Business Context and Reporting Period
Global Net Lease, Inc. was then named American Realty Capital Global Trust, Inc. The unaudited Form 10-Q covers the quarter and nine months ended September 30, 2012. The company was in the development stage, had no properties, and had not commenced real estate operations at quarter-end. It intended to qualify as a REIT and was conducting a reasonable-best-efforts IPO of up to 150.0 million common shares at up to $10.00 per share, plus up to 25.0 million shares under its distribution reinvestment plan.
Key Financial Metrics
| Metric | Three Months Ended September 30, 2012 | Nine Months Ended September 30, 2012 | September 30, 2012 |
|---|---|---|---|
| Revenue | $0 | $0 | |
| General and administrative expense | $93,000 | $157,000 | |
| Net loss | $(93,000) | $(157,000) | |
| Cash flow from operating activities | $(225,000) | ||
| Total assets | $67,000 | ||
| Accounts payable and accrued expenses | $2.085 million | ||
| Stockholders’ equity (deficit) | $(2.018 million) | ||
| Cash | $0 | ||
| Long-term debt | None at quarter-end |
Operating expenses primarily reflected professional fees, board compensation, and directors’ and officers’ insurance. Share-based compensation was approximately $7,000 for the period from inception through September 30, 2012. No FFO or MFFO was reported because the company had not acquired real estate or begun operations.
Material Changes Versus the Prior Comparable Period
- The company had no operating activity in the comparable period from inception through September 30, 2011; therefore, the filing does not provide a meaningful operating-period comparison.
- For the nine months ended September 30, 2012, the company reported a $157,000 net loss versus no loss reported for the comparable 2011 period.
- Total assets declined from $559,000 at December 31, 2011 to $67,000 at September 30, 2012, primarily as deferred offering costs were reclassified to equity and offering costs were incurred.
- Stockholders’ equity declined from $184,000 at December 31, 2011 to a deficit of $2.018 million at September 30, 2012. Cumulative offering costs were $2.052 million, exceeding gross common-stock proceeds by approximately $1.9 million at quarter-end.
- Accounts payable and accrued expenses increased from $375,000 at December 31, 2011 to $2.085 million at September 30, 2012, including amounts payable to affiliates.
Liquidity, Financing, Outlook, and Risks
- Through September 30, 2012, the company had issued 31,222 common shares and received approximately $200,000 of proceeds. Financing cash inflows also included approximately $721,000 of advances from affiliates, partially offset by approximately $696,000 of offering-cost payments.
- On October 24, 2012, the company raised sufficient proceeds to break IPO escrow. As of October 31, 2012, it had approximately 0.3 million shares outstanding and total IPO proceeds of approximately $2.2 million.
- On October 30, 2012, the company acquired its first property, a fully leased McDonald’s restaurant in Carlisle, United Kingdom, for $2.6 million, excluding closing costs. The property had 9,094 rentable square feet, 11.4 years remaining on its original 35-year lease, and annualized straight-line rental income of approximately $0.2 million.
- The acquisition was financed with a $1.2 million mortgage note maturing in October 2017. Interest was fixed through an interest-rate swap at 4.08%.
- Distributions had not been paid as of September 30, 2012. A distribution was declared on October 5, 2012 at a daily rate of approximately $0.001945 per share based on a $10.00 share price, beginning 30 days after the first property acquisition. Payments depend on available funds and may be reduced or suspended.
- Management expected to fund acquisitions primarily with offering proceeds and debt. The charter generally limits total indebtedness to 300% of net assets, while management stated an intention to limit aggregate borrowings to 45% of asset fair value after the offering and investment of proceeds, subject to permitted exceptions.
- Principal risks included limited operating history, the blind-pool nature of the offering, illiquidity and the absence of a public trading market, dependence on the external Advisor and affiliates, conflicts of interest, tenant and real estate-market risks, interest-rate and foreign-currency exposure, reliance on future capital raising, and the possibility of failing to qualify as a REIT.
- The company had no material litigation, no material off-balance-sheet arrangements, and management concluded that disclosure controls and procedures were effective as of September 30, 2012.
Important Facts for Investors to Verify
- Verify the subsequent closing of the IPO, including the reported $2.2 million of proceeds and approximately 0.3 million shares outstanding as of October 31, 2012.
- Verify ownership, lease terms, rental income, financing terms, and interest-rate hedging for the Carlisle, United Kingdom property acquired October 30, 2012.
- Review related-party fees, reimbursements, affiliate advances, and the Advisor’s offering-cost cap and obligations.
- Assess whether distributions are supported by property-level cash flow rather than offering proceeds, borrowings, or affiliate support.
- Monitor the company’s ability to raise additional equity, build a diversified portfolio, maintain liquidity, and comply with REIT qualification requirements.
- Confirm the filing’s reported negative equity and $2.085 million of accrued liabilities at quarter-end, as well as the absence of cash and debt before the October acquisition financing.