GNL-B Global Net Lease Inc

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

Date of Report (Date of earliest event reported):  August 9, 2023

 

Global Net Lease, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

Maryland		001-37390		45-2771978
(State or other jurisdiction of incorporation)		(Commission File Number)		(I.R.S. Employer Identification No.)

 

650 Fifth Avenue, 30th Floor
New York, New York		10019
(Address of Principal Executive Offices)		(Zip Code)

 

Registrant’s telephone number, including area code: (212) 415-6500

 

Former name or former address, if changed since last report: Not Applicable

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

x	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Securities registered pursuant to section 12(b) of the Act:

 

Title of each class		Trading Symbol (s)		Name of each exchange on which registered
Class A Common Stock, $0.01 par value per share		GNL		New York Stock Exchange
7.25% Series A Cumulative Redeemable Preferred Stock, $0.01 par value per share		GNL PR A		New York Stock Exchange
6.875% Series B Cumulative Redeemable Perpetual Preferred Stock, $0.01 par value per share		GNL PR B		New York Stock Exchange
Preferred Stock Purchase Rights				New York Stock Exchange

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

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. ¨

  

  

Item 8.01. Other Events.

 

As previously disclosed, on May 23, 2023, Global Net Lease, Inc., a Maryland corporation (“GNL” or the “Company”), Global Net Lease Operating Partnership, L.P., a Delaware limited partnership (“GNL OP”), The Necessity Retail REIT, Inc., a Maryland corporation (“RTL”), The Necessity Retail REIT Operating Partnership, L.P., a Delaware limited partnership (“RTL OP”), Osmosis Sub I, LLC, a Maryland limited liability company and wholly-owned subsidiary of GNL (“REIT Merger Sub”), and Osmosis Sub II, LLC, a Delaware limited liability company and wholly-owned subsidiary of GNL OP (“OP Merger Sub”), entered into an Agreement and Plan of Merger (the “REIT Merger Agreement”). Subject to the terms and conditions of the REIT Merger Agreement, at the effective time of the merger (the “REIT Merger Effective Time”), RTL will merge with and into REIT Merger Sub, with REIT Merger Sub continuing as the surviving entity and a wholly-owned subsidiary of the Company (the “REIT Merger”), and OP Merger Sub will merge with and into RTL OP, with RTL OP continuing as the surviving entity (the “OP Merger” and, together with the REIT Merger, the “Mergers”). The Company also entered into an agreement (the “Internalization Merger Agreement”) to internalize the advisory and property management functions of the combined company following the Mergers (the “Combined Company”) through a series of mergers with the advisors and property managers for each of the Company and RTL (the “Internalization Merger,” and, together with the REIT Merger and the OP Merger, the “Proposed Transactions”).

 

In connection with the Proposed Transactions, the Company filed a registration statement on Form S-4 (333-273156) (as amended, the “Registration Statement”) with the Securities and Exchange Commission (the “SEC”). On July 18, 2023, the Registration Statement was declared effective by the SEC. On July 18, 2023, the Company and RTL filed a joint proxy statement/prospectus with respect to the special meetings of stockholders of the Company and RTL which has been disseminated to the Company’s stockholders and RTL’s stockholders (the “Joint Proxy Statement/Prospectus”).

 

 

* * * * * * * * * * * *

 

SUPPLEMENT TO JOINT PROXY STATEMENT/PROSPECTUS

 

The supplemental disclosures contained below supplement the Joint Proxy Statement/Prospectus and should be read in conjunction with the Joint Proxy Statement/Prospectus, which is available on the website maintained by the SEC at http://www.sec.gov, along with periodic reports and other information GNL and RTL file with the SEC. To the extent that the information set forth herein differs from or updates information contained in the Joint Proxy Statement/Prospectus, the information set forth herein shall supersede or supplement the information in the Joint Proxy Statement/Prospectus. All page references are to pages in the Joint Proxy Statement/Prospectus, and terms used below, unless otherwise defined, have the meanings set forth in the Joint Proxy Statement/Prospectus.

 

The section of the Joint Proxy Statement/Prospectus entitled “The Companies—The Combined Company—Indebtedness of the Combined Company” is amended and supplemented as follows:

 

1.

The following supplemental disclosure is inserted after the second full paragraph on page 43 of the Joint Proxy Statement/Prospectus:

 

The GNL Credit Facility Accordion

 

In connection with the GNL Credit Facility, GNL OP has agreed in principle with KeyBank National Association, in its capacity as administrative agent, on non-binding terms and conditions governing an expansion of $500 million in revolving credit commitments available under the GNL Credit Facility (the “Accordion”). Under the REIT Merger Agreement, GNL is required to repay all amounts outstanding under the RTL Credit Facility, and GNL expects to use the increased commitments from the Accordion to facilitate this repayment and to create additional availability after the Proposed Transactions are completed. If the amendment is approved, the GNL Credit Facility will mature on October 8, 2026, provided that GNL OP will have two six-month extension options.

 

The following summarizes the material non-binding terms and conditions and is subject to the execution and delivery of definitive agreements. The definitive agreement will contain various covenants relating to items such as asset concentration and the maximum value ascribed to any particular asset.

 

Further, GNL will be required to comply with certain financial covenants, including:

 

·

Maximum Leverage Ratio. The ratio of (i) indebtedness to (ii) total asset value cannot exceed 60.0%; provided that GNL OP will have the option to increase this limit to 65% for the two consecutive quarters following a material acquisition, not to be exercised more than three times during the term of the GNL Credit Facility.

 

·

Minimum Fixed Charge Coverage Ratio. The ratio of (i) Adjusted EBITDA to (ii) fixed charges cannot be less than 1.60 to 1.0.

 

·

Maximum Secured Leverage Ratio. The ratio of (i) secured indebtedness to (ii) total asset value cannot exceed 45.0%; provided that GNL will have the option to increase the foregoing limit to 50% for the two consecutive quarters following a material acquisition, not to be exercised more than three times during the term of the GNL Credit Facility.

 

·

Maximum Secured Recourse Debt Ratio: The ratio of (i) secured recourse debt to (ii) total asset value cannot exceed 15%.

 

·

Minimum Tangible Net Worth. Tangible net worth cannot at any time be less than (i) 80% of the tangible net worth on the closing date of the Accordion plus (ii) an amount equal to 80% of net equity proceeds received by GNL after the closing date of the Accordion.

 

 

·

Maximum Unencumbered Leverage. The ratio of (i) unsecured indebtedness to (ii) unencumbered asset value cannot exceed 60%.

 

·

Unencumbered Debt Service Coverage Ratio. The ratio of (i) unencumbered net operating income for the most recent four fiscal quarter period to (ii) the implied debt service, cannot be less than 1.50 to 1.0.

 

There will also continue to be limits on the amount of dividends that GNL may pay equal to the greater of (i) 100% of AFFO (calculated as of the last day of the most recently ended fiscal quarter for the four quarter period ending on such date) (provided that, for one fiscal quarter every calendar year, such amount may exceed 100% of AFFO but not exceed 105% of AFFO) and (ii) the amount of restricted payments (including any share repurchases) required to be paid in the form of cash by GNL in order for it to (x) maintain its REIT status for federal and state income tax purposes and (y) avoid the payment of federal and state income or excise tax. During a payment or bankruptcy event of default restricted payments by GNL will only be permitted up to the minimum amount needed to maintain GNL’s status as a REIT for federal and state income tax purposes.

 

The definitive agreement is expected to include change of control provisions, under which a change of control will exist upon the occurrence of certain events including changes to the ownership of the voting stock or voting interests of GNL, the composition of the GNL Board or certain of GNL’s executive officers (not otherwise approved by the GNL Board), GNL’s ownership or control of GNL OP, GNL’s ownership of each subsidiary guarantor or GNL OP’s ownership of each unencumbered property subsidiary.

  

The closing of the Accordion is subject to, among other things, the consummation of the Proposed Transactions. The terms of the existing loan documentation governing the GNL Credit Facility will continue to govern except for the modifications described in the term sheet and summarized herein.

 

The section of the Joint Proxy Statement/Prospectus entitled “Unaudited Pro Forma Condensed Combined Financial Information” is amended and supplemented as follows:

 

1.

The disclosure under the heading “Unaudited Pro Forma Condensed Combined Financial Information” beginning on page 226 of the Joint Proxy Statement/Prospectus is supplemented to include the unaudited pro forma condensed combined financial statements attached as Exhibit 99.1 and incorporated by reference herein, which consist of (i) the unaudited pro forma condensed combined balance sheet of the Combined Company as of June 30, 2023; and (ii) the unaudited pro forma condensed combined statements of operations of the Combined Company for the six months ended June 30, 2023 and for the year ended December 31, 2022.

 

The section of the Joint Proxy Statement/Prospectus entitled “Index to Financial Information—Financial Statements of the Internalization Parties” is amended and supplemented as follows:

 

1.

The unaudited combined financial statements of the Internalization Parties as of March 31, 2023 and for the three months ended March 31, 2022 and 2023 beginning on page F-18 of the Joint Proxy Statement/Prospectus are supplemented to include the unaudited combined financial statements of the Internalization Parties as of June 30, 2023 and for the three and six months ended June 30, 2022 and 2023, which are attached as Exhibit 99.2 and incorporated by reference herein.

