UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): April 25, 2022
The Necessity Retail REIT, Inc.
(Exact Name of Registrant as Specified in Charter)
| Maryland | 001-38597 | 90-0929989 | ||
|
(State or other jurisdiction of incorporation) |
(Commission File Number) |
(I.R.S. Employer Identification No.) |
| 650 Fifth Avenue, 30th Floor New York, New York 10019 |
|
(Address, including zip code, of Principal Executive Offices)
Registrant’s telephone number, including area code: (212) 415-6500 |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||
| Class A Common Stock, $0.01 par value per share | RTL | The Nasdaq Global Select Market | ||
| 7.50% Series A Cumulative Redeemable Perpetual Preferred Stock, $0.01 par value per share | RTLPP | The Nasdaq Global Select Market | ||
| 7.375% Series C Cumulative Redeemable Perpetual Preferred Stock, $0.01 par value per share | RTLPO | The Nasdaq Global Select Market | ||
| Preferred Stock Purchase Rights | The Nasdaq Global Select Market |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Explanatory Note
In Current Reports on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on February 14, 2022, February 28, 2022, March 21, 2022, April 25, 2022, May 2, 2022 and May 27, 2022 (each an “Acquisition 8-K” and collectively, the “Acquisition 8-Ks”), The Necessity Retail REIT, Inc., a Maryland corporation (the “Company”), reported, among other things, the acquisition through multiple closings, of 80 properties from certain subsidiaries of CIM Real Estate Finance Trust, Inc. (the “Sellers”) pursuant to a contract described below. A total of 56 properties were acquired through March 31, 2022 and 25 properties remained probable as of that date. On April 8, 2022, in a Current Report on Form 8-K/A (the “Initial Form 8-K/A”), the Company amended and supplemented the Acquisition 8-Ks that were filed on February 14, 2022, February 28, 2022 and March 21, 2022 to provide, among other things, the historical financial statements and unaudited pro forma information required by Item 9.01(a) and (b) of Form 8-K with respect to the 56 acquired properties reported on those Acquisition 8-Ks. As disclosed in the Acquisition 8-Ks filed on April 25, 2022, May 2, 2022 and May 27, 2022, the Company completed the acquisition of 24 additional properties from the Sellers. One additional property remains “probable” as of the filing of this Current Report on Form 8-K/A (the "Probable Acquisition"). This Current Report on Form 8-K/A amends these last three Acquisition 8-Ks to provide historical financial statements and unaudited pro forma information required by Item 9.01(a) and (b) of Form 8-K for the Acquired CIM Properties (defined below) and reported on those Acquisition 8-Ks and should be read in conjunction with all of the Acquisition 8-Ks and the Initial Form 8-K/A.
Item 8.01 Other Events
As previously disclosed, on December 17, 2021, the Company and its subsidiary, The Necessity Retail REIT Operating Partnership, a Delaware limited partnership (the “Operating Partnership”), entered into a definitive purchase and sale agreement (the “PSA”) to acquire, in the aggregate, 81 properties (together, the “CIM Portfolio”), from the Sellers for approximately $1.3 billion. The CIM Portfolio consists of 79 power centers and grocery-anchored multi-tenant retail centers, two single-tenant retail properties and a detention pond parcel, located across 27 states and aggregating approximately 9.5 million square feet. As of the filing of this Current Report on Form 8-K/A, the Company has acquired 80 power centers and grocery-anchored multi-tenant retail centers and a detention pond parcel at an aggregate purchase price of $1.2 billion including debt assumption of $313.7 million but excluding closing costs (the “Acquired CIM Properties”). The Company expects to complete the acquisition of the remaining one property in the CIM Portfolio in the third quarter of 2022 for $71.1 million including $42.8 million of assumed indebtedness but excluding closing costs.
The Company is filing this Current Report on Form 8-K/A to provide the following financial information with respect to the Acquired CIM Properties: (1) the Combined Statements of Revenues and Certain Expenses of the CIM Portfolio including separate columns reporting the applicable information for the Acquired CIM Properties and the Probable Acquistion for the three months ended March 31, 2022 and for the year ended December 31, 2021 (including the notes thereto) attached hereto as Exhibit 99.1, and (2) the Company’s Unaudited Pro Forma Consolidated Financial Statements, which include the Company’s Unaudited Pro Forma Consolidated Balance Sheet as of March 31, 2022 (including the notes thereto) and the Company’s Unaudited Pro Forma Consolidated Statements of Operations for the three months ended March 31, 2022 and for the year ended December 31, 2021 (including the notes thereto), giving effect to the Acquired CIM Properties as well as the Probable Acqusition attached hereto as Exhibit 99.2.
The Company’s Unaudited Pro Forma Consolidated Financial Statements (including the notes thereto) are qualified in their entirety and should be read in conjunction with the combined financial statements of the CIM Portfolio for the fiscal year ended December 31, 2021.
The Company’s Unaudited Pro Forma Consolidated Financial Statements have been prepared on the basis of certain assumptions and estimates described in the notes thereto and are subject to other uncertainties and do not purport to reflect what the actual results of operations or financial condition of the Company would have been had each of the Acquired CIM Properties and the Probable Acquisition been acquired on the dates assumed for purposes of such pro forma financial statements or to be indicative of the financial condition or results of operations of the Company as of or for any future date or period. Additionally, the acquisition accounting used in preparing the pro forma adjustments included in the Unaudited Pro Forma Consolidated Financial Statements are preliminary, and accordingly, the pro forma adjustments may be revised as additional information becomes available and as additional analyses are performed. Differences between these preliminary analyses and the final acquisition accounting will likely occur, and these differences could have a material impact on the Unaudited Pro Forma Consolidated Financial Statements and the Company's future results of operations and financial position giving effect to the acquisition of the Acquired CIM Properties and the Probable Acquistion. For further information, see Exhibit 99.2.
