transfer, and such Person shall
acquire no rights in such shares; or
(A)
then that number of Shares the Beneficial or Constructive Ownership of which otherwise would cause such Person to
the violation of Section 5.7(ii)(a)(I)(A) or (B) then the Transfer of that number of Shares that otherwise would cause any Person to violate Section 5.7(ii)(a)(I)(A)
or (B) shall be void ab initio, and the intended transferee shall acquire no rights in such Shares.
(B)
if the transfer to the Trust described in clause (A) of this sentence would not be effective for any reason to prevent
(III) To the extent that, upon a transfer of Shares pursuant to Section 5.7(ii)(a)(II), a violation of any provision of this Section 5.7
would nonetheless be continuing (for example where the ownership of Shares by a single Trust would violate the 100 stockholder requirement applicable to
REITs), then Shares shall be transferred to that number of Trusts, each having a distinct Trustee and a Charitable Beneficiary or Beneficiaries that are distinct
from those of each other Trust, such that there is no violation of any provision of this Section 5.7.
(b) REMEDIES FOR BREACH. If the Board or any duly authorized committee thereof shall at any time determine in good faith that a
Transfer or other event has taken place that results in a violation of Section 5.7(ii)(a) or that a Person intends to acquire or has attempted to acquire Beneficial or
Constructive
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Ownership of any Shares in violation of Section 5.7(ii)(a) (whether or not such violation is intended), the Board or a committee thereof shall take such action as it
deems advisable to refuse to give effect to or to prevent such Transfer or other event, including, without limitation, causing the Company to redeem Shares,
refusing to give effect to such Transfer on the books of the Company or instituting proceedings to enjoin such Transfer or other event; provided, however, that
any Transfer or attempted Transfer or other event in violation of Section 5.7(ii)(a) shall automatically result in the transfer to the Trust described above, and,
where applicable, such Transfer (or other event) shall be void ab initio as provided above irrespective of any action (or non-action) by the Board or a committee
thereof.
(c) NOTICE OF RESTRICTED TRANSFER. Any Person who acquires or attempts or intends to acquire Beneficial Ownership or
Constructive Ownership of Shares that will or may violate Section 5.7(ii)(a)(I)(A) or (B) or any Person who would have owned Shares that resulted in a transfer to
the Trust pursuant to the provisions of Section 5.7(ii)(a)(II) shall immediately give written notice to the Company of such event, or in the case of such a proposed
or attempted transaction, give at least 15 days prior written notice, and shall provide to the Company such other information as the Company may request in order
to determine the effect, if any, of such Transfer on the Company’s status as a REIT.
(d) OWNERS REQUIRED TO PROVIDE INFORMATION. Prior to the Restriction Termination Date:
(I)
every owner of more than five percent (or such lower percentage as required by the Code or the Treasury Regulations
promulgated thereunder) of the outstanding Shares, within 30 days after the end of each taxable year, shall give written notice to the Company stating the name
and address of such owner, the number of Shares Beneficially Owned and a description of the manner in which such Shares are held. Each such owner shall
provide to the Company such additional information as the Company may request in order to determine the effect, if any, of such Beneficial Ownership on the
Company’s status as a REIT and to ensure compliance with the Aggregate Share Ownership Limit; and
each Person who is a Beneficial or Constructive Owner of Shares and each Person (including the stockholder of record) who
is holding Shares for a Beneficial or Constructive Owner shall provide to the Company such information as the Company may request, in good faith, in order to
determine the Company’s status as a REIT and to comply with requirements of any taxing authority or governmental authority or to determine such compliance.
(II)
(e) REMEDIES NOT LIMITED. Subject to Section 7.3 of the Charter, nothing contained in this Section 5.7(ii)(e) shall limit the authority
of the Board to take such other action as it deems necessary or advisable to protect the Company and the interests of its stockholders in preserving the
Company’s status as a REIT.
(f) AMBIGUITY. In the case of an ambiguity in the application of any of the provisions of this Section 5.7(ii), Section 5.7(iii), or any
definition contained in Section 5.7(i), the Board shall have the power to determine the application of the provisions of this Section 5.7(ii) or Section 5.7(iii) or
any such definition with respect to any situation based on the facts known to it. In the event Section 5.7(ii) or (iii) requires an action by the Board and the
Charter fails to provide specific guidance with respect to such action, the Board shall have the power to determine the action to be taken so long as such
action is not contrary to the provisions of Section 5.7. Absent a decision to the contrary by the Board (which the Board may make in its sole and absolute
discretion), if a Person would have (but for the remedies set forth in Section 5.7(ii)(b)) acquired Beneficial or Constructive Ownership of Shares in violation
of Section 5.7(ii)(a), such remedies (as applicable) shall apply first to the Shares which, but for such remedies, would have been Beneficially Owned or
Constructively Owned (but not actually owned) by such Person, pro rata among the Persons who actually own such Shares based upon the relative number of
the Shares held by each such Person.
(g) EXCEPTIONS.
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Aggregate Share Ownership Limit and may establish or increase an Excepted Holder Limit for such Person if:
(I) Subject to Section 5.7(ii)(a)(I)(B), the Board, in its sole discretion, may (prospectively or retroactively) exempt a Person from the
ascertain that no individual’s Beneficial or Constructive Ownership of such Shares will violate Section 5.7(ii)(a)(I)(B);
(A)
the Board obtains such representations and undertakings from such Person as are reasonably necessary to
(B)
such Person does not and represents that it will not own, actually or Constructively, an interest in a tenant of the
Company (or a tenant of any entity owned or controlled by the Company) that would cause the Company to own, actually or Constructively, more than a 9.9%
interest (as set forth in Section 856(d)(2)(B) of the Code) in such tenant and the Board obtains such representations and undertakings from such Person as are
reasonably necessary to ascertain this fact (for this purpose, a tenant from whom the Company (or an entity owned or controlled by the Company) derives (and is
expected to continue to derive) a sufficiently small amount of revenue such that, in the opinion of the Board, rent from such tenant would not adversely affect the
Company’s ability to qualify as a REIT, shall not be treated as a tenant of the Company); and
which is contrary to the restrictions contained in Section 5.7(ii)(a) through Section 5.7(ii)(f)) will result in such Shares being automatically transferred to a Trust in
accordance with Section 5.7(ii)(A)(II) and Section 5.7(iii).
(C)
such Person agrees that any violation or attempted violation of such representations or undertakings (or other action
(II) Prior to granting any exception pursuant to Section 5.7(ii)(g)(I), the Board may require a ruling from the Internal Revenue
Service, or an opinion of counsel, in either case in form and substance satisfactory to the Board in its sole discretion, as it may deem necessary or advisable in
order to determine or ensure the Company’s status as a REIT. Notwithstanding the receipt of any ruling or opinion, the Board may impose such conditions or
restrictions as it deems appropriate in connection with granting such exception.
Securities convertible into or exchangeable for Shares) may Beneficially Own or Constructively Own Shares (or Securities convertible into or exchangeable for
Shares) in excess of the Aggregate Share Ownership Limit but only to the extent necessary to facilitate such Offering or private placement.
(III) Subject to Section 5.7(ii)(a)(I)(B), an underwriter which participates in an Offering or a private placement of Shares (or
(IV) The Board may only reduce the Excepted Holder Limit for an Excepted Holder: (1) with the written consent of such
Excepted Holder at any time, or (2) pursuant to the terms and conditions of the agreements and undertakings entered into with such Excepted Holder in
connection with the establishment of the Excepted Holder Limit for that Excepted Holder. No Excepted Holder Limit shall be reduced to a percentage that
is less than the Aggregate Share Ownership Limit.
(h) INCREASE OR DECREASE IN AGGREGATE SHARE OWNERSHIP LIMIT. Subject to Section 5.7(ii)(a)(I)(B), the Board may from
time to time increase the Aggregate Share Ownership Limit for one or more Persons and decrease the Aggregate Share Ownership Limit for all other Persons;
provided, however, that the decreased Aggregate Share Ownership Limit will not be effective for any Person whose percentage ownership of Shares is in excess
of such decreased Aggregate Share Ownership Limit until such time as such Person’s percentage of Shares equals or falls below the decreased Aggregate Share
Ownership Limit, but any further acquisition of Shares in excess of such percentage ownership of Shares will be in violation of the Aggregate Share Ownership
Limit and, provided further, that the new Aggregate Share Ownership Limit would not allow five or fewer Persons to Beneficially Own or Constructively Own
more than 49.9% in value of the outstanding Shares.
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(i) NOTICE TO STOCKHOLDERS UPON ISSUANCE OR TRANSFER. Upon issuance or transfer of Shares prior to the Restriction
Termination Date, the Company shall provide the recipient with a notice containing information about the Shares purchased or otherwise transferred, in lieu of
issuance of a share certificate, in a form substantially similar to the following:
The securities of Global Net Lease, Inc. (the “Company”) are subject to restrictions on Beneficial and Constructive Ownership and Transfer
for the purpose, among others, of the Company’s maintenance of its status as a real estate investment trust under the Internal Revenue Code of 1986,
as amended (the “Code”). Subject to certain further restrictions and except as expressly provided in the Company’s charter, (i) no Person may
Beneficially or Constructively Own Shares in excess of 9.8% of the value of the total outstanding Shares or 9.8% (in value or in number of shares,
whichever is more restrictive) of any class or series of Shares unless such Person is an Excepted Holder (in which case the Excepted Holder Limit
shall be applicable); (ii) no Person may Beneficially or Constructively Own Shares that would result in the Company being “closely held” under
Section 856(h) of the Code or otherwise cause the Company to fail to qualify as a REIT; and (iii) any Transfer of Shares that, if effective, would
result in the Shares being beneficially owned by fewer than 100 Persons (as determined under the principles of Section 856(a)(5) of the Code) shall
be void ab initio and the intended transferee shall acquire no rights in such Shares. Any Person who Beneficially or Constructively Owns or attempts
to Beneficially or Constructively Own Shares which causes or will cause a Person to Beneficially or Constructively Own Shares in excess or in
violation of the above limitations must immediately notify the Company in writing (or, in the case of an attempted transaction, give at least 15 days
prior written notice). If any of the restrictions on transfer or ownership as set forth in (i) and (ii) above are violated, the Shares in excess or in
violation of the above limitations will be automatically transferred to a Trustee of a Trust for the benefit of one or more Charitable Beneficiaries. In
addition, the Company may redeem shares upon the terms and conditions specified by the Board in its sole discretion if the Board determines that
ownership or a Transfer or other event may violate the restrictions described above. Furthermore, upon the occurrence of certain events, attempted
Transfers in violation of the restrictions described in (i) and (ii) above may be void ab initio. All capitalized terms in this notice have the meanings
defined in the Company’s charter, as the same may be amended from time to time, a copy of which, including the restrictions on transfer and
ownership, will be furnished to each holder of Shares of the Company on request and without charge. Requests for such a copy may be directed to the
Secretary of the Company at its principal office.
(iii) TRANSFER OF SHARES IN TRUST.
(a)
OWNERSHIP IN TRUST. Upon any purported Transfer or other event described in Section 5.7(ii)(a)(III) that would result in a
transfer of Shares to a Trust, such Shares shall be transferred to the Trustee as trustee of a Trust for the exclusive benefit of one or more Charitable Beneficiaries.
Such transfer to the Trustee shall be effective as of the close of business on the Business Day prior to the purported Transfer or other event that results in the
transfer to the Trust pursuant to Section 5.7(ii)(a)(III). The Trustee shall be appointed by the Company and shall be a Person unaffiliated with the Company and
any Prohibited Owner. Each Charitable Beneficiary shall be designated by the Company as provided in Section 5.7(iii)(f).
(b)
STATUS OF SHARES HELD BY THE TRUSTEE. Shares held by the Trustee shall be issued and outstanding Shares of the
Company. The Prohibited Owner shall have no rights in the shares held by the Trustee. The Prohibited Owner shall not benefit economically from ownership of
any Shares held in trust by the Trustee, shall have no rights to dividends or other Distributions and shall not possess any rights to vote or other rights
attributable to the Shares held in the Trust.
(c)
DIVIDEND AND VOTING RIGHTS. The Trustee shall have all voting rights and rights to dividends or other Distributions with
respect to Shares held in the Trust, which rights shall be exercised for the exclusive benefit of the Charitable Beneficiary. Any dividend or other Distribution paid
prior to the discovery by the Company that the Shares have been transferred to the Trustee shall be paid by the recipient of such dividend or
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Distribution to the Trustee upon demand and any dividend or other Distribution authorized but unpaid shall be paid when due to the Trustee. Any dividend or
other Distribution so paid to the Trustee shall be held in trust for the Charitable Beneficiary. The Prohibited Owner shall have no voting rights with respect to
shares held in the Trust and, subject to Maryland law, effective as of the date that the Shares have been transferred to the Trustee, the Trustee shall have the
authority (at the Trustee’s sole discretion) (i) to rescind as void any vote cast by a Prohibited Owner prior to the discovery by the Company that the Shares have
been transferred to the Trustee and (ii) to recast such vote in accordance with the desires of the Trustee acting for the benefit of the Charitable Beneficiary;
provided, however, that if the Company has already taken irreversible corporate action, then the Trustee shall not have the authority to rescind and recast such
vote. Notwithstanding the provisions of this Section 5.7, until the Company has received notification that Shares have been transferred into a Trust, the Company
shall be entitled to rely on its stock transfer and other stockholder records for purposes of preparing lists of Stockholders entitled to vote at meetings, determining
the validity and authority of proxies and otherwise conducting votes of Stockholders.
(d)
SALE OF SHARES BY TRUSTEE. Within 20 days of receiving notice from the Company that Shares have been transferred to the
Trust, the Trustee shall sell the Shares held in the Trust to a person, designated by the Trustee, whose ownership of the Shares will not violate the ownership
limitations set forth in Section 5.7(ii)(a)(I) or (II). Upon such sale, the interest of the Charitable Beneficiary in the Shares sold shall terminate and the Trustee
shall distribute the net proceeds of the sale to the Prohibited Owner and to the Charitable Beneficiary as provided in this Section 5.7(iii)(d). The Prohibited Owner
shall receive the lesser of (1) the price paid by the Prohibited Owner for the Shares or, if the Prohibited Owner did not give value for the Shares in connection
with the event causing the Shares to be held in the Trust (e.g., in the case of a gift, devise or other such transaction), the Market Price of the Shares on the day of
the event causing the Shares to be held in the Trust and (2) the price per Share received by the Trustee from the sale or other disposition of the Shares held in the
Trust. The Trustee may reduce the amount payable to the Prohibited Owner by the amount of dividends and other Distributions which have been paid to the
Prohibited Owner and are owed by the Prohibited Owner to the Trustee pursuant to Section 5.7(c). Any net sales proceeds in excess of the amount payable to the
Prohibited Owner shall be immediately paid to the Charitable Beneficiary. If, prior to the discovery by the Company that Shares have been transferred to the
Trustee, such Shares are sold by a Prohibited Owner, then (i) such Shares shall be deemed to have been sold on behalf of the Trust and (ii) to the extent that the
Prohibited Owner received an amount for such Shares that exceeds the amount that such Prohibited Owner was entitled to receive pursuant to this Section 5.7,
such excess shall be paid to the Trustee upon demand.
(e)
PURCHASE RIGHT IN STOCK TRANSFERRED TO THE TRUSTEE. Shares transferred to the Trustee shall be deemed to have
been offered for sale to the Company, or its designee, at a price per Share equal to the lesser of (i) the price per Share in the transaction that resulted in such
transfer to the Trust (or, in the case of a devise or gift, the Market Price at the time of such devise or gift) and (ii) the Market Price on the date the Company, or its
designee, accepts such offer. The Company may reduce the amount payable to the Prohibited Owner by the amount of dividends and other Distributions which has
been paid to the Prohibited Owner and is owed by the Prohibited Owner to the Trustee pursuant to Section 5.7(c). The Company may pay the amount of such
reduction to the Trustee for the benefit of the Charitable Beneficiary. The Company shall have the right to accept such offer until the Trustee has sold the shares
held in the Trust pursuant to Section 5.7(iii)(d). Upon such a sale to the Company, the interest of the Charitable Beneficiary in the Shares sold shall terminate and
the Trustee shall distribute the net proceeds of the sale to the Prohibited Owner.
(f)
DESIGNATION OF CHARITABLE BENEFICIARIES. By written notice to the Trustee, the Company shall designate one or more
nonprofit organizations to be the Charitable Beneficiary of the interest in the Trust such that (i) the Shares held in the Trust would not violate the restrictions set
forth in Section 5.7(ii)(a)(I) or (II) in the hands of such Charitable Beneficiary and (ii) each such organization must be described in Section 501(c)(3) of the Code
and contributions to each such organization must be eligible for deduction under each of Sections 170(b)(1)(A), 2055 and 2522 of the Code.
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SECTION 5.8 SETTLEMENTS. Nothing in Section 5.7 shall preclude the settlement of any transaction entered into through the facilities of the
NYSE or any other national securities exchange or automated inter-dealer quotation system. The fact that the settlement of any transaction occurs shall not
negate the effect of any provision of Sections 5.7, and any transfer in such a transaction shall be subject to all of the provisions and limitations set forth in
Section 5.7.
SECTION 5.9 SEVERABILITY. If any provision of Section 5.7 or any application of any such provision is determined to be void, invalid or
unenforceable by any court having jurisdiction over the issue, the validity and enforceability of the remaining provisions of Section 5.7 shall not be affected and
other applications of such provision shall be affected only to the extent necessary to comply with the determination of such court.
SECTION 5.10 ENFORCEMENT. The Company is authorized specifically to seek equitable relief, including injunctive relief, to enforce the
provisions of Section 5.7.
SECTION 5.11 NON-WAIVER. No delay or failure on the part of the Company or the Board in exercising any right hereunder shall operate as a
waiver of any right of the Company or the Board, as the case may be, except to the extent specifically waived in writing.
SECTION 5.12 PREEMPTIVE AND APPRAISAL RIGHTS. Except as may be provided by the Board in setting the terms of classified or
reclassified Shares pursuant to Section 5.4 or as may otherwise be provided by contract approved by the Board, no holder of Shares shall, as such holder, have
any preemptive right to purchase or subscribe for any additional Shares or any other security of the Company which it may issue or sell. Holders of Shares shall
not be entitled to exercise any rights of an objecting stockholder provided for under Title 3, Subtitle 2 of the MGCL or any successor statute unless the Board,
upon the affirmative vote of a majority of the Board, shall determine that such rights apply, with respect to all or any classes or series of Shares, to one or more
transactions occurring after the date of such determination in connection with which holders of such Shares would otherwise be entitled to exercise such rights.
ARTICLE VI
BOARD OF DIRECTORS
SECTION 6.1 NUMBER OF DIRECTORS. The number of Directors of the Company shall be seven, which number may be increased or decreased
from time to time pursuant to the Bylaws but shall never be less than the minimum number required by the MGCL. The Company elects, at such time as it
becomes eligible to make the election provided for under Section 3-804(c) of the MGCL, that, except as may be provided by the Board in setting the terms of any
class or series of Shares, any and all vacancies on the Board may be filled only by the affirmative vote of a majority of the remaining Directors in office, even if
the remaining Directors do not constitute a quorum, and any Director elected to fill a vacancy shall serve for the remainder of the full term of the directorship in
which such vacancy occurred. No reduction in the number of Directors shall cause the removal of any Director from office prior to the expiration of his term,
except as may otherwise be provided in the terms of any Preferred Shares. For the purposes of voting for Directors, each Share may be voted for as many
individuals as there are Directors to be elected and for whose election the Share is entitled to be voted. Cumulative voting for Directors is prohibited.
The names of the Directors who shall serve on the Board until the next annual meeting of the Stockholders and until their successors are duly elected and
qualify, are:
M. Therese Antone
Lee. M. Elman
James L. Nelson
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P. Sue Perrotty
Edward G. Rendell
Edward M. Weil, Jr.
Abby M. Wenzel
or such other Directors as appointed in accordance with this Charter.
SECTION 6.2 RESIGNATION OR REMOVAL. Any Director may resign by delivering notice to the Board, effective upon receipt by the Board
of such notice or upon any future date specified in the notice. Subject to the rights of holders of one or more classes or series of Preferred Shares, any Director or
the entire Board may be removed from office at any time, but only for cause and then only by the affirmative vote of at least two-thirds of the votes entitled to
be cast generally in the election of Directors. For the purpose of this paragraph, “cause” shall mean, with respect to any particular Director, conviction of a
felony or a final judgment of a court of competent jurisdiction holding that such director caused demonstrable, material harm to the Company through bad faith
or active and deliberate dishonesty.
ARTICLE VII
POWERS OF THE BOARD OF DIRECTORS
SECTION 7.1 GENERAL. The business and affairs of the Company shall be managed under the direction of the Board. The Board may take any
action that, in its sole judgment and discretion, is necessary or desirable to conduct the business of the Company. The Charter shall be construed with a
presumption in favor of the grant of power and authority to the Board. Any construction of the Charter or determination made in good faith by the Board
concerning its powers and authority hereunder shall be conclusive. The enumeration and definition of particular powers of the Board included in this Article VII
shall in no way be limited or restricted by reference to or inference from the terms of this or any other provision of the Charter or construed or deemed by
inference or otherwise in any manner to exclude or limit the powers conferred upon the Board under the general laws of the State of Maryland as now or hereafter
in force.
SECTION 7.2 AUTHORIZATION BY BOARD OF STOCK ISSUANCE. The Board may authorize the issuance from time to time of Shares of
any class or series, whether now or hereafter authorized, or securities or rights convertible into Shares of any class or series, whether now or hereafter authorized,
for such consideration as the Board may deem advisable (or without consideration in the case of a stock split or stock dividend), subject to such restrictions or
limitations, if any, as may be set forth in the Charter or the Bylaws.
SECTION 7.3 FINANCINGS. The Board shall have the power and authority to borrow or, in any other manner, raise money for the purposes and
on the terms it determines, which terms may (i) include evidencing the same by issuance of Securities of the Company and (ii) have such provisions as the Board
may determine (a) to reacquire such Securities; (b) to enter into other contracts or obligations on behalf of the Company; (c) to guarantee, indemnify or act as
surety with respect to payment or performance of obligations of any Person and (d) to mortgage, pledge, assign, grant security interests in or otherwise encumber
the Company’s assets to secure any such Securities of the Company, contracts or obligations (including guarantees, indemnifications and suretyships); and to
renew, modify, release, compromise, extend, consolidate or cancel, in whole or in part, any obligation to or of the Company or participate in any reorganization
of obligors to the Company.
SECTION 7.4 REIT QUALIFICATION. If the Company elects to qualify for federal income tax treatment as a REIT, the Board shall use its
reasonable best efforts to take such actions as are necessary or appropriate to preserve the status of the Company as a REIT; however, if the Board determines
that it is no longer in the best interests of the Company to continue to be qualified as a REIT, the Board may revoke or otherwise
12
terminate the Company’s REIT election pursuant to Section 856(g) of the Code. The Board also may determine that compliance with any restriction or limitation
on stock ownership and transfers set forth in Section 5.7 of Article V is no longer required for REIT qualification.
SECTION 7.5 DETERMINATIONS BY BOARD. The determination as to any of the following matters, made in good faith by or pursuant to the
direction of the Board consistent with the Charter, shall be final and conclusive and shall be binding upon the Company and every holder of Shares: the amount of
the net income of the Company for any period and the amount of assets at any time legally available for the payment of dividends, redemption of Shares or the
payment of other Distributions on Shares; the amount of paid-in surplus, net assets, other surplus, annual or other cash flow, funds from operations, net profit, net
assets in excess of capital, undivided profits or excess of profits over losses on sales of assets; the amount, purpose, time of creation, increase or decrease,
alteration or cancellation of any reserves or charges and the propriety thereof (whether or not any obligation or liability for which such reserves or charges shall
have been created shall have been paid or discharged); any interpretation of the terms, preferences, conversion or other rights, voting powers or rights, restrictions,
limitations as to dividends or other Distributions, qualifications or terms or conditions of redemption of any class or series of Shares; the fair value, or any sale,
bid or asked price to be applied in determining the fair value, of any asset owned or held by the Company or any Shares; the number of Shares of any class of the
Company; any matter relating to the acquisition, holding and disposition of any assets by the Company; or any other matter relating to the business and affairs of
the Company or required or permitted by applicable law, the Charter or Bylaws or otherwise to be determined by the Board; provided , however , that any
determination by the Board as to any of the preceding matters shall not render invalid or improper any action taken or omitted prior to such determination and no
Director shall be liable for making or failing to make such a determination.
ARTICLE VIII
EXTRAORDINARY ACTIONS
Except as specifically provided in Section 6.2 of Article VI (relating to removal of Directors) and in the last sentence of Article X, notwithstanding any
provision of law permitting or requiring any action to be taken or approved by the affirmative vote of the holders of Shares entitled to cast a greater number of
votes, any such action shall be effective and valid if declared advisable by the Board and taken or approved by the affirmative vote of holders of Shares entitled
to cast a majority of all the votes entitled to be cast on the matter.
ARTICLE IX
LIABILITY OF STOCKHOLDERS, DIRECTORS AND OFFICERS
SECTION 9.1 LIMITATION OF STOCKHOLDER LIABILITY. No Stockholder shall be liable for any debt, claim, demand, judgment or
obligation of any kind of, against or with respect to the Company by reason of his being a Stockholder, nor shall any Stockholder be subject to any personal
liability whatsoever, in tort, contract or otherwise, to any Person in connection with the Company’s assets or the affairs of the Company by reason of his being a
Stockholder.
SECTION 9.2 LIMITATION OF DIRECTOR AND OFFICER LIABILITY; INDEMNIFICATION.
(a)
To the maximum extent that Maryland law in effect from time to time permits limitation of the liability of directors and officers of a
corporation, no present or former Director or officer of the Company shall be liable to the Company or its Stockholders for money damages. Neither the
amendment nor repeal of this Section 9.2(a), nor the adoption or amendment of any other provision of the Charter or Bylaws inconsistent with this Section 9.2(a),
shall apply to or affect in any respect the applicability of the preceding sentence with respect to any act or failure to act which occurred prior to such amendment,
repeal or adoption.
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(b)
The Company shall have the power, to the maximum extent permitted by Maryland law in effect from time to time, to obligate itself to
indemnify, and to pay or reimburse reasonable expenses in advance of final disposition of a proceeding to, (i) any individual who is a present or former Director
or officer of the Company or (ii) any individual who, while a Director or officer of the Company and at the request of the Company, serves or has served as a
director, officer, partner, member, manager or trustee of another corporation, real estate investment trust, partnership, limited liability company, joint venture,
trust, employee benefit plan or any other enterprise from and against any claim or liability to which such person may become subject or which such person may
incur by reason of his or her service in such capacity. The Company shall have the power, with the approval of the Board, to provide such indemnification and
advancement of expenses to a person who served a predecessor of the Company in any of the capacities described in (i) or (ii) above and to any employee or
agent of the Company or a predecessor of the Company.
SECTION 9.3 EXPRESS EXCULPATORY CLAUSES IN INSTRUMENTS. Neither the Stockholders nor the Directors, officers, employees or
agents of the Company shall be liable under any written instrument creating an obligation of the Company by reason of their being Stockholders, Directors,
officers, employees or agents of the Company, and all Persons shall look solely to the Company’s assets for the payment of any claim under or for the
performance of that instrument. The omission of the foregoing exculpatory language from any instrument shall not affect the validity or enforceability of such
instrument and shall not render any Stockholder, Director, officer, employee or agent liable thereunder to any third party, nor shall the Directors or any officer,
employee or agent of the Company be liable to anyone as a result of such omission.
ARTICLE X
AMENDMENTS
The Company reserves the right from time to time to make any amendment to its Charter, now or hereafter authorized by law, including any amendment
altering the terms or contract rights, as expressly set forth in the Charter, of any outstanding Shares. All rights and powers conferred by the Charter on
Stockholders, Directors and officers are granted subject to this reservation. Except as otherwise provided in the next sentence and except for those amendments
permitted to be made without Stockholder approval under Maryland law or by specific provision in the Charter, any amendment to the Charter shall be valid only
if declared advisable by the Board and approved by the affirmative vote of a majority of all the votes entitled to be cast on the matter. However, any amendment
to the second sentence of Section 6.2 of Article VI or to this sentence of the Charter shall be valid only if declared advisable by the Board and approved by the
affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter.
THIRD: The restatement of the charter as hereinabove set forth has been duly approved by the Board of Directors of the Company.
FOURTH: The charter is not amended by these Articles of Restatement.
FIFTH: The current address of the principal office of the Company is as set forth in Article III of the foregoing restatement of the charter.
SIXTH: The name and address of the Company’s current resident agent are as set forth in Article III of the foregoing restatement of the charter.
SEVENTH: The number of directors of the Company and the names of the Directors currently in office are as set forth in Section 6.1 of Article VI of the
foregoing restatement of the charter.
EIGHTH: The Company, by resolution of its Board of Directors, previously elected, notwithstanding any provision in its charter or bylaws to the contrary,
to be subject to Section 3-803 of the Maryland General Corporation Law (the “MGCL”), the repeal of which may be effected only by the means authorized by
Section 3-802(b)(3) of the MGCL.
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NINTH: The undersigned acknowledges these Articles of Restatement to be the corporate act of the Company and, as to all matters or facts required to be
verified under oath, the undersigned acknowledges that, to the best of his or her knowledge, information and belief, these matters and facts are true in all material
respects and that this statement is made under the penalties for perjury.
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IN WITNESS WHEREOF, the Corporation has caused these Articles of Restatement to be signed in its name and on its behalf by its Chief Executive
Officer and President and attested by its Chief Financial Officer, Treasurer and Secretary, on this 24th day of February, 2021.
ATTEST: GLOBAL NET LEASE, INC.
/s/ Christopher J. Masterson ____________ By: /s/ James L. Nelson _______________ (SEAL)
Name: Christopher J. Masterson Name: James L. Nelson
Title: Chief Financial Officer, Treasurer Title: Chief Executive Officer and President
and Secretary
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Exhibit A
7.25% SERIES A CUMULATIVE REDEEMABLE PREFERRED STOCK
(Liquidation Preference $25.00 per Share)
Under a power contained in Section 5.1 of Article V of the charter (the “Charter”) of Global Net Lease, Inc., a Maryland corporation (the
“Corporation”), the Board of Directors of the Corporation or a duly authorized committee thereof, by resolutions duly adopted, classified 9,959,650
authorized but unissued shares of preferred stock, par value $0.01 per share, of the Corporation as shares of a series of preferred stock, designated as
7.25% Series A Cumulative Redeemable Preferred Stock (the “Series A Preferred Stock”) with the following preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends and other distributions, qualifications and terms and conditions of redemption:
Section 1.
Number of Shares and Designation.
A series of preferred stock of the Corporation designated as the “7.25% Series A Cumulative Redeemable Preferred Stock” is hereby established, and the
number of shares constituting such series shall be 9,959,650.
Section 2.
Definitions.
“Aggregate Share Ownership Limit” shall have the meaning set forth in Article V of the Charter.
“Alternative Conversion Consideration” shall have the meaning set forth in Section 8(a) hereof.
“Alternative Form Consideration” shall have the meaning set forth in Section 8(a) hereof.
“Board of Directors” shall mean the Board of Directors of the Corporation or any committee authorized by such Board of Directors to perform any of its
responsibilities with respect to the Series A Preferred Stock.
“Business Day” shall mean any day other than a Saturday, Sunday or a day on which state or federally chartered banking institutions in New York, New
York are not required to be open.
“Capital Gains Amount” shall have the meaning set forth in Section 3(g) hereof.
“Change of Control” shall have the meaning set forth in Section 6(b) hereof.
“Change of Control Conversion Date” shall have the meaning set forth in Section 8(a) hereof.
“Change of Control Conversion Right” shall have the meaning set forth in Section 8(a) hereof.
“Change of Control Redemption Right” shall have the meaning set forth in Section 6(b) hereof.
“Charter” shall have the meaning set forth in the preamble to these Articles Supplementary.
“Code” shall mean the Internal Revenue Code of 1986, as amended.
“Commission” shall have the meaning set forth in Section 10 hereof.
“Common Stock” shall mean the Corporation’s common stock, par value $0.01 per share.
“Common Stock Conversion Consideration” shall have the meaning set forth in Section 8(a) hereof.
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“Common Stock Price” shall have the meaning set forth in Section 8(a) hereof.
“Conversion Agent” shall have the meaning set forth in Section 8(d) hereof.
“Conversion Consideration” shall have the meaning set forth in Section 8(a) hereof.
“Corporation” shall have the meaning set forth in the preamble to these Articles Supplementary.
“Delisting Event” shall have the meaning set forth in Section 6(a) hereof.
“Delisting Event Conversion Date” shall have the meaning set forth in Section 8(a).
“Delisting Event Conversion Right” shall have the meaning set forth in Section 8(a) hereof.
“Delisting Event Redemption Right” shall have the meaning set forth in Section 6(a) hereof.
“DTC” shall have the meaning set forth in Section 8(f) hereof.
“Event” shall have the meaning set forth in Section 9(f)(ii) hereof.
“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.
“NASDAQ” shall mean the Nasdaq Stock Market or any successor that is a national securities exchange registered under Section 6 of the Exchange Act.
“NYSE” shall mean the New York Stock Exchange or any successor that is a national securities exchange registered under Section 6 of the Exchange Act.
“NYSE MKT” shall mean the NYSE MKT LLC Equities or any successor that is a national securities exchange registered under Section 6 of the
Exchange Act.
“Optional Redemption Right” shall have the meaning set forth in Section 5(b) hereof.
“Original Issue Date” shall mean the first date on which shares of Series A Preferred Stock are issued and sold.
“Parity Preferred” shall have the meaning set forth in Section 9(b) hereof.
“Preferred Directors” shall have the meaning set forth in Section 9(b) hereof.
“Preferred Dividend Default” shall have the meaning set forth in Section 9(b) hereof.
“REIT” shall have the meaning set forth in Article IV of the Charter.