 

 

Forward-Looking Statements

 

The statements in this Current Report on Form 8-K that are not historical facts may be forward-looking statements. These forward-looking statements involve risks and uncertainties that could cause actual results or events to be materially different. In addition, words such as “may,” “will,” “seeks,” “anticipates,” “believes,” “estimates,” expects,” “plans,” “intends,” “would,” or similar expressions indicate a forward-looking statement, although not all forward-looking statements contain these identifying words. Any statements referring to the future value of an investment in the Company, including the adjustments giving effect to RTL merging with and into Osmosis Sub I, LLC, with Osmosis Sub I, LLC continuing as the surviving entity and wholly-owned subsidiary of GNL (the “REIT Merger”) and GNL and RTL becoming internally managed (the “Internalization Merger” and, together with the REIT Merger, the “Proposed Transactions”) as described in this communication, as well as the potential success that the Company may have in executing the REIT Merger and Internalization Merger, are also forward-looking statements. There are a number of risks, uncertainties and other important factors that could cause the Company’s actual results, or the Company’s actual results after making adjustments to give effect to the REIT Merger and the Internalization Merger, to differ materially from those contemplated by such forward-looking statements, including but not limited to: (i) the Company’s ability to complete the proposed REIT Merger and Internalization Merger on the proposed terms or on the anticipated timeline, or at all, including risks and uncertainties related to securing the necessary stockholder approvals and satisfaction of other closing conditions to consummate the Proposed Transactions, (ii) the occurrence of any event, change or other circumstance that could give rise to the termination of the Internalization Merger Agreement and REIT Merger Agreement, each dated as of May 23, 2023 relating to the Proposed Transactions, (iii) the ability of the Company to obtain lender consent to amend its Second Amended and Restated Credit Facility or any other loan agreement of the Company, if at all, or on terms favorable to the Company, (iv) risks related to the potential repeal of the Company’s Shareholder’s Rights Plan; (v) risks related to the decrease in the beneficial ownership requirements of the Company’s applicable classes and series of stock; (vi) risks related to diverting the attention of the Company’s management from ongoing business operations, (vii) failure to realize the expected benefits of the Proposed Transactions, (viii) significant transaction costs or unknown or inestimable liabilities, (ix) the risk of shareholder litigation in connection with the Proposed Transactions, including resulting expense or delay, (x) the risk that RTL’s business will not be integrated successfully or that such integration may be more difficult, time-consuming or costly than expected, (xi) risks related to future opportunities and plans for the Company post-closing, including the uncertainty of expected future financial performance and results of the Company post-closing following completion of the Proposed Transactions, (xii) the effect of the announcement of the Proposed Transactions on the ability of the Company and RTL to operate their respective businesses and retain and hire key personnel and to maintain favorable business relationships, (xiii) the effect of any downgrade of the Company’s or RTL’s corporate rating or to any of their respective debt or equity securities including the outstanding notes under the RTL Indenture; (xiv) risks related to the market value of the GNL Common Stock to be issued in the Proposed Transactions; (xv) other risks related to the completion of the Proposed Transactions, (xvi) the risk that one or more parties to the Internalization Merger Agreement and REIT Merger Agreement may not fulfill its obligations under the respective agreement, as well as the additional risks, uncertainties and other important factors set forth in the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on February 23, 2023, and all other filings with the SEC after that date, as such risks, uncertainties and other important factors may be updated from time to time in the Company’s subsequent reports. Further, forward-looking statements speak only as of the date they are made, and the Company undertakes 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, except as required by law.

 

Additional Information About the REIT Merger and Internalization Merger and Where to Find It

 

In connection with the Proposed Transactions, on July 6, 2023, GNL filed with the SEC a registration statement on Form S-4 (as amended on July 17, 2023), which includes a document that serves as a prospectus of GNL and a joint proxy statement of GNL and RTL (the “joint proxy statement/prospectus”). Each party also plans to file other relevant documents with the SEC regarding the proposed transactions. The Form S-4 became effective on July 18, 2023. INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE JOINT PROXY STATEMENT/PROSPECTUS AND OTHER RELEVANT DOCUMENTS FILED WITH THE SEC BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTIONS. GNL and RTL commenced mailing the definitive joint proxy statement/prospectus to stockholders on or about July 19, 2023. Investors and security holders may obtain a free copy of the joint proxy statement/prospectus and other relevant documents filed by GNL with the SEC at the SEC’s website at www.sec.gov. Copies of the documents filed by GNL with the SEC are available free of charge on GNL’s website at www.globalnetlease.com or by contacting GNL’s Investor Relations at investorrelations@globalnetlease.com.

 

 

Participants in the Proxy Solicitation

 

GNL and its respective directors, executive officers and other members of management and employees may be deemed to be participants in the solicitation of proxies in respect of the Proposed Transactions. Information about directors and executive officers of GNL is available in the proxy statement for its 2023 Annual Meeting, as incorporated by reference in the joint proxy statement/prospectus. Other information regarding the participants in the proxy solicitation and a description of their direct and indirect interests, by security holdings or otherwise, is contained in the joint proxy statement/prospectus and other relevant materials filed with the SEC regarding the Proposed Transactions. Investors should read the joint proxy statement/prospectus carefully before making any voting or investment decisions. Investors may obtain free copies of these documents from GNL as indicated above.

 

No Offer or Solicitation

 

This communication shall not constitute an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act.

 

 

Item 9.01. Financial Statements and Exhibits.

 

(d) Exhibits

 

Exhibit No.		Description
99.1		Unaudited pro forma condensed combined financial statements of the Combined Company as of June 30, 2023, for the six months ended June 30, 2023 and for the year ended December 31, 2022.
99.2		Unaudited combined financial statements of the Internalization Parties (Global Net Lease Advisors LLC, Necessity Retail Advisors, LLC, Global Net Lease Properties, LLC, and Necessity Retail Properties, LLC) as of June 30, 2023 and for the three and six months ended June 30, 2022 and 2023.
104		Cover Page Interactive Data File – the cover page XBRL tags are embedded within the Inline XBRL Document.

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

	GLOBAL NET LEASE, INC.
	By:	/s/ James L. Nelson
	Name:	James L. Nelson
	Title:	Chief Executive Officer and President
		(Principal Executive Officer)

 

Dated: August 9, 2023

 

 

 

Exhibit 99.1

 

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

On May 23, 2023, Global Net lease, Inc. (“GNL” or the “Company”), Global Net Lease Operating Partnership, L.P. (the “OP”), The Necessity Retail REIT, Inc., a Maryland corporation (“RTL”), The Necessity Retail REIT Operating Partnership, L.P., a Delaware limited partnership (“RTL OP”), Osmosis Sub I, LLC, a Maryland limited liability company and wholly-owned subsidiary of GNL (“REIT Merger Sub”), and Osmosis Sub II, LLC, a Delaware limited liability company and wholly-owned subsidiary of the OP (“OP Merger Sub”), entered into an Agreement and Plan of Merger (the “REIT Merger Agreement”). Subject to the terms and conditions of the REIT Merger Agreement, at the effective time of the merger (the “REIT Merger Effective Time”), RTL will merge with and into REIT Merger Sub, with REIT Merger Sub continuing as the surviving entity and a wholly-owned subsidiary of the Company (the “REIT Merger”), and OP Merger Sub will merge with and into RTL OP, with RTL OP continuing as the surviving entity (the “OP Merger,” and, together with the REIT Merger, the “Merger”).

 

In addition, conditioned on the completion of the REIT Merger, GNL also entered into an agreement to internalize the advisory and property management functions of GNL and RTL through the acquisition by GNL of the GNL Advisor, the GNL Property Manager, the RTL Advisor and the RTL Property Manager (collectively, the “Internalization Parties”), all of which are wholly-owned subsidiaries of AR Global Investments, LLC (“Advisor Parent”), through the merger of wholly-owned subsidiaries of GNL into the Internalization Parties (the “Internalization Merger” and, together with the REIT Merger and the OP Merger, the “Proposed Transactions”). The Proposed Transactions are conditional upon one another and accordingly are considered “related” and treated as a single transaction for accounting and reporting purposes.

 

The following unaudited pro forma condensed combined financial information has been prepared to illustrate the estimated effects of the Proposed Transactions, and the related financing transactions. The unaudited pro forma condensed combined financial information has been prepared by GNL in accordance with Article 11 of SEC Regulation S-X. The unaudited pro forma condensed combined financial information gives effect to the Proposed Transactions as follows:

 

·

The unaudited pro forma condensed combined balance sheet as of June 30, 2023 combines the historical consolidated balance sheets of GNL, RTL and the Internalization Parties, giving effect to the Proposed Transactions as if they had occurred on June 30, 2023.

 

·

The unaudited pro forma condensed combined statements of operations for the six months ended June 30, 2023 combine the historical operating results of GNL, RTL and the Internalization Parties, giving effect to the Proposed Transactions as if they had occurred on January 1, 2022.

 

·

The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2022 combine the historical operating results of GNL, RTL (as adjusted for the effects of RTL’s acquisition of the CIM Portfolio - see below) and the Internalization Parties, giving effect to these transactions as if they had occurred on January 1, 2022.

 

The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2022, described above, gives effect to the acquisition by RTL of 81 properties from certain subsidiaries of CIM Real Estate Finance Trust, Inc. (the “CIM Portfolio”), as if that acquisition had occurred on January 1, 2022. RTL acquired the CIM Portfolio in seven closings during the year ended December 31, 2022. See Note 2 — Basis of Presentation to the notes to the unaudited pro forma condensed combined financial information for additional information.

 

The pro forma condensed information is not necessarily indicative of what GNL’s financial position or results of operations actually would have been had the merger been completed as of the dates indicated. In addition, the unaudited pro forma condensed combined financial information does not purport to project the future financial position or operating results of GNL.

 

The Proposed Transactions are considered a single business combination and GNL will be treated as the acquirer for accounting purposes. The acquisition accounting is dependent upon certain valuations and other studies that have yet to commence or progress to a stage where there is sufficient information for a definitive measurement. Accordingly, the pro forma adjustments are preliminary and have been made solely for the purpose of providing unaudited pro forma condensed combined financial information. Differences between these preliminary estimates and the final acquisition accounting will occur, and these differences could have a material impact on the accompanying unaudited pro forma condensed combined financial statements and the company’s future results of operations and financial position.

 

Both GNL, RTL and certain of the Internalization Parties and their related parties were in litigation with Blackwells/Related Parties. On May 4, 2023, the various parties entered into a Cooperation and Release Agreement. In exchange for a release of all claims by the Blackwells/Related Parties, the Cooperation and Release Agreement, among other things, provides for (i) an expense reimbursement paid in cash to Blackwells of approximately $17.6 million (to be shared equally by GNL and RTL), (ii) the issuance of 495,000 shares of GNL Common Stock (which occurred on July 10, 2023), (iii) a Consulting Agreement with Blackwells whereby they may receive up to an additional 1.6 million shares of GNL Common Stock to be paid in monthly installments upon consummation of the Proposed Transactions and (iv) an indemnification of Blackwells not to exceed $10.0 million. The number of shares that would be issued under the Cooperation and Release Agreement would be reduced to 533,333 shares of GNL common stock (i.e., one-third of the maximum amount) in the event that the Proposed Transactions are terminated pursuant to the stockholders not approving the transactions, and to 1,066,667 shares of GNL common stock (i.e., two-thirds of the maximum amount) if the Proposed Transactions are terminated for any other reason. The financial impact of the Cooperation and Release Agreements is reflected in RTL’s quarterly period ended June 30, 2023 and in GNL’s quarterly period ended June 30, 2023 and will end when substantial services under the consulting arrangement are completed. As of June 30, 2023, RTL has expensed $8.8M related to (i) above, which consists of expense reimbursement of which there are no remaining future payments, within the Settlement Costs line item of the June 30, 2023 income statement. As of June 30, 2023, GNL has expensed the following within the Settlement Costs line item (1) $8.8 million related to (i) above, which consists of expense reimbursement of which there are no remaining future payments, (2) $4.9 million related to (ii) above, of which there are no anticipated future expenses and (3) $1.3 million related to (iii) above, the Consulting Agreement of which there are additional future costs expected to be incurred through the third quarter of 2023.

