UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
| (Mark One) | ||
| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the fiscal year ended December 31, 20142017
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from _________ to __________
Commission file number: 000-55202001-37390
Global Trust,Net Lease, Inc.
(Exact name of registrant as specified in its charter)
| Maryland | 45-2771978 | |||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||
405 Park Ave., | ||||
| (Address of principal executive offices) | ||||
| (Registrant’s telephone number, including area code): (212) 415-6500 | ||||
| Securities registered pursuant to section 12(b) of the Act: | ||||
| Title of each class | Name of each exchange on which registered | |||
| Common Stock, $0.01 par value | New York Stock Exchange | |||
| 7.25% Series A Cumulative Redeemable Preferred Stock, $0.01 par value | New York Stock Exchange | |||
| Securities registered pursuant to section 12(g) of the Act: | ||||
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ox No xo
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No
Indicate by check mark whether the registrant submitted electronically and posted on its corporate Web Site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes ¨ No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer | Accelerated filer ¨ | |
Non-accelerated filer | (Do not check if a smaller reporting company) | Smaller reporting company ¨ |
Emerging growth company ¨ | ||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes ýx No
On March 13, 2015,February 15, 2018, the registrant had 179,725,37867,336,343 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s proxy statement to be delivered to stockholders in connection with the registrant’s 20152018 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K. The registrant intends to file its proxy statement within 120 days after its fiscal year end.
FORM 10-K
Year Ended December 31, 20142017
| Page | ||
Forward-Looking Statements
Certain statements included in this Annual Report on Form 10-K are forward-looking statements. Those statements includeincluding statements regarding the intent, belief or current expectations of American Realty Capital Global Trust,Net Lease, Inc. (the "Company," "we," "our" or "us") and members of our management team, as well as the assumptions on which such statements are based, and generally are identified by the use of words such as "may," "will," "seeks," "anticipates," "believes," "estimates," "expects," "plans," "intends," "should" or similar expressions. Actual results may differ materially from those contemplated by such forward-looking statements. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time, unless required by law.
The following are some of the risks and uncertainties, although not all risks and uncertainties, that could cause our actual results to differ materially from those presented in our forward-looking statements:
All of our executive officers are also officers, managers, and/employees or holders of a direct or indirect controlling interest in American Realty Capitalthe Advisor and other entities affiliated with AR Global Advisors,Investments, LLC (the "Advisor"), our dealer manager, Realtysuccessor business to AR Capital Securities, LLC, (the "Dealer Manager""AR Global") and other American Realty Capital-affiliated entities.. As a result, our executive officers, our AdvisorGlobal Net Lease Advisors, LLC (the "Advisor") and its affiliates face conflicts of interest, including significant conflicts created by ourthe Advisor's compensation arrangements with us and other investment programs advised by American Realty CapitalAR Global affiliates and conflicts in allocating time among these investment programs and us. These conflicts could result in unanticipated actions.
Because investment opportunities that are suitable for us may also be suitable for other American Realty Capital- advised investment programs ouradvised by affiliates of AR Global, the Advisor and its affiliates face conflicts of interest relating to the purchase of properties and other investments and suchthese conflicts may not be resolved in our favor, meaning that we could invest in less attractive assets, which could reduce the investment return to our stockholders.
We are obligated to pay fees which may be substantial to ourthe Advisor and its affiliates.
We depend on tenants for our rental revenue and, accordingly, our rental revenue is dependent upon the success and economic viability of our tenants.
Increases in interest rates could increase the amount of our debt paymentspayments.
We may be unable to repay, refinance, restructure or extend our indebtedness as it becomes due.
Adverse changes in exchange rates may reduce the value of our properties located outside of the United States ("U.S.").
The Advisor may not be able to identify a sufficient number of property acquisitions satisfying our investment objectives on acceptable terms and prices, or at all.
We may be unable to continue to raise additional debt or equity financing on attractive terms, or at all, and there can be no assurance we will be able to fund the acquisitions contemplated by our investment objectives.
Our credit facility may limit our ability to pay distributions todividends on our stockholders.common stock, $0.01 par value per share ("Common Stock") or our 7.25% Series A Cumulative Redeemable Preferred Stock, $0.01 par value per share ("Series A Preferred Stock").
We are permittedmay be unable to pay distributions from unlimited amounts of any source. Until substantially all the proceeds from our initial public offering ("IPO" or "offering") are invested, we may use proceeds from our IPO and financings to fund distributions until we have sufficientmaintain cash flow. There are no established limits on the amounts of net proceeds and borrowings that we may use to fund such distribution payments, except in accordance with our organizational documents and Maryland law.
We havemay not generatedgenerate cash flows sufficient to pay dividends to our distributions to stockholders or fund operations, and, as such, we may be forced to borrow at unattractiveunfavorable rates to pay dividends to ur stockholders or dependfund our operations.
Any dividends that we pay on our AdvisorCommon Stock or Series A Preferred Stock may exceed cash flow from operations, reducing the amount of capital available to waive reimbursement of certain expensesinvest in properties and fees to fund our operations. There is no assurance that our Advisor will waive reimbursement of expenses or fees.other permitted investments.
We are subject to risks associated with our international investments, including risks associated with compliance with and changes in foreign laws, fluctuations in foreign currency exchange rates and inflation.
We are subject to risks associated with any dislocations or liquidity disruptions that may exist or occur in the credit markets of the United States of AmericaU.S. and Europe from time to time.
We may fail to qualify, or continue to qualify to be treated as a real estate investment trust ("REIT") for U.S. federal income tax purposes ("REIT"), which would result in higher taxes, may adversely affect operations, and would reduce the trading price of our NAVCommon Stock and Series A Preferred Stock, and our cash available for distributions.
We may be exposed to risks due to a lack of tenant diversity, investment types and geographic diversity.
Our ability to refinance or sell properties located in the United Kingdom and continental Europe may be impacted by the economic and political uncertainty in these regions including due to the Brexit Process.
We may be exposed to changes in general economic, business and political conditions, including the possibility of intensified international hostilities, acts of terrorism, and changes in conditions of United StatesU.S. or international lending, capital and financing markets.markets, including as a result of the Brexit Process.
All forward-looking statements should be read in light of the risks identified in Part I, Item 1A of this annual report on Form 10-K.
PART I
Item 1. Business.
We were incorporated on July 13, 2011 as a Maryland corporation and hasthat elected and qualified to be taxed as a REITreal estate investment trust ("REIT") for United States ("U.S.") federal income tax purposes beginning with itsthe taxable year ended December 31, 2013. On April 20, 2012, the Company commenced its IPO on a "reasonable best efforts" basis of up to 150.0 millionJune 2, 2015 (the "Listing Date"), we listed shares of common stock, $0.01 par value per share, at a price of $10.00 per share, subject to certain volume and other discounts, pursuant to a registration statementour Common Stock on Form S-11 (File No. 333-177563), as amended from time to time (the "Registration Statement") filed with the Securities andNew York Stock Exchange Commission ("SEC"NYSE") under the Securities Act of 1933, as amended. The Registration Statement also covered up to 25.0 million shares of common stock issuable pursuant to a distribution reinvestment plansymbol "GNL" (the "DRIP""Listing") under which the Company's common stockholders could elect to have their distributions reinvested. We invest in additional shares of the Company's common stock. On June 13, 2014, as permitted, the Company announced the reallocation of 23.8 million shares, which represented all remaining unsold shares available pursuant to the DRIP. Concurrent with such reallocation, on June 17, 2014, the Company registered an additional 25.0 million shares to be issued under the DRIP pursuant to a registration statement on Form S-3 (File No. 333-196829).
On August 8, 2016, we entered into an agreement and plan of its portfolio may consist of properties purchased in Europemerger (the "Merger Agreement") with an additional 10% allocation to properties purchased elsewhere internationally. All such properties may be acquired and operated by the Company alone or jointly with another party. As of December 31, 2014, the Company owned 307 properties consisting of 16.3 million rentable square feet, which were 100.0% leased, with an average remaining lease term of 11.6 years. 255 of these properties are located in the United States and Puerto Rico, with an average remaining lease term of 10.5 years, 40 of these properties are located in the United Kingdom, with an average remaining lease term of 15.2 years and 12 of these properties are located across continental Europe, with an average remaining lease term of 12.4 years.
Pursuant to the Fourth Amended and Restated Advisory Agreement, dated June 2, 2015, among us, the OP and the Advisor (the "Advisory Agreement"), we retained the Advisor to manage our affairs on a day-to-day basis. Substantially all of our business is conducted through the units of limited partner interests in the OP ("OP units"OP. Our properties are managed and leased by Global Net Lease Properties, LLC (the "Property Manager"). American Realty CapitalThe Advisor, Property Manager, and Global Net Lease Special Limited Partner, LLC (the "Special Limited Partner"), an entity controlled by AR Capital Global Holdings, LLC (the "Sponsor"), contributed $200 to the OP in exchange for 22 OP units, which represents a nominal percentage of the aggregate OP ownership. A holder of OP units has the right to convert OP units for the cash value of a corresponding number of shares of the Company's common stock or, at the option of the OP, a corresponding number of shares of the Company's common stock, in accordance with the limited partnership agreement of the OP. The remaining rights of the limited partner interests are limited and do not include the ability to replace the general partner or to approve the sale, purchase or refinancing of the OP's assets.
On August 8, 2015, we entered into a service provider agreementthe Second Amended and Restated Service Provider Agreement (the “Service Provider Agreement”) with the Advisor and Moor Park Capital Partners LLP (the "Service Provider"). The Service Provider is not affiliated with the Company, the Advisor or the Sponsor. Pursuant, pursuant to the service provider agreement,which the Service Provider provides,agreed to provide, subject to the Advisor's oversight, certain real estate relatedestate-related services, as well as sourcing and structuring of investment opportunities, performance of due diligence, and arranging debt financing and equity investment syndicates, solely with respect to investments in Europe. On January 16, 2018, we notified the Service Provider that it was being terminated effective as of March 17, 2018. Additionally, as a result of our termination of the Service Provider, the property management and leasing agreement among an affiliate of the Advisor and the Service Provider will terminate by its own terms. As required under its existing Advisory Agreement with us, the Advisor and its affiliates will continue to manage our affairs on a day to day basis (including management and leasing of our properties) and will remain responsible for managing and providing other services with respect to our European investments. The Advisor may engage one or more third parties to assist with these responsibilities, all subject to the terms of the Advisory Agreement. See Item 3. Legal Proceedings.
As of December 31, 2017, we owned 321 properties consisting of 22.9 million rentable square feet, which were 99.5% leased, with a weighted-average remaining lease term of 8.8 years. Based on original purchase price or acquisition value with respect to properties acquired in the Merger, 50.6% of our properties are located in the U.S. and Puerto Rico and 49.4% of our properties are located in Europe. We may also originate or acquire first mortgage loans, mezzanine loans, preferred equity or securitized loans secured by real estate. As of December 31, 2017, we did not own any first mortgage loans, mezzanine loans, preferred equity or securitized loans.
Reverse Stock Split
On February 28, 2017, we completed a reverse stock split of Common Stock, limited partnership units in the OP ("OP Units") and long term incentive plan units in the OP ("LTIP Units"), at a ratio of 1-for-3 (the “Reverse Stock Split”). No OP Units were issued in connection with the Reverse Stock Split and we repurchased any fractional shares of Common Stock resulting from the Reverse Stock Split for cash. No payments were made in respect of any fractional OP Units. The Reverse Stock Split was applied to all of the outstanding shares of Common Stock and therefore did not affect any stockholder’s relative ownership percentage. As a result of the Reverse Stock Split, the number of outstanding shares of Common Stock was reduced from 198.8 million to 66.3 million.
Effective May 24, 2017, following approval by our board of directors, we filed an amendment to our charter with the Maryland State Department of Assessments and Taxation to decrease the total number of shares that we have authority to issue from 350.0 million to 116.7 million shares, of which (i) 100.0 million is designated as Common Stock; and (ii) 16.7 million is designated as Preferred Stock, $0.01 par value per share ("Preferred Stock"). As of December 31, 2017, our authorized capital stock consisted of 100.0 million shares of Common Stock, 5.4 million shares of Series A Preferred Stock and 11.3 million shares of Preferred Stock
All references made to share or per share amounts in the accompanying audited consolidated financial statements and applicable disclosures have been retroactively adjusted to reflect this Reverse Stock Split.
Preferred Stock Offerings
On September 7, 2017, we entered into an underwriting agreement (the “Underwriting Agreement”) with BMO Capital Markets Corp. and Stifel, Nicolaus & Company, Incorporated, as representatives of the underwriters listed on Schedule I thereto pursuant to which we agreed to issue and sell 4,000,000 shares of the Series A Preferred Stock, in an underwritten public offering at a public offering price equal to the liquidation preference of $25.00 per share. Pursuant to the service provider agreement, 50.0%Underwriting Agreement, we also granted the underwriters a 30-day option to purchase up to an additional 600,000 shares of Series A Preferred Stock. On September 12, 2017, we completed the initial issuance and sale of 4,000,000 shares of Series A Preferred Stock, which generated gross proceeds of $100.0 million and net proceeds of $96.3 million, after deducting underwriting discounts and offering costs paid by us.
On October 11, 2017, the underwriters exercised an option to purchase additional shares of Series A Preferred Stock, and we sold an additional 259,650 shares of Series A Preferred Stock, which generated gross proceeds of $6.5 million after adjusting for the amount of dividends declared per share for the period from September 12, 2017 to September 30, 2017 and payable to holders of record as of October 6, 2017, and resulted in net proceeds of $6.3 million, after deducting underwriting discounts and offering costs paid by us.
On December 19, 2017, we completed the sale of 1,150,000 additional shares of Series A Preferred Stock in an underwritten public offering at an offering price of $25.00 per share, which generated gross proceeds of $28.8 million and net proceeds of $27.8 million. These additional shares of shares of Series A Preferred Stock have been consolidated to form a single series, and are fully fungible with the outstanding Series A Preferred Stock. The Series A Preferred Stock is listed on the New York Stock Exchange, under the symbol "GNL PR A."
Equity Distribution Agreement
We have entered into an Equity Distribution Agreement with UBS Securities LLC, Robert W. Baird & Co. Incorporated, Capital One Securities, Inc., Mizuho Securities USA Inc., FBR Capital Markets & Co. and KeyBanc Capital Markets Inc. (together, the “Agents”) to offer and sell shares of Common Stock, to raise aggregate sales proceeds of up to $175.0 million, from time to time, pursuant to an “at the market” equity offering program (the “ATM Program”). Common Stock issued under the ATM Program is registered pursuant to our shelf registration statement on Form S-3 (Registration No. 333-214579). During the twelve months ended December 31, 2017, we sold 820,988 shares of Common Stock through the ATM Program for net sales proceeds of $18.3 million, after issuance costs of $0.4 million. These fees payable bywere charged to additional paid-in capital on the Company toaccompanying audited consolidated balance sheet during the Advisor and a percentageATM Program as of the fees paid to the Property Manager are paid or assigned to the Service Provider, solely with respect to the Company's foreign investments in Europe. Such fees are deducted from fees paid to the Advisor.
December 31, 2017.
Investment ObjectivesStrategy
Our investment objectives are:
strategy is to own and acquire a portfolio of commercial properties that is diversified in terms of geography, industry, and tenants. Based on original purchase price or acquisition value with respect to properties acquired in the credit risk associated with any one tenant or any one tenant industry;
facilitate dividend growth by acquiring properties with, or entering into new leases with, contractual rent escalations such asor inflation adjustments;adjustments included in the lease terms; and
Acquisition and Investment Policies
Primary Investment Focus
We have focused and intend to continue to focus our investment activities on single tenant net-leased commercialacquisitions of net lease properties with an emphasis onexisting net leases, or we acquire properties pursuant to sale-leaseback transactions. Our primary geographic target isWe may in the United States, although up to 40% of our portfolio may consist of properties purchased in Europe and up to an additional 10% may consist of properties purchased elsewhere internationally. Thefuture acquire or originate real estate debt we originate or acquire is expected to be primarilysuch as first mortgage debt but may also include bridge loans, mezzanine loans, preferred equity or securitized loans.
loans secured by real estate. As of December 31, 2014, the Company owned 307 properties, including 2552017, we have not invested in any preferred equity or securitized loans.
In January 2018, we announced that we are pursuing a strategy of growth through property acquisitions, primarily of properties located in the United StatesU.S. Our goal is to acquire $500 million of properties during the year ending December 31, 2018. As part of this acquisition strategy, we intend to increase the percentage (based on original purchase price) of our portfolio located in the U.S. to 60% and increase the percentage (based on annualized straight-line rental income) of our portfolio consisting of industrial/distribution properties. As of December 31, 2017, we owned 321 properties, including 252 properties located in the U.S. and Puerto Rico, 4043 properties located in the United Kingdom and 1226 properties located across continental Europe.
Investing in Real Property
| December 31, | ||||||
| Tenant | 2014 | 2013 | 2012 | |||
| Encanto Restaurants, Inc. | * | 19.4% | —% | |||
| Western Digital Corporation | * | 14.6% | —% | |||
| Thames Water Utilities Limited | * | 11.7% | —% | |||
| McDonald's Property Company Limited | * | * | 100% | |||
The termination, delinquency or non-renewal of leases by any of the above tenantsmajor tenant may have a material adverse effect on our revenues.
Opportunistic Investments
We believe that our Advisor’s and our Service Provider’sthe presence of the Advisor in the commercial real estate marketplace may present attractive opportunities to invest in properties other than long-term net leased properties, from corporations and other owners due
Acquisition Structure
We acquire properties through the OP and its subsidiaries. We have acquired properties through asset purchases and anticipate we will continue acquiringthrough purchases of the equity of entities owning properties. We typically acquire fee interests in propertiesa property (a “fee interest” is the absolute, legal possession and ownership of land, property, or rights), although other methods of acquiring a property, including acquiringwe have acquired 11 leasehold interestsinterest properties (a “leasehold interest” is a right to enjoy the exclusive possession and use of an asset or property for a stated definite period as created by a written lease), may be utilized if we deem it to be advantageous. For example, we may acquire properties through the acquisition of substantially all of the interests of an entity which in turn owns the real property. We also may make preferred equity investments in an entity that owns real property.
We may enter into joint ventures, partnerships and other co-ownership arrangements (including preferred equity investments) for the purpose of making investments. Some ofinvestments, provided these investments would not cause us to be required to register as an "investment company" under the potential reasons to enter into a joint venture would be to acquire assets we could not otherwise acquire, to reduce our capital commitment to a particular asset, or to benefit from certain expertise that a partner might have. As of December 31, 2014, we have not invested in any joint ventures.
Financing Strategies and Policies
On July 24, 2017, we, through the OP, entered into a credit agreement with KeyBank National Association (“KeyBank”), as agent, and the other lender parties thereto, that provides for a $500.0 million senior unsecured multi-currency revolving credit facility (the “Revolving Credit Facility”), and a €194.6 million ($225.0 million USD equivalent at closing) senior unsecured term loan facility (the “Term Facility” and, together with the Revolving Credit Facility, the “Credit Facility”). The aggregate total commitments under the Credit Facility are $725.0 million USD equivalents at closing. Upon our request, subject in all respects to the consent of the lenders in their sole discretion, these aggregate total commitments may be increased up to an aggregate additional amount of $225.0 million, allocated to either portion or among both portions of the Credit Facility, with total commitments under the Credit Facility not to exceed $950.0 million (seeNote 6 — Credit Facilities to our audited consolidated financial statements in this Annual Report on Form 10-K for further information on our Credit Facility). In addition, we have various mortgage loans outstanding, which are secured by our properties. Our mortgage loans typically bear interest at margin plus a floating rate which is mostly fixed through interest rate swap agreements (see Note 5 — Mortgage Notes Payable, Net to our audited consolidated
financial statements in this Annual Report on Form 10-K for mortgage loans in respective currency and interest rate detail). As of December 31, 2017, approximately $65.1 million was available for future borrowings under the Revolving Credit Facility.
We may obtain additional financing for acquisitions andfuture investments, at the time an asset is acquired or an investment is made or at a later time. In addition, debt financing may be used from time to time for property improvements, tenant improvements, leasing commissions and other working capital needs. The form of our indebtednessindebtedness will vary and could be long-term or short-term, secured or unsecured, or fixed-rate or floating rate. We will not enter into interest rate swaps or caps, or similar hedging transactions or derivative arrangements for speculative purposes, but may do so in order to manage or mitigate our interest rate risksrisk on variable rate debt.
Tax Status
We qualified to be taxed as a REIT for U.S. federal income tax purposes under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code"), commencing with our taxable year ended December 31, 2013. Commencing with such taxable year, we were organized and operatebegan operating in such a manner as to qualify for taxation as a REIT under the Code. We intend to continue to operate in such a manner to continue to qualify for taxation as a REIT for such purposes, but no assurance can be given that we will operate in a manner so as to qualify or remain qualified as a REIT.REIT for U.S. federal income tax purposes. In order to qualify and continue to qualify for taxation as a REIT, we must, among other things, distribute annually at least 90% of our REIT taxable income. REITs are subject to a number of other organizational and operational requirements. Even if we continue to qualify for taxation as a REIT, we may be subject to certain federal, state, local and foreign taxes on our income and assets, including alternative minimum taxes, taxes on any undistributed income and state, local or foreign income, franchise, property and transfer taxes. Anytaxes if we were subject to any of these taxesforms of taxation, it would decrease our earnings and our available cash.
On December 22, 2017, the Tax Cuts and Jobs Act was signed into law by the U.S. President. We are not aware of any provision in the final tax reform legislation or any pending tax legislation that would adversely affect our ability to operate as a REIT or to qualify as a REIT for U.S. federal income tax purposes. However, new legislation, as well as new regulations, administrative interpretations, or court decisions may be introduced, enacted, or promulgated from time to time, that could change the tax laws or interpretations of the tax laws regarding qualification as a REIT, or the federal income tax consequences of that qualification, in a manner that is adverse to our qualification as a REIT.
In addition, our international assets and operations, including those designated as direct or indirect qualified REIT subsidiaries or other disregarded entities of a REIT, continue to be subject to taxation in the foreign jurisdictions where those assets are held or those operations are conducted.
Competition
The commercial property real estate market is highly competitive. We compete for tenants inIn all of our markets we compete for tenants with other owners and operators of real estate. We compete based on a number of factors thatFactors affecting competition for tenants include location, rental rates, security, suitability of the property’s design to prospective tenants’ needs and the manner in which the property is operated and marketed. The numberadverse impact of competing properties in a particular market couldcompetition may have a material effect on our occupancy levels, rental rates and on theand/or operating expenses of certain of our properties.
In addition, we compete with other entitiesparties engaged in real estate investment activities to locateidentify suitable properties to acquire and to locatefind tenants and purchasers for our properties. These competitors include American Realty Capital GlobalFinance Trust, II, Inc. ("AFIN"), a REIT sponsored by our Sponsoran affiliate of AR Global, with substantially the samean investment strategy as us,similar to our investment strategy with respect to properties located in the U.S., other REITs, specialty finance companies, savings and loan associations, banks, mortgage bankers, insurance companies, mutual funds, institutional investors, investment banking firms, lenders, governmental bodies and other entities. There are also other REITs with asset acquisition objectives similar to ours, and others that may be organized in the future. Some of these competitors, including larger REITs, have substantially greater marketing and financial resources than we have, and generally may be able to accept more risk than we can prudently manage, including risks with respect to the creditworthiness of tenants. In addition, these same entitiescompetitors seek financing through similar channels as us, which may impact our ability to our company.obtain financing. Therefore, we compete for institutional investorsfinancing in a market where funds for real estate investment may decrease.
Competition from these and other third party real estate investors may limit the number of suitable investment opportunities available to us. ItCompetition also may result incause us to face higher prices to acquire assets, lower yields on assets and a narrower spread of yields over our borrowing costs, making it more difficult for us to acquire new investments on attractive terms. In addition, competition for desirable investments could delay the investmentinvestments in desirable assets, which may in turn reduce our earnings per share and negatively affect our ability to maintain distributionsdividends to stockholders.
Regulations - General
Our investments are subject to various federal, state, local and foreign laws, ordinances and regulations, including, among other things, zoning regulations, land use controls, environmental controls relating to air and water quality, noise pollution and indirect environmental impacts such as increased motor vehicle activity. We believe that we have all permits and approvals necessary under current law to operate our investments.
Regulations - Environmental
As an owner of real estate, we are subject to various environmental laws of federal, state and local governments and foreign governments at various levels. Compliance with existing laws has not had a material adverse effect on our financial condition or results of operations, and management does not believe it will have such an impact in the future. However, we cannot predict the impact of unforeseen environmental contingencies or new or changed laws or regulations on properties in which we hold an interest, or on properties that may be acquired directly or indirectly in the future. As part of our efforts to mitigate these risks, we typically engage third parties to perform assessments of potential environmental risks when evaluating a new acquisition of property, and we frequently require sellers to address them before closing or obtain contractual protection (indemnities, cash reserves, letters of credit, or other instruments) from property sellers, tenants, a tenant’s parent company, or another third party to address known or potential environmental issues.
Advisory Agreement
We are externally managed by the Advisor pursuant to the terms of the Advisory Agreement. The Advisory Agreement requires us to pay a base management fee (the “Base Management Fee”) in a minimum amount of $18.0 million per annum, payable in cash on a pro rata monthly basis at the beginning of each month, and including a variable fee amount equal to 1.25% of net proceeds raised from additional equity issuances, including issuances of OP Units and Series A Preferred Stock, and an incentive fee ("Incentive Compensation"), payable 50% in cash and 50% in shares of Common Stock, equal to 15% of our Core AFFO (as defined in the Advisory Agreement) in excess of $2.37 per share plus 10% of our Core AFFO in excess of $3.08 per share. The $2.37 and $3.08 incentive hurdles are eligible for annual increases of 1% to 3% based on a determination by a majority of our independent directors, in their good faith reasonable judgment, after consultation with the Advisor and our management. The amounts payable to the Advisor are capped, subject to an annual adjustment, based on the level of assets under management.
No later than April 30 of each year, our independent directors are required to determine, in good faith, whether the Advisor has satisfactorily achieved annual performance standards for the immediately preceding year based primarily on actions or inactions of the Advisor, and determines the annual performance standards for the next year.