The statements contained in this Current Report on Form 8-K/A that are not historical facts may be forward-looking statements. These forward-looking statements involve risks and uncertainties that could cause the outcome to be materially different. In addition, words such as “may,” “will,” “seeks,” “anticipates,” “believes,” “expects,” “estimates,” “projects,” “plans,” “intends,” “should” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements are subject to a number of risks, uncertainties and other factors, many of which are outside of the Company’s control, which could cause actual results to differ materially from the results contemplated by the forward-looking statements. These risks and uncertainties include (a) the potential adverse effects of (i) the ongoing global COVID-19 pandemic, including actions taken to contain or treat COVID-19, and (ii) the geopolitical instability due to the ongoing military conflict between Russia and Ukraine, including related sanctions and other penalties imposed by the U.S. and European Union, and other countries, as well as other public and private actors and the related impact on companies including the Company and its tenants as well as the global economy and financial markets, and (b) that any potential future acquisition including the Probable Acquisition is subject to market conditions and capital availability and may not be identified or completed on favorable terms, or at all, as well as those risks and uncertainties set forth in the Risk Factors section of the Company’s most recent Annual Report on Form 10-K for the year ended December 31, 2021 filed on February 24, 2022, and all other filings with the SEC after that date, as such risks, uncertainties and other important factors may be updated from time to time in the Company’s subsequent reports. In particular, the closing of the Probable Acquisition is subject to closing conditions, including conditions that are outside of the Company’s control, and the closing may not be completed on the contemplated terms, or at all, or may be delayed. The Company may not be able to obtain financing on favorable terms, or at all. Further, forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update or revise any forward-looking statement to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time, unless required by law.
Item 9.01 Financial Statements and Exhibits
(a) Financial Statements of Acquired CIM Properties and the Probable Acquisition.
The following financial statements and related notes for the Acquired CIM Properties and the Probable Acquisition are attached hereto as Exhibit 99.1 and incorporated by reference herein:
| · | Combined Statements of Revenues and Certain Expenses of the Acquired CIM Properties and the Probable Acquisition for the three months ended March 31, 2022 and for the year ended December 31, 2021 |
(b) Pro Forma Financial Information.
The following pro forma financial information for the Company is attached as Exhibit 99.2 and is incorporated herein by reference:
| · | Unaudited Pro Forma Consolidated Balance Sheet as of March 31, 2022 | |
| · | Notes to the Unaudited Pro Forma Consolidated Balance Sheet as of March 31, 2022 | |
| · | Unaudited Pro Forma Consolidated Statement of Operations for the Three Months Ended March 31, 2022 | |
| · | Notes to the Unaudited Pro Forma Consolidated Statement of Operations for the Three Months Ended March 31, 2022 | |
| · | Unaudited Pro Forma Consolidated Statement of Operations for the Year Ended December 31, 2021 | |
| · |
Notes to the Unaudited Pro Forma Consolidated Statement of Operations for the Year Ended December 31, 2021 |
(d) Exhibits.
|
Exhibit Number |
Description | |
| 23.1 | Consent of Deloitte & Touche LLP | |
| 99.1 | Combined Statements of Revenues and Certain Expenses of the CIM Portfolio | |
| 99.2 | Unaudited Pro Forma Consolidated Financial Statements of the Company | |
| 104 | Cover Page Interactive Data File (embedded within the XBRL document) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| THE NECESSITY RETAIL REIT, INC. | ||
| Date: June 24, 2022 | By: | /s/ Edward M. Weil, Jr. |
| Name: Edward M. Weil, Jr. | ||
| Title: Chief Executive Officer and President | ||
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statement Nos. 333-258562 and 333-210532 on Form S-3 and Registration Statement No. 333-227189 on Form S-8 of The Necessity Retail REIT, Inc. (formerly American Finance Trust, Inc.) of our report dated April 8, 2022 (June 24, 2022, as to Notes 1 & 6), relating to the Combined Statement of Revenues and Certain Expenses of the portfolio of 81 properties (the “CIM Portfolio”) and related notes appearing in this Current Report on Form 8-K/A dated June 24, 2022.
/s/ Deloitte & Touche LLP
Phoenix, Arizona
June 24, 2022
EXHIBIT 99.1
INDEPENDENT AUDITORS’ REPORT
To the Board of Directors and Stockholders of The Necessity Retail REIT, Inc.:
Opinion
We have audited the accompanying Combined Statement of Revenues and Certain Expenses of the portfolio of 81 properties (the “CIM Portfolio”) for the year ended December 31, 2021, and the related notes (the “Combined Statement of Revenues and Certain Expenses”).
In our opinion, the accompanying Combined Statement of Revenues and Certain Expenses present fairly, in all material respects, the combined revenue and certain expenses described in Note 2 to the Combined Statement of Revenues and Certain Expenses for the year ended December 31, 2021, in accordance with accounting principles generally accepted in the United States of America.
Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Combined Statement of Revenues and Certain Expenses section of our report. We are required to be independent of CIM Portfolio and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Basis of Accounting
We draw attention to Note 2 to the Combined Statement of Revenues and Certain Expenses, which describes that the accompanying Combined Statement of Revenues and Certain Expenses was prepared for the purpose of presenting the gross income and direct operating expenses as defined in regulation 210.3-.14(a)(1) of Regulation S-X of the Securities and Exchange Commission of CIM Portfolio and is not intended to be a complete presentation of CIM Portfolio’s revenues and expenses. As a result, the Combined Statement of Revenues and Certain Expenses may not be suitable for another purpose. Our opinion is not modified with respect to this matter.
Responsibilities of Management for the Combined Statement of Revenues and Certain Expenses
Management is responsible for the preparation and fair presentation of the Combined Statement of Revenues and Certain Expenses in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the Combined Statement of Revenues and Certain Expenses that are free from material misstatement, whether due to fraud or error.
1
Auditor’s Responsibilities for the Audit of the Combined Statement of Revenues and Certain Expenses
Our objectives are to obtain reasonable assurance about whether the Combined Statement of Revenues and Certain Expenses as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the Combined Statement of Revenues and Certain Expenses.
In performing an audit in accordance with GAAS, we:
| • | Exercise professional judgment and maintain professional skepticism throughout the audit. |
| • | Identify and assess the risks of material misstatement of the Combined Statement of Revenues and Certain Expenses, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the Combined Statement of Revenues and Certain Expenses. |
| • | Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of CIM Portfolio’s internal control. Accordingly, no such opinion is expressed. |
| • | Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the Combined Statement of Revenues and Certain Expenses. |
| • | Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about CIM Portfolio’s ability to continue as a going concern for a reasonable period of time. |
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.