“Series A Dividend Period” shall mean the respective periods commencing on and including January 1, April 1, July 1 and October 1 of each year and
ending on and including the day preceding the first day of the next succeeding Series A Dividend Period (other than the initial Series A Dividend Period, which
shall commence on the Original Issue Date and end on and include September 30, 2017, and other than the Series A Dividend Period during which any shares of
Series A Preferred Stock shall be redeemed pursuant to Section 5 or Section 6 (and that is not a Series A Dividend Period of the type contemplated by Section
7(b)), which, solely with respect to the shares of Series A Preferred Stock being redeemed, shall end on and include the day immediately preceding the redemption
date with respect to such shares of Series A Preferred Stock being redeemed).
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“Series A Payment Date” shall mean, with respect to each Series A Dividend Period, the fifteenth (15 ) day of the month following the month in which
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the Series A Dividend Period has ended (January, April, July and October of each year), commencing on October 15, 2017.
“Series A Preferred Stock” shall have the meaning set forth in the preamble to these Articles Supplementary.
“Series A Record Date” shall mean the close of business on the date set by the Board of Directors as the record date for the payment of dividends that is
not more than 30 nor fewer than 10 days prior to the applicable Series A Payment Date.
“Shares” shall have the meaning set forth in Article V of the Charter.
“Share Cap” shall have the meaning set forth in Section 8(a) hereof.
“Special Optional Redemption Rights” shall have the meaning set forth in Section 6(b) hereof.
“Stock Split” shall have the meaning set forth in Section 8(a) hereof.
“Total Distributions” shall have the meaning set forth in Section 3(g) hereof.
Section 3.
Dividends and Distributions.
(a)
Subject to the preferential rights of the holders of any class or series of equity securities of the Corporation ranking senior to the Series A
Preferred Stock with respect to dividend rights, the holders of the then outstanding Series A Preferred Stock shall be entitled to receive, when, as and if authorized
by the Board of Directors and declared by the Corporation, out of funds legally available for the payment of dividends, cumulative cash dividends in the amount of
$1.8125 per share each year, which is equivalent to the rate of 7.25% of the $25.00 liquidation preference per share per annum. Such dividends shall accrue and be
cumulative from and including the Original Issue Date and shall be payable quarterly in arrears on each Series A Payment Date, commencing October 15, 2017, to
all holders of record on the applicable Series A Record Date; provided, however, that if any Series A Payment Date is not a Business Day, the dividend which
would otherwise have been payable on such Series A Payment Date may be paid or set apart for payment on the next succeeding Business Day with the same force
and effect as if paid or set apart on such Series A Payment Date, and no interest or additional dividends or other sums shall accrue on the amount so payable from
such Series A Payment Date to such next succeeding Business Day. Holders of record of all shares of Series A Preferred Stock outstanding on the applicable Series
A Record Date will be entitled to receive the full quarterly dividend paid on the applicable Series A Payment Date even if such shares were not issued and
outstanding for the full applicable Series A Dividend Period.
The initial dividend payable on the Series A Preferred Stock will cover the period from and including the Original Issue Date through September 30, 2017
and will be paid on October 15, 2017. The amount of any dividend payable on the Series A Preferred Stock for each full Series A Dividend Period shall be
computed by dividing $1.8125 by four (4), regardless of the actual number of days in such full Series A Dividend Period. The amount of any dividend payable on
the Series A Preferred Stock for any partial Series A Dividend Period and for the initial Series A Dividend Period shall be prorated and computed on the basis of a
360-day year consisting of twelve 30-day months. Dividends will be payable to holders of record as they appear in the stockholder records of the Corporation at the
close of business on the applicable Series A Record Date. Notwithstanding any provision to the contrary contained herein, the dividend payable on each share of
Series A Preferred Stock outstanding on a Series A Record Date shall equal the dividend payable on each other share of Series A Preferred Stock that is
outstanding on such Series A Record Date, and no holder of any share of Series A Preferred Stock shall be entitled to receive any dividends paid or payable on the
Series A Preferred Stock with a Series A Record Date before the date such share of Series A Preferred Stock is issued.
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(b)
No dividends on the Series A Preferred Stock shall be authorized by the Board of Directors or paid or declared and set apart for payment by the
Corporation at such time as the terms and conditions of any agreement of the Corporation, including any agreement relating to its indebtedness, prohibit such
authorization, payment or setting apart for payment or provide that such authorization, payment or setting apart for payment would constitute a breach thereof, or a
default thereunder, or if such authorization, payment or setting apart for payment shall be restricted or prohibited by law.
(c)
Notwithstanding anything contained herein to the contrary, dividends on the Series A Preferred Stock shall accrue with respect to any Series A
Dividend Periods whether or not dividends are authorized by the Board of Directors and declared by the Corporation. No interest or additional dividend shall be
payable in respect of any accrued and unpaid dividend on the Series A Preferred Stock.
(d)
Except as provided in Section 3(e) below, no dividends shall be declared and paid or set apart for payment and no other distribution of cash or
other property may be declared and made, directly or indirectly, on or with respect to shares of Common Stock or shares of any other class or series of equity
securities of the Corporation ranking, with respect to dividend rights and rights upon the Corporation’s voluntary or involuntary liquidation, dissolution or
winding-up, on parity with or junior to the Series A Preferred Stock (other than a dividend paid in shares of Common Stock or in shares of any other class or series
of equity securities ranking junior to the Series A Preferred Stock with respect to dividend rights and rights upon the Corporation’s voluntary or involuntary
liquidation, dissolution or winding-up), nor shall any shares of Common Stock or shares of any other class or series of equity securities of the Corporation ranking,
with respect to dividend rights and rights upon the Corporation’s voluntary or involuntary liquidation, dissolution or winding-up, on parity with or junior to the
Series A Preferred Stock be redeemed (or any monies be paid to or made available for a sinking fund for the redemption of any such shares), purchased or
otherwise acquired, (except (i) by conversion into or exchange for shares of Common Stock or shares of any other class or series of equity securities of the
Corporation ranking junior to the Series A Preferred Stock with respect to dividend rights and rights upon the Corporation’s voluntary or involuntary liquidation,
dissolution or winding-up, (ii) for the acquisition of shares made pursuant to the provisions of Section 5.7 of Article V of the Charter, and (iii) for the purchase or
acquisition of equity securities of the Corporation ranking on parity with the Series A Preferred Stock with respect to dividend rights and rights upon the
Corporation’s voluntary or involuntary liquidation, dissolution or winding-up, pursuant to a purchase or exchange offer made on the same terms to holders of all
outstanding Series A Preferred Stock and any other shares of any other class or series of equity securities ranking on parity with the Series A Preferred Stock with
respect to dividend rights and rights upon the Corporation’s voluntary or involuntary liquidation, dissolution or winding-up), unless full cumulative dividends on
the Series A Preferred Stock for all past Series A Dividend Periods shall have been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof is set apart for such payment.
(e)
When dividends are not paid in full (or declared and a sum sufficient for such full payment is not so set apart) upon the Series A Preferred Stock
and any other class or series of equity securities ranking, with respect to dividend rights, on parity with the Series A Preferred Stock, all dividends (other than any
acquisition of shares pursuant to the provisions of Section 5.7 of Article V of the Charter or a purchase or exchange offer made on the same terms to holders of all
outstanding shares of Series A Preferred Stock and any such other class or series of equity securities ranking on parity with the Series A Preferred Stock with
respect to dividend rights or rights upon the Corporation’s voluntary or involuntary liquidation, dissolution or winding-up), declared upon the Series A Preferred
Stock and any other class or series of equity securities ranking, with respect to dividend rights, on parity with the Series A Preferred Stock shall be allocated pro
rata so that the amount declared per share of Series A Preferred Stock and such other equally ranked classes or series of equity securities shall in all cases bear to
each other the same ratio that accrued dividends per share on the Series A Preferred Stock and such other equally ranked class or series of equity securities (which
shall not include any accrual in respect of unpaid dividends on such other classes or series of equity securities for prior Series A Dividend Periods if such other
class or series of equity securities does not have a cumulative dividend) bear to each other. No interest, or sum of money in lieu of interest, shall be payable in
respect of any dividend payment or payments on the Series A Preferred Stock which may be in arrears.
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(f)
Holders of the Series A Preferred Stock shall not be entitled to any dividend, whether payable in cash, property or Stock, in excess of full
cumulative dividends on the Series A Preferred Stock as provided herein. Any dividend payment made on the Series A Preferred Stock shall first be credited
against the earliest accrued and unpaid dividend.
(g)
If, for any taxable year, the Corporation elects to designate as “capital gain dividends” (as defined in Section 857 of the Code or any successor
revenue code or section) any portion (the “Capital Gains Amount”) of the total distributions not in excess of the Corporation’s earnings and profits (as determined
for United States federal income tax purposes) paid or made available for such taxable year to holders of all classes and series of Stock (the “Total Distributions”),
then the portion of the Capital Gains Amount that shall be allocable to holders of Series A Preferred Stock shall be in the same proportion that the Total
Distributions paid or made available to the holders of Series A Preferred Stock for such taxable year bears to the Total Distributions for such taxable year made
with respect to all classes or series of Stock outstanding.
Section 4.
Liquidation Preference.
Upon any voluntary or involuntary liquidation, dissolution or winding-up of the affairs of the Corporation, before any distribution or payment shall be
made to holders of Common Stock or any other class or series of equity securities of the Corporation ranking, with respect to rights upon the Corporation’s
voluntary or involuntary liquidation, dissolution or winding-up, junior to the Series A Preferred Stock, the holders of shares of Series A Preferred Stock then
outstanding shall be entitled to be paid out of the assets of the Corporation legally available for distribution to its stockholders a liquidation preference of $25.00
per share, plus an amount equal to any accrued and unpaid dividends to, but not including, the date of payment (whether or not declared). If, upon any such
voluntary or involuntary liquidation, dissolution or winding-up, the available assets of the Corporation are insufficient to pay the amount of the distributions
payable upon liquidation, dissolution or winding-up of the affairs of the Corporation, on all outstanding shares of Series A Preferred Stock and the corresponding
amounts payable on all shares of other classes or series of securities of the Corporation ranking, with respect to rights upon the Corporation’s voluntary or
involuntary liquidation, dissolution or winding-up, on parity with the Series A Preferred Stock, the holders of Series A Preferred Stock and each such other class or
series of securities ranking, with respect to rights upon the Corporation’s voluntary or involuntary liquidation, dissolution or winding-up, on parity with the Series
A Preferred Stock shall share ratably in any such distribution of assets in proportion to the full liquidating distributions to which they would otherwise be
respectively entitled. Written notice of any such voluntary or involuntary liquidation, dissolution or winding up, stating the payment date or dates when, and the
place or places where, the amounts distributable in such circumstances shall be payable, shall be given by first-class mail, postage pre-paid, at least 20 days prior to
the payment date stated therein, to each record holder of Series A Preferred Stock at the respective addresses of such holders as the same shall appear on the stock
transfer records of the Corporation. After the holders of Series A Preferred Stock have received the full amount of the liquidating distributions to which they are
entitled, they will have no right or claim to any of the remaining assets of the Corporation. The consolidation, conversion or merger of the Corporation with or into
any other person, corporation, trust or entity, or the sale, lease, transfer or conveyance of all or substantially all of the property or business of the Corporation
(whether in connection with a Change of Control or otherwise), shall not be deemed to constitute a liquidation, dissolution or winding-up of the affairs of the
Corporation.
In determining whether any distribution (other than upon voluntary or involuntary dissolution) by dividend, redemption or other acquisition of Shares or
otherwise is permitted under the Maryland General Corporation Law, amounts that would be needed, if the Corporation were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon dissolution of the holders of Series A Preferred Stock will not be added to the Corporation’s total liabilities.
Section 5.
Optional Redemption.
(a)
The Series A Preferred Stock shall not be redeemable prior to September 12, 2022, except as provided in Section 5(c), Section 5.7 of Article V
of the Charter or Section 6 hereof.
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(b)
On and after September 12, 2022, the Corporation, at its option, upon not fewer than 30 nor more than 60 days’ written notice as provided in
Section 5(e) hereof, may redeem the Series A Preferred Stock, in whole or in part, at any time or from time to time, at a redemption price of $25.00 per share, plus
(subject to Section 7(b) hereof) an amount equal to all dividends accrued and unpaid (whether or not declared) thereon to, but not including, the date fixed for
redemption, without interest (the “Optional Redemption Right”). If less than all of the outstanding shares of Series A Preferred Stock are to be redeemed, the
shares of Series A Preferred Stock to be redeemed shall be redeemed pro rata (as nearly as may be practicable without creating fractional shares) or by lot. If such
redemption is to be by lot, and if, as a result of such redemption, any holder of Series A Preferred Stock would own shares of Series A Preferred Stock in excess of
the Aggregate Share Ownership Limit or in violation of any of the other restrictions on ownership and transfer of Shares set forth in Section 5.7 of Article V of the
Charter, then, except as otherwise provided in the Charter, the Corporation will redeem the requisite number of shares of Series A Preferred Stock of such holder
such that no holder will violate the Aggregate Share Ownership Limit or any other restrictions on ownership and transfer of Shares set forth in Section 5.7 of
Article V of the Charter subsequent to such redemption.
(c)
The Corporation may redeem all or a part of the Series A Preferred Stock in accordance with the terms and conditions set forth in this Section 5
of these Articles Supplementary at any time and from time to time, whether before or after September 12, 2022, if the Board of Directors determines that such
redemption is reasonably necessary to for the Corporation to preserve the status of the Corporation as a qualified REIT. If the Corporation calls for redemption any
Series A Preferred Stock pursuant to and in accordance with this Section 5(c), then the redemption price for such shares will be an amount in cash equal to $25.00
per share, plus (subject to Section 7(b) hereof) all dividends accrued and unpaid (whether or not declared) thereon to and including the date fixed for redemption,
without interest.
(d)
Unless full cumulative dividends on all shares of Series A Preferred Stock shall have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof in cash set apart for payment for all past Series A Dividend Periods, no shares of Series A Preferred Stock
shall be redeemed pursuant to this Section 5 unless all outstanding shares of Series A Preferred Stock are simultaneously redeemed and the Corporation shall not
purchase or otherwise acquire directly or indirectly any Series A Preferred Stock (except by exchange for equity securities of the Corporation ranking junior to the
Series A Preferred Stock with respect to dividend rights and rights upon the Corporation’s voluntary or involuntary liquidation, dissolution or winding-up);
provided, however, that the foregoing shall not prevent the purchase of the Series A Preferred Stock or any other class or series of equity securities of the
Corporation by the Corporation in accordance with the terms of Section 5(c) hereof or Section 5.7 of Article V of the Charter or the purchase or acquisition of the
Series A Preferred Stock pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding Series A Preferred Stock and the holders of
all outstanding shares of any other class or series of preferred stock of the Corporation ranking on a party with the Series A Preferred Stock with respect to
dividend rights and rights upon the Corporation’s voluntary or involuntary liquidation, dissolution or winding up.
(e)
Notice of redemption pursuant to this Section 5 shall be mailed by the Corporation, postage prepaid, as of a date set by the Corporation not fewer
than 30 nor more than 60 days prior to such redemption date, addressed to the respective holders of record of such shares of Series A Preferred Stock to be
redeemed at their respective addresses as they appear on the stock transfer records of the Corporation. Failure to give such notice or any defect thereto or in the
mailing thereof shall not affect the sufficiency of notice or validity of the proceedings for such redemption of any shares of Series A Preferred Stock except as to
shares held by a holder to whom notice was defective or not given. A redemption notice which has been mailed in the manner provided herein shall be conclusively
presumed to have been duly given on the date mailed whether or not such holder received the redemption notice. In addition to any information required by law or
the applicable rules of any exchange upon which Series A Preferred Stock may be listed or admitted to trading, each notice shall state (i) such redemption date; (ii)
the redemption price; (iii) the total number of shares of Series A Preferred Stock to be redeemed (and, if less than all the shares held by any holder are to be
redeemed, the number of shares to be redeemed from such holder); (iv) the place or places where such shares of Series A Preferred Stock are to be surrendered for
payment, together with the certificates, if any, representing such shares (duly endorsed for transfer) and any other documents the
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Corporation requires in connection with such redemption; and (v) that dividends on the Series A Preferred Stock to be redeemed shall cease to accrue on such
redemption rate.
Section 6.
Special Optional Redemption by the Corporation.
(a)
During any period of time (whether before or after September 12, 2022) that both (i) the Series A Preferred Stock is not listed on the NYSE,
NYSE MKT or the NASDAQ and (ii) the Corporation is not subject to the reporting requirements of the Exchange Act, but any shares of Series A Preferred Stock
are outstanding (the occurrence of clauses (i) and (ii) is referred to as a “Delisting Event”), the Corporation will have the option, upon not fewer than 30 nor more
than 60 days’ written notice as provided in Section 6(d) hereof, to redeem the outstanding shares of Series A Preferred Stock, in whole but not in part, within 90
days after the occurrence of the Delisting Event, for a redemption price of $25.00 per share, plus (subject to Section 7(b) hereof) an amount equal to all dividends
accrued and unpaid (whether or not declared), if any, to, but not including, the redemption date (a “Delisting Event Redemption Right”).
(b)
In addition, upon the occurrence of a Change of Control, the Corporation will have the option, upon not fewer than 30 nor more than 60 days’
written notice as provided in Section 6(d) hereof, to redeem shares of Series A Preferred Stock, in whole but not in part, within 120 days after the first date on
which such Change of Control occurred, for cash at $25.00 per share plus (subject to Section 7(b) hereof) an amount equal to dividends accrued and unpaid
(whether or not declared), if any, on the Series A Preferred Stock to, but not including, the redemption date (“Change of Control Redemption Right” and, together
with the Delisting Event Redemption Right, the “Special Optional Redemption Rights”).
A “Change of Control” occurs when, after the Original Issue Date, the following have occurred and are continuing:
(i)the acquisition by any person, including any syndicate or group deemed to be a “person” under Section 13(d)(3) of the Exchange Act of
beneficial ownership, directly or indirectly, through a purchase, merger, conversion or other acquisition transaction or series of purchases, mergers, conversions or
other acquisition transactions of shares of stock of the Corporation entitling that person to exercise more than 50% of the total voting power of all outstanding
shares of stock of the Corporation entitled to vote generally in the election of directors (except that such person will be deemed to have beneficial ownership of all
securities that such person has the right to acquire, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent
condition); and
(ii)following the closing of any transaction referred to in (i) above, neither the Corporation nor the acquiring or surviving entity has a class of
common equity securities listed on the NYSE, the NYSE MKT or the NASDAQ.
(c)
Notwithstanding the foregoing, the Corporation shall not have the right to redeem shares of Series A Preferred Stock upon any Delisting Event
occurring in connection with a transaction set forth in clause (i) of the definition of Change of Control unless such Delisting Event also constitutes a Change of
Control.
(d)
Notice of redemption pursuant to this Section 6 shall be mailed by the Corporation, postage prepaid, as of a date set by the Corporation not fewer
than 30 nor more than 60 days prior to such redemption date, addressed to the holders of record of the Series A Preferred Stock at their respective addresses as they
appear on the stock transfer records of the Corporation. Failure to give such notice or any defect thereto or in the mailing thereof shall not affect the sufficiency of
notice or validity of the proceedings for such redemption of any shares of Series A Preferred Stock except as to a holder to whom notice was defective or not given.
A redemption notice which has been mailed in the manner provided herein shall be conclusively presumed to have been duly given on the date mailed whether or
not such holder received such redemption notice. In addition to any information required by law or the applicable rules of any exchange upon which Series A
Preferred Stock may be listed or admitted to trading, each notice shall state (i) the redemption date; (ii) the redemption price; (iii) the total number of shares of
Series A Preferred Stock to be redeemed; (iv) the place or places where such shares of Series A Preferred Stock are to be
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surrendered for payment, together with the certificates, if any, representing such shares (duly endorsed for transfer) and any other documents the Corporation
requires in connection with such redemption; (v) that the Series A Preferred Stock is being redeemed pursuant to the Delisting Event Redemption Right or the
Change of Control Redemption Right, as applicable, in connection with the occurrence of a Delisting Event or a Change of Control, as applicable, and a brief
description of the transaction or transactions constituting such Delisting Event or Change of Control, as applicable; (vi) that holders of Series A Preferred Stock
will not be able to tender shares of Series A Preferred Stock for conversion in connection with the Delisting Event or Change of Control, as applicable, and each
share of Series A Preferred Stock tendered for conversion that is selected, prior to the Delisting Event Conversion Date or the Change of Control Conversion Date,
as applicable, for redemption will be redeemed on the related redemption date instead of converted on the Delisting Event Conversion Date or the Change of
Control Conversion Date, as applicable; and (vii) that dividends on the shares of Series A Preferred Stock to be redeemed will cease to accrue on such redemption
date.
Section 7.
Additional Provisions Relating to Optional Redemption and Special Optional Redemption by the Corporation.
(a)
If (i) notice of redemption of any shares of Series A Preferred Stock has been given, (ii) the funds necessary for such redemption have been set
apart by the Corporation in trust for the benefit of the holders of any Series A Preferred Stock so called for redemption and (iii) irrevocable instructions have been
given to pay the redemption price of $25.00 per share, plus (subject to Section 7(b) hereof) an amount equal to all dividends accrued and unpaid (whether or not
declared) to, but not including, the applicable redemption date, then from and after such redemption date, dividends shall cease to accrue on such shares of Series A
Preferred Stock, such shares of Series A Preferred Stock shall no longer be outstanding, such shares of Series A Preferred Stock shall not be transferred except with
the consent of the Corporation and all other rights of the holders of such shares will terminate, except the right to receive the redemption price of $25.00 per share,
plus (subject to Section 7(b) hereof) an amount equal to any dividends accrued and unpaid (whether or not declared) payable upon such redemption, without
interest.
(b)
If a redemption date falls after a Series A Record Date and on or prior to the corresponding Series A Payment Date, each holder of shares of
Series A Preferred Stock on the Series A Record Date shall be entitled to the dividend payable on such shares on the corresponding Series A Payment Date,
notwithstanding such redemption of such shares on or prior to the Series A Payment Date, and each holder of shares of Series A Preferred Stock that are redeemed
on such redemption date will be entitled to the dividends, if any, accruing after the end of the Series A Dividend Period to which the Series A Payment Date relates
to, but not including, such redemption date.
(c)
For purposes of clause (a)(ii) above, funds shall be deposited in trust with a bank or trust corporation and such deposit shall be irrevocable except
that any balance of monies so deposited by the Corporation and unclaimed by the holders of Series A Preferred Stock entitled thereto at the expiration of two (2)
years from the applicable redemption dates shall be repaid, together with any interest or other earnings thereon, to the Corporation, and after any such repayment,
the holders of the shares entitled to the funds so repaid to the Corporation shall look only to the Corporation for payment without interest or other earnings.
Section 8.
Conversion Rights.
(a)
Subject to Section 8(j), upon the occurrence of a Delisting Event or a Change of Control, as applicable, each holder of shares of Series A
Preferred Stock shall have the right, unless, prior to the Delisting Event Conversion Date or the Change of Control Conversion Date, as applicable, the Corporation
has provided or provides notice of its election to redeem such shares of Series A Preferred Stock pursuant to the Optional Redemption Right or Special Optional
Redemption Rights, to convert some or all of such shares of Series A Preferred Stock held by such holder (with respect to a Delisting Event, the “Delisting Event
Conversion Right” and, with respect to a Change of Control, the “Change of Control Conversion Right”) on the Delisting Event Conversion Date or the Change of
Control Conversion Date, as applicable, into a number of shares Common Stock per share of Series A Preferred Stock to be converted (the “Common Stock
Conversion Consideration”) equal to the lesser of (A) the quotient of (i) the sum of $25.00 plus an amount equal to all dividends accrued and unpaid (whether or
not declared) on the Series A Preferred Stock to, but not including, the Delisting Event Conversion Date or the Change of Control Conversion
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Date, as applicable, (unless such Delisting Event Conversion Date or the Change of Control Conversion Date, as applicable, is after a Series A Record Date and
prior to the corresponding Series A Payment Date, in which case no additional amount for accrued and unpaid dividends that have been declared and are to be paid
on the Series A Payment Date will be included in such sum), divided by (ii) the Common Stock Price (as defined herein) and (B) 2.301 (as adjusted pursuant to the
immediately succeeding paragraph, the “Share Cap”).
The Share Cap is subject to pro rata adjustments for any stock splits (including those effected pursuant to a Common Stock dividend), subdivisions or
combinations (in each case, a “Stock Split”) with respect to the Common Stock as follows: the adjusted Share Cap as the result of a Stock Split shall be the number
of shares of Common Stock that is equivalent to the product of (i) the Share Cap in effect immediately prior to the Stock Split, multiplied by (ii) a fraction, the
numerator of which is the number of shares of Common Stock outstanding after giving effect to the Stock Split and the denominator of which is the number of
shares of Common Stock outstanding immediately prior to such Stock Split.
In the case of a Delisting Event or a Change of Control, as applicable, pursuant to, or in connection with, which shares of Common Stock shall be
converted into cash, securities or other property or assets (including any combination thereof) (the “Alternative Form Consideration”), a holder of shares of Series
A Preferred Stock shall receive upon conversion of such shares of Series A Preferred Stock (subject to the next-following paragraph) the kind and amount of
Alternative Form Consideration which such holder would have owned or been entitled to receive had such holder held a number of shares of Common Stock equal
to the Common Stock Conversion Consideration immediately prior to the effective time of the Delisting Event or Change of Control, as applicable (the
“Alternative Conversion Consideration” and, together with the Common Stock Conversion Consideration, the “Conversion Consideration”).
In the event that holders of Common Stock have the opportunity to elect the form of consideration to be received in connection with the Delisting Event
or Change of Control, as applicable, the consideration that holders of Series A Preferred Stock shall receive shall be the form of consideration elected by the
holders of a plurality of the shares of Common Stock held by stockholders who participate in the election and shall be subject to any limitations to which all
holders of Common Stock are subject, including, without limitation, pro rata reductions applicable to any portion of the consideration payable in connection with
the Delisting Event or Change of Control, as applicable.
The “Change of Control Conversion Date” with respect to any Change of Control shall be a Business Day fixed by the Board of Directors that is not
fewer than 20 days and not more than 35 days after the date on which the Corporation provides notice of the Change of Control pursuant to Section 8(d). The
“Delisting Event Conversion Date” with respect to any Delisting Event shall be a Business Day fixed by the Board of Directors that is not fewer than 20 days and
not more than 35 days after the date on which the Corporation provides notice of such Delisting Event pursuant to Section 8(d).
The “Common Stock Price” for any Change of Control shall be (i) the amount of cash consideration per share of Common Stock, if the consideration to
be received in such Change of Control by holders of Common Stock is solely cash, or (ii) the average of the closing prices per share of Common Stock on the
NYSE, NYSE MKT or the NASDAQ (or any other national securities exchange on which Common Stock is then listed) for the ten consecutive trading days
immediately preceding, but not including, the effective date of such Change of Control, if the consideration to be received in the Change of Control by holders of
Common Stock is other than solely cash. The “Common Stock Price” for any Delisting Event shall be the average of the closing prices per share of Common Stock
on the NYSE, NYSE MKT or the NASDAQ (or any other national securities exchange on which Common Stock is then listed) for the ten consecutive trading days
immediately preceding, but not including, the effective date of the Delisting Event.
(b)
No fractional shares of Common Stock shall be issued upon the conversion of the Series A Preferred Stock. In lieu of fractional shares, holders
shall be entitled to receive the cash value of the fractional shares based on the Common Stock Price.
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(c)
If a Change of Control Conversion Date or a Delisting Event Conversion Date (either, a “Conversion Date”) falls after a Series A Record Date
and on or prior to the corresponding Series A Payment Date, each holder of shares of Series A Preferred Stock at the close of business on the Series A Record Date
shall be entitled to the dividend payable on such shares on the corresponding Series A Payment Date, notwithstanding the conversion of such shares on or prior to
the Series A Payment Date, and each holder of shares of Series A Preferred Stock that are converted on the Conversion Date will be entitled to the dividends, if
any, accruing after the end of the Series A Dividend Period to which the Series A Payment Date relates to, but not including, the Conversion Date.
(d)
Within 15 days following the occurrence of a Delisting Event or a Change of Control, as applicable, unless the Corporation has provided notice
of its election to redeem the Series A Preferred Stock pursuant to the Delisting Event Redemption Right or the Change of Control Redemption Right, as applicable,
a notice of occurrence of the Delisting Event or the Change of Control, as applicable, describing the resulting Delisting Event Conversion Right or Change of
Control Conversion Right, as applicable, shall be delivered to the holders of record of the outstanding shares of Series A Preferred Stock at their addresses as they
appear on the Corporation’s stock transfer records. No failure to give the notice or any defect thereto or in the mailing thereof shall affect the validity of the
proceedings for the conversion of any share of Series A Preferred Stock except as to the holder to whom notice was defective or not given. Each notice shall state:
(i) the events constituting the Delisting Event or the Change of Control, as applicable; (ii) the date of the Delisting Event or the Change of Control, as applicable;
(iii) the last date on which the holders of Series A Preferred Stock may exercise their Delisting Event Conversion Right or Change of Control Conversion Right, as
applicable; (iv) the method and period for calculating the Common Stock Price; (v) the Delisting Event Conversion Date or the Change of Control Conversion
Date, as applicable; (vi) that if, prior to the applicable Conversion Date, the Corporation provides notice of its election to redeem all or any portion of the Series A
Preferred Stock, the holders of Series A Preferred Stock will not be able to convert such shares of Series A Preferred Stock called for redemption and such shares
of Series A Preferred Stock shall be redeemed on the related redemption date, even if they have already been tendered for conversion pursuant to the Delisting
Event Conversion Right or the Change of Control Conversion Right, as applicable; (vii) if applicable, the type and amount of Alternative Conversion
Consideration entitled to be received per share of Series A Preferred Stock; (viii) the name and address of the paying agent and the conversion agent (the
“Conversion Agent”); and (ix) the procedures that holders of Series A Preferred Stock must follow to exercise the Delisting Event Conversion Right or the Change
of Control Conversion Right, as applicable.
(e)
The Corporation shall issue a press release for publication on the Dow Jones & Company, Inc., Business Wire, PR Newswire or Bloomberg
Business News (or, if such organizations are not in existence at the time of issuance of such press release, another news or press organization as is reasonably
calculated to broadly disseminate the relevant information to the public) containing the information stated in the notice, and post the notice on the Corporation’s
website, in any event prior to the opening of business on the first Business Day following any date on which the Corporation provides notice pursuant to Section
8(d) above to the holders of record of the Series A Preferred Stock.
(f)
In order to exercise the Delisting Event Conversion Right or the Change of Control Conversion Right, as applicable, a holder of record of shares
of Series A Preferred Stock shall be required to deliver, on or before the close of business on the applicable Conversion Date, the certificates, if any, representing
any certificated shares of Series A Preferred Stock to be converted, duly endorsed for transfer, together with a completed written conversion notice and any other
documents the Corporation reasonably requires in connection with the conversion, to the Conversion Agent. Such notice shall state: (i) the relevant Delisting Event
Conversion Date or Change of Control Conversion Date, as applicable; and (ii) the number of shares of Series A Preferred Stock to be converted. Notwithstanding
the foregoing, if such shares of Series A Preferred Stock are held in global form, such notice shall instead comply with applicable procedures of The Depository
Trust Company (“DTC”).
(g)
Holders of the Series A Preferred Stock may withdraw any notice of exercise of a Delisting Event Conversion Right or a Change of Control
Conversion Right, as applicable, (in whole or in part) by a written notice of withdrawal delivered to the Conversion Agent prior to the close of business on the
Business Day prior to the Delisting Event Conversion Date or the Change of Control Conversion Date, as applicable. The notice of withdrawal must state: (i) the
number of withdrawn shares of Series A Preferred Stock; (ii) if certificated shares of Series A
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Preferred Stock have been tendered for conversion and withdrawn, the certificate numbers of the withdrawn certificated shares of Series A Preferred Stock; and
(iii) the number of shares of Series A Preferred Stock, if any, which remain subject to the conversion notice. Notwithstanding the foregoing, if such shares of Series
A Preferred Stock are held in global form, the notice of withdrawal shall instead comply with applicable procedures of DTC.
(h)
Shares of Series A Preferred Stock as to which the Delisting Event Conversion Right or the Change of Control Conversion Right, as applicable,
has been properly exercised and for which the conversion notice has not been properly withdrawn shall be converted into the applicable Conversion Consideration
on the applicable Delisting Event Conversion Date or Change of Control Conversion Date unless, prior thereto, the Corporation provides notice of its election to
redeem such shares of Series A Preferred Stock, whether pursuant to its Optional Redemption Right or Special Optional Redemption Rights.
(i)
The Corporation shall deliver the applicable Conversion Consideration no later than the third Business Day following the Delisting Event
Conversion Date or the Change of Control Conversion Date, as applicable.
(j)
Notwithstanding anything to the contrary in this Section 8, no holder of Series A Preferred Stock will be entitled to exercise a Delisting Event
Conversion Right or a Change of Control Conversion Right or convert any shares of Series A Preferred Stock into shares of Common Stock to the extent that
receipt of shares of Common Stock upon the conversion of such shares of Series A Preferred Stock in accordance with this Section 8 would cause such person or
any other person to violate Section 5.7 of Article V of the Charter.
(k)
In connection with the exercise of any Delisting Event Conversion Right or Change of Control Conversion Right, as applicable, the Corporation
shall comply with all U.S. federal and state securities laws and stock exchange rules in connection with any conversion of shares of Series A Preferred Stock into
Conversion Consideration.
Section 9.
Voting Rights.
(a)
(b)
Holders of the Series A Preferred Stock shall not have any voting rights except as set forth in this Section 9.