 

 

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

The unaudited pro forma condensed combined financial information is qualified in its entirety and should be read in conjunction with the accompanying notes to the unaudited pro forma condensed combined financial statements as well as the following documents:

 

	·	The separate historical financial statements of GNL as of and for the year ended December 31, 2022 and the related notes included in GNL’s Annual Report on Form 10-K for the year ended December 31, 2022.
	·	The separate historical financial statements of RTL as of and for the year ended December 31, 2022 and the related notes included in RTL’s Annual Report on Form 10-K for the year ended December 31, 2022.
	·	RTL’s unaudited pro forma consolidated statement of operations for the year ended December 31, 2022 contained in RTL’s Current Report on Form 8-K filed February 27, 2023.
	·	The separate historical financial statements of GNL as of and for the six months ended June 30, 2023 and the related notes included in GNL’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2023.
	·	The separate historical financial statements of RTL as of and for the six months ended June 30, 2023 and the related notes included in RTL’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2023.
	·	The separate historical financial statements of the Internalization Parties as of and for the six months ended June 30, 2023, which is included in this filing.
	·	The separate historical financial statements of the Internalization Parties as of and for the years ended December 31, 2022 and 2021, which is included in the joint prospectus/proxy statement relating to the REIT Merger and Internalization Merger filed with on Form S-4/A on July 17, 2023.
	·	The Combined Statements of Revenues and Certain Expenses of the Acquired CIM Portfolio for the three months ended March 31, 2022, and for the year ended December 31, 2021, included in RTL’s Current Report on Form 8-K/A filed on June 24, 2022.

 

 

GLOBAL NET LEASE, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

AS OF JUNE 30, 2023

(In thousands, except share and per share amounts)

 

		HISTORICAL GNL				HISTORICAL RTL (as adjusted)				HISTORICAL INTERNALIZATION PARTIES				TRANSACTION ACCOUNTING ADJUSTMENTS					PRO FORMA GNL COMBINED
						(Note 2)								(Note 4)
ASSETS
Real estate investments, at cost:
Land		$	505,202			$	956,506			$	—			$	34,732		(a)		$	1,496,440
Buildings, fixtures and improvements			3,347,831				3,378,560				—				(996,206	)	(b)			5,730,185
Construction in progress			37,262				—				—				—					37,262
Acquired intangible lease assets			727,678				567,722				—				69,392		(c)			1,364,792
Total real estate investments, at cost			4,617,973				4,902,788				—				(892,082	)				8,628,679
Less accumulated depreciation and amortization			(963,745	)			(810,727	)			—				810,727		(d)			(963,745	)
Total real estate investments, net			3,654,228				4,092,061				—				(81,355	)				7,664,934
Cash and cash equivalents			100,918				59,172				—				(94,525	)	(e)			65,565
Restricted cash			4,268				23,373				—				—					27,641
Derivative assets, at fair value			27,649				—				—				—					27,649
Unbilled straight-line rent			77,444				59,890				—				(59,890	)	(f)			77,444
Operating lease right-of-use asset			51,240				17,587				—				(4,726	)	(g)			64,101
Prepaid expenses and other assets			50,453				55,476				36				—					105,965
Due from related parties			436				2,651				2,274				(3,201	)	(h)			2,160
Deferred tax assets			2,584				—				—				—					2,584
Goodwill			21,556				—				—				80,614		(i)			102,170
Deferred financing costs and leasing commissions, net			11,100				25,050				—				(25,050	)	(j)			11,100
Total Assets		$	4,001,876			$	4,335,260			$	2,310			$	(188,133	)			$	8,151,313
LIABILITIES AND EQUITY
Mortgage notes payable, net		$	995,184			$	1,553,688			$	—			$	(135,422	)	(k)		$	2,413,450
Revolving credit facility			1,038,502				604,000				—				—		(l)			1,642,502
Senior notes, net			493,810				492,987				—				(107,987	)	(m)			878,810
Acquired intangible lease liabilities, net			23,091				123,900				—				(79,835	)	(n)			67,156
Derivative liabilities, at fair value			1,798				—				—				—					1,798
Due to related parties			350				901				1,950				(3,201	)	(h)			—
Accounts payable and accrued expenses			31,265				53,903				6,134				—					91,302
Operating lease liabilities			22,329				19,088				—				(187	)	(o)			41,230
Prepaid rent			28,844				16,531				—				—					45,375
Deferred tax liability			6,395				—				—				—					6,395
Dividends payable			5,139				5,837				—				—					10,976
Total Liabilities			2,646,707				2,870,835				8,084				(326,632	)				5,198,994
Commitments and contingencies			—				—				—				—					—
Stockholders’ Equity:
Preferred stock, at par			115				125				—				—		(p)			240
Common stock, at par			2,374				1,345				—				(119	)	(q)			3,600
Additional paid-in capital			2,690,375				2,999,565				—				(1,358,664	)	(r)			4,331,276
Accumulated other comprehensive income			11,593				—				—				—					11,593
Accumulated deficit			(1,368,678	)			(1,565,425	)			(5,774	)			1,544,199		(s)			(1,395,678	)
Total Stockholders’ Equity			1,335,779				1,435,610				(5,774	)			185,416					2,951,031
Non-controlling interest			19,390				28,815				—				(46,917	)	(t)			1,288
Total Equity			1,355,169				1,464,425				(5,774	)			138,499					2,952,319
Total Liabilities and Equity		$	4,001,876			$	4,335,260			$	2,310			$	(188,133	)			$	8,151,313

 

 

GLOBAL NET LEASE, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE SIX MONTHS ENDED JUNE 30, 2023

(In thousands, except share and per share amounts)

 

		HISTORICAL GNL				HISTORICAL RTL				HISTORICAL INTERNALIZATION PARTIES				TRANSACTION ACCOUNTING ADJUSTMENTS						PRO FORMA GNL COMBINED
														(Note 5)
Revenue		$	190,176			$	220,294			$	53,455			$	(58,888	)		(a), (b)		$	405,037
Expenses:
Property operating expenses			17,179				51,995				—				(6,018	)		(b)			63,156
Operating fees to related parties			20,211				15,928				—				(36,139	)		(b)			—
Impairment charges			—				—				—				—						—
Merger, transaction and other costs			6,378				5,496				—				—			(b), (c)			11,874
Settlement costs			15,084				8,800				—				—						23,884
General and administrative			16,343				25,236				14,238				(8,407	)		(b), (d)			47,410
Equity-based compensation			5,795				7,086				—				(6,352	)		(e)			6,529
Depreciation and amortization			74,326				113,648				—				(34,344	)		(f)			153,630
Total expenses			155,316				228,189				14,238				(91,260	)					306,483
Operating income before gain (loss) on dispositions of real estate investments			34,860				(7,895	)			39,217				32,372						98,554
Gain on dispositions of real estate investments			—				17,263				—				—						17,263
Operating income			34,860				9,368				39,217				32,372						115,817
Other income (expense):
Interest expense			(54,675	)			(70,620	)			—				(24,216	)		(g)			(149,511	)
Loss on extinguishment of debt			(404	)			—				—				—						(404	)
(Loss) gain on derivative instruments			(2,430	)			—				—				—						(2,430	)
Unrealized income on undesignated foreign currency advances and other hedge ineffectiveness			—				—				—				—						—
Other income			1,716				623				562				(562	)		(h)			2,339
Total other expense, net			(55,793	)			(69,997	)			562				(24,778	)					(150,006	)
Net income before income tax			(20,933	)			(60,629	)			39,779				7,594						(34,189	)
Income tax expense			(6,215	)			—				—				—						(6,215	)
Net (loss) income			(27,148	)			(60,629	)			39,779				7,594						(40,404	)
Net loss attributable to non-controlling interest			—				78				—				(57	)		(i)			21
Preferred stock dividends			(10,198	)			(11,674	)			—				—						(21,872	)
Net (loss) income attributable to common stockholders		$	(37,346	)		$	(72,225	)		$	39,779			$	7,537					$	(62,255	)
Basic and Diluted (Loss) Income Per Share:
Net (loss) income per share attributable to common stockholders — Basic and Diluted		$	(0.36	)																$	(0.28	)
Weighted average common shares outstanding:
Weighted average common shares outstanding — Basic and Diluted (j)			103,966,910																		226,577,523

 

 

 

GLOBAL NET LEASE, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2022

(In thousands, except share and per share amounts)

 

										CIM TRANSACTION AND FINANCING (see Note 2)
		HISTORICAL GNL				HISTORICAL RTL				HISTORICAL CIM PORTFOLIO				PRO FORMA ADJUSTMENTS				CREDIT FACILITY DRAW				HISTORICAL INTERNALIZATION PARTIES				PRO FORMA ADJUSTMENTS						PRO FORMA GNL COMBINED
																										(Note 5)
Revenue		$	378,857			$	446,438			$	32,015			$	97			$	—			$	105,785			$	(111,236	)		(a), (b)		$	851,956
Expenses:
Property operating expenses			32,877				101,558				11,174				—				—				—				(10,369	)		(b)			135,240
Operating fees to related parties			40,122				32,026				—				—				—				—				(72,148	)		(b)			—
Impairment charges			21,561				97,265				—				—				—				—				—						118,826
Acquisition, transaction and other costs			244				1,221				—				—				—				—				26,613			(b), (c)			28,078
General and administrative expenses			17,737				32,365				—				—				—				30,729				(16,231	)		(b), (d)			64,600
Equity-based compensation			12,072				14,433				—				—				—				—				(12,704	)		(e)			13,801
Depreciation and amortization			154,026				195,854				—				15,533				—				—				(45,230	)		(f)			320,183
Total expenses			278,639				474,722				11,174				15,533				—				30,729				(130,069	)					680,728
Operating income before gain (loss) on dispositions of real estate investments			100,218				(28,284	)			20,841				(15,436	)			—				75,056				18,833						171,228
Gain on dispositions of real estate investments			325				61,368				—				—				—				—				—						61,693
Operating income			100,543				33,084				20,841				(15,436	)			—				75,056				18,833						232,921
Other (expenses) income:
Interest expense			(97,510	)			(118,925	)			—				(7,899	)			(4,749	)			—				(64,365	)		(g)			(293,448	)
Loss on extinguishment of debt			(2,040	)			—				—				—				—				—				—						(2,040	)
(Loss) gain on derivative instruments			18,642				2,250				—				—				—				—				—						20,892
Unrealized income on undesignated foreign currency advances and other hedge ineffectiveness			2,439				—				—				—				—				—				—						2,439
Other income			981				988				112				—				—				1,126				(1,126	)		(h)			2,081
Total other expense, net			(77,488	)			(115,687	)			112				(7,899	)			(4,749	)			1,126				(65,491	)					(270,076	)
Net income before income tax			23,055				(82,603	)			20,953				(23,335	)			(4,749	)			76,182				(46,658	)					(37,155	)
Income tax expense			(11,032	)			—				—				—				—				—				—						(11,032	)
Net income (loss)			12,023				(82,603	)			20,953				(23,335	)			(4,749	)			76,182				(46,658	)					(48,187	)
Net loss attributable to non-controlling interest			—				97				—				—				—				—				(72	)		(i)			25
Allocation for preferred stock			(20,386	)			(23,348	)			—				—				—				—				—						(43,734	)
Net (loss) income attributable to common stockholders		$	(8,363	)		$	(105,854	)		$	20,953			$	(23,335	)		$	(4,749	)		$	76,182			$	(46,730	)				$	(91,896	)
Basic and Diluted (Loss) Income Per Share:
Net (loss) income per share attributable to common stockholders — Basic and Diluted		$	(0.09	)																												$	(0.42	)
Weighted average common shares outstanding:
Weighted average common shares outstanding — Basic and Diluted (j)			103,686,395																														226,297,008