/s/ Deloitte & Touche LLP
Phoenix, Arizona
April 8, 2022 (June 24, 2022, as to Notes 1 and 6)
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CIM PORTFOLIO
COMBINED STATEMENT OF REVENUES AND CERTAIN EXPENSES
(In thousands)
| Three Months Ended March 31, 2022 | Year Ended December 31, 2021 | |||||||||||||||||||||||
| Acquired Properties (1) | Property To Be Acquired (2) | Total | Acquired Properties (1) | Property To Be Acquired (2) | Total | |||||||||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Audited) | (Audited) | (Audited) | |||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||
| Revenue from tenants | $ | 23,922 | $ | 1,591 | $ | 25,513 | $ | 146,152 | $ | 7,256 | $ | 153,408 | ||||||||||||
| Other income | 5 | 46 | 51 | 80 | 180 | 260 | ||||||||||||||||||
| Total revenues | 23,927 | 1,637 | 25,564 | 146,232 | 7,436 | 153,668 | ||||||||||||||||||
| Certain expenses: | ||||||||||||||||||||||||
| Property operating expense | 9,320 | 319 | 9,639 | 49,618 | 1,497 | 51,115 | ||||||||||||||||||
| Total expenses | 9,320 | 319 | 9,639 | 49,618 | 1,497 | 51,115 | ||||||||||||||||||
| Revenues in excess of certain expenses | $ | 14,607 | $ | 1,318 | $ | 15,925 | $ | 96,614 | $ | 5,939 | $ | 102,553 | ||||||||||||
| (1) | Includes 56 properties acquired in the three months ended March 31, 2022 and 24 properties acquired subsequent to March 31, 2022. |
| (2) | Includes one property that has not yet been acquired. |
The accompanying notes are an integral part of the combined statements of revenues and certain expenses.
3
CIM PORTFOLIO
NOTES TO COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
Note 1 — Organization
On December 17, 2021, American Finance Trust, Inc. (now known as “The Necessity Retail REIT, Inc.”), a Maryland corporation (the “Company”) and its subsidiary, American Finance Operating Partnership L.P. (now known as “The Necessity Retail REIT Operating Partnership L.P.”), a Delaware limited partnership (the “Operating Partnership”), entered into a definitive purchase and sale agreement (the “PSA”) to acquire, in the aggregate, 81 properties (the “CIM Portfolio”), from certain subsidiaries of CIM Real Estate Finance Trust, Inc. (the “Sellers”) for approximately $1.3 billion (the “Purchase Price”). The acquisition of the CIM Portfolio is referred to herein as the “Transaction” or the “Transactions.” The CIM Portfolio consists of 79 power centers and grocery-anchored multi-tenant retail centers, two single-tenant retail properties and a detention pond parcel, located across 27 states and aggregating approximately 9.5 million square feet. The 79 power or grocery-anchored centers are leased primarily to “necessity-based” retail tenants. Upon the closing of the Transactions, the Operating Partnership will acquire all of the rights, titles and interests in each of the acquired CIM Portfolio properties owned by the applicable Sellers. During the three months ended March 31, 2022, the Company closed on 56 properties and subsequent to March 31, 2022 the Company closed on 24 properties, culminating in 80 properties closed of the 81 total properties of the CIM Portfolio as of the date of this report. The Company expects to close on the one remaining property in the third quarter of 2022.
4
CIM PORTFOLIO
NOTES TO COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
Note 2 — Basis of Presentation
The accompanying combined statements of revenues and certain expenses for the CIM Portfolio has been prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission (the “SEC”) and with the provisions of SEC Rule 3-14 of Regulation S-X, which require certain information with respect to real estate operations to be included with certain filings with the SEC. The accompanying combined statements of revenues and certain expenses for the CIM Portfolio includes the combined historical revenues and certain expenses of the CIM Portfolio for the 56 properties acquired as of March 31, 2022 (includes revenues and certain expenses from January 1, 2022 through the respective property acquisition dates in the first quarter of 2022) and the 24 properties acquired subsequent to March 31, 2022 (together, the “Acquired Properties”), as well as the one remaining property to be acquired (the “Property To Be Acquired”).
The accompanying combined statements of revenues and certain expenses for the CIM Portfolio is exclusive of items which may not be comparable to the proposed future operations of the CIM Portfolio subsequent to its acquisition by the Company. Material amounts that would not be directly attributable to future operating results of the CIM Portfolio are excluded, and the combined statements of revenues and certain expenses are not intended to be a complete presentation of the CIM Portfolio’s revenues and expenses. Items excluded consist primarily of interest expense and depreciation and amortization expense recorded in conjunction with the original purchase price accounting.
The combined statement of revenues and certain expenses for the three months ended March 31, 2022 is unaudited. In the opinion of management, the unaudited interim period includes all adjustments, which are of a normal and recurring nature, necessary for a fair and consistent presentation of the CIM Portfolio’s results of operations and the Company is not aware of any other material factors that would cause the financial statements not to be indicative of future operating results. The results of operations for the unaudited interim period presented are not necessarily indicative of full year results of operations.
Note 3 — Summary of Significant Accounting Policies
Use of Estimates
The preparation of the combined statements of revenues and certain expenses in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of revenues and certain expenses. Actual results could differ from those estimates.
Revenue Recognition
Revenue from tenants is recognized on a straight-line basis. As such, the rental revenue for those leases that contain rent abatements and contractual increases are recognized on a straight-line basis over the applicable terms of the related lease.
Property Operating Expense
Property operating expense represents the direct expenses of operating the properties and consist primarily of repairs and maintenance, real estate taxes, management fees, insurance, utilities and other operating expenses that are expected to continue in the proposed future operations of the properties.
5
CIM PORTFOLIO
NOTES TO COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
(continued)
Note 4 — Future Minimum Lease Payments
The future minimum lease payments to be received under non-cancelable operating leases in effect as of December 31, 2021 are as follows (in USD thousands):
| Future Minimum Base Rent Payments | ||||||||||||
| (In thousands) | Acquired Properties (1) | Properties To Be Acquired (2) | Total | |||||||||
| 2022 | $ | 105,136 | $ | 5,171 | $ | 110,307 | ||||||
| 2023 | 93,809 | 5,113 | 98,922 | |||||||||
| 2024 | 78,664 | 4,946 | 83,610 | |||||||||
| 2025 | 66,734 | 4,616 | 71,350 | |||||||||
| 2026 | 54,239 | 1,321 | 55,560 | |||||||||
| Thereafter | 163,032 | 1,993 | 165,025 | |||||||||
| Total | $ | 561,614 | $ | 23,160 | $ | 584,774 | ||||||
| (1) | Consists of 56 properties acquired in the three months ended March 31, 2022 and 24 properties acquired subsequent to March 31, 2022. |
| (2) | Consists of one property remaining to be acquired as of the date of this report. |
Note 5 — Commitments and Contingencies
Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred. There is no material litigation nor to management’s knowledge is any material litigation currently threatened against the property other than routine litigation, claims and administrative proceedings arising in the ordinary course of business.