Whenever dividends on any outstanding shares of Series A Preferred Stock shall have not been paid for six or more Series A Dividend Periods
(whether or not such dividends have been declared or the Series A Dividend Periods are consecutive) (a “Preferred Dividend Default”), the holders of Series A
Preferred Stock (and all other classes and series of preferred stock of the Corporation ranking on parity with the Series A Preferred Stock with respect to dividend
rights and rights upon the Corporation’s voluntary or involuntary liquidation, dissolution or winding up and upon which like voting rights have been conferred and
are exercisable and with which such holders of Series A Preferred Stock are entitled to vote together as a single class (the “Parity Preferred”), voting together as a
single class) will have the exclusive power to elect two additional directors (the “Preferred Directors”), at each annual meeting of the Corporation’s stockholders
and at any special meeting of the Corporation’s stockholders called for the purpose of electing Preferred Directors (pursuant to Section 9(d) hereof or otherwise),
until all dividends accrued and unpaid on outstanding shares of Series A Preferred Stock for all past Series A Dividend Periods and the then-current Series A
Dividend Period have been fully paid. Unless the number of the Corporation’s directors has previously been increased pursuant to the terms of any other class or
series of Parity Preferred with which such holders of Series A Preferred Stock are entitled to vote together as a single class in the election of Preferred Directors,
the number of the Corporation’s directors shall automatically increase by two at such time as holders of Series A Preferred Stock become entitled to vote in the
election of the Preferred Directors. Unless shares of Parity Preferred remain outstanding and entitled to vote in the election of Preferred Directors, the term of
office of each Preferred Director will terminate, and the number of the Corporation’s directors shall automatically decrease by two, when all accrued and unpaid
dividends for all past Series A Dividend Periods and the then-current Series A Dividend Period have been fully paid. If the right of holders of Series A Preferred
Stock to elect the Preferred Directors terminates after the record date for determining holders of shares of Series A Preferred Stock entitled to vote in any election
of Preferred Directors but before the closing of the polls in such election, holders of shares of
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Series A Preferred Stock outstanding as of the applicable record date shall not be entitled to vote in the election of any Preferred Directors. The right of holders of
Series A Preferred Stock to elect the Preferred Directors shall again vest if and whenever dividends are in arrears for six Series A Dividend Periods, as described
above. In no event shall holders of Series A Preferred Stock be entitled to nominate or elect an individual as a Preferred Director, and no individual shall be
qualified to be nominated for election or to serve as a Preferred Director, if the individual’s service as a Preferred Director would cause the Corporation to fail to
satisfy a requirement relating to director independence of any national securities exchange on which any class or series of Stock is listed or otherwise conflict with
the Corporation’s Charter or Bylaws.
(c)
The Preferred Directors shall be elected by a plurality of the votes cast in the election of such directors, and each Preferred Director will serve
until the next annual meeting of the Corporation’s stockholders and until his or her successor is duly elected and qualifies, or until such director’s term of office
terminates as set forth in Section 9(b). Any director elected by holders of Series A Preferred Stock and any Parity Preferred may be removed, with or without
cause, only by a vote of holders of a majority of the outstanding shares of Series A Preferred Stock and Parity Preferred with which holders of Series A Preferred
Stock are entitled to vote together as a single class in the election of Preferred Directors. At any time that holders of Series A Preferred Stock are entitled to vote in
the election of the Preferred Directors, such holders shall be entitled to vote in the election of a successor to fill any vacancy on the Board of Directors that results
from the removal of a Preferred Director.
(d)
At any time that holders of the Series A Preferred Stock have the right to elect Preferred Directors as described in Section 9(b) hereof but these
directors have not been elected, the Corporation’s secretary must call a special meeting of stockholders for the purpose of electing the Preferred Directors upon the
written request of the holders of record of 10% of the outstanding shares of Series A Preferred Stock and Parity Preferred with which holders of Series A Preferred
Stock are entitled to vote together as a single class with respect to the election of Preferred Directors, unless the request is received more than 45 days and less than
90 days before the date fixed for the next annual meeting of the Corporation’s stockholders at which such vote would otherwise occur, in which case, the Preferred
Directors may be elected at either such annual meeting or at a separate special meeting of the Corporation’s stockholders at the Corporation’s discretion.
(e)
So long as any shares of Series A Preferred Stock are outstanding, the approval of holders of at least two-thirds of the outstanding shares of
Series A Preferred Stock and any equally-affected class or series of Parity Preferred with which holders of Series A Preferred Stock are entitled to vote together as
a single class shall be required to authorize (i) any amendment, alteration, repeal or other change to any provision of the Charter, including these Articles
Supplementary (whether by merger, conversion, consolidation, transfer or conveyance of all or substantially all of the Corporation’s assets or otherwise) that would
materially and adversely affect the rights, preferences, privileges or voting powers of the Series A Preferred Stock or (ii) the creation, issuance or increase in the
authorized number of shares of any class or series of stock ranking senior to the Series A Preferred Stock (or any equity securities convertible into or exchangeable
for any such shares, but not including debt securities convertible into or exchangeable for any such shares prior to the time of conversion) with respect to dividend
rights and rights upon the Corporation’s voluntary or involuntary liquidation, dissolution or winding up.
(f)
The following actions shall not be deemed to materially and adversely affect the rights, preferences, privileges or voting powers of the Series A
Preferred Stock:
(i)any increase or decrease in the number of authorized Shares of any class or series or the classification or reclassification of any unissued Shares,
or the creation or issuance of equity securities, of any class or series ranking, junior or on parity with the Series A Preferred Stock with respect to dividend rights
and rights upon the Corporation’s voluntary or involuntary liquidation, dissolution or winding up, provided that such action does not decrease the number of
authorized shares of Common Stock below the number (after giving effect to all other outstanding shares capital stock) necessary to permit the Series A Preferred
Stock to be converted in full in accordance with the terms hereof; or
(ii)an amendment, alteration, or repeal or other change to any provisions of the Charter, including these Articles Supplementary, as a result of a
merger, conversion, consolidation, transfer or conveyance of all or
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substantially all of the Corporation’s assets or other business combination (an “Event”), (x) if the Series A Preferred Stock (or securities of any successor person or
entity to the Corporation into which the Series A Preferred Stock has been converted) remains outstanding with the terms thereof unchanged in all material respects
or the holders of shares of Series A Preferred Stock receive securities of a successor person or entity with substantially identical rights as those of Series A
Preferred Stock, taking into account that, upon the occurrence of an Event, the Corporation may not be the surviving entity, or (y) if holders of Series A Preferred
Stock shall receive the $25.00 liquidation preference per share of Series A Preferred Stock, plus an amount equal to all accrued and unpaid dividends to, but not
including, the date of such Event (other than any declared dividends having a Series A Record Date before the date of such Event and a Series A Payment Date
after the date of such Event, which shall be paid as provided in Section 3 above), pursuant to the occurrence of any Event.
(g)
Notwithstanding the foregoing, holders of any Parity Preferred shall not be entitled to vote together as a single class with holders of Series A
Preferred Stock on any amendment, alteration, repeal or other change to any provision of the Charter, including these Articles Supplementary, unless such action
affects holders of Series A Preferred Stock and such Parity Preferred equally. On any matter in which the Series A Preferred Stock may vote, each share of Series
A Preferred Stock shall entitle the holder thereof to cast one vote, except that, in class votes, or in determining the percentage of outstanding shares, when voting
together as a single class, with shares of one or more class or series of Parity Preferred, shares of different classes and series shall vote, or such determination shall
be made, in proportion to the liquidation preference of such shares.
(h)
The foregoing voting provisions of this Section 9 shall not apply if, at or prior to the time when the act with respect to which such vote would
otherwise be required shall be effected, all outstanding shares of Series A Preferred Stock shall have been redeemed or called for redemption upon proper notice
and sufficient funds, in cash, shall have been deposited in trust to effect such redemption, in each case, in accordance with the provisions hereof.
(i)
Except as expressly stated herein, the Series A Preferred Stock shall not have any relative, participating, optional or other special voting rights
and powers and the consent of the holders thereof shall not be required for the taking of any corporate action, including, without limitation, any merger, conversion
or consolidation of the Corporation or a sale of all or substantially all of the assets of the Corporation, irrespective of the effect that such merger, conversion or
consolidation or sale may have upon the rights, preferences, privileges or voting power of holders of Series A Preferred Stock.
Section 10.
Information Rights.
During any period in which the Corporation is not subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act and any shares of
Series A Preferred Stock are outstanding, the Corporation will (i) transmit by mail or other permissible means under the Exchange Act to all holders of Series A
Preferred Stock, as their names and addresses appear in the Corporation’s record books and without cost to such holders, copies of the annual reports on Form 10-
K, quarterly reports on Form 10-Q and current reports on Form 8-K that the Corporation would have been required to file with the Securities and Exchange
Commission (the “Commission”), pursuant to Section 13 or Section 15(d) of the Exchange Act if the Corporation were subject thereto (other than any exhibits that
would have been required) within 15 days after the respective dates by which the Corporation would have been required to file these reports with the Commission
if it were subject to Section 13 or 15(d) of the Exchange Act and (ii) within 15 days following written request, supply copies of these reports to any prospective
holder of Series A Preferred Stock.
Section 11.
Conversion.
The Series A Preferred Stock shall not be convertible into or exchangeable for any other property or securities of the Corporation or any other entity,
except in accordance with Section 8 hereof and Article V of the Charter.
Section 12.
Ranking.
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In respect of rights to the payment of dividends and the distribution of assets in the event of any voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the Corporation, the Series A Preferred Stock shall rank (i) senior to Common Stock and to all other equity securities issued by the
Corporation, the terms of which expressly provide that such securities rank junior to the Series A Preferred Stock with respect to dividend rights and rights upon
the Corporation’s voluntary or involuntary liquidation, dissolution or winding-up; (ii) on parity with all equity securities issued by the Corporation, the terms of
which expressly provide that such securities rank on parity with the Series A Preferred Stock with respect to dividend rights and rights upon the Corporation’s
voluntary or involuntary liquidation, dissolution or winding-up; and (iii) junior to all equity securities issued by the Corporation, the terms of which expressly
provide that such securities rank senior to the Series A Preferred Stock with respect to dividend rights and rights upon the Corporation’s voluntary or involuntary
liquidation, dissolution or winding-up. All the Series A Preferred Stock shall rank equally with one another and shall be identical in all respects.
Section 13.
Restrictions on Transfer and Ownership of Stock of the Series A Preferred Stock
The Series A Preferred Stock is subject to the terms and conditions (including any applicable exceptions and exemptions) of Article V of the Charter.
Section 14.
Status of Acquired Shares of Series A Preferred Stock.
All shares of Series A Preferred Stock which shall have been issued and reacquired in any manner by the Corporation shall be returned to the status of
authorized but unissued preferred stock, and may thereafter be classified, reclassified or issued as any series or class of preferred stock.
Section 15.
Record Holders.
The Corporation may deem and treat the record holder of any share of Series A Preferred Stock as the true and lawful owner thereof for all purposes, and
the Corporation shall not be affected by any notice to the contrary. Except as may be otherwise provided by the Board of Directors (and except in connection with
a global certificate held by a securities depositary), holders of Series A Preferred Stock are not entitled to certificates representing the Series A Preferred Stock
held by them.
Section 16.
Sinking Fund.
The Series A Preferred Stock shall not be entitled to the benefits of any retirement or sinking fund.
Section 17.
Exclusion of Other Rights.
The Series A Preferred Stock shall not have any preferences or other rights, voting powers, restrictions, limitations as to dividends or other distributions,
qualifications or terms or conditions of redemption other than expressly set forth in the Charter and these Articles Supplementary.
Section 18.
Headings of Subdivisions.
The headings of the various subdivisions hereof are for convenience of reference only and shall not affect the interpretation of any of the provisions
hereof.
Section 19.
Severability of Provisions.
If any preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications or terms or
conditions of redemption of the Series A Preferred Stock set forth in the Charter and these Articles Supplementary are invalid, unlawful or incapable of being
enforced by reason of any rule of law or public policy, all other preferences, conversion or other rights, voting powers, restrictions, limitations as to distributions,
qualifications or terms or conditions of redemption of the Series A Preferred Stock set forth in
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the Charter (including these Articles Supplementary) which can be given effect without the invalid, unlawful or unenforceable provision thereof shall,
nevertheless, remain in full force and effect and no preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other
distributions, qualifications or terms or conditions of redemption of the Series A Preferred Stock herein set forth shall be deemed dependent upon any other
provision thereof unless so expressed therein.
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Exhibit B
6.875% SERIES B CUMULATIVE REDEEMABLE PERPETUAL PREFERRED STOCK
(Liquidation Preference $25.00 per Share)
Section 1. Number of Shares and Designation.
A series of preferred stock of the Company designated as the “6.875% Series B Cumulative Redeemable Perpetual Preferred Stock” is hereby established,
and the number of shares constituting such series shall be 11,450,000.
Section 2. Definitions.
“Aggregate Share Ownership Limit” shall have the meaning set forth in Article V of the Charter.
“Alternative Conversion Consideration” shall have the meaning set forth in Section 8(a) hereof.
“Alternative Form Consideration” shall have the meaning set forth in Section 8(a) hereof.
“Board of Directors” shall mean the Board of Directors of the Company or any committee authorized by such Board of Directors to perform any of its
responsibilities with respect to the Series B Preferred Stock.
“Business Day” shall mean any day other than a Saturday, a Sunday or a day on which state or federally chartered banking institutions in New York, New
York are not required to be open.
“Capital Gains Amount” shall have the meaning set forth in Section 3(g) hereof.
“Change of Control” shall have the meaning set forth in Section 6(b) hereof.
“Change of Control Conversion Date” shall have the meaning set forth in Section 8(a) hereof.
“Change of Control Conversion Right” shall have the meaning set forth in Section 8(a) hereof.
“Change of Control Redemption Right” shall have the meaning set forth in Section 6(b) hereof.
“Charter” shall mean the charter of the Company.
“Code” shall mean the Internal Revenue Code of 1986, as amended.
“Commission” shall have the meaning set forth in Section 10 hereof.
“Common Stock” shall mean the Company’s common stock, par value $0.01 per share.
“Common Stock Conversion Consideration” shall have the meaning set forth in Section 8(a) hereof.
“Common Stock Price” shall have the meaning set forth in Section 8(a) hereof.
“Company” shall have the meaning set forth in Article I of the Charter.
“Conversion Agent” shall have the meaning set forth in Section 8(d) hereof.
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“Conversion Consideration” shall have the meaning set forth in Section 8(a) hereof.
“Conversion Date” shall have the meaning set forth in Section 8(c) hereof.
“Delisting Event” shall have the meaning set forth in Section 6(a) hereof.
“Delisting Event Conversion Date” shall have the meaning set forth in Section 8(a) hereof.
“Delisting Event Conversion Right” shall have the meaning set forth in Section 8(a) hereof.
“Delisting Event Redemption Right” shall have the meaning set forth in Section 6(a) hereof.
“DTC” shall have the meaning set forth in Section 8(f) hereof.
“Event” shall have the meaning set forth in Section 9(f)(ii) hereof.
“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.
“NASDAQ” shall mean the Nasdaq Stock Market or any successor that is a national securities exchange registered under Section 6 of the Exchange Act.
“NYSE” shall mean the New York Stock Exchange or any successor that is a national securities exchange registered under Section 6 of the Exchange Act.
“NYSE American” shall mean the NYSE American LLC or any successor that is a national securities exchange registered under Section 6 of the
Exchange Act.
“Optional Redemption Right” shall have the meaning set forth in Section 5(b) hereof.
“Original Issue Date” shall mean the first date on which shares of Series B Preferred Stock are issued and sold.
“Parity Preferred” shall have the meaning set forth in Section 9(b) hereof.
“Preferred Directors” shall have the meaning set forth in Section 9(b) hereof.
“Preferred Dividend Default” shall have the meaning set forth in Section 9(b) hereof.
“REIT” shall have the meaning set forth in Article IV of the Charter.
“Series A Preferred Stock” shall mean the series of preferred stock, par value $0.01 per share, of the Company designated as 7.25% Series A Cumulative
Redeemable Perpetual Preferred Stock.
“Series B Dividend Period” shall mean the respective periods commencing on and including January 1, April 1, July 1 and October 1 of each year and
ending on and including the day preceding the first day of the next succeeding Series B Dividend Period (other than the initial Series B Dividend Period, which
shall commence on the Original Issue Date and end on and include December 31, 2019, and other than the Series B Dividend Period during which any shares of
Series B Preferred Stock shall be redeemed pursuant to Section 5 or Section 6 (and that is not a Series B Dividend Period of the type contemplated by Section
7(b)), which, solely with respect to the shares of Series B Preferred Stock being redeemed, shall end on and include the day immediately preceding the redemption
date with respect to such shares of Series B Preferred Stock being redeemed).
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“Series B Payment Date” shall mean, with respect to each Series B Dividend Period, the fifteenth (15 ) day of the month following the month in which
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the Series B Dividend Period has ended (January, April, July and October of each year), commencing on January 15, 2020.
“Series B Preferred Stock” shall mean the series of preferred stock, par value $0.01 per share, of the Company designated as 6.875% Series B Cumulative
Redeemable Perpetual Preferred Stock.
“Series B Record Date” shall mean the close of business on the date set by the Board of Directors as the record date for the payment of dividends that is
not more than 30 nor fewer than 10 days prior to the applicable Series B Payment Date.
“Shares” shall have the meaning set forth in Article IV of the Charter.
“Share Cap” shall have the meaning set forth in Section 8(a) hereof.
“Special Optional Redemption Rights” shall have the meaning set forth in Section 6(b) hereof.
“Stock Split” shall have the meaning set forth in Section 8(a) hereof.
“Total Distributions” shall have the meaning set forth in Section 3(g) hereof.
Section 3. Dividends and other Distributions.
a.
Subject to the preferential rights of the holders of any class or series of equity securities of the Company ranking senior to the Series B Preferred
Stock with respect to dividend rights, the holders of the then outstanding Series B Preferred Stock shall be entitled to receive, when, as and if authorized by the
Board of Directors and declared by the Company, out of funds legally available for the payment of dividends, cumulative cash dividends in the amount of
$1.71875 per share each year, which is equivalent to the rate of 6.875% of the $25.00 liquidation preference per share per annum. Such dividends shall accrue and
be cumulative from and including the Original Issue Date and shall be payable quarterly in arrears on each Series B Payment Date, commencing January 15, 2020,
to all holders of record on the applicable Series B Record Date; provided, however, that if any Series B Payment Date is not a Business Day, the dividend which
would otherwise have been payable on such Series B Payment Date may be paid or set apart for payment on the next succeeding Business Day with the same force
and effect as if paid or set apart on such Series B Payment Date, and no interest or additional dividends or other sums shall accrue on the amount so payable from
such Series B Payment Date to such next succeeding Business Day. Holders of record of all shares of Series B Preferred Stock outstanding on the applicable Series
B Record Date will be entitled to receive the full dividend paid on the applicable Series B Payment Date even if such shares were not issued and outstanding for
the full applicable Series B Dividend Period.
The initial dividend payable on the Series B Preferred Stock will cover the period from and including the Original Issue Date through December 31, 2019
and will be paid on January 15, 2020. The amount of any dividend payable on the Series B Preferred Stock for each full Series B Dividend Period shall be
computed by dividing $1.71875 by four (4), regardless of the actual number of days in such full Series B Dividend Period. The amount of any dividend payable on
the Series B Preferred Stock for any partial Series B Dividend Period and for the initial Series B Dividend Period shall be prorated and computed on the basis of a
360-day year consisting of twelve 30-day months. Dividends will be payable to holders of record as they appear in the stockholder records of the Company at the
close of business on the applicable Series B Record Date. Notwithstanding any provision to the contrary contained herein, the dividend payable on each share of
Series B Preferred Stock outstanding on a Series B Record Date shall equal the dividend payable on each other share of Series B Preferred Stock that is outstanding
on such Series B Record Date, and no holder of any share of Series B Preferred Stock shall be entitled to receive any dividends paid or payable on the Series B
Preferred Stock with a Series B Record Date before the date such share of Series B Preferred Stock is issued.
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b.
No dividends on the Series B Preferred Stock shall be authorized by the Board of Directors or paid or declared and set apart for payment by the
Company at such time as the terms and conditions of any agreement of the Company, including any agreement relating to its indebtedness, prohibit such
authorization, payment or setting apart for payment or provide that such authorization, payment or setting apart for payment would constitute a breach thereof, or a
default thereunder, or if such authorization, payment or setting apart for payment shall be restricted or prohibited by law.
c.
Notwithstanding anything contained herein to the contrary, dividends on the Series B Preferred Stock shall accrue with respect to any Series B
Dividend Periods whether or not dividends are authorized by the Board of Directors and declared by the Company. No interest or additional dividend shall be
payable in respect of any accrued and unpaid dividend on the Series B Preferred Stock.
d.
Except as provided in Section 3(e) below, no dividends shall be declared and paid or set apart for payment and no other distribution of cash or
other property may be declared and made, directly or indirectly, on or with respect to shares of Common Stock or shares of any other class or series of equity
securities of the Company ranking, with respect to dividend rights and rights upon the Company’s voluntary or involuntary liquidation, dissolution or winding-up,
on parity with or junior to the Series B Preferred Stock (other than a dividend paid in shares of Common Stock or in shares of any other class or series of equity
securities ranking junior to the Series B Preferred Stock with respect to dividend rights and rights upon the Company’s voluntary or involuntary liquidation,
dissolution or winding-up), nor shall any shares of Common Stock or shares of any other class or series of equity securities of the Company ranking, with respect
to dividend rights and rights upon the Company’s voluntary or involuntary liquidation, dissolution or winding-up, on parity with or junior to the Series B Preferred
Stock be redeemed (or any monies be paid to or made available for a sinking fund for the redemption of any such shares), purchased or otherwise acquired, (except
(i) by conversion into or exchange for shares of Common Stock or shares of any other class or series of equity securities of the Company ranking junior to the
Series B Preferred Stock with respect to dividend rights and rights upon the Company’s voluntary or involuntary liquidation, dissolution or winding-up, (ii) for the
acquisition of shares made pursuant to the provisions of Section 5.7 of Article V of the Charter and (iii) for the purchase or acquisition of equity securities of the
Company ranking on parity with the Series B Preferred Stock with respect to dividend rights and rights upon the Company’s voluntary or involuntary liquidation,
dissolution or winding-up, pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding Series B Preferred Stock and any other
shares of any other class or series of equity securities ranking on parity with the Series B Preferred Stock with respect to dividend rights and rights upon the
Company’s voluntary or involuntary liquidation, dissolution or winding-up), unless full cumulative dividends on the Series B Preferred Stock for all past Series B
Dividend Periods shall have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof is set apart for such
payment.
e.
When dividends are not paid in full (or declared and a sum sufficient for such full payment is not so set apart) upon the Series B Preferred Stock
and any other class or series of equity securities ranking, with respect to dividend rights, on parity with the Series B Preferred Stock, all dividends (other than any
acquisition of shares pursuant to the provisions of Section 5.7 of Article V of the Charter or a purchase or exchange offer made on the same terms to holders of all
outstanding shares of Series B Preferred Stock and any such other class or series of equity securities ranking on parity with the Series B Preferred Stock with
respect to dividend rights or rights upon the Company’s voluntary or involuntary liquidation, dissolution or winding-up), declared upon the Series B Preferred
Stock and any other class or series of equity securities ranking, with respect to dividend rights, on parity with the Series B Preferred Stock shall be allocated pro
rata so that the amount declared per share of Series B Preferred Stock and such other equally ranked classes or series of equity securities shall in all cases bear to
each other the same ratio that accrued dividends per share on the Series B Preferred Stock and such other equally ranked class or series of equity securities (which
shall not include any accrual in respect of unpaid dividends on such other classes or series of equity securities for prior Series B Dividend Periods if such other
class or series of equity securities does not have a cumulative dividend) bear to each other. No interest, or sum of money in lieu of interest, shall be payable in
respect of any dividend payment or payments on the Series B Preferred Stock which may be in arrears.
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f.
Holders of the Series B Preferred Stock shall not be entitled to any dividend, whether payable in cash, property or stock, in excess of full
cumulative dividends on the Series B Preferred Stock as provided herein. Any dividend payment made on the Series B Preferred Stock shall first be credited
against the earliest accrued and unpaid dividend.
g.
If, for any taxable year, the Company elects to designate as “capital gain dividends” (as defined in Section 857 of the Code or any successor
revenue code or section) any portion (the “Capital Gains Amount”) of the total distributions not in excess of the Company’s earnings and profits (as determined for
United States federal income tax purposes) paid or made available for such taxable year to holders of all classes and series of Shares (the “Total Distributions”),
then the portion of the Capital Gains Amount that shall be allocable to holders of Series B Preferred Stock shall be in the same proportion that the Total
Distributions paid or made available to the holders of Series B Preferred Stock for such taxable year bears to the Total Distributions for such taxable year made
with respect to all classes or series of Shares outstanding.
Section 4. Liquidation Preference.
Upon any voluntary or involuntary liquidation, dissolution or winding-up of the affairs of the Company, before any distribution or payment shall be made
to holders of Common Stock or any other class or series of equity securities of the Company ranking, with respect to rights upon the Company’s voluntary or
involuntary liquidation, dissolution or winding-up, junior to the Series B Preferred Stock, the holders of shares of Series B Preferred Stock then outstanding shall
be entitled to be paid out of the assets of the Company legally available for distribution to its stockholders a liquidation preference of $25.00 per share, plus an
amount equal to any accrued and unpaid dividends to, but not including, the date of payment (whether or not declared). If, upon any such voluntary or involuntary
liquidation, dissolution or winding-up, the available assets of the Company are insufficient to pay the amount of the distributions payable upon liquidation,
dissolution or winding-up of the affairs of the Company, on all outstanding shares of Series B Preferred Stock and the corresponding amounts payable on all shares
of other classes or series of securities of the Company ranking, with respect to rights upon the Company’s voluntary or involuntary liquidation, dissolution or
winding-up, on parity with the Series B Preferred Stock, the holders of Series B Preferred Stock and each such other class or series of securities ranking, with
respect to rights upon the Company’s voluntary or involuntary liquidation, dissolution or winding-up, on parity with the Series B Preferred Stock shall share
ratably in any such distribution of assets in proportion to the full liquidating distributions to which they would otherwise be respectively entitled. Written notice of
any such voluntary or involuntary liquidation, dissolution or winding up, stating the payment date or dates when, and the place or places where, the amounts
distributable in such circumstances shall be payable, shall be given by first-class mail, postage pre-paid, at least 20 days prior to the payment date stated therein, to
each record holder of Series B Preferred Stock at the respective addresses of such holders as the same shall appear on the stock transfer records of the Company.
After the holders of Series B Preferred Stock have received the full amount of the liquidating distributions to which they are entitled, they will have no right or
claim to any of the remaining assets of the Company. The consolidation, conversion or merger of the Company with or into any other person, corporation, trust or
entity, or the sale, lease, transfer or conveyance of all or substantially all of the property or business of the Company (whether in connection with a Change of
Control or otherwise), shall not be deemed to constitute a liquidation, dissolution or winding-up of the affairs of the Company.
In determining whether any distribution (other than upon voluntary or involuntary dissolution) by dividend, redemption or other acquisition of Shares or
otherwise is permitted under the Maryland General Corporation Law, amounts that would be needed, if the Company were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon dissolution of the holders of Series B Preferred Stock will not be added to the Company’s total liabilities.
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Section 5. Optional Redemption.
(a) The Series B Preferred Stock shall not be redeemable prior to November 26, 2024, except as provided in Section 5.7 of Article V of the Charter or
Section 5(c) or Section 6 hereof.
(b) On and after November 26, 2024, the Company, at its option, upon not fewer than 30 nor more than 60 days’ written notice as provided in Section
5(e) hereof, may redeem the Series B Preferred Stock, in whole or in part, at any time or from time to time, at a redemption price of $25.00 per share, plus (subject
to Section 7(b) hereof) an amount equal to all dividends accrued and unpaid (whether or not declared) thereon to, but not including, the date fixed for redemption,
without interest (the “Optional Redemption Right”). If less than all of the outstanding shares of Series B Preferred Stock are to be redeemed, the shares of Series B
Preferred Stock to be redeemed shall be redeemed pro rata (as nearly as may be practicable without creating fractional shares) or by lot. If such redemption is to be
by lot, and if, as a result of such redemption, any holder of Series B Preferred Stock would own shares of Series B Preferred Stock in excess of the Aggregate
Share Ownership Limit or in violation of any of the other restrictions on ownership and transfer of Shares set forth in Section 5.7 of Article V of the Charter, then,
except as otherwise provided in the Charter, the Company will redeem the requisite number of shares of Series B Preferred Stock of such holder such that no
holder will violate the Aggregate Share Ownership Limit or any other restrictions on ownership and transfer of Shares set forth in Section 5.7 of Article V of the
Charter subsequent to such redemption.
(c) The Company may redeem all or a part of the Series B Preferred Stock in accordance with the terms and conditions set forth in this Section 5 of
these Articles Supplementary at any time and from time to time, whether before or after November 26, 2024, if the Board of Directors determines that such
redemption is reasonably necessary for the Company to preserve the status of the Company as a qualified REIT. If the Company calls for redemption any Series B
Preferred Stock pursuant to and in accordance with this Section 5(c), then the redemption price for such shares will be an amount in cash equal to $25.00 per share,
plus (subject to Section 7(b) hereof) all dividends accrued and unpaid (whether or not declared) thereon to and including the date fixed for redemption, without
interest.
(d) Unless full cumulative dividends on all shares of Series B Preferred Stock shall have been or contemporaneously are declared and paid or declared
and a sum sufficient for the payment thereof in cash set apart for payment for all past Series B Dividend Periods, no shares of Series B Preferred Stock shall be
redeemed pursuant to this Section 5 unless all outstanding shares of Series B Preferred Stock are simultaneously redeemed and the Company shall not purchase or
otherwise acquire directly or indirectly any Series B Preferred Stock (except by exchange for equity securities of the Company ranking junior to the Series B
Preferred Stock with respect to dividend rights and rights upon the Company’s voluntary or involuntary liquidation, dissolution or winding-up); provided, however,
that the foregoing shall not prevent the purchase of the Series B Preferred Stock or any other class or series of equity securities of the Company by the Company in
accordance with the terms of Section 5(c) hereof or Section 5.7 of Article V of the Charter or the purchase or acquisition of the Series B Preferred Stock pursuant
to a purchase or exchange offer made on the same terms to holders of all outstanding Series B Preferred Stock and the holders of all outstanding shares of any other
class or series of preferred stock of the Company ranking on a party with the Series B Preferred Stock with respect to dividend rights and rights upon the
Company’s voluntary or involuntary liquidation, dissolution or winding up.
(e) Notice of redemption pursuant to this Section 5 shall be mailed by the Company, postage prepaid, as of a date set by the Company not fewer than 30
nor more than 60 days prior to such redemption date, addressed to the respective holders of record of such shares of Series B Preferred Stock to be redeemed at
their respective addresses as they appear on the stock transfer records of the Company. Failure to give such notice or any defect thereto or in the mailing thereof
shall not affect the sufficiency of notice or validity of the proceedings for such redemption of any shares of Series B Preferred Stock except as to shares held by a
holder to whom notice was defective or not given. A redemption notice which has been mailed in the manner provided herein shall be conclusively presumed to
have been duly given on the date mailed whether or not such holder received the redemption notice. In addition to any information required by law or the
applicable rules of any exchange upon which Series B Preferred Stock may be listed or admitted to trading, each notice shall state (i) such redemption date;
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(ii) the redemption price; (iii) the total number of shares of Series B Preferred Stock to be redeemed (and, if less than all the shares held by any holder are to be
redeemed, the number of shares to be redeemed from such holder); (iv) the place or places where such shares of Series B Preferred Stock are to be surrendered for
payment, together with the certificates, if any, representing such shares (duly endorsed for transfer) and any other documents the Company requires in connection
with such redemption; and (v) that dividends on the Series B Preferred Stock to be redeemed shall cease to accrue on such redemption rate.
Section 6. Special Optional Redemption by the Company.
(a) During any period of time (whether before or after November 26, 2024) that both (i) the Series B Preferred Stock is not listed on NASDAQ, the
NYSE or the NYSE American and (ii) the Company is not subject to the reporting requirements of the Exchange Act, but any shares of Series B Preferred Stock
are outstanding (the occurrence of clauses (i) and (ii) is referred to as a “Delisting Event”), the Company will have the option, upon not fewer than 30 nor more
than 60 days’ written notice as provided in Section 6(d) hereof, to redeem the outstanding shares of Series B Preferred Stock, in whole but not in part, within 90
days after the occurrence of the Delisting Event, for a redemption price of $25.00 per share, plus (subject to Section 7(b) hereof) an amount equal to all dividends
accrued and unpaid (whether or not declared), if any, to, but not including, the redemption date (a “Delisting Event Redemption Right”).
(b) In addition, upon the occurrence of a Change of Control, the Company will have the option, upon not fewer than 30 nor more than 60 days’ written
notice as provided in Section 6(d) hereof, to redeem shares of Series B Preferred Stock, in whole but not in part, within 120 days after the first date on which such
Change of Control occurred, for cash at $25.00 per share plus (subject to Section 7(b) hereof) an amount equal to dividends accrued and unpaid (whether or not
declared), if any, on the Series B Preferred Stock to, but not including, the redemption date (“Change of Control Redemption Right” and, together with the
Delisting Event Redemption Right, the “Special Optional Redemption Rights”).
A “Change of Control” occurs when, after the Original Issue Date, the following have occurred and are continuing:
(i) the acquisition by any person, including any syndicate or group deemed to be a “person” under Section 13(d)(3) of the Exchange Act of
beneficial ownership, directly or indirectly, through a purchase, merger, conversion or other acquisition transaction or series of purchases, mergers, conversions or
other acquisition transactions of shares of stock of the Company entitling that person to exercise more than 50% of the total voting power of all outstanding shares
of stock of the Company entitled to vote generally in the election of directors (except that such person will be deemed to have beneficial ownership of all securities
that such person has the right to acquire, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition); and
the Company or the acquiring or surviving entity, has a class of common equity securities listed on NASDAQ, the NYSE or the NYSE American.
