Global Net Lease to Acquire The Necessity Retail REIT

Global Net Lease and The Necessity Retail REIT (RTL) announced on Tuesday a merger in an all-stock deal that it being received by analysts as acquisition. The final entity, also called Global Net Lease (GNL), will take over the management functions provided by AR Global and will perform its own property management.

Shareholders of The Necessity Retail would receive 0.67 shares of GNL for each common share of RTL stock they held, which is $7.08 per share based on May 23, 2023 share prices and a 35% premium to RTL’s 30-day volume-weighted average price.

GNL’s shares had closed at $10.56 on Tuesday and dropped to $9.37 by the end of Wednesday, an 11.3% drop.

The companies said that GNL will own and manage more than 1,350 properties and have an aggregate real estate asset value of about $9.6 billion at closing. They expected annual cash savings of about $54 million “through elimination of the asset management fees, property management fees, incentive fees, equity issuance fees, and reimbursable expenses currently payable to the External Manager, net of internalized employee compensation, rent and overhead, and excluding the one-time costs associated with the Transactions.”

After the transaction, GNL shareholders would hold about 45% of the post-transaction entity and RTL shareholders would own about 39%. AR Global would receive payment of $50 million in cash and $325 million of GNL stock, which would be the remaining roughly 17%.

The board of directors will expand to include the current GNL board and the three independent directors from RTL. The current independent chairperson will retain her position. The current CEOs of the two companies will become co-CEOs until April 2024, when current GNL chief James Nelson retires, leaving current RTL head Michael Weil as sole CEO.

The two combining companies said that the transaction would be “more than 9% accretive in Q4’23 relative to GNL’s Q1’23 adjusted funds from operations (“AFFO”) per share on an annualized basis.”

They also announced corporate governance updates, including opting out of the classified board provision of MUTA, declassifying the board of directors so that by 2025 all nine would stand for election to annual terms, remove the shareholder rights’ “poison pill,” and amend the bylaws to remove the requirement that up to two board members would be “managing directors.”

BTIG, noting the terms, saw several “catches.”

RTL shareholders would see almost 12% increase in dividend payouts, but GNL shareholders would see a cut of about 11.5%. The combined entity would increase exposure to retail, with 22% single-tenant and 27% multi-tenant. “Retail will be the largest exposure for GNL post-close, counter to the investment thesis for GNL previously,” BTIG wrote. And the payout to AR Global, about 19% of the total deal value, seems steep.

The entire deal isn’t set in stone yet. RTL has 30 days to solicit alternative third-party proposals and accept a superior one.