• Tue. Apr 23rd, 2024

Two Nationwide REITs To Combine in $4 Billion Deal


May 24, 2023
FedEx would be the largest tenant in a deal combining Global Net Lease and The Necessity Retail REIT. Global Net Lease owns this FedEx warehouse in Hebron, Kentucky. (CoStar)


Global Net Lease and The Necessity Retail REIT, two publicly traded real estate investment trusts focused on properties where tenants pay taxes, insurance and maintenance, agreed to combine in an all-stock transaction valued at $4 billion.

The deal creates a powerhouse in the market for net-lease arrangements that can be popular with some investors because they provide steady income from tenants, typically retailers, picking up more costs and reducing the risk of ownership for landlords. Global Net Lease said the combined company will be the third-largest publicly traded REIT behind Realty Income and W.P. Carey.

The deal comes during a challenging time for financing deals and a slowdown in mergers, though consolidation among REITs has stepped up this quarter.

The new entity, to go by the name Global Net Lease, is expected to take over the external asset and property management functions now performed by affiliates of AR Global, which has been a point of contention among shareholders.

The combined company would own and manage over 1,350 properties and have an aggregate real estate asset value of about $9.6 billion.

About half the portfolio would be retail properties, with 30% being industrial properties, and 20% made up of office assets, according to Global Net Lease.
FedEx would be the largest tenant concentration among the properties, making up between 5% to 6% of the portfolio occupancy.

“The merger of Global Net Lease and The Necessity Retail REIT is an exceptional opportunity to build a premier global net lease portfolio with very attractive future prospects,” P. Sue Perrotty, chair of Global Net Lease, said in a statement. “Combined with the internalization of management, we are realizing significant cost savings to our stockholders.”

AR Global is under contract to manage the two REITs for up to 20 years, an arrangement that shareholder Blackwells Capital has opposed. Blackwells started a campaign in December for board changes at the two REITs. The activist investor has proposals out for stockholders of both REITs to vote for two Blackwells-nominated directors at the REITs’ annual meetings originally scheduled for this month but postponed until July.

Under AR Global’s control, Global Net Lease and Necessity Retail have seen their share prices decline by as much as 60% while AR Global has collected about $840 million in fees for managing the two REITs, Blackwells has contended.

Regarding the deal, Jason Aintabi, founder and chief investment officer of Blackwells, told CoStar News in an email, “The proposed merger is another deceptive effort by AR Global, in complicity with Global Net Lease and Necessity Retail, to skirt ongoing proxy fights against them.”

Under the merger agreement, Aintabi said AR Global would be entitled to $375 million in additional compensation. Aintabi said Blackwells strongly opposes the deal.

CoStar News reached out to Global Net Lease and Necessity Retail for comment but did not immediately hear back.

The transaction is expected to reduce costs through consolidating corporate functions and other duplicate services. Global Net Lease expects to realize $21 million in annual cost savings. In addition, by canceling outside management by AR Global, the REIT is projected to generate about $54 million in annual savings.

Current CEOs Jim Nelson of Global Net Lease and Mike Weil of Necessity Retail will become co-CEOs.

REIT consolidations have been on the upswing recently. Last week, shopping center REIT Regency Centers agreed to acquire Urstadt Biddle Properties, the owner of 77 similar properties.

Also last week shareholders of Indus Realty Trust, a New York-based industrial REIT, voted to approve an $868 million all-cash deal to be acquired by affiliates of Centerbridge Partners, a global private investment firm, and Singapore’s GIC Real Estate.

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