We reimburse the Advisor or its affiliates for expenses of the Advisor and its affiliates incurred on our behalf, except for those expenses that are specifically the responsibility of the Advisor under the Advisory Agreement, such as fees and compensation paid to the Service Provider and the Advisor's overhead expenses, rent and travel expenses, professional services fees incurred with respect to the Advisor for the operation of its business, insurance expenses (other than with respect to our directors and officers) and information technology expenses.
The Advisory Agreement has an initial term expiring June 1, 2035, with automatic renewals for consecutive 5-year terms unless terminated in accordance with the terms of the Advisory Agreement. In the event of a termination in connection with a change in control of us or the Advisor's failure (based on a good faith determination by our independent directors) to meet annual performance standards for the year based primarily on actions or inactions of the Advisor, we would be required to pay a termination fee that could be up to 2.5 times the compensation paid to the Advisor in the previous year, plus expenses.
SeeNote 11 — Related Party Transactions to our audited consolidated financial statements in this Annual Report on Form10-K for further details.
Employees
As of December 31, 2014,2017, we had no direct employees. Instead, thehave one employee based in Europe. The employees of our Service Provider,Advisor, Property Manager Advisor and other affiliates of our SponsorAR Global perform a full range of real estate services for us, including acquisitions, property management, accounting, legal, asset management, wholesale brokerage, transfer agent and investor relations services.
Pursuant to the Service Provider Agreement, the Service Provider agreed to provide, subject to the Advisor's oversight, certain real estate-related services, as well as sourcing and structuring of investment opportunities, performance of due diligence, and arranging debt financing and equity investment syndicates, solely with respect to investments in Europe. As discussed above, on January 16, 2018, we notified the Service Provider that it was being terminated effective as of March 17, 2018. We are dependentdepend on these third parties and affiliates for services that are essential to us, including asset acquisition decisions, property management and other general administrative responsibilities. In the event that any of these companies were unable to provide these services to us we would be required to provide such services ourselves or obtain such services from other sources at potentially higher cost. As a result of our termination of the Service Provider, the property management and leasing agreement among an affiliate of the Advisor and the Service Provider will terminate by its own terms. As required under our existing Advisory Agreement, the Advisor and its affiliates will continue
to manage the Company’s affairs on a day to day basis (including management and leasing of our properties) and will remain responsible for managing and providing other services with respect to our European investments.
Financial Information About Industry Segments
Our current business consists of owning, managing, operating, leasing, acquiring, investing in and disposing of real estate assets. All of our consolidated revenues are derived from our consolidated real estate properties. We internally evaluate operating performance on anat the individual property level, and view all of our real estate assets as onea single industry segment, and, accordingly, all of our properties are aggregated into one reportable segment.
Available Information
We electronically file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports, and proxy statements, with the SEC. We also filed with the SEC our Registration Statement in connection with our offering. You may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549, or you may obtain information by calling the SEC at 1-800-SEC-0330. The SEC maintains an internet address at http://www.sec.gov that contains reports, proxy statements and information statements, and other information, which you may obtain free of charge. In addition, copies of our filings with the SEC may be obtained from the website maintained for us and our affiliates at www.americanrealtycap.com.www.globalnetlease.com. Access to these filings is free of charge. We are not incorporating our website or any information from the website into this Form 10-K.
Item 1A. Risk Factors
Set forth below are the risk factors that we believe are material to our investors. The occurrence of any of the risks discussed in this Annual Report on Form 10-K could have a material adverse effect on our business, our financial condition, our results of operations, our ability to pay dividends and the trading price of our Common Stock and Series A Preferred Stock.
Risks Related to Our Properties and Operations
Our goal is to acquire $500 million of properties during the conditions listed below, could have a material adverse effect onyear ending December 31, 2018. There can be no assurance we will be able to meet our results of operations, financial condition, business, ability to pay distributions and the value of an investment in us. The list below is not exhaustive.goal for numerous reasons, including:
agreements to acquire properties are typically subject to conditions to closing that may not be an indication of our future results.satisfied or waived; and
Moreover, other than our revolving credit facility, borrowings secured by our propertieswe depend on the Advisor to identify a sufficient number of property acquisitions on acceptable terms and prices. There also can be no assurance the proceeds from our IPO, weAdvisor will be able to do not have any established financing sources. If our capital resources are insufficient to support our operations, we will not be successful.
Our Sponsor has invested $1.2 millionability to obtain sufficient funding to implement our acquisition strategy depends on our ability to access capital from external sources, and there can be no assurance we will be able to so on favorable terms or at all.
In order to meet our acquisition goal, we will need to access third-party sources of capital. Our access to capital depends, in us through part, on:
general market conditions;
the purchasemarket’s view of 133,333 sharesthe quality of our common stock at $9.00 per share. Our Sponsor or any affiliate may not sell this initial investment while our Sponsor remains a sponsor but may transfer assets;
the shares to other affiliates. After reimbursementmarket’s perception of our Sponsor for growth potential;
our significant organizationcurrent and offering expenses, expected debt levels;
our Sponsor will have little exposure to loss in the valuecurrent and expected future earnings;
our current and expected cash flow and cash dividend payments; and
market price per share of our shares. Without this exposure, our investorsCommon Stock, Series A Preferred Stock and any other class or series of equity security we may be at a greater risk of loss because our Sponsor may have lessseek to lose from a decrease in the value of our shares as does a sponsorissue that makes more significant equity investments in the company it sponsors.
We cannot assure you that we will satisfy the listing standards or otherwise be listed on a public market.
If we failare unable to satisfy initial listing requirements for a national stock exchange, or if we faildo so, our ability to maintainsuccessfully pursue our qualification for listing, our stockholders may havestrategy of growth through property acquisitions will be limited. Failure to hold their shares for an indefinite period of time or, if stockholders are able to sell your shares, they likely would have to sell them at a substantial discount to the price they paid for the shares. achieve this strategic objective could adversely affect us.
There can beis no assurance that we will be able to achieve a listing.continue paying dividends on our Common Stock or Series A Preferred Stock at the current rate or, with respect to our Common Stock, increase dividends over time.
rents from properties may not increase, and future acquisitions of properties, real estate-related debt or real estate-related securities may not increase our Advisor or any service provider, are unablecash available for distributions to find suitable investments, then stockholders;
we may not generate sufficient cash from operations to fund our other capital needs;
decisions on whether, when and in which amounts to make any future distributions will remain at all times entirely at the discretion of our board of directors, which reserves the right to change our dividend policy regarding Common Stock at any time and for any reason;
we may desire to retain cash to maintain or improve its credit ratings; and
the amount of distributions that our subsidiaries may distribute to us may be ablesubject to achieve our investment objectivesrestrictions imposed by state law, restrictions that may be imposed by state regulators and restrictions imposed by the terms of any current or payfuture indebtedness that these subsidiaries may incur.
Our common stockholders have no contractual or other legal right to dividends or distributions whichthat have not been declared. Moreover, failure to meet the market's expectations with regard to future earnings and cash dividends likely would adversely affect the value of an investment in our shares.
Dividends paid from sources other properties to acquire. We cannot be sure that our Advisor or any service provider will be successful in obtaining suitable investments on financially attractive terms or that, if it makes investments on our behalf, our objectives will be achieved.
Our cash flows provided by operations were $131.0 million for the year ended December 31, 2017. During the year ended December 31, 2017, we paid dividends of $143.9 million, which includes payments to holders of our Common and Series A Preferred Stock and distributions to holders of OP Units and LTIP Units. Of these payments, $131.0 million, or 91.0%, was funded from cash flows provided by operations, $2.3 million, or 1.6%, was funded from proceeds from sales of real estate investments and $11.0 million, or 7.7%, was funded from available cash on hand.
We are obligated under the terms of our stockholdersSeries A Preferred Stock to pay dividends to holders of our Series A Preferred Stock in an amount equal to $2.5 million per quarter for each quarter based on 5,409,650 shares of Series A Preferred Stock outstanding as of December 31, 2017.
Series A Preferred Stock ranks senior to our Common Stock with respect to dividend rights and rights upon our voluntary or involuntary liquidation, dissolution or winding up. If we do not generate sufficient cash flows from its operations to fund dividends, we may have to reduce or suspend dividend payments on our Common Stock or pay dividends from other sources, such as from borrowings or the valuesale of additional securities.
Funding dividends from borrowings could restrict the amount we can borrow for property acquisitions and investments. Funding dividends with the sale of assets, or using the proceeds from issuance of our Common Stock, Series A Preferred Stock or other equity securities to fund dividends rather than invest in assets, may affect our ability to generate cash flows. Funding dividends from the sale of additional securities could also result in a dilution of our stockholders’ investment.
The Credit Facility may limit our ability to pay dividends.
The Credit Facility prohibits us from paying distribution, including cash dividends on our Common Stock and Series A Preferred Stock, or redeeming or otherwise repurchasing shares of our capital stock, including our Common Stock and Series A Preferred Stock, in an aggregate amount exceeding 95% of our “Adjusted FFO” as defined in the Credit Facility (which is different from AFFO as discussed in this Annual Report on Form 10-K) for any period of four consecutive fiscal quarters, except in limited circumstances, including that for one fiscal quarter in each calendar year, we may pay cash dividends, make redemptions and make repurchases in an aggregate amount equal to no more than 100% of our Adjusted FFO.
Further, the Credit Facility prohibits us from paying distributions, including cash dividends payable on our Common Stock and Series A Preferred Stock, or redeeming or otherwise repurchasing shares of our capital stock, including our Common Stock and Series A Preferred Stock, after the occurrence and during the continuance of a default or an event of default under the Credit Facility, except in limited circumstances, including as necessary to enable us to maintain our qualification as a REIT. If we default under the Credit Facility in any way, we would be unable to borrow additional amounts thereunder, and upon the occurrence of an investment inevent of default under the Credit Facility, any amounts we have borrowed thereunder could become immediately due and payable.
The agreements governing future debt instruments may also include restrictions on our shares.ability to pay dividends to holders, or redemptions or repurchases, of our Common Stock and Series A Preferred Stock.
We may engage in an internalization transaction and become self-managed in the future. If we internalize our management functions, certain key employees ofare dependent on the Advisor and its affiliatesaffiliate, the Property Manager, to provide us with executive officers, key personnel and all services required for us to conduct our operations and our operating performance may not becomebe impacted by any adverse changes in the financial health or reputation of the Advisor.
Personnel and services that we require are provided to us under contracts with the Advisor and its affiliate, the Property Manager. We depend on the Advisor, and any entities it may engage with our employees but may instead remain employees of our Advisor or its affiliates. An inabilityapproval, and the Property Manager to manage an internalization transaction effectively could thus result in our incurring excess costsoperations and suffering deficiencies into acquire and manage our disclosure controls and procedures orportfolio of real estate assets.
Thus, our internal control over financial reporting. Such deficiencies could cause us to incur additional costs, and our management’s attention could be diverted from most effectively managing our investments, which could result in us being sued and incurring litigation-associated costs in connection with the internalization transaction.
On March 8, 2017, the creditor trust established in connection with the bankruptcy of RCS Capital Corp. (“RCAP”), which prior to its bankruptcy filing was under common control with the Advisor, filed suit against AR Global, the Advisor, advisors of other entities sponsored by affiliates of AR Global, and AR Global’s principals. The suit alleges, among other things, certain breaches of duties to RCAP. We may be unableare neither a party to paythe suit, nor are there allegations related to the services the Advisor provides to us. On May 26, 2017, the defendants moved to dismiss. On November 30, 2017, the Court issued an opinion partially granting the defendants’ motion The Advisor has informed us that it believes the suit is without merit and intends to defend against it vigorously.
Any adverse changes in the financial condition or maintain cash distributions tofinancial health of, or our stockholders or increase distributions over time, whichrelationship with, the Advisor, including any change resulting from an adverse outcome in any litigation, could adversely affect the return on an investment in our shares.
We may terminate the Advisory Agreement in only limited circumstances, which could reduce any recovery against them. In addition,may require payment of a termination fee.
We have limited rights to terminate the Advisor. The initial term of the Advisory Agreement expires on June 1, 2035, but is automatically renewed for consecutive five-year terms unless notice of termination is provided by either party 365 days in advance of the expiration of the term. Further, we may be obligated to fundterminate the defense costs incurredagreement only under limited circumstances. In the event of a termination in connection with a change in control of us or the Advisor’s failure (based on a good faith determination by our directors, officers, employees and agentsindependent directors) to meet annual performance standards for the prior year based primarily on actions or ourinactions of the Advisor, and its affiliateswe would be required to pay a termination fee that could be up to 2.5 times the compensation paid to the Advisor in some cases which would decrease the cash otherwiseprevious year, plus expenses. The limited termination rights of the Advisory Agreement will make it difficult for us to renegotiate the terms of the Advisory Agreement or replace the Advisor even if the terms of the Advisory Agreement are no longer consistent with the terms generally available to externally-managed REITs for distribution to stockholders.similar services.
We rely significantly on major tenants and therefore are subject to tenant credit concentrations that make us more susceptible to adverse events with respect to those tenants.
As of December 31, 2014 the following two major tenants had annualized rental income on a straight-line basis, which represented2017, we derived 5.0% or more of our consolidated annualized rental income on a straight-line basis including, for this purpose, all affiliates of such tenants:
| Tenant | Number of Properties | December 31, 2014 | ||
RWE AG | 3 | 6.1% | ||
| Government Services Administration (GSA I - IX) | 11 | 6.0% | ||
A high concentration of our properties in a particular geographic area magnifies the effects of downturns in that geographic area and could have a disproportionate adverse effect on the value of our investments.
| Country | December 31, | |
| European Countries: | ||
| United Kingdom | ||
| Germany | ||
| The Netherlands | 7.0% | |
| Finland | 6.2% | |
| France | 5.2% | |
| Other European Countries | 2.1% | |
| Total European Countries | 51.1% | |
| United States & Puerto Rico: | ||
| Michigan | ||
| Other States and Puerto Rico | 27.9% | |
| Total United States and Puerto Rico | 48.9% | |
| Total | 100.0% | |
Any adverse situation that disproportionately affects the states and countries listed above may have a magnified adverse effect on our portfolio.us. Factors that may negatively affect economic conditions in these states or countries include:
restrictions on international trade;
business lay offs,layoffs, downsizing or relocations;
industry slowdowns;
changing demographics;
increased telecommuting and use of alternative work places;
infrastructure quality;
any oversupply of, or reduced demand for, real estate;
concessions or reduced rental rates under new leases for properties where tenants defaulted; and
increased insurance premiums.
Brexit could adversely affect us.
On June 23, 2016, the United Kingdom held a referendum in which a majority of voters approved an exit from the European Union, commonly referred to as “Brexit.” On March 29, 2017, the United Kingdom gave formal notice of its exit from the European Union and commenced the two-year period of negotiations to determine the terms of the United Kingdom’s relationship with the European Union after the exit, including, among other things, the terms of trade between the United Kingdom and the European Union. These negotiations are ongoing. Any final agreement requires the approval of Parliament in both the United Kingdom and the European Union. The uncertainty surrounding when and on what terms the United Kingdom will ultimately exit the European Union, as well as uncertainty surrounding the ultimate impact of these events on both the United Kingdom and the European Union, has caused, and may continue to cause, significant volatility in global stock markets and currency exchange fluctuations, including a sharp decline in the value of the British pound sterling as compared to the U.S. dollar and other currencies. In addition to the long-term effects of Brexit that depend on whether the United Kingdom is able to retain access to European Union markets either during a transitional period or more permanently, Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the United Kingdom determines which European Union laws to replace or replicate. As a general matter, Brexit may:
adversely affect European and worldwide economic and market conditions;
adversely affect commercial property market values and rental rates in the United Kingdom and continental Europe;
result in foreign currency exchange rate fluctuations that could adversely affect our results of operations, especially if we are unable to effectively hedge currency exchange exposure; and
adversely affect the availability of financing for commercial properties in the United Kingdom and continental Europe, which could impair our ability to acquire properties and may reduce the price for which we are able to sell properties we have acquired.
The effects of Brexit, including effects we cannot anticipate, could adversely affect us. However, until the terms and timing of Brexit become more clear, it is not possible to determine the ultimate impact that the United Kingdom’s departure from the European Union or any related matters may have on us.
We are subject to additional risks from our international investments.
the burden of complying with a wide variety of foreign laws;
changing governmental rules and policies, including changes in land use and zoning laws, more stringent environmental laws or changes in such laws;
existing or new laws relating to the foreign ownership of real property or loans and laws restricting the ability of foreign persons or companies to remove profits earned from activities within the country to the person's or company's country of origin;
the potential for expropriation;
possible currency transfer restrictions;
imposition of adverse or confiscatory taxes;
changes in real estate and other tax rates and changes in other operating expenses in particular countries;
possible challenges to the anticipated tax treatment of the structures that allow us to acquire and hold investments;
adverse market conditions caused by terrorism, civil unrest and changes in national or local governmental or economic conditions;
the willingness of domestic or foreign lenders to make loans in certain countries and changes in the availability, cost and terms of loan funds resulting from varying national economic policies;
general political and economic instability in certain regions;
the potential difficulty of enforcing obligations in other countries; and
Investments in properties or other real estate investments outside the United StatesU.S. subject us to foreign currency risks.
Investments we make outside the United StatesU.S. are generally subject us to foreign currency risk due to fluctuations in exchange rates between foreign currencies and the U.S. dollar. Revenues generated from any properties or other real estate investments we acquireacquired are generally denominated in the local currency. As of December 31, 2017, we had $992.3 million, ($301.0 million, £223.2 million and €325.7 million) in outstanding mortgage debt, $298.9 million ($209 million, £40.0 million and €30.0 million) in outstanding debt under the Revolving Credit Facility and $229.9 million, net (€194.6 million) of outstanding debt under the Term Facility. We also may continue borrow in local currencies when we purchasepurchasing properties outside the Unites States.States, including draws under our revolving credit facility. As a result, changes in exchange rates of any suchof these foreign currencycurrencies to U.S. dollars may affect our revenues, operating margins and distributionsthe amount of cash we have available to pay dividends and may also affect the book value of our assets and the amount of stockholders' equity.
Changes in foreign currency exchange rates used to value a REIT's foreign assets may be considered changes in the value of the REIT's assets. These changes may adversely affect our status as a REIT.
Foreign exchange rates may be influenced by many factors, including:
changing supply and demand for a particular currency;
monetary policies of governments (including exchange control programs, restrictions on local exchanges or markets and imitationslimitations on foreign investment in a country or an investment by residents of a country in other countries);
changes in balances of payments and trade;
trade restrictions; and
currency devaluations and revaluations.
Also, governments from time to time intervene in the currency markets, directly and by regulation, in order to influence prices. These events and actions are unpredictable. In particular, sovereign debt issues
We use foreign currency derivatives including options, currency forward and cross currency swap agreements to manage our exposure to fluctuations in Europe could lead to further significant,GBP-USD and potentially longer-term, devaluation of the euro against the U.S. dollar, which could adversely impactEUR-USD exchange rates, but there can be no assurance our European investments and revenue, operating expenses, and net income related to such European investments as expressed in U.S. dollars.
hedging strategy will be successful. If we are unsuccessful in hedging these,fail to effectively hedge our currency exposure, or anyif we experience other potential losses related to our exposure to foreign currencies, our operating results could be negatively impacted and our cash flows could be reduced. In some cases,
Market and economic challenges experienced by the U.S. and global economies may adversely impact aspects of our operating results and operating condition.
Our business may be affected by market and economic challenges experienced by the U.S. and global economies. These conditions may materially affect the commercial real estate industry, the businesses of our tenants and the value and performance of our properties, and may affect our ability to pay dividends, and the availability or the terms of financing that we have or may anticipate utilizing. Challenging economic conditions may also impact the ability of certain of our tenants to enter into new leasing transactions or satisfy rental payments under existing leases. Specifically, global market and economic challenges may have adverse consequences, including:
decreased demand for our properties due to significant job losses that occur or may occur in the future, resulting in lower rents and occupancy levels;
an increase in the number of bankruptcies or insolvency proceedings of our tenants and lease guarantors, which could delay or preclude our efforts to collect rent and any past due balances under the relevant leases;
widening credit spreads as investors demand higher risk premiums, resulting in lenders increasing the cost for debt financing;
reduction in the amount of capital that is available to finance real estate, which, in turn, could lead to a decline in real estate values generally, slow real estate transaction activity, a reduction the loan-to-value ratio upon which lenders are willing to lend, and difficulty refinancing our debt;
a decrease in the market value of our properties, which may limit our ability to obtain debt financing secured by our properties;
a need for us to establish significant provisions for losses or impairments;
reduction in the value and liquidity of our short-term investments and increased volatility in market rates for such investments; and
reduction in cash flows from our operations as a result of foreign currency losses resulting from our operations in continental Europe and the United Kingdom if we are unsuccessful in hedging these potential losses or if, as part of our risk management strategies, we may choose not to hedge such risks. If we misjudge these risks, there could be a material adverse effect on our operating results and financial position.
Continuing concerns regarding European debt, market perceptions concerning the instability of the Euro and recent volatility and price movements in the economiesrate of European countriesexchange between the U.S. Dollar and the Euro could negatively impactadversely affect our business, results of operations and our ability to obtain financing.
Concerns persist regarding the debt burden of certain Eurozone countries and their potential inability to meet their future financial condition.
Furthermore, market concerns about economic growth in the Eurozone relative to further significant, and potentially longer-term, devaluation of the euro against the U.S. dollar, which could adverselyand speculation surrounding the potential impact our European investments and revenues, operating expenses, and net income related to such European investments as expressed in U.S. dollars. In addition, many governments aroundon the world, including the U.S. government, are operating at very large financial deficits. Disruptions in the economies of such governments could cause, contribute to or be indicative of, deteriorating macro-economic conditions. Furthermore, governmental austerity measures aimed at reducing deficits could impair the economic recovery.
Inflation in foreign countries may have an adverse effect on our investments.
Certain countries have in the past experienceexperienced extremely high rates of inflation. Inflation, along with governmental measures to curb inflation, coupled with public speculation about the possible future governmental measures to be adopted, has had significant negative effects on these international economies in the past and this could occur again in the future.
Conversely, low inflation can cause deflation, or an outright decline in prices.Deflation can lead to a negative cycle where consumers delay purchases in anticipation of lower prices, causing businesses to stop hiring and postpone investments as sales weaken. Deflation would have a serious impact on economic growth and may adversely affect the financial condition of our tenants and the rental rates at which we renew or enter into leases.
A high concentration of tenants of our propertiestenants in a similar industry magnifies the effects of downturns in that industry and would have a disproportionate adverse effect on the value of our investments.
If tenants of our properties are concentrated in a certain industry category, any adverse effect to that industry generally would have a disproportionately adverse effect on our portfolio. For the year endedAs of December 31, 2014,2017, the following industries had concentrations of properties where annualized rental income on a straight-line basis representedrepresenting 5.0% or greater of our consolidated annualized rental income on a straight-line basis:
| Industry | December 31, | |
| Financial Services | ||
| Technology | 6.6% | |
| Discount Retail | ||
| Healthcare | ||
| 5.9% | ||
| Government Services | 5.7% | |
| Freight | 5.2% | |
Any adverse situation that disproportionately affects the industries listed above may have a magnified adverse effect on our portfolio.
Our bank deposits in excess of insured limits expose us to risk of failure of any bank in which we deposit our funds.
We hold cash and cash equivalents at several banking institutions. These institutions are generally insured by the Federal Deposit Insurance Corporation in the U.S. or other entities in Europe, and each of these entities generally only insure limited amounts per depositor per insured bank. We have cash and cash equivalents and restricted cash deposited in interest-bearing accounts at certain financial institutions exceeding these insured levels. If any of the banking institutions in which we have deposited funds ultimately fails, we may lose the portion of the deposits that exceed the insured levels.
Our business and operations wouldcould suffer if the Advisor or any other party that provides us with services essential to our operations experiences system failures or cyber incidents or a deficiency in the event of system failures.cyber security.
Despite system redundancy, the implementation of security measures and the existence of a disaster recovery plan for ourthe internal information technology networks and related systems of the Advisor and other parties that provide us with services essential to our operations, these systems are vulnerable to damages from any number of sources, including computer viruses, unauthorized access, energy blackouts, natural disasters, terrorism, war and telecommunication failures. Any system failure or accident that causes interruptions in our operations could results in a material disruption to our business. We may also incur additional costs to remedy damages caused by such disruptions.
operations. In addition, the risk of a cyber incident, including by computer hackers, foreign governments and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and instructionsintrusions from around the world have increased. OurEven the most well protected information, networks, systems and facilities remain potentially vulnerable because the techniques used in such attempted attacks and intrusions evolve and generally are not recognized until launched against a target, and in some cases are designed not to be detected and, in fact, may not be detected.
The remediation costs and lost revenues couldexperienced by a victim of a cyber incident may be significant if we fall victim to a cyber incident. Weand significant resources may be required to expend significant resources to repair system damage, protect against the threat of future security breaches or to alleviate problems, including reputational harm, loss of revenues and litigation, caused by any breaches. Security breaches could also
In addition, a security breach or other significant disruption involving the information technology networks and related systems of the Advisor or any other party that provides us with services essential to our operations could:
result in misstated financial reports, violations of loan covenants, missed reporting deadlines and/or missed permitting deadlines;
affect our ability to properly monitor our compliance with the rules and regulations regarding our qualification as a REIT;
result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of, proprietary, confidential, sensitive or otherwise valuable information (including information about tenants), which others could use to compete against us or for disruptive, destructive or otherwise harmful purposes and outcomes;
result in our inability to maintain the building systems relied upon by its tenants for the efficient use of their leased space;
require significant management attention and resources to remedy any damages that result;
subject us to significant liabilityclaims for breach of contract, damages, credits, penalties or losstermination of leases or other agreements; or
adversely impact our reputation among its tenants and investors generally.
Although the Advisor and other parties that may not be covered by insurance, damageprovide us with services essential to our reputation, or a loss of confidence in our security measures, which could harm our business. We also may be found liable for any stolen assets or misappropriated confidential information. Although weoperations intend to continue to implement industry-standard security measures, we cannot assure youthere can be no assurance that those measures will be sufficient.