(ii) following the closing of any transaction referred to in (i) above, neither the Company nor the acquiring or surviving entity, or a parent of
(c) Notwithstanding the foregoing, the Company shall not have the right to redeem shares of Series B Preferred Stock upon any Delisting Event
occurring in connection with a transaction set forth in clause (i) of the definition of Change of Control unless such Delisting Event also constitutes a Change of
Control.
(d) Notice of redemption pursuant to this Section 6 shall be mailed by the Company, postage prepaid, as of a date set by the Company not fewer than 30
nor more than 60 days prior to such redemption date, addressed to the holders of record of the Series B Preferred Stock at their respective addresses as they appear
on the stock transfer records of the Company. Failure to give such notice or any defect thereto or in the mailing thereof shall not affect the sufficiency of notice or
validity of the proceedings for such redemption of any shares of Series B Preferred Stock except as to a holder to whom notice was defective or not given. A
redemption notice which has been mailed in the manner provided herein shall be conclusively presumed to have been duly given on the date mailed whether or not
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such holder received such redemption notice. In addition to any information required by law or the applicable rules of any exchange upon which Series B Preferred
Stock may be listed or admitted to trading, each notice shall state (i) the redemption date; (ii) the redemption price; (iii) the total number of shares of Series B
Preferred Stock to be redeemed; (iv) the place or places where such shares of Series B Preferred Stock are to be surrendered for payment, together with the
certificates, if any, representing such shares (duly endorsed for transfer) and any other documents the Company requires in connection with such redemption; (v)
that the Series B Preferred Stock is being redeemed pursuant to the Delisting Event Redemption Right or the Change of Control Redemption Right, as applicable,
in connection with the occurrence of a Delisting Event or a Change of Control, as applicable, and a brief description of the transaction or transactions constituting
such Delisting Event or Change of Control, as applicable; (vi) that holders of Series B Preferred Stock will not be able to tender shares of Series B Preferred Stock
for conversion in connection with the Delisting Event or Change of Control, as applicable, and each share of Series B Preferred Stock tendered for conversion that
is selected, prior to the Delisting Event Conversion Date or the Change of Control Conversion Date, as applicable, for redemption will be redeemed on the related
redemption date instead of converted on the Delisting Event Conversion Date or the Change of Control Conversion Date, as applicable; and (vii) that dividends on
the shares of Series B Preferred Stock to be redeemed will cease to accrue on such redemption date.
Section 7. Additional Provisions Relating to Optional Redemption and Special Optional Redemption by the Company.
(a) If (i) notice of redemption of any shares of Series B Preferred Stock has been given, (ii) the funds necessary for such redemption have been set apart
by the Company in trust for the benefit of the holders of any Series B Preferred Stock so called for redemption and (iii) irrevocable instructions have been given to
pay the redemption price of $25.00 per share, plus (subject to Section 7(b) hereof) an amount equal to all dividends accrued and unpaid (whether or not declared)
to, but not including, the applicable redemption date, then from and after such redemption date, dividends shall cease to accrue on such shares of Series B Preferred
Stock, such shares of Series B Preferred Stock shall no longer be outstanding, such shares of Series B Preferred Stock shall not be transferred except with the
consent of the Company and all other rights of the holders of such shares will terminate, except the right to receive the redemption price of $25.00 per share, plus
(subject to Section 7(b) hereof) an amount equal to any dividends accrued and unpaid (whether or not declared) payable upon such redemption, without interest.
(b) If a redemption date falls after a Series B Record Date and on or prior to the corresponding Series B Payment Date, each holder of shares of Series B
Preferred Stock on the Series B Record Date shall be entitled to the dividend payable on such shares on the corresponding Series B Payment Date, notwithstanding
such redemption of such shares on or prior to the Series B Payment Date, and each holder of shares of Series B Preferred Stock that are redeemed on such
redemption date will be entitled to the dividends, if any, accruing after the end of the Series B Dividend Period to which the Series B Payment Date relates to, but
not including, such redemption date.
(c) For purposes of clause (a)(ii) above, funds shall be deposited in trust with a bank or trust corporation and such deposit shall be irrevocable except
that any balance of monies so deposited by the Company and unclaimed by the holders of Series B Preferred Stock entitled thereto at the expiration of two years
from the applicable redemption dates shall be repaid, together with any interest or other earnings thereon, to the Company, and after any such repayment, the
holders of the shares entitled to the funds so repaid to the Company shall look only to the Company for payment without interest or other earnings.
Section 8. Conversion Rights.
(a) Subject to Section 8(j), upon the occurrence of a Delisting Event or a Change of Control, as applicable, each holder of shares of Series B Preferred
Stock shall have the right, unless, prior to the Delisting Event Conversion Date or the Change of Control Conversion Date, as applicable, the Company has
provided or provides notice of its election to redeem such shares of Series B Preferred Stock pursuant to the Optional Redemption Right or Special Optional
Redemption Rights, to convert some or all of such shares of Series B Preferred Stock held by such holder (with respect to a Delisting Event, the “Delisting Event
Conversion Right” and, with respect to a Change of Control, the “Change of Control Conversion Right”) on the Delisting Event Conversion Date or the Change of
Control Conversion Date, as applicable, into a number of shares Common Stock per share of Series B Preferred
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Stock to be converted (the “Common Stock Conversion Consideration”) equal to the lesser of (A) the quotient of (i) the sum of $25.00 plus an amount equal to all
dividends accrued and unpaid (whether or not declared) on the Series B Preferred Stock to, but not including, the Delisting Event Conversion Date or the Change
of Control Conversion Date, as applicable, (unless such Delisting Event Conversion Date or the Change of Control Conversion Date, as applicable, is after a Series
B Record Date and prior to the corresponding Series B Payment Date, in which case no additional amount for accrued and unpaid dividends that have been
declared and are to be paid on the Series B Payment Date will be included in such sum), divided by (ii) the Common Stock Price and (B) 2.5126 (as adjusted
pursuant to the immediately succeeding paragraph, the “Share Cap”).
The Share Cap is subject to pro rata adjustments for any stock splits (including those effected pursuant to a Common Stock dividend), subdivisions or
combinations (in each case, a “Stock Split”) with respect to the Common Stock as follows: the adjusted Share Cap as the result of a Stock Split shall be the number
of shares of Common Stock that is equivalent to the product of (i) the Share Cap in effect immediately prior to the Stock Split, multiplied by (ii) a fraction, the
numerator of which is the number of shares of Common Stock outstanding after giving effect to the Stock Split and the denominator of which is the number of
shares of Common Stock outstanding immediately prior to such Stock Split.
In the case of a Delisting Event or a Change of Control, as applicable, pursuant to, or in connection with, which shares of Common Stock shall be
converted into cash, securities or other property or assets (including any combination thereof) (the “Alternative Form Consideration”), a holder of shares of Series
B Preferred Stock shall receive upon conversion of such shares of Series B Preferred Stock (subject to the next-following paragraph) the kind and amount of
Alternative Form Consideration which such holder would have owned or been entitled to receive had such holder held a number of shares of Common Stock equal
to the Common Stock Conversion Consideration immediately prior to the effective time of the Delisting Event or Change of Control, as applicable (the
“Alternative Conversion Consideration” and, together with the Common Stock Conversion Consideration, the “Conversion Consideration”).
In the event that holders of Common Stock have the opportunity to elect the form of consideration to be received in connection with the Delisting Event
or Change of Control, as applicable, the consideration that holders of Series B Preferred Stock shall receive shall be the form of consideration elected by the
holders of a plurality of the shares of Common Stock held by stockholders who participate in the election and shall be subject to any limitations to which all
holders of Common Stock are subject, including, without limitation, pro rata reductions applicable to any portion of the consideration payable in connection with
the Delisting Event or Change of Control, as applicable.
The “Change of Control Conversion Date” with respect to any Change of Control shall be a Business Day fixed by the Board of Directors that is not
fewer than 20 days and not more than 35 days after the date on which the Company provides notice of the Change of Control pursuant to Section 8(d). The
“Delisting Event Conversion Date” with respect to any Delisting Event shall be a Business Day fixed by the Board of Directors that is not fewer than 20 days and
not more than 35 days after the date on which the Company provides notice of such Delisting Event pursuant to Section 8(d).
The “Common Stock Price” for any Change of Control shall be (i) the amount of cash consideration per share of Common Stock, if the consideration to
be received in such Change of Control by holders of Common Stock is solely cash, or (ii) the average of the closing prices per share of Common Stock on
NASDAQ, the NYSE or the NYSE American (or any other national securities exchange on which Common Stock is then listed) for the ten consecutive trading
days immediately preceding, but not including, the effective date of such Change of Control, if the consideration to be received in the Change of Control by
holders of Common Stock is other than solely cash. The “Common Stock Price” for any Delisting Event shall be the average of the closing prices per share of
Common Stock on NASDAQ, the NYSE or the NYSE American (or any other national securities exchange on which Common Stock is then listed) for the ten
consecutive trading days immediately preceding, but not including, the effective date of the Delisting Event.
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(b) No fractional shares of Common Stock shall be issued upon the conversion of the Series B Preferred Stock. In lieu of fractional shares, holders shall
be entitled to receive the cash value of the fractional shares based on the Common Stock Price.
(c) If a Change of Control Conversion Date or a Delisting Event Conversion Date (either, a “Conversion Date”) falls after a Series B Record Date and
on or prior to the corresponding Series B Payment Date, each holder of shares of Series B Preferred Stock at the close of business on the Series B Record Date
shall be entitled to the dividend payable on such shares on the corresponding Series B Payment Date, notwithstanding the conversion of such shares on or prior to
the Series B Payment Date, and each holder of shares of Series B Preferred Stock that are converted on the Conversion Date will be entitled to the dividends, if
any, accruing after the end of the Series B Dividend Period to which the Series B Payment Date relates to, but not including, the Conversion Date.
(d) Within 15 days following the occurrence of a Delisting Event or a Change of Control, as applicable, unless the Company has provided notice of its
election to redeem the Series B Preferred Stock pursuant to the Delisting Event Redemption Right or the Change of Control Redemption Right, as applicable, a
notice of occurrence of the Delisting Event or the Change of Control, as applicable, describing the resulting Delisting Event Conversion Right or Change of
Control Conversion Right, as applicable, shall be delivered to the holders of record of the outstanding shares of Series B Preferred Stock at their addresses as they
appear on the Company’s stock transfer records. No failure to give the notice or any defect thereto or in the mailing thereof shall affect the validity of the
proceedings for the conversion of any share of Series B Preferred Stock except as to the holder to whom notice was defective or not given. Each notice shall state:
(i) the events constituting the Delisting Event or the Change of Control, as applicable; (ii) the date of the Delisting Event or the Change of Control, as applicable;
(iii) the last date on which the holders of Series B Preferred Stock may exercise their Delisting Event Conversion Right or Change of Control Conversion Right, as
applicable; (iv) the method and period for calculating the Common Stock Price; (v) the Delisting Event Conversion Date or the Change of Control Conversion
Date, as applicable; (vi) that if, prior to the applicable Conversion Date, the Company provides notice of its election to redeem all or any portion of the Series B
Preferred Stock, the holders of Series B Preferred Stock will not be able to convert such shares of Series B Preferred Stock called for redemption and such shares
of Series B Preferred Stock shall be redeemed on the related redemption date, even if they have already been tendered for conversion pursuant to the Delisting
Event Conversion Right or the Change of Control Conversion Right, as applicable; (vii) if applicable, the type and amount of Alternative Conversion
Consideration entitled to be received per share of Series B Preferred Stock; (viii) the name and address of the paying agent and the conversion agent (the
“Conversion Agent”); and (ix) the procedures that holders of Series B Preferred Stock must follow to exercise the Delisting Event Conversion Right or the Change
of Control Conversion Right, as applicable.
(e) The Company shall issue a press release for publication on the Dow Jones & Company, Inc., Business Wire, PR Newswire or Bloomberg Business
News (or, if such organizations are not in existence at the time of issuance of such press release, another news or press organization as is reasonably calculated to
broadly disseminate the relevant information to the public) containing the information stated in the notice, and post the notice on the Company’s website, in any
event prior to the opening of business on the first Business Day following any date on which the Company provides notice pursuant to Section 8(d) above to the
holders of record of the Series B Preferred Stock.
(f) In order to exercise the Delisting Event Conversion Right or the Change of Control Conversion Right, as applicable, a holder of record of shares of
Series B Preferred Stock shall be required to deliver, on or before the close of business on the applicable Conversion Date, the certificates, if any, representing any
certificated shares of Series B Preferred Stock to be converted, duly endorsed for transfer, together with a completed written conversion notice and any other
documents the Company reasonably requires in connection with the conversion, to the Conversion Agent. Such notice shall state: (i) the relevant Delisting Event
Conversion Date or Change of Control Conversion Date, as applicable; and (ii) the number of shares of Series B Preferred Stock to be converted. Notwithstanding
the foregoing, if such shares of Series B Preferred Stock are held in global form, such notice shall instead comply with applicable procedures of The Depository
Trust Company (“DTC”).
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(g) Holders of the Series B Preferred Stock may withdraw any notice of exercise of a Delisting Event Conversion Right or a Change of Control
Conversion Right, as applicable, (in whole or in part) by a written notice of withdrawal delivered to the Conversion Agent prior to the close of business on the
Business Day prior to the Delisting Event Conversion Date or the Change of Control Conversion Date, as applicable. The notice of withdrawal must state: (i) the
number of withdrawn shares of Series B Preferred Stock; (ii) if certificated shares of Series B Preferred Stock have been tendered for conversion and withdrawn,
the certificate numbers of the withdrawn certificated shares of Series B Preferred Stock; and (iii) the number of shares of Series B Preferred Stock, if any, which
remain subject to the conversion notice. Notwithstanding the foregoing, if such shares of Series B Preferred Stock are held in global form, the notice of withdrawal
shall instead comply with applicable procedures of DTC.
(h) Shares of Series B Preferred Stock as to which the Delisting Event Conversion Right or the Change of Control Conversion Right, as applicable, has
been properly exercised and for which the conversion notice has not been properly withdrawn shall be converted into the applicable Conversion Consideration on
the applicable Delisting Event Conversion Date or Change of Control Conversion Date unless, prior thereto, the Company provides notice of its election to redeem
such shares of Series B Preferred Stock, whether pursuant to its Optional Redemption Right or Special Optional Redemption Rights.
(i) The Company shall deliver the applicable Conversion Consideration no later than the third Business Day following the Delisting Event Conversion
Date or the Change of Control Conversion Date, as applicable.
(j) Notwithstanding anything to the contrary in this Section 8, no holder of Series B Preferred Stock will be entitled to exercise a Delisting Event
Conversion Right or a Change of Control Conversion Right or convert any shares of Series B Preferred Stock into shares of Common Stock to the extent that
receipt of shares of Common Stock upon the conversion of such shares of Series B Preferred Stock in accordance with this Section 8 would cause such person or
any other person to violate Section 5.7 of Article V of the Charter.
(k) In connection with the exercise of any Delisting Event Conversion Right or Change of Control Conversion Right, as applicable, the Company shall
comply with all U.S. federal and state securities laws and stock exchange rules in connection with any conversion of shares of Series B Preferred Stock into
Conversion Consideration.
Section 9. Voting Rights.
(a) Holders of the Series B Preferred Stock shall not have any voting rights except as set forth in this Section 9.
(b) Whenever dividends on any outstanding shares of Series B Preferred Stock shall have not been paid for six or more Series B Dividend Periods
(whether or not such dividends have been declared or the Series B Dividend Periods are consecutive) (a “Preferred Dividend Default”), the holders of Series B
Preferred Stock (and all other classes and series of preferred stock of the Company ranking on parity with the Series B Preferred Stock with respect to dividend
rights and rights upon the Company’s voluntary or involuntary liquidation, dissolution or winding up and upon which like voting rights have been conferred and
are exercisable and with which such holders of Series B Preferred Stock are entitled to vote together as a single class, including, without limitation, the Series A
Preferred Stock (the “Parity Preferred”)) will have the exclusive power, voting together as a single class, to elect two additional directors (the “Preferred
Directors”), at each annual meeting of the Company’s stockholders and at any special meeting of the Company’s stockholders called for the purpose of electing
Preferred Directors (pursuant to Section 9(d) hereof or otherwise), until all dividends accrued and unpaid on outstanding shares of Series B Preferred Stock for all
past Series B Dividend Periods and the then-current Series B Dividend Period have been fully paid. Unless the number of the Company’s directors has previously
been increased pursuant to the terms of any other class or series of Parity Preferred with which such holders of Series B Preferred Stock are entitled to vote
together as a single class in the election of Preferred Directors, the number of the Company’s directors shall automatically increase by two at such time as holders
of Series B Preferred Stock become entitled to vote in the election of the Preferred Directors. Unless shares of Parity Preferred remain outstanding and entitled to
vote in the election of
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Preferred Directors, the term of office of each Preferred Director will terminate, and the number of the Company’s directors shall automatically decrease by two,
when all accrued and unpaid dividends for all past Series B Dividend Periods and the then-current Series B Dividend Period have been fully paid. If the right of
holders of Series B Preferred Stock to elect the Preferred Directors terminates after the record date for determining holders of shares of Series B Preferred Stock
entitled to vote in any election of Preferred Directors but before the closing of the polls in such election, holders of shares of Series B Preferred Stock outstanding
as of the applicable record date shall not be entitled to vote in the election of any Preferred Directors. The right of holders of Series B Preferred Stock to elect the
Preferred Directors shall again vest if and whenever dividends are in arrears for six Series B Dividend Periods, as described above. In no event shall holders of
Series B Preferred Stock be entitled to nominate or elect an individual as a Preferred Director, and no individual shall be qualified to be nominated for election or
to serve as a Preferred Director, if the individual’s service as a Preferred Director would cause the Company to fail to satisfy a requirement relating to director
independence of any national securities exchange on which any class or series of Stock is listed or otherwise conflict with the Charter or the Company’s Bylaws.
(c) The Preferred Directors shall be elected by a plurality of the votes cast in the election of such directors, and each Preferred Director will serve until
the next annual meeting of the Company’s stockholders and until his or her successor is duly elected and qualifies, or until such director’s term of office terminates
as set forth in Section 9(b). Any director elected by holders of Series B Preferred Stock and any Parity Preferred, voting together as a single class, may be removed,
with or without cause, only by a vote of holders of a majority of the outstanding shares of Series B Preferred Stock and Parity Preferred with which holders of
Series B Preferred Stock are entitled to vote together as a single class in the election of Preferred Directors. At any time that holders of Series B Preferred Stock are
entitled to vote in the election of the Preferred Directors, such holders shall be entitled to vote in the election of a successor to fill any vacancy on the Board of
Directors that results from the removal of a Preferred Director.
(d) At any time that holders of the Series B Preferred Stock and any Parity Preferred have the right to elect Preferred Directors as described in Section
9(b) hereof but these directors have not been elected, the Company’s secretary must call a special meeting of stockholders for the purpose of electing the Preferred
Directors upon the written request of the holders of record of 10% of the outstanding shares of Series B Preferred Stock and Parity Preferred with which holders of
Series B Preferred Stock are entitled to vote together as a single class with respect to the election of Preferred Directors, unless the request is received more than 45
days and less than 90 days before the date fixed for the next annual meeting of the Company’s stockholders at which such vote would otherwise occur, in which
case, the Preferred Directors may be elected at either such annual meeting or at a separate special meeting of the Company’s stockholders at the Company’s
discretion.
(e) So long as any shares of Series B Preferred Stock are outstanding, the approval of holders of at least two-thirds of the outstanding shares of Series B
Preferred Stock and any equally-affected class or series of Parity Preferred with which holders of Series B Preferred Stock are entitled to vote together as a single
class shall be required to authorize (i) any amendment, alteration, repeal or other change to any provision of the Charter, including the terms of the Series B
Preferred Stock (whether by merger, conversion, consolidation, transfer or conveyance of all or substantially all of the Company’s assets or otherwise), that would
materially and adversely affect the rights, preferences, privileges or voting powers of the Series B Preferred Stock or (ii) the creation, issuance or increase in the
authorized number of shares of any class or series of stock ranking senior to the Series B Preferred Stock (or any equity securities convertible into or exchangeable
for any such shares, but not including debt securities convertible into or exchangeable for any such shares prior to the time of conversion) with respect to dividend
rights and rights upon the Company’s voluntary or involuntary liquidation, dissolution or winding up.
(f) The following actions shall not be deemed to materially and adversely affect the rights, preferences, privileges or voting powers of the Series B
Preferred Stock:
(i) any increase or decrease in the number of authorized Shares of any class or series or the classification or reclassification of any unissued
Shares, or the creation or issuance of equity securities, of any class or series ranking, junior or on parity with the Series B Preferred Stock with respect to dividend
rights and rights upon the Company’s voluntary or involuntary liquidation, dissolution or winding up, provided that such action does
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not decrease the number of authorized shares of Common Stock below the number (after giving effect to all other outstanding shares capital stock) necessary to
permit the Series B Preferred Stock to be converted in full in accordance with the terms hereof; or
(ii) an amendment, alteration, or repeal or other change to any provisions of the Charter, including the terms of the Series B Preferred Stock, as
a result of a merger, conversion, consolidation, transfer or conveyance of all or substantially all of the Company’s assets or other business combination (an
“Event”), (x) if the Series B Preferred Stock (or securities of any successor person or entity to the Company into which the Series B Preferred Stock has been
converted) remains outstanding with the terms thereof unchanged in all material respects or the holders of shares of Series B Preferred Stock receive securities of a
successor person or entity with substantially identical rights as those of Series B Preferred Stock, taking into account that, upon the occurrence of an Event, the
Company may not be the surviving entity, or (y) if holders of Series B Preferred Stock shall receive the $25.00 liquidation preference per share of Series B
Preferred Stock, plus an amount equal to all accrued and unpaid dividends to, but not including, the date of such Event (other than any declared dividends having a
Series B Record Date before the date of such Event and a Series B Payment Date after the date of such Event, which shall be paid as provided in Section 3 above),
pursuant to the occurrence of any Event.
(g) Notwithstanding the foregoing, holders of any Parity Preferred shall not be entitled to vote together as a single class with holders of Series B
Preferred Stock on any amendment, alteration, repeal or other change to any provision of the Charter, including the terms of the Series B Preferred Stock, unless
such action affects holders of Series B Preferred Stock and such Parity Preferred equally. On any matter in which the Series B Preferred Stock may vote, each
share of Series B Preferred Stock shall entitle the holder thereof to cast one vote, except that, in class votes, or in determining the percentage of outstanding shares,
when voting together as a single class, with shares of one or more class or series of Parity Preferred, shares of different classes and series shall vote, or such
determination shall be made, in proportion to the liquidation preference of such shares.
(h) The foregoing voting provisions of this Section 9 shall not apply if, at or prior to the time when the act with respect to which such vote would
otherwise be required shall be effected, all outstanding shares of Series B Preferred Stock shall have been redeemed or called for redemption upon proper notice
and sufficient funds, in cash, shall have been deposited in trust to effect such redemption, in each case, in accordance with the provisions hereof.
(i) Except as expressly stated herein, the Series B Preferred Stock shall not have any relative, participating, optional or other special voting rights and
powers and the consent of the holders thereof shall not be required for the taking of any corporate action, including, without limitation, any merger, conversion or
consolidation of the Company or a sale of all or substantially all of the assets of the Company, irrespective of the effect that such merger, conversion or
consolidation or sale may have upon the rights, preferences, privileges or voting power of holders of Series B Preferred Stock.
Section 10. Information Rights.
During any period in which the Company is not subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act and any shares of Series
B Preferred Stock are outstanding, the Company will (i) transmit by mail or other permissible means under the Exchange Act to all holders of Series B Preferred
Stock, as their names and addresses appear in the Company’s record books and without cost to such holders, copies of the annual reports on Form 10-K, quarterly
reports on Form 10-Q and current reports on Form 8-K that the Company would have been required to file with the Securities and Exchange Commission (the
“Commission”), pursuant to Section 13 or Section 15(d) of the Exchange Act if the Company were subject thereto (other than any exhibits that would have been
required) within 15 days after the respective dates by which the Company would have been required to file these reports with the Commission if it were subject to
Section 13 or 15(d) of the Exchange Act and (ii) within 15 days following written request, supply copies of these reports to any prospective holder of Series B
Preferred Stock.
Section 11. Conversion.
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The Series B Preferred Stock shall not be convertible into any other property or securities of the Company or any other entity, except in accordance with
Section 8 hereof and Article V of the Charter.
Section 12. Ranking.
In respect of rights to the payment of dividends and the distribution of assets in the event of any voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the Company, the Series B Preferred Stock shall rank (i) senior to Common Stock and to all other equity securities issued by the
Company, the terms of which expressly provide that such securities rank junior to the Series B Preferred Stock with respect to dividend rights and rights upon the
Company’s voluntary or involuntary liquidation, dissolution or winding-up; (ii) on parity with all equity securities issued by the Company, the terms of which
expressly provide that such securities rank on parity with the Series B Preferred Stock with respect to dividend rights and rights upon the Company’s voluntary or
involuntary liquidation, dissolution or winding-up; and (iii) junior to all equity securities issued by the Company, the terms of which expressly provide that such
securities rank senior to the Series B Preferred Stock with respect to dividend rights and rights upon the Company’s voluntary or involuntary liquidation,
dissolution or winding-up. All the Series B Preferred Stock shall rank equally with one another and shall be identical in all respects.
Section 13. Restrictions on Transfer and Ownership of Stock of the Series B Preferred Stock.
The Series B Preferred Stock is subject to the terms and conditions (including any applicable exceptions and exemptions) of Article V of the Charter.
Section 14. Status of Acquired Shares of Series B Preferred Stock.
All shares of Series B Preferred Stock which shall have been issued and reacquired in any manner by the Company shall be returned to the status of
authorized but unissued preferred stock, and may thereafter be classified, reclassified or issued as any series or class of preferred stock.
Section 15. Record Holders.
The Company may deem and treat the record holder of any share of Series B Preferred Stock as the true and lawful owner thereof for all purposes, and the
Company shall not be affected by any notice to the contrary. Except as may be otherwise provided by the Board of Directors (and except in connection with a
global certificate held by a securities depositary), holders of Series B Preferred Stock are not entitled to certificates representing the Series B Preferred Stock held
by them.
Section 16. Sinking Fund.
The Series B Preferred Stock shall not be entitled to the benefits of any retirement or sinking fund.
Section 17. Physical Certificate Request.
Shares of Series B Preferred Stock shall be eligible for the Direct Registration System service offered by DTC and may be represented in the form of
uncertificated or certificated shares, provided, however, that any holder of certificated shares of Series B Preferred Stock and, upon request, every holder of
uncertificated shares of Series B Preferred Stock, shall be entitled to have a certificate for shares of Series B Preferred Stock signed by, or in the name of, the
Company certifying the number of shares owned by such holder.
Section 18. Exclusion of Other Rights.
The Series B Preferred Stock shall not have any preferences or other rights, voting powers, restrictions, limitations as to dividends or other distributions,
qualifications or terms or conditions of redemption other than expressly set forth in the Charter, including the terms of the Series B Preferred Stock.
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Section 19. Headings of Subdivisions.
The headings of the various subdivisions hereof are for convenience of reference only and shall not affect the interpretation of any of the provisions
hereof.
Section 20. Severability of Provisions.
If any preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications or terms or
conditions of redemption of the Series B Preferred Stock set forth in the Charter, including the terms of the Series B Preferred Stock, are invalid, unlawful or
incapable of being enforced by reason of any rule of law or public policy, all other preferences, conversion or other rights, voting powers, restrictions, limitations
as to distributions, qualifications or terms or conditions of redemption of the Series B Preferred Stock set forth in the Charter (including the terms of the Series B
Preferred Stock) which can be given effect without the invalid, unlawful or unenforceable provision thereof shall, nevertheless, remain in full force and effect and
no preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications or terms or conditions of
redemption of the Series B Preferred Stock herein set forth shall be deemed dependent upon any other provision thereof unless so expressed therein.
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Exhibit C
SERIES C PREFERRED STOCK
Section 1. Number of Shares and Designation. A series of preferred stock of the Company designated as “Series C Preferred Stock” is hereby established, and
the number shares constituting such series shall be one hundred thousand (100,000). Such number of shares may be increased or decreased by resolution of the
Board of Directors and by the filing of Articles Supplementary in accordance with the Maryland General Corporation Law and the acceptance for record thereof by
the State Department of Assessments and Taxation of Maryland; provided, that no decrease shall reduce the number of shares of Series C Preferred Stock to a
number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants
or upon the conversion of any outstanding securities issued by the Company convertible into Series C Preferred Stock.
Section 2. Dividends and other Distributions.
(A) Subject to the rights of the holders of any shares of any class or series of preferred stock (or any other stock of the Company) ranking senior to or on a
parity with the shares of Series C Preferred Stock with respect to dividends, the holders of shares of Series C Preferred Stock, in preference to the holders of shares
of any class or series of stock of the Company ranking junior to the Series C Preferred Stock in respect thereof, shall be entitled to receive, when, as and if
authorized by the Board of Directors and declared by the Company out of funds legally available therefor, quarterly dividends payable in cash on the fifteenth day
of the month following the month in which quarter ended January, April, July and October in each year (each such date a “Quarterly Dividend Payment Date”),
commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series C Preferred Stock, in an amount (if
any) per share (rounded to the nearest cent), subject to the provision for adjustment hereinafter set forth, equal to 1,000 multiplied by the aggregate per share
amount of all cash dividends, and 1,000 multiplied by the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than
a dividend payable in shares of Common Stock, par value $0.01 per share (the “Common Stock”), of the Company or a subdivision of the outstanding shares of
Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date or, with
respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series C Preferred Stock. In the event the
Company shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Series C Preferred Stock were entitled
immediately prior to such event under the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(B) The Company shall declare a dividend or other distribution on the Series C Preferred Stock as provided in paragraph (A) of this Section 2 immediately
after it declares a dividend or other distribution on the Common Stock (other than a dividend payable in shares of Common Stock).
(C) Dividends due pursuant to paragraph (A) of this Section 2 shall begin to accrue and be cumulative on outstanding shares of Series C Preferred Stock from
the Quarterly Dividend Payment Date next preceding the date of issue of such shares, unless the date of issue of such shares is prior to the record date for the first
Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is
a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series C Preferred Stock entitled to receive a
quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such
Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series C Preferred Stock in an amount less
than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among
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all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series C Preferred Stock entitled
to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof.
(D) In determining whether a dividend or other distribution (other than upon voluntary or involuntary liquidation), by dividend, redemption or other
acquisition of shares or otherwise, is permitted under the Maryland General Corporation Law, amounts that would be needed, if the Company were to be dissolved
at the time of the dividend or other distribution, to satisfy the preferential right upon dissolution of holders of the Series C Preferred Stock shall not be added to the
Company’s total liabilities.
Section 3. Voting Rights. The holders of shares of Series C Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth, each share of Series C Preferred Stock shall entitle the holder thereof to 1,000 votes on all
matters submitted to a vote of the holders of shares of Common Stock. In the event the Company shall at any time declare or pay any dividend on the Common
Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification
or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the
number of votes per share to which holders of shares of Series C Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying
such number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding immediately prior to such event.
(B) Except as otherwise provided herein, in the terms of any other class or series of preferred stock or any similar stock or by law, the holders of shares of
Series C Preferred Stock and the holders of shares of Common Stock and any other capital stock of the Company having general voting rights shall vote together as
one class on all matters submitted to a vote of stockholders of the Company.
(C) Except as set forth herein, or as otherwise required by law, holders of Series C Preferred Stock shall have no special voting rights and their consent shall
not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever one or more quarterly dividends or other dividends or distributions payable on the Series C Preferred Stock as provided in Section 2 are in
arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not authorized or declared, on shares of Series C Preferred Stock
outstanding shall have been paid in full, the Company shall not:
dissolution or winding up) to the Series C Preferred Stock;
(i) declare or pay dividends, or make any other distributions, on any shares of stock ranking junior (either as to dividends or upon liquidation,
(ii) declare or pay dividends, or make any other distributions, on any shares of stock ranking in a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series C Preferred Stock, except dividends paid ratably on the Series C Preferred Stock and all such parity stock on
which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; or
(iii) except pursuant to provisions of the Charter or Bylaws of the Company providing for limitations or restrictions on ownership of securities
of the Company which are, expressly or by implication, included to protect the status of the Corporation as a real estate investment trust under the Internal Revenue
Code, redeem or purchase or otherwise acquire for consideration any shares of stock of the Company ranking junior (either
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as to dividends or upon liquidation, dissolution or winding up) to the Series C Preferred Stock, provided that the Company may at any time redeem, purchase or
otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Company ranking junior (as to dividends and upon dissolution,
liquidation or winding up) to the Series C Preferred Stock.
Company unless the Company could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner.
(B) The Company shall not permit any subsidiary of the Company to purchase or otherwise acquire for consideration any shares of stock of the
Section 5. Reacquired Shares. All shares of Series C Preferred Stock purchased or otherwise acquired by the Company in any manner whatsoever shall
constitute authorized but unissued shares of preferred stock, without designation as to class or series, and may thereafter be classified, reclassified or issued as any
series or class of preferred stock.
Section 6. Liquidation, Dissolution or Winding Up.
(A) Upon any liquidation, dissolution or winding up of the Company, voluntary or otherwise, no distribution shall be made to the holders of
shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series C Preferred Stock unless, prior thereto, the
holders of shares of Series C Preferred Stock shall have received an amount per share (the “Series C Liquidation Preference”), subject to the provision for
adjustment hereinafter set forth, equal to 1,000 multiplied by the aggregate amount to be distributed per share to holders of shares of Common Stock plus an
amount equal to any accrued and unpaid dividends. In the event the Company shall at any time declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than
by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the aggregate amount to
which holders of shares of Series C Preferred Stock were entitled immediately prior to such event under the preceding sentence shall be adjusted by multiplying
such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding immediately prior to such event.