Note 6 — Subsequent Events
The Company has evaluated subsequent events through June 24, 2022, the date on which the statements of revenues and certain expenses has been issued and has determined that there have not been any events that have occurred that would require adjustments to, or disclosure in, these financial statements.
6
EXHIBIT 99.2
THE NECESSITY RETAIL REIT, INC.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
On December 17, 2021, The Necessity Retail REIT, Inc., a Maryland corporation ("RTL" or the "Company”) and its subsidiary, Necessity Retail REIT Partnership, a Delaware limited partnership (the “Operating Partnership”), entered into a definitive purchase and sale agreement (the “PSA”) to acquire, in the aggregate, 81 properties (the “CIM Portfolio”), from certain subsidiaries of CIM Real Estate Finance Trust, Inc. (the “Sellers”) for approximately $1.3 billion (the “Purchase Price”). The Purchase Price is subject to adjustment if certain of the existing tenants that have rights of first refusal to purchase an underlying property exercise those rights, if the Operating Partnership exercises limited rights to exclude certain properties not exceeding $200 million in value from those being acquired or if earn out amounts associated with certain leases are satisfied. The unaudited pro forma consolidated financial statements included herein do not contemplate the exclusion of any properties or potential earnout amounts for the one property that has not yet been acquired. The acquisition of the CIM Portfolio is referred to herein as the “Transaction” or the “Transactions.” The CIM Portfolio consists of 79 power centers and grocery-anchored multi-tenant retail centers, two single-tenant retail properties and a detention pond parcel, located across 27 states and aggregating approximately 9.5 million square feet. The 79 power and grocery-anchored centers are leased primarily to “necessity-based” retail tenants. Upon the closing of the Transactions, of which 56 properties had been acquired in three closings as of March 31, 2022, 24 properties had been acquired in three closings subsequent to March 31, 2022 (collectively, the "Acquired Properties") and one property that has not yet been acquired (the "Property To Be Acquired"), the Operating Partnership has acquired, or will acquire all of the right, title and interest in each of the properties acquired in the CIM Portfolio owned by the applicable Sellers, which include certain leasehold interests in land parcels. The Company has determined that the Transactions will be accounted for as asset acquisitions.
As previously announced, the Company expected to fund the Purchase Price through a combination, to be determined at each closing, of cash on the balance sheet, including net proceeds of $254.5 million from the sale of its Sanofi asset, borrowings under the Company’s credit facility, as well as debt currently encumbering certain of the properties that the Operating Partnership will seek to assume, and the issuance of $53.4 million in value of the Company’s Class A common stock, par value $0.01 (the “Class A Common Stock”) to the Sellers. The Company funded the acquisition of the 80 properties that have already been acquired with borrowings under its Credit Facility of $506.2 million, cash on hand of $380.1 million, which included net proceeds from the sale of its Sanofi asset and remaining proceeds from the issuance of its Senior Notes, the issuance of 6,450,107 shares of the Company's Class A common stock with a value of $53.4 million, the application of $23.8 million of its $40.0 million deposit and the assumption of $312.3 million of fixed-rate mortgage debt. The Company expects to fund the acquisition of the Property To Be Acquired with the assumption of $42.8 million of fixed-rate mortgage debt, the application of $16.3 million of its $40.0 million deposit, a $6.8 million draw on the Credit Facility and any remainder with cash on hand.
The acquisition accounting includes certain valuations which have not progressed to a stage where there is sufficient information for a definitive measurement. Accordingly, the pro forma adjustments included herein are preliminary and have been made solely for the purpose of providing unaudited pro forma consolidated financial information, and may be revised as additional information becomes available and as additional analyses are performed. Differences between the preliminary estimates reflected in these unaudited pro forma consolidated financial statements and the final acquisition accounting will likely occur, and these differences could have a material impact on the accompanying unaudited pro forma consolidated financial statements and the combined company’s future results of operations and financial position.
The unaudited pro forma statement of operations for the year ended December 31, 2021 included herein includes the impacts of the sale of the Company's Sanofi property (closed on January 6, 2022), the proceeds of which were used to fund a portion of the CIM Acquisition. The Company believes it is appropriate to make these adjustments since the completion of these transactions, and the use of the proceeds therefrom, provided the capacity needed under the Company's Credit Facility to fund a portion of the acquisition of the CIM Portfolio.
The unaudited pro forma consolidated balance sheet as of March 31, 2022 is presented as if the acquisition of the CIM Portfolio and other significant capital transactions were completed on March 31, 2022. Accordingly, this includes the 24 properties that were acquired subsequent to March 31, 2022 (the "Properties Acquired Subsequent to March 31, 2022") and also includes the remaining one Property To Be Acquired.
The unaudited pro forma consolidated statement of operations for the three months ended March 31, 2022 is presented as if the acquisition of the CIM Portfolio and other significant capital transactions were completed on January 1, 2021. The historical results of RTL for the three months ended March 31, 2022 include the operating results of the 56 properties acquired in three closings as of March 31, 2022 from their respective acquisition dates through March 31, 2022. Also, the unaudited pro forma consolidated statement of operations for the three months ended March 31, 2022 includes adjustments for the pre-acquisition period historical operating results of the 56 properties acquired during the first quarter of 2022 and the full-quarter historical operating results of the Properties Acquired Subsequent to March 31, 2022 (the "Acquired Property Results Not Included in March 31, 2022 RTL"). The unaudited pro forma consolidated statement of operations for the three months ended March 31, 2022 also includes adjustments for the full-quarter historical operating results of the one Property To Be Acquired.
The unaudited pro forma consolidated statement of operations for the year ended December 31, 2021 is presented as if the acquisition of the CIM Portfolio and other significant capital transactions were completed on January 1, 2021. Accordingly, the unaudited pro forma consolidated statement of operations for the year ended December 31, 2021 includes adjustments for the full-year historical operating results for all 80 properties that have been acquired (the "Acquired Property Results Not Included in December 31, 2021 RTL") and adjustments for the full-year historical operating results of the one Property To Be Acquired.
The unaudited pro forma consolidated financial statements (including notes thereto) of the Company are qualified in their entirety and should be read in conjunction with the consolidated financial statements for the fiscal year ended December 31, 2021, and related notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 24, 2022 and the consolidated financial statements for the three months ended March 31, 2022, and related notes thereto, included in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022 filed with the SEC on May 5, 2022. The unaudited pro forma consolidated financial statements (including the notes thereto) of the Company are qualified in their entirety and should be read in conjunction with the combined financial statements of the CIM Portfolio for the fiscal year ended December 31, 2021, the three months ended March 31, 2022, and the related notes thereto, both included as part of this Form 8-K/A in Exhibit 99.1. The unaudited pro forma consolidated balance sheet and statements of operations are not necessarily indicative of what the actual financial position and operating results would have been had the acquisition of the CIM Portfolio and the other significant capital transactions occurred on March 31, 2022 and January 1, 2021, respectively, nor are they indicative of future operating results of the Company.