We may enter into joint ventures, partnerships and other co-ownership arrangements (including preferred equity investments) forare in litigation with the purpose of making investments. In such event, we would not be in a position to exercise sole decision-making authority regarding the joint venture. Investments in joint ventures may, under certain circumstances, involve risks not present were a third party not involved, including the possibility that partners or co-venturers might become bankrupt or fail to fund their required capital contributions. Co-venturers may have economic or other business interests or goals which are inconsistent with our business interests or goals, and may be in a position to take actions contraryService Provider related to our policies or objectives. Such investments may also havetermination of the potential risk of impasses on decisions, such as a sale, because neither we nor the co-venturer would have full control over the joint venture. Disputes between us and co-venturers may result in litigation or arbitration that would increase our expenses and prevent our officers and/or directors from focusing their time and effort on our business. Consequently, actions by or disputes with co-venturers might result in subjecting properties owned by the joint venture to additional risk. In addition, we may in certain circumstances be liable for the actions of our co-venturers.
On October 29, 2014, ARCP announced that its audit committee had concludedJanuary 25, 2018, the Service Provider filed a complaint against us, the Property Manager, the Special Limited Partner, the OP, the Advisor (collectively, the "GNL Defendants") and AR Capital Global Holdings, LLC and AR Global (the "AR Global Defendants") in the Supreme Court of the State of New York, County of New York. The complaint alleges that the previously issued financial statementstermination of the Service Provider Agreement was a pretext to enable the AR Global Defendants to seize the Service Provider’s business with us. The complaint further alleges breach of contract against the GNL Defendants, and tortious interference against the AR Global Defendants. The complaint seeks, among other financial information contained in certain public filings should no longer be relied upon. This conclusion wasthings: (i) monetary damages against the defendants, and (ii) to enjoin the GNL Defendants from terminating the Service Provider Agreement based on the preliminary findings of an investigation conducted by ARCP’s audit committee which concluded that certain accounting errors wereTermination Letters. On January 26, 2018, the Service Provider made by ARCP personnel that were not corrected after being discovered, resulting in an overstatement of AFFO and an understatement of ARCP’s net loss fora motion seeking to preliminarily enjoin the three and six months ended June 30, 2014. ARCP also announceddefendants from terminating the resignation of its chief accounting officer and its chief financial officer. ARCP’s former chief financial officer is oneService Provider Agreement pending resolution of the non-controlling ownerslawsuit. On February 13, 2018, the defendants responded and moved to dismiss. Both motions remain pending.
We believe this lawsuit is without merit and intend to contest it vigorously, but there can be no assurance that we will be successful. An unfavorable judgment against us could have a material adverse impact on our financial condition, liquidity, our
business and our acquisition strategy. Further, if the termination is enjoined, the Advisor would be required to maintain its relationship with the Service Provider, which could adversely affect the quality of the Parentservices provided to us. As with any litigation, the dispute and resulting litigation may divert management’s attention from the day-to-day operations of our Sponsor, but does not have a rolebusiness and result in managingsubstantial cost to us, including amounts that may become payable to reimburse the AR Global, the Advisor and their affiliates for their legal costs in defending themselves against the Service Provider’s lawsuit pursuant to our business or our Sponsor’s business. In December 2014, ARCP announced the resignation of its executive chairman, who was also the executive chairman of our board of directors until his resignation on December 29, 2014. This individual also is one of the controlling members of the Parent of our Sponsor.
Risks Related to Conflicts of Interest
We rely on our SponsorAR Global and the executive officers and other key real estate professionals at ourthe Advisor and our Service Provider to identify suitable investment opportunities for us. Several of the other key real estate professionals of ourthe Advisor are also the key real estate professionals at the parent of our SponsorAR Global and their other public programs. Many investment opportunities that are suitable for us may also be suitable for other programs sponsored directly or indirectly by the parent of our Sponsor.AR Global. For example, American Realty Capital Global Trust II, Inc.AFIN seeks, like us, to invest in a diversified portfolio of commercial properties, with an emphasis on sale-leaseback transactions involving single tenant net-leased commercial properties, in the United States and Europe. The investment opportunity allocation agreement we have entered into with American Realty Capital Global Trust II, Inc. may result in us not being able to acquire certain properties identified by our Advisor and its affiliates.U.S. Thus, the executive officers and real estate professionals of ourthe Advisor or our Service Provider could direct attractive investment opportunities to other entities, or investors. Such events could result in us investing in properties that provide less attractive returns, which may reduce our ability to make distributions.such as AFIN.
We and other programs sponsored directly or indirectly by the parent of our SponsorAR Global also rely on these real estate professionals and our Service Provider,, to supervise the property management and leasing of properties. Our executive officers and key real estate professionals, and our Sponsor and our Service Provider,as well as AR Global, are not prohibited from engaging, directly or indirectly, in any business or from possessing interests in other business venture orbusinesses and ventures, including businesses and ventures involved in the acquisition, development, ownership, leasing or sale of real estate investments.
We may enter into joint ventures with other American Realty Capital-sponsored programs sponsored directly or indirectly by the parent of AR Global for the acquisition, development or improvement of properties. OurThe Advisor may have conflicts of interest in determining which American Realty Capital-sponsored programprograms sponsored directly or indirectly by the parent of AR Global should enter into any particular joint venture agreement. The co-venturer may have economic or business interests or goals that are or may become inconsistent with our business interests or goals. In addition, ourthe Advisor may face a conflict in structuring the terms of the relationship between our interests and the interest of the affiliated co-venturer and in managing the joint venture. Because ourDue to the role of the Advisor and its affiliates, will control both the affiliated co-venturer and, to a certain extent, us, agreements and transactions between the co-venturers with respect to any such joint venture will not have the benefit of arm’s-length negotiation of the type normally conducted between unrelated co-venturers, which may result in the co-venturer receiving benefits greater than the benefits that we receive. In addition, we may assume liabilities related to the joint venture that exceeds the percentage of our investment in the joint venture.
Our Advisor, our Sponsor, any service provider, and our Dealer Manager and their officers and employees and certain of our executive officers and other key personnel face competing demands relating to their time, and this may cause our operating results to suffer.
Certain of our executive officers, including James Nelson, chief executive officer and president, and Christopher Masterson, chief financial officer, treasurer and secretary, also are officers of ourthe Advisor ourand the Property Manager, our Dealer Manager andManager. Our directors also are directors of other affiliated entities, includingREITs sponsored directly or indirectly by the other real estate programs sponsored by American Realty Capital.parent of AR Global. As a result, these individuals owe fiduciary duties to these other entities and their stockholders and limited partners, which fiduciary duties may conflict with the duties that they owe to us and our stockholders. Their loyalties to these other entitiesus.
These conflicting duties could result in actions or inactions that are detrimental to our business, which could harm the implementation of our business strategy and our investment and leasing opportunities.business. Conflicts with our business and interests are most likely to arise from involvement in activities related to (a) allocation of new investments and management time and services between us and the other entities, (b) our purchase of properties from, or sale of properties, to entities sponsored by or affiliated entities,with AR Global, (c) the timing and terms of the investment in or sale of an asset, (d) development of our properties by affiliates of AR Global, (e) investments with affiliates of ourthe Advisor, and (f) compensation to ourthe Advisor and (g)its affiliates, including the Property Manager.
Moreover, the management of multiple REITs by certain of the key personnel of the Advisor may significantly reduce the amount of time they are able to spend on activities related to us, which may cause our relationship with our Dealer Manager and Property Manager. If we do not successfully implement our business strategy, we may be unableoperating results to generate cash needed to make distributions to our stockholders and to maintain or increase the value of our assets. If these individuals act in a manner that is detrimental to our business or favor one entity over another, they may be subject to liability for breach of fiduciary duty.suffer.
Under the Advisory Agreement, the partnership agreement of the OP, and any Service Provider agreement, which could resultthe OPP (as defined in actions that are not necessarily in“Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities-Share-Based Compensation-Multi-Year Outperformance Agreement”), the long-term best interests of our stockholders.
recommend investments that are not wholly aligned with those of our stockholders. In that regard, our Advisor or our Service Provider could be motivated to recommend riskier or more speculative than investments recommended by an advisor with a more significant investment in order forus.
Risks Related to our Corporate Structure, Common Stock and Series A Preferred Stock
The trading prices of our Common Stock and Series A Preferred Stock may fluctuate significantly.
Our Common Stock and Series A Preferred Stock are listed on the NYSE. The trading prices of our Common Stock and Series A Preferred Stock are impacted by a number of factors, many of which are outside our control. Among the factors that could affect the prices of our Common Stock and Series A Preferred Stock are:
our financial condition and performance;
our ability to achieve our strategy of growth through property acquisitions, and the terms, including with respect to financing, upon which we are able to do so;
the financial condition of our tenants, including the extent of tenant bankruptcies or defaults;
actual or anticipated quarterly fluctuations in our operating results and financial condition;
the amount and frequency of our payment of dividends;
additional issuances of equity securities, including Common Stock or Series A Preferred Stock;
the reputation of REITs and real estate investments generally and the attractiveness of REIT equity securities in comparison to other equity securities, and fixed income securities;
our reputation and the reputation of AR Global, its affiliates or entities sponsored by AR Global;
uncertainty and volatility in the equity and credit markets;
fluctuations in interest rates;
changes in revenue or earnings estimates or publication of research reports and recommendations by financial analysts or actions taken by rating agencies with respect to our securities or those of other REITs;
failure to meet analysts’ revenue or earnings estimates;
strategic actions by us to generate the specified levels of performance or sales proceeds that would entitle our Advisor or our Service Providercompetitors, such as acquisitions or restructurings;
the extent of institutional investor interest in us;
the extent of short-selling of our Common Stock;
general financial and economic market conditions and, in particular, developments related to fees. In addition,market conditions for REITs and other real estate related companies;
failure to maintain our Advisor’sREIT status;
changes in tax laws;
domestic and international economic factors unrelated to our performance; and
all other risk factors addressed elsewhere in this Annual Report on the Form 10-K.
Moreover, although an active market has developed for our Series A Preferred Stock, there can be no assurance that an active and liquid trading market will be maintained. If an active and liquid trading market is not maintained, the market price and liquidity of our Series A Preferred Stock may be adversely affected.
We depend on our OP and its affiliates’subsidiaries for cash flow and our Service Provider's entitlementare structurally subordinated in right of payment to fees upon the saleobligations of our assetsOP and to participate in sale proceeds could resultits subsidiaries.
Our only significant asset is the partnership interest we own in our Advisor recommending salesOP. We conduct, and intend to continue conducting, all of our investments atbusiness operations through our OP. Accordingly, our only source of cash to pay our obligations is dividends from our OP and its subsidiaries. Until such time as the earliest possible time at which sales of investments would produce the level of return that would entitleLTIP Units held by the Advisor or our Service Provider to compensation relating to such sales, even if continued ownership of those investments might beare fully earned in our best long-term interest. Our advisory agreement requires us to pay a termination fee to our Advisor or its affiliates if we terminateaccordance with the advisory agreement prior to the listing of our shares for trading on an exchange or, absent such listing, in respect of its participation in net sales proceeds (a substantial portion of which may be paid to our Service Provider). To avoid paying this fee, our independent directors may decide against terminating the advisory agreement prior to our listing of our shares or disposition of our investments even if, but for the termination fee, terminationprovisions of the advisory agreement would be in our best interest. In addition,OPP, the requirementLTIP Units are entitled to pay the feedividends equal to the Advisor or its affiliates at termination could cause us to make different investment or disposition decisions than we would otherwise make, in order to satisfy our obligation to pay the fee to the terminated Advisor. Moreover, our Advisor will have the right to terminate the advisory agreement upon a change of control of our company and thereby trigger the payment10% of the termination fee, which could havedividends made on the effect of delaying, deferring or preventingOP Units. After the change of control.LTIP Units are fully earned, they are entitled to a catch-up distribution and then receive the same distribution as the OP Units.
There is no separate counsel forassurance that our OP or its subsidiaries will be able to, or be permitted to, pay dividends to us that will enable us to pay dividends to our stockholders, holders of OP Units and certainholders of LTIP Units from cash flows from operations or otherwise pay any other obligations. Each of our affiliates, whichOP's subsidiaries is a distinct legal entity and, under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from these entities. In addition, any claims we may have will be structurally subordinated to all existing and future liabilities and obligations of our operating partnership and its subsidiaries. Therefore, in the event of our bankruptcy, liquidation or reorganization, our assets and those of our OP and its subsidiaries will be available to satisfy the claims of our creditors or to pay dividends to our stockholders only after all the liabilities and obligations of our OP and its subsidiaries have been paid in full.
A stockholder's interest in us could result in conflicts of interest, and such conflicts may not be resolved in our favor,diluted if we issue additional equity securities, which could adversely affect the value of our common stock.Common Stock and Series A Preferred Stock.
our Series A Preferred Stock authorization or issuance of equity securities ranking senior to the Series A Preferred Stock, our board of directors may amend our charter from time to time to increase or decrease the aggregate number of authorized shares of stock, or the number of authorized shares of any class or series of stock, or may classify or reclassify any unissued shares into the classes or series of stock without the necessity of obtaining stockholder approval. All of our authorized but unissued shares of stock may be issued in the discretion of our board of directors. The issuance of additional shares of our Common Stock could dilute the interests of the various parties may become adverse and, under the Code of Professional Responsibility of the legal profession, Proskauer Rose LLP may be precluded from representing any one or all such parties. If any situation arises in which our interests appear to be in conflict with thoseholders of our AdvisorCommon Stock, and any issuance of shares of preferred stock senior to our Common Stock, such as our Series A Preferred Stock, or its affiliates,of additional counsel may be retained by one or more of the parties to assure that their interests are adequately protected. Moreover, should a conflict of interest not be readily apparent, Proskauer Rose LLP may inadvertently act in derogation of the interest of the parties whichindebtedness could affect our ability to meetpay dividends on our investment objectives.
In April 2013,addition, we may issue shares of our Dealer Manager received noticeCommon Stock pursuant to stock awards granted to our officers and a proposed Letter of Acceptance, Waiver and Consent (the "AWC"), from FINRA, the self-regulatory organization that oversees broker dealers, that certain violations of SEC and FINRA rules, including Rule 10b-9 under the Exchange Act and FINRA Rule 2010, occurred in connection with its activities as a co-dealer manager for a public offering. Without admitting or denying the findings, our dealer manager submitted an AWC, which FINRA accepted on June 4, 2013. In connection with the AWC, our Dealer Manager consenteddirectors, pursuant to the impositionAdvisory Agreement in payment of a censure and a fine of $60,000.
Any issuance of additional equity securities by us could be adversely affected.
The limit on the number of shares a person may own may discourage a takeover that could otherwise result in a premium price to our stockholders.
Our charter, with certain exceptions, authorizes our directors to take such actions as are necessary and desirable to preserve our qualification as a REIT. Unless exempted by our board of directors, no person may own more than 9.8% in value of the aggregate of the outstanding shares of our stock or more than 9.8% (in value or in number of shares, whichever is more restrictive) of any class or series of shares of our stock. This restriction may have the effect of delaying, deferring or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all our assets) that might provide a premium price for holders of our common stock.Common Stock.
Common Stock and Series A Preferred Stock with the opportunity to realize a premium over the then-current market price or that stockholders may otherwise believe is in their best interests. We disclose funds from operations and modified funds from operations, a non-GAAP financial measure, however, MFFO is not equivalent to our net incomemay also issue other classes or loss as determined under GAAP, and stockholders should consider GAAP measures to be more relevant to our operating performance.
Maryland law prohibits certain business combinations, which may make it more difficult for us to be acquired and may limitdiscourage a takeover that could otherwise result in a premium price to our stockholders ability to exit their investment.stockholders.
Under Maryland law, “business combinations” between a Maryland corporation and an interested stockholder or an affiliate of an interested stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. These business combinations include a merger, consolidation, share exchange or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities. An interested stockholder is defined as:
any person who beneficially owns, directly or indirectly, 10% or more of the voting power of the corporation’s outstanding voting stock;
or
an affiliate or associate of the corporation who, at any time within the two-year period prior to the date in question, was the beneficial owner, directly or indirectly, of 10% or more of the voting power of the then outstanding stock of the corporation.
A person is not an interested stockholder under the statute if the board of directors approved in advance the transaction by which he or she otherwise would have become an interested stockholder. However, in approving a transaction, the board of directors may provide that its approval is subject to compliance, at or after the time of approval, with any terms and conditions determined by the board.
After the five-year prohibition, any business combination between the Maryland corporation and an interested stockholder generally must be recommended by the board of directors of the corporation and approved by the affirmative vote of at least:
80% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation; and
two-thirds of the votes entitled to be cast by holders of voting stock of the corporation other than shares held by the interested stockholder with whom or with whose affiliate the business combination is to be effected or held by an affiliate or associate of the interested stockholder.
These super-majority vote requirements do not apply if the corporation’s common stockholders receive a minimum price, as defined under Maryland law, for their shares in the form of cash or other consideration in the same form as previously paid by the interested stockholder for its shares. The business combination statute permits various exemptions from its provisions, including business combinations that are exempted by the board of directors prior to the time that the interested stockholder becomes an interested stockholder. Pursuant to the statute, our board of directors has exempted any business combination involving ourthe Advisor or any affiliate of ourthe Advisor. Consequently, the five-year prohibition and the super-majority vote requirements will not apply to business combinations between us and ourthe Advisor or any affiliate of ourthe Advisor. As a result, ourthe Advisor and any affiliate of ourthe Advisor may be able to enter into business combinations with us that may not be in the best interest of our stockholders, without compliance with the super-majority vote requirements and the other provisions of the statute. The business combination statute may discourage others from trying to acquire control of us and increase the difficulty of consummating any offer.
Maryland law limits the ability of a third-party to buy a large stake in us and exercise voting power in electing directors, which may discourage a takeover that could otherwise result in a premium price to our stockholders.
The Maryland Control Share Acquisition Act provides that holders of “control shares” of a Maryland corporation acquired in a “control share acquisition” have no voting rights except to the extent approved by stockholders by the affirmative vote of stockholders entitled to cast at least two-thirds of the votes entitled to be cast on the matter. Shares of stock owned by the acquirer, by officers or by employees who are directors of the corporation, are excluded from shares entitled to vote on the matter. “Control shares” are voting shares of stock which, if aggregated with all other shares of stock owned by the acquirer or in respect of which the acquirer can exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquirer to exercise voting power in electing directors within specified ranges of voting power. Control shares do not include shares the acquiring person is then entitled to vote as a result of having previously obtained stockholder approval or shares acquired directly from the corporation. A “control share acquisition” means the acquisition of issued and outstanding control shares. The control share acquisition statute does not apply (a) to shares acquired in a merger, consolidation or share exchange if the corporation is a party to the transaction, or (b) to acquisitions approved or exempted by the charter or bylaws of the corporation. Our bylaws contain a provision exempting from the Maryland Control Share Acquisition Act any and all acquisitions of our stock by any person. There can be no assurance that this provision will not be amended or eliminated at any time in the future.
Our stockholders' investment return may be reduced if we are required to register as an investment company under the Investment Company Act.
Our charter requires that our independentboard of directors reviewmay change our investment policies at least annually to determine that the policies we are following are in the best interest of the stockholders. These policies may change over time. The methods of implementing our investment policies also may vary, as new real estate development trends emerge and new investment techniques are developed. Our investment policies, the methods for their implementation, and our other objectives, policies and procedures may be altered by our board of directors without the approval of our stockholders. As a result, the nature of a stockholder's investment could change without the consent of stockholders.
Maryland law provides that a director has no liability in that capacity if he or she performs his or her duties in good faith, in a manner he or she reasonably believes to be in the corporation’s best interests and with the care that an ordinarily prudent person in a like position would use under similar circumstances. In addition, subject to certain limitations set forth therein or under Maryland law, our Sponsor through the Special Limited Partner, the interests ofcharter provides that no director or officer will be liable to us or our stockholders for monetary damages and requires us to indemnify our directors, our officers and the Advisor and the Sponsor are not separateAdvisor’s affiliates and as a resultpermitsus to indemnify our employees and agents. We and our stockholders also may have more limited rights againstour directors, officers, employees and agents, and the Advisor and its affiliates, than might otherwise exist under common law, which could reduce recoveries against them. In addition, we may act in a way that is not necessarily inbe obligated to fund the interest of stockholders.
Payment of fees to ourthe Advisor and its affiliates reduces cash available for investment and distributionsother uses including payment of dividends to our stockholders.
Risks Related to Net Lease Sale-Leaseback Investments
Substantially all of our properties are occupied by single tenants and, therefore, the success of our investments is materially dependent on the financial stability of these individual tenants. A default of any tenant on its lease payments to us would cause us to lose the revenue from the property and cause us to have to find an alternative source of revenue to meet any mortgage payment and prevent a foreclosure if the property is subject to a mortgage. In the event of a default, we may experience delays in enforcing our REIT status.
Single-tenant properties may be difficult to sell or re-lease upon tenant defaults or early lease terminations.
If a lease for one of our single-tenant properties is terminated or not renewed or, in the case of a mortgage loan, if we cannot assuretake such property in foreclosure, we may be required to renovate the property or to make rent concessions in order to lease the property to another tenant or sell the property. Special use single-tenant properties may be relatively illiquid compared to other types of real estate and financial assets. This illiquidity will limit our stockholders that the Internal Revenue Service (the "IRS") will not challenge such characterization.ability to quickly change our portfolio in response to changes in economic or other conditions. In addition, in the event that any suchwe are forced to sell the property, we may have difficulty selling it to a party other than the tenant or borrower due to the special purpose for which the property may have been designed. These and other limitations may affect our ability to re-lease or sell properties.
Acquisitions of properties in sale-leaseback transaction is challenged and recharacterized as a financing transaction or loan for U.S. federal income tax purposes, deductions for depreciation and cost recovery relating to such property would be disallowed. If a sale-leaseback transaction were so recharacterized, we might fail to satisfy the REIT qualification "asset tests" or "income tests" and, consequently, lose our REIT status effective with the year of recharacterization. Alternatively, the amount of our REIT taxable incometransactions could be recalculated which might also cause us to fail to meet the distribution requirement for a taxable year.
We have entered, and may continue to our stockholders could be adversely affected.
Highly leveraged tenants may have a higher possibility of filing for bankruptcy or insolvency.
Highly leveraged tenants that experience downturns in their operating results due to adverse changes to their business or economic conditions may have a higher possibility of filing for bankruptcy or insolvency. In bankruptcy or insolvency, a tenant may have the option of vacating a property instead of paying rent. Until such a property is released from bankruptcy, our revenues may be reduced and could cause us to reduce distributions to stockholders.reduced.
If a tenant declares bankruptcy or becomes insolvent, we may be unable to collect balances due under relevant leases, which could adversely affect our financial condition and ability to make distributions to our stockholders.leases.
Any of our tenants, or any guarantor of a tenant’s lease obligations, could become insolvent or be subject to a bankruptcy proceeding pursuant to Title 11 of the bankruptcy laws of the United States. A bankruptcy filing of our tenants or any guarantor of a tenant’s lease obligations would bar all efforts by us to collect pre-bankruptcy debts from these entities or their properties,assets, unless we receive an enabling order from the bankruptcy court. Post-bankruptcy debts would be paid currently. If a lease is assumed by the tenant, all pre-bankruptcy balances owing under it must be paid in full. If a lease is rejected by a tenant in bankruptcy, we would have a general unsecured claim for damages. If a lease is rejected, it is unlikely we would receive any payments from the tenant because our claim is capped at the rent reserved under the lease, without acceleration, for the greater of one year or 15% of the remaining term of the lease, but not greater than three years, plus rent already due but unpaid. This claim could be paid only if funds were available, and then only in the same percentage as that realized on other unsecured claims.
A tenant or lease guarantor bankruptcy could delay efforts to collect past due balances under the relevant leases, and could ultimately preclude full collection of these sums. A tenant or lease guarantor bankruptcy could cause a decrease or cessation of rental payments that would mean a reduction in our cash flow and the amount available for distributionsdividends to our stockholders. In the event of a bankruptcy, there can be no assurance that the tenant or its trustee will assume our lease. If a given lease, or guaranty of a lease, is not assumed, our cash flow and the amounts available for distributions to stockholders may be adversely affected.
The credit profile of our tenants may create a higher risk of lease defaults and therefore lower revenues.
of the debttenant and “implied investment grade,” which includes ratings of the tenant’s parent (regardless of whether or not the credit risk of many of our tenants. parent has guaranteed the tenant’s obligation under the lease) or lease guarantor.
Our long-term leases with certain of these tenants may therefore pose a higher risk of default than would long-term leases with tenants whose credit potential has already been recognized bywho have investment grade ratings.
Net leases may not result in fair market lease rates over time, which could negatively impact our income.
As of December 31, 2017, all of our rental income was generated from net leases, which generally provide the market.tenant greater discretion in using the leased property than ordinary property leases, such as the right to freely sublease the property, to make alterations in the leased premises and to terminate the lease prior to its expiration under specified circumstances. Net leases may not result in fair market lease rates over time, which could negatively impact our income.
We have and intendgenerally seek to continue enteringenter into long termlong-term leases with manyour tenants. As of December 31, 2017, 23.5% of our property tenants.annualized rental income on a straight-line basis was generated from net leases, with remaining lease term of more than 10 years. Leases of long duration, or with renewal options that specify a maximum rate increase, may not result in fair market lease rates over time if we do not accurately judge the potential for increases in market rental rates. In that case,
Certain of our leases do not contain any rent escalation provisions. As a result, our income may be lower than it would otherwise be if we haddid not entered into suchlease properties through long-term leases.
at an advantageous price.
General Risks Related to Investments in Real Estate
Our operating results will beare affected by economic and regulatory changes that have an adverse impact on the real estate market in general,general. These changes affect our profitability and there can be no assurance that we will be profitable or that we willability to realize growth in the value of our real estate properties.
Our operating results are subject to risks generally incident to the ownership of real estate, including:
changes in general economic orand local economic conditions;
changes in supply of orand demand for, similar or competing properties in an area;the areas in which our properties are located;
changes in interest rates and availability of permanent mortgage funds that may render the sale of a property difficult or unattractive;debt financing; and
changes in tax, real estate, environmental and zoning laws; and
These and other reasonsfactors may prevent us from being profitable or from realizing growth or maintainingaffect the profitability and the value of our real estate properties.
Properties that have vacancies for a significant period of time could be difficult to sell, which could diminish the return on an investment in our shares.your investment.
A property may incurexperience vacancies either by the continued default of tenants under their leases or the expiration of tenant leases. If vacancies continue for a long periodProperties that are vacant will produce no revenue, and the cost of time, weowning the property may suffer reduced revenues resultingbe substantial. Vacancies will result in less cash being available to be distributed to stockholders. In addition, because properties’ market values depend principally upon the value of the properties’ leases, the resale value of properties with prolonged vacancies could suffer, which could further reduce our return to stockholders.would be lower.