 

 

NOTES TO THE UNAUDITED PRO FORMA CONDENSED

COMBINED FINANCIAL STATEMENTS

 

Note 1 — Description of Transaction

 

On May 23, 2023, GNL, RTL and REIT Merger Sub entered into a merger agreement that provides for the acquisition of RTL by GNL. Subject to approval of GNL and RTL shareholders and the satisfaction or (to the extent permitted by law) waiver of certain other closing conditions, GNL will acquire RTL through the merger of RTL with and into Merger Sub, and become a wholly-owned subsidiary of GNL. Under the REIT Merger Agreement, the RTL stockholders will receive 0.670 shares of GNL Common Stock, par value $0.01 (the “GNL Common Stock”) for each share of RTL’s Class A Common Stock, par value $0.01. Also under the REIT Merger Agreement, the RTL preferred stockholders will receive equivalent classes of GNL preferred stock equal in all respects to the terms of the respective RTL preferred share classes.

 

Also on May 23, 2023, GNL, RTL and certain merger subsidiaries also entered into an agreement pursuant to which, and subject to the REIT Merger being completed, GNL will acquire the GNL Advisor, the GNL Property Manager, the RTL Advisor and the RTL Property Manager (the “Internalization Parties”). GNL will acquire the Internalization Parties from Advisor Parent, with (i) cash consideration of $50.0 million and (ii) the issuance of 29,614,825 shares of GNL Common Stock (based on a considered value of $325.0 million divided by the five-day volume-weighted average price of GNL’s Common Stock as of market close on May 11, 2023). As a result of acquiring the Internalization Parties, GNL will no longer be externally managed.

 

The Internalization Parties will merge with wholly-owned subsidiaries of GNL. Certain of the existing advisory and property management agreements with Advisor Parent will be terminated and GNL will hire its own workforce to perform these functions. GNL is obligated to hire certain of the persons currently employed by the Internalization Parties or their affiliates and must also assume certain employment agreements. GNL will also acquire other assets from the Internalization Parties necessary for its business, such as various licensing agreements, office space, equipment and software. GNL will assume all outstanding debts of RTL other than the RTL Credit Facility, subject to certain lender consents. GNL expects to exercise the accordion feature in its Second Amended and Restated Credit Agreement, dated as of April 8, 2022, by and among GNL OP, as borrower, GNL and the other guarantors party thereto, KeyBank National Association, as agent, and the other lender parties thereto (as amended to date, the “GNL Credit Facility”) to increase the commitments under the GNL Credit Facility by $500.0 million to facilitate the repayment of the RTL Credit Facility and to create additional availability after the Proposed Transactions are completed.

 

The REIT Merger and the Internalization Merger are conditional upon one another and, accordingly, are considered “related” and treated as a single transaction for accounting and reporting purposes.

 

 

NOTES TO THE UNAUDITED PRO FORMA CONDENSED

COMBINED FINANCIAL STATEMENTS

 

Note 2 — Basis of Presentation

 

The unaudited pro forma condensed combined financial information was prepared using the acquisition method of accounting in accordance with Accounting Standards Codification (ASC) 805, Business Combinations, which requires the determination of the acquiror, the merger date, the fair value of assets and liabilities of the acquiree and the measurement of goodwill. GNL’s management has determined that GNL represents the accounting acquiror in the Proposed Transactions based on an analysis of the criteria outlined in ASC 805 and the facts and circumstances specific to these transactions. As a result, GNL will record the business combination in its financial statements and will apply the acquisition method to account for the acquired assets and liabilities of RTL and the Internalization Parties upon completion of the Proposed Transactions. Applying the acquisition method includes recording the identifiable assets acquired and liabilities assumed at their fair values, and recording goodwill for the excess of the purchase price over the aggregate fair value of the identifiable assets acquired and liabilities assumed in the Proposed Transactions. Additionally, the accompanying unaudited pro forma condensed combined financial information was prepared in accordance with Article 11 of SEC Regulation S-X.

 

To prepare the unaudited pro forma condensed combined financial information, GNL adjusted RTL’s and the Internalization Parties’ assets and liabilities to their estimated combined fair values based on preliminary valuation work. As of the date of this Form 8-K filing, GNL has not completed the detailed valuation work necessary to finalize the required estimated fair values and estimated lives of RTL’s and the Internalization Parties’ assets to be acquired and liabilities to be assumed and the related allocation of the purchase price. The final allocation of the purchase price will be determined after the transaction is completed and after completion of an analysis to determine the estimated fair value of RTL’s and Internalization Parties’ assets and liabilities, and associated tax adjustments. Accordingly, the final acquisition accounting adjustments may be materially different from the unaudited pro forma adjustments.

 

Transactions among and between GNL, RTL and the Internalization Parties, reflecting historical normal course of business during the periods presented in the unaudited pro forma condensed combined financial information, have been eliminated. Also, as of the date of this Form 8-K filing, GNL has not identified all adjustments necessary to conform RTL’s and the Internalization Parties’ accounting policies to GNL’s accounting policies. GNL will conduct a final review of RTL’s and the Internalization Parties’ accounting policies as of the date of the completion of the Proposed Transactions in an effort to determine if differences in accounting policies require adjustment or reclassification of RTL’s and the Internalization Parties’ results of operations or reclassification of assets or liabilities to conform to GNL’s accounting policies and classifications.

 

The CIM Portfolio Acquisition

 

RTL acquired 81 properties from certain subsidiaries of CIM Real Estate Finance Trust, Inc. (the “CIM Portfolio”), in seven closings during the year ended December 31, 2022. As a result, the values presented as Historical RTL, in the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2022 do not include the results of operations of the CIM Portfolio from January 1, 2022 through their respective acquisition dates in 2022, prior to the acquisition of the CIM Portfolio by RTL.

 

Values presented as Historical CIM Portfolio in the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2022 were derived from the historical records of the CIM Portfolio. The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2022 give effect to RTL’s acquisition of the CIM Portfolio as if that acquisition had occurred on January 1, 2022.

 

The details of the pro forma effects of RTL’s acquisition of the CIM Portfolio are contained in RTL’s Current Report on Form 8-K filed February 27, 2023.

 

Adjustments to Historical RTL Balance Sheet

 

To conform the presentation of RTL’s historical balance sheet as of June 30, 2023 to GNL’s balance sheet presentation, the following adjustments to RTL’s historical balance sheet were made:

 

	·	Reclassification of $9.4 million of RTL’s construction in progress from RTL’s presentation within prepaid expenses and other assets to GNL’s presentation within real estate, at cost.
	·	Reclassification of $2.7 million of RTL’s amounts prepaid to related parties from RTL’s presentation within prepaid expenses and other assets to GNL’s presentation within due from related parties.
	·	Reclassification of $0.9 million of RTL’s amounts payable to related parties from RTL’s presentation within accounts payable and accrued expenses to GNL’s presentation within due to related parties.

 

 

NOTES TO THE UNAUDITED PRO FORMA CONDENSED

COMBINED FINANCIAL STATEMENTS

 

Note 3 — Consideration Transferred and Purchase Price Allocation

 

Consideration to be Transferred

 

The following table presents a preliminary estimate of consideration expected to be transferred to affect the acquisition. The equity compensation portion of the consideration to be transferred was based on the outstanding share or unit count as of June 30, 2023 and the closing price of the relative equity instruments issued as of August 7, 2023. A change of 10% in the closing price per share of GNL’s common stock, RTL’s Series A preferred stock and RTL’s Series C preferred stock would increase or decrease the estimated fair value of share consideration transferred by approximately $162.4 million.

 

(in thousands)		Notes		Amount				Consideration Type
Fair value of GNL common stock to be issued to holders of RTL common stock (excluding RTL’s restricted shares)		3a		$	997,106			GNL common stock
Fair value of GNL common stock to be issued to holders of RTL restricted shares		3b			5,237			GNL common stock
Fair value of GNL common stock to be issued for RTL LTIP Units		3c			31,770			GNL common stock
Fair value of GNL common stock to be issued to Advisor Parent		3d			329,317			GNL common stock
Fair value of GNL Class A Units issued to holder of RTL Class A Units		3a			1,288			GNL Class A Units
Fair value of GNL preferred stock to be issued		3e			259,432			GNL Series D and Series E preferred stock
Total equity consideration					1,624,150
Cash consideration to be paid to Advisor Parent					50,000
Less: cash acquired (including restricted cash), net of RTL’s transaction costs still to be paid as of June 30, 2023 of $11,000 and RTL LTIP catch-up distributions to be paid of $6,525 (see Note 4 (e))					(65,020	)
Total consideration expected to be transferred				$	1,609,130

 

(3a)

The following table presents the fair value of GNL Common Stock and GNL Class A Units expected to be issued to holders of RTL common stock and Class A Units:

 

		RTL Common Stock (1)				RTL Class A Units				Total
Outstanding shares of RTL common stock and Class A Units as of June 30, 2023			133,832,554				172,921				134,005,475
Conversion ratio per REIT Merger Agreement			0.67				0.67				0.67
Total number of shares of GNL common stock and GNL Class A Units expected to be issued			89,667,811				115,857				89,783,668
Closing price of GNL common stock as of August 7, 2023		$	11.12			$	11.12			$	11.12
Fair value of GNL common shares and GNL Class A Units to be issued to holders of RTL common stock and RTL Class A Units (in thousands)		$	997,106			$	1,288			$	998,394

 

 

 

(1)

Excludes RTL’s restricted shares, which are separately included in (3b) below.