(B) If there are not sufficient assets available to permit payment in full of the Series C Liquidation Preference and the liquidation preferences of
all other classes and series of stock of the Company, if any, that rank on a parity with the Series C Preferred Stock in respect thereof, then the assets available for
such distribution shall be distributed ratably to the holders of the Series C Preferred Stock and the holders of such parity shares in proportion to their respective
liquidation preferences.
with the Company shall be deemed to be a liquidation, dissolution or winding up of the Company within the meaning of this Section 6.
(C) Neither the merger or consolidation of the Company into or with another entity nor the merger or consolidation of any other entity into or
Section 7. Consolidation, Merger, Etc. If the Company shall enter into any consolidation, merger, combination or other transaction in which the shares of
Common Stock are exchanged for or changed into other stock or securities, cash or any other property, then in any such case each share of Series C Preferred Stock
shall at the same time be similarly exchanged or changed into an amount per share, subject to the provision for adjustment hereinafter set forth, equal to 1,000
multiplied by the aggregate amount of stock, securities, cash or any other property (payable in kind), as the case may be, into which or for which each share of
Common Stock is changed or exchanged. In the event the Company shall at any time declare or pay any dividend on the Common Stock payable in shares of
Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the
preceding sentence with respect to the exchange or change of shares of Series C Preferred Stock shall be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of shares of Common Stock
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outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such
event.
Section 8. Amendment. At any time that any shares of Series C Preferred Stock are outstanding, the Charter shall not be amended in any manner,
including in a merger, consolidation or otherwise, which would materially and adversely alter, change or repeal the preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends and other distributions, qualifications or terms and conditions of redemption of the Series C Preferred Stock
without the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series C Preferred Stock, voting separately as a single class.
Section 9. Rank. The Series C Preferred Stock shall rank, with respect to the payment of dividends and upon liquidation, dissolution and winding up,
junior to the Company's preferred stock designated as 7.25% Series A Cumulative Redeemable Preferred Stock, par value $0.01 per share, the Company's preferred
stock designated as 6.875% Series B Cumulative Redeemable Perpetual Preferred Stock, par value $0.01 per share, and all other classes or series of preferred
stock, unless the terms of any such other class or series shall provide otherwise, and shall rank senior to the Common Stock as to such matters.
Section 10. Ownership Restrictions. The Series C Preferred Stock shall be subject to the restrictions and limitations set forth in Section 5.7 of the Charter.
Section 11. Permissible Distributions. In determining whether a distribution (other than upon liquidation, dissolution or winding up), whether by dividend,
or upon redemption or other acquisition of shares or otherwise, is permitted under Maryland law, amounts that would be needed, if the Company were to be
dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of holders of shares of any class or series of stock whose preferential
rights upon dissolution are superior or prior to those receiving the distribution shall not be added to the Company's total liabilities.
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DESCRIPTION OF REGISTRANT’S SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934
EXHIBIT 4.2
The following is a description of securities of Global Net Lease, Inc. registered under Section 12 of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), as of December 31, 2020 and certain provisions of the Maryland General Corporation Law (the “MGCL”), our charter and our bylaws. The
description is a summary, does not purport to be complete and is subject to and qualified in its entirety by reference to Maryland law and to our charter (including
any applicable articles supplementary classifying a class or series of preferred stock) and bylaws, copies of which are filed as exhibits to our Annual Report on
Form 10-K for the fiscal year ended December 31, 2020 and are incorporated by reference herein.
As used herein, the terms “Company,” “we,” “our” and “us” refer to Global Net Lease, Inc., a Maryland corporation.
General
Our charter authorizes us to issue up to 280,000,000 shares of stock, consisting of 250,000,000 shares of common stock, par value $0.01 per share, and
30,000,000 shares of preferred stock, par value $0.01 per share. As of December 31, 2020, we had the following stock issued and outstanding: (i) 89,614,601
shares of common stock, (ii) 6,799,467 shares of 7.25% Series A Cumulative Redeemable Preferred Stock, par value $0.01 per share (“Series A Preferred Stock”),
and (iii) 3,861,953 shares of 6.875% Series B Cumulative Redeemable Perpetual Preferred Stock, par value $0.01 per share (the “Series B Preferred Stock”). No
shares of Series C Preferred Stock, par value $0.01 per share (the “Series C Preferred Stock”), of the Company are issued and outstanding.
Our board of directors, with the approval of a majority of the entire board of directors and without any action taken by our stockholders, may amend our
charter from time to time to increase or decrease the aggregate number of our authorized shares of stock or the number of shares of stock of any class or series that
we have authority to issue. Under Maryland law, stockholders are not generally liable for our debts or obligations solely as a result of their status as stockholders.
The transfer agent and registrar for our common stock, Series A Preferred Stock and Series B Preferred Stock is American Stock Transfer and Trust
Company, LLC, which also serves as the rights agent for the rights to purchase from the Company one one-thousandth of a share of Series C Preferred Stock that
are attached to all shares of our common stock (the “Rights”). The principal business address of the transfer agent and registrar is 6201 15th Avenue, Brooklyn,
NY 11219.
Our shares of common stock are listed on the New York Stock Exchange (the “NYSE”) under the symbol “GNL,” our Series A Preferred Stock is listed
on the NYSE under the symbol “GNL PR A,” and our Series B Preferred Stock is listed on the NYSE under the symbol “GNL PR B.” The Rights have been
approved for listing on the NYSE.
Common Stock
Subject to the preferential rights, if any, of holders of any other class or series of our stock and to the provisions of our charter relating to the restrictions
on ownership and transfer of our stock, the holders of our common stock:
•
have the right to receive ratably any distributions from funds legally available therefor, when, as and if authorized by our board of directors and
declared by us; and
•
are entitled to share ratably in all of our assets available for distribution to holders of our common stock upon liquidation, dissolution or winding
up of our affairs.
Upon issuance for full payment therefor, all common stock issued by us will be fully paid and non-assessable. There are no redemption, sinking fund,
conversion or preemptive rights with respect to the shares of our common stock. Holders of our common stock generally will have no appraisal rights.
Subject to the provisions of our charter relating to the restrictions on ownership and transfer of our stock and except as may otherwise be provided in the
charter, holders of our common stock are entitled to one vote per share on all matters on which holders of our common stock are entitled to vote at all meetings of
our stockholders. The holders of our common stock do not have cumulative voting rights.
Preferred Stock
General
Under our charter, our board of directors, without stockholder approval, is authorized to provide for the issuance of shares of preferred stock in one or
more classes or series, to establish the number of shares in each class or series and to fix the terms thereof. Our board of directors could authorize the issuance of
additional shares of preferred stock with terms and conditions that could have the effect of discouraging a takeover or other transaction that holders of common
stock might believe to be in their best interests or in which holders of some, or a majority, of the shares of common stock might receive a premium for their shares
over the then market price of such shares of common stock.
Some of the rights, preferences, privileges and restrictions of the shares of preferred stock of a class or series may include the following:
•
•
•
•
•
distribution rights;
conversion rights;
voting rights;
redemption rights and terms of redemptions; and
liquidation preferences.
Series A Preferred Stock
As of December 31, 2020, 9,959,650 shares of preferred stock were classified and designated as Series A Preferred Stock pursuant to our charter.
Ranking
The Series A Preferred Stock, with respect to dividend rights and rights upon our voluntary or involuntary liquidation, dissolution or winding-up, ranks:
•
•
•
senior to our common stock and Series C Preferred Stock and to all other equity securities ranking junior to the Series A Preferred Stock;
on parity with the Series B Preferred Stock and all other equity securities ranking on parity with the Series A Preferred Stock; and
junior to any class or series of equity securities ranking senior to the Series A Preferred Stock.
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The authorization or issuance of equity securities ranking senior to the Series A Preferred Stock would require the affirmative vote of the holders of at
least two-thirds of the outstanding shares of Series A Preferred Stock and of any other similarly-affected classes and series of preferred stock ranking on parity
with the Series A Preferred Stock, including the Series B Preferred Stock, and upon which like voting rights have been conferred and are exercisable. Any
convertible debt securities that we may issue will not be considered to be “equity securities” for these purposes prior to the time of conversion. The Series A
Preferred Stock ranks junior to all our existing and future indebtedness. The terms of the Series A Preferred Stock do not limit our ability to (i) incur indebtedness
or (ii) issue additional equity securities that rank junior to or on parity with the Series A Preferred Stock, including the Series B Preferred Stock, with respect to
dividend rights and rights upon our voluntary or involuntary liquidation, dissolution or winding up.
Dividends
Holders of Series A Preferred Stock are entitled to receive, when, as and if authorized by our board of directors and declared by us, out of funds legally
available for the payment of dividends, cumulative cash dividends in the amount of $1.8125 per share each year, which is equivalent to the rate of 7.25% of the
$25.00 liquidation preference per share per annum. Dividends are payable quarterly in arrears on the 15th day of January, April, July and October of each year or,
if not a business day, the next succeeding business day, for each quarterly period commencing on and including the 1st day of January, April, July and October of
each year and ending on and including the day preceding the first day of the next succeeding dividend period to all holders of record on the applicable record date,
when and as authorized by our board of directors and declared by us. Holders of record of all shares of Series A Preferred Stock issued and outstanding on the
record date fixed by our board of directors for any dividend will be entitled to receive the full quarterly dividend paid on the applicable dividend payment date even
if such shares were not issued and outstanding for the full dividend period.
Any dividend, including any dividend payable on the Series A Preferred Stock for any partial dividend period, is computed on the basis of a 360-day year
consisting of twelve 30-day months. Dividends are payable to holders of record of Series A Preferred Stock as they appear in the transfer agent’s records at the
close of business on the applicable record date, which will be the date that our board of directors sets as the record date for the payment of a dividend that is not
more than 30 nor fewer than 10 days prior to the applicable dividend payment date.
Our board of directors will not authorize, and we will not pay or declare and set apart for payment, any dividend on the Series A Preferred Stock at any
time that:
•
•
•
the terms and conditions of any of our agreements, including our credit facility or any other agreement relating to our indebtedness, prohibit the
authorization, payment or setting apart for payment;
the terms and conditions of any of our agreements, including our credit facility or any other agreement relating to our indebtedness, provide that
the authorization, payment or setting apart for payment would constitute a breach of, or a default under, the agreement; or
the law restricts or prohibits the authorization, payment or setting apart for payment.
Notwithstanding the foregoing, dividends on the Series A Preferred Stock will accrue whether or not the dividends are authorized by our board of
directors and declared by us, from the later of the first date on which the Series A Preferred Stock is issued and the most recent dividend payment date on which
dividends have been paid.
Accrued and unpaid dividends on the Series A Preferred Stock do not bear interest.
We will not pay or declare and set apart for payment any dividends (other than a dividend paid in common stock, Series C Preferred Stock or other stock
ranking junior to the Series A Preferred Stock with respect to dividend rights and rights upon our voluntary or involuntary liquidation, dissolution or winding up)
or declare or make any distribution of cash or other property on common stock, Series C Preferred Stock or other stock that ranks junior to
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or on parity with the Series A Preferred Stock, including the Series B Preferred Stock, with respect to dividend rights and rights upon our voluntary or involuntary
liquidation, dissolution or winding up or redeem or otherwise acquire common stock, Series C Preferred Stock or other stock that ranks junior to or on parity with
the Series A Preferred Stock, including the Series B Preferred Stock, with respect to dividend rights and rights upon our voluntary or involuntary liquidation,
dissolution or winding up (except (i) by conversion into or exchange for common stock, Series C Preferred Stock or other stock ranking junior to the Series A
Preferred Stock with respect to dividend rights and rights upon our voluntary or involuntary liquidation, dissolution or winding up, (ii) for the redemption of shares
of our stock pursuant to the provisions of our charter relating to the restrictions upon ownership and transfer of our equity securities and (iii) for a purchase or
exchange offer made on the same terms to holders of all outstanding shares of Series A Preferred Stock and any other stock that ranks on parity with the Series A
Preferred Stock, including the Series B Preferred Stock, with respect to dividend rights and rights upon our voluntary or involuntary liquidation, dissolution or
winding up), unless we also have either paid or declared and set apart for payment full cumulative dividends on the Series A Preferred Stock for all past dividend
periods.
Notwithstanding the foregoing, if we do not either pay or declare and set apart for payment full cumulative dividends on the Series A Preferred Stock and
all stock that ranks on parity with the Series A Preferred Stock, including the Series B Preferred Stock, with respect to dividends, the amount which we have
declared will be allocated pro rata to the holders of Series A Preferred Stock and to each equally ranked class or series of stock, including the Series B Preferred
Stock, so that the amount declared for each share of Series A Preferred Stock and for each share of each equally ranked class or series of stock, including the Series
B Preferred Stock, is proportionate to the accrued and unpaid dividends on those shares. Any dividend payment made on the Series A Preferred Stock will first be
credited against the earliest accrued and unpaid dividend.
If, for any taxable year, we elect to designate as “capital gain dividends” (as defined in Section 857 of the Code) a portion (the “Capital Gains Amount”)
of the dividends not in excess of our earnings and profits that are paid or made available for the year to the holders of all classes or series of stock outstanding (the
“Total Dividends”), then the portion of the Capital Gains Amount that will be allocable to the holders of Series A Preferred Stock will be in the same proportion
that the Total Dividends paid or made available to the holders of Series A Preferred Stock for the taxable year bears to the Total Dividends for the taxable year
made with respect to all classes or series of stock outstanding.
Liquidation Preference
Upon any voluntary or involuntary liquidation, dissolution or winding up of our affairs, the holders of Series A Preferred Stock are entitled to be paid out
of our assets legally available for distribution to our stockholders a liquidation preference of $25.00 per share, plus an amount equal to any accrued and unpaid
dividends (whether or not declared) to, but not including, the date of payment, before any distribution or payment may be made to holders of common stock, Series
C Preferred Stock or any other class or series of our equity stock ranking junior to the Series A Preferred Stock with respect to liquidation rights. If, upon our
voluntary or involuntary liquidation, dissolution or winding up, our available assets are insufficient to pay the full amount of the liquidating distributions on all
outstanding shares of Series A Preferred Stock and the corresponding amounts payable on all shares of each other class or series of stock ranking on parity with the
Series A Preferred Stock, including the Series B Preferred Stock, with respect to liquidation rights, then the holders of Series A Preferred Stock and any other class
or series of stock ranking on parity with the Series A Preferred Stock, including the Series B Preferred Stock, with respect to liquidation rights will share ratably in
any distribution of assets in proportion to the full liquidating distributions to which they would otherwise be respectively entitled. Holders of Series A Preferred
Stock are entitled to written notice of any voluntary or involuntary liquidation, dissolution or winding up at least 20 days before the payment date of the liquidating
distribution. After the holders of Series A Preferred Stock have received the full amount of the liquidating distributions to which they are entitled, they will have no
right or claim to any of our remaining assets.
In determining whether any distribution (other than upon voluntary or involuntary dissolution) by dividend, redemption or other acquisition of shares of
stock of the Company or otherwise is permitted under the MGCL, amounts that would be needed, if the Company were to be dissolved at the time of the
distribution, to satisfy the
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preferential rights upon dissolution of the holders of Series A Preferred Stock will not be added to the Company’s total liabilities.
Our consolidation, conversion or merger with or into any other person or entity or the sale, lease, transfer or conveyance of all or substantially all of our
property or business, whether in connection with a Change of Control (as defined below) or otherwise, will not be deemed to constitute our liquidation, dissolution
or winding up.
Optional Redemption
The Series A Preferred Stock is not redeemable prior to September 12, 2022, except in the circumstances described in this section, in the section below
titled “Special Optional Redemption,” or pursuant to certain provisions of our charter. See “Certain Provisions of the Maryland General Corporation Law and our
Charter and Bylaws—Restrictions on Transfer and Ownership of Stock” below.
Notwithstanding any other provision relating to redemption or repurchase of the Series A Preferred Stock, we may redeem any or all of the Series A
Preferred Stock at any time, whether before or after September 12, 2022, at a redemption price of $25.00 per share, plus an amount equal to all dividends accrued
and unpaid (whether or not declared), pursuant to the restrictions on ownership and transfer of our equity securities set forth in our charter or if our board of
directors otherwise determines that redemption is necessary for us to preserve our status as a real estate investment trust for federal income tax purposes (“REIT”).
On and after September 12, 2022, the Series A Preferred Stock may be redeemed at our option, in whole or in part, at any time or from time to time, at a
redemption price of $25.00 per share, plus an amount equal to all dividends accrued and unpaid (whether or not declared), if any, to, but not including, the
redemption date (unless the redemption date is after a dividend record date and prior to the corresponding dividend payment date, in which case no additional
amount for the accrued and unpaid dividend will be included in the redemption price), without interest, upon the giving of notice, as provided below.
If less than all of the outstanding Series A Preferred Stock is to be redeemed, the shares to be redeemed will be determined pro rata (as nearly as may be
practicable without creating fractional shares) or by lot. If the redemption is to be by lot, and if as a result of the redemption any holder of Series A Preferred Stock
would own, or be deemed by virtue of certain attribution provisions of the Code to own, in excess of 9.8% in value of our issued and outstanding equity securities
(which includes the Series A Preferred Stock) or 9.8% in value or number of shares (whichever is more restrictive) of any class or series of our issued and
outstanding equity securities or violate any of the other restrictions on ownership and transfer of our equity securities set forth in our charter, then, except in certain
instances, we will redeem the requisite number of shares of Series A Preferred Stock of that holder so that the holder will not own or be deemed by virtue of certain
attribution provisions of the Code to own, subsequent to the redemption, in excess of 9.8% in value of our issued and outstanding equity securities or 9.8% in value
or number of shares (whichever is more restrictive) of any class or series of our issued and outstanding equity securities or violate any of the other restrictions on
ownership and transfer set forth in our charter.
We will mail to record holders of the Series A Preferred Stock, a notice of redemption no less than 30 days nor more than 60 days prior to the redemption
date. We will send the notice to the record holder’s address, as shown on our share transfer books. A failure to give notice of redemption or any defect in the notice
or in its mailing will not affect the validity of the redemption of any Series A Preferred Stock except as to shares held by any holder to whom notice was defective
or not given. Each notice will state the following:
•
•
•
the redemption date;
the redemption price;
the total number of shares of Series A Preferred Stock to be redeemed (and, if less than all the shares held by any holder are to be redeemed, the
number of shares to be redeemed from the holder);
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•
•
the place or places where the shares of Series A Preferred Stock are to be surrendered for payment, together with the certificates, if any,
representing the shares (duly endorsed for transfer) and any other documents we require in connection with redemption; and
that dividends on the Series A Preferred Stock will cease to accrue on the redemption date.
Unless full cumulative dividends on all shares of Series A Preferred Stock have been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for payment for all past dividend periods, no shares of Series A Preferred Stock may be redeemed unless all outstanding
shares of Series A Preferred Stock are simultaneously redeemed. In addition, unless full cumulative dividends on all shares of Series A Preferred Stock have been
or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for payment for all past dividend periods, we will
not purchase or otherwise acquire directly or indirectly any Series A Preferred Stock (except (i) by exchange for our equity securities ranking junior to the Series A
Preferred Stock with respect to dividend rights and rights upon our voluntary or involuntary liquidation, dissolution or winding up, (ii) pursuant to the provisions of
our charter relating to restrictions on ownership and transfer of our equity securities and (iii) pursuant to a purchase or exchange offer made on the same terms to
the holders of all outstanding shares of Series A Preferred Stock and any other stock that ranks on parity with the Series A Preferred Stock, including the Series B
Preferred Stock, with respect to dividend rights and rights upon our voluntary or involuntary liquidation, dissolution or winding up). So long as no dividends on
Series A Preferred Stock for any past dividend period are in arrears, we are entitled at any time and from time to time to repurchase Series A Preferred Stock in
open-market transactions duly authorized by our board of directors and effected in compliance with applicable laws and these requirements will not prevent our
purchase or acquisition of Series A Preferred Stock pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding Series A
Preferred Stock and any other stock that ranks on parity with the Series A Preferred Stock, including the Series B Preferred Stock, with respect to dividend rights
and rights upon our voluntary or involuntary liquidation, dissolution or winding up or our redemption of Series A Preferred Stock pursuant to the provisions of our
charter relating to the restrictions on ownership and transfer of our equity securities.
Special Optional Redemption
During any period of time (whether before or after September 12, 2022) that both (i) the Series A Preferred Stock is not listed on the NYSE, the NYSE
American LLC or the Nasdaq Stock Market (“Nasdaq”), or listed or quoted on an exchange or quotation system that is a successor to the NYSE, NYSE American
LLC or Nasdaq, and (ii) we are not subject to the reporting requirements of the Exchange Act, but any shares of Series A Preferred Stock are outstanding (a
“Delisting Event”), we have the option to redeem the outstanding Series A Preferred Stock, in whole but not in part, within 90 days after the occurrence of the
Delisting Event, for a redemption price of $25.00 per share, plus an amount equal to all dividends accrued and unpaid (whether or not declared), if any, to, but not
including, the redemption date (unless the redemption date is after a dividend record date and prior to the corresponding dividend payment date, in which case no
additional amount for the accrued and unpaid dividend will be included in the redemption price), upon the giving of notice, as provided below.
In addition, upon the occurrence of a Change of Control, we may, at our option, redeem the Series A Preferred Stock, in whole but not in part, within 120
days after the first date on which the Change of Control occurred, by paying $25.00 per share, plus an amount equal to all dividends accrued and unpaid (whether
or not declared), if any, to, but not including, the redemption date (unless the redemption date is after a dividend record date and prior to the corresponding
dividend payment date, in which case no additional amount for the accrued and unpaid dividend will be included in the redemption price). If, prior to the Delisting
Event Conversion Date or Change of Control Conversion Date (each as defined below), as applicable, we provide notice of redemption with respect to the Series A
Preferred Stock (whether pursuant to our optional redemption right or our special optional redemption rights), holders of Series A Preferred Stock will not have the
conversion right described below under “—Conversion Rights.”
Notwithstanding the foregoing, we do not have the right to redeem the Series A Preferred Stock upon any Delisting Event occurring in connection with a
transaction set forth in the first bullet point of the definition of
6
Change of Control unless the Delisting Event also constitutes a Change of Control wherein following the closing of any such transaction, neither we nor the
acquiring or surviving entity, or a parent of us or the acquiring or surviving entity, has a class of common equity securities listed on the NYSE, the NYSE
American LLC or the Nasdaq, or listed or quoted on an exchange or quotation system that is a successor to the NYSE, NYSE American LLC or Nasdaq.
We will mail record holders of Series A Preferred Stock, a notice of redemption no less than 30 days nor more than 60 days prior to the redemption date.
We will send the notice to the record holder’s address, as shown on our share transfer books. A failure to give notice of redemption or any defect in the notice or in
its mailing with not affect the validity of the redemption of any Series A Preferred Stock except as to the holder to whom notice was defective or not given. Each
notice will state the following:
•
•
•
•
•
•
the redemption date;
the redemption price;
the total number of shares of Series A Preferred Stock to be redeemed;
the place or places where the shares of Series A Preferred Stock are to be surrendered for payment, together with the certificates, if any,
representing the shares (duly endorsed for transfer) and any other documents we require in connection with the redemption;
that the Series A Preferred Stock is being redeemed pursuant to our special optional redemption right in connection with the occurrence of a
Change of Control or a Delisting Event, as applicable, and a brief description of the transaction or transactions constituting the Change of
Control or Delisting Event, as applicable;
that holders of Series A Preferred Stock to which the notice relates will not be able to tender the Series A Preferred Stock for conversion in
connection with the Delisting Event or Change of Control, as applicable, and each share of Series A Preferred Stock tendered for conversion that
is selected, prior to the Delisting Event Conversion Date or Change of Control Conversion Date, as applicable, for redemption will be redeemed
on the related redemption date instead of converted on the Delisting Event Conversion Date or Change of Control Conversion Date, as
applicable; and
•
that dividends on the Series A Preferred Stock to be redeemed will cease to accrue on the redemption date.
A “Change of Control” occurs when, after the original issuance of the Series A Preferred Stock, the following have occurred and are continuing:
•
•
the acquisition by any person, including any syndicate or group deemed to be a “person” under Section 13(d)(3) of the Exchange Act, of
beneficial ownership, directly or indirectly, through a purchase, merger, conversion or other acquisition transaction or series of purchases,
mergers, conversions or other acquisition transactions, of shares of our stock entitling that person to exercise more than 50% of the total voting
power of all outstanding shares of our stock entitled to vote generally in the election of directors (except that the person will be deemed to have
beneficial ownership of all securities that the person has the right to acquire, whether the right is currently exercisable or is exercisable only upon
the occurrence of a subsequent condition); and
following the closing of any transaction referred to in the bullet point above, neither we nor the acquiring or surviving entity has a class of
common equity securities listed on the NYSE, the NYSE American LLC or Nasdaq, or listed or quoted on an exchange or quotation system that
is a successor to the NYSE, NYSE American LLC or Nasdaq.
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Additional Provisions Relating to Optional Redemption and Special Optional Redemption
If (i) we have given a notice of redemption, (ii) we have set apart sufficient funds for the redemption of the shares of Series A Preferred Stock called for
redemption and (iii) irrevocable instructions have been given to pay the redemption price and an amount equal to all accrued and unpaid dividends to, but not
including, the redemption date, then from and after the redemption date, those shares of Series A Preferred Stock so called for redemption will no longer be
outstanding, no further dividends will accrue and all other rights of the holders of those shares of Series A Preferred Stock will terminate, except the right to
receive the redemption price, without interest. The holders of those shares of Series A Preferred Stock will retain their right to receive the redemption price for
their shares and an amount equal to any accrued and unpaid dividends payable upon redemption, without interest.
The holders of Series A Preferred Stock at the close of business on a dividend record date will be entitled to receive the dividend payable with respect to
the Series A Preferred Stock on the corresponding dividend payment date notwithstanding the redemption of the Series A Preferred Stock between the record date
and the corresponding dividend payment date.
All shares of Series A Preferred Stock that we redeem or reacquire in any manner will return to the status of authorized but unissued shares of preferred
stock, without further designation as to series or class and may thereafter be classified, reclassified or issued as any series or class of preferred stock.
Conversion Rights
Upon the occurrence of a Delisting Event or a Change of Control, as applicable, each holder of Series A Preferred Stock has the right, unless, prior to the
Delisting Event Conversion Date or Change of Control Conversion Date, as applicable, we have provided or provide notice of our election to redeem the shares of
Series A Preferred Stock as described under “—Optional Redemption” or “—Special Optional Redemption,” to convert some of or all the shares of Series A
Preferred Stock held by the holder (the “Delisting Event Conversion Right” or “Change of Control Conversion Right,” as applicable) on the Delisting Event
Conversion Date or Change of Control Conversion Date, as applicable, into a number of shares of common stock per share of Series A Preferred Stock (the
“Common Stock Conversion Consideration”) equal to the lesser of:
•
the quotient of (i) the sum of the $25.00 liquidation preference per share of Series A Preferred Stock to be converted plus an amount equal to all
dividends accrued and unpaid (whether or not declared) on the Series A Preferred Stock to, but not including, the Delisting Event Conversion
Date or Change of Control Conversion Date, as applicable (unless the Delisting Event Conversion Date or Change of Control Conversion Date,
as applicable, is after a dividend record date and prior to the corresponding dividend payment date, in which case no additional amount for the
accrued and unpaid dividend will be included in this sum), divided by (ii) the Common Stock Price; and
•
2.3010 (the “Share Cap”).
The Share Cap is subject to pro rata adjustments for any stock splits (including those effected pursuant to a common stock dividend), subdivisions or
combinations (in each case, a “Stock Split”) with respect to shares of our common stock as follows: the adjusted Share Cap as the result of a Stock Split will be the
number of shares of our common stock that is equivalent to the product of (i) the Share Cap in effect immediately prior to the Stock Split, multiplied by (ii) a
fraction, the numerator of which is the number of shares of our common stock outstanding after giving effect to the Stock Split and the denominator of which is the
number of shares of our common stock outstanding immediately prior to the Stock Split.
If a Delisting Event or a Change of Control occurs, pursuant to or in connection with which shares of our common stock will be converted into cash,
securities or other property or assets (including any combination thereof) (the “Alternative Form Consideration”), a holder of shares of Series A Preferred Stock
will receive upon conversion of the shares of Series A Preferred Stock the kind and amount of Alternative Form Consideration which the holder
8
would have owned or been entitled to receive had the holder held a number of shares of our common stock equal to the Common Stock Conversion Consideration
immediately prior to the effective time of the Delisting Event or Change of Control, as applicable (the “Alternative Conversion Consideration,” and the Common
Stock Conversion Consideration or the Alternative Conversion Consideration, as may be applicable to a Delisting Event or a Change of Control, is referred to as
the “Conversion Consideration”).
If the holders of shares of our common stock have the opportunity to elect the form of consideration to be received in connection with the Delisting Event
or Change of Control, the Conversion Consideration that holders of Series A Preferred Stock will receive will be the form of consideration elected by the holders
of a plurality of the shares of common stock held by stockholders who participate in the election and will be subject to any limitations to which all holders of
shares of common stock are subject, including, without limitation, pro rata reductions applicable to any portion of the consideration payable in connection with the
Delisting Event or Change of Control, as applicable.
We will not issue fractional shares of common stock upon the conversion of the Series A Preferred Stock. Instead, we will pay the cash value of any
fractional shares based on the Common Stock Price.
Within 15 days following the occurrence of a Delisting Event or a Change of Control, as applicable, unless we have then provided notice of our election
to redeem the shares of Series A Preferred Stock as described under “—Optional Redemption” or “—Special Optional Redemption,” we will provide to holders of
record of outstanding shares of Series A Preferred Stock a notice of occurrence of the Delisting Event or Change of Control that describes the resulting Delisting
Event Conversion Right or Change of Control Conversion Right, as applicable. A failure to give notice of conversion or any defect in the notice or in its mailing
will not affect the validity of the proceedings for the conversion of any Series A Preferred Stock except as to the holder to whom this notice was defective or not
given. This notice will state the following:
•
•
•
•
•
•
•
•
•
the events constituting the Delisting Event or Change of Control, as applicable;
the date of the Delisting Event or Change of Control, as applicable;
the last date on which the holders of shares of Series A Preferred Stock may exercise their Delisting Event Conversion Right or Change of
Control Conversion Right, as applicable;
the method and period for calculating the Common Stock Price;
the “Delisting Event Conversion Date” or “Change of Control Conversion Date,” as applicable, which will be a business day fixed by our board
of directors that is not fewer than 20 and not more than 35 days following the date of the notice;
that if, prior to the Delisting Event Conversion Date or Change of Control Conversion Date, as applicable, we provide notice of our election to
redeem all or any portion of the shares of Series A Preferred Stock, holders of the Series A Preferred Stock will not be able to convert the shares
of Series A Preferred Stock so called for redemption and the shares of Series A Preferred Stock will be redeemed on the related redemption date,
even if they have already been tendered for conversion pursuant to the Delisting Event Conversion Right or Change of Control Conversion
Right, as applicable;
if applicable, the type and amount of Alternative Conversion Consideration entitled to be received per share of Series A Preferred Stock;
the name and address of the paying agent and the conversion agent; and
the procedures that the holders of shares of Series A Preferred Stock must follow to exercise the Delisting Event Conversion Right or Change of
Control Conversion Right, as applicable.
9
We will issue a press release for publication on the Dow Jones & Company, Inc., Business Wire, PR Newswire or Bloomberg Business News (or, if these
organizations are not in existence at the time of issuance of the press release, another news or press organization as is reasonably calculated to broadly disseminate
the relevant information to the public) containing the information stated in the notice, and post the notice on our website, in any event prior to the opening of
business on the first business day following any date on which we provide the notice described above to the holders of record of Series A Preferred Stock.
To exercise the Delisting Event Conversion Right or Change of Control Conversion Right, as applicable, a holder of record of Series A Preferred Stock
will be required to deliver, on or before the close of business on the Delisting Event Conversion Date or Change of Control Conversion Date, as applicable, the
certificates, if any, representing any certificated shares of Series A Preferred Stock to be converted, duly endorsed for transfer, together with a completed written
conversion notice and any other documents we reasonably require in connection with the conversion, to our conversion agent. The conversion notice must state:
•
•
the relevant Delisting Event Conversion Date or Change of Control Conversion Date, as applicable; and
the number of shares of Series A Preferred Stock to be converted.
The “Common Stock Price” for any Change of Control will be (i) if the consideration to be received in the Change of Control by holders of shares of our
common stock is solely cash, the amount of cash consideration per share of common stock, and (ii) if the consideration to be received in the Change of Control by
holders of shares of our common stock is other than solely cash, the average of the closing price per share of our common stock on the 10 consecutive trading days
immediately preceding, but not including, the effective date of the Change of Control. The “Common Stock Price” for any Delisting Event will be the average of
the closing price per share of our common stock on the 10 consecutive trading days immediately preceding, but not including, the effective date of the Delisting
Event.
Holders of Series A Preferred Stock may withdraw any notice of exercise of a Delisting Event Conversion Right or a Change of Control Conversion
Right, as applicable, (in whole or in part) by a written notice of withdrawal delivered to our conversion agent prior to the close of business on the business day
prior to the Delisting Event Conversion Date or Change of Control Conversion Date, as applicable. The notice of withdrawal must state:
•
•
•
the number of withdrawn shares of Series A Preferred Stock;
if certificated shares of Series A Preferred Stock have been tendered for conversion and withdrawn, the certificate numbers of the withdrawn
certificated shares of Series A Preferred Stock; and
the number of shares of Series A Preferred Stock, if any, which remain subject to the conversion notice.
Notwithstanding the foregoing, if the Series A Preferred Stock is held in global form, the conversion notice and/or the notice of withdrawal, as applicable,
must comply with applicable procedures of DTC.