We maygenerally obtain only limited warranties when we purchase a property and wouldtherefore have only limited recourse if our due diligence diddoes not identify any issues that lower the value of our property, which could adversely affect our financial condition and ability to make distributionspay dividends to stockholders.you.
We may be unable to secure funds for future tenant improvements or capital needs, which could adversely impact the value of the applicable property or our ability to make distributions to our stockholders.lease the applicable property on favorable terms.
We may generate lower cash flows or decline in value, or both.
The real estate market is affected by many factors, such as general economic conditions, availability of financing, interest rates and other factors, including supply and demand, that are beyond our control. In addition, we may not have funds available to correct defects or make improvements that are necessary or desirable before the sale of a property. We cannot predict whether we will be able to sell any property for the price or on the terms set by us, or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We cannot predict the length of time needed to find a willing purchaser and to close the sale of a property.
properties that have been held for less than two years is limited as any gain recognized on the sale or other disposition of such property could be subject to the 100% prohibited transaction tax, as discussed in more detail below.
We have acquired or financed, and may continue to acquire or finance, properties with lock-out provisions which may prohibit us from selling a property, or may require us to maintain specified debt levels for a period of years on some properties, which could have an adverse effect on the value of our common stock.properties.
Lock-out provisions, such as the provisions contained in certain mortgage loans we have entered into, could materially restrict us from selling or otherwise disposing of or refinancing properties. Theseproperties, including by requiring the payment of a yield maintenance premium in connection with the required prepayment of principal upon a sale or disposition. Lock-out provisions would affect our ability to convert our investments into cash and thus affect cash available for distributions to our stockholders. Lock out provisions may also prohibit us from reducing the outstanding indebtedness with respect to any properties, refinancing such indebtedness on a non-recourse basis at maturity, or increasing the amount of indebtedness with respect to such properties. Lock-out provisions could also impair our ability to take other actions during the lock-out period that couldmay otherwise be in the best interests of our stockholders and, therefore, may have an adverse impact on the value of our shares, relative to the value that would result if the lock-out provisions did not exist.stockholders. In particular, lock-out provisions could preclude us from participating in major transactions that could result in a disposition of our assets or a change in control even though that dispositioncontrol. Payment of yield maintenance premiums in connection with dispositions or change in control might be in the best interestsrefinancings could adversely affect our results of our stockholders. As of December 31, 2014, we have not acquired or financed any properties with lock-out provisions.operations and cash available to pay dividends.
Rising expenses could reduce cash flow and could adversely affect our ability to make future acquisitions and to pay cash distributions to our stockholders.flow.
Any properties that we own now or buy in the future are and will be subject to operating risks common to real estate in general, any or all of which may negatively affect us. If any property is not fully occupied or if rents are being paid in an amount that is insufficient to cover operating expenses, we could be required to expend funds with respect to that property for operating expenses. The properties will be subject to increases in tax rates, utility costs, operating expenses, insurance costs, repairs and maintenance and administrative expenses. We expect that many of our properties will require the tenants to pay all or a portion of these costs and expenses and, accordingly, if the tenants are unable to pay these costs and expenses, we will have to pay these costs and expenses. We may, however, enter into leases or renewals of leases that do not require tenants to pay these costs and expenses. Renewals of leases or future leases may not be negotiated on that basis, in which event we may have to pay those costs. If we are unable to lease properties on a triple-net-lease basis or on a basis requiring the tenants to pay all or some of such expenses, or if tenants fail to pay required tax, utility and other impositions, we could be required to pay those costs which could adversely affectwould, among other things, limit the amount of funds we have available for other purposes, including the payment of dividends and future acquisitions or cash available to pay distributions.
Real estate relatedestate-related taxes may increase and if these increases are not passed on to tenants, our income will be reduced, which could adversely affect our ability to make distributions to our stockholders.reduced.
Some local real property tax assessors may seek to reassess some of our properties as a result of our acquisition of the property. Generally,property, and, from time to time, our property taxes may increase as property values or assessment rates change or for other reasons deemed relevant by the assessors. An increase in the assessed valuation of a property for real estate tax purposes will result in an increase in the related real estate taxes on that property. There is no assurance that renewal leases or future leases will be negotiated on the same basis. Increases not passed through to tenants will adversely affect our income, cash available for distributions, and the amount of distributions to our stockholders.
Our properties and our tenants may face competition that may affect tenants’ ability to pay rent and the amount of rent paid to us may affect the cash available for distributions and the amount of distributions.rent.
Our properties typically are, and we expect properties we acquire in the future will be, located in developed areas. Therefore, there are and will be numerous other properties within the market area of each of our properties that will compete with us for tenants. The number of competitive properties could have a material effect on our ability to rent space at our properties and the amount of rents charged. We could be adversely affected if additional competitive properties are built in locations competitive with our properties, causing increased competition for customer traffic and creditworthy tenants. Tenants may also face competition from such properties if they are leased to tenants in a similar industry. For example, as of December 31, 2017, 9.6% of our properties, based on annualized rental income on a straight-line basis, were retail properties, and our retail tenants face competition from numerous retail channels such as discount or value retailers, factory outlet centers and wholesale clubs. Retail tenants may additionalalso face competition from alternative retail channels, such as mail order catalogs and operators, television shopping networks and shopping via the Internet.internet. Competition that we face from other properties within our market areas, and competition our tenants face from tenants in such properties could result in decreased cash flow from tenants and may require us to make capital improvements to properties that we would not have otherwise made, thus affecting cash available for distributions, and the amount available for distributions to our stockholders.improvements.
Costs of complying with governmental laws and regulations, including those relating to environmental matters, may adversely affect our income and the cash available for any distributions.dividends.
All real property and the operations conducted on real property are subject to federal, state and local laws and regulations, and various foreign laws and regulations, relating to environmental protection and human health and safety. These laws and regulations generally govern wastewater discharges, air emissions, the operation and removal of underground and above-ground
storage tanks, the use, storage, treatment, transportation and disposal of solid and hazardous materials, and the remediation of contamination associated with disposals. Environmental laws and regulations may impose joint and several liability on tenants, owners or operators for the costs to investigate or remediate contaminated properties, regardless of fault or whether the acts causing the contamination were legal. This liability could be substantial. In addition, the presence of hazardous substances, or the failure to properly remediate these substances,them, may adversely affect our ability to sell, rent or pledge sucha property as collateral for future borrowings.
Some of these laws and regulations have been amended so as to require compliance with new or more stringent standards as of future dates. Compliance with new or more stringent laws or regulations or stricter interpretation of existing laws may require material expenditures by us. State and federal laws in this area are constantly evolving. Future laws, ordinances or regulations may impose material environmental liability. Additionally, our tenants’ operations, the existing condition of land when we buy it, operations in the vicinity of our properties, such as the presence of underground storage tanks, or activities of unrelated third parties may affect our properties. In addition, there are various local, state and federal fire, health, life-safety and similar regulations with which we may be required to comply, and that may subject us to liability in the form of fines or damages for noncompliance. Any material expenditures, fines, or damages we must pay will reduce our ability to make distributions and may reduce the value of our common stock.
Although we intend togenerally hire third parties to conduct environmental reviews of the real property that we purchase, we may not obtain an independent third-party environmental assessment for every property we acquire. In addition, any assessment that we do obtain may not reveal all environmental liabilities or that a prior owner of a property did not create a material environmental condition not known to us. The cost of defending against claims of liability, of compliance with environmental regulatory requirements, of remediating any contaminated property, or of paying personal injury claims would materially adversely affect our business, assets or results of operations and, consequently, amounts available for distribution our stockholders.
If we sell properties by providing financing to purchasers, we will be exposed to defaults by the purchasers would adversely affect our cash flows, and our ability to make distributions to our stockholders.purchasers.
In some instances we may sell our properties by providing financing to purchasers. WhenIf we provide financing to purchasers, we will bear the risk that the purchaser may default, which could negatively impact our cash distributionsdividends to stockholders. Even in the absence of a purchaser default, the distribution of the proceeds of sales to our stockholders, or their reinvestment in other assets, will be delayed until the promissory notes or other property we may accept upon the sale are actually paid, sold, refinanced or otherwise disposed of. In some cases, we may receive initial down payments in cash and other property in the year of sale in an amount less than the selling price and subsequent payments will be spread over a number of years. If any purchaser defaults under a financing arrangement with us, it could negatively impact our ability to pay cash distributions to our stockholders.
Our costs associated with complying with the Americans with Disabilities Act may affect cash available for distributions.dividends.
Our domestic properties are subject to the Americans with Disabilities Act of 1990 or the Disabilities Act.(the "Disabilities Act"). Under the Disabilities Act, all places of public accommodation are required to comply with federal requirements related to access and use by disabled persons. The Disabilities Act has separate compliance requirements for “public accommodations” and “commercial facilities” that generally require that buildings and services, including restaurants and retail stores, be made accessible and available to people with disabilities. The Disabilities Act’s requirements could require removal of access barriers and could result in the imposition of injunctive relief, monetary penalties, or, in some cases, an award of damages. However, there can be no assurance that we will be able to acquire properties or allocate responsibilities in this manner. If we cannot, our funds used for Disabilities Act compliance
Terrorist attacks and other acts of violence, civilian unrest, or war may affect cash available for distributionsthe markets in which we operate our business and the amount of distributions to our stockholders.profitability.
More generally, any outstanding debt when due. Such challenging economic conditions may also impact the abilityterrorist attack, other act of certain of our tenants to enter into new leasing transactionsviolence or satisfy rental payments under existing leases. Specifically, financial distress in the U.S. and Europe may have adverse consequences, including:
may affect how the factors they considerreal estate leasing business is conducted. For example, as a result of the revised accounting standards regarding the financial statement classification of operating leases, companies may be less willing to enter into leases in deciding whethergeneral or desire to own or lease properties. Ifenter into leases with shorter terms because the proposal is adopted, it could cause companies that lease propertiesapparent benefits to prefer shorter lease terms, in an effort to reduce the leasing liability required to be recorded on their balance sheets. The proposalsheets could also make lease renewal options less attractive, as, under certain circumstances, the rule would require a tenant to assume that a renewal right will be exercised and accrue a liability relating to the longer lease term.reduced or eliminated.
Risks Associated with Debt Financing and Investments
We generally acquire real properties by using either existing financing or borrowing new funds. In addition, we typically incur mortgage debt and may pledge all or some of our real properties as security for that debt to obtain funds to acquire additional real properties. In addition, weproperties or fund working capital. As of December 31, 2017, our aggregate indebtedness was $1.5 billion. We may incur significant additional debt in the future, including borrowings under the Revolving Credit Facility, for various purposes including to fund future acquisitions and other working capital requirements.
We may also borrow if we need additional funds to continue to satisfy the REIT tax qualification requirement that we generally distribute annually at least 90% of our REIT taxable income (which does not equal net income as calculated in accordance with GAAP) to our stockholders, determined without regard to the deduction for dividends paid and excluding net capital gain. We also may borrow if we otherwise deem it necessary or advisable to assureensure that we maintain our qualification as a REIT.
If there is a shortfall between the cash flow from a property and the cash flow neededrequired to service mortgage debt on a property, then we must identify other sources to fund the amount available for distributions to stockholders may be reduced.payment or risk defaulting on the indebtedness. In addition, incurring mortgage debt increases the risk of loss sincebecause defaults on indebtedness secured by a property may result in lenders initiating foreclosure actions. In that case, we could lose the property securing the loan that is in default, thus reducing the value of our common stock.default. For U.S. federal income tax purposes, a foreclosure of any of our properties would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure, but would not receive any cash proceeds. In suchthis event, we may be unable to pay the amount of distributionsdividends required in order to maintain our REIT status. We may give full or partial guarantees to lenders of mortgage debt to the entities that own our properties. WhenIf we provide a guaranty on behalf of an entity that owns one of our properties, we will be responsible to the lender for satisfaction ofrepaying the debt if it is not paid by suchthe entity. If any mortgages contain cross-collateralization or cross-default provisions, a default on a single property could affect multiple properties. If any
The Credit Facility, and certain of our properties are foreclosed upon dueother indebtedness, contains restrictive covenants that limit our operating flexibility.
The Credit Facility imposes certain affirmative and negative covenants on us including restrictive covenants with respect to, among other things, liens, indebtedness, investments, distributions, mergers, asset sales and replacing the Advisor, as well as financial covenants requiring us maintain, among other things, ratios related to leverage, secured leverage, fixed charge coverage and unencumbered debt services, as well as a default,minimum consolidated tangible net worth. Certain of our other indebtedness, and future indebtedness we may incur, contain or may contain similar restrictions. These or other restrictions may adversely affect our flexibility and our ability to pay cash distributions toachieve our stockholders will be adversely affected which could resultinvestment and operating objectives.
Changes in our losing our REIT status and would result in a decrease in the value of an investment in our shares.
The domestic and international commercial real estate debt markets are currently experiencingsubject to changing levels of volatility, as a result of certain factors includingresulting in, from time to time, the tightening of underwriting standards by lenders and credit rating agencies. This is resulting in lenders increasing the cost for debt financing. Should theIf our overall cost of borrowings increase, either bydue to increases in the index rates or bydue to increases in lender spreads, we will need to factor such increases into the economics of future acquisitions. This may result in future acquisitions generating lower overall economic returns and potentially reducing future cash flow available for distribution.returns. If these disruptions in the debt markets persist, our ability to borrow monies to finance the purchase of, or other activities related to, real estate assets will be negatively impacted.
If we are unable to borrow monies on terms and conditions that we find acceptable, we likely will have to reduce the number of properties we can purchase, and the return on the properties we do purchase may be lower. In addition, we may find it difficult, costly or impossible to refinance indebtedness which is maturing.maturing indebtedness.
In addition, the state of the debt markets could have an impact on the overall amount of capital investing in real estate, which may result in price or value decreases of real estate assets. Although this may benefit us for future acquisitions, itThis could negatively impact the current value of our existing assets.assets after the time we acquire them.
We have incurred, and the amount of cash distributions we can make.
Increases in interest rates could increase the amount of our debt payments and adversely affect our ability to pay distributions to our stockholders.dividends.
We have incurred, and expect that we willmay continue to incur, indebtedness in the future. To the extent that we incur variable rate debt, increasesvariable-rate debt. Increases in interest rates on our variable-rate debt would increase our interest costs, which could reduce our cash flows and our ability to pay distributions to our stockholders.cost. In addition, if we need to repay existing debt during periods of rising interest rates, we could be required to liquidate one or more of our investments in properties at times that may not permit realization of the maximum return on such investments.
U.S. Federal Income Tax Risks
Our failure to qualify or remain qualified as a REIT would subject us to U.S. federal income tax and potentially state and local tax, and would adversely affect our operations and the market price of our common stock.Common Stock and Series A Preferred Stock.
We qualified to be taxed as a REIT for U.S. federal income tax purposes, commencing with our taxable year ended December 31, 2013 and intend to operate in a manner that would allow us to continue to qualify as a REIT.REIT for U.S. federal income tax purposes. However, we may terminate our REIT qualification, if our board of directors determines that not qualifying as a REIT is in the best interests of our stockholders, or inadvertently. Our qualification as a REIT depends upon our satisfaction of certain asset, income, organizational, distribution, stockholder ownership and other requirements on a continuing basis. We have structured and intend to continue structuring our activities in a manner designed to satisfy all the requirements for qualification as a REIT. However, the REIT qualification requirements are extremely complex and interpretation of the U.S. federal income tax laws governing qualification as a REIT is limited. Furthermore, any opinion of our counsel, including tax counsel, as to our eligibility to qualify or remain qualified as a REIT is not binding on the Internal Revenue Service ("IRS"(the "IRS") and is not a guarantee that we will qualify, or continue to qualify as a REIT. Accordingly, we cannot be certain that we will be successful in operating so we can qualify or remain qualified as a REIT. Our ability to satisfy the asset tests depends on our analysis of the characterization and fair market values of our assets, some of which are not susceptible to a precise determination, and for which we will not obtain independent appraisals. Our compliance with the REIT income or quarterly asset requirements also depends on our ability to successfully manage the composition of our income and assets on an ongoing basis. Accordingly, if certain of our operations were to be recharacterized by the IRS, such recharacterization would jeopardize our ability to continue to satisfy all the requirements for continued qualification as a REIT. Furthermore, future legislative, judicial or administrative changes to the U.S. federal income tax laws could be applied retroactively, which could result in our disqualification as a REIT.
If we fail to continue to qualify as a REIT for any taxable year, and we do not qualify for certain statutory relief provisions, we will be subject to U.S. federal income tax on our taxable income at corporate rates. In addition, we would generally be disqualified from treatment as a REIT for the four taxable years following the year of losing our REIT qualification. Losing our REIT qualification would reduce our net earnings available for investment or distributiondistributions to stockholders because of the additional tax liability. In addition, distributions to stockholders would no longer qualify for the dividends paid deduction, and we would no longer be required to make distributions. If this occurs, we might be required to borrow funds or liquidate some investments in order to pay the applicable tax.
Even if we continue to qualify as a REIT, in certain circumstances, we may incur tax liabilities that would reduce our cash available for distribution to our stockholders.you.
Even if we qualify and maintain our status as a REIT, we may be subject to U.S. federal, state and local income taxes. For example, net income from the sale of properties that are “dealer” properties sold by a REIT (a “prohibited transaction” under the Code) will be subject to a 100% tax. We may not make sufficient distributions to avoid excise taxes applicable to REITs. Similarly, if we were to fail an income test (and did not lose our REIT status because such failure was due to reasonable cause and not willful neglect) we would be subject to tax on the income that does not meet the income test requirements. We also may decide to retain net capital gain we earn from the sale or other disposition of our property and pay U.S. federal income tax directly on such income. In that event, our stockholders would be treated as if they earned that income and paid the tax on it directly. However, stockholders that are tax-exempt, such as charities or qualified pension plans, would have no benefit from their deemed payment of such tax liability unless they file U.S. federal income tax returns and thereon seek a refund of such tax. We also will be subject to corporate tax on any undistributed REIT taxable income. We also may be subject to state and local taxes on our income or property, including franchise, payroll and transfer taxes, either directly or at the level of our operating partnership or at the level of the other companies through which we indirectly own our assets, such as our taxable REIT subsidiaries, which are subject to full U.S. federal, state, local and foreign corporate-level income taxes. Any taxes we pay directly or indirectly will reduce our cash available for distribution to our stockholders.
To continue to qualify as a REIT we must meet annual distribution requirements, which may force us to forgo otherwise attractive opportunities or borrow funds during unfavorable market conditions. This could delay or hinder our ability to meet our investment objectives.
In order to continue to qualify as a REIT, we must distribute annually to our stockholders at least 90% of our REIT taxable income (which does not equal net income as calculated in accordance with GAAP), determined without regard to the deduction for dividends paid and excluding net capital gain. We will be subject to U.S. federal income tax on our undistributed REIT taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which distributions we paymake with respect to any calendar year are less than the sum of (a) 85% of our ordinary income, (b) 95% of our capital gain net income and (c) 100%
of our undistributed income from prior years. These requirements could cause us to distribute amounts that otherwise would be spent on investments in real estate assets and it is possible that we might be required to borrow funds, possibly at unfavorable rates, or sell assets to fund these distributions. Although we intend to make distributions sufficient to meet the annual distribution requirements and to avoid U.SU.S. federal income and excise taxes on our earnings while we continue to qualify as a REIT, it is possible that we might not always be able to do so.
With respect to properties acquired in sale-leaseback transactions, we will use commercially reasonable efforts to structure any such sale-leaseback transaction such that the lease will be characterized as a "true lease" for U.S. federal income tax purposes, thereby allowing us to be treated as the owner of the property for U.S. federal income tax purposes. However, the IRS may challenge such characterization. In the event that any such sale-leaseback transaction is challenged and recharacterized as a financing transaction or loan for U.S. federal income tax purposes, deductions for depreciation and cost recovery relating to such property would be disallowed. If a sale-leaseback transaction were so recharacterized, we might fail to continue to satisfy the REIT qualification "asset tests" or "income tests" and, consequently, lose our REIT status effective with the year of recharacterization. Alternatively, the amount of our REIT taxable income could be recalculated which might also cause us to fail to meet the dividend requirement for a taxable year.
Certain of our business activities are potentially subject to the prohibited transaction tax.
For so long as we continue to qualify as a REIT, our ability to dispose of property during the first few years following acquisition may be restricted to a substantial extent as a result of our REIT qualification. Under applicable provisions of the Code regarding prohibited transactions by REITs, while we qualify as a REIT, we will be subject to a 100% penalty tax on any gain recognized onthe net income from the sale or other disposition of any property (other than foreclosure property) that we own, directly or indirectly through any subsidiary entity, including our operating partnership, but generally excluding taxable REIT subsidiaries, that is deemed to be inventory or property held primarily for sale to customers in the ordinary course of a trade or business. Whether property is inventory or otherwise held primarily for sale to customers in the ordinary course of a trade or business depends on the particular facts and circumstances surrounding each property. We intend to avoid the 100% prohibited transaction tax by (1) conducting activities that may otherwise be considered prohibited transactions through a taxable REIT subsidiary (but such taxable REIT subsidiary will incur corporate rate income taxes with respect to any income or gain recognized by it), (2) conducting our operations in such a manner so that no sale or other disposition of an asset we own, directly or through any subsidiary, will be treated as a prohibited transaction or (3) structuring certain dispositions of our properties to comply with the requirements of the prohibited transaction safe harbor available under the Code for properties that, among other requirements, have been held for at least two years. Despite our present intention, no assurance can be given that any particular property we own, directly or through any subsidiary entity, including our operating partnership, but generally excluding taxable REIT subsidiaries, will not be treated as inventory or property held primarily for sale to customers in the ordinary course of a trade or business.
Our taxable REIT subsidiaries are subject to corporate-level taxes and our dealings with our taxable REIT subsidiaries may be subject to 100% excise tax.
A REIT may own up to 100% of the stock of one or more taxable REIT subsidiaries. Both the subsidiary and the REIT must jointly elect to treat the subsidiary as a taxable REIT subsidiary. A corporation of which a taxable REIT subsidiary directly or indirectly owns more than 35% of the voting power or value of the stock will automatically be treated as a taxable REIT subsidiary. Overall, no more than 25%20% (25% for our taxable years prior to January 1, 2018) of the gross value of a REIT’s assets may consist of stock or securities of one or more taxable REIT subsidiaries. A taxable REIT subsidiary may hold assets and earn income that would not be qualifying assets or income if held or earned directly by a REIT, including gross income from operations pursuant to management contracts. Accordingly, we may use taxable REIT subsidiaries generally to hold properties for sale in the ordinary course of a trade or business or to hold assets or conduct activities that we cannot conduct directly as a REIT. A taxable REIT subsidiary will be subject to applicable U.S. federal, state, local and foreign income tax on its taxable income. In addition, the rules, which are applicable to us as a REIT, also impose a 100% excise tax on certain transactions between a taxable REIT subsidiary and its parent REIT that are not conducted on an arm’s-length basis.
If our operating partnership failed to qualify as a partnership or is not otherwise disregarded for U.S. federal income tax purposes, we would cease to qualify as a REIT.
If the IRS were to successfully challenge the status of our operating partnership as a partnership or disregarded entity for such purposes, it would be taxable as a corporation. In such event, this would reduce the amount of distributions that the operating partnership could make to us. This also would result in our failing to qualify as amaintain our REIT qualification and becoming subject to a corporate level tax on our income. This substantially would reduce our cash available to pay distributions to our stockholders. In addition, if any of the partnerships or limited liability companies through which our operating partnership owns its properties, in whole or in part, loses its characterization as a partnership and is otherwise not disregarded for U.S. federal income tax purposes, it would be subject to taxation as a corporation, thereby reducing distributions to the operating partnership. Such a recharacterization of an underlying property owner could also threaten our ability to maintain our REIT qualification.
Our investments in certain debt instruments may cause us to recognize income for U.S. federal income tax purposes even though no cash payments have been received on the debt instruments, and certain modifications of such debt by us could cause the modified debt to not qualify as a good REIT asset, thereby jeopardizing our REIT qualification.
Our taxable income may substantially exceed our net income as determined based on GAAP, or differences in timing between the recognition of taxable income and the actual receipt of cash may occur. For example, we may acquire assets, including debt securities requiring us to accrue original issue discount ("OID"), or recognize market discount income, that generate taxable income in excess of economic income or in advance of the corresponding cash flow from the assets. In addition, if a borrower with respect to a particular debt instrument encounters financial difficulty rendering it unable to pay stated interest as due, we may nonetheless be required to continue to recognize the unpaid interest as taxable income with the effect that we will recognize income but will not have a corresponding amount of cash available for distribution to our stockholders.distribution.
As a result of the foregoing, we may generate less cash flow than taxable income in a particular year and find it difficult or impossible to meet the REIT distribution requirements in certain circumstances. In such circumstances, we may be required to (a) sell assets in adverse market conditions, (b) borrow on unfavorable terms, (c) distribute amounts that would otherwise be used for future acquisitions or used to repay debt, or (d) make a taxable distributiondistributions of our shares of common stockour Common Stock as part of a distribution in which stockholders may elect to receive shares of common stockour Common Stock or (subject to a limit measured as a percentage of the total distribution) cash, in order to comply with the REIT distribution requirements.
The failure of a mezzanine loan to qualify as a real estate asset would adversely affect our ability to continue to qualify as a REIT.
In general, in order for a loan to be treated as a qualifying real estate asset producing qualifying income for purposes of the REIT asset and income tests, the loan must be secured by real property or an interest in real property. We may acquire mezzanine loans that are not directly secured by real property or an interest in real property but instead are secured by equity interests in a partnership or limited liability company that directly or indirectly owns real property. In Revenue Procedure 2003-65, the IRS provided a safe harbor pursuant to which a mezzanine loan that is not secured by real estate would, if it meets each of the requirements contained in the Revenue Procedure, be treated by the IRS as a qualifying real estate asset. Although the Revenue Procedure provides a safe harbor on which taxpayers may rely, it does not prescribe rules of substantive tax law and in many cases it may not be possible for us to meet all the requirements of the safe harbor. We cannot provide assurance that any mezzanine loan in which we invest would be treated as a qualifying asset producing qualifying income for REIT qualification purposes. If any such loan fails either the REIT income or asset tests, we may be disqualified as a REIT.