THE NECESSITY RETAIL REIT, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 2022
(In thousands)
Notes to Unaudited Pro Forma Consolidated Balance Sheet as of March 31, 2022:
| (A) | Reflects the historical consolidated balance sheet of the Company as of March 31, 2022 as presented in the Company’s Quarterly Report on Form 10-Q (filed with the SEC on May 5, 2022), which includes amounts for the 56 properties acquired as part of the CIM Portfolio acquisition as of March 31, 2022. |
| (B) | Reflects the preliminary purchase accounting allocation for the acquisition of the 24 Properties Acquired Subsequent to March 31, 2022 and the one remaining Property To Be Acquired, as if the transaction was completed on March 31, 2022. For purposes of these pro forma financial statements, for these transactions, the Company has assumed (i) that the transaction will be accounted for as an asset acquisition, (ii) that the purchase price will be paid with a combination of assumed debt from the CIM Portfolio, cash (from cash on hand and additional draw on the Company's credit facility), and the application of the previously funded $16.3 million deposit and (iii) no properties will be excluded and there are no potential earnout amounts contemplated in the Property To Be Acquired column below that would result in contingent consideration which may be earned by the Sellers (related to qualified leases negotiated by the Sellers on behalf of RTL signed within 180 days of closing of the respective property). |
| (In thousands) | ||||||||||||
| Preliminary allocation of assets acquired and liabilities assumed: | Properties Acquired Subsequent to March 31, 2022 | Property To Be Acquired | Total | |||||||||
| Real estate investments, at cost: | ||||||||||||
| Land | $ | 139,596 | $ | 13,051 | $ | 152,647 | ||||||
| Buildings, fixtures and improvements | 263,309 | 48,013 | 311,322 | |||||||||
| Total tangible assets | 402,905 | 61,064 | 463,969 | |||||||||
| Acquired intangible assets: | ||||||||||||
| In-place leases | 59,736 | 8,170 | 67,906 | |||||||||
| Above market lease assets | 10,717 | — | 10,717 | |||||||||
| Total intangible assets | 70,453 | 8,170 | 78,623 | |||||||||
| Other assets acquired | — | 1,850 | 1,850 | |||||||||
| Liabilities assumed: | ||||||||||||
| Mortgage notes payable | 292,726 | 42,765 | 335,491 | |||||||||
| Below market lease liabilities | 14,627 | — | 14,627 | |||||||||
| Net assets and liabilities assumed | $ | 166,005 | $ | 28,319 | $ | 194,324 | ||||||
| Consideration to be transferred to acquire the CIM Portfolio: | ||||||||||||
| Cash | $ | 142,255 | $ | 12,069 | $ | 154,324 | ||||||
| Deposits for real estate investments | 23,750 | 16,250 | 40,000 | |||||||||
| Total consideration transferred | $ | 166,005 | $ | 28,319 | $ | 194,324 | ||||||
| (C) | Assumes a draw on the Company's Credit Facility to partially fund the acquisition of the CIM Portfolio upon closings of the 24 Properties Acquired Subsequent To March 31, 2022 as if these closings had occurred on March 31, 2022. The Credit Facility requires the Company to maintain a minimum of cash on hand or availability of at least $60.0 million. |
| (D) | Represents the preliminary allocation of the purchase price for the CIM Portfolio acquisition for the 24 Properties Acquired Subsequent to March 31, 2022 and the one remaining Property To Be Acquired, including transaction costs, as if the transaction was completed as of March 31, 2022. The acquisition is considered an asset acquisition in accordance with accounting principles generally accepted in the United States of America, and accordingly, the Company allocated the total purchase price to the assets acquired based on relative fair value. The following table details the typical useful lives of the assets acquired: |
| Useful Lives | ||
| Land | N/A | |
| Buildings and improvements | 40 years | |
| Acquired intangible assets | 9 to 15 years |
| (E) | Represents total cash paid upon the closings of the 24 Properties Acquired Subsequent to March 31, 2022. |
| (F) | Represents total cash to be paid upon the closing of the one remaining Property To Be Acquired. |
| (G) | Represents the application of a $16.3 million deposit, which was funded in December 2021, for the one remaining Property To Be Acquired. |
| (H) | Represents mortgages assumed upon the closing of the 25 properties that had not yet been acquired as of March 31, 2022, recorded at estimated fair value. These mortgages have a weighted average rate of 3.87% for the 24 Properties Acquired Subsequent to March 31, 2022 and 4.05% for the one remaining Property To Be Acquired. These mortgages have maturities through 2024. |
THE NECESSITY RETAIL REIT, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2022
(In thousands, except per share amounts)
| CIM Transaction and Financing | ||||||||||||||||||||||||||||
| March
31, 2022 RTL | Acquired Property Results Not Included in March 31, 2022 RTL | Property
To Be Acquired | Pro
Forma Adjustments | Credit Facility Draw | Disposition of Sanofi Property | Pro
Forma RTL | ||||||||||||||||||||||
| (A) | (B) | (C) | (D) | (E) | (F) | |||||||||||||||||||||||
| Revenue from tenants | $ | 94,943 | $ | 23,922 | $ | 1,591 | $ | 450 | (H) | $ | — | $ | (228 | ) | $ | 120,678 | ||||||||||||
| Operating expenses: | ||||||||||||||||||||||||||||
| Asset management fees to related party | 7,826 | — | — | — | — | — | 7,826 | |||||||||||||||||||||
| Property operating expense | 19,139 | 9,320 | 319 | — | — | 8 | 28,786 | |||||||||||||||||||||
| Impairment of real estate assets | 5,942 | — | — | — | — | — | 5,942 | |||||||||||||||||||||
| Acquisition, transaction and other costs | 279 | — | — | — | — | — | 279 | |||||||||||||||||||||
| Equity-based compensation | 3,498 | — | — | — | — | — | 3,498 | |||||||||||||||||||||
| General and administrative | 6,833 | — | — | — | — | — | 6,833 | |||||||||||||||||||||
| Depreciation and amortization | 37,688 | — | — | 13,981 | (I) | — | — | 51,669 | ||||||||||||||||||||
| Total operating expenses | 81,205 | 9,320 | 319 | 13,981 | — | 8 | 104,833 | |||||||||||||||||||||
| Operating income before gain on sale/exchange of real estate investments | 13,738 | 14,602 | 1,272 | (13,531 | ) | — | (236 | ) | 15,845 | |||||||||||||||||||
| Gain on sale of real estate investments | 53,569 | — | — | — | — | (53,569 | ) | — | ||||||||||||||||||||