Shares of Series A Preferred Stock as to which the Delisting Event Conversion Right or Change of Control Conversion Right, as applicable, has been
properly exercised and for which the conversion notice has not been properly withdrawn will be converted into the applicable Conversion Consideration on the
applicable Delisting Event Conversion Date or Change of Control Conversion Date, unless prior thereto we provide notice of our election to redeem those shares of
Series A Preferred Stock, whether pursuant to our optional redemption right or our special optional redemption right. If we elect to redeem shares of Series A
Preferred Stock that would otherwise be converted into the applicable Conversion Consideration on a Delisting Event Conversion Date or Change of Control
Conversion Date, as applicable, the shares of Series A Preferred Stock will not be so converted and the holders of the shares will be entitled to receive on the
applicable redemption date the redemption price for the shares.
10
We will deliver amounts owing upon conversion no later than the third business day following the Delisting Event Conversion Date or Change of Control
Conversion Date, as applicable.
In connection with the exercise of any Delisting Event Conversion Right or Change of Control Conversion Right, as applicable, we will be required to
comply with all U.S. federal and state securities laws and stock exchange rules in connection with any conversion of shares of Series A Preferred Stock into shares
of common stock. Notwithstanding any other provision of the Series A Preferred Stock, no holder of Series A Preferred Stock will be entitled to convert shares of
Series A Preferred Stock for shares of our common stock to the extent that receipt of the shares of common stock would cause the holder (or any other person) to
violate the restrictions on ownership and transfer of our equity securities contained in our charter. See “Certain Provisions of the Maryland General Corporation
Law and our Charter and Bylaws—Restrictions on Transfer and Ownership of Stock” below.
These Change of Control conversion and redemption features may make it more difficult for or discourage a party from pursuing a takeover or other
transaction that holders of common stock might believe to be in their best interests or in which holders of some, or a majority, of the shares of common stock might
receive a premium for their shares over the then market price of such shares of common stock.
Except as provided above in connection with a Delisting Event or a Change of Control, the Series A Preferred Stock is not convertible into or
exchangeable for any other property or securities.
Voting Rights
Except as described below, holders of Series A Preferred Stock have no voting rights. On any matter in which the Series A Preferred Stock may vote (as
expressly provided in our charter), each share of Series A Preferred Stock entitles the holder thereof to cast one vote, except that, when voting together as a single
class with shares of any other class or series of voting preferred stock, shares of different classes or series will vote in proportion to the liquidation preference of
the shares.
Holders of the Series A Preferred Stock have the right to vote whenever dividends on the Series A Preferred Stock are in arrears, whether or not declared,
for six or more quarterly periods, whether or not these quarterly periods are consecutive. In this case, holders of Series A Preferred Stock and any other class or
series of preferred stock ranking on parity with the Series A Preferred Stock, including the Series B Preferred Stock, with respect to dividend rights and rights upon
our voluntary or involuntary liquidation, dissolution or winding up and upon which like voting rights have been conferred and are exercisable, which we refer to as
“voting preferred stock,” and with which the holders of Series A Preferred Stock are entitled to vote together as a single class, will have the exclusive power,
voting together as a single class, to elect, at any special meeting called by our secretary at the written request of holders of record of at least 10% of the outstanding
shares of Series A Preferred Stock and any class or series of voting preferred stock (unless the request is received more than 45 days and less than 90 days before
our next annual meeting of stockholders at which the vote would occur) and at each subsequent annual meeting of stockholders, two additional directors to serve
on our board of directors. The right of holders of Series A Preferred Stock to vote in the election of directors will terminate when all dividends accrued and unpaid
on the outstanding shares of Series A Preferred Stock for all past dividend periods and the then-current dividend period have been fully paid. Unless the number of
our directors has previously been increased pursuant to the terms of any other class or series of voting preferred stock with which the holders of Series A Preferred
Stock are entitled to vote together as a single class in the election of directors, the number of our directors will automatically increase by two at the time as holders
of Series A Preferred Stock become entitled to vote in the election of two additional directors. Unless shares of voting preferred stock remain outstanding and
entitled to vote in the election of directors, the term of office of these directors will terminate, and the number of our directors will automatically decrease by two,
when all dividends accrued and unpaid for all past dividend periods and the then-current dividend period on the Series A Preferred Stock have been fully paid. If
the right of holders of Series A Preferred Stock to elect the two additional directors terminates after the record date for determining holders of shares of Series A
Preferred Stock entitled to vote in any election of directors but before the closing of the polls in the election, holders of Series A Preferred Stock outstanding as of
the applicable record date will not be entitled to vote in the election of directors. The right of the holders of Series A Preferred Stock to elect the additional
directors will again vest if and whenever dividends
11
are in arrears for six quarterly periods, as described above. In no event will the holders of Series A Preferred Stock be entitled to nominate or elect an individual as
a director, and no individual will be qualified to be nominated for election or to serve as a director, if the individual’s service as a director would cause us to fail to
satisfy a requirement relating to director independence of any national securities exchange on which any class or series of our stock is listed or otherwise conflict
with our charter or bylaws.
The additional directors will be elected by a plurality of the votes cast in the election of directors, and each of these directors will serve until the next
annual meeting of our stockholders and until his or her successor is duly elected and qualifies, or until the director’s term of office terminates as described above.
Any director elected by the holders of Series A Preferred Stock and any class or series of voting preferred stock may be removed, with or without cause, only by a
vote of the holders of a majority of the outstanding shares of Series A Preferred Stock and all classes or series of voting preferred stock with which the holders of
Series A Preferred Stock are entitled to vote together as a single class in the election of directors. At any time that the holders of Series A Preferred Stock are
entitled to vote in the election of the two additional directors, holders of Series A Preferred Stock will be entitled to vote in the election of a successor to fill any
vacancy on our board of directors that results from the removal of the director.
At any time that holders of Series A Preferred Stock, and any other class or series of voting preferred stock with which the holders of Series A Preferred
Stock will be entitled to vote as a single class in the election of directors, have the right to elect two additional directors as described above but these directors have
not been elected, our secretary must call a special meeting for the purpose of electing the additional directors upon the written request of the holders of record of
10% of the outstanding shares of Series A Preferred Stock and any other class or series of voting preferred stock with which the holders of Series A Preferred
Stock are entitled to vote together as a single class with respect to the election of directors, unless the request is received more than 45 days and less than 90 days
before the date fixed for the next annual meeting of our stockholders at which the vote would occur, in which case, the additional directors may be elected either at
the annual meeting or at a separate special meeting of our stockholders at our discretion.
So long as any shares of Series A Preferred Stock are outstanding, the approval of the holders of at least two-thirds of the outstanding shares of Series A
Preferred Stock and of any equally-affected class or series of voting preferred stock, including the Series B Preferred Stock, with which the holders of Series A
Preferred Stock are entitled to vote (voting together as a single class), is required to authorize (a) any amendment, alteration, repeal or other change to any
provision of our charter, including the articles supplementary setting forth the terms of the Series A Preferred Stock (whether by merger, conversion, consolidation,
transfer or conveyance of all or substantially all of our assets or otherwise), that would materially and adversely affect the rights, preferences, privileges or voting
powers of the Series A Preferred Stock, or (b) the creation, issuance or increase in the authorized number of shares of any class or series of stock ranking senior to
the Series A Preferred Stock (or any equity securities convertible into or exchangeable for any such shares) with respect to dividend rights and rights upon our
voluntary or involuntary liquidation, dissolution or winding up. Notwithstanding the foregoing, holders of voting preferred stock will not be entitled to vote
together as a class with the holders of Series A Preferred Stock on any amendment, alteration, repeal or other change to any provision of our charter unless the
action affects the holders of Series A Preferred Stock and the voting preferred stock equally.
The following actions will not be deemed to materially and adversely affect the rights, preferences, privileges or voting powers of the Series A Preferred
Stock:
•
any increase or decrease in the number of authorized shares of common stock, Series C Preferred Stock or preferred stock of any other class or
series or the classification or reclassification of any unissued shares, or the creation or issuance of equity securities, of any class or series
ranking, junior to or on parity with the Series A Preferred Stock, including the Series B Preferred Stock, with respect to dividend rights and
rights upon our voluntary or involuntary liquidation, dissolution or winding up;
12
•
•
any amendment, alteration or repeal or other change to any provision of our charter, including the articles supplementary setting forth the terms
of the Series A Preferred Stock, as a result of a merger, conversion, consolidation, transfer or conveyance of all or substantially all of our assets
or other business combination, whether or not we are the surviving entity, if the Series A Preferred Stock (or stock into which the Series A
Preferred Stock has been converted in any successor person or entity to us) remains outstanding with the terms thereof unchanged in all material
respects or is exchanged for stock of the successor person or entity with substantially identical rights; or
any amendment, alteration or repeal or other change to any provision of our charter, including the articles supplementary setting forth the terms
of the Series A Preferred Stock, as a result of a merger, conversion, consolidation, transfer or conveyance of all or substantially all of our assets
or other business combination, if the holders of Series A Preferred Stock receive the $25.00 liquidation preference per share of Series A
Preferred Stock, plus an amount equal to accrued and unpaid dividends to, but not including, the date of the event.
The voting provisions above will not apply if, at or prior to the time when the act with respect to which the vote would otherwise be required would occur,
we have redeemed or called for redemption all outstanding shares of Series A Preferred Stock.
No Maturity, Sinking Fund or Mandatory Redemption
The Series A Preferred Stock has no stated maturity date and is not subject to any sinking fund or mandatory redemption provisions.
Summary of Restrictions on Transfer and Ownership of Stock
Our charter contains restrictions on the ownership and transfer of shares of our common stock and other outstanding shares of stock, including the Series
A Preferred Stock. The relevant sections of our charter provide that, subject to certain exceptions, no person or entity may own, or be deemed to own, by virtue of
the applicable constructive ownership provisions of the Code, more than 9.8% in value of the aggregate of the outstanding shares of our capital 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 capital stock. For further information regarding the
restrictions on ownership and transfer of the Series A Preferred Stock, see “Certain Provisions of the Maryland General Corporation Law and our Charter and
Bylaws—Restrictions on Transfer and Ownership of Stock” below.
Conversion
The Series A Preferred Stock is not convertible into or exchangeable for any other property or securities, except as provided under “—Conversion
Rights.”
Information Rights
During any period in which we are not subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act and any shares of Series A
Preferred Stock are outstanding, we will (i) transmit by mail or other permissible means under the Exchange Act to all holders of Series A Preferred Stock as their
names and addresses appear in our record books and without cost to the holders, copies of the Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and
Current Reports on Form 8-K that we would have been required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act if we were subject
thereto (other than any exhibits that would have been required) within 15 days after the respective dates by which we would have been required to file these reports
with the SEC if we were subject to Section 13 or 15(d) of the Exchange Act and (ii) within 15 days following written request, supply copies of these reports to any
prospective holder of Series A Preferred Stock.
13
Preemptive Rights
No holders of Series A Preferred Stock shall, as a result of his, her or its status as such holder, have any preemptive rights to purchase or subscribe for
shares of our common stock or any of our other securities.
Series B Preferred Stock
As of December 31, 2020, 11,450,000 shares of preferred stock were classified and designated as Series B Preferred Stock pursuant to our charter.
Ranking
The Series B Preferred Stock, with respect to dividend rights and rights upon our voluntary or involuntary liquidation, dissolution or winding-up, ranks:
•
•
•
senior to our common stock and Series C Preferred Stock and to all other equity securities ranking junior to the Series B Preferred Stock;
on parity with the Series A Preferred Stock and all other equity securities ranking on parity with the Series B Preferred Stock; and
junior to any class or series of equity securities ranking senior to the Series B Preferred Stock.
The authorization or issuance of equity securities ranking senior to the Series B Preferred Stock would require the affirmative vote of the holders of at
least two-thirds of the outstanding shares of Series B Preferred Stock and of any other similarly-affected classes and series of preferred stock ranking on parity with
the Series B Preferred Stock, including the Series A Preferred Stock, and upon which like voting rights have been conferred and are exercisable. Any convertible
debt securities that we may issue will not be considered to be “equity securities” for these purposes prior to the time of conversion. The Series B Preferred Stock
ranks junior to all our existing and future indebtedness. The terms of the Series B Preferred Stock do not limit our ability to (i) incur indebtedness or (ii) issue
additional equity securities that rank junior to or on parity with the Series B Preferred Stock, including the Series A Preferred Stock, with respect to dividend rights
and rights upon our voluntary or involuntary liquidation, dissolution or winding up.
Dividends
Holders of Series B Preferred Stock are entitled to receive, when, as and if authorized by our board of directors and declared by us, out of funds legally
available for the payment of dividends, cumulative cash dividends in the amount of $1.71875 per share each year, which is equivalent to the rate of 6.875% of the
$25.00 liquidation preference per share per annum. Dividends are payable quarterly in arrears on the 15th day of January, April, July and October of each year or,
if not a business day, the next succeeding business day, for each quarterly period commencing on and including the 1st day of January, April, July and October of
each year and ending on and including the day preceding the first day of the next succeeding dividend period to all holders of record on the applicable record date,
when and as authorized by our board of directors and declared by us. Holders of record of all shares of Series B Preferred Stock issued and outstanding on the
record date fixed by our board of directors for any dividend will be entitled to receive the full dividend paid on the applicable dividend payment date even if such
shares were not issued and outstanding for the full dividend period.
Any dividend, including any dividend payable on the Series B Preferred Stock for any partial dividend period, is computed on the basis of a 360-day year
consisting of twelve 30-day months. Dividends are payable to holders of record of Series B Preferred Stock as they appear in the transfer agent’s records at the
close of business on the applicable record date, which will be the date that our board of directors sets as the record date for the payment of a dividend that is not
more than 30 nor fewer than 10 days prior to the applicable dividend payment date.
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Our board of directors will not authorize, and we will not pay or declare and set apart for payment, any dividend on the Series B Preferred Stock at any
time that:
•
•
•
the terms and conditions of any of our agreements, including our credit facility or any other agreement relating to our indebtedness, prohibit the
authorization, payment or setting apart for payment;
the terms and conditions of any of our agreements, including our credit facility or any other agreement relating to our indebtedness, provide that
the authorization, payment or setting apart for payment would constitute a breach of, or a default under, the agreement; or
the law restricts or prohibits the authorization, payment or setting apart for payment.
Notwithstanding the foregoing, dividends on the Series B Preferred Stock will accrue whether or not the dividends are authorized by our board of
directors and declared by us, from the later of the first date on which the Series B Preferred Stock is issued and the most recent dividend payment date on which
dividends have been paid.
Accrued and unpaid dividends on the Series B Preferred Stock do not bear interest.
We will not pay or declare and set apart for payment any dividends (other than a dividend paid in common stock, Series C Preferred Stock or other stock
ranking junior to the Series B Preferred Stock with respect to dividend rights and rights upon our voluntary or involuntary liquidation, dissolution or winding up) or
declare or make any distribution of cash or other property on common stock, Series C Preferred Stock or other stock that ranks junior to or on parity with the Series
B Preferred Stock, including the Series A Preferred Stock, with respect to dividend rights and rights upon our voluntary or involuntary liquidation, dissolution or
winding up or redeem or otherwise acquire common stock, Series C Preferred Stock or other stock that ranks junior to or on parity with the Series B Preferred
Stock, including the Series A Preferred Stock, with respect to dividend rights and rights upon our voluntary or involuntary liquidation, dissolution or winding up
(except (i) by conversion into or exchange for common stock, Series C Preferred Stock or other stock ranking junior to the Series B Preferred Stock with respect to
dividend rights and rights upon our voluntary or involuntary liquidation, dissolution or winding up, (ii) for the redemption of shares of our stock pursuant to the
provisions of our charter relating to the restrictions upon ownership and transfer of our equity securities and (iii) for a purchase or exchange offer made on the
same terms to holders of all outstanding shares of Series B Preferred Stock and any other stock that ranks on parity with the Series B Preferred Stock, including the
Series A Preferred Stock, with respect to dividend rights and rights upon our voluntary or involuntary liquidation, dissolution or winding up), unless we also have
either paid or declared and set apart for payment full cumulative dividends on the Series B Preferred Stock for all past dividend periods.
Notwithstanding the foregoing, if we do not either pay or declare and set apart for payment full cumulative dividends on the Series B Preferred Stock and
all stock that ranks on parity with the Series B Preferred Stock, including the Series A Preferred Stock, with respect to dividends, the amount which we have
declared will be allocated pro rata to the holders of Series B Preferred Stock and to each equally ranked class or series of stock, including the Series A Preferred
Stock, so that the amount declared for each share of Series B Preferred Stock and for each share of each equally ranked class or series of stock, including the Series
A Preferred Stock, is proportionate to the accrued and unpaid dividends on those shares. Any dividend payment made on the Series B Preferred Stock will first be
credited against the earliest accrued and unpaid dividend.
If, for any taxable year, we elect to designate as “capital gain dividends” (as defined in Section 857 of the Code) a portion (the “Capital Gains Amount”)
of the dividends not in excess of our earnings and profits that are paid or made available for the year to the holders of all classes or series of stock outstanding (the
“Total Dividends”), then the portion of the Capital Gains Amount that will be allocable to the holders of Series B Preferred Stock will be in the same proportion
that the Total Dividends paid or made available to the holders of Series B Preferred Stock for the taxable year bears to the Total Dividends for the taxable year
made with respect to all classes or series of stock outstanding.
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Liquidation Preference
Upon any voluntary or involuntary liquidation, dissolution or winding up of our affairs, the holders of Series B Preferred Stock are entitled to be paid out
of our assets legally available for distribution to our stockholders a liquidation preference of $25.00 per share, plus an amount equal to any accrued and unpaid
dividends (whether or not declared) to, but not including, the date of payment, before any distribution or payment may be made to holders of common stock, Series
C Preferred Stock or any other class or series of our equity stock ranking junior to the Series B Preferred Stock with respect to liquidation rights. If, upon our
voluntary or involuntary liquidation, dissolution or winding up, our available assets are insufficient to pay the full amount of the liquidating distributions on all
outstanding shares of Series B Preferred Stock and the corresponding amounts payable on all shares of each other class or series of stock ranking on parity with the
Series B Preferred Stock, including the Series A Preferred Stock, with respect to liquidation rights, then the holders of Series B Preferred Stock and any other class
or series of stock ranking on parity with the Series B Preferred Stock, including the Series A Preferred Stock, with respect to liquidation rights will share ratably in
any distribution of assets in proportion to the full liquidating distributions to which they would otherwise be respectively entitled. Holders of Series B Preferred
Stock are entitled to written notice of any voluntary or involuntary liquidation, dissolution or winding up at least 20 days before the payment date of the liquidating
distribution. After the holders of Series B Preferred Stock have received the full amount of the liquidating distributions to which they are entitled, they will have no
right or claim to any of our remaining assets.
In determining whether any distribution (other than upon voluntary or involuntary dissolution) by dividend, redemption or other acquisition of shares of
stock of the Company or otherwise is permitted under the MGCL, amounts that would be needed, if the Company were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon dissolution of the holders of Series B Preferred Stock will not be added to the Company’s total liabilities.
Our consolidation, conversion or merger with or into any other person or entity or the sale, lease, transfer or conveyance of all or substantially all of our
property or business, whether in connection with a Change of Control (as defined below) or otherwise, will not be deemed to constitute our liquidation, dissolution
or winding up.
Optional Redemption
The Series B Preferred Stock is not redeemable prior to November 26, 2024, except in the circumstances described in this section, in the section below
titled “Special Optional Redemption,” or pursuant to certain provisions of our charter. See “Certain Provisions of the Maryland General Corporation Law and our
Charter and Bylaws—Restrictions on Transfer and Ownership of Stock” below.
Notwithstanding any other provision relating to redemption or repurchase of the Series B Preferred Stock, we may redeem any or all of the Series B
Preferred Stock at any time, whether before or after November 26, 2024, at a redemption price of $25.00 per share, plus an amount equal to all dividends accrued
and unpaid (whether or not declared), pursuant to the restrictions on ownership and transfer of our equity securities set forth in our charter or if our board of
directors otherwise determines that redemption is necessary for us to preserve our status as a REIT.
On and after November 26, 2024, the Series B Preferred Stock may be redeemed at our option, in whole or in part, at any time or from time to time, at a
redemption price of $25.00 per share, plus an amount equal to all dividends accrued and unpaid (whether or not declared), if any, to, but not including, the
redemption date (unless the redemption date is after a dividend record date and prior to the corresponding dividend payment date, in which case no additional
amount for the accrued and unpaid dividend will be included in the redemption price), without interest, upon the giving of notice, as provided below.
If less than all of the outstanding Series B Preferred Stock is to be redeemed, the shares to be redeemed will be determined pro rata (as nearly as may be
practicable without creating fractional shares) or by lot. If the redemption is to be by lot, and if as a result of the redemption any holder of Series B Preferred Stock
would own, or be deemed by virtue of certain attribution provisions of the Code to own, in excess of 9.8% in value of our issued
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and outstanding equity securities (which includes the Series B Preferred Stock) or 9.8% in value or number of shares (whichever is more restrictive) of any class or
series of our issued and outstanding equity securities or violate any of the other restrictions on ownership and transfer of our equity securities set forth in our
charter, then, except in certain instances, we will redeem the requisite number of shares of Series B Preferred Stock of that holder so that the holder will not own or
be deemed by virtue of certain attribution provisions of the Code to own, subsequent to the redemption, in excess of 9.8% in value of our issued and outstanding
equity securities or 9.8% in value or number of shares (whichever is more restrictive) of any class or series of our issued and outstanding equity securities or
violate any of the other restrictions on ownership and transfer set forth in our charter.
We will mail to record holders of the Series B Preferred Stock, a notice of redemption no less than 30 days nor more than 60 days prior to the redemption
date. We will send the notice to the record holder’s address, as shown on our share transfer books. A failure to give notice of redemption or any defect in the notice
or in its mailing will not affect the validity of the redemption of any Series B Preferred Stock except as to shares held by any holder to whom notice was defective
or not given. Each notice will state the following:
•
•
•
•
•
the redemption date;
the redemption price;
the total number of shares of Series B Preferred Stock to be redeemed (and, if less than all the shares held by any holder are to be redeemed, the
number of shares to be redeemed from the holder);
the place or places where the shares of Series B Preferred Stock are to be surrendered for payment, together with the certificates, if any,
representing the shares (duly endorsed for transfer) and any other documents we require in connection with redemption; and
that dividends on the Series B Preferred Stock will cease to accrue on the redemption date.
Unless full cumulative dividends on all shares of Series B Preferred Stock have been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for payment for all past dividend periods, no shares of Series B Preferred Stock may be redeemed unless all outstanding
shares of Series B Preferred Stock are simultaneously redeemed. In addition, unless full cumulative dividends on all shares of Series B Preferred Stock have been
or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for payment for all past dividend periods, we will
not purchase or otherwise acquire directly or indirectly any Series B Preferred Stock (except (i) by exchange for our equity securities ranking junior to the Series B
Preferred Stock with respect to dividend rights and rights upon our voluntary or involuntary liquidation, dissolution or winding up, (ii) pursuant to the provisions of
our charter relating to restrictions on ownership and transfer of our equity securities and (iii) pursuant to a purchase or exchange offer made on the same terms to
the holders of all outstanding shares of Series B Preferred Stock and any other stock that ranks on parity with the Series B Preferred Stock, including the Series A
Preferred Stock, with respect to dividend rights and rights upon our voluntary or involuntary liquidation, dissolution or winding up). So long as no dividends on
Series B Preferred Stock for any past dividend period are in arrears, we are entitled at any time and from time to time to repurchase Series B Preferred Stock in
open-market transactions duly authorized by our board of directors and effected in compliance with applicable laws and these requirements will not prevent our
purchase or acquisition of Series B Preferred Stock pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding Series B
Preferred Stock and any other stock that ranks on parity with the Series B Preferred Stock, including the Series A Preferred Stock, with respect to dividend rights
and rights upon our voluntary or involuntary liquidation, dissolution or winding up or our redemption of Series B Preferred Stock pursuant to the provisions of our
charter relating to the restrictions on ownership and transfer of our equity securities.
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Special Optional Redemption
During any period of time (whether before or after November 26, 2024) that both (i) the Series B Preferred Stock is not listed on the NYSE, the NYSE
American LLC or the Nasdaq, or listed or quoted on an exchange or quotation system that is a successor to the NYSE, NYSE American LLC or Nasdaq, and (ii)
we are not subject to the reporting requirements of the Exchange Act, but any shares of Series B Preferred Stock are outstanding (a “Delisting Event”), we have the
option to redeem the outstanding Series B Preferred Stock, in whole but not in part, within 90 days after the occurrence of the Delisting Event, for a redemption
price of $25.00 per share, plus an amount equal to all dividends accrued and unpaid (whether or not declared), if any, to, but not including, the redemption date
(unless the redemption date is after a dividend record date and prior to the corresponding dividend payment date, in which case no additional amount for the
accrued and unpaid dividend will be included in the redemption price), upon the giving of notice, as provided below.
In addition, upon the occurrence of a Change of Control, we may, at our option, redeem the Series B Preferred Stock, in whole but not in part, within 120
days after the first date on which the Change of Control occurred, by paying $25.00 per share, plus an amount equal to all dividends accrued and unpaid (whether
or not declared), if any, to, but not including, the redemption date (unless the redemption date is after a dividend record date and prior to the corresponding
dividend payment date, in which case no additional amount for the accrued and unpaid dividend will be included in the redemption price). If, prior to the Delisting
Event Conversion Date or Change of Control Conversion Date (each as defined below), as applicable, we provide notice of redemption with respect to the Series B
Preferred Stock (whether pursuant to our optional redemption right or our special optional redemption rights), holders of Series B Preferred Stock will not have the
conversion right described below under “—Conversion Rights.”
Notwithstanding the foregoing, we do not have the right to redeem the Series B Preferred Stock upon any Delisting Event occurring in connection with a
transaction set forth in the first bullet point of the definition of Change of Control unless the Delisting Event also constitutes a Change of Control wherein
following the closing of any such transaction, neither we nor the acquiring or surviving entity, or a parent of us or the acquiring or surviving entity, has a class of
common equity securities listed on the NYSE, the NYSE American LLC or the Nasdaq, or listed or quoted on an exchange or quotation system that is a successor
to the NYSE, NYSE American LLC or Nasdaq.
We will mail record holders of Series B Preferred Stock, a notice of redemption no less than 30 days nor more than 60 days prior to the redemption date.
We will send the notice to the record holder’s address, as shown on our share transfer books. A failure to give notice of redemption or any defect in the notice or in
its mailing with not affect the validity of the redemption of any Series B Preferred Stock except as to the holder to whom notice was defective or not given. Each
notice will state the following:
•
•
•
•
•
the redemption date;
the redemption price;
the total number of shares of Series B Preferred Stock to be redeemed;
the place or places where the shares of Series B Preferred Stock are to be surrendered for payment, together with the certificates, if any,
representing the shares (duly endorsed for transfer) and any other documents we require in connection with the redemption;
that the Series B Preferred Stock is being redeemed pursuant to our special optional redemption right in connection with the occurrence of a
Change of Control or a Delisting Event, as applicable, and a brief description of the transaction or transactions constituting the Change of
Control or Delisting Event, as applicable;
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•
that holders of Series B Preferred Stock to which the notice relates will not be able to tender the Series B Preferred Stock for conversion in
connection with the Delisting Event or Change of Control, as applicable, and each share of Series B Preferred Stock tendered for conversion that
is selected, prior to the Delisting Event Conversion Date or Change of Control Conversion Date, as applicable, for redemption will be redeemed
on the related redemption date instead of converted on the Delisting Event Conversion Date or Change of Control Conversion Date, as
applicable; and
•
that dividends on the Series B Preferred Stock to be redeemed will cease to accrue on the redemption date.
A Change of Control occurs when, after the original issuance of the Series B Preferred Stock, the following have occurred and are continuing:
•
•
the acquisition by any person, including any syndicate or group deemed to be a “person” under Section 13(d)(3) of the Exchange Act, of
beneficial ownership, directly or indirectly, through a purchase, merger, conversion or other acquisition transaction or series of purchases,
mergers, conversions or other acquisition transactions, of shares of our stock entitling that person to exercise more than 50% of the total voting
power of all outstanding shares of our stock entitled to vote generally in the election of directors (except that the person will be deemed to have
beneficial ownership of all securities that the person has the right to acquire, whether the right is currently exercisable or is exercisable only upon
the occurrence of a subsequent condition); and
following the closing of any transaction referred to in the bullet point above, neither we nor the acquiring or surviving entity, or a parent of us or
the acquiring or surviving entity, has a class of common equity securities listed on the NYSE, the NYSE American LLC or Nasdaq, or listed or
quoted on an exchange or quotation system that is a successor to the NYSE, NYSE American LLC or Nasdaq.
Additional Provisions Relating to Optional Redemption and Special Optional Redemption
If (i) we have given a notice of redemption, (ii) we have set apart sufficient funds for the redemption of the shares of Series B Preferred Stock called for
redemption and (iii) irrevocable instructions have been given to pay the redemption price and an amount equal to all accrued and unpaid dividends to, but not
including, the redemption date, then from and after the redemption date, those shares of Series B Preferred Stock so called for redemption will no longer be
outstanding, no further dividends will accrue and all other rights of the holders of those shares of Series B Preferred Stock will terminate, except the right to
receive the redemption price, without interest. The holders of those shares of Series B Preferred Stock will retain their right to receive the redemption price for
their shares and an amount equal to any accrued and unpaid dividends payable upon redemption, without interest.
The holders of Series B Preferred Stock at the close of business on a dividend record date will be entitled to receive the dividend payable with respect to
the Series B Preferred Stock on the corresponding dividend payment date notwithstanding the redemption of the Series B Preferred Stock between the record date
and the corresponding dividend payment date.
All shares of Series B Preferred Stock that we redeem or reacquire in any manner will return to the status of authorized but unissued shares of preferred
stock, without further designation as to series or class and may thereafter be classified, reclassified or issued as any series or class of preferred stock.
Conversion Rights
Upon the occurrence of a Delisting Event or a Change of Control, as applicable, each holder of Series B Preferred Stock has the right, unless, prior to the
Delisting Event Conversion Date or Change of Control Conversion Date, as applicable, we have provided or provide notice of our election to redeem the shares of
Series B Preferred Stock as described under “—Optional Redemption” or “—Special Optional Redemption,” to convert some of or all
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the shares of Series B Preferred Stock held by the holder (the “Delisting Event Conversion Right” or “Change of Control Conversion Right,” as applicable) on the
Delisting Event Conversion Date or Change of Control Conversion Date, as applicable, into a number of shares of common stock per share of Series B Preferred
Stock (the “Common Stock Conversion Consideration”) equal to the lesser of:
•
the quotient of (i) the sum of the $25.00 liquidation preference per share of Series B Preferred Stock to be converted plus an amount equal to all
dividends accrued and unpaid (whether or not declared) on the Series B Preferred Stock to, but not including, the Delisting Event Conversion
Date or Change of Control Conversion Date, as applicable (unless the Delisting Event Conversion Date or Change of Control Conversion Date,
as applicable, is after a dividend record date and prior to the corresponding dividend payment date, in which case no additional amount for the
accrued and unpaid dividend will be included in this sum), divided by (ii) the Common Stock Price; and
•
2.5126 (the “Share Cap”).
The Share Cap is subject to pro rata adjustments for any stock splits (including those effected pursuant to a common stock dividend), subdivisions or
combinations (in each case, a “Stock Split”) with respect to shares of our common stock as follows: the adjusted Share Cap as the result of a Stock Split will be the
number of shares of our common stock that is equivalent to the product of (i) the Share Cap in effect immediately prior to the Stock Split, multiplied by (ii) a
fraction, the numerator of which is the number of shares of our common stock outstanding after giving effect to the Stock Split and the denominator of which is the
number of shares of our common stock outstanding immediately prior to the Stock Split.
If a Delisting Event or a Change of Control occurs, pursuant to or in connection with which shares of our common stock will be converted into cash,
securities or other property or assets (including any combination thereof) (the “Alternative Form Consideration”), a holder of shares of Series B Preferred Stock
will receive upon conversion of the shares of Series B Preferred Stock the kind and amount of Alternative Form Consideration which the holder would have owned
or been entitled to receive had the holder held a number of shares of our common stock equal to the Common Stock Conversion Consideration immediately prior to
the effective time of the Delisting Event or Change of Control, as applicable (the “Alternative Conversion Consideration,” and the Common Stock Conversion
Consideration or the Alternative Conversion Consideration, as may be applicable to a Delisting Event or a Change of Control, is referred to as the “Conversion
Consideration”).
If the holders of shares of our common stock have the opportunity to elect the form of consideration to be received in connection with the Delisting Event
or Change of Control, the Conversion Consideration that holders of Series B Preferred Stock will receive will be the form of consideration elected by the holders of
a plurality of the shares of common stock held by stockholders who participate in the election and will be subject to any limitations to which all holders of shares
of common stock are subject, including, without limitation, pro rata reductions applicable to any portion of the consideration payable in connection with the
Delisting Event or Change of Control, as applicable.
We will not issue fractional shares of common stock upon the conversion of the Series B Preferred Stock. Instead, we will pay the cash value of any
fractional shares based on the Common Stock Price.
