By Gail Kalinoski
New York—The head of Global Net Lease said a planned merger between GNL and American Realty Capital Global Trust II “brings together two high quality strategically aligned portfolios and sets a stronger foundation for GNL’s future growth.” The merger would also create a global net lease mega-REIT with a combined enterprise value of $3.3 billion.
Scott Bowman, GNL president & CEO, made the remarks during a second-quarter earnings call in which he also discussed the announcement that the two net lease REITs would be merging by the fourth quarter if all approvals—including from shareholders of both REITs—are obtained.
The two firms—GNL, which is publicly traded, and Global II, a non-traded REIT—are both sponsored by AR Global, the New York-based asset management and real estate investment firm run by Nicholas Schorsch and William Kahane.
InvestmentNews described the move as “widely expected” and noted it had reported in April that AR Global had planned mergers among several of its REITs.
This week the boards of directors of both GNL and Global II unanimously agreed to the proposed deal which calls for GNL to acquire the outstanding common stock of Global II for about $247 million including assumed debt. The terms call for Global II shareholders to receive 2.27 shares of GNL for each share of Global II stock they own. The all-stock transaction is expected to be tax-free for shareholders. Upon closing, Global II shareholders will own 14 percent of the combined company.
The deal gives Global II a 45-day go-shop period to solicit alternative proposals. If Global II terminates the agreement it would have to pay $1.2 million to GNL.
Officials of both REITs said the proposal would benefit both companies and it seems very likely to move forward. It would result in a REIT with a combined asset base of 345 properties in seven countries with 99 tenants comprising 23 million square feet. GNL currently has 329 properties with a total of 18.7 million square feet, 60 percent of which is in the United States and the remaining 40 percent in Europe. Global II owns 16 properties with 4.2 million square feet almost entirely in Europe. Just 4 percent of Global II’s assets are in the U.S. GNL has 100 percent occupancy and Global II is at 99.9 percent occupancy.
“Global II’s disciplined investment philosophy of acquiring high-quality, income-producing properties, long term net-leased to creditworthy tenants, was our foundation, and GNL’s portfolio is highly complementary to this strategy,” Lee Elman, lead independent director of Global II, said in a prepared statement. “And the upside potential of owning GNL is significant. GNL is a global company with a strong and flexible capital structure, access to global capital markets, and a low cost of capital.”
Elman added the transaction would give GNL shareholders “a best in-class international real estate portfolio.”
Bowman stated during the GNL conference call on Monday that the deal would have many benefits for GNL including increased scale, meaningful synergies and an enhanced portfolio.
“Increased scale improves our potential for index inclusions and for supporting our discussions with the rating agencies to secure an investment grade rating, immediately realizable synergies of $5.7 million, including a reduction in fees and reimbursement pay to the advisor of $3.6 million,” Bowman said, according to a transcript supplied by SeekingAlpha.com.
“We are excited about this transaction as it represents another positive step to position GNL as the premier global net lease company and reinforces our efforts to grow accretive, to grow shareholder value,” he added in the transcript.
GNL’s management team would run the combined company that will retain its name and continue to trade under the ticker symbol GNL on the New York Stock Exchange. The company began trading its common stock on the NYSE in early June 2015. Bowman noted then that the listing was an “important milestone” for the REIT and its shareholders. The NYSE listing came about three years after the REIT’s initial public offering in April 2012.
The merger agreement calls for Global II to appoint one new director to the GNL board, which increases the total number of independent directors to four.
UBS Investment Bank is the financial advisor to the Special Committee of GNL while Shapiro Sher Guinot & Sandler is serving as legal counsel to the committee. Proskauer Rose LLP is GNL’s legal counsel.
BMO Capital Markets is financial advisor to the Global II Special Committee and Miles and Stockbridge P.C. is the committee’s legal counsel.