 

 

NOTES TO THE UNAUDITED PRO FORMA CONDENSED  

COMBINED FINANCIAL STATEMENTS

 

(3b)

The following table presents the fair value of GNL Common Stock expected to be issued to holders of RTL restricted shares:

 

		RTL Restricted Shares
RTL’s unvested restricted shares as of June 30, 2023			702,888
Conversion ratio per REIT Merger Agreement			0.67
Total number of shares of GNL common stock expected to be issued			470,935
Closing price of GNL common stock as of August 7, 2023		$	11.12
Fair value of GNL common stock expected to be issued to holders of RTL restricted shares (in thousands)		$	5,237

  

(3c)

The following table presents the fair value of GNL Common Stock expected to be issued for outstanding RTL LTIP units:

  

		RTL LTIP Units
RTL earned LTIP Units as of June 30, 2023			4,264,242
Conversion ratio per REIT Merger Agreement			0.67
Total number of shares of GNL Common Stock expected to be issued			2,857,042
Closing price of GNL Common Stock as of August 7, 2023		$	11.12
Fair value of GNL Common Stock expected to be issued for LTIP Units (in thousands)		$	31,770

  

(3d)

The following table presents the fair value of GNL Common Stock expected to be issued to Advisor Parent in connection with the Internalization Merger:

  

		Amount
Considered value per agreement (in thousands)		$	325,000
Five-day trailing volume-weighted average price of GNL Common Stock as of May 11, 2023 (rounded)		$	10.97
Total number of shares of GNL Common Stock to be issued to Advisor Parent per agreement			29,614,825
Closing price of GNL Common Stock as of August 7, 2023		$	11.12
Fair value of GNL Common Stock expected to be issued to Advisor Parent (in thousands)		$	329,317

  

(3e)

The following table presents the fair value of GNL Series D and Series E preferred stock expected to be issued to holders of RTL Series A and Series C preferred stock:

  

(in thousands, except share counts)		RTL Series A Preferred Stock				RTL Series C Preferred Stock				Total
Outstanding shares as of June 30, 2023			7,933,711				4,595,175				12,528,886
Closing price of RTL preferred stock as of August 7, 2023		$	20.78			$	20.58
Fair value of GNL preferred stock expected to be issued (in thousands)		$	164,863			$	94,569			$	259,432

  

  

NOTES TO THE UNAUDITED PRO FORMA CONDENSED 

COMBINED FINANCIAL STATEMENTS

 

The following table presents the total number of shares of GNL Common Stock expected to be issued to RTL stockholders and the resulting par value:

 

		Total
Total number of shares of GNL Common Stock expected to be issued to RTL common stockholders			89,667,811
Total number of shares of GNL Common Stock expected to be issued to holders of RTL restricted shares			470,935
Total number of shares of GNL Common Stock expected to be issued to holder of RTL LTIP Units			2,857,042
Total number of shares of GNL Common Stock expected to be issued to Advisor Parent			29,614,825
Subtotal			122,610,613
Par value per share of GNL Common Stock		$	0.01
Par value of shares of GNL Common Stock to be issued in the Proposed Transactions (in thousands)		$	1,226

  

Preliminary Purchase Price Allocation

 

The following table presents a preliminary allocation of the total estimated consideration expected to be transferred, as if the merger had occurred on June 30, 2023:

  

(in thousands)		As of June 30, 2023
Assets Acquired:
Land		$	991,238
Buildings, fixtures and improvements			2,382,354
Total tangible assets			3,373,592
Acquired intangible assets:
In-place leases			590,689
Above-market lease assets			46,425
Total acquired intangible lease assets			637,114
Operating lease right-of-use assets			12,861
Prepaid expenses and other assets			60,437
Goodwill			80,614
Total assets acquired			4,164,618
Liabilities Assumed:
Mortgage notes payable, net			1,418,266
Revolving credit facility			604,000
Senior notes, net			385,000
Acquired intangible lease liabilities			44,065
Accounts payable and accrued expenses			62,888
Operating lease liabilities			18,901
Prepaid rent			16,531
Dividends payable			5,837
Total liabilities assumed			2,555,488
Estimate of consideration expected to be transferred		$	1,609,130

  

The purchase price allocation presented above has not been finalized. The final determination of the allocation of the purchase price will be based on the fair value of the assets acquired and liabilities assumed as of the actual closing date of the Proposed Transactions and will be completed after the Proposed Transactions are consummated. The final determination of these estimated fair values, the assets’ useful lives and the depreciation and amortization methods are dependent upon certain valuations and other analyses that have not yet been completed, and as previously stated could differ materially from the amounts presented in the unaudited pro forma condensed combined financial statements. The final determination will be completed as soon as practicable but no later than one year after the consummation of the Proposed Transactions. Any increase or decrease in the fair value of the net assets acquired, as compared to the information shown herein, could change the portion of the purchase consideration allocable to goodwill and could impact the operating results of the pro forma GNL Combined Company following the Proposed Transactions due to differences in the allocation of the purchase consideration, as well as changes in the depreciation and amortization related to some of the acquired assets.

  

 

NOTES TO THE UNAUDITED PRO FORMA CONDENSED 

COMBINED FINANCIAL STATEMENTS

  

Note 4 — Pro Forma Adjustments - Unaudited Condensed Combined Balance Sheet

 

(a)

To adjust acquired land to an estimate of their fair values, as follows:

  

		As of
(in thousands)		June 30, 2023
Eliminate RTL’s historical land		$	(956,506	)
Estimated fair value of land acquired			991,238
Total		$	34,732

  

(b)

To adjust acquired buildings, fixtures and improvements to an estimate of their fair values, as follows:

 

		As of
(in thousands)		June 30, 2023
Eliminate RTL’s historical buildings, fixtures and improvements		$	(3,378,560	)
Estimated fair value of buildings fixtures and improvements acquired			2,382,354
Total		$	(996,206	)

  

Depreciation will be computed using the straight-line method over the estimated useful lives of up to 40 years for buildings, 15 years for land and building 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 estimated fair values and estimated useful lives are preliminary and subject to change until GNL finalizes its valuations.

  

(c)

To adjust acquired intangible lease assets to an estimate of their fair values, as follows:

 

		As of
(in thousands)		June 30, 2023
Eliminate RTL’s historical acquired intangible lease assets		$	(567,722	)
Estimated fair value of intangible lease assets acquired			637,114
Total		$	69,392

  

The value of in-place leases, exclusive of the value of above-market and below-market in-place leases, will be amortized to expense over the remaining periods of the respective leases. The estimated fair values and estimated useful lives are preliminary and subject to change once GNL finalizes its valuations.

  

(d)

To eliminate historical accumulated depreciation and amortization.

 

   

NOTES TO THE UNAUDITED PRO FORMA CONDENSED 

COMBINED FINANCIAL STATEMENTS

 

(e)

To record pro forma cash transactions. Both GNL and RTL have accrued/expensed transaction costs associated with the Proposed Transactions as of and for the six month period ended June 30, 2023. The transaction costs adjustments below reflect the accrual of the remaining costs expected to be incurred in the Proposed Transactions.

 

		As of
(in thousands)		June 30, 2023
Cash to be received from draws on GNL Credit Facility		$	604,000
Cash to be used to fully repay RTL Credit Facility			(604,000	)
Cash to be paid to the Advisor Parent			(50,000	)
Total estimated GNL transaction costs to complete the Proposed Transactions			(33,278	)
Cash paid by GNL for transaction costs through June 30, 2023			6,278
Total estimated RTL transaction costs to complete the Proposed Transactions			(13,700	)
Cash paid by RTL for transaction costs through June 30, 2023			2,700
Cash to be paid for RTL LTIP catch-up distributions			(6,525	)
Total		$	(94,525	)

  

(f)

To eliminate RTL’s unbilled straight-line rent.

  

(g)

To adjust operating lease right of use assets to their estimated fair values, as follows:

 

		As of
(in thousands)		June 30, 2023
Eliminate RTL’s historical operating right of use assets		$	(17,587	)
Estimated fair value of RTL’s operating right of use assets			12,861
Total		$	(4,726	)

  

(h)

To net related party payables against related party receivables for the participants in the transaction.

  

(i)

To record goodwill based on the preliminary estimated fair values RTL’s and the Internalization Parties’ assets to be acquired and liabilities to be assumed and the related allocation of the purchase price, as described in Note 2 — Basis of Presentation. Goodwill is calculated as the difference between the acquisition date fair value of the consideration expected to be transferred and the values assigned to the assets acquired and liabilities assumed. Goodwill is not amortized.

  

(j)

To eliminate RTL’s deferred financing costs and leasing commissions, net, as follows:

  

		As of
(in thousands)		June 30, 2023
Eliminate RTL’s deferred financing costs, net, related to its Credit Facility		$	(7,452	)
Eliminate RTL’s leasing commissions, net			(17,598	)
Total		$	(25,050	)

  

(k)

To adjust assumed mortgage notes payable, net, to their fair values, as follows:

  

		As of
(in thousands)		June 30, 2023
Eliminate RTL’s historical mortgage notes payable (net of $26,685 of deferred financing costs and net discounts of $524)		$	(1,553,688	)
Gross principal amount of mortgage notes payable assumed from RTL			1,580,897
Estimated market discount on assumed mortgage notes payable			(162,631	)
Total		$	(135,422	)

 

  

NOTES TO THE UNAUDITED PRO FORMA CONDENSED 

COMBINED FINANCIAL STATEMENTS

 

(l)

To record pro forma Credit Facility activity, as follows:

  

		As of
(in thousands)		June 30, 2023
Draws on GNL Credit Facility		$	604,000
Repayment of RTL Credit Facility			(604,000	)
Total		$	—

  

(m)

To adjust assumed senior notes, net to their estimated fair value, as follows:

  

		As of
(in thousands)		June 30, 2023
Eliminate RTL’s historical senior notes (net of $7,013 of deferred financing costs)		$	(492,987	)
Outstanding principal amount of senior notes assumed from RTL			500,000
Estimated market discount of assumed senior notes			(115,000	)
Total		$	(107,987	)

 

(n)

To adjust acquired intangible lease liabilities, net, as follows:

  

		As of
(in thousands)		June 30, 2023
Eliminate RTL’s historical acquired intangible lease liabilities, net		$	(123,900	)
Estimated fair value of RTL’s acquired intangible lease liabilities			44,065
Total		$	(79,835	)

  

(o)

To adjust operating lease liabilities as follows:

  