We may choose to make distributionspay dividends in our own stock, in which case our stockholdersyou may be required to pay U.S. federal income taxes in excess of the cash dividends our stockholdersyou receive.
In connection with our continued qualification as a REIT, we are required to distribute annually to our stockholders at least 90% of our REIT taxable income (which does not equal net income as calculated in accordance with GAAP), determined without regard to the deduction for dividends paid and excluding net capital gain. In order to satisfy this requirement, we may make distributions with respect to our Common Stock that are payable in cash and/or shares of our common stockCommon Stock (which could account for up to 80% of the aggregate amount of such distributions) at the election of each stockholder. Taxable stockholders receiving such distributions will be required to include the full amount of such distributions as ordinary dividend income to the extent of our current or accumulated earnings and profits, as determined for U.S. federal income tax purposes. As a result, U.S. stockholders may be required to pay U.S. federal income taxes with respect to such distributions in excess of the cash portion of the distributiondividend received. Accordingly, U.S. stockholders receiving a distribution of our shares may be required to sell shares received in such distribution or may be required to sell other stock or assets owned by them, at a time that may be disadvantageous, in order to satisfy any tax imposed on such distribution. If a U.S. stockholder sells the stock that it receives as part of the distribution in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the distribution, depending on the market price of our stock at the time of the sale. Furthermore, with respect to certain non-U.S. stockholders, we may be required to withhold U.S. tax with respect to such distribution, including in respect of all or a portion of such distribution that is payable in stock, by withholding or disposing of part of the shares included in such distribution and using the proceeds of such disposition to satisfy the withholding tax imposed. In addition, if a significant number of our stockholders determine to sell shares of our common stockCommon Stock in order to pay taxes owed on dividend income, such sale may put downward pressure on the market price of our common stock.Common Stock.
Various tax aspects of such a taxable cash/stock distribution are uncertain and have not yet been addressed by the IRS. No assurance can be given that the IRS will not impose requirements in the future with respect to taxable cash/stock distributions, including on a retroactive basis, or assert that the requirements for such taxable cash/stock distributions have not been met.
The taxation of distributions to our stockholdersyou can be complex; however, distributions that we make to our stockholdersyou generally will be taxable as ordinary income, which may reduce the anticipated return from an investment in us.
Distributions that we make to our taxable stockholders out of current and accumulated earnings and profits (and not designated as capital gain dividends or qualified dividend income) generally will be taxable as ordinary income. For tax years beginning after December 31, 2017, noncorporate stockholders are entitled to a 20% deduction with respect to these ordinary REIT dividends which would, if allowed in full, result in a maximum effective federal income tax rate on them of 29.6% (or 33.4% including the 3.8% surtax on net investment income). However, a portion of our distributions may (1) be designated by us as capital gain dividends generally taxable as long-term capital gain to the extent that they are attributable to net capital gain recognized by us, (2) be designated by us as qualified dividend income taxable at capital gains rates generally to the extent they are attributable to dividends we receive from our taxable REIT subsidiaries, or (3) constitute a return of capital generally to the extent that they exceed our accumulated earnings and profits as determined for U.S. federal income tax purposes. A return of capital is not taxable, but has the effect of reducing the tax basis of a stockholder’s investment in our common stock.
Dividends payable by REITs generally do not qualify for the reduced tax rates available for some dividends.
Currently, the maximum tax rate applicable to qualified dividend income payable to U.S. stockholders that are individuals, trusts and estates is 20%. Dividends payable by REITs, however, generally are not eligible for this reduced rate. Although this legislation does not adversely affect the taxation of REITs or dividends payable by REITs, the more favorable rates applicable to regular corporate qualified dividends could cause investors who are individuals, trusts and estates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs, including our common stock. Tax rates could be changed in future legislation.
Complying with REIT requirements may limit our ability to hedge our liabilities effectively and may cause us to incur tax liabilities.
The REIT provisions of the Code may limit our ability to hedge our liabilities. Any income from a hedging transaction we enter into to manage risk of interest rate changes, price changes or currency fluctuations with respect to borrowings made or to be made to acquire or carry real estate assets or in certain cases to hedge previously acquired hedges entered into to manage risks associated with property that has been disposed of or liabilities that have been extinguished, if properly identified under applicable Treasury Regulations, does not constitute “gross income” for purposes of the 75% or 95% gross income tests. To the extent that we enter into other types of hedging transactions, the income from those transactions will likely be treated as non-qualifying income for purposes of both of the gross income tests. As a result of these rules, we may need to limit our use of advantageous hedging techniques or implement those hedges through a taxable REIT subsidiary. This could increase the cost of our hedging activities because our taxable REIT subsidiaries would be subject to tax on gains or expose us to greater risks associated with changes in interest rates than we would otherwise want to bear. In addition, losses in a taxable REIT subsidiary generally will not provide any tax benefit, except for being carried forward against future taxable income of such taxable REIT subsidiary.
Complying with REIT requirements may force us to forgo or liquidate otherwise attractive investment opportunities.
To continue to qualify as a REIT, we must ensure that we meet the REIT gross income tests annually and that at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, government securities and qualified REIT real estate assets, including certain mortgage loans and certain kinds of mortgage-related securities. The remainder of our investment in securities (other than government securities and qualified real estate assets) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our assets can consist of the securities of any one issuer (other than government securities and qualified real estate assets), and no more than 25%20% of the value of our total assets can be represented by securities of one or more taxable REIT subsidiaries. If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences. As a result, we may be required to liquidate assets from our portfolio or not make otherwise attractive investments in order to maintain our qualification as a REIT. These actions could have the effect of reducing our income and amounts available for distribution to our stockholders.
The ability of our board of directors to revoke our REIT qualification without stockholder approval may subject us to U.S. federal income tax and reduce distributions to our stockholders.you.
Our charter provides that our board of directors may revoke or otherwise terminate our REIT election, without the approval of our stockholders, if it determines that it is no longer in our best interest to continue to qualify as a REIT. While we intend to elect andcontinue to qualify to be taxed as a REIT, we may not elect to be treated as a REIT or may terminate our REIT election if we determine that qualifyingcontinuing to qualify as a REIT is no longer in our best interests. If we cease to be a REIT, we would become subject to U.S. federal income tax on our taxable income and would no longer be required to distribute most of our taxable income to our stockholders, which may have adverse consequences on our total return to our stockholders and on the market price of our common stock.Common Stock and Series A Preferred Stock.
We may be subject to adverse legislative or regulatory tax changes that could increase our tax liability, reduce our operating flexibility and reduce the market price of our common stock.Common Stock and Series A Preferred Stock.
In recent years, numerous legislative, judicial and administrative changes have been made in the provisions of U.S. federal income tax laws applicable to investments similar to an investment in shares of our common stock.Common Stock or Series A Preferred Stock. Additional changes to the tax laws are likely to continue to occur, and there can be no assurance that any such changes will not adversely affect the taxation of a stockholder. Any such changes could have an adverse effect on an investment in our shares or on the market value or the resale potential of our assets. Investors are urged to consult with an independent tax advisor with respect to the impact of recent legislation on any investment in our shares and the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in our shares. Investors also should note that our counsel’s tax opinion is based upon existing law, applicable as of the date of its opinion, all of which will be subject to change, either prospectively or retroactively.
Although REITs generally receive better tax treatment than entities taxed as regular corporations, it is possible that future legislation would result in a REIT having fewer tax advantages, and it could become more advantageous for a company that invests in real estate to elect to be treated for U.S. federal income tax purposes as a corporation. As a result, our charter provides our board of directors with the power, under certain circumstances, to revoke or otherwise terminate our REIT election and cause us to be taxed as a regular corporation, without the vote of our stockholders. Our board of directors has fiduciary duties to us and our stockholders and could only cause such changes in our tax treatment if it determines in good faith that such changes are in the best interest of our stockholders.
The share ownership restrictions of the Code for REITs and the 9.8% share ownership limit in our charter may inhibit market activity in our shares of stock and restrict our business combination opportunities.
In order to continue to qualify as a REIT, five or fewer individuals, as defined in the Code, may not own, actually or constructively, more than 50% in value of our issued and outstanding shares of stock at any time during the last half of each taxable year, other than the first year for which a REIT election is made. Attribution rules in the Code determine if any individual or entity actually or constructively owns our shares of stock under this requirement. Additionally, at least 100 persons must beneficially own our shares of stock during at least 335 days of a taxable year for each taxable year, other than the first year for which a REIT election is made. To help insureensure that we meet these tests, among other purposes, our charter restricts the acquisition and ownership of our shares of stock.
Our charter, with certain exceptions, authorizes our directors to take such actions as are necessary and desirable to preserve our qualification as a REIT while we so qualify. Unless exempted by our board of directors, for so long as we continue to qualify as a REIT, our charter prohibits, among other limitations on ownership and transfer of shares of our stock, any person from beneficially or constructively owning (applying certain attribution rules under the Code) more than 9.8% in value of the aggregate of our outstanding shares of stock and more than 9.8% (in value or in number of shares, whichever is more restrictive) of any class or series of our shares of stock. Our board of directors may not grant an exemption from these restrictions to any proposed transferee whose ownership in excess of the 9.8% ownership limit would result in the termination of our continued qualification as a REIT. These restrictions on transferability and ownership will not apply, however, if our board of directors determines that it is no longer in our best interest to continue to qualify as a REIT or that compliance with the restrictions is no longer required in order for us to socontinue to qualify as a REIT.
These ownership limits could delay or prevent a transaction or a change in control that might involve a premium price for our common stockCommon Stock or Series A Preferred Stock or otherwise be in the best interest of the stockholders.
Non-U.S. stockholders will be subject to U.S. federal withholding tax and may be subject to U.S. federal income tax on distributions received from us and upon the disposition of our shares.
Subject to certain exceptions, distributions received from us will be treated as dividends of ordinary income to the extent of our current or accumulated earnings and profits. Such dividends ordinarily will be subject to U.S. withholding tax at a 30% rate, or such lower rate as may be specified by an applicable income tax treaty, unless the distributions are treated as “effectively connected” with the conduct by the non-U.S. stockholder of a U.S. trade or business. Pursuant to the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"), capital gain distributions attributable to sales or exchanges of “U.S. real property interests" ("USRPIs"), generally will be taxed to a non-U.S. stockholder (other than a qualified foreign pension plan) as if such gain were effectively connected with a U.S. trade or business. However, a capital gain dividend will not be treated as effectively connected income if (a) the distribution is received with respect to a class of stock that is regularly traded on an established securities market located in the United StatesU.S. and (b) the non-U.S. stockholder does not own more than 5%10% of the class of our stock at any time during the one-year period ending on the date the distribution is received. We do not anticipate that our shares will be “regularly traded” on an established securities market for the foreseeable future, and therefore, this exception is not expected to apply.
Gain recognized by a non-U.S. stockholder upon the sale or exchange of our common stockCommon Stock or Series A Preferred Stock generally will not be subject to U.S. federal income taxation unless such stock constitutes a USRPI under FIRPTA. Our common stockCommon Stock and Series A Preferred Stock will not constitute a USRPI so long as we are a “domestically-controlled qualified investment entity.” A domestically-controlled qualified investment entity includes a REIT if at all times during a specified testing period, less
than 50% in value of such REIT’s stock is held directly or indirectly by non-U.S. stockholders. We believe, but there can be no assurance, that we will be a domestically-controlled qualified investment entity.
Even if we do not qualify as a domestically-controlled qualified investment entity at the time a non-U.S. stockholder sells or exchanges our common stock,Common Stock or Series A Preferred Stock, gain arising from such a sale or exchange would not be subject to U.S. taxation under FIRPTA as a sale of a USRPI if: (a) the shares are of a class of our common stock that is “regularly traded,” as defined by applicable Treasury regulations, on an established securities market, and (b) such non-U.S. stockholder owned, actually and constructively, 5%10% or less of our common stockoutstanding shares of that class at any time during the five-year period ending on the date of the sale. However, it is not anticipated that our common stock will be “regularly traded” on an established market. Investors are encouraged to consult an independent tax advisor to determine the tax consequences applicable if they are non-U.S. stockholders.
Potential characterization of distributions or gain on sale may be treated as unrelated business taxable income to tax-exempt investors.
If (a) we are a “pension-held REIT,” (b) a tax-exempt stockholder has incurred (or is deemed to have incurred) debt to purchase or hold our common stock,Common Stock, or (c) a holder of common stockour Common Stock is a certain type of tax-exempt stockholder, dividends on, and gains recognized on the sale of, common stockCommon Stock by such tax-exempt stockholder may be subject to U.S. federal income tax as unrelated business taxable income under the Code.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
We acquire and operate commercial properties. All such properties may be acquired and operated by us alone or jointly with another party. Our portfolio of real estate properties was comprised of the following properties as of December 31, 20142017:
| Portfolio | Acquisition Date | Country | Number of Properties | Square Feet | Remaining Lease Term (1) | Base Purchase Price (2) (In thousands) | |||||||||
| McDonald's | Oct. 2012 | UK | 1 | 9,094 | 9.2 | $ | 2,566 | ||||||||
| Wickes Building Supplies I | May 2013 | UK | 1 | 29,679 | 9.8 | 6,058 | |||||||||
| Everything Everywhere | Jun. 2013 | UK | 1 | 64,832 | 12.5 | 12,365 | |||||||||
| Thames Water | Jul. 2013 | UK | 1 | 78,650 | 7.7 | 18,233 | |||||||||
| Wickes Building Supplies II | Jul. 2013 | UK | 1 | 28,758 | 12.0 | 5,054 | |||||||||
| PPD Global Labs | Aug. 2013 | US | 1 | 76,820 | 9.9 | 9,283 | |||||||||
| Northern Rock | Sep. 2013 | UK | 2 | 86,290 | 8.7 | 16,322 | |||||||||
| Kulicke & Soffa | Sep. 2013 | US | 1 | 88,000 | 8.8 | 13,415 | |||||||||
| Wickes Building Supplies III | Nov. 2013 | UK | 1 | 28,465 | 13.9 | 6,067 | |||||||||
| Con-way Freight | Nov. 2013 | US | 7 | 105,090 | 8.9 | 12,266 | |||||||||
| Wolverine | Dec. 2013 | US | 1 | 468,635 | 8.1 | 17,201 | |||||||||
| Western Digital | Dec. 2013 | US | 1 | 286,330 | 5.9 | 28,574 | |||||||||
| Encanto | Dec. 2013 | Puerto Rico | 18 | 65,262 | 10.5 | 37,556 | |||||||||
| Rheinmetall | Jan. 2014 | Germany | 1 | 320,102 | 9.0 | 28,924 | |||||||||
| GE Aviation | Jan. 2014 | US | 1 | 369,000 | 11.0 | 38,857 | |||||||||
| Provident Financial | Feb. 2014 | UK | 1 | 117,003 | 10.9 | 41,812 | |||||||||
| Crown Crest | Feb. 2014 | UK | 1 | 805,530 | 24.1 | 63,587 | |||||||||
| Trane | Feb. 2014 | US | 1 | 25,000 | 8.9 | 3,072 | |||||||||
| Aviva | Mar. 2014 | UK | 1 | 131,614 | 14.5 | 52,517 | |||||||||
| DFS Trading | Mar. 2014 | UK | 5 | 240,230 | 15.2 | 34,050 | |||||||||
| GSA I | Mar. 2014 | US | 1 | 135,373 | 7.6 | 43,250 | |||||||||
| National Oilwell Varco | Mar. 2014 | US | 1 | 24,450 | 8.6 | 4,888 | |||||||||
| Talk Talk | Apr. 2014 | UK | 1 | 48,415 | 10.2 | 14,274 | |||||||||
| OBI DIY | Apr. 2014 | Germany | 1 | 143,633 | 8.9 | 13,216 | |||||||||
| GSA II | Apr. 2014 | US | 2 | 24,957 | 8.2 | 9,525 | |||||||||
| DFS Trading | Apr. 2014 | UK | 2 | 39,331 | 15.2 | 6,275 | |||||||||
| GSA III | Apr. 2014 | US | 2 | 28,364 | 10.5 | 9,700 | |||||||||
| GSA IV | May 2014 | US | 1 | 33,000 | 10.6 | 14,828 | |||||||||
| Indiana Department of Revenue | May 2014 | US | 1 | 98,542 | 8.0 | 11,654 | |||||||||
| National Oilwell Varco | May 2014 | US | 1 | 7,500 | 14.4 | 2,360 | |||||||||
| Nissan | May 2014 | US | 1 | 462,155 | 8.8 | 25,838 | |||||||||
| GSA V | Jun. 2014 | US | 1 | 26,533 | 8.3 | 11,556 | |||||||||
| Lippert Components | Jun. 2014 | US | 1 | 539,137 | 11.7 | 14,776 | |||||||||
| Select Energy Services I | Jun. 2014 | US | 3 | 135,877 | 12.0 | 24,112 | |||||||||
| Bell Supply Co I | Jun. 2014 | US | 6 | 79,829 | 14.0 | 12,225 | |||||||||
| Axon Energy Products | Jun. 2014 | US | 3 | 213,634 | 12.1 | 20,709 | |||||||||
| Lhoist | Jun. 2014 | US | 1 | 22,500 | 8.0 | 3,264 | |||||||||
| GE Oil & Gas | Jun. 2014 | US | 2 | 69,846 | 8.7 | 10,956 | |||||||||
| Select Energy Services II | Jun. 2014 | US | 4 | 143,417 | 11.9 | 20,789 | |||||||||
| Bell Supply Co II | Jun. 2014 | US | 2 | 19,136 | 14.0 | 3,407 | |||||||||
| Superior Energy Services | Jun. 2014 | US | 2 | 42,470 | 9.5 | 2,455 | |||||||||
| Amcor Packaging | Jun. 2014 | UK | 7 | 294,580 | 9.9 | 13,290 | |||||||||
| GSA VI | Jun. 2014 | US | 1 | 6,921 | 9.3 | 1,450 | |||||||||
| Nimble Storage | Jun. 2014 | US | 1 | 164,608 | 6.8 | 52,500 | |||||||||
| FedEx -3-Pack | Jul. 2014 | US | 3 | 338,862 | 7.7 | 46,100 | |||||||||
| Sandoz, Inc. | Jul. 2014 | US | 1 | 154,101 | 11.6 | 63,582 | |||||||||