Within 15 days following the occurrence of a Delisting Event or a Change of Control, as applicable, unless we have then provided notice of our election
to redeem the shares of Series B Preferred Stock as described under “—Optional Redemption” or “—Special Optional Redemption,” we will provide to holders of
record of outstanding shares of Series B Preferred Stock a notice of occurrence of the Delisting Event or Change of Control that describes the resulting Delisting
Event Conversion Right or Change of Control Conversion Right, as applicable. A failure to give notice of conversion or any defect in the notice or in its mailing
will not affect the validity of the proceedings for the conversion of any Series B Preferred Stock except as to the holder to whom this notice was defective or not
given. This notice will state the following:
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•
•
•
•
•
•
•
•
•
the events constituting the Delisting Event or Change of Control, as applicable;
the date of the Delisting Event or Change of Control, as applicable;
the last date on which the holders of shares of Series B Preferred Stock may exercise their Delisting Event Conversion Right or Change of
Control Conversion Right, as applicable;
the method and period for calculating the Common Stock Price;
the “Delisting Event Conversion Date” or “Change of Control Conversion Date,” as applicable, which will be a business day fixed by our board
of directors that is not fewer than 20 and not more than 35 days following the date of the notice;
that if, prior to the Delisting Event Conversion Date or Change of Control Conversion Date, as applicable, we provide notice of our election to
redeem all or any portion of the shares of Series B Preferred Stock, holders of the Series B Preferred Stock will not be able to convert the shares
of Series B Preferred Stock so called for redemption and the shares of Series B Preferred Stock will be redeemed on the related redemption date,
even if they have already been tendered for conversion pursuant to the Delisting Event Conversion Right or Change of Control Conversion
Right, as applicable;
if applicable, the type and amount of Alternative Conversion Consideration entitled to be received per share of Series B Preferred Stock;
the name and address of the paying agent and the conversion agent; and
the procedures that the holders of shares of Series B Preferred Stock must follow to exercise the Delisting Event Conversion Right or Change of
Control Conversion Right, as applicable.
We will issue a press release for publication on the Dow Jones & Company, Inc., Business Wire, PR Newswire or Bloomberg Business News (or, if these
organizations are not in existence at the time of issuance of the press release, another news or press organization as is reasonably calculated to broadly disseminate
the relevant information to the public) containing the information stated in the notice, and post the notice on our website, in any event prior to the opening of
business on the first business day following any date on which we provide the notice described above to the holders of record of Series B Preferred Stock.
To exercise the Delisting Event Conversion Right or Change of Control Conversion Right, as applicable, a holder of record of Series B Preferred Stock
will be required to deliver, on or before the close of business on the Delisting Event Conversion Date or Change of Control Conversion Date, as applicable, the
certificates, if any, representing any certificated shares of Series B Preferred Stock to be converted, duly endorsed for transfer, together with a completed written
conversion notice and any other documents we reasonably require in connection with the conversion, to our conversion agent. The conversion notice must state:
•
•
the relevant Delisting Event Conversion Date or Change of Control Conversion Date, as applicable; and
the number of shares of Series B Preferred Stock to be converted.
The “Common Stock Price” for any Change of Control will be (i) if the consideration to be received in the Change of Control by holders of shares of our
common stock is solely cash, the amount of cash consideration per share of common stock, and (ii) if the consideration to be received in the Change of Control by
holders of shares of our common stock is other than solely cash, the average of the closing price per share of our common stock on the 10 consecutive trading days
immediately preceding, but not including, the effective date of the Change of Control. The “Common Stock Price” for any Delisting Event will be the average of
the closing price per share of our
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common stock on the 10 consecutive trading days immediately preceding, but not including, the effective date of the Delisting Event.
Holders of Series B Preferred Stock may withdraw any notice of exercise of a Delisting Event Conversion Right or a Change of Control Conversion
Right, as applicable, (in whole or in part) by a written notice of withdrawal delivered to our conversion agent prior to the close of business on the business day
prior to the Delisting Event Conversion Date or Change of Control Conversion Date, as applicable. The notice of withdrawal must state:
•
•
•
the number of withdrawn shares of Series B Preferred Stock;
if certificated shares of Series B Preferred Stock have been tendered for conversion and withdrawn, the certificate numbers of the withdrawn
certificated shares of Series B Preferred Stock; and
the number of shares of Series B Preferred Stock, if any, which remain subject to the conversion notice.
Notwithstanding the foregoing, if the Series B Preferred Stock is held in global form, the conversion notice and/or the notice of withdrawal, as applicable,
must comply with applicable procedures of DTC.
Shares of Series B Preferred Stock as to which the Delisting Event Conversion Right or Change of Control Conversion Right, as applicable, has been
properly exercised and for which the conversion notice has not been properly withdrawn will be converted into the applicable Conversion Consideration on the
applicable Delisting Event Conversion Date or Change of Control Conversion Date, unless prior thereto we provide notice of our election to redeem those shares of
Series B Preferred Stock, whether pursuant to our optional redemption right or our special optional redemption right. If we elect to redeem shares of Series B
Preferred Stock that would otherwise be converted into the applicable Conversion Consideration on a Delisting Event Conversion Date or Change of Control
Conversion Date, as applicable, the shares of Series B Preferred Stock will not be so converted and the holders of the shares will be entitled to receive on the
applicable redemption date the redemption price for the shares.
We will deliver amounts owing upon conversion no later than the third business day following the Delisting Event Conversion Date or Change of Control
Conversion Date, as applicable.
In connection with the exercise of any Delisting Event Conversion Right or Change of Control Conversion Right, as applicable, we will be required to
comply with all U.S. federal and state securities laws and stock exchange rules in connection with any conversion of shares of Series B Preferred Stock into shares
of common stock. Notwithstanding any other provision of the Series B Preferred Stock, no holder of Series B Preferred Stock will be entitled to convert shares of
Series B Preferred Stock for shares of our common stock to the extent that receipt of the shares of common stock would cause the holder (or any other person) to
violate the restrictions on ownership and transfer of our equity securities contained in our charter. See “Certain Provisions of the Maryland General Corporation
Law and our Charter and Bylaws—Restrictions on Transfer and Ownership of Stock” below.
These Change of Control conversion and redemption features may make it more difficult for or discourage a party from pursuing a takeover or other
transaction that holders of common stock might believe to be in their best interests or in which holders of some, or a majority, of the shares of common stock might
receive a premium for their shares over the then market price of such shares of common stock.
Except as provided above in connection with a Delisting Event or a Change of Control, the Series B Preferred Stock is not convertible into any other
property or securities.
Voting Rights
Except as described below, holders of Series B Preferred Stock have no voting rights. On any matter in which the Series B Preferred Stock may vote (as
expressly provided in our charter), each share of Series B Preferred
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Stock entitles the holder thereof to cast one vote, except that, when voting together as a single class with shares of any other class or series of voting preferred
stock, shares of different classes or series will vote in proportion to the liquidation preference of the shares.
Holders of the Series B Preferred Stock have the right to vote whenever dividends on the Series B Preferred Stock are in arrears, whether or not declared,
for six or more quarterly periods, whether or not these quarterly periods are consecutive. In this case, holders of Series B Preferred Stock and any other class or
series of preferred stock ranking on parity with the Series B Preferred Stock, including the Series A Preferred Stock, with respect to dividend rights and rights upon
our voluntary or involuntary liquidation, dissolution or winding up and upon which like voting rights have been conferred and are exercisable, which we refer to as
“voting preferred stock,” and with which the holders of Series B Preferred Stock are entitled to vote together as a single class, will have the exclusive power,
voting together as a single class, to elect, at any special meeting called by our secretary at the written request of holders of record of at least 10% of the outstanding
shares of Series B Preferred Stock and any class or series of voting preferred stock (unless the request is received more than 45 days and less than 90 days before
our next annual meeting of stockholders at which the vote would occur) and at each subsequent annual meeting of stockholders, two additional directors to serve
on our board of directors. The right of holders of Series B Preferred Stock to vote in the election of directors will terminate when all dividends accrued and unpaid
on the outstanding shares of Series B Preferred Stock for all past dividend periods and the then-current dividend period have been fully paid. Unless the number of
our directors has previously been increased pursuant to the terms of any other class or series of voting preferred stock with which the holders of Series B Preferred
Stock are entitled to vote together as a single class in the election of directors, the number of our directors will automatically increase by two at the time as holders
of Series B Preferred Stock become entitled to vote in the election of two additional directors. Unless shares of voting preferred stock remain outstanding and
entitled to vote in the election of directors, the term of office of these directors will terminate, and the number of our directors will automatically decrease by two,
when all dividends accrued and unpaid for all past dividend periods and the then-current dividend period on the Series B Preferred Stock have been fully paid. If
the right of holders of Series B Preferred Stock to elect the two additional directors terminates after the record date for determining holders of shares of Series B
Preferred Stock entitled to vote in any election of directors but before the closing of the polls in the election, holders of Series B Preferred Stock outstanding as of
the applicable record date will not be entitled to vote in the election of directors. The right of the holders of Series B Preferred Stock to elect the additional
directors will again vest if and whenever dividends are in arrears for six quarterly periods, as described above. In no event will the holders of Series B Preferred
Stock be entitled to nominate or elect an individual as a director, and no individual will be qualified to be nominated for election or to serve as a director, if the
individual’s service as a director would cause us to fail to satisfy a requirement relating to director independence of any national securities exchange on which any
class or series of our stock is listed or otherwise conflict with our charter or bylaws.
The additional directors will be elected by a plurality of the votes cast in the election of directors, and each of these directors will serve until the next
annual meeting of our stockholders and until his or her successor is duly elected and qualifies, or until the director’s term of office terminates as described above.
Any director elected by the holders of Series B Preferred Stock and any class or series of voting preferred stock, voting together as a single class, may be removed,
with or without cause, only by a vote of the holders of a majority of the outstanding shares of Series B Preferred Stock and all classes or series of voting preferred
stock with which the holders of Series B Preferred Stock are entitled to vote together as a single class in the election of directors. At any time that the holders of
Series B Preferred Stock are entitled to vote in the election of the two additional directors, holders of Series B Preferred Stock will be entitled to vote in the
election of a successor to fill any vacancy on our board of directors that results from the removal of the director.
At any time that holders of Series B Preferred Stock, and any other class or series of voting preferred stock with which the holders of Series B Preferred
Stock will be entitled to vote as a single class in the election of directors, have the right to elect two additional directors as described above but these directors have
not been elected, our secretary must call a special meeting for the purpose of electing the additional directors upon the written request of the holders of record of
10% of the outstanding shares of Series B Preferred Stock and any other class or series of voting preferred stock with which the holders of Series B Preferred Stock
are entitled to vote together as a single class with respect to the election of directors, unless the request is received more than 45 days and less than
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90 days before the date fixed for the next annual meeting of our stockholders at which the vote would occur, in which case, the additional directors may be elected
either at the annual meeting or at a separate special meeting of our stockholders at our discretion.
So long as any shares of Series B Preferred Stock are outstanding, the approval of the holders of at least two-thirds of the outstanding shares of Series B
Preferred Stock and of any equally-affected class or series of voting preferred stock, including the Series A Preferred Stock, with which the holders of Series B
Preferred Stock are entitled to vote (voting together as a single class), is required to authorize (a) any amendment, alteration, repeal or other change to any
provision of our charter, including the articles supplementary setting forth the terms of the Series B Preferred Stock (whether by merger, conversion, consolidation,
transfer or conveyance of all or substantially all of our assets or otherwise), that would materially and adversely affect the rights, preferences, privileges or voting
powers of the Series B Preferred Stock, or (b) the creation, issuance or increase in the authorized number of shares of any class or series of stock ranking senior to
the Series B Preferred Stock (or any equity securities convertible into or exchangeable for any such shares) with respect to dividend rights and rights upon our
voluntary or involuntary liquidation, dissolution or winding up. Notwithstanding the foregoing, holders of voting preferred stock will not be entitled to vote
together as a class with the holders of Series B Preferred Stock on any amendment, alteration, repeal or other change to any provision of our charter unless the
action affects the holders of Series B Preferred Stock and the voting preferred stock equally.
The following actions will not be deemed to materially and adversely affect the rights, preferences, privileges or voting powers of the Series B Preferred
Stock:
•
•
•
any increase or decrease in the number of authorized shares of common stock, Series C Preferred Stock or preferred stock of any other class or
series or the classification or reclassification of any unissued shares, or the creation or issuance of equity securities, of any class or series
ranking, junior to or on parity with the Series B Preferred Stock, including the Series A Preferred Stock, with respect to dividend rights and
rights upon our voluntary or involuntary liquidation, dissolution or winding up;
any amendment, alteration or repeal or other change to any provision of our charter, including the articles supplementary setting forth the terms
of the Series B Preferred Stock, as a result of a merger, conversion, consolidation, transfer or conveyance of all or substantially all of our assets
or other business combination, whether or not we are the surviving entity, if the Series B Preferred Stock (or stock into which the Series B
Preferred Stock has been converted in any successor person or entity to us) remains outstanding with the terms thereof unchanged in all material
respects or is exchanged for stock of the successor person or entity with substantially identical rights; or
any amendment, alteration or repeal or other change to any provision of our charter, including the articles supplementary setting forth the terms
of the Series B Preferred Stock, as a result of a merger, conversion, consolidation, transfer or conveyance of all or substantially all of our assets
or other business combination, if the holders of Series B Preferred Stock receive the $25.00 liquidation preference per share of Series B
Preferred Stock, plus an amount equal to accrued and unpaid dividends to, but not including, the date of the event.
The voting provisions above will not apply if, at or prior to the time when the act with respect to which the vote would otherwise be required would occur,
we have redeemed or called for redemption all outstanding shares of Series B Preferred Stock.
No Maturity, Sinking Fund or Mandatory Redemption
The Series B Preferred Stock has no stated maturity date and is not subject to any sinking fund or mandatory redemption provisions.
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Summary of Restrictions on Transfer and Ownership of Stock
Our charter contains restrictions on the ownership and transfer of shares of our common stock and other outstanding shares of stock, including the Series
B Preferred Stock. The relevant sections of our charter provide that, subject to certain exceptions, no person or entity may own, or be deemed to own, by virtue of
the applicable constructive ownership provisions of the Code, more than 9.8% in value of the aggregate of the outstanding shares of our capital 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 capital stock. For further information regarding the
restrictions on ownership and transfer of the Series B Preferred Stock, see “Certain Provisions of the Maryland General Corporation Law and our Charter and
Bylaws — Restrictions on Transfer and Ownership of Stock” below.
Conversion
The Series B Preferred Stock is not convertible into any other property or securities, except as provided under “—Conversion Rights.”
Information Rights
During any period in which we are not subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act and any shares of Series B
Preferred Stock are outstanding, we will (i) transmit by mail or other permissible means under the Exchange Act to all holders of Series B Preferred Stock as their
names and addresses appear in our record books and without cost to the holders, copies of the Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and
Current Reports on Form 8-K that we would have been required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act if we were subject
thereto (other than any exhibits that would have been required) within 15 days after the respective dates by which we would have been required to file these reports
with the SEC if we were subject to Section 13 or 15(d) of the Exchange Act and (ii) within 15 days following written request, supply copies of these reports to any
prospective holder of Series B Preferred Stock.
Preemptive Rights
No holders of Series B Preferred Stock shall, as a result of his, her or its status as such holder, have any preemptive rights to purchase or subscribe for
shares of our common stock or any of our other securities.
Series C Preferred Stock
As of December 31, 2020, 11,450,000 shares of preferred stock were classified and designated as Series C Preferred Stock pursuant to our charter.
As described in more detail below under “—Preferred Stock Purchase Rights,” each Right entitles the registered holder to purchase from the Company
one one-thousandth of a share of Series C Preferred Stock at a price of $50.00 per one one-thousandth of a share of Series C Preferred Stock represented by a
Right, subject to adjustment. Each one-thousandth of a share of Series C Preferred Stock will entitle the holder thereof to the same dividends and liquidation rights
as if the holder held one share of our common stock and will be treated the same as a share of our common stock in the event of a merger, consolidation or other
share exchange.
Preferred Stock Purchase Rights
On April 9, 2020, our board of directors authorized a dividend of one Right, payable on April 20, 2020, for each share of our common stock outstanding
on the close of business on April 20, 2020 to the stockholders of record on that date. Initially, the Rights are attached to all shares of our common stock, and no
separate certificates representing the Rights (“Right Certificates”) will be issued. Until the Distribution Date (as defined below), the Rights will be inseparable
from the shares of our common stock, and Company will issue one Right with each new share of our common stock so that all shares of our common stock will
have Rights attached. Accordingly, there is one Right issued and outstanding for each issued and outstanding share of our common stock.
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In connection with the distribution of the Rights, the Company entered into a Rights Agreement (the “Rights Agreement”), dated as of April 9, 2020, with
American Stock Transfer and Trust, LLC, as rights agent. The Company amended the Rights Agreement on February 26, 2021 solely for the purpose of extending
the expiration date of the Rights. The Rights are in all respects subject to and governed by the provisions of the Rights Agreement.
Distribution Date
On the Distribution Date, the Rights will separate and begin trading separately from the shares of our common stock. As soon as practicable after the
Distribution Date, unless the Rights are recorded in book-entry or another uncertificated form, the Company will prepare and cause the Right Certificates to be
delivered to each record holder of shares of our common stock as of the Distribution Date.
The “Distribution Date” generally means the earlier of:
•
•
the close of business on the 10th business day after the date a majority of our board of directors becomes aware (pursuant to a public
announcement or otherwise) that a person or entity has become an Acquiring Person (as defined below); and
the close of business on the 10th business day (or a later day as may be designated by our board of directors before any person or entity has
become an Acquiring Person) after the date of the commencement of a tender or exchange offer by the person or entity which would, if
consummated, result in the person or entity becoming an Acquiring Person.
In addition, on the Distribution Date, proper provision will be made by the Company to provide each holder (other than the Company) of limited
partnership units of the Company’s operating partnership, Global Net Lease Operating Partnership, L.P. (the “OP”), designated as “OP Units” (“OP Units”) with
the number of Rights that would have been issued to the holder as if the holder had redeemed all of its OP Units for an equal number of shares of our common
stock pursuant to the terms and conditions of the agreement of limited partnership of the OP immediately prior to the Distribution Date.
Exercisability
The Rights will not be exercisable until the Distribution Date. After the Distribution Date, each Right will be exercisable to purchase one one-thousandth
of a share of Series C Preferred Stock for $50.00 (the “Purchase Price”), subject to adjustment. This portion of a share of Series C Preferred Stock will give the
holder approximately the same dividend, voting and liquidation rights as a holder of one share of our common stock. Prior to exercising their Rights, holders of
Rights, in that capacity have no rights as a stockholder of the Company.
Acquiring Person
An “Acquiring Person” generally means any person or entity that or which, together with its affiliates and associates, is or becomes the Beneficial Owner
(as described below) of 4.9% or more of the shares of our common stock then outstanding, but does not include:
•
•
•
the Company or any of its subsidiaries;
any employee benefit plan of the Company or any of its subsidiaries or the Company’s advisor, Global Net Lease Advisors, LLC (the
“Advisor”);
any entity or trustee holding our common stock for or pursuant to the terms of any plan or for the purpose of funding any plan or other benefits
for employees of the Company or of any of its subsidiaries or the Advisor;
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•
•
•
any passive investor, which generally means any person or entity Beneficially Owning shares of our common stock without a plan or an intent to
seek control of or influence the Company;
any person or entity that our board of directors has permitted to Beneficially Own a specified percentage of 4.9% or more of our common stock
but only for so long as the person or entity does not acquire, without the prior approval of our board of directors, Beneficial Ownership of any
additional common stock above the specified percentage; and
any person or entity that would otherwise be deemed an Acquiring Person as of the date of the adoption of the Rights Agreement, but only for so
long as the person or entity does not acquire, without the prior approval of our board of directors, Beneficial Ownership of any additional
common stock.
The Rights Agreement also provides that our board of directors may exempt any person or entity from being an Acquiring Person prior to the person or
entity becoming an Acquiring Person, subject to the right of our board of directors to revoke the exemption.
Securities “Beneficial Owned” by a person or entity, together with its affiliates and associates, include:
•
•
•
•
any securities beneficially owned, directly or indirectly, within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”);
except under limited circumstances, securities with respect to which the person or entity, or any of its affiliates or associates, has the right to
acquire or vote pursuant to any agreement, arrangement or understanding;
any securities which are Beneficially Owned, directly or indirectly, by any other person or entity with which the person or entity, or any of its
affiliates or associates, has any agreement, arrangement or understanding, whether or not in writing, for the purpose of acquiring, holding, voting
or disposing of any voting securities of the Company, and which the person or entity, or any of its affiliates or associates, is acting in concert
with towards a common goal relating to (i) acquiring, holding, voting or disposing of voting securities of the Company or (ii) changing or
influencing the control of the Company; and
any securities which are the subject of, or the reference securities for, or that underlie, any derivative securities (as defined under Rule 16a-1
under the Exchange Act) that increase in value as the value of the underlying equity increases.
Consequences of Any Person or Entity Becoming an Acquiring Person
•
Flip In. If any person or entity becomes an Acquiring Person (other than pursuant to a Permitted Offer or a transaction described below under
“—Flip Over”), each Right will entitle the holder thereof (other than an Acquiring Person, its affiliates and associates) to purchase at the
Purchase Price a number of shares of our common stock having a market value of twice the Purchase Price. However, these Rights will not be
exercisable until the Rights are no longer redeemable by the Company as described below under “—Redemption” and are subject to the
Company’s right to exchange described below under “—Exchange.” Depending on the level of the market price of our common stock as
compared to the Purchase Price at the time of exercise, the exercise of these Rights can be more or less dilutive to an Acquiring Person than an
exchange.
A “Permitted Offer” is a tender or exchange offer for all outstanding shares of our common stock at a price and on terms which a majority of our
board of directors has previously determined are fair to the Company’s stockholders and not inadequate and otherwise in the best interests of the
Company.
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•
•
Exchange. If any person or entity becomes an Acquiring Person (but before (i) the completion of a transaction described below under “—Flip
Over,” or (ii) subject to Maryland law, any Acquiring Person has become the Beneficial Owner of a majority of the outstanding shares of our
common stock), the Company, upon the authorization and direction of our board of directors, may exchange the Rights (other than Rights
Beneficially Owned by an Acquiring Person, its affiliates and associates), in whole or in part, for shares of our common stock on a one-for-one
basis.
Flip Over. If, after the date a majority of our board of directors becomes aware (pursuant to a public announcement or otherwise) that a person or
entity has become an Acquiring Person, (i) the Company completes a merger or other business combination in which the Company is not the
surviving entity or in which the Company is the surviving entity and our common stock is exchanged for other securities or assets, or (ii) 50% or
more of the Company's assets or Earning Power (as defined in the Rights Agreement) is sold or transferred, each Right will entitle the holder
thereof (other than an Acquiring Person, its affiliates and associates) to purchase at the Purchase Price a number of shares of common stock of
the acquiring company having a market value of twice the Purchase Price.
Expiration
The Rights will expire on April 8, 2024, unless earlier exercised, exchanged, amended or redeemed.
Redemption
At any time before the earlier of (i) the 10th business day following the date a majority of our board of directors becomes aware (pursuant to a public
announcement or otherwise) that a person or entity has become an Acquiring Person, or (ii) the expiration of the Rights by their terms, the Company, upon the
authorization and direction of our board of directors, may redeem the Rights in whole, but not in part, at a price of $0.0001 per Right. If Continuing Directors no
longer comprise a majority of our board of directors, then, for a period of 180 days, the Rights cannot be redeemed unless there are Continuing Directors and a
majority of the Continuing Directors concur with the decision of our board of directors to redeem the Rights. Immediately upon the action of our board of directors
ordering redemption of the Rights (with, if required, the concurrence of a majority of the Continuing Directors), or at a later time as our board of directors may
establish for the effectiveness of the redemption, the Rights will terminate and the only right of the holders of Rights will be to receive the redemption price.
The “Continuing Directors” include any current member of our board of directors and any person subsequently elected to our board of directors upon
recommendation or approval of a majority of those directors (or directors recommended or approved by them), and exclude an Acquiring Person, its affiliates and
associates, or any of their respective representatives or nominees.
Amendment
The terms of the Rights may be amended by our board of directors without the consent of the holders of the Rights, except that from and after such time
as any Person becomes an Acquiring Person no such amendment may adversely affect the interests of the holders of the Rights (other than the Acquiring Person
and its affiliates and associates).
Adjustment
The Purchase Price payable, and the number of shares of Series C Preferred Stock or other securities or property issuable, upon exercise of the Rights is
subject to adjustment in connection with various events from time to time to prevent dilution, including:
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•
•
•
if the Company declares a dividend on Series C Preferred Stock payable in shares of Series C Preferred Stock or effects a subdivision,
combination or reclassification of the shares of Series C Preferred Stock;
if the holders of Series C Preferred Stock are granted rights, options or warrants to subscribe for or purchase shares of Series C Preferred Stock
(or shares having the same rights, privileges and preferences as the shares of Series C Preferred Stock) or convertible securities at a price less
than the then current per share market price of the Series C Preferred Stock; or
upon the distribution to all holders of the Series C Preferred Stock of evidences of indebtedness or assets (excluding regular quarterly cash
dividends or dividends payable in shares of Series C Preferred Stock) or subscription rights or warrants (other than those referred to above).
With certain exceptions, no adjustment in the Purchase Price payable upon exercise of the Rights will be required until cumulative adjustments amount to
at least 1% of the Purchase Price.
The number of outstanding Rights and the number of shares of Series C Preferred Stock issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of our common stock or a stock dividend on our common stock payable in shares of our common stock or subdivisions,
consolidations or combinations of the shares of our common stock occurring, in any such case, prior to the Distribution Date.
Certain Provisions of the Maryland General Corporation Law and our Charter and Bylaws
Power to Reclassify Shares of Our Stock
Our board of directors may classify any unissued shares of preferred stock, and reclassify any unissued shares of common stock or any previously
classified but unissued shares of preferred stock, into other classes or series of stock, including one or more classes or series of stock that have priority over our
common stock with respect to voting rights, distributions or upon liquidation, and authorize us to issue the newly classified shares. Prior to the issuance of shares
of each class or series, our board of directors is required by the MGCL and our charter to set, subject to the provisions of our charter regarding the restrictions on
ownership and transfer of our stock, the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends and other distributions,
qualifications and terms and conditions of redemption for each such class or series. These actions can be taken without stockholder approval, unless stockholder
approval is required by applicable law, the terms of any other class or series of our stock or the rules of any stock exchange or automated quotation system on
which our securities may be listed or traded.
Power to Increase Authorized Stock and Issue Additional Shares of Our Common Stock and Preferred Stock
We believe that the power of our board of directors to amend our charter from time to time to increase the aggregate number of authorized shares of stock
and the number of shares of stock of any class or series that we have the authority to issue, to issue additional authorized but unissued shares of our common stock
or preferred stock and to classify or reclassify unissued shares of our common stock or preferred stock into other classes or series of stock and thereafter to cause us
to issue such classified or reclassified shares of stock will provide us with flexibility in structuring possible future financings and acquisitions and in meeting other
needs which might arise. Shares of additional classes or series of stock, as well as additional shares of common stock, will be available for issuance without further
action by our stockholders, unless stockholder consent is required by applicable law or the rules of any stock exchange or automated quotation system on which
our securities are then listed or traded. Although our board of directors does not intend to do so, it could authorize us to issue a class or series of common stock or
preferred stock that could, depending upon the terms of the particular class or series, delay, defer or prevent a transaction or a change of control of us that might
involve a premium price for our stockholders or otherwise be in their best interest.
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Restrictions on Transfer and Ownership of Stock
In order for us to qualify as a REIT under the Internal Revenue Code of 1986, as amended, or the Code, shares of our stock must be owned by 100 or
more persons during at least 335 days of a taxable year of 12 months (other than the first year for which an election to be taxed as a REIT has been made) or during
a proportionate part of a shorter taxable year. Also, under Section 856(h) of the Code, a REIT cannot be “closely held.” In this regard, not more than 50% of the
value of the outstanding shares of capital stock may be owned, directly or indirectly, by five or fewer individuals (as defined in the Code to include certain entities)
during the last half of a taxable year (other than the first year for which an election to be a REIT has been made).
Our charter contains restrictions on the ownership and transfer of shares of our common stock and other outstanding shares of our capital stock. The
relevant sections of our charter provide that, subject to the exceptions described below, no person or entity may own, or be deemed to own, by virtue of the
applicable constructive ownership provisions of the Code, more than 9.8% in value of the aggregate of our outstanding shares of stock or 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; we refer to these limitations as the “ownership limits.”
The constructive ownership rules under the Code are complex and may cause shares of stock owned actually or constructively by a group of related
individuals or entities to be owned constructively by one individual or entity. As a result, the acquisition of less than 9.8% in value of the aggregate of our
outstanding shares of stock or 9.8% (in value or in number of shares, whichever is more restrictive) of any class or series of our shares of stock (or the acquisition
of an interest in an entity that owns, actually or constructively, shares of our stock by an individual or entity), could, nevertheless, cause that individual or entity, or
another individual or entity, to violate the ownership limits.
Our board of directors may, upon receipt of certain representations, undertakings and agreements and in its sole discretion, exempt (prospectively or
retroactively) any person from the ownership limits and establish a different limit, or excepted holder limit, for a particular person if the person’s ownership in
excess of the ownership limits will not then or in the future result in our being “closely held” under Section 856(h) of the Code (without regard to whether the
person’s interest is held during the last half of a taxable year) or otherwise cause us to fail to qualify as a REIT. In order to be considered by our board of directors
for exemption, a person also must not own, actually or constructively, an interest in one of our tenants (or a tenant of any entity which we own or control) that
would cause us to own, actually or constructively, more than a 9.9% interest in the tenant unless the revenue derived by us from such tenant is sufficiently small
that, in the opinion of our board of directors, rent from such tenant would not adversely affect our ability to qualify as a REIT. The person seeking an exemption
must provide such representations and undertakings to the satisfaction of our board of directors that it will not violate these two restrictions. The person also must
agree that any violation or attempted violation of these restrictions will result in the automatic transfer to a charitable trust of the shares of stock causing the
violation. As a condition of granting an exemption or creating an excepted holder limit, our board of directors may, but is not required to, obtain an opinion of
counsel or Internal Revenue Service, or IRS, ruling satisfactory to our board of directors with respect to our qualification as a REIT and may impose such other
conditions or restrictions as it deems appropriate.
In connection with granting an exemption from the ownership limits or establishing an excepted holder limit or at any other time, our board of directors
may increase or decrease the ownership limits. Any decrease in the ownership limits will not be effective for any person whose percentage ownership of shares of
our stock is in excess of such decreased limits until such person’s percentage ownership of shares of our stock equals or falls below such decreased limits (other
than a decrease as a result of a retroactive change in existing law, which will be effective immediately), but any further acquisition of shares of our stock in excess
of such percentage ownership will be in violation of the applicable decreased limits. Our board of directors may not increase or decrease the ownership limits if,
after giving effect to such increase or decrease, five or fewer persons could beneficially own or constructively own in the aggregate more than 49.9% in value of
the shares of our stock then outstanding. Prior to any modification of the ownership limits, our board of directors may require such opinions of counsel, affidavits,
undertakings or agreements as it may deem necessary or advisable in order to determine or ensure our qualification as a REIT.
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Our charter further prohibits:
•
•
any person from beneficially or constructively owning, applying certain attribution rules of the Code, shares of our stock that would result in our
being “closely held” under Section 856(h) of the Code (without regard to whether the stockholder’s interest is held during the last half of a
taxable year) or otherwise cause us to fail to qualify as a REIT; and
any person from transferring shares of our stock if such transfer would result in shares of our stock being beneficially owned by fewer than 100
persons (determined without reference to any rules of attribution).
Any person who acquires or attempts or intends to acquire beneficial or constructive ownership of shares of our stock that will or may violate the
ownership limits or any of the other foregoing restrictions on ownership and transfer of our stock will be required to immediately give written notice to us or, in the
case of a proposed or attempted transaction, give at least 15 days’ prior written notice to us, and provide us with such other information as we may request in order
to determine the effect of such transfer on our qualification as a REIT. The ownership limits and the other restrictions on ownership and transfer of our stock will
not apply if our board of directors determines that it is no longer in our best interests to continue to qualify as a REIT or that compliance with the restrictions on
ownership and transfer of our stock is no longer required in order for us to qualify as a REIT.
If any transfer of shares of our stock would result in shares of our stock being beneficially owned by fewer than 100 persons, such transfer will be void
from the time of such purported transfer and the intended transferee will acquire no rights in such shares. In addition, if any purported transfer of shares of our
stock or any other event would otherwise result in:
•
•
any person violating the ownership limits or such other limit established by our board of directors; or
our company being “closely held” under Section 856(h) of the Code (without regard to whether the stockholder’s interest is held during the last
half of a taxable year) or otherwise failing to qualify as a REIT, then that number of shares (rounded up to the nearest whole share) that would
cause us to violate such restrictions will automatically be transferred to, and held by, a charitable trust for the exclusive benefit of one or more
charitable organizations selected by us, and the intended transferee will acquire no rights in such shares. The transfer will be deemed to be
effective as of the close of business on the business day prior to the date of the violative transfer or other event that results in the transfer to the
charitable trust. A person who, but for the transfer of the shares to the charitable trust, would have beneficially or constructively owned the
shares so transferred is referred to as a “prohibited owner,” which, if appropriate in the context, also means any person who would have been the
record owner of the shares that the prohibited owner would have so owned. If the transfer to the charitable trust as described above would not be
effective, for any reason, to prevent violation of the applicable restriction on ownership and transfer contained in our charter, then our charter
provides that the transfer of the shares will be void from the time of such purported transfer.
Shares of stock transferred to a charitable trust are deemed offered for sale to us, or our designee, at a price per share equal to the lesser of (1) the price
paid per share in the transaction that resulted in such transfer to the charitable trust (or, if the event that resulted in the transfer to the charitable trust did not involve
a purchase of such shares of stock at market price, defined generally as the last reported sales price reported on the NYSE (or other applicable exchange), the
market price per share of such stock on the day of the event which resulted in the transfer of such shares of stock to the charitable trust) and (2) the market price on
the date we, or our designee, accept such offer. We may reduce the amount payable to the charitable trust by the amount of dividends and other distributions which
have been paid to the prohibited owner and are owed by the prohibited owner to the charitable trust as described below. We may pay the amount of such reduction
to the charitable trust for the benefit of the charitable beneficiary. We have the right to accept such offer until the trustee of the charitable trust has sold the shares
held in
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the charitable trust as discussed below. Upon a sale to us, the interest of the charitable beneficiary in the shares sold terminates, and the charitable trustee must
distribute the net proceeds of the sale to the prohibited owner.