		As of
(in thousands)		June 30, 2023
Remove RTL’s historical operating lease liabilities		$	(19,088	)
Estimated fair value of RTL’s operating lease liabilities			18,901
Total		$	(187	)

  

(p)

To eliminate RTL’s Series A and Series C preferred stock, at par and record the expected issuance of GNL Series D and Series E preferred stock, at par, as follows:

  

		As of
(in thousands)		June 30, 2023
Eliminate RTL’s historical preferred stock, at par		$	(125	)
Issuance of GNL preferred stock, at par, expected to be issued to RTL preferred stockholders (see Note 3)			125
Total		$	—

  

(q)

To eliminate RTL’s Common Stock, at par and record the expected issuance of GNL Common Stock, at par, as follows:

  

		As of
(in thousands)		June 30, 2023
Eliminate RTL’s historical Common Stock, at par		$	(1,345	)
Issuance of GNL Common Stock, at par, expected to be issued in the Proposed Transactions (see Note 3)			1,226
Total		$	(119	)

 

  

NOTES TO THE UNAUDITED PRO FORMA CONDENSED 

COMBINED FINANCIAL STATEMENTS

  

(r)

To record the additional paid in capital portion of the expected merger consideration, at fair value less pars, eliminate RTL’s additional paid-in capital and make other adjustments, as follows:

 

		As of
(in thousands)		June 30, 2023
Eliminate RTL’s historical paid-in capital		$	(2,999,565	)
Fair value of GNL Common Stock expected to be issued to RTL stockholders and Advisor Parent (see Note 3)			1,363,430
Fair value of GNL preferred stock expected to be issued to RTL preferred stockholders (see Note 3)			259,432
Less: par value of GNL Common Stock expected to be issued in the Proposed Transactions (see Note 3)			(1,226	)
Less: par value of GNL preferred stock expected to be issued in the Proposed Transactions (see Note 3)			(125	)
Eliminate historical non-controlling interest related to GNL LTIP Units			19,390
Total		$	(1,358,664	)

  

(s)

To adjust accumulated deficit, as follows:

 

		As of
(in thousands)		June 30, 2023
Eliminate RTL’s historical accumulated deficit		$	1,565,425
Eliminate Internalization Parties’ historical retained earnings			5,774
Estimated GNL’s transaction costs to complete the Proposed Transactions			(27,000	)
Total		$	1,544,199

  

(t)

To adjust non-controlling interest, as follows:

 

		As of
(in thousands)		June 30, 2023
Eliminate RTL’s non-controlling interest attributable to LTIP Units		$	(27,424	)
Eliminate RTL’s non-controlling interest attributable to Class A common units			(1,391	)
Eliminate GNL’s non-controlling interest attributable to LTIP Units			(19,390	)
Estimated fair value of non-controlling interest attributable to Class A common units			1,288
Total		$	(46,917	)

 

  

NOTES TO THE UNAUDITED PRO FORMA CONDENSED 

COMBINED FINANCIAL STATEMENTS

 

Note 5 — Pro Forma Adjustments - Statements of Operations

 

(a)

The following table represents revenue adjustments to straight-line rent, below-market lease accretion and above-market lease amortization using the most recent data for lease terms, assuming an acquisition date of January 1, 2022. For the purposes of these pro forma financial statements, no assumptions were made for potential lease renewals.

 

		Six Months Ended				Year Ended
(in thousands)		June 30, 2023				December 31, 2022
Adjustments to straight-line rent		$	705			$	2,828
Adjustments to below-market lease accretion			(3,690	)			(2,424	)
Adjustments to above-market lease amortization			(2,448	)			(5,855	)
Total (decrease)/increase to revenue		$	(5,433	)		$	(5,451	)

 

(b)

The Internalization Parties’ revenue is derived from GNL and RTL. The following information is used to eliminate revenues recognized by the Internalized Parties and the related expenses in the historical periods of each GNL and RTL, as follows:

  

		Six Months Ended												Year Ended
		June 30, 2023												December 31, 2022
(in thousands)		GNL				RTL				Total				GNL				RTL				Total
Property operating expenses		$	—			$	(6,018	)		$	(6,018	)		$	—			$	(10,369	)		$	(10,369	)
Operating fees to related parties			(20,211	)			(15,928	)			(36,139	)			(40,122	)			(32,026	)			(72,148	)
Acquisition, transaction and other costs			—				—				—				—				(387	)			(387	)
General administrative expenses			—				(8,407	)			(8,407	)			—				(16,231	)			(16,231	)
Expenses to be eliminated from GNL and RTL			(20,211	)			(30,353	)			(50,564	)			(40,122	)			(59,013	)			(99,135	)
Capitalized leasing commissions			(846	)			(2,045	)			(2,891	)			(3,809	)			(2,841	)			(6,650	)
Total revenue to be eliminated from the Internalized Parties		$	(21,057	)		$	(32,398	)		$	(53,455	)		$	(43,931	)		$	(61,854	)		$	(105,785	)

  

Leasing commissions are recognized as revenue by the Internalized Parties upon commissioned leases executions, and are expensed over the respective terms of commissioned leases through depreciation and amortization expense by each GNL and RTL.

  

(c)

Transaction costs borne by GNL would be expensed in the period of acquisition and are reflected for pro forma purposes as if the transaction occurred on January 1, 2022. Transaction costs borne by RTL and the Internalization Parties would be reflected in the period prior to their acquisition and are excluded from the pro forma condensed combined statement of operations. Some of the GNL expenses have already been reflected in the historical financial information in the six month period ended June 30, 2023. The amounts incurred by RTL and the Internalization Parties in the historical financial statements are not eliminated for pro forma purposes even though they will not be included in the financial statements of the combined company. The adjustment below reflects the accrual of the remaining costs expected to be incurred by GNL in the Proposed transactions as well as certain intercompany expenses. These costs will not affect the Company's income statement beyond 12 months after the acquisition date.

  

		Six Months Ended				Year Ended
(in thousands)		June 30, 2023				December 31, 2022
Total estimated GNL transaction costs to complete the Proposed Transactions		$	—			$	33,278
Amounts already recorded in June 30, 2023 historical financial statements			—				(6,278	)
Remaining amounts			—				27,000
Elimination of reimbursement of historical acquisition transaction and other costs (see (b) above) - between RTL and the Internalized Parties			—				(387	)
Total		$	—			$	26,613

 

  

NOTES TO THE UNAUDITED PRO FORMA CONDENSED 

COMBINED FINANCIAL STATEMENTS

  

(d)

To adjust general and administrative expenses, as follows:

  

		Six Months Ended				Year Ended
(in thousands)		June 30, 2023				December 31, 2022
Elimination of internalized general and administrative expenses (see (a) above)		$	(8,407	)		$	(16,231	)
Total		$	(8,407	)		$	(16,231	)

  

(e)

To adjust equity-based compensation, as follows:

  

		Six Months Ended				Year Ended
(in thousands)		June 30, 2023				December 31, 2022
Removal of historical RTL Out Performance Plan charges		$	(6,352	)		$	(12,704	)
Total		$	(6,352	)		$	(12,704	)

  

Elimination of historical equity-based compensation expense for the RTL Out Performance Plan charges, which was granted to the Advisor Parent and is part of the overall compensation paid to the Advisor Parent by RTL. These charges will be fully recognized in RTL's financial statements prior to acquisition and will be non-recurring. The GNL Out Performance Plan is not eliminated for pro forma purposes, however, due to the effective termination of the Advisor Parent as a result of the Internalization Merger, the remaining charge will be accelerated but will not be recurring subsequent to the Proposed Transactions. Historical charges for the GNL Out Performance plan were $4.5 million and $9.0 million in the six months ended June 30, 2023 and December 31, 2022, respectively. Equity-based compensation expense attributable to restricted stock awards to officers and directors of GNL and RTL are also not eliminated, as such personnel will continue to be employed and the directors retained. For GNL, historical charges for restricted stock equity-based compensation expenses were $1.6 million and $3.1 million in the six months ended June 30, 2023 and December 31, 2022, respectively. For RTL, historical restricted stock equity-based compensation expenses were $0.7 million and $1.7 million in the six months ended June 30, 2023 and December 31, 2022, respectively.

  

(f)

To adjust depreciation and amortization expense, as follows:

  

		Six Months Ended				Year Ended
(in thousands)		June 30, 2023				December 31, 2022
Removal of historical RTL depreciation and amortization expense		$	(113,648	)		$	(195,854	)
Removal of CIM Transaction Pro Forma Adjustment (1)			—				(15,533	)
Additional depreciation for disposed properties			2,044				11,635
Estimated depreciation expense of acquired tangible real estate assets			36,366				72,733
Estimated amortization of acquired in-place lease assets			40,894				81,789
Total		$	(34,344	)		$	(45,230	)

  

(1)

Represents the removal of the pro forma adjustment for depreciation and amortization expense which was presented in RTL’s Current Report on Form 8-K filed February 27, 2023. See Note 2 — Basis of Presentation for additional information.

 

 

 

NOTES TO THE UNAUDITED PRO FORMA CONDENSED 

COMBINED FINANCIAL STATEMENTS

  

(g)

To adjust interest expense, as follows:

 

		Six Months Ended				Year Ended
(in thousands)		June 30, 2023				December 31, 2022
Removal of historical RTL deferred financing cost amortization		$	7,367			$	13,101
Removal of historical RTL interest expense attributable to RTL Credit Facility			18,171				16,987
Removal of CIM Financing Credit Facility Draw			—				4,749
Removal of historical RTL premium/discount amortization (net)			800				1,092
Removal of historical RTL interest expense attributable to mortgages repaid with draws from RTL Credit Facility (1)			2,296				4,600
Additional interest expense attributable to GNL Credit Facility draws (including accordion draws) (2)			(21,110	)			(42,220	)
Amortization of discounts on assumed mortgage notes payable and senior notes from RTL (3)			(31,740	)			(62,674	)
Total increase to interest expense		$	(24,216	)		$	(64,365	)

 

	(1)	Represents the removal of historical partial-period RTL interest expense from mortgage notes repaid with draws from the RTL Credit Facility during the six months ended June 30, 2023. Such mortgages totaled $190.4 million and bore a weighted average annual interest rate of 3.85%.
	(2)	Assumes a draw on the GNL Credit Facility of $604.0 million at a weighted-average effective interest rate of 6.99% (as of June 30, 2023). A change to the effective interest rate of 0.125% would increase or decrease the additional interest expense attributable to the GNL Credit Facility draws (including accordion draws) by $0.4 million for the six months ended June 30, 2023, or $0.8 million for the year ended December 31, 2022.
	(3)	Additional interest expense as a result of the amortization of market discount on the assumed mortgages and senior notes calculated for the period using the effective interest method over the remaining term as of June 30, 2023.