| Operating income | 67,307 | 14,602 | 1,272 | (13,531 | ) | — | (53,805 | ) | 15,845 | |||||||||||||||||||
| Other (expense) income: | ||||||||||||||||||||||||||||
| Interest expense | (23,740 | ) | — | — | (3,399 | )(J) | (1,754 | )(J) | — | (28,893 | ) | |||||||||||||||||
| Other income | 18 | 5 | 46 | — | — | — | 69 | |||||||||||||||||||||
| Gain on non-designated derivatives | 2,250 | — | — | (2,250 | )(K) | — | — | — | ||||||||||||||||||||
| Total other expenses, net | (21,472 | ) | 5 | 46 | (5,649 | ) | (1,754 | ) | — | (28,824 | ) | |||||||||||||||||
| Net income (loss) | 45,835 | 14,607 | 1,318 | (19,181 | ) | (1,754 | ) | (53,805 | ) | (12,979 | ) | |||||||||||||||||
| Net income attributable to non-controlling interests | (64 | ) | — | — | — | — | — | (64 | ) | |||||||||||||||||||
| Allocation for preferred stock | (5,837 | ) | — | — | — | — | — | (5,837 | ) | |||||||||||||||||||
| Net income (loss) attributable to common stockholders | $ | 39,934 | $ | 14,607 | $ | 1,318 | $ | (19,181 | ) | $ | (1,754 | ) | $ | (53,805 | ) | $ | (18,880 | ) | ||||||||||
| Weighted-average shares outstanding — Diluted (G) | 130,048,111 | 130,048,111 | ||||||||||||||||||||||||||
| Net income (loss) per share attributable to common stockholders — Basic and Diluted | $ | 0.31 | $ | (0.15 | ) | |||||||||||||||||||||||
Notes to Unaudited Pro Forma Consolidated Statement of Operations for the Three Months Ended March 31, 2022:
| (A) | Reflects the historical consolidated statement of operations of the Company for the three months ended March 31, 2022 as presented in the Company’s Quarterly Report on Form 10-Q (filed with the SEC on May 5, 2022), and only includes operating results from the respective property acquisition dates through March 31, 2022 for the 56 properties acquired in the first quarter of 2022. |
| (B) | Represents the historical operating results from January 1, 2022 through the respective property acquisition dates in the first quarter of 2022 for the 56 properties acquired during the first quarter of 2022 and the full-quarter historical operating results of the 24 Properties Acquired Subsequent to March 31, 2022. |
| (C) | Represents the full-quarter historical operating results for three months ended March 31, 2022 for the one remaining Property To Be Acquired as of March 31, 2022. |
| (D) | This column represents pro forma accounting impacts of the acquisition of the CIM Portfolio as if the transaction was completed on January 1, 2021. For purposes of these pro forma financial statements, the Company has assumed that the transaction will be accounted for as an asset acquisition. No assumptions were made for the potential exclusion of any properties or any future earnout amounts which may be due. |
| (E) | Assumes a draw on the Company's Credit Facility to partially fund the closings of the 24 Properties Acquired Subsequent to March 31, 2022. |
| (F) | This column reflects the removal of amounts related to the Company's Sanofi property, assumed to be sold on January 1, 2021 for the purposes of this pro forma financial statement. The sale closed in the first quarter of 2022. |
| (G) | The pro forma weighted average common shares outstanding are calculated as if the issuance of the 6,450,107 shares that were issued to purchase the CIM Properties had occurred on January 1, 2021. |
| (H) | Represents adjustments to estimated straight-line rent using the most recent data for lease terms, assuming an acquisition date of January 1, 2021 for all 81 properties of the CIM Portfolio acquisition. For purposes of this pro forma financial statement, no assumptions were made for potential lease renewals. |
| (In thousands) | Adjustment for Acquired Properties (1) | Adjustment for Property To Be Acquired | Total | |||||||||
| Straight-line rent and other adjustments | $ | 583 | $ | (47 | ) | $ | 536 | |||||
| Accretion of below market leases | 971 | — | 971 | |||||||||
| Amortization of above market leases | (1,057 | ) | — | (1,057 | ) | |||||||
| Total | $ | 497 | $ | (47 | ) | $ | 450 | |||||
| (1) | Includes adjustments for the 56 properties acquired in the first quarter of 2022, for the period prior to the Company's ownership, and adjustments for the 24 Properties Acquired Subsequent to March 31, 2022 for a full quarter. |
| (I) | Represents the pro forma adjustment for depreciation and amortization expense, which is based on the Company’s basis in the assets that would have been recorded assuming the CIM Portfolio was acquired on January 1, 2021. Depreciation and amortization amounts were determined in accordance with the Company’s policies and are based on management’s valuation of the estimated useful lives of the property and intangibles. The amounts allocated to buildings and improvements are depreciated over the estimated useful life (generally 40 years for buildings and 15 years or less for improvements), beginning on the assumed acquisition date of January 1, 2021, while the amounts allocated to lease intangibles are amortized over the remaining life of the related leases. The following table details the depreciation and amortization expense for all 81 properties of the CIM Acquisition: |
| (In thousands) | Adjustment for Acquired Properties (1) | Property To Be Acquired | Total | |||||||||
| Depreciation expense | $ | 4,073 | $ | 319 | $ | 4,392 | ||||||
| Amortization expense — In-place leases | 9,174 | 415 | 9,589 | |||||||||
| Total | $ | 13,247 | $ | 734 | $ | 13,981 | ||||||
| (1) | Includes adjustments for the 56 properties acquired in the first quarter of 2022, for the period prior to the Company's ownership, and adjustments for the 24 Properties Acquired Subsequent to March 31, 2022 for a full quarter. |
| (J) | Represents interest expense on debt assumed from the CIM Portfolio and the additional Credit Facility draws, as if all of these borrowings occurred on January 1, 2021, as follows: |
| Principal | Rate | Fixed/Variable | Interest Expense | |||||||||||
| (In thousands) | (In thousands) | |||||||||||||
| Additional interest expense for assumed mortgage debt in March 2022 (1) | $ | 19,526 | 4.46 | % | Fixed | $ | 134 | |||||||
| Assumed mortgage debt — Acquired Property Results Not Included in March 31, 2022 RTL (1) | 292,726 | 3.87 | % | Fixed | 2,832 | |||||||||
| Assumed mortgage debt — Property To Be Acquired (2) | 42,765 | 4.05 | % | Fixed | 433 | |||||||||