Within 20 days of receiving notice from us of the transfer of the shares to the charitable trust, the charitable trustee will sell the shares to a person or entity
designated by the charitable trustee who could own the shares without violating the ownership limits or the other restrictions on ownership and transfer of our stock
described above. After that, the charitable trustee must distribute to the prohibited owner an amount equal to the lesser of (1) the price paid by the prohibited
owner for the shares in the transaction that resulted in the transfer to the charitable trust (or, if the event that resulted in the transfer to the charitable trust did not
involve a purchase of such shares at market price, the market price per share of such stock on the day of the event that resulted in the transfer to the charitable trust)
and (2) the sales proceeds (net of commissions and other expenses of sale) received by the charitable trust for the shares. The charitable trustee may reduce the
amount payable to the prohibited owner by the amount of dividends and other distributions which have been paid to the prohibited owner and are owed by the
prohibited owner to the charitable trust. Any net sales proceeds in excess of the amount payable to the prohibited owner will be immediately paid to the charitable
beneficiary, together with any dividends and other distributions thereon. In addition, if, prior to discovery by us that shares of stock have been transferred to a
charitable trust, such shares of stock are sold by a prohibited owner, then such shares will be deemed to have been sold on behalf of the charitable trust and to the
extent that the prohibited owner received an amount for or in respect of such shares that exceeds the amount that such prohibited owner was entitled to receive,
such excess amount will be paid to the charitable trust upon demand by the charitable trustee. The prohibited owner will have no rights in the shares held by the
charitable trust.
The charitable trustee will be designated by us and will be unaffiliated with us and with any prohibited owner. Prior to the sale of any shares by the
charitable trust, the charitable trustee will receive, in trust for the charitable beneficiary, all distributions made by us with respect to such shares and may also
exercise all voting rights with respect to such shares. Any dividend or other distribution paid prior to our discovery that shares of stock have been transferred to the
charitable trust will be paid by the recipient to the charitable trust upon demand by the charitable trustee. These rights will be exercised for the exclusive benefit of
the charitable beneficiary.
Subject to Maryland law, effective as of the date that the shares have been transferred to the charitable trust, the charitable trustee will have the authority,
at the charitable trustee’s sole discretion:
•
•
to rescind as void any vote cast by a prohibited owner prior to our discovery that the shares have been transferred to the charitable trustee; and
to recast the vote in accordance with the desires of the charitable trustee acting for the benefit of the charitable beneficiary.
However, if we have already taken irreversible corporate action, then the charitable trustee may not rescind and recast the vote.
If our board of directors determines in good faith that a proposed transfer would violate the restrictions on ownership and transfer of our stock set forth in
our charter, our board of directors may take such action as it deems advisable to refuse to give effect to or to prevent such transfer, including, but not limited to,
causing us to redeem shares of stock, refusing to give effect to the transfer on our books or instituting proceedings to enjoin the transfer.
Every owner of more than 5% (or such lower percentage as required by the Code or the regulations promulgated thereunder) of the outstanding shares of
all classes or series of our stock, including common stock, will be required to give written notice to us within 30 days after the end of each taxable year stating the
name and address of such owner, the number of shares of each class and series of our stock that the person beneficially owns and a description of the manner in
which such shares are held. Each such owner will be required to provide to us such additional information as we may request in order to determine the effect, if
any, of such beneficial ownership on our qualification as a REIT and to ensure compliance with the ownership limits. In addition, each stockholder will, upon
demand, be required to provide to us such information as we may request, in good faith, in order to
32
determine our qualification as a REIT and to comply with the requirements of any taxing authority or governmental authority or to determine such compliance.
Any certificates representing shares of our stock, or any written statements of information delivered in lieu of certificates, will bear a legend referring to
the restrictions described above.
These restrictions on ownership and transfer of our stock could delay, defer 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 our stockholders.
Number of Directors; Vacancies; Removal
We are presently required to have six directors. This number may be increased or decreased from time to time pursuant to the bylaws, but may never be
less than one or more than fifteen. Our board of directors is divided into three classes of directors serving staggered three-year terms. At each annual meeting,
directors of one class are elected to serve until the annual meeting of stockholders held in the third year following the year of their election and until their
successors are duly elected and qualify.
We have elected by a provision of our charter to be subject to a provision of Maryland law requiring that, except as otherwise provided in the terms of any
class or series of preferred stock, vacancies on our board of directors may be filled only by the remaining directors and that any individual elected to fill a vacancy
will serve for the remainder of the full term of the directorship in which the vacancy occurred and until his or her successor is duly elected and qualifies. Any
director may resign at any time by delivering his or her notice to the board of directors, the chairman of the board of directors, the chief executive officer or the
Company’s secretary.
Our charter provides that, subject to the rights of holders of one or more classes or series of preferred stock, any or all directors may be removed from
office only for “cause” by the affirmative vote of the stockholders entitled to cast at least two-thirds of the votes entitled to be cast generally in the election of
directors. For the purpose of this provision of our charter, “cause” means, with respect to any particular director, conviction of a felony or a final judgment of a
court of competent jurisdiction holding that such director caused demonstrable, material harm to us through bad faith or active and deliberate dishonesty.
Action by Stockholders
Under the MGCL, common stockholder action can be taken only at an annual or special meeting of stockholders or by unanimous consent in lieu of a
meeting (unless the charter provides for a lesser percentage, which our charter does not). These provisions, combined with the requirements of our charter and
bylaws regarding the calling of a stockholder-requested special meeting of stockholders discussed below, may have the effect of delaying consideration of a
stockholder proposal until the next annual meeting.
Meetings and Special Voting Requirements
Subject to our charter restrictions on ownership and transfer of our stock and the terms of each class or series of stock, including with respect to the vote
by the stockholders for the election of the directors, each holder of common stock is entitled at each meeting of stockholders to one vote per share owned by such
stockholder on all matters submitted to a vote of stockholders. There is no cumulative voting in the election of our board of directors, which means that the holders
of a majority of shares of our outstanding common stock can elect all the directors then standing for election and the holders of the remaining shares of common
stock will not be able to elect any directors.
Under Maryland law, a Maryland corporation generally cannot dissolve, amend its charter, merge, convert, sell all or substantially all of its assets, engage
in a share exchange or engage in similar transactions outside the ordinary course of business, unless declared advisable by the board of directors and approved by
the affirmative vote of stockholders entitled to cast at least two-thirds of the votes entitled to be cast on the matter. However, a Maryland corporation may provide
in its charter for approval of these matters (except for certain charter
33
amendments relating to director resignation and removal and the vote required for certain amendments) by a lesser percentage, but not less than a majority of all
the votes entitled to be cast on the matter. Our charter provides for approval of these matters by the affirmative vote of holders of shares entitled to cast a majority
of all the votes entitled to be cast on the matter.
Also, our operating assets are held by our subsidiaries and these subsidiaries may be able to merge or sell all or substantially all of their assets without the
approval of our stockholders.
Pursuant to our charter and bylaws, an annual meeting of our stockholders for the purpose of the election of directors and the transaction of any business
will be held annually on a date and at the time and place set by our board of directors. Special meetings of stockholders to act on any matter that may properly be
considered at a meeting of stockholders may be called by the board of directors, the chairman of the board of directors, the president or the chief executive officer
and, subject to the satisfaction of certain procedural requirements, must be called by our secretary upon the written request of stockholders entitled to cast not less
than a majority of all the votes entitled to be cast on the matter at the meeting. The presence of stockholders entitled to cast at least a majority of all the votes
entitled to be cast at such meeting on any matter, either in person or by proxy, will constitute a quorum.
Our board of directors has the exclusive power to adopt, alter or repeal any provision of our bylaws and to make new bylaws.
No Appraisal Rights
As permitted by the MGCL, our charter provides that stockholders will not be entitled to exercise appraisal rights unless a majority of our board of
directors determines that appraisal rights apply, with respect to all or any classes or series of stock, to one or more transactions occurring after the date of such
determination in connection with which stockholders would otherwise be entitled to exercise appraisal rights.
Dissolution
Our dissolution must be declared advisable by a majority of our entire board of directors and approved by the affirmative vote of stockholders entitled to
cast not less than a majority of the votes entitled to be cast on such matter.
Business Combinations
Under the MGCL, certain “business combinations,” including a merger, consolidation, share exchange or, in certain circumstances, an asset transfer or
issuance or reclassification of equity securities, between a Maryland corporation and an “interested stockholder” or, generally, 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, or an affiliate of such an interested stockholder, are prohibited for five years after the most recent date on which the interested stockholder
becomes an interested stockholder. Thereafter, any such business combination must be recommended by the board of directors of such corporation and approved
by the affirmative vote of at least (1) 80% of the votes entitled to be cast by holders of outstanding voting stock of the corporation and (2) 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. The super-majority vote requirements do not apply if the
corporation’s common stockholders receive a minimum price (as defined in the MGCL) for their shares and the consideration is received in cash or in the same
form as previously paid by the interested stockholder for its shares. Under the MGCL, a person is not an “interested stockholder” if the board of directors approved
in advance the transaction by which the person otherwise would have become an interested stockholder. A corporation’s board of directors may provide that its
approval is subject to compliance with any terms and conditions determined by it.
34
These provisions of the MGCL do not apply, however, to business combinations that are approved or exempted by a board of directors prior to the time
that the interested stockholder becomes an interested stockholder. As permitted by the MGCL, our board of directors has by resolution exempted business
combinations between us and any person, provided that such business combination is first approved by our board of directors (including a majority of directors
who are not affiliates or associates of such person). Consequently, the five-year prohibition and the supermajority vote requirements will not apply to such business
combinations. As a result, any person described above may be able to enter into business combinations with us that may not be in the best interest of our
stockholders without compliance by us with the supermajority vote requirements and other provisions of the statute. This resolution, however, may be altered or
repealed in whole or in part at any time by our board of directors. If this resolution is repealed, or our board of directors does not otherwise approve a business
combination with a person, the statute may discourage others from trying to acquire control of us and increase the difficulty of consummating any offer.
Control Share Acquisitions
The MGCL provides that “control shares” of a Maryland corporation acquired in a “control share acquisition” have no voting rights except to the extent
approved by the affirmative vote of stockholders entitled to cast at least two-thirds of the votes entitled to be cast on the matter, excluding shares of stock in respect
of which any of the following persons is entitled to exercise or direct the exercise of the voting power of such shares in the election of directors: (1) the person that
has made or proposed to make the control share acquisition, (2) an officer of the corporation or (3) an employee of the corporation who is also a director of the
corporation. “Control shares” are shares of voting stock which, if aggregated with all other such shares owned by the acquirer, or in respect of which the acquirer is
able to 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 one of the following ranges of voting power: (A) one-tenth or more but less than one-third, (B) one-third or more but less than a majority or (C) a
majority or more of all voting power. Control shares do not include shares that the acquirer 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,
subject to certain exceptions.
A person who has made or proposes to make a control share acquisition, upon satisfaction of certain conditions (including an undertaking to pay expenses
and making an “acquiring person statement” as described in MGCL), may compel the board of directors to call a special meeting of stockholders to be held within
50 days of demand to consider the voting rights of the shares. If no request for a meeting is made, the corporation may itself present the question at any
stockholders’ meeting.
If voting rights are not approved at the meeting or if the acquirer does not deliver an “acquiring person statement” as required by the statute, then, subject
to certain conditions and limitations, the corporation may redeem any or all of the control shares (except those for which voting rights have previously been
approved) for fair value determined, without regard to the absence of voting rights for the control shares, as of the date of any meeting of stockholders at which the
voting rights of such shares are considered and not approved, or, if no such meeting is held, as of the date of the last control share acquisition by the acquirer. If
voting rights for control shares are approved at a stockholders’ meeting and the acquirer becomes entitled to vote a majority of the shares entitled to vote, all other
stockholders may exercise appraisal rights, unless the corporation’s charter provides otherwise. The fair value of the shares as determined for purposes of such
appraisal rights may not be less than the highest price per share paid by the acquirer in the control share acquisition.
The control share acquisition statute does not apply to (1) shares acquired in a merger, consolidation or statutory share exchange if the corporation is a
party to the transaction or (2) acquisitions approved or exempted by the charter or bylaws of the corporation.
Our bylaws contain a provision exempting from the control share acquisition statute any and all acquisitions by any person of our stock. There is no
assurance that such provision will not be amended or eliminated at any time in the future.
35
Subtitle 8
Subtitle 8 of Title 3 of the MGCL permits the board of directors of a Maryland corporation with a class of equity securities registered under the Exchange
Act and at least three independent directors to elect to be subject, by provision in its charter or bylaws or a resolution of its board of directors and notwithstanding
any contrary provision in the charter or bylaws, to any or all of five provisions:
•
•
•
•
•
a classified board;
a two-thirds vote requirement for removing a director;
a requirement that the number of directors be fixed only by vote of the directors;
a requirement that a vacancy on the board be filled only by the remaining directors and, if the board is classified, for the remainder of the full
term of the class of directors in which the vacancy occurred; and
a majority requirement for the calling of a stockholder-requested special meeting of stockholders.
We have elected to be subject to the provisions of Subtitle 8 relating to a classified board of directors and the filling of vacancies on our board of
directors. Through provisions in our charter and bylaws unrelated to Subtitle 8, we already (1) require a two-thirds vote for the removal of any director from the
board, which removal will be allowed only for cause, (2) vest in the board the exclusive power to fix the number of directorships, and (3) require, unless called by
the chairman of our board of directors, our president, our chief executive officer or our board of directors, the written request of stockholders entitled to cast not
less than a majority of all votes entitled to be cast on any matter that may properly be considered at a meeting of stockholders in order to call a special meeting to
act on such matter.
Advance Notice of Director Nominations and New Business
Our bylaws provide that nominations of individuals for election to the board of directors or proposals of other business may be made at an annual meeting
(1) pursuant to our notice of meeting, (2) by or at the direction of our board of directors, or (3) by any stockholder of record both at the time of giving of notice
pursuant to the bylaws and at the time of the annual meeting, who is entitled to vote at the meeting in the election of each individual so nominated or on any such
other business and who has complied with the advance notice procedures set forth in our bylaws. Our bylaws currently require the stockholder to provide notice to
the secretary containing the information required by our bylaws not earlier than the 150th day nor later than 5:00 p.m., Eastern Time, on the 120th day prior to the
first anniversary of the date of our proxy statement for the preceding year’s annual meeting.
With respect to special meetings of stockholders, only the business specified in our notice of meeting may be brought before the meeting. Nominations of
individuals for election to the board of directors may be made at a special meeting, (1) by or at the direction of the board of directors, or (2) provided that the
special meeting has been called in accordance with our bylaws for the purpose of electing directors, by any stockholder who is a holder of record both at the time
of giving of notice and at the time of the special meeting, who is entitled to vote at the meeting in the election of each individual so nominated and who complies
with the notice procedures set forth in our bylaws. Such stockholder may nominate one or more individuals, as the case may be, for election as a director if the
stockholder’s notice containing the information required by our bylaws is delivered to the secretary not earlier than the 120th day prior to such special meeting and
not later than 5:00 p.m., Eastern Time, on the later of (1) the 90th day prior to such special meeting or (2) the tenth day following the day on which public
announcement is first made of the date of the special meeting and the proposed nominees of our board of directors to be elected at the meeting.
36
Indemnification and Limitation of Directors’ and Officers’ Liability
Maryland law permits a Maryland corporation to include in its charter a provision eliminating the liability of its directors and officers to the corporation
and its stockholders for money damages except for liability resulting from (1) actual receipt of an improper benefit or profit in money, property or services or (2)
active and deliberate dishonesty established by a final judgment as being material to the cause of action. Our charter contains a provision that eliminates such
liability to the maximum extent permitted by Maryland law. This provision does not reduce the exposure of directors and officers to liability under federal or state
securities laws, nor does it limit the stockholders’ ability to obtain injunctive relief or other equitable remedies for a violation of a director’s or an officer’s duties
to us, although the equitable remedies may not be an effective remedy in some circumstances.
The MGCL requires a Maryland corporation (unless its charter provides otherwise, which our charter does not) to indemnify a director or officer who has
been successful, on the merits or otherwise, in the defense of any proceeding to which he or she is made or threatened to be made a party by reason of his or her
service in that capacity. The MGCL permits a Maryland corporation to indemnify its present and former directors and officers, among others, against judgments,
penalties, fines, settlements and reasonable expenses actually incurred by them in connection with any proceeding to which they may be made or threatened to be
made a party by reason of their service in those or other capacities unless it is established that (1) the act or omission of the director or officer 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, (2) the director or officer actually
received an improper personal benefit in money, property or services, or (3) in the case of any criminal proceeding, the director or officer had reasonable cause to
believe that the act or omission was unlawful. However, under the MGCL, a Maryland corporation may not indemnify a director or officer for an adverse judgment
in a suit by or in the right of the corporation or for a judgment of liability on the basis that a personal benefit was improperly received. A court may order
indemnification if it determines that the director or officer is fairly and reasonably entitled to indemnification, even though the director or officer did not meet the
prescribed standard of conduct or was adjudged liable on the basis that personal benefit was improperly received. However, indemnification for an adverse
judgment in a suit by us or in our right, or for a judgment of liability on the basis that personal benefit was improperly received, is limited to expenses. In addition,
the MGCL permits a corporation to advance reasonable expenses to a director or officer upon the corporation’s receipt of (1) a written affirmation by the director
or officer of his or her good faith belief that he or she has met the standard of conduct necessary for indemnification by the corporation and (2) a written
undertaking by him or her or on his or her behalf to repay the amount paid or reimbursed by the corporation if it is ultimately determined that the appropriate
standard of conduct was not met.
Our charter authorizes us to obligate ourselves and our bylaws obligate us, to the fullest extent permitted by Maryland law in effect from time to time, to
indemnify and, without requiring a preliminary determination of the ultimate entitlement to indemnification, pay or reimburse reasonable expenses in advance of
final disposition of a proceeding to:
•
•
any present or former director or officer who is made or threatened to be made a party to or witness in the proceeding by reason of his or her
service in that capacity; or
any individual who, while our director or officer and at our request, serves or has served as a director, officer, member, manager, partner or
trustee of another corporation, real estate investment trust, limited liability company, partnership, joint venture, trust, employee benefit plan or
other enterprise and who is made or threatened to be made a party to or witness in the proceeding by reason of his or her service in that capacity.
Our charter and bylaws also permit us to indemnify and advance expenses to any person who served a predecessor of ours in any of the capacities
described above and to any employee or agent of us or a predecessor of us.
We have entered into an indemnification agreement with each of our directors and officers, and certain former directors and officers, providing for
indemnification of such directors and officers consistent with the
37
provisions of our charter. The indemnification agreements provide that each indemnitee is entitled to indemnification unless it is established that (1) the act or
omission of an 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, (2) such indemnitee actually received an improper personal benefit in money, property or services or (3) in the case of any criminal proceeding, such
indemnitee had reasonable cause to believe that his or her conduct was unlawful. The indemnification agreements further limit each indemnitee’s entitlement to
indemnification in cases where (1) the proceeding was one by or in the right of us and such indemnitee was adjudged to be liable to us, (2) such indemnitee was
adjudged to be liable on the basis that personal benefit was improperly received in any proceeding charging improper personal benefit to such indemnitee or (3) the
proceeding was brought by such indemnitee, except in certain circumstances.
Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the “Securities Act”), may be permitted to directors,
officers or persons controlling us pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, such indemnification is against
public policy as expressed in the Securities Act and is, therefore, unenforceable.
Exclusive Forum
Our bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Circuit Court for Baltimore City, Maryland, or, if that
court does not have jurisdiction, the United States District Court for the District of Maryland, Northern Division, is the sole and exclusive forum for (a) any
derivative action or proceeding brought on our behalf, other than actions arising under federal securities laws, (b) any Internal Corporate Claim, as such term is
defined in the MGCL, or any successor provision thereof, including, without limitation, (i) any action asserting a claim of breach of any duty owed by any of our
directors, officers or other employees to us or to our stockholders or (ii) any action asserting a claim against us or any of our directors or officers or other
employees arising pursuant to any provision of the MGCL, our charter or our bylaws, or (c) any other action asserting a claim against us or any of our directors or
officers or other employees that is governed by the internal affairs doctrine. Our bylaws also provide that, unless we consent in writing, none of the foregoing
actions, claims or proceedings may be brought in any court sitting outside the State of Maryland and the federal district courts are, to the fullest extent permitted by
law, the sole and exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act.
38
AMENDMENT TO RIGHTS AGREEMENT
EXHIBIT 4.4
This Amendment to Rights Agreement, dated as of February 26, 2021 (this “Amendment”), is made between Global Net
Lease, Inc., a Maryland corporation (the “Company”), and American Stock Transfer and Trust Company, LLC, a New York limited
liability company (the “Rights Agent”).
WHEREAS, the Company and the Rights Agent are parties to that certain Rights Agreement, dated as of April 9, 2020 (the
“Rights Agreement”);
WHEREAS, the Company has delivered to the Rights Agent a certificate from an appropriate officer of the Company stating
that this Amendment complies with Section 27 of the Rights Agreement; and
WHEREAS, the Company and the Rights Agent desire to amend the Rights Agreement to extend the term thereof as further
described herein.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Amendment to the definition of “Final Expiration Date”. The definition of “Final Expiration Date” contained in Section
1.31 of the Rights Agreement is hereby deleted and replaced in its entirety with the following:
“Final Expiration Date” means the date upon which the Rights expire, which is April 8, 2024, unless the Rights are
previously redeemed, exchanged or terminated. The Rights Agent will not be deemed to have any knowledge of the Final
Expiration Date unless and until it has been notified that the Final Expiration Date has occurred.
2. Amendments to Exhibit B (Form of Right Certificate).
a) The reference to April 8, 2021 in the first line of the first paragraph of Exhibit B is hereby changed to April 8,
2024, and all provisions of the first paragraph shall otherwise remain unchanged.
b) The reference to April 8, 2021 in the first sentence of the second full paragraph of Exhibit B is hereby changed to
April 8, 2024, and all provisions of the second paragraph shall otherwise remain unchanged.
3. The reference to April 8, 2021 in the second sentence of the first full paragraph under the heading “EXERCISABILITY
OF RIGHTS” of Exhibit C (Summary of Rights to Purchase Preferred Shares) is hereby changed to April 8, 2024, and all
provisions of the first paragraph shall otherwise remain unchanged.
4. Except as expressly provided in this Amendment, all of the terms and provisions of the Rights Agreement shall remain in
full force and effect.
1
5. This Amendment may be executed in any number of counterparts, and each counterpart shall for all purposes be deemed
to be an original, and all counterparts shall together constitute but one and the same instrument. A signature to this
Amendment transmitted electronically shall have the same authority, effect and enforceability as an original signature.
6. This Amendment shall be deemed to be a contract made under the laws of the State of Maryland and for all purposes
shall be governed by and construed in accordance with the laws of such state applicable to contracts to be made and
performed entirely within such state, except that the rights, duties and obligations of the Rights Agent shall be governed
by and construed in accordance with the laws of the State of New York.
[Remainder of page intentionally left blank. Signature page follows.]
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the day and year first
above written.
2
Global Net Lease, Inc.
By:
/s/ James L. Nelson
Name:
James L. Nelson
Title:
Chief Executive Officer and President
American Stock Transfer and Trust Company, LLC, as Rights
Agent
By:
/s/ Michael A. Nespoli
Name:
Michael A. Nespoli
Title:
Executive Director
3
EXHIBIT 21.1
Subsidiaries of Global Net Lease, Inc.
Name
ARC ACHNETH001, LLC
ARC ALSFDUK001, LLC
ARC AMWCHKS001, LLC
ARC AMWORUK001, LLC
ARC ATSNTTX001, LLC
ARC BBWYKUK001, LLC
ARC BHSBDIN001, LLC
ARC BKSCOUK001, LLC
ARC CABIRUK001, LLC
ARC CCLTRUK001, LLC
ARC CGFRSMI001, LLC
ARC CGJNSMI001, LLC
ARC CGLGNIN001, LLC
ARC CGMADIN001, LLC
ARC CGMARSC001, LLC
ARC CGWRNMI001, LLC
ARC CJHSNTX001, LLC
ARC CJHSNTX002, LLC
ARC CRVANOH001, LLC
ARC CSVBTMI001, LLC
ARC CTFTMSC001, LLC
ARC CWARANE001, LLC
ARC CWGRDMI001, LLC
ARC CWRVTIL001, LLC
ARC CWSALKS001, LLC
ARC CWUVLOH001, LLC
ARC CWVININ001, LLC
ARC CWWPKMN001, LLC
ARC DBGESRG001, LLC
ARC DBGWSDG001, 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
Jurisdiction of Formation/Incorporation
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 FEGBRNC001, LLC
ARC FEHBRKY001, LLC
ARC FELEXKY001, LLC
ARC FELKCLA001, LLC
ARC FEMANMN001, LLC
ARC FEPIESD001, LLC
ARC FESALUT001, LLC
ARC FESANTX001, LLC
ARC FEWNAMN001, LLC
ARC FEWTRNY001, LLC
ARC FMHEPGA001, LLC
ARC FMSUMSC001, LLC
ARC FSMCHIL001, LLC
ARC FUMANUK001, LLC
ARC GBLMESA001, LLC
ARC GECINOH001, LLC
ARC GEGRDMI001, LLC
ARC GLOBAL HOLDCO, LLC
ARC Global II (France) Holdings S.à r.l.
ARC Global II (Germany) Holdings S.à r.l.
ARC Global II (holding)
ARC Global II (Luxembourg) Holdings S.à r.l.
ARC Global II (Madrid) S.à r.l.
ARC Global II (Midco) S.à r.l.
ARC Global II (Netherlands) Holdings S.à r.l.
ARC Global II (UK) Holdings S.à r.l.
ARC Global II Amiens
ARC Global II Blois
ARC Global II Bordeaux
ARC Global II Brest
ARC Global II DB Lux S.à r.l.
ARC Global II Foster Wheeler S.à r.l.
ARC Global II France Holdings SAS
ARC GLOBAL II HOLDCO, LLC
ARC Global II ING Netherlands S.à.r.l.**
ARC Global II ING S.à r.l.
ARC GLOBAL II INTERNATIONAL HOLDCO, LLC
ARC Global II Marseille
ARC Global II NCR Sarl
ARC Global II Rueil
ARC Global II S.à r.l.
ARC Global II Strasbourg
ARC Global II Trappes
ARC Global II Weilbach S.à r.l.
ARC Global Organisme de Placement Collectif en Immobilier (OPCI)
ARC GRLBKTX001, LLC
ARC GRLOUKY001, LLC
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Luxembourg
Luxembourg
France
Luxembourg
Luxembourg
Luxembourg
Luxembourg
Luxembourg
France
France
France
France
Luxembourg
Luxembourg
France
Delaware
Luxembourg
Luxembourg
Delaware
France
Luxembourg
France
Luxembourg
France
France
Luxembourg
France
Delaware
Delaware
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 HLHSNTX001, 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 MEROXUK001, LLC
ARC MKMDNNJ001, LLC
ARC MPSTLMO001, LLC
ARC MSELGIL001, LLC
ARC NNMFBTN001, LLC
ARC NOPLNTX001, LLC
ARC NOWILND001, LLC
ARC NRSLDUK001, LLC
ARC NSSNJCA001, LLC
ARC OBMYNGER01, LLC
ARC ODVLONET001, LLC
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 SLKRFCP001, LLC
ARC SLSTCCA001, LLC
ARC SPHRSNJ001 Urban Renewal Entity, LLC
ARC SWWSVOH001, 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
Delaware
Delaware
New Jersey
Delaware
ARC SZPTNNJ001, LLC
ARC TFDPTIA001, LLC
ARC TFKMZM1001, LLC
ARC TFKMZMI001, LLC
ARC TKMANUK001, LLC
ARC TOMANFI001, LLC
ARC TRLIVMI001, LLC
ARC TWSWDUK001, LLC
ARC VALWDCO001, LLC
ARC VCLIVMI001, LLC
ARC WIODSTX001, LLC
ARC WKBPLUK001, LLC
ARC WKMCRUK001, LLC
ARC WKSOTUK001, LLC
ARC WMWSLNC001, LLC
ARC WNBRNMO001, LLC
ARC WWHWCMI001, LLC
ARG BIJTNNY001, LLC
ARG BSBEAWV001, LLC
ARG BSCASWY001, LLC
ARG BSEVSIN001, LLC
ARG BSMNSTX001, LLC
ARG BSMTONJ001, LLC
ARG BSPADKY001, LLC
ARG CBSKSMO001, LLC
ARG CDNCNOH001, LLC
ARG CFSRSLB001, LLC
ARG CMGLTWY001, LLC
ARG CMOMHNE001, LLC
ARG CMPCRMS001, LLC
ARG COWLMDE001, LLC
ARG COWLMDE002, LLC
ARG CSBLVMI001, LLC
ARG CSHMDIN001, LLC
ARG CSLIVMI001, LLC
ARG CSSTLMO001, LLC
ARG CSTWBOH001, LLC
ARG CSWYGMI001, LLC
ARG DPSPNIA001, LLC
ARG EHBIRAL001, LLC
ARG EQWBGPA001, LLC
ARG FCDETMI001, LLC
ARG FCSTHMI001, LLC
ARG FEBLCID001, LLC
ARG FEBTHNB001, LLC
ARG FEGRFMT001, LLC
ARG FEGRNNC001, 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
Delaware
Delaware
Delaware
Delaware
ARG FELWDNB001, LLC
ARG FEMRGWV001, LLC
ARG FEMTNNB001, LLC
ARG FMCHIIL001, LLC
ARG FRAHLMI001, LLC
ARG GASTNMI001, LLC
ARG GKCNCOH001, LLC
ARG GRD4SLB001, LLC
ARG HCCLHGA001, LLC
ARG HISRPAZ001, LLC
ARG HIVRNCA001, LLC
ARG HRTFTGA001, LLC
ARG KLSLBNC001, LLC
ARG KLSLBNC002, LLC
ARG LKCLLAL001, LLC
ARG LSCHIIL001, LLC
ARG LSCHIIL002, LLC
ARG LSCHIIL003, LLC
ARG LSWYGMI001, LLC
ARG MT2PKSLB001, LLC
ARG NIFLNNH002, LLC
ARG NIFLNNH002, LLC
ARG NIGTNMA001, LLC
ARG NIGVTNH001, LLC
ARG NIJNBVT001, LLC
ARG NIJNBVT002, LLC
ARG NIJNBVT003, LLC
ARG NSALNTX001, LLC
ARG PLRMLMI001, LLC
ARG PSBRDFL001, LLC
ARG PSDANVA001, LLC
ARG PSDAYOH001, LLC
ARG PSDEMIA001, LLC
ARG PSELPTX001, LLC
ARG PSETIPA001, LLC
ARG PSGRLTX001, LLC
ARG PSHCKNC001, LLC
ARG PSIRVTX001, LLC
ARG PSLASNV001, LLC
ARG PSLKCLA001, LLC
ARG PSMRDMS001, LLC
ARG PSMSNTX001, LLC
ARG PSPRAIL001, LLC
ARG PSYNSOH001, LLC
ARG RMAKROH001, LLC
ARG SNCSPCO001, LLC
ARG SSFSRIN001, 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
Delaware
Delaware
Delaware
Delaware
ARG STELDCA001, LLC
ARG STFALNY001, LLC
ARG STKNCMO001, LLC
ARG STWINCT001, LLC
ARG TRWXMMI001, LLC
ARG UPARAIL001, LLC
ARG UPDBNMI001, LLC
ARG VAGNVFL001, LLC
ARG VSSRACA001, LLC
ARG VSSRACA002, LLC
ARG VSSRACA003, LLC
ARG WFHWDAL001, LLC
ARG WGPTBPA001, LLC
ARG WPCLDOH001, LLC
ARG WPCLDOH002, LLC
ARG WPCLVTN001, LLC
ARG WPFBRIT001, S.r.l
ARG WPFNDOH001, LLC
ARG WPMRNOH001, LLC
ARG WPOTWOH001, LLC
ARG ZFFINOH001, LLC
Crown Portfolio S.à r.l.
GLOBAL NET LEASE OPERATING PARTNERSHIP, L.P.
GNL Canadian Services Co.
HC Glasgow S.à r.l.
Kiinteistö Oy Vantaan Pyhtäänkorventien KOKE (MREC)
Kiinteistö Oy Vantaan Teknikontien LEKO 7 (MREC)
Kiinteistö Oy Vantaan Teknikontien MAKE (MREC)
Kiinteistö Oy Vantaan Teknikontien MAKO (MREC)
Koy Mäntsälän Logistiikkakeskus (MREC)
MAYFLOWER ACQUISITION, LLC
METHAGER01, LLC
ROCHESSGER01, LLC
ROCHESSGER02, LLC
ROCHESSGER03, LLC
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Italy
Delaware
Delaware
Delaware
Delaware
Luxembourg
Delaware
Nova Scotia
Luxembourg
Finland
Finland
Finland
Finland
Finland
Delaware
Delaware
Delaware
Delaware
Delaware
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
EXHIBIT 23.1
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-214582), Form S-3 (333-234631, 333-196829) of Global
Net Lease, Inc. of our report dated February 26, 2021 relating to the financial statements, financial statement schedule and the effectiveness of internal control over
financial reporting, which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
New York, New York
February 26, 2021
CERTIFICATION PURSUANT TO RULE 13a-14(a) AND 15d-14(a) UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
Exhibit 31.1
I, James L. Nelson, 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 26th day of February, 2021
/s/ James L. Nelson
James L. Nelson
Chief Executive Officer and President
(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, Christopher J. Masterson, 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 26th day of February, 2021
/s/ Christoper J. Masterson
Christopher J. Masterson
Chief Financial Officer, Treasurer and Secretary
(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 Annual Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Dated the 26th day of February, 2021
/s/ James L. Nelson
James L. Nelson
Chief Executive Officer and President
(Principal Executive Officer)
/s/ Christopher J. Masterson
Christopher J. Masterson
Chief Financial Officer, Treasurer and Secretary
(Principal Financial Officer and Principal Accounting Officer)