| Wyndham | Jul. 2014 | US | 1 | 31,881 | 10.3 | 5,200 | |||||||||
| Portfolio | Acquisition Date | Country | Number of Properties | Square Feet | Remaining Lease Term (1) | Base Purchase Price (2) (In thousands) | |||||||||
| Valassis | Jul. 2014 | US | 1 | 100,597 | 8.3 | $ | 13,614 | ||||||||
| GSA VII | Jul. 2014 | US | 1 | 25,603 | 9.9 | 12,000 | |||||||||
| AT&T Services | Jul. 2014 | US | 1 | 401,516 | 11.6 | 61,000 | |||||||||
| PNC - 2-Pack | Jul. 2014 | US | 2 | 210,256 | 14.6 | 17,412 | |||||||||
| Fujitisu | Jul. 2014 | UK | 3 | 162,888 | 10.2 | 70,651 | |||||||||
| Continental Tire | Jul. 2014 | US | 1 | 90,994 | 7.6 | 18,500 | |||||||||
| Achmea | Jul. 2014 | Netherlands | 2 | 190,252 | 9.0 | 38,790 | |||||||||
| BP Oil | Aug. 2014 | UK | 1 | 2,650 | 10.8 | 4,951 | |||||||||
| Malthurst | Aug. 2014 | UK | 2 | 3,784 | 10.9 | 5,914 | |||||||||
| HBOS | Aug. 2014 | UK | 3 | 36,071 | 10.6 | 18,109 | |||||||||
| Thermo Fisher | Aug. 2014 | US | 1 | 114,700 | 9.7 | 14,000 | |||||||||
| Black & Decker | Aug. 2014 | US | 1 | 71,259 | 7.1 | 10,350 | |||||||||
| Capgemini | Aug. 2014 | UK | 1 | 90,475 | 8.3 | 24,947 | |||||||||
| Merck & Co. | Aug. 2014 | US | 1 | 146,366 | 10.7 | 53,325 | |||||||||
| Family Dollar - 65-Pack | Aug. 2014 | US | 65 | 541,472 | 14.7 | 77,360 | |||||||||
| GSA VIII | Aug. 2014 | US | 1 | 23,969 | 9.6 | 8,319 | |||||||||
| Garden Ridge | Sep. 2014 | US | 4 | 564,910 | 14.7 | 40,936 | |||||||||
| Waste Management | Sep. 2014 | US | 1 | 84,119 | 8.0 | 4,650 | |||||||||
| Intier Automotive Interiors | Sep. 2014 | UK | 1 | 152,711 | 9.4 | 15,301 | |||||||||
| HP Enterprise Services | Sep. 2014 | UK | 1 | 99,444 | 11.2 | 30,951 | |||||||||
| Shaw Aero Devices, Inc. | Sep. 2014 | US | 1 | 130,581 | 7.8 | 27,000 | |||||||||
| FedEx Freight | Sep. 2014 | US | 1 | 11,501 | 9.3 | 2,250 | |||||||||
| Hotel Winston | Sep. 2014 | Netherlands | 1 | 24,283 | 14.7 | 17,292 | |||||||||
| Dollar General - 39-Pack | Sep. 2014 | US | 39 | 369,644 | 13.3 | 52,004 | |||||||||
| FedEx III | Sep. 2014 | US | 2 | 221,260 | 9.6 | 36,490 | |||||||||
| Mallinkrodt Pharmaceuticals | Sep. 2014 | US | 1 | 89,900 | 9.7 | 22,800 | |||||||||
| Kuka | Sep. 2014 | US | 1 | 200,000 | 9.5 | 14,850 | |||||||||
| CHE Trinity | Sep. 2014 | US | 2 | 373,593 | 7.6 | 51,000 | |||||||||
| FedEx IV | Sep. 2014 | US | 2 | 255,037 | 8.1 | 21,780 | |||||||||
| GE Aviation | Sep. 2014 | US | 1 | 102,000 | 8.0 | 14,178 | |||||||||
| DNV GL | Oct. 2014 | US | 1 | 82,000 | 10.2 | 7,850 | |||||||||
| Bradford & Bingley | Oct. 2014 | UK | 1 | 120,618 | 14.8 | 24,482 | |||||||||
| Rexam | Oct. 2014 | Germany | 1 | 175,615 | 10.2 | 14,725 | |||||||||
| FedEx | Oct. 2014 | US | 1 | 76,035 | 9.5 | 9,532 | |||||||||
| CJ Energy | Oct. 2014 | US | 1 | 96,803 | 11.3 | 17,925 | |||||||||
| Family Dollar II | Oct. 2014 | US | 34 | 282,730 | 14.8 | 49,000 | |||||||||
| Panasonic | Oct. 2014 | US | 1 | 48,497 | 13.6 | 10,375 | |||||||||
| Onguard | Oct. 2014 | US | 1 | 120,000 | 9.0 | 10,800 | |||||||||
| Metro Tonic | Oct. 2014 | Germany | 1 | 636,066 | 10.8 | 67,511 | |||||||||
| Axon Energy Products | Oct. 2014 | US | 1 | 26,400 | 9.8 | 3,620 | |||||||||
| Tokmanni | Oct. 2014 | Finland | 1 | 800,834 | 18.7 | 72,964 | |||||||||
| Fife Council | Nov. 2014 | UK | 1 | 37,331 | 9.1 | 6,519 | |||||||||
| Family Dollar III | Nov. 2014 | US | 2 | 16,442 | 14.7 | 2,727 | |||||||||
| GSA IX | Nov. 2014 | US | 1 | 28,300 | 7.3 | 10,385 | |||||||||
| KPN BV | Nov. 2014 | Netherlands | 1 | 133,053 | 12.0 | 27,351 | |||||||||
| RWE AG | Nov. 2014 | Germany | 3 | 594,415 | 9.9 | 154,492 | |||||||||
| Follett School | Nov. 2014 | US | 1 | 486,868 | 10.0 | 23,900 | |||||||||
| Quest Diagnostics | Dec. 2014 | US | 1 | 223,894 | 9.7 | 96,000 | |||||||||
| Family Dollar IV | Dec. 2014 | US | 1 | 8,030 | 14.7 | 1,779 | |||||||||
| Portfolio | Acquisition Date | Country | Number of Properties | Square Feet | Average Remaining Lease Term (1) | ||||||
| McDonald's | Oct. 2012 | UK | 1 | 9,094 | 6.5 | ||||||
| Wickes Building Supplies I | May 2013 | UK | 1 | 29,679 | 7.0 | ||||||
| Everything Everywhere | Jun. 2013 | UK | 1 | 64,832 | 9.8 | ||||||
| Thames Water | Jul. 2013 | UK | 1 | 78,650 | 4.9 | ||||||
| Wickes Building Supplies II | Jul. 2013 | UK | 1 | 28,758 | 9.2 | ||||||
| PPD Global Labs | Aug. 2013 | US | 1 | 76,820 | 7.2 | ||||||
| Northern Rock | Sep. 2013 | UK | 2 | 86,290 | 5.9 | ||||||
| Wickes Building Supplies III | Nov. 2013 | UK | 1 | 28,465 | 11.2 | ||||||
| Con-way Freight | Nov. 2013 | US | 7 | 105,090 | 6.2 | ||||||
| Wolverine | Dec. 2013 | US | 1 | 468,635 | 5.3 | ||||||
| Western Digital | Dec. 2013 | US | 1 | 286,330 | 3.2 | ||||||
| Encanto | Dec. 2013 | PR | 18 | 65,262 | 7.8 | ||||||
| Rheinmetall | Jan. 2014 | GER | 1 | 320,102 | 6.3 | ||||||
| GE Aviation | Jan. 2014 | US | 1 | 369,000 | 8.3 | ||||||
| Provident Financial | Feb. 2014 | UK | 1 | 117,003 | 18.1 | ||||||
| Crown Crest | Feb. 2014 | UK | 1 | 805,530 | 21.4 | ||||||
| Trane | Feb. 2014 | US | 1 | 25,000 | 6.2 | ||||||
| Aviva | Mar. 2014 | UK | 1 | 131,614 | 11.7 | ||||||
| DFS Trading I | Mar. 2014 | UK | 5 | 240,230 | 12.5 | ||||||
| GSA I | Mar. 2014 | US | 1 | 135,373 | 4.9 | ||||||
| National Oilwell Varco I | Mar. 2014 | US | 1 | 24,450 | 5.8 | ||||||
| Talk Talk | Apr. 2014 | UK | 1 | 48,415 | 7.5 | ||||||
| OBI DIY | Apr. 2014 | GER | 1 | 143,633 | 6.3 | ||||||
| GSA II | Apr. 2014 | US | 2 | 24,957 | 5.4 | ||||||
| DFS Trading II | Apr. 2014 | UK | 2 | 39,331 | 12.5 | ||||||
| GSA III | Apr. 2014 | US | 2 | 28,364 | 7.6 | ||||||
| GSA IV | May 2014 | US | 1 | 33,000 | 7.8 | ||||||
| Indiana Department of Revenue | May 2014 | US | 1 | 98,542 | 5.3 | ||||||
| National Oilwell Varco II | May 2014 | US | 1 | 23,475 | 12.4 | ||||||
| Nissan | May 2014 | US | 1 | 462,155 | 11.0 | ||||||
| GSA V | Jun. 2014 | US | 1 | 26,533 | 5.5 | ||||||
| Lippert Components | Jun. 2014 | US | 1 | 539,137 | 8.9 | ||||||
| Select Energy Services I | Jun. 2014 | US | 3 | 135,877 | 9.1 | ||||||
| Bell Supply Co I | Jun. 2014 | US | 6 | 79,829 | 11.3 | ||||||
Axon Energy Products (3) | Jun. 2014 | US | 3 | 213,634 | 6.9 | ||||||
| Lhoist | Jun. 2014 | US | 1 | 22,500 | 5.3 | ||||||
| GE Oil & Gas | Jun. 2014 | US | 2 | 69,846 | 6.0 | ||||||
| Select Energy Services II | Jun. 2014 | US | 4 | 143,417 | 9.1 | ||||||
| Bell Supply Co II | Jun. 2014 | US | 2 | 19,136 | 11.3 | ||||||
| Superior Energy Services | Jun. 2014 | US | 2 | 42,470 | 6.5 | ||||||
| Amcor Packaging | Jun. 2014 | UK | 7 | 294,580 | 7.2 | ||||||
| GSA VI | Jun. 2014 | US | 1 | 6,921 | 6.5 | ||||||
| Nimble Storage | Jun. 2014 | US | 1 | 164,608 | 4.1 | ||||||
| FedEx -3-Pack | Jul. 2014 | US | 3 | 338,862 | 4.8 | ||||||
| Sandoz, Inc. | Jul. 2014 | US | 1 | 154,101 | 8.8 | ||||||
| Wyndham | Jul. 2014 | US | 1 | 31,881 | 7.6 | ||||||
| Valassis | Jul. 2014 | US | 1 | 100,597 | 5.6 | ||||||
| GSA VII | Jul. 2014 | US | 1 | 25,603 | 7.1 | ||||||
| Portfolio | Acquisition Date | Country | Number of Properties | Square Feet | Remaining Lease Term (1) | Base Purchase Price (2) (In thousands) | |||||||||
| Diebold | Dec. 2014 | US | 1 | 158,330 | 7.0 | $ | 11,500 | ||||||||
| Dollar General | Dec. 2014 | US | 1 | 12,406 | 13.2 | 2,050 | |||||||||
| Weatherford Intl | Dec. 2014 | US | 1 | 19,855 | 10.8 | 3,190 | |||||||||
| AM Castle | Dec. 2014 | US | 1 | 127,600 | 9.8 | 9,270 | |||||||||
| FedEx | Dec. 2014 | US | 1 | 27,771 | 9.7 | 9,300 | |||||||||
| Constellium Auto | Dec. 2014 | US | 1 | 320,680 | 14.9 | 20,625 | |||||||||
| Total | 307 | 16,305,844 | 11.6 | $ | 2,378,554 | ||||||||||
| Portfolio | Acquisition Date | Country | Number of Properties | Square Feet | Average Remaining Lease Term (1) | ||||||
| AT&T Services | Jul. 2014 | US | 1 | 401,516 | 8.8 | ||||||
| PNC - 2-Pack | Jul. 2014 | US | 2 | 210,256 | 11.8 | ||||||
| Fujitisu | Jul. 2014 | UK | 3 | 162,888 | 12.5 | ||||||
| Continental Tire | Jul. 2014 | US | 1 | 90,994 | 4.8 | ||||||
| Achmea | Jul. 2014 | NETH | 2 | 190,252 | 6.3 | ||||||
| BP Oil | Aug. 2014 | UK | 1 | 2,650 | 8.1 | ||||||
| Malthurst | Aug. 2014 | UK | 2 | 3,784 | 8.1 | ||||||
| HBOS | Aug. 2014 | UK | 3 | 36,071 | 7.8 | ||||||
| Thermo Fisher | Aug. 2014 | US | 1 | 114,700 | 6.9 | ||||||
| Black & Decker | Aug. 2014 | US | 1 | 71,259 | 4.3 | ||||||
| Capgemini | Aug. 2014 | UK | 1 | 90,475 | 5.5 | ||||||
| Merck & Co. | Aug. 2014 | US | 1 | 146,366 | 7.9 | ||||||
| Dollar Tree - 65-Pack | Aug. 2014 | US | 58 | 485,992 | 11.9 | ||||||
| GSA VIII | Aug. 2014 | US | 1 | 23,969 | 6.9 | ||||||
| Waste Management | Sep. 2014 | US | 1 | 84,119 | 5.3 | ||||||
| Intier Automotive Interiors | Sep. 2014 | UK | 1 | 152,711 | 6.6 | ||||||
| HP Enterprise Services | Sep. 2014 | UK | 1 | 99,444 | 8.5 | ||||||
| Shaw Aero Devices, Inc. | Sep. 2014 | US | 1 | 130,581 | 5.0 | ||||||
| FedEx II | Sep. 2014 | US | 1 | 11,501 | 6.5 | ||||||
| Dollar General - 39-Pack | Sep. 2014 | US | 21 | 199,946 | 10.5 | ||||||
| FedEx III | Sep. 2014 | US | 2 | 221,260 | 6.8 | ||||||
| Mallinkrodt Pharmaceuticals | Sep. 2014 | US | 1 | 89,900 | 6.9 | ||||||
| Kuka | Sep. 2014 | US | 1 | 200,000 | 6.8 | ||||||
| CHE Trinity | Sep. 2014 | US | 2 | 373,593 | 5.2 | ||||||
| FedEx IV | Sep. 2014 | US | 2 | 255,037 | 5.3 | ||||||
| GE Aviation | Sep. 2014 | US | 1 | 102,000 | 5.3 | ||||||
| DNV GL | Oct. 2014 | US | 1 | 82,000 | 7.4 | ||||||
| Bradford & Bingley | Oct. 2014 | UK | 1 | 120,618 | 12.0 | ||||||
| Rexam | Oct. 2014 | GER | 1 | 175,615 | 7.4 | ||||||
| FedEx V | Oct. 2014 | US | 1 | 76,035 | 6.8 | ||||||
| C&J Energy | Oct. 2014 | US | 1 | 96,803 | 6.1 | ||||||
| Dollar Tree II | Oct. 2014 | US | 34 | 282,730 | 12.0 | ||||||
| Panasonic | Oct. 2014 | US | 1 | 48,497 | 10.8 | ||||||
| Onguard | Oct. 2014 | US | 1 | 120,000 | 6.3 | ||||||
| Metro Tonic | Oct. 2014 | GER | 1 | 636,066 | 8.0 | ||||||
| Axon Energy Products | Oct. 2014 | US | 1 | 26,400 | 7.1 | ||||||
| Tokmanni | Oct. 2014 | FIN | 1 | 800,834 | 15.9 | ||||||
| Fife Council | Nov. 2014 | UK | 1 | 37,331 | 6.4 | ||||||
| Dollar Tree III | Nov. 2014 | US | 2 | 16,442 | 11.9 | ||||||
| GSA IX | Nov. 2014 | US | 1 | 28,300 | 4.6 | ||||||
| KPN BV | Nov. 2014 | NETH | 1 | 133,053 | 9.3 | ||||||
| RWE AG | Nov. 2014 | GER | 3 | 594,415 | 7.2 | ||||||
| Follett School | Nov. 2014 | US | 1 | 486,868 | 7.3 | ||||||
| Quest Diagnostics | Dec. 2014 | US | 1 | 223,894 | 6.9 | ||||||
| Diebold | Dec. 2014 | US | 1 | 158,330 | 4.3 | ||||||
| Weatherford Intl | Dec. 2014 | US | 1 | 19,855 | 8.1 | ||||||
| AM Castle | Dec. 2014 | US | 1 | 127,600 | 7.1 | ||||||
| FedEx VI | Dec. 2014 | US | 1 | 27,771 | 6.9 | ||||||
| Constellium Auto | Dec. 2014 | US | 1 | 320,680 | 12.2 | ||||||
| C&J Energy II | Mar. 2015 | US | 1 | 125,000 | 6.1 | ||||||
| Fedex VII | Mar. 2015 | US | 1 | 12,018 | 7.0 | ||||||
| Portfolio | Acquisition Date | Country | Number of Properties | Square Feet | Average Remaining Lease Term (1) | ||||||
| Fedex VIII | Apr. 2015 | US | 1 | 25,852 | 7.0 | ||||||
| Crown Group I | Aug. 2015 | US | 3 | 295,974 | 17.8 | ||||||
| Crown Group II | Aug. 2015 | US | 3 | 642,595 | 17.9 | ||||||
| Mapes & Sprowl Steel, Ltd. | Sep. 2015 | US | 1 | 60,798 | 12.3 | ||||||
| JIT Steel Services | Sep. 2015 | US | 2 | 126,983 | 12.3 | ||||||
| Beacon Health System, Inc. | Sep. 2015 | US | 1 | 49,712 | 8.5 | ||||||
| Hannibal/Lex JV LLC | Sep. 2015 | US | 1 | 109,000 | 12.0 | ||||||
| FedEx Ground | Sep. 2015 | US | 1 | 91,029 | 7.8 | ||||||
| Office Depot | Sep. 2015 | NETH | 1 | 206,331 | 11.4 | ||||||
| Finnair | Sep. 2015 | FIN | 4 | 656,275 | 6.9 | ||||||
Auchan (2) | Dec. 2016 | FR | 1 | 152,235 | 5.9 | ||||||
Pole Emploi (2) | Dec. 2016 | FR | 1 | 41,452 | 5.8 | ||||||
Veolia Water (2) | Dec. 2016 | US | 1 | 70,000 | 8.3 | ||||||
Sagemcom (2) | Dec. 2016 | FR | 1 | 265,309 | 6.3 | ||||||
NCR Dundee () | Dec. 2016 | UK | 1 | 132,182 | 9.1 | ||||||
FedEx Freight (2) | Dec. 2016 | US | 1 | 68,960 | 6.3 | ||||||
DB Luxembourg (2) | Dec. 2016 | LUX | 1 | 156,098 | 6.2 | ||||||
ING Amsterdam (2) | Dec. 2016 | NETH | 1 | 509,369 | 7.8 | ||||||
Worldline (2) | Dec. 2016 | FR | 1 | 111,338 | 6.3 | ||||||
Foster Wheeler (2) | Dec. 2016 | UK | 1 | 365,832 | 6.8 | ||||||
ID Logistics I (2) | Dec. 2016 | GER | 1 | 308,579 | 7.1 | ||||||
ID Logistics II (2) | Dec. 2016 | FR | 2 | 964,489 | 7.2 | ||||||
Harper Collins (2) | Dec. 2016 | UK | 1 | 873,119 | 7.9 | ||||||
DCNS (2) | Dec. 2016 | FR | 1 | 96,995 | 7.0 | ||||||
| Cott Beverages Inc | Feb. 2017 | US | 1 | 170,000 | 9.3 | ||||||
| FedEx Ground - 2 Pack | Mar. 2017 | US | 2 | 157,660 | 9.0 | ||||||
| Bridgestone Tire | Sep. 2017 | US | 1 | 48,300 | 9.8 | ||||||
| GKN Aerospace | Oct. 2017 | US | 1 | 97,864 | 9.0 | ||||||
| NSA-St. Johnsbury I | Oct. 2017 | US | 1 | 87,100 | 14.8 | ||||||
| NSA-St. Johnsbury II | Oct. 2017 | US | 1 | 84,949 | 14.8 | ||||||
| NSA-St. Johnsbury III | Oct. 2017 | US | 1 | 40,800 | 14.8 | ||||||
| Tremec North America | Nov. 2017 | US | 1 | 127,105 | 9.8 | ||||||
| Cummins | Dec. 2017 | US | 1 | 58,546 | 7.4 | ||||||
| GSA X | Dec. 2017 | US | 1 | 25,604 | 12.0 | ||||||
| NSA Industries | Dec. 2017 | US | 1 | 82,862 | 15.0 | ||||||
| Total | 321 | 22,897,326 | 8.8 | ||||||||
(1) | If the portfolio has multiple properties with varying lease expirations, average remaining lease term is calculated on a weighted-average basis. Weighted-average remaining lease term in years calculated based on square feet as of December 31, 2017. |
(2) | Properties acquired as part of the Merger. |
(3) | Of the three properties, one location is vacant while the other two properties remain in use. |
The following table details distribution of our portfolio by countrycountry/location as of December 31, 2014:2017:
| Country | Acquisition Date | Number of Properties | Square Feet | Percentage of Properties by Square Feet | Remaining Lease Term (1) | Base Purchase Price (2) (In thousands) | Acquisition Date | Number of Properties | Square Feet | Percentage of Properties by Square Feet | Average Remaining Lease Term (1) | |||||||||||||||
| Finland | Nov. 2014 | 1 | 800,834 | 4.9% | 18.7 | $ | 72,964 | Nov. 2014 - Sep. 2015 | 5 | 1,457,109 | 6.4% | 11.2 | ||||||||||||||
| France | Dec. 2016 | 7 | 1,631,818 | 7.1% | 6.3 | |||||||||||||||||||||
| Germany | Jan. 2014 - Nov. 2014 | 7 | 1,869,831 | 11.5% | 10.0 | 278,868 | Jan. 2014 - Dec. 2016 | 8 | 2,178,410 | 9.5% | 6.8 | |||||||||||||||
| Netherlands | Jul. 2014 - Nov. 2014 | 4 | 347,588 | 2.1% | 10.6 | 83,433 | ||||||||||||||||||||
| Luxembourg | Dec. 2016 | 1 | 156,098 | 0.7% | 6.0 | |||||||||||||||||||||
| The Netherlands | Jul. 2014 - Dec. 2016 | 5 | 1,039,005 | 4.5% | 8.4 | |||||||||||||||||||||
| United Kingdom | Oct. 2012 - Nov. 2014 | 40 | 2,708,443 | 16.6% | 15.2 | 494,295 | Oct. 2012 - Dec. 2016 | 43 | 4,079,576 | 17.8% | 9.5 | |||||||||||||||
| United States | Aug. 2013 - Dec. 2014 | 237 | 10,513,886 | 64.5% | 10.5 | 1,411,438 | Aug. 2013 - Dec. 2017 | 234 | 12,290,048 | 53.7% | 9.7 | |||||||||||||||
| Puerto Rico | Dec. 2013 | 18 | 65,262 | 0.4% | 10.5 | 37,556 | Dec. 2013 | 18 | 65,262 | 0.3% | 7.5 | |||||||||||||||
| Total | 307 | 16,305,844 | 100.0% | 11.6 | $ | 2,378,554 | 321 | 22,897,326 | 100.0% | 8.8 | ||||||||||||||||
(1) | If the portfolio has multiple properties with varying lease expirations, average remaining lease term is calculated on a weighted-average basis. Weighted average remaining lease term in years is calculated based on square feet as of December 31, 2017. |
The following table details the tenant industry distribution of our portfolio as of December 31, 20142017:
| Industry | Number of Properties | Square Feet | Square Feet as a Percentage of the Total Portfolio | Annualized Rental Income (1) | Annualized Rental Income as a Percentage of the Total Portfolio | Number of Properties | Square Feet | Square Feet as a Percentage of the Total Portfolio | Annualized Rental Income (1) | Annualized Rental Income as a Percentage of the Total Portfolio | ||||||||||||||||||||
| (In thousands) | (In thousands) | |||||||||||||||||||||||||||||
| Aerospace | 3 | 601,581 | 3.7 | % | $ | 5,777 | 3.0 | % | 8 | 1,355,720 | 5.9 | % | $ | 15,608 | 6.2 | % | ||||||||||||||
| Auto Manufacturing | 2 | 1,001,292 | 6.1 | % | 2,729 | 1.4 | % | 8 | 1,939,861 | 8.5 | % | 6,617 | 2.6 | % | ||||||||||||||||
| Automation | 1 | 200,000 | 1.2 | % | 1,092 | 0.6 | % | 1 | 200,000 | 0.9 | % | 1,092 | 0.4 | % | ||||||||||||||||
| Automotive Parts Manufacturing | 1 | 152,711 | 0.9 | % | 1,201 | 0.6 | % | 3 | 259,557 | 1.1 | % | 2,209 | 0.9 | % | ||||||||||||||||
| Automotive Parts Supplier | 2 | 411,096 | 2.5 | % | 3,617 | 1.9 | % | 2 | 411,096 | 1.8 | % | 3,583 | 1.4 | % | ||||||||||||||||
| Biotechnology | 1 | 114,700 | 0.7 | % | 1,014 | 0.5 | % | 1 | 114,700 | 0.5 | % | 1,014 | 0.4 | % | ||||||||||||||||
| Consulting | 1 | 82,000 | 0.5 | % | 602 | 0.3 | % | 1 | 82,000 | 0.4 | % | 576 | 0.2 | % | ||||||||||||||||
| Consumer Goods | 3 | 271,874 | 1.7 | % | 2,133 | 1.1 | % | 3 | 271,874 | 1.2 | % | 2,117 | 0.8 | % | ||||||||||||||||
| Contract Research | 1 | 80,420 | 0.5 | % | 908 | 0.5 | % | 1 | 76,820 | 0.3 | % | 895 | 0.4 | % | ||||||||||||||||
| Defense | 1 | 96,995 | 0.4 | % | 1,671 | 0.7 | % | |||||||||||||||||||||||
| Discount Retail | 143 | 2,031,558 | 12.5 | % | 18,891 | 10.0 | % | 116 | 1,785,944 | 7.8 | % | 16,165 | 6.4 | % | ||||||||||||||||
| Education | 1 | 486,868 | 3.0 | % | 1,935 | 1.0 | % | 1 | 486,868 | 2.1 | % | 1,935 | 0.8 | % | ||||||||||||||||
| Electronics | 1 | 48,497 | 0.3 | % | 686 | 0.4 | % | 1 | 48,497 | 0.2 | % | 686 | 0.3 | % | ||||||||||||||||
| Energy | 28 | 901,717 | 5.5 | % | 11,204 | 5.9 | % | 29 | 1,042,692 | 4.6 | % | 11,848 | 4.7 | % | ||||||||||||||||
| Engineering | 1 | 365,832 | 1.6 | % | 11,462 | 4.5 | % | |||||||||||||||||||||||
| Environmental Services | 1 | 70,000 | 0.3 | % | 570 | 0.2 | % | |||||||||||||||||||||||
| Financial Services | 11 | 1,650,429 | 10.1 | % | 21,564 | 11.4 | % | 13 | 2,315,896 | 10.1 | % | 35,140 | 13.9 | % | ||||||||||||||||
| Foot Apparel | 2 | 588,635 | 3.6 | % | 2,141 | 1.1 | % | 2 | 588,635 | 2.6 | % | 2,141 | 0.8 | % | ||||||||||||||||
| Freight | 17 | 1,035,556 | 6.4 | % | 9,917 | 5.2 | % | 23 | 1,391,075 | 6.1 | % | 13,248 | 5.2 | % | ||||||||||||||||
| Government | 11 | 333,020 | 2.0 | % | 11,572 | 6.1 | % | |||||||||||||||||||||||
| Government Services | 2 | 135,873 | 0.8 | % | 1,444 | 0.8 | % | 15 | 535,949 | 2.3 | % | 14,365 | 5.7 | % | ||||||||||||||||
| Healthcare | 3 | 593,633 | 3.6 | % | 12,920 | 6.8 | % | 4 | 647,199 | 2.8 | % | 13,680 | 5.4 | % | ||||||||||||||||
| Home Decor | 4 | 564,910 | 3.5 | % | 3,256 | 1.7 | % | |||||||||||||||||||||||
| Home Maintenance | 4 | 230,535 | 1.4 | % | 2,631 | 1.4 | % | 4 | 230,535 | 1.0 | % | 2,356 | 0.9 | % | ||||||||||||||||
| Hospitality | 2 | 56,164 | 0.3 | % | 1,844 | 1.0 | % | 1 | 31,881 | 0.1 | % | 403 | 0.2 | % | ||||||||||||||||
| Logistics | 3 | 1,273,068 | 5.6 | % | 3,352 | 1.3 | % | |||||||||||||||||||||||
| Marketing | 1 | 100,597 | 0.6 | % | 1,194 | 0.6 | % | 1 | 100,597 | 0.4 | % | 1,194 | 0.5 | % | ||||||||||||||||
| Metal Fabrication | 9 | 719,597 | 3.1 | % | 5,368 | 2.1 | % | |||||||||||||||||||||||
| Metal Processing | 2 | 448,280 | 2.7 | % | 2,862 | 1.5 | % | 2 | 448,280 | 2.0 | % | 2,862 | 1.1 | % | ||||||||||||||||
| Office Supplies | 1 | 206,331 | 0.9 | % | 2,437 | 1.0 | % | |||||||||||||||||||||||
| Packaging Goods | 7 | 294,580 | 1.8 | % | 1,357 | 0.7 | % | 7 | 294,580 | 1.3 | % | 1,145 | 0.5 | % | ||||||||||||||||
| Petroleum Services | 3 | 6,434 | — | % | 821 | 0.4 | % | 3 | 6,434 | * | 714 | 0.3 | % | |||||||||||||||||
| Pharmaceuticals | 3 | 390,367 | 2.4 | % | 9,734 | 5.1 | % | 3 | 390,367 | 1.7 | % | 9,789 | 3.9 | % | ||||||||||||||||
| Publishing | 1 | 873,119 | 3.8 | % | 6,924 | 2.7 | % | |||||||||||||||||||||||
| Restaurant - Quick Service | 19 | 74,356 | 0.5 | % | 3,429 | 1.8 | % | 19 | 74,356 | 0.3 | % | 3,401 | 1.3 | % | ||||||||||||||||
| Retail Banking | 3 | 36,071 | 0.2 | % | 1,328 | 0.7 | % | 3 | 36,071 | 0.2 | % | 1,154 | 0.5 | % | ||||||||||||||||
| Retail Food Distribution | 1 | 805,530 | 4.9 | % | 6,180 | 3.3 | % | 3 | 1,127,765 | 4.9 | % | 7,656 | 3.0 | % | ||||||||||||||||
| Specialty Retail | 7 | 279,561 | 1.7 | % | 3,557 | 1.9 | % | 7 | 279,561 | 1.2 | % | 3,090 | 1.2 | % | ||||||||||||||||
| Technology | 8 | 891,745 | 5.5 | % | 16,842 | 8.9 | % | 9 | 1,047,265 | 4.6 | % | 16,832 | 6.6 | % | ||||||||||||||||
| Telecommunications | 4 | 647,816 | 4.0 | % | 9,141 | 4.8 | % | 5 | 913,125 | 4.0 | % | 14,838 | 5.9 | % | ||||||||||||||||
| Utilities | 4 | 673,065 | 4.1 | % | 13,571 | 7.2 | % | 4 | 673,065 | 2.9 | % | 13,142 | 5.2 | % | ||||||||||||||||
| Waste Management | 1 | 84,373 | 0.5 | % | 358 | 0.2 | % | 1 | 84,119 | 0.6 | % | 358 | 0.1 | % | ||||||||||||||||
| Total | 307 | 16,305,844 | 100 | % | $ | 189,452 | 100 | % | 321 | 22,897,326 | 100 | % | $ | 253,637 | 100 | % | ||||||||||||||
| (1) | Annualized rental income converted from local currency into USD as of December 31, |
*Amount is below 0.1%.