 

(h)

To eliminate dividends paid by GNL and RTL to the Internalization Parties, which were recorded as income by the Internalization Parties.

 

(i)

To adjust net loss attributable to non-controlling interests, as follows:

  

		Six Months Ended				Year Ended
(in thousands)		June 30, 2023				December 31, 2022
Removal of Historical RTL net loss attributable to non-controlling interests		$	(78	)		$	(97	)
Add non-controlling interest adjustment for Class A Units			21				25
Total		$	(57	)		$	(72	)

  

(j)

To adjust the weighted-average GNL common shares outstanding for the periods presented reflecting the shares issued in the total consideration, as follows:

  

		Six Months Ended				Year Ended
		June 30, 2023				December 31, 2022
Historical weighted-average shares of GNL Common Stock outstanding			103,966,910				103,686,395
Shares of GNL Common Stock expected to be issued to RTL stockholders			89,667,811				89,667,811
Shares of GNL Common Stock expected to be issued to RTL restricted stockholders			470,935				470,935
Shares of GNL Common Stock expected to be issued for earned RTL LTIP Units			2,857,042				2,857,042
Shares of GNL Common Stock expected to be issued to Advisor Parent			29,614,825				29,614,825
Pro forma weighted-average shares of GNL Common Stock outstanding			226,577,523				226,297,008

  

 

Exhibit 99.2

 

 

 

 

 

THE INTERNALIZED PARTIES

(Global Net Lease Advisors LLC, Necessity Retail Advisors, LLC, Global Net Lease Properties, LLC, and Necessity Retail Properties, LLC)

 

 

Combined Financial Statements for the Three and Six Months Ended June 30, 2022 and 2023

 

 

 

THE INTERNALIZED PARTIES

CONTENTS OF COMBINED FINANCIAL STATEMENTS

Three and Six Months Ended June 30, 2022 and 2023

 

 

	Page
Unaudited Combined Financial Statements:
Combined Statements of Financial Position	1
Combined Statements of Operations	2
Combined Statements of Changes in Equity (Deficit)	3
Combined Statements of Cash Flows	4
Notes to Combined Financial Statements	5

 

 
THE INTERNALIZED PARTIES

COMBINED STATEMENTS OF FINANCIAL POSITION

(Unaudited)

 

		As of As of June 30,
(amounts in thousands)		2023
Assets
Receivables from related parties		$	2,274
Prepaid expenses and other assets			36
Total assets		$	2,310
Liabilities and Equity (deficit)
Accounts payable - related parties		$	1,950
Accounts payable and accrued expenses			6,134
Total liabilities			8,084
Equity (deficit)
Members' equity (deficit)			(5,774	)
Total equity (deficit)			(5,774	)
Total liabilities and equity (deficit)		$	2,310

 

The accompanying notes are an integral part of these combined financial statements.

 

 

THE INTERNALIZED PARTIES

COMBINED STATEMENT OF OPERATIONS

(Unaudited)

 

		For the Three Months Ended June 30,								For the Six Months Ended June 30,
(amounts in thousands)		2022				2023				2022				2023
Revenue:
Related party revenues
Asset management fees		$	16,066			$	16,097			$	32,018			$	32,195
Reimbursable expenses			6,024				4,852				10,360				9,364
Leasing commissions			1,376				1,561				2,379				3,664
Property management fees			3,876				4,027				7,362				8,232
Total revenues			27,342				26,537				52,119				53,455
Expenses:
Compensation, benefits, taxes and other payroll			3,868				3,565				7,968				9,018
Rent & Overhead Costs			935				902				1,787				1,872
Property management fees			2,790				1,627				4,060				3,348
Total expenses			7,593				6,094				13,815				14,238
Income before other income			19,749				20,443				38,304				39,217
Other income:
Interest and dividend income			100				281				464				562
Total other income			100				281				464				562
Net income		$	19,849			$	20,724			$	38,768			$	39,779

 

The accompanying notes are an integral part of these combined financial statements.

 

THE INTERNALIZED PARTIES

COMBINED STATEMENTS OF CHANGES IN EQUITY (DEFICIT)

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2023

(Unaudited)

 

(in thousands)		Members' Equity (Deficit)
		For the Six Months Ended June 30,
Balance, December 31, 2021		$	(3,690	)
Net income			38,768
Distributions to members			(33,509	)
Balance, June 30, 2022		$	1,569
			For the Three Months Ended June 30,
Balance, March 31, 2022		$	1,211
Net income			19,849
Distributions to members			(19,491	)
Balance, June 30, 2022		$	1,569
			For the Six Months Ended June 30,
Balance, December 31, 2022		$	1,993
Net income			39,779
Distributions to members			(47,546	)
Balance, June 30, 2023		$	(5,774	)
			For the Three Months Ended June 30,
Balance, March 31, 2023		$	242
Net income			20,724
Distributions to members			(26,740	)
Balance, June 30, 2023		$	(5,774	)

 

The accompanying notes are an integral part of these combined financial statements.

 

THE INTERNALIZED PARTIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		For the Six Months Ended June 30,
(in thousands)		2022				2023
Cash flows from operating activities:
Net income		$	38,768			$	39,779
Adjustments to reconcile net income to net cash provided by operating activities:
Accounts receivable due from related parties			(1,947	)			2,142
Prepaid expenses and other assets			(36	)			44
Accounts payable due to related parties			(88	)			(368	)
Accounts payable and accrued expenses			(2,594	)			5,923
Net cash provided by operating activities			34,103				47,520
Cash flows from financing activities:
Distributions to members			(34,018	)			(47,546	)
Net cash used in financing activities			(34,018	)			(47,546	)
Net increase (decrease) in cash and cash equivalents			85				(26	)
Cash and cash equivalents, beginning of year			25				26
Cash and cash equivalents, end of year		$	110			$	—

 

The accompanying notes are an integral part of these combined financial statements.

 

THE INTERNALIZED PARTIES

NOTES TO COMBINED FINANCIAL STATEMENTS

(Unaudited)

(in thousands, except where noted)

 

NOTE 1 - ORGANIZATION

 

Global Net Lease Advisors, LLC, Necessity Retail Advisors, LLC (together, the "Advisors"), Global Net Lease Properties, LLC, and Necessity Retail Properties, LLC, (together, the "Property Managers" and inclusive of the Advisors, the "Internalized Parties") subsidiaries of AR Global Investments LLC ("AR Global") which were formed to provide external asset management and property management services for Global Net Lease, Inc. ("GNL") and The Necessity Retail REIT, Inc. ("RTL") (each external asset management agreement an "Advisory Agreement" and each property management agreement a "Property Management Agreement").

 

AR Global is wholly-owned subsidiary of Bellevue Capital Partners ("Bellevue").

 

GNL, a Maryland corporation, is an externally managed real estate investment trust for United States (“U.S.”) federal income tax purposes (“REIT”) that focuses on acquiring and managing a globally diversified portfolio of strategically-located commercial real estate properties. GNL invests in commercial properties, with an emphasis on sale-leaseback transactions and mission-critical, single tenant net-lease assets.

 

RTL, also a Maryland corporation, is also an externally managed REIT, focusing on acquiring and managing a diversified portfolio of primarily service-oriented and traditional retail and distribution-related commercial real estate properties located primarily in the United States. RTL’s assets consist primarily of freestanding single-tenant properties that are net leased and a portfolio of multi-tenant retail properties consisting primarily of power centers and lifestyle centers.

 

On May 23, 2023, GNL, Global Net Lease Operating Partnership, L.P., a Delaware limited partnership (“GNL OP”), RTL, The Necessity Retail REIT Operating Partnership, L.P., a Delaware limited partnership (“RTL OP”), Osmosis Sub I, LLC, a Maryland limited liability company and wholly-owned subsidiary of GNL (“REIT Merger Sub”), and Osmosis Sub II, LLC, a Delaware limited liability company and wholly-owned subsidiary of GNL OP (“OP Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”). Subject to the terms and conditions of the Merger Agreement, at the effective time of the merger (the “REIT Merger Effective Time”), RTL will merge with and into REIT Merger Sub, with REIT Merger Sub continuing as the surviving entity and a wholly-owned subsidiary of GNL (the “REIT Merger”), and OP Merger Sub will merge with and into RTL OP, with RTL OP continuing as the surviving entity (the “OP Merger” and, together with the REIT Merger, the “Merger”). GNL and RTL also entered into an agreement to internalize the advisory and property management functions of the Internalized Parties through a series of mergers with the Advisors and Property Managers for each of GNL and RTL known as an “Internalization.”

 

On June 4, 2023, RTL, GNL, the Advisors, the Property Managers, and AR Global entered into a Cooperation Agreement and Release (the “Agreement”) with Blackwells Capital LLC (“Blackwells Capital”), Blackwells Onshore I LLC (“Blackwells Onshore”), Jason Aintabi (collectively with Blackwells Capital and Blackwells Onshore, the “Blackwells Parties”), Related Fund Management, LLC (“Related”), Jim Lozier, and Richard O’Toole (collectively with Related and Mr. Lozier, the “Related Parties” and, collectively with the Blackwells Parties, the “Blackwells/Related Parties”).

 

Under the terms of the Agreement: (1) all litigation pending in Maryland state court and in federal court in the Southern District of New York, including the appeal of certain decisions in the U.S. Court of Appeals for the Second Circuit, between the parties will be dismissed with prejudice and the parties will be prohibited from initiating any future claims except to enforce the terms of the Agreement; (2) all demands made by the Blackwells/Related Parties for investigations by the board of directors of GNL (the “GNL Board”) and the board of directors of RTL will be withdrawn and of no further force or effect as will any requests for books and records of GNL; (3) the proxy contest initiated by the Blackwells/Related Parties including the nomination of a dissident slate of directors and various advisory proposals for stockholder consideration at GNL’s 2023 annual meeting of stockholders will be terminated or withdrawn; (4) the Blackwells/Related Parties will be prohibited from (a) selling any of the shares of GNL’s common stock, par value $0.01 (“GNL Common Stock”) prior to completion or earlier termination of the proposed merger between GNL and RTL (the “REIT Merger”) and the related internalization merger involving the acquisition by GNL of the entities providing the external asset and property management functions performed by affiliates of Advisor Parent for GNL and RTL (the “Internalization”) and then generally only in open market transactions subject to further limits; (b) engaging in, or acting in concert with any third party in connection with, among other things, any proxy contest or solicitation in opposition to any matter not recommended by the Board, any other activist campaign or unsolicited takeover bids between signing of the Agreement until June 4, 2033 otherwise referred to as the “Standstill Period;” (5) the Blackwells/Related Parties agreed to appear in person or by proxy at GNL’s 2023 annual meeting of stockholders and each subsequent annual meeting during the Standstill Period and any special meeting of GNL’s stockholders regarding the appointment, election or removal of directors, the REIT Merger and the Internalization and to vote at such meeting in accordance with the recommendation of the Board with respect to any proposal at those meetings; and (6) the Blackwells Parties have agreed to issue, at the time of the filing by GNL and RTL of a the joint prospectus/proxy statement relating to the REIT Merger and Internalization (the “Joint Proxy Statement”), a press release announcing their support of each transaction. In the event that the Blackwells/Related Parties fail to fulfil their obligations under clause (5), they will grant an irrevocable proxy to the benefit of GNL to vote at GNL’s 2023 Annual Meeting and any meeting called by GNL to vote on the REIT Merger and Internalization.

