Business Context and Reporting Period
Global Net Lease, Inc., then named American Realty Capital Global Daily Net Asset Value Trust, Inc., filed its first required Form 10-Q for the quarter ended March 31, 2012. The company was incorporated on July 13, 2011 and remained in the development stage with no active operations, employees, real estate investments, or purchase contracts at quarter-end.
The company intended to qualify as a U.S. REIT for the year ending December 31, 2012 and planned to acquire diversified commercial real estate, primarily single-tenant, net-leased properties in the United States, with permitted investments in Europe and other international markets.
Key Financial Metrics
| Metric | Three Months Ended March 31, 2012 | At March 31, 2012 |
|---|---|---|
| Revenue | $0 | |
| General and administrative expense | $1 thousand | |
| Net loss | $1 thousand | |
| Cash flow from operating activities | $(17) thousand | |
| Cash flow from financing activities | $17 thousand | |
| Cash | $0 | |
| Total assets | $870 thousand | |
| Total liabilities | $687 thousand | |
| Stockholders’ equity | $183 thousand | |
| Common shares outstanding | 22,222 |
For the period from inception through March 31, 2012, the company reported no revenue, $17 thousand of general and administrative expense, and a $17 thousand net loss. It had no debt, no operating properties, no distributions, and no FFO or MFFO. Deferred offering costs were $870 thousand, while accounts payable and accrued expenses were $687 thousand, including approximately $300 thousand payable to affiliates.
Material Changes and Liquidity
- Assets increased from $559 thousand at December 31, 2011 to $870 thousand at March 31, 2012, primarily reflecting additional deferred offering costs.
- Liabilities increased from $375 thousand to $687 thousand, while equity declined from $184 thousand to $183 thousand due to the quarterly loss.
- The company had received approximately $200 thousand from issuing 22,222 shares to its affiliated Special Limited Partner at $9.00 per share.
- Financing cash inflows, including affiliate advances, offset operating cash uses and offering-cost payments; ending cash remained zero.
- As of March 31, 2012, cumulative offering costs were approximately $900 thousand and exceeded cumulative gross offering proceeds by approximately $700 thousand. The Advisor had elected to cap cumulative offering costs borne by the company at 15% of gross proceeds during the offering period.
- The company had no long-term debt at quarter-end, but expected to use debt financing for future acquisitions. Its charter generally limits indebtedness to 300% of net assets, while management stated an intention to limit aggregate borrowings to 45% of asset fair value after investment of offering proceeds, subject to permitted exceptions.
Guidance, Outlook, Risks, and Unusual Items
The company commenced its initial public offering on April 20, 2012, after the quarter-end, on a reasonable-best-efforts basis for up to $1.5 billion of common stock. The offering included retail and institutional shares and a distribution reinvestment plan. The offering had not raised enough proceeds to break escrow as of the filing date.
Management expected to use offering proceeds primarily to acquire income-producing, single-tenant net-leased properties and potentially first mortgage loans. Distributions were expected to begin no later than the first calendar month after the first real estate investment, but no distributions had been paid and future distributions were not assured. The company could use offering proceeds, borrowings, affiliate advances, or waived fees to fund distributions if operating cash flow was insufficient.
- The company had a limited operating history and was a blind-pool investment vehicle, so investors could not evaluate specific acquisitions before investing.
- Future performance depended on raising sufficient equity, identifying suitable investments, securing financing, and acquiring and retaining creditworthy tenants.
- The company was externally managed and economically dependent on its Advisor and affiliates, which would receive offering, acquisition, asset-management, property-management, and potential performance-related fees.
- Related-party arrangements and overlapping personnel created conflicts of interest in allocating investment opportunities and services.
- Shares had no public trading market and were subject to NAV-based pricing and potential illiquidity; management cautioned that published NAV might not accurately reflect asset value.
- The company might fail to qualify as a REIT or could become subject to Investment Company Act regulation.
- Interest-rate, credit-market, foreign-currency, tenant, inflation, and real estate valuation risks could affect future results and distributions.
- No material litigation, environmental claims, off-balance-sheet arrangements, or subsequent events requiring adjustment were reported.
Facts Investors Should Verify
- Whether the IPO subsequently raised the minimum amount required to break escrow and the amount of equity ultimately raised.
- The timing, price, and composition of the company’s first real estate acquisitions and whether the stated investment strategy was implemented.
- Growth in affiliate payables, offering costs, and any reimbursements or fee waivers by the Advisor.
- The company’s ability to generate operating cash flow before commencing distributions and whether distributions were funded from operations, offering proceeds, or borrowings.
- Subsequent debt levels, interest-rate exposure, leverage relative to charter and stated policy limits, and liquidity reserves.
- Whether REIT qualification was achieved for 2012 and maintained thereafter.