The following table details the geographic distribution, by U.S. state or country,country/location, of our portfolio as of December 31, 20142017:
| Country | State | Number of Properties | Square Feet | Square Feet as a Percentage of the Total Portfolio | Annualized Rental Income (1) | Annualized Rental Income as a Percentage of the Total Portfolio | State | Number of Properties | Square Feet | Square Feet as a Percentage of the Total Portfolio | Annualized Rental Income (1) | Annualized Rental Income as a Percentage of the Total Portfolio | ||||||||||||||||||||
| (In thousands) | (In thousands) | |||||||||||||||||||||||||||||||
| Finland | Finland | 1 | 800,834 | 4.7 | % | $ | 6,261 | 3.3 | % | Finland | 5 | 1,457,109 | 6.4 | % | $ | 15,623 | 6.2 | % | ||||||||||||||
| France | 7 | 1,631,818 | 7.1 | % | 13,275 | 5.2 | % | |||||||||||||||||||||||||
| Germany | 7 | 1,869,831 | 11.5 | % | 20,727 | 10.9 | % | 8 | 2,178,410 | 9.5 | % | 21,576 | 8.5 | % | ||||||||||||||||||
| Netherlands | 4 | 347,588 | 2.1 | % | 7,072 | 3.7 | % | |||||||||||||||||||||||||
| Puerto Rico | 18 | 65,262 | 0.4 | % | 3,212 | 1.7 | % | |||||||||||||||||||||||||
| Luxembourg | Luxembourg | 1 | 156,098 | 0.7 | % | 5,418 | 2.1 | % | ||||||||||||||||||||||||
| The Netherlands | The Netherlands | 5 | 1,039,005 | 4.5 | % | 17,654 | 7.0 | % | ||||||||||||||||||||||||
| United Kingdom | United Kingdom | 40 | 2,708,443 | 16.6 | % | 41,476 | 22.0 | % | United Kingdom | 43 | 4,079,576 | 17.8 | % | 56,070 | 22.1 | % | ||||||||||||||||
| United States: | ||||||||||||||||||||||||||||||||
| United States and Puerto Rico: | United States and Puerto Rico: | |||||||||||||||||||||||||||||||
| Alabama | 9 | 73,554 | 0.3 | % | 804 | 0.3 | % | |||||||||||||||||||||||||
| Arizona | 2 | 15,605 | 0.1 | % | 156 | 0.1 | % | |||||||||||||||||||||||||
| Arkansas | 1 | 8,320 | * | 91 | * | |||||||||||||||||||||||||||
| California | 3 | 674,832 | 2.9 | % | 12,890 | 5.1 | % | |||||||||||||||||||||||||
| Colorado | 1 | 26,533 | 0.1 | % | 1,088 | 0.4 | % | |||||||||||||||||||||||||
| Alabama | 9 | 73,554 | 0.5 | % | 791 | 0.4 | % | Delaware | 1 | 9,967 | * | 361 | 0.1 | % | ||||||||||||||||||
| Arizona | 3 | 158,876 | 1.0 | % | 982 | 0.5 | % | Florida | 8 | 205,690 | 0.9 | % | 3,017 | 1.2 | % | |||||||||||||||||
| Arkansas | 1 | 8,320 | 0.1 | % | 89 | Georgia | 5 | 41,320 | 0.2 | % | 452 | 0.2 | % | |||||||||||||||||||
| California | 3 | 674,832 | 4.1 | % | 12,890 | 6.8 | % | Idaho | 2 | 16,267 | 0.1 | % | 203 | 0.1 | % | |||||||||||||||||
| Colorado | 1 | 26,533 | 0.2 | % | 1,088 | 0.6 | % | Illinois | 4 | 570,737 | 2.5 | % | 2,629 | 1.0 | % | |||||||||||||||||
| Delaware | 1 | 9,967 | 0.1 | % | 359 | 0.2 | % | Indiana | 6 | 1,113,636 | 4.9 | % | 4,490 | 1.8 | % | |||||||||||||||||
| Florida | 15 | 243,596 | 1.5 | % | 3,420 | 1.8 | % | Iowa | 2 | 32,399 | 0.1 | % | 296 | 0.1 | % | |||||||||||||||||
| Georgia | 5 | 41,320 | 0.3 | % | 449 | 0.2 | % | Kansas | 6 | 178,807 | 0.8 | % | 1,275 | 0.5 | % | |||||||||||||||||
| Idaho | 2 | 16,267 | 0.1 | % | 201 | 0.1 | % | Kentucky | 6 | 355,420 | 1.6 | % | 2,740 | 1.1 | % | |||||||||||||||||
| Illinois | 3 | 509,939 | 3.1 | % | 2,152 | 1.1 | % | Louisiana | 7 | 136,850 | 0.6 | % | 1,265 | 0.5 | % | |||||||||||||||||
| Indiana | 3 | 646,329 | 4.0 | % | 1,991 | 1.1 | % | Maine | 2 | 49,572 | 0.2 | % | 1,879 | 0.7 | % | |||||||||||||||||
| Iowa | 2 | 32,399 | 0.2 | % | 296 | 0.2 | % | Maryland | 1 | 120,000 | 0.5 | % | 785 | 0.3 | % | |||||||||||||||||
| Kansas | 6 | 178,807 | 1.1 | % | 1,275 | 0.7 | % | Massachusetts | 2 | 127,456 | 0.6 | % | 1,757 | 0.7 | % | |||||||||||||||||
| Kentucky | 7 | 517,420 | 3.2 | % | 3,687 | 1.9 | % | Michigan | 16 | 2,423,379 | 10.6 | % | 19,643 | 7.7 | % | |||||||||||||||||
| Louisiana | 7 | 136,850 | 0.8 | % | 1,260 | 0.7 | % | Minnesota | 4 | 149,690 | 0.7 | % | 2,138 | 0.8 | % | |||||||||||||||||
| Maine | 2 | 49,572 | 0.3 | % | 1,871 | 1.0 | % | Mississippi | 10 | 80,968 | 0.4 | % | 810 | 0.3 | % | |||||||||||||||||
| Maryland | 1 | 120,000 | 0.7 | % | 785 | 0.4 | % | Missouri | 5 | 308,536 | 1.3 | % | 3,427 | 1.4 | % | |||||||||||||||||
| Massachusetts | 2 | 127,456 | 0.8 | % | 1,772 | 0.9 | % | Montana | 1 | 54,148 | 0.2 | % | 441 | 0.2 | % | |||||||||||||||||
| Michigan | 12 | 2,000,300 | 12.3 | % | 16,704 | 8.8 | % | Nebraska | 7 | 116,118 | 0.5 | % | 1,222 | 0.5 | % | |||||||||||||||||
| Minnesota | 3 | 58,661 | 0.4 | % | 1,601 | 0.8 | % | New Hampshire | 1 | 82,862 | 0.4 | % | 346 | 0.1 | % | |||||||||||||||||
| Mississippi | 10 | 80,968 | 0.5 | % | 800 | 0.4 | % | New Jersey | 4 | 397,264 | 1.7 | % | 9,012 | 3.6 | % | |||||||||||||||||
| Missouri | 4 | 138,536 | 0.9 | % | 2,582 | 1.4 | % | New Mexico | 5 | 46,405 | 0.2 | % | 556 | 0.2 | % | |||||||||||||||||
| Nebraska | 6 | 57,572 | 0.4 | % | 564 | 0.3 | % | New York | 2 | 221,260 | 1.0 | % | 2,398 | 0.9 | % | |||||||||||||||||
| New Jersey | 3 | 348,964 | 2.1 | % | 8,450 | 4.5 | % | North Carolina | 7 | 192,277 | 0.8 | % | 1,547 | 0.6 | % | |||||||||||||||||
| New Mexico | 5 | 46,405 | 0.3 | % | 556 | 0.3 | % | North Dakota | 3 | 47,330 | 0.2 | % | 884 | 0.3 | % | |||||||||||||||||
| New York | 2 | 221,260 | 1.4 | % | 2,398 | 1.3 | % | Ohio | 8 | 618,481 | 2.7 | % | 4,533 | 1.8 | % | |||||||||||||||||
| North Carolina | 7 | 242,575 | 1.4 | % | 1,467 | 0.8 | % | Oklahoma | 9 | 88,770 | 0.4 | % | 825 | 0.3 | % | |||||||||||||||||
| North Dakota | 3 | 47,330 | 0.3 | % | 884 | 0.5 | % | Pennsylvania | 4 | 234,260 | 1.0 | % | 1,952 | 0.8 | % | |||||||||||||||||
| Ohio | 12 | 508,375 | 3.1 | % | 4,229 | 2.2 | % | South Carolina | 14 | 414,081 | 1.8 | % | 3,280 | 1.3 | % | |||||||||||||||||
| Oklahoma | 16 | 159,008 | 1.0 | % | 1,617 | 0.9 | % | South Dakota | 2 | 54,152 | 0.3 | % | 1,301 | 0.5 | % | |||||||||||||||||
| Pennsylvania | 11 | 376,368 | 2.3 | % | 3,900 | 2.1 | % | Tennessee | 12 | 789,295 | 3.4 | % | 7,104 | 2.8 | % | |||||||||||||||||
| South Carolina | 13 | 189,081 | 1.2 | % | 2,353 | 1.2 | % | Texas | 45 | 1,869,526 | 8.2 | % | 20,590 | 8.1 | % | |||||||||||||||||
| South Dakota | 1 | 28,300 | 0.2 | % | 946 | 0.5 | % | Utah | 2 | 19,966 | 0.1 | % | 398 | 0.2 | % | |||||||||||||||||
| Tennessee | 10 | 662,312 | 4.0 | % | 6,520 | 3.4 | % | Vermont | 3 | 212,849 | 0.9 | % | 1,166 | 0.5 | % | |||||||||||||||||
| Texas | 44 | 1,759,932 | 10.8 | % | 19,608 | 10.4 | % | Virginia | 1 | 7,954 | * | 76 | — | % | ||||||||||||||||||
| Utah | 1 | 7,948 | — | % | 91 | — | % | West Virginia | 1 | 103,512 | 0.5 | % | 980 | 0.5 | % | |||||||||||||||||
| Virginia | 1 | 7,954 | — | % | 76 | — | % | Puerto Rico | 18 | 65,262 | 0.3 | % | 3,214 | 1.3 | % | |||||||||||||||||
| Total | 307 | 16,305,844 | 100 | % | $ | 189,452 | 100 | % | 321 | 22,897,326 | 100 | % | $ | 253,637 | 100 | % | ||||||||||||||||
*Amount is below 0.1%.
(1) | Annualized rental income converted from local currency into USD as of December 31, |
Future Minimum Lease Payments
The following table presents future minimum base rent payments, on a cash basis, due to us over the next ten calendar years and thereafter aton the properties we owned as of December 31, 20142017:
| (In thousands) | Future Minimum Base Rent Payments (1) | Future Minimum Base Rent Payments (1) | ||||||
| 2015 | $ | 175,154 | ||||||
| 2016 | 179,154 | |||||||
| 2017 | 182,643 | |||||||
| 2018 | 185,137 | $ | 249,495 | |||||
| 2019 | 187,586 | 252,541 | ||||||
| 2020 | 189,854 | 255,589 | ||||||
| 2021 | 187,953 | 253,689 | ||||||
| 2022 | 178,180 | 244,151 | ||||||
| 2023 | 155,401 | 220,035 | ||||||
| 2024 | 132,311 | 174,757 | ||||||
| 2025 | 112,674 | |||||||
| 2026 | 81,207 | |||||||
| 2027 | 63,643 | |||||||
| Thereafter | 376,735 | 241,676 | ||||||
| Total | $ | 2,130,108 | $ | 2,149,457 | ||||
(1) |
Future Lease Expirations
The following is a summary of lease expirations for the next ten calendar years aton the properties we ownowned as of December 31, 20142017:
| Year of Expiration | Number of Leases Expiring | Annualized Rental Income (1) | Annualized Rental Income as a Percentage of the Total Portfolio | Leased Rentable Square Feet | Percent of Portfolio Rentable Square Feet Expiring | Number of Leases Expiring | Annualized Rental Income (1) | Annualized Rental Income as a Percentage of the Total Portfolio | Leased Rentable Square Feet | Percent of Portfolio Rentable Square Feet Expiring | ||||||||||||||||||||
| (In thousands) | (In thousands) | |||||||||||||||||||||||||||||
| 2015 | — | $ | — | — | % | — | — | % | ||||||||||||||||||||||
| 2016 | — | — | — | % | — | — | % | |||||||||||||||||||||||
| 2017 | — | — | — | % | — | — | % | |||||||||||||||||||||||
| 2018 | — | — | — | % | — | — | % | — | $ | — | — | % | — | — | % | |||||||||||||||
| 2019 | — | — | — | % | — | — | % | — | — | — | % | — | — | % | ||||||||||||||||
| 2020 | 2 | 3,482 | 1.8 | % | 386,015 | 2.4 | % | 2 | 3,467 | 1.4 | % | 386,015 | 1.7 | % | ||||||||||||||||
| 2021 | 2 | 5,003 | 2.6 | % | 322,938 | 2.0 | % | 2 | 4,944 | 1.9 | % | 322,938 | 1.4 | % | ||||||||||||||||
| 2022 | 16 | 22,013 | 11.6 | % | 1,552,953 | 9.5 | % | 16 | 23,773 | 9.4 | % | 1,552,953 | 6.8 | % | ||||||||||||||||
| 2023 | 26 | 21,176 | 10.5 | % | 2,352,720 | 14.4 | % | 30 | 28,271 | 11.1 | % | 2,410,818 | 10.6 | % | ||||||||||||||||
| 2024 | 33 | 38,010 | 20.6 | % | 3,173,767 | 19.5 | % | 45 | 70,000 | 27.6 | % | 5,886,635 | 25.9 | % | ||||||||||||||||
| 2025 | 39 | 38,870 | 15.3 | % | 3,269,353 | 14.4 | % | |||||||||||||||||||||||
| 2026 | 16 | 21,213 | 8.4 | % | 2,038,071 | 8.9 | % | |||||||||||||||||||||||
| 2027 | 12 | 5,251 | 2.1 | % | 499,105 | 2.2 | % | |||||||||||||||||||||||
| Total | 79 | $ | 89,684 | 47.1 | % | 7,788,393 | 47.8 | % | 162 | $ | 195,789 | 77.2 | % | 16,365,888 | 71.9 | % | ||||||||||||||
| (1) | Assumes exchange rates of £1.00 to $1.35 for GBP and €1.00 to $1.20 for EUR as of December 31, |
Tenant Concentration
As of December 31, 2014,2017, we did not have any tenantstenant whose rentable square footage or annualized rental income represented greater than 10% of total portfolio rentable square footage or annualized rental income.income, respectively.
Significant Portfolio Properties
The rentable square feet or annual straight-line rental income of the RWE AG and Government Services Administration ("GSA") (I - IX)FedEx properties each represents 5% or more of our total portfolio's rentable square feet or annual straight-line rental income.income as of December 31, 2017. The tenant concentrationFedEx portfolio comprises a total of these16 properties and is summarized below.
Property Financings
Outstanding Loan Amount(1) | ||||||||||||||||||
| Country | Portfolio | Encumbered Properties | December 31, 2014 | December 31, 2013 | Effective Interest Rate | Interest Rate | Maturity | |||||||||||
| (In thousands) | (In thousands) | |||||||||||||||||
| Germany: | ||||||||||||||||||
| Rheinmetall | 1 | $ | 12,884 | $ | — | 2.5% | (2) | Fixed | Jan. 2019 | |||||||||
| OBI DIY | 1 | 5,470 | — | 2.4% | Fixed | Jan. 2019 | ||||||||||||
| RWE AG | 3 | 75,969 | — | 1.6% | Fixed | Oct. 2019 | ||||||||||||
| Rexam | 1 | 6,394 | — | 1.9% | Fixed | Oct. 2019 | ||||||||||||
| Metro Tonic | 1 | 32,211 | — | 1.7% | Fixed | Dec. 2019 | ||||||||||||
| United Kingdom: | ||||||||||||||||||
| McDonald's | 1 | 1,180 | 1,253 | 4.1% | (2) | Fixed | Oct. 2017 | |||||||||||
| Wickes Building Supplies I | 1 | 3,024 | 3,209 | 3.7% | (2) | Fixed | May 2018 | |||||||||||
| Everything Everywhere | 1 | 6,213 | 6,596 | 4.0% | (2) | Fixed | Jun. 2018 | |||||||||||
| Thames Water | 1 | 9,319 | 9,894 | 4.1% | (2) | Fixed | Jul. 2018 | |||||||||||
| Wickes Building Supplies II | 1 | 2,563 | 2,721 | 4.2% | (2) | Fixed | Jul. 2018 | |||||||||||
| Northern Rock | 2 | 8,155 | 8,657 | 4.4% | (2) | Fixed | Sep. 2018 | |||||||||||
| Wickes Building Supplies III | 1 | 2,951 | 3,133 | 4.3% | (2) | Fixed | Nov. 2018 | |||||||||||
| Provident Financial | 1 | 19,804 | — | 4.1% | (2) | Fixed | Feb. 2019 | |||||||||||
| Crown Crest | 1 | 29,901 | — | 4.2% | (2) | Fixed | Feb. 2019 | |||||||||||
| Aviva | 1 | 24,387 | — | 3.8% | (2) | Fixed | Mar. 2019 | |||||||||||
| United States: | Western Digital | 1 | 18,269 | 18,541 | 3.7% | Fixed | Jul. 2021 | |||||||||||
| Puerto Rico: | Encanto Restaurants | 18 | 22,492 | 22,900 | 3.0% | Fixed | Jun. 2017 | |||||||||||
| Total | 37 | $ | 281,186 | $ | 76,904 | 3.7% | ||||||||||||
Item 3. Legal Proceedings.
On January 25, 2018, the Service Provider filed a complaint against us, the Property Manager, the Special Limited Partner, the OP, the Advisor, which we refer to collectively as the GNL Defendants, AR Capital Global Holdings, LLC, and AR Global which we refer to as the AR Global Defendants, in the Supreme Court of the State of New York, County of New York. The complaint alleges that the notice sent to the Service Provider by us on January 15, 2018, terminating the Service Provider Agreement, as well as two other letters sent terminating other agreements with the Service Provider (collectively, the “Termination Letters”), were a pretext to enable the AR Global Defendants to seize the Service Provider's business with us. The complaint further alleges breach of contract against the GNL Defendants, and tortious interference against the AR Global Defendants. The complaint seeks: (i) monetary damages against the defendants, (ii) to enjoin the GNL Defendants from terminating the Service Provider Agreement based on the Termination Letters, and (iii) judgment declaring the Termination Letters to be void. The defendants believe the allegations in the complaint are notwithout merit, and intend to defend against them vigorously. On January 26, 2018, the Service Provider made a partymotion seeking to any materialpreliminarily enjoin the defendants from terminating the Service Provider Agreement pending legal proceedings.resolution of the lawsuit. On February 13, 2018, the defendants responded and moved to dismiss. Both motions remain pending. See Note 16 — Subsequent Events to our audited consolidated financial statements in this Annual Report on Form 10-K.
Item 4. Mine Safety Disclosure.Disclosures.
Not applicable.
PART II
Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our shares are notCommon Stock is traded on the NYSE under the symbol "GNL." Set forth below is a line graph comparing the cumulative total stockholder return on our Common Stock, based on the market price of the Common Stock, with the FTSE National Association of Real Estate Investment Trusts Equity Index ("NAREIT"), Modern Index Strategy Indexes ("MSCI"), and the New York Stock Exchange Index ("NYSE Index") for the period commencing June 2, 2015, the date on which we listed on a national securities exchange and there is no established trading market for our shares on the NYSE and ending December 31, 2017. The graph assumes an investment of common stock although our board has announced that it intends to file an application to list our common stock$100 on a national securities exchange. There is no assurance thatJune 2, 2015.
For each calendar quarter indicated, the shares will, in fact, be listed. Unlessfollowing table reflects high and untillow sales prices for the shares are listed, even if a stockholder is able to find a buyer for his or her shares, the stockholder may not sell his or her shares unless the buyer meets applicable suitability and minimum purchase standardsCommon Stock as reported by NYSE and the sale does not violate state securities laws. Our charter also prohibits the ownership of more than 9.8% in value of the aggregate of the outstanding shares of our stock or more than 9.8% (in value or in number of shares, whichever is more restrictive) of any class or series of shares of our stock by a single investor, unless exempted by our board of directors, which may inhibit large investors from desiring to purchase shares from stockholders.
| 2017: | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | ||||||||||||
| High | $ | 25.25 | $ | 24.45 | $ | 22.66 | $ | 22.42 | ||||||||
| Low | $ | 22.36 | $ | 21.61 | $ | 20.71 | $ | 20.09 | ||||||||
| Dividends per share | $ | 0.534 | $ | 0.534 | $ | 0.534 | $ | 0.534 | ||||||||
| 2016: | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | ||||||||||||
| High | $ | 25.95 | $ | 26.92 | $ | 26.46 | $ | 24.69 | ||||||||
| Low | $ | 17.31 | $ | 22.38 | $ | 23.01 | $ | 20.76 | ||||||||
| Dividends per share | $ | 0.531 | $ | 0.531 | $ | 0.531 | $ | 0.531 | ||||||||
Holders
As of March 13, 2015,February 15, 2018, we had 179.767.3 million shares outstanding held by 33,865 stockholders.
Dividends
We qualified to be taxed as a REIT for U.S. federal income tax purposes, commencing with our taxable year ended December 31, 2013. As a REIT, we are required to distribute at least 90% of our REIT taxable income to our stockholders annually. We pay dividends on the 15th day of each month in an amount equal to $0.1775 per share to common stockholders of record as of close of business on the 8th day of such month. The amount of distributionsdividends payable to our common stockholders is determined by our board of directors and is dependent on a number of factors, including funds available for distribution,dividends, our financial condition, capital expenditure requirements, as applicable, requirements of Maryland law and annual distribution requirements needed to qualify and maintain our status as a REIT underREIT. Dividends on our Series A Preferred Stock accrue in an amount equal to $0.453125 per share per quarter to Series A Preferred Stock holders, which is equivalent to 7.25% of the Code.$25.00 liquidation preference per share of Series A Preferred Stock per annum. Dividends on the Series A Preferred Stock are payable quarterly in arrears on the 15th day of January, April, July and October of each year (or, if not on a business day, on the next succeeding business day) to holders of record on the close of business on the record date set by our board of directors, which must be not more than 30 nor fewer than 10 days prior to the applicable payment date. We cannot guarantee that we will be able to pay dividends with respect to the Series A Preferred Stock or our Common Stock on a regular basis in the future. Our ability to pay dividends in the future is dependent on our ability to operate profitably and to generate cash flows from our operations. In addition, pursuant to the Credit Facility, we may not pay distributions, including cash dividends payable with respect to Series A Preferred Stock and Common Stock, or redeem or otherwise repurchase shares of our capital stock, including Series A Preferred Stock and Common Stock, in an aggregate amount exceeding 95% of our Adjusted FFO as defined in the Credit Facility (which is different from AFFO as discussed and analyzed in this Annual Report on Form 10-K) for any period of four consecutive fiscal quarters, except in limited circumstances, including that for one fiscal quarter in each calendar year, we may pay cash dividends, make redemptions and make repurchases in an aggregate amount equal to no more than 100% of our Adjusted FFO. For tax purposes, of the amounts distributed during the year ended December 31, 2014, 70.4%2017, 18.3%, or $0.50$0.39 per share per annum, and 29.6%81.7%, or $0.21$1.74 per share per annum, represented a return of capital and ordinary dividends, respectively. During the year ended December 31, 2013, 51.7%2016, 62.0%, or $0.37$1.32 per share per annum, and 48.3%38.0%, or $0.34$0.81 per share per annum, represented a return of capital and ordinary dividends, respectively.See Note 9 — Stockholders' Equity to our audited consolidated financial statements in this Annual Report on Form 10-K for further discussion on tax characteristics of dividends.
| (In thousands) | Distributions Paid in Cash (1) | Distributions Reinvested through DRIP (1) | Total Distributions Paid (1) | Distributions Declared (1) | ||||||||||||
| Q1 2014 | $ | 2,028 | $ | 1,937 | $ | 3,965 | $ | 6,730 | ||||||||
| Q2 2014 | 6,524 | 8,286 | 14,810 | 20,231 | ||||||||||||
| Q3 2014 | 13,083 | 17,120 | 30,203 | 31,443 | ||||||||||||
| Q4 2014 | 13,780 | 17,543 | 31,323 | 31,760 | ||||||||||||
| Total | $ | 35,415 | $ | 44,886 | $ | 80,301 | $ | 90,164 | ||||||||
| (In thousands) | Dividends Paid in Cash | Other Distributions Paid in Cash (1) | Total Dividends Paid | Dividends Declared | ||||||||||||
| Q1 2017 | $ | 35,293 | $ | 255 | $ | 35,548 | $ | 35,543 | ||||||||
| Q2 2017 | 35,466 | 160 | 35,626 | 35,652 | ||||||||||||
| Q3 2017 | 35,834 | 159 | 35,993 | 36,016 | ||||||||||||
| Q4 2017 | 36,146 | 165 | 36,311 | 35,955 | ||||||||||||
| Total | $ | 142,739 | $ | 739 | $ | 143,478 | $ | 143,166 | ||||||||
| (In thousands) | Distributions Paid in Cash (1) | Distributions Reinvested through DRIP (1) | Total Distributions Paid (1) | Distributions Declared (1) | ||||||||||||
| Q1 2013 | $ | 46 | $ | 3 | $ | 49 | $ | 78 | ||||||||
| Q2 2013 | 187 | 102 | 289 | 498 | ||||||||||||
| Q3 2013 | 594 | 441 | 1,035 | 1,264 | ||||||||||||
| Q4 2013 | 935 | 774 | 1,709 | 2,065 | ||||||||||||
| Total | $ | 1,762 | $ | 1,320 | $ | 3,082 | $ | 3,905 | ||||||||
| (In thousands) | Dividends Paid in Cash | Other Distributions Paid in Cash (1) | Total Dividends Paid | Dividends Declared | ||||||||||||
| Q1 2016 | $ | 30,020 | $ | 857 | (2) | $ | 30,877 | $ | 30,503 | |||||||
| Q2 2016 | 30,019 | 487 | 30,506 | 30,503 | ||||||||||||
| Q3 2016 | 30,097 | 405 | 30,502 | 30,502 | ||||||||||||
| Q4 2016 | 30,250 | 259 | 30,509 | 30,511 | ||||||||||||
| Total | $ | 120,386 | $ | 2,008 | $ | 122,394 | $ | 122,019 | ||||||||
(1) | Represents distributions for LTIP Units and OP Units. As of December 31, 2017 there were no more OP Units outstanding. |
(2) | Includes 2015 accrued LTIP Units distributions of $0.4 million which were paid during Q1 2016. |
Share-Based Compensation
| Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants, and Rights | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights | Number of Securities Remaining Available For Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a) | |||||||||
| (a) | (b) | (c) | ||||||||||
| Equity Compensation Plans approved by security holders | $ | — | $ | — | $ | — | ||||||
| Equity Compensation Plans not approved by security holders | — | — | 9,909.323 | |||||||||
| Total | $ | — | $ | — | $ | 9,909,323 | ||||||
Stock Option Plan
The Plan authorizes the grant of nonqualifiednon-qualified stock options to our independent directors, subject to the absolute discretion of the board of directors and the applicable limitations of the Plan. The exercise price for all stock options granted under the Plan will be equal to the fair market value of a share on the last business day preceding the annual meeting of stockholders. A total of 0.5 million shares have been authorized and reserved for issuance under the Plan.
Restricted Share Plan
Prior to being amended and restated on April 8, 2015, the RSP provided for the automatic grant of 1,000 Restricted Shares to each of the independent directors, without any further action by our board of directors or the stockholders, on the date of initial election to the board of directors and on the date of each annual stockholder’s meeting. Restricted Shares issued to independent directors vest over a five-year period following the first anniversary of the date of grant in increments of 20% per annum. On April 8, 2015, pursuant to this amendment and restatement, among other things, RSUs were added as a permitted form of award and the fixed amount of shares that are automatically granted to the independent directors and the fixed vesting period of five years was removed. Under the RSP, the annual amount granted to the independent directors is determined by the board of directors.