 

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

A summary of significant accounting policies consistently applied in the preparation of the accompanying combined financial statements follows:

 

Basis of Presentation

 

The accompanying combined financial statements are prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). .

 

Principles of Combination

 

The accompanying combined financial statements include the accounts of the Internalized Parties. All intercompany accounts and transactions are eliminated in combination. In determining whether the Internalized Parties have a controlling financial interest in a joint venture and the requirement to combine 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.

 

Use of Estimates

 

The preparation of combined financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the combined financial statements and the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results could differ from those estimates. Management makes significant estimates regarding revenue recognition.

 

Cash and Cash Equivalents

 

The Internalized Parties generally maintains its cash and cash equivalent balances within several accounts maintained at financial institutions. The individual account balances in each account are insured (up to $250) by the Federal Deposit Insurance Corporation. At times, the balances may exceed federally insured limits. The Internalized Parties have not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash.

 

The Internalized Parties consider all highly liquid instruments purchased with an original maturity of 90 days or less to be cash equivalents.

 

Receivables from Related Parties

 

Receivables from related parties primarily include reimbursements, management fees, incentive fees and acquisition fees receivable from RTL & GNL. Receivables are assessed periodically for collectability. Amounts determined to be uncollectable are charged directly to bad debt expense in the consolidated statements of operations.

 

Revenue Recognition

 

Revenues from services that the Internalized Parties provide are recognized as earned over time as the services provided represent performance obligations that are satisfied over time. In accordance with Accounting Standards Update 2014-09, Revenue from Contracts with Customers, which has been codified as ASC Section 606, we determined that the Internalized Parties control the services provided by third parties for certain of the Internalized Parties clients and therefore account for the cost of these services and the related reimbursement revenue on a gross basis. Please see Note 3 for revenues recognized during the period.

 

Transaction Fees

 

Transaction fees may be earned as set forth within the Advisory Agreements of each GNL and RTL. The Internalized Parties may receive acquisition fees based on the contract purchase price of investments made. The Internalized Parties may also receive a disposition fee based on the proceeds of investments disposed of.

 

Asset Management Fees

 

Asset management fees may be earned during a respective period as set forth within the Advisory Agreements for each GNL and RTL. AR Global may elect to waive (not defer) all or a portion of any asset management fees earned on a quarterly basis.

 

 

Property Management Fees

 

Property management fees are earned based off the gross revenues of properties managed by entities owned by the Internalized Parties. The Internalized Parties may subcontract the performance of property management services and will pay all or a portion of its property management fees to the third party with whom it has contracted the services with.

 

Reimbursable Expenses

 

The Internalized Parties include all reimbursed expenses within revenues because The Internalized Parties is the primary obligor, has discretion in selecting a supplier and bears all of the credit risk of paying the supplier prior to receiving reimbursement from the end user. The Internalized Parties receive expense reimbursements primarily from the following categories:

 

•   Expenses paid by the Internalized Parties on behalf of GNL and RTL;

 

•   Acquisition expenses incurred by the Internalized Parties that are reimbursable as set forth within the Advisory Agreement of and RTL;

 

•   Organization and offering expenses incurred by The Internalized Parties that are reimbursable as set forth within the Advisory Agreements of each GNL and RTL;

 

•   Operating expenses incurred by The Internalized Parties that are reimbursable as set forth within the Advisory Agreements for providing operational and administrative services to each GNL and RTL;

 

•   Directors and Officers liability insurance expenses incurred by the Internalized Parties that are reimbursable as set forth within the Advisory Agreements of RTL;.

 

Leasing Commission Revenue

 

Leasing Commission revenues are earned based off the gross revenues of new properties managed by entities owned by The Internalized Parties.

 

Expense Allocations from Sponsor

 

AR Global provides services to multiple wholly or majority owned advisory entities, inclusive of the Internalized Parties, and as such incurs overhead costs and employee benefits on behalf of AR Global. As part of the preparation of the Internalized Parties Financial Statements, the AR Global allocates certain expenses to each of the Internalized Parties. These expenses include: payroll, dividends, benefits, rent and related, travel and related and other.

 

Expenses which are specifically identified as belonging to an individual advisor, are billed directly to that advisor and not included in the allocation. Also, costs due to related parties and certain expenses deemed to have been incurred by AR Global for purposes not related to the management of the underlying products are excluded. Compensation, benefits, and administrative expenses are allocated on a case-by-case basis, according to the role of the employee. Most employees work on one product, and their payroll and related expenses are fully allocated to the advisor of that product. Others who split time between various advisors and/or AR Global are allocated based on what they worked on.

 

Income Taxes

 

In conformity with the Internal Revenue Code and applicable state and local tax statutes, taxable income or loss of the Internalized Parties are required to be reported in the tax returns of the Parent. The Internalized Parties’ tax status as a pass-through entity is based on its legal status as a limited liability company. Therefore, the Internalized Parties’ not required to take any tax positions in order to qualify as a pass-through entity. Accordingly, no provision has been made in the accompanying combined financial statements for any federal, state, or local income taxes.

 

NOTE 3 - RELATED PARTY

 

Related parties accounted for revenues as shown in the following table for the three months ended June 30, 2022 and 2023 and for the six months ended June 30, 2022 and 2023:

 

 

		For the Three Months Ended June 30,								For the Six Months Ended June 30,
		2022				2023				2022				2023
Asset management fees		$	16,066			$	16,097			$	32,018			$	32,195
Reimbursable expenses			6,024				4,852				10,360				9,364
Property management fees			3,876				4,027				7,362				8,232
Leasing Commissions			1,376				1,561				2,379				3,664
Total revenues		$	27,342			$	26,537			$	52,119			$	53,455

 

Receivables associated with the related party are as shown in the following table as of June 30, 2023:

 

		As of June 30,
		2023
Reimbursable expenses		$	440
Property management fees			1,834
Total		$	2,274

 

Asset management fees

 

Asset management fees may be earned during a respective period based on the costs of each GNL and RTL's assets as set forth within the respective Advisory Agreements. The Internalized Parties may elect to waive (not defer) all or a portion of any asset management fees earned on a quarterly basis. The Internalized Parties earned asset management fees in the amounts set forth below for the three months ended June 30, 2022 and 2023 and for the six months ended June 30, 2022 and 2023:

 

		Earned								Earned
		For the Three Months Ended June 30,								For the Six Months Ended June 30,
		2022				2023				2022				2023
Payments		$	16,066			$	16,097			$	32,018			$	32,195
Total  revenues		$	16,066			$	16,097			$	32,018			$	32,195

 

Property management fees

 

Property management fees are earned as a percentage of property gross revenues as outlined in the each Advisory Agreement. The Internalized Parties earned property management fees in the amounts set forth below for the three months ended June 30, 2022 and 2023 and for the six months ended June 30, 2023 and 2022, and had corresponding receivables of property management fees as of June 30, 2023:

 

		Earned								Earned
		For the Three Months Ended June 30,								For the Six Months Ended June 30,
		2022				2023				2022				2023
Payments		$	3,876			$	4,027			$	7,362			$	8,232
Total revenues		$	3,876			$	4,027			$	7,362			$	8,232

 

 

				Receivable
				As of June 30,
				2023
	Payments			$	1,834
				$	1,834

 

For the six months ended June 30, 2022 and 2023, The Internalized Parties did not waive any property management fees.

 

 

Reimbursable expenses

 

The Internalized Parties include all reimbursed expenses within revenues because the Internalized Parties are the primary obligor, have discretion in selecting a supplier, and bear all of the credit risk of paying such suppliers prior to receiving reimbursement from each GNL and RTL. The Internalized Parties may receive a reimbursement for acquisition expenses incurred equal to a percentage of the contract purchase price of investments made as set forth within each Advisory Agreement of GNL and RTL. The Internalized Parties incurred reimbursable expenses in the amounts set forth below for the three months ended June 30, 2022 and 2023 and six months ended June 30, 2022 and 2023, and had recorded corresponding receivables for reimbursable expenses as of June 30, 2023:

 

		Earned								Earned
		For the Three Months Ended June 30,								For the Six Months Ended June 30,
		2022				2023				2022				2023
Other expense reimbursements		$	6,024			$	4,852			$	10,360			$	9,364
Total revenues		$	6,024			$	4,852			$	10,360			$	9,364

 

 

		Receivable
		As of June 30,
			2023
Other expense reimbursements		$	440
		$	440

 

Expense allocation

 

The Internalized Parties includes all reimbursed expenses within revenues because AR Global is the primary obligor, has discretion in selecting a supplier, and bears all of the credit risk of paying the supplier prior to receiving reimbursement from the end user. AR Global may receive a reimbursement for acquisition expenses incurred equal to a percentage of the contract purchase price of investments made as set forth within the Advisory Agreements.

 

AR Global provides services to GNL and RTL, and as such incurs overhead and employee costs on behalf of the Internalized Parties. These costs incurred by AR Global are allocated to the Internalized Parties . The Internalized Parties were allocated the following overhead costs that were incurred by the AR Global on behalf of the Internalized Parties for the three months ended June 30,2022 and 2023 and for the six months ended June 30, 2022 and 2023, included in the combined statements of operations:

 

		For the Three Months Ended June 30,								For the Six Months Ended June 30,
Expenses		2022				2023				2022				2023
Compensation, benefits, tax and other payroll		$	3,868			$	3,565			$	7,968			$	9,018
Property management fees			2,790				1,627				4,060				3,348
Rent and related			935				902				1,787				1,872
Total Expenses		$	7,593			$	6,094			$	13,815			$	14,238

 

 

NOTE 4- SUBSEQUENT EVENTS

 

The Internalized Parties has evaluated subsequent events that have occurred through August 2, 2023, which is the date these financial statements were available for issuance.

 

 

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