Effective upon the Listing, our board of directors approved the following changes to independent director compensation: (i) increasing in the annual retainer payable to all independent directors to $100,000 per year, (ii) increase in the annual retainer for the non-executive chair to $105,000, (iii) increase in the annual retainer for independent directors serving on the audit committee, compensation committee or nominating and corporate governance committee to $30,000. All annual retainers are payable 50% in the form of cash and 50% in the form of RSUs which vest over a three-year period. In addition, the directors have the option to elect to receive the cash component in the form of RSUs which would vest over a three-year period. Under the RSP, restricted share awards entitle the recipient to receive shares of restricted stock grantedCommon Stock from us under our RSP, togetherterms that provide for vesting over a specified period of time or upon attainment of pre-established performance objectives. Such awards would typically be forfeited with respect to the unvested shares upon the termination of the recipient's employment or other relationship with us. In connection with the total amountListing, our board of acquisition fees, acquisition expense reimbursements, asset management fees, financing coordination fees, disposition fees and subordinated distributions by the operating partnership payabledirectors also approved a one-time retention grant of 13,333 RSUs to the Advisor (or its assignees), may not exceed (a) 6% of all properties' aggregate gross contract purchase price, (b) as determined annually, the greater, in the aggregate, of 2% of average invested assets and 25% of net income other than any additions to reserves for depreciation, bad debt or other similar non-cash reserves and excluding any gain from the sale of assets for that period, (c) disposition fees, if any, of up to 3%each of the contract sales pricedirectors valued at $25.56 per unit, which vest over a five-year period. On July 13, 2015, we granted an annual retainer to each of all properties thatits independent directors comprising of 50% (or $0.1 million) in cash and 50% (or 2,451) in RSUs which vest over a three-year period with the vesting period beginning on June 15, 2015. In addition, we sellgranted $0.1 million in non-executive chair compensation in cash and (d) 15%1,961 in RSUs which vest over a three-year period with the vesting period beginning on June 15, 2015. On August 18, 2016, we granted an annual retainer to each of remaining net sales proceeds after returnour independent directors comprising of capital contributions plus payment$0.1 million and 2,881 in RSUs which vest over a three-year period with the vesting period beginning on June 28, 2016. In addition, we granted $0.1 million in non-executive chair compensation in cash and 2,327 in RSUs which vest over a three-year period with the vesting period beginning on June 28, 2016.
On January 3, 2017, following approval by our board of directors, 10,667 unvested restricted shares owned by Mr. Kahane became vested simultaneously with his resignation as a member of the board of directors. The board of directors had accelerated the vesting of 8,000 of these unvested restricted shares upon Mr. Kahane’s voluntary resignation.
Prior to investors of a 6% cumulative, pre-tax, non-compounded returnbeing amended and restated on the capital contributed by investors. Additionally,April 8, 2015, the total number of shares of common stockCommon Stock granted under the RSP maycould not exceed 5% of our authorized commonoutstanding shares pursuant to the IPOon a fully diluted basis at any time, and in any event willcould not exceed 7.52.5 million shares (as such number may be adjusted for stock splits, stock dividends, combinations and similar events). On April 8, 2015, pursuant to this amendment and restatement the number of shares of our Common Stock, available for awards under the RSP was increased to 10% of our outstanding shares of Common Stock on a fully diluted basis at any time. The RSP also eliminated the limit of 2.5 million shares of Common Stock permitted to be issued as RSUs.
Multi-Year Outperformance Agreement
In connection with the Listing and modifications to the Advisory Agreement, we entered into the OPP. Under the OPP, the Advisor was issued 3,013,933 long term incentive plan units ("LTIP Units") in the OP with a maximum award value on the issuance date equal to 5.00% of our market capitalization (the “OPP Cap”). The LTIP Units are structured as profits interests in the OP.
The Advisor will be eligible to earn a number of LTIP Units with a value equal to a portion of the OPP Cap upon the first, second and third anniversaries of the Effective Date, which is the listing date, June 2, 2015, based on our achievement of certain levels of total return to its stockholders (“Total Return”), including both share price appreciation and Common Stock dividends, as measured against a peer group of companies, as set forth below, for the three-year performance period commencing on the Effective Date (the “Three-Year Period”); each 12-month period during the Three-Year Period (the “One-Year Periods”); and the initial 24-month period of the Three-Year Period (the “Two-Year Period”), as follows:
| Performance Period | Annual Period | Interim Period | ||||||
| Absolute Component: 4% of any excess Total Return attained above an absolute hurdle measured from the beginning of such period: | 21% | 7% | 14% | |||||
| Relative Component: 4% of any excess Total Return attained above the Total Return for the performance period of the Peer Group*, subject to a ratable sliding scale factor as follows based on achievement of cumulative Total Return measured from the beginning of such period: | ||||||||
| • | 100% will be earned if cumulative Total Return achieved is at least: | 18% | 6% | 12% | ||||
| • | 50% will be earned if cumulative Total Return achieved is: | —% | —% | —% | ||||
| • | 0% will be earned if cumulative Total Return achieved is less than: | —% | —% | —% | ||||
| • | a percentage from 50% to 100% calculated by linear interpolation will be earned if the cumulative Total Return achieved is between: | 0% - 18% | 0% - 6% | 0% - 12% | ||||
| * | The “Peer Group” is comprised of Gramercy Property Trust Inc., Lexington Realty Trust, Select Income REIT, and W.P. Carey Inc. |
The potential outperformance award is calculated at the end of each One-Year Period, the Two-Year Period and the Three-Year Period. The award earned for the Three-Year Period is based on the formula in the table above less any awards earned for the Two-Year Period and One-Year Periods, but not less than zero; the award earned for the Two-Year Period is based on the formula in the table above less any award earned for the first and second One-Year Period, but not less than zero. Any LTIP Units that are unearned at the end of the Performance Period will be forfeited.
Subject to the Advisor’s continued service through each vesting date, one third of any earned LTIP Units will vest on each of the third, fourth and fifth anniversaries of the Effective Date. Any earned and vested LTIP Units may be converted into OP Units in accordance with the terms and conditions of the limited partnership agreement of the OP. The OPP provides for early calculation of LTIP Units earned and for the accelerated vesting of any earned LTIP Units in the event the Advisor is terminated or in the event we incur a change in control, in either case prior to the end of the Three-Year Period. As of June 2, 2017 (end of the Two-Year Period) and June 2, 2016 (end of the first One-Year Period), no LTIP units were earned by the Advisor under the terms of the OPP with the Three-Year Period remaining during which the LTIP Units may be earned.
We record equity-based compensation expense associated with the awards over the requisite service period of five years on a graded vesting basis. Equity-based compensation expense is adjusted each reporting period for changes in the estimated market-related performance. Compensation income related to the OPP was $4.4 million and compensation expense of $3.4 million and $2.2 million for the years ended December 31, 2017, 2016 and 2015, respectively. Subject to the Advisor’s continued service through each vesting date, one third of any earned LTIP Units will vest on each of the third, fourth and fifth anniversaries of the Effective Date. Until such time as an LTIP Unit is earned in accordance with the provisions of the OPP, the holder of such LTIP
Unit is entitled to distributions on such LTIP Unit equal to 10% of the distributions (other than distributions of sale proceeds) made per OP Unit. If real estate assets are sold and net sales proceeds distributed prior to June 2, 2018, the end of the Three-Year Period, the holders of LTIP Units generally would be entitled to a portion of those net sales proceeds with respect to both the earned and unearned LTIP Units (although the amount per LTIP Unit, which would be determined in accordance with a formula in the limited partnership agreement of the OP, would be less than the amount per OP Unit until the average capital account per LTIP Unit equals the average capital account per OP Unit). We paid $0.6 million in distributions related to LTIP Units during the year ended December 31, 2017, which is included in accumulated deficit in the audited consolidated statement of equity. We accrued $0.4 million in distributions related to LTIP Units during the year ended December 31, 2016. After an LTIP Unit is earned, the holder of such LTIP Unit is entitled to a catch-up distribution and then the same distributions as the holders of an OP Unit. At the time the Advisor’s capital account with respect to an LTIP Unit is economically equivalent to the average capital account balance of an OP Unit, the LTIP Unit has been earned and it has been vested for 30 days, the Advisor, in its sole discretion, will be entitled to convert such LTIP Unit into an OP Unit in accordance with the provisions of the limited partnership agreement of the OP.
On February 25, 2016, the OPP was amended and restated to reflect the merger of two of the companies in the Peer Group.
On February 28, 2017, we completed a reverse stock split of Common Stock, OP Units and LTIP Units, at a ratio of 1-for-3 (see Note 1 - Organization to our audited consolidated financial statements in this Annual Report on Form 10-K for details).
Other Share-Based Compensation
We may issue Common Stock in lieu of cash to pay fees earned by our directors at each director's election. There are no restrictions on the shares issued since these payments in lieu of cash relate to fees earned for services performed. There were no such shares of Common Stock issued in lieu of cash during the years ended December 31, 2017, 2016 and 2015.
Unregistered Sales of Equity Securities
We did not sell any equity securities that were not registered under the Securities Act of 1933, as amended (the "Securities Act"), during the yearsthree months ended December 31, 2014, 2013 and 2012. During the period from July 13, 2011 (date of inception) to December 31, 2011, we sold 22,2222017. On April 3, 2017, 181,841 OP Units were converted into shares of our common stockCommon Stock by holders of the OP Units who were individual members and employees of AR Global or entities controlled by one of such individuals. The shares were issued directly to our Special Limited Partner under Rule 506 of Regulation Dthe OP Unit holders in reliance upon an exemption from the registration requirements of the Securities Act of 1933 at a price(the "Securities Act") under Section4(a) (2) of $9.00 per share for aggregate gross proceeds of $0.2 million, which was used to fund third party offering costs.
| Year Ended December 31, | ||||||||||||
| (In thousands) | 2014 | 2013 | 2012 | |||||||||
| Selling commissions and dealer manager fees | $ | 148,372 | $ | 14,024 | $ | 3 | ||||||
| Other offering costs | 19,321 | 3,900 | 1,988 | |||||||||
| Total offering costs | $ | 167,693 | $ | 17,924 | $ | 1,991 | ||||||
| Year Ended December 31, | ||||||||||||
| (In thousands) | 2014 | 2013 | 2012 | |||||||||
| Total commissions paid to the Dealer Manager | $ | 148,372 | $ | 14,024 | $ | 3 | ||||||
| Less: | ||||||||||||
| Commissions to participating brokers | (101,421 | ) | (8,733 | ) | (2 | ) | ||||||
| Reallowance to participating broker dealers | (15,275 | ) | (1,181 | ) | — | |||||||
| Net to the Dealer Manager | $ | 31,676 | $ | 4,110 | $ | 1 | ||||||
Item 6. Selected Financial Data
The following is selected financial data as of December 31, 2017, 2016, 2015, 2014, 2013, 2012 and 20112013, and for the years ended December 31, 2017, 2016, 2015, 2014, 2013, 2012 and for the period ended July 13, 2011 (date of inception) to December 31, 2011:2013:
| December 31, | December 31, | |||||||||||||||||||||||||||||||||||
Balance sheet data (In thousands) | 2014 | 2013 | 2012 | 2011 | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||||||||||||||
| Total real estate investments, at cost | $ | 2,340,039 | $ | 196,908 | $ | 2,585 | $ | — | $ | 3,172,677 | $ | 2,931,695 | $ | 2,546,304 | $ | 2,340,039 | $ | 196,908 | ||||||||||||||||||
| Total assets | 2,428,797 | 214,927 | 2,933 | 559 | 3,038,595 | 2,891,467 | 2,540,522 | 2,424,825 | 213,840 | |||||||||||||||||||||||||||
| Mortgage notes payable | 281,186 | 76,904 | 1,228 | — | ||||||||||||||||||||||||||||||||
| Credit facility | 659,268 | — | — | — | ||||||||||||||||||||||||||||||||
| Mortgage notes payable, net | 984,876 | 747,381 | 524,262 | 277,214 | 75,817 | |||||||||||||||||||||||||||||||
| Revolving credit facilities | 298,909 | 616,614 | 717,286 | 659,268 | — | |||||||||||||||||||||||||||||||
| Term loan, net | 229,905 | — | — | |||||||||||||||||||||||||||||||||
| Mezzanine facility, net | — | 55,383 | — | — | — | |||||||||||||||||||||||||||||||
| Total liabilities | 1,012,128 | 92,207 | 3,729 | 375 | 1,624,352 | 1,535,486 | 1,320,403 | 1,008,156 | 91,120 | |||||||||||||||||||||||||||
| Total stockholders' equity (deficit) | $ | 1,416,669 | $ | 122,720 | $ | (796 | ) | $ | 184 | |||||||||||||||||||||||||||
| Total equity | 1,414,243 | 1,355,981 | 1,220,119 | 1,416,669 | 122,720 | |||||||||||||||||||||||||||||||
Operating data (In thousands, except share and per share data) | Year Ended December 31, | Period from July 13, 2011 (date of inception) to December 31, 2011 | ||||||||||||||
| 2014 | 2013 | 2012 | ||||||||||||||
| Total revenues | $ | 93,383 | $ | 3,951 | $ | 30 | $ | — | ||||||||
| Operating expenses: | ||||||||||||||||
| Property operating | 7,947 | 42 | — | — | ||||||||||||
| Operating fees to affiliates | 797 | 50 | 1 | — | ||||||||||||
| Acquisition and transaction related | 83,498 | 7,745 | 228 | — | ||||||||||||
| General and administrative | 4,314 | 58 | 183 | 16 | ||||||||||||
| Depreciation and amortization | 40,387 | 2,112 | 21 | — | ||||||||||||
| Income tax benefit | (1,431 | ) | — | — | — | |||||||||||
| Total expenses | 135,512 | 10,007 | 433 | 16 | ||||||||||||
| Operating loss | (42,129 | ) | (6,056 | ) | (403 | ) | (16 | ) | ||||||||
| Other Income (Expense): | ||||||||||||||||
| Interest expense | (14,852 | ) | (969 | ) | (10 | ) | — | |||||||||
| Income from investments | 14 | — | 14 | — | ||||||||||||
| Unrealized gain (loss) on foreign currency | (186 | ) | 35 | — | — | |||||||||||
| Gains (losses) on derivative instruments | 1,881 | — | — | — | ||||||||||||
| Gain (loss) on hedging instruments deemed ineffective | 1,387 | — | — | — | ||||||||||||
| Other income | 291 | 1 | — | — | ||||||||||||
| Net loss | $ | (53,594 | ) | $ | (6,989 | ) | $ | (399 | ) | $ | (16 | ) | ||||
| Other data: | ||||||||||||||||
| Cash flows used in operations | $ | (9,693 | ) | $ | (3,647 | ) | $ | (418 | ) | $ | — | |||||
| Cash flows used in investing activities | (1,517,175 | ) | (111,500 | ) | (1,357 | ) | — | |||||||||
| Cash flows provided by financing activities | 1,582,907 | 124,209 | 2,027 | — | ||||||||||||
| Per share data: | ||||||||||||||||
| Weighted-average number of common shares outstanding, basic and diluted | 126,079,369 | 5,453,404 | 64,252 | 22,222 | ||||||||||||
| Dividends declared per common share | $ | 0.71 | $ | 0.71 | $ | 0.71 | — | |||||||||
| Net loss per common share - basic and diluted | $ | (0.43 | ) | $ | (1.28 | ) | $ | (6.43 | ) | NM | ||||||
Operating data (In thousands, except share and per share data) | Year Ended December 31, | |||||||||||||||||||
| 2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||
| Total revenues | $ | 259,295 | $ | 214,174 | $ | 205,332 | $ | 93,383 | $ | 3,951 | ||||||||||
| Operating expenses | 173,247 | 153,892 | 172,123 | 136,943 | 10,007 | |||||||||||||||
| Operating income (loss) | 86,048 | 60,282 | 33,209 | (43,560 | ) | (6,056 | ) | |||||||||||||
| Total other expenses | (59,322 | ) | (8,283 | ) | (29,335 | ) | (11,465 | ) | (933 | ) | ||||||||||
| Income taxes (expense) benefit | (3,140 | ) | (4,422 | ) | (5,889 | ) | 1,431 | — | ||||||||||||
| Net income (loss) | 23,586 | 47,577 | (2,015 | ) | (53,594 | ) | (6,989 | ) | ||||||||||||
| Non-controlling interests | (21 | ) | (437 | ) | (50 | ) | — | — | ||||||||||||
| Preferred stock dividends | (2,834 | ) | — | — | — | — | ||||||||||||||
| Net income (loss) attributable to common stockholders | $ | 20,731 | $ | 47,140 | $ | (2,065 | ) | $ | (53,594 | ) | $ | (6,989 | ) | |||||||
| Other data: | ||||||||||||||||||||
| Cash flows provided by (used in) operations | $ | 130,954 | $ | 114,394 | $ | 102,155 | $ | (9,693 | ) | $ | (3,647 | ) | ||||||||
| Cash flows provided by (used in) investing activities | (78,978 | ) | 134,147 | (222,279 | ) | (1,517,175 | ) | (111,500 | ) | |||||||||||
| Cash flows (used in) provided by financing activities | (30,657 | ) | (236,700 | ) | 121,604 | 1,582,907 | 124,209 | |||||||||||||
Per share data (1): | ||||||||||||||||||||
| Dividends declared per common share | $ | 2.13 | $ | 2.13 | $ | 2.13 | $ | 2.13 | $ | 2.13 | ||||||||||
| Net income (loss) per common share - basic and diluted | $ | 0.30 | $ | 0.82 | $ | (0.04 | ) | $ | (1.28 | ) | $ | (3.84 | ) | |||||||
| Weighted-average number of common shares outstanding, basic and diluted | 66,877,620 | 56,720,448 | 58,103,298 | 42,026,456 | 1,817,801 | |||||||||||||||
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the accompanying financial statements. The following information contains forward-looking statements, which are subject to risks and uncertainties. Should one or more of these risks or uncertainties materialize, actual results may differ materially from those expressed or implied by the forward-looking statements. Please see "Forward-Looking Statements" elsewhere in this report for a description of these risks and uncertainties.
Overview
We were incorporated on July 13, 2011 as a Maryland corporation thatcorporation. We acquired our first property and commenced active operations in October 2012 and elected and qualified to be taxed as a REIT for U.S. federal income tax purposes beginning with our taxable year ended December 31, 2013. On April 20, 2012, we commencedWe completed our IPO on a "reasonable best efforts" basis of up to 150.0 million shares of common stock, $0.01 par value per share, at a price of $10.00 per share, subject to certain volumeJune 30, 2014 and other discounts, pursuant to a registration statement on Form S-11, as amended from time to time (File No. 333-177563) (the "Registration Statement") filed withJune 2, 2015 we listed our Common Stock on the Securities and Exchange Commission ("SEC")NYSE under the Securities Act of 1933, as amended. The Registration Statement also covered up to an additional 25.0 million shares of common stock pursuant to a distribution reinvestment plan (the "DRIP") under which our common stockholders could elect to have their distributions reinvestedsymbol "GNL." We invest in additional shares of our common stock. On March 19, 2014, our board of directors approved the extension of our IPO to April 20, 2015, provided that the offering will be terminated if all 150.0 million shares of our common stock are sold before such date. On June 13, 2014, we announced the reallocation 23.8 million shares which represented all remaining unsold shares available pursuant to the DRIP. On June 17, 2014, we registered an additional 25.0 million shares to be issued under the DRIP pursuant to a registration statement on Form S-3 (File No. 333-196829).
On August 8, 2016, we entered into the United States, although upMerger Agreement with Global II. On December 22, 2016, pursuant to 40%the Merger Agreement, Global II merged with and into the Merger Sub, at which time the separate existence of Global II ceased and we became the parent of the Merger Sub. In addition, pursuant to the Merger Agreement, Global II OP, merged with our OP, with our OP being the surviving entity. See Note 3 — Merger Transaction to our audited consolidated financial statements in this Annual Report on Form 10-K.
As of December 31, 2017, we owned 321 properties consisting of 22.9 million rentable square feet, which were 99.5% leased with a weighted-average remaining lease term of 8.8 years. Based on original purchase price or acquisition value with respect to properties acquired in the Merger, 50.6% of our portfolio may consist of properties purchasedare located in Europe with a potential additional 10% allocation of properties elsewhere internationally. All such properties may be acquiredthe U.S and operated by us alone or jointly with another party.Puerto Rico and 49.4% are located in Europe. We may also originate or acquire first mortgage loans, mezzanine loans, preferred equity or securitized loans secured by real estate. We purchased our first property and commenced active operations in October 2012. As of December 31, 2014,2017, we owned 307 properties consisting of 16.3 million rentable square feet, which were 100% leased, withdid not own any first mortgage loans, mezzanine loans, preferred equity or securitized loans.
Pursuant to the Advisory Agreement, we retained the Advisor to manage our affairs on a weighted average remaining lease term of 11.6 years. 255 of these properties are located in the United States and Puerto Rico, with an average remaining lease term of 10.5 years, 40 of these properties are located in the United Kingdom, with an average remaining lease term of 15.2 years and 12 of these properties are located in continental Europe, with an average remaining lease term of 12.4 years.
day-to-day basis. Substantially all of our business is conducted through the American Realty Capital Global Operating Partnership, L.P. (the "OP"), a Delaware limited partnership. We are the sole general partner and hold substantially all of the units of limited partner interests in the OP ("OP units"). American Realty Capital Global Special Limited Partner, LLC (the "Special Limited Partner"), an entity controlled by AR Capital Global Holdings, LLC (the "Sponsor"), contributed $200 to the OP in exchange for 22 OP units, which represents a nominal percentage of the aggregate OP ownership. A holder of OP units has the right to convert OP units for the cash value of a corresponding number of shares of common stock or, at the option of the OP, a corresponding number of shares of common stock, in accordance with the limited partnership agreement of the OP. The remaining rights of the limited partner interests are limited, however, and do not include the ability to replace the general partner or to approve the sale, purchase or refinancing of the OP's assets.
On August 8, 2015, we entered into the IPO and forService Provider Agreement with the investment and management of our assets. These entities receive or will receive fees during the offering, acquisition, operational and liquidation stages. The Advisor and Property Manager have entered into a service provider agreement with a third party, Moor Park Capital Partners LLP (the "Service Provider"),the Service Provider, pursuant to which the Service Provider provides,agreed to provide, subject to the Advisor's and Property Manager's oversight, certain real estate relatedestate-related services, as well as sourcing and structuring of investment opportunities, performance of due diligence, and arranging debt financing and equity investment syndicates, solely with respect to our propertiesinvestments in Europe. Pursuant toOn January 16, 2018, we notified the service provider agreements, 50%Service Provider that it was being terminated effective as of March 17, 2018. Additionally, as a result of our termination of the fees payable by us toService Provider, the property management and leasing agreement among an affiliate of the Advisor and a percentage of the fees paid to the Property Manager are assigned to the Service Provider solelywill terminate by its own terms. As required under the Advisory Agreement, the Advisor and its affiliates will continue to manage our affairs on a day to day basis (including management and leasing of our properties) and will remain responsible for managing and providing other services with respect to our foreign investments in Europe. Such fees are deducted from fees paidEuropean investments. The Advisor may engage one or more third parties to assist with these responsibilities, all subject to the Advisor.terms of the Advisory Agreement. See Item 3. Legal Proceedings.
During the year ended December 31, 2017, we sold 1 property and acquired 12 properties (see Note 4 — Real Estate Investments, Net to our audited consolidated financial statements in this Annual Report on Form 10-K for further discussion).
Significant Accounting Estimates and Critical Accounting Policies
Set forth below is a summary of the significant accounting estimates and critical accounting policies that management believes are important to the preparation of our financial statements. Certain of our accounting estimates are particularly important for an understanding of our financial position and results of operations, and require the application of significant judgment by our management. As a result, these estimates are subject to a degree of uncertainty. These significant accounting estimates and critical accounting policies include:
Revenue Recognition
Our revenues, which are derived primarily from rental income, include rents that each tenant pays in accordance with the terms of each lease agreement and are reported on a straight-line basis over the initial term of the lease. Since many of our leases provide for rental increases at specified intervals, straight-line basis accounting requires us to record a receivable and include in revenues unbilled rent receivables that we will only receive if the tenant makes all rent payments required through the expiration of the initial term of the lease. For each new lease after acquisition, the commencement date is the date the tenant takes possession of the space. For a lease modification, the commencement date is the date the lease modification is executed. We defer the revenue related to lease payments received from tenants in advance of their due dates. When we acquire a property, the acquisition date for purposes of this calculation is the commencement date.
As of December 31, 20142017 and 2013, the Company included2016, cumulative straight linestraight-line rents receivable in Prepaid expenses and other assets in theour audited consolidated balance sheet of $8.7sheets were $42.7 million and $0.2$30.5 million, respectively. The Company’sFor the years ended December 31, 2017 and 2016, our rental revenue included impacts of unbilled rental revenue of $8.5$10.5 million and $0.2$10.6 million, respectively, to adjust contractual rent to straight linestraight-line rent.
We continuallyregularly review receivables related to rent and unbilled rent receivables and determine collectability by taking into consideration the tenant's payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the geographic area in which the property is located. In the event that the collectability of a receivable is in doubt, we record an increase in our allowance for uncollectible accounts or record a direct write-off of the receivable in our audited consolidated statements of operations.
Cost recoveries from tenants are included in operating expense reimbursement in the period that the related costs are incurred, as applicable.
Investments in Real Estate
Investments in real estate are recorded at cost. Improvements and replacements are capitalized when they extend the useful life of the asset. Costs of repairs and maintenance are expensed as incurred. Depreciation is computed using the straight-line method over the estimated useful lives of up to 40 years for buildings, 15 years for land improvements, five years for fixtures and the shorter of the useful life or the remaining lease term for tenant improvements and leasehold interests.
In business combinations, the Company allocateswe allocate the purchase price of acquired properties to tangible and identifiable intangible assets or liabilities and non-controlling interests based on their respective fair values. Tangible assets may include land, land improvements, buildings, fixtures and tenant improvements. Intangible assets or liabilities may include the value of in-place leases, and above- and below- market leases.leases and other identifiable assets or liabilities based on lease or property specific characteristics. In addition, any assumed mortgages receivable or payable and any assumed or issued noncontrollingnon-controlling interests are recorded at their estimated fair values.
In allocating the fair value to assumed mortgages, amounts are recorded to debt premiums or discounts based on the present value of the estimated cash flows, which is calculated to account for either above- or below-market interest rates.