| Total interest expense adjustments related to assumed mortgage debt | $ | 3,399 | ||||||||||||
| Additional interest expense for actual borrowings under the Credit Facility through March 31, 2022 (3) | $ | 378,000 | 2.01 | % | Variable | $ | 1,076 | |||||||
| Borrowings on the Credit Facility — Acquired Property Results Not Included in March 31, 2021 RTL (4) | 135,000 | 2.01 | % | Variable | 678 | |||||||||
| Total interest expense adjustments related to draws on the Credit Facility | $ | 1,754 | ||||||||||||
| (1) | Represents estimated fair value of debt assumed for $19.3 million and $294.5 million of principal mortgage debt, respectively. |
| (2) | Represents estimated principal amounts of debt to be assumed upon the closing of the one remaining Property To Be Acquired. |
| (3) | Represents additional interest for the period from January 1, 2022 to the dates of the respective borrowings under the Credit Facility used to fund the acquisitions of the 56 properties completed during the three months ended March 31, 2022. Calculated using the weighted-average interest rate on the Credit Facility for the three months ended March 31, 2022. |
| (4) | Calculated using the weighted average interest rate on the Credit Facility for the three months ended March 31, 2022. |
| (K) | The purchase and sale agreement included the planned issuance of shares of the Company’s Class A common stock or Class A units in the Operating Partnership of up to $53.4 million in value. The number of shares issued (6,450,107) was based on the value of the shares that may have been issued divided by the per-share volume weighted average price of the Company’s Class A common stock measured over a five-day consecutive trading period immediately preceding (but not including) the date on which written notice is delivered, indicating the seller’s election to receive either shares or units, to the Operating Partnership (the price of which is to be limited by a 7.5% collar in either direction from the per share volume weighted-average price of the Company’s Class A common stock measured over a ten-day consecutive trading period immediately preceding (but not including) the effective date of the PSA, which was $8.34 per share. The Company concluded that this arrangement constituted an embedded derivative which requires separate accounting. The initial value of the embedded derivative was an asset upon the signing of the PSA of $1.7 million, and was a liability of $2.3 million as of December 31, 2021 in the Company’s balance sheet. Upon consummation, the stock portion of the transaction closed at values which were within the collar and accordingly, the liability for the derivative at closing should be reduced from $2.3 million to zero. The adjusted loss represents the original value of the embedded derivative (which is also part of purchase accounting). This is expected to be a non-recurring loss. |
THE NECESSITY RETAIL REIT, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2021
(In thousands, except per share amounts)
| CIM Transaction and Financing | Other Relevant Transactions | |||||||||||||||||||||||||||||||
| December 31, 2021 RTL | Acquired Property Results Not Included in December 31, 2021 RTL | Property
To Be Acquired | Pro
Forma Adjustments | Credit Facility Draw | Issuance
of 4.50% Senior Notes | Disposition of Sanofi Property | Pro
Forma RTL | |||||||||||||||||||||||||
| (A) | (B) | (B) | (C) | (D) | (E) | (F) | ||||||||||||||||||||||||||
| Revenue from tenants | $ | 335,156 | $ | 146,152 | $ | 7,256 | $ | (3,070 | )(H) | $ | — | $ | — | $ | (17,195 | ) | $ | 468,299 | ||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||||||||||
| Asset management fees to related party | 32,804 | — | — | — | — | — | — | 32,804 | ||||||||||||||||||||||||
| Property operating expense | 55,431 | 49,618 | 1,497 | — | — | — | (104 | ) | 106,442 | |||||||||||||||||||||||
| Impairment of real estate assets | 33,261 | — | — | — | — | — | — | 33,261 | ||||||||||||||||||||||||
| Acquisition, transaction and other costs | 4,378 | — | — | — | — | — | — | 4,378 | ||||||||||||||||||||||||
| Equity-based compensation | 17,264 | — | — | — | — | — | — | 17,264 | ||||||||||||||||||||||||
| General and administrative | 20,856 | — | — | — | — | — | (4 | ) | 20,852 | |||||||||||||||||||||||
| Depreciation and amortization | 130,464 | — | — | 83,563 | (I) | — | — | (9,432 | ) | 204,595 | ||||||||||||||||||||||
| Total operating expenses | 294,458 | 49,618 | 1,497 | 83,563 | — | — | (9,540 | ) | 419,596 | |||||||||||||||||||||||
| Operating income before gain on sale of real estate investments | 40,698 | 96,534 | 5,759 | (86,633 | ) | — | — | (7,655 | ) | 48,703 | ||||||||||||||||||||||
| Gain on sale of real estate investments | 4,757 | — | — | — | — | — | 44,580 | (K) | 49,337 | |||||||||||||||||||||||
| Operating income | 45,455 | 96,534 | 5,759 | (86,633 | ) | — | — | 36,925 | 98,040 | |||||||||||||||||||||||
| Other (expense) income: | ||||||||||||||||||||||||||||||||
| Interest expense | (81,784 | ) | — | — | (13,931 | )(J) | (13,902 | )(J) | (9,804 | )(J) | — | (119,421 | ) | |||||||||||||||||||
| Other income | 91 | 80 | 180 | — | — | — | — | 351 | ||||||||||||||||||||||||
| Loss on non-designated derivatives | (3,950 | ) | — | — | 2,250 | (L) | — | — | — | (1,700 | ) | |||||||||||||||||||||
| Total other expenses, net | (85,643 | ) | 80 | 180 | (11,681 | ) | (13,902 | ) | (9,804 | ) | — | (120,770 | ) | |||||||||||||||||||
| Net loss | (40,188 | ) | 96,614 | 5,939 | (98,314 | ) | (13,902 | ) | (9,804 | ) | 36,925 | (22,730 | ) | |||||||||||||||||||
| Net loss attributable to non-controlling interests | 9 | — | — | — | — | — | — | 9 | ||||||||||||||||||||||||
| Allocation for preferred stock | (23,262 | ) | — | — | — | — | — | — | (23,262 | ) | ||||||||||||||||||||||
| Net loss attributable to common stockholders | $ | (63,441 | ) | $ | 96,614 | $ | 5,939 | $ | (98,314 | ) | $ | (13,902 | ) | $ | (9,804 | ) | $ | 36,925 | $ | (45,983 | ) | |||||||||||
| Weighted-average shares outstanding — Basic and Diluted (G) | 115,404,635 | 115,404,635 | ||||||||||||||||||||||||||||||
| Net loss per share attributable to common stockholders — Basic and Diluted | $ | (0.56 | ) | $ | (0.40 | ) | ||||||||||||||||||||||||||
Notes to Unaudited Pro Forma Consolidated Statement of Operations for the Year Ended December 31, 2021:
| (A) | Reflects the historical consolidated statement of operations of the Company for the year ended December 31, 2021 as presented in the Company’s Annual Report on Form 10-K (filed with the SEC on February 24, 2022), and does not include any properties acquired in the CIM Portfolio acquisition, which began closing acquisitions during the first quarter of 2022. |
| (B) | Represents the full-year historical operating results attributable to the 80 Acquired Properties in the CIM Portfolio acquisition which have closed and the one remaining Property To Be Acquired, respectively. |
| (C) | This column represents pro forma accounting impacts of the acquisition of the CIM Portfolio as if the transaction was completed on January 1, 2021. For purposes of these pro forma financial statements, the Company has assumed that the transaction will be accounted for as an asset acquisition. No assumptions were made for the potential exclusion of any properties or any future earnout amounts which may be due. |
| (D) | Assumes a draw on the Company's Credit Facility to partially fund the closings of the 81 properties of the CIM Portfolio on January 1, 2021. |
| (E) | Reflects the issuance of the Company's Senior Notes on October 7, 2021 as if this transaction had occurred on January 1, 2021. |
| (F) | This column reflects the removal of amounts related to the Company's Sanofi property, assumed to be sold on January 1, 2021 for the purposes of this pro forma financial statement. The sale closed in the first quarter of 2022. |
| (G) | The pro forma weighted average common shares outstanding are calculated as if the issuance of the 6,450,107 shares that were issued to purchase the CIM Properties had occurred on January 1, 2021. |
| (H) | Represents adjustments to estimated straight-line rent using the most recent data for lease terms, assuming an acquisition date of January 1, 2021 for all 81 properties of the CIM Portfolio acquisition. For purposes of this pro forma financial statement, no assumptions were made for potential lease renewals. |
| (In thousands) | Acquired Property Results Not Included in December 31, 2021 RTL | Property To Be Acquired | Total | |||||||||
| Straight-line rent and other adjustments | $ | (2,753 | ) | $ | 28 | $ | (2,725 | ) | ||||
| Accretion of below market leases | 3,882 | — | 3,882 | |||||||||
| Amortization of above market leases | (4,227 | ) | — | (4,227 | ) | |||||||
| Total | $ | (3,098 | ) | $ | 28 | $ | (3,070 | ) | ||||
| (I) | Represents the pro forma adjustment for depreciation and amortization expense, which is based on the Company’s basis in the assets that would have been recorded assuming the CIM Portfolio was acquired on January 1, 2021. Depreciation and amortization amounts were determined in accordance with the Company’s policies and are based on management’s valuation of the estimated useful lives of the property and intangibles. The amounts allocated to buildings and improvements are depreciated over the estimated useful life (generally 40 years for buildings and 15 years or less for improvements), beginning on the assumed acquisition date of January 1, 2021, while the amounts allocated to lease intangibles are amortized over the remaining life of the related leases. The following table details the depreciation and amortization expense for both the Acquired Property Results Not Included in December 31, 2021 RTL and the one remaining Property To Be Acquired for the year ended December 31, 2021: |
| (In thousands) | Acquired Property Results Not Included in December 31, 2021 RTL | Property To Be Acquired | Total | |||||||||
| Depreciation expense | $ | 25,742 | $ | 1,278 | $ | 27,020 | ||||||
| Amortization expense — In-place leases | 54,882 | 1,661 | 56,543 | |||||||||
| Total | $ | 80,624 | $ | 2,939 | $ | 83,563 | ||||||
| (J) | Represents interest expense on debt assumed from the CIM Portfolio, the additional Credit Facility draw and the issuance of the Senior Notes, partially offset by the removal of interest expense from the Sanofi mortgage and credit facility paydown, as if all of these borrowings occurred on January 1, 2021, as follows: |
| Principal | Rate | Fixed/Variable | Interest Expense | |||||||||||
| (In thousands) | (In thousands) | |||||||||||||
| Assumed mortgage debt — Acquired Property Results Not Included in December 31, 2021 RTL (1) | $ | 312,252 | 3.91 | % | Fixed | $ | 12,199 | |||||||
| Assumed mortgage debt — Property To Be Acquired (2) | 42,765 | 4.05 | % | Fixed | 1,732 | |||||||||
| Total interest expense adjustments related to assumed mortgage debt | $ | 13,931 | ||||||||||||
| Borrowings on the Credit Facility — Acquired Property Results Not Included in December 31, 2021 RTL (3) | $ | 513,000 | 2.71 | % | Variable | $ | 13,902 | |||||||
| Issuance of the Senior Notes (4) | $ | 500,000 | 4.50 | % | Fixed | $ | 17,187 | |||||||
| Removal of interest expense related to the Credit Facility repayment | 186,242 | 2.71 | % | Variable | (5,047 | ) | ||||||||
| Removal of interest expense related to the Sanofi mortgage | 125,000 | 3.27 | % | Fixed by swap | (3,350 | ) | ||||||||
| Amortization of deferred financing costs from Senior Notes (4) | 1,014 | |||||||||||||
| Total interest expense adjustments related to issuance of Senior Notes | $ | 9,804 | ||||||||||||
| (1) | Includes estimated fair value of debt assumed for $313.7 million of principal mortgage debt assumed with the closing of the Acquired Property Results Not Included in December 31, 2021 RTL. |
| (2) | Represents estimated principal amounts of debt to be assumed upon the closing of the one remaining Property To Be Acquired. |
| (3) | Calculated using the weighted average interest rate on the Credit Facility for the year ended December 31, 2021. |
| (4) | Represents the incremental amount of interest adjustments to assume a January 1, 2021 issuance of the Senior Notes, which were issued on October 7, 2021. |
| (K) | Reflects the gain on the sale of the Sanofi property as if it occurred on January 1, 2021. This is a one-time, non-recurring transaction and therefore is only included in the consolidated pro forma statement of operations for the year ended December 31, 2021. Additional details are as follows: |
| (In thousands) | ||||
| Net proceeds from sale of the Sanofi property — closed January 6, 2022 | $ | 254,518 | ||
| Net carrying value of the Sanofi-property related assets and liabilities as of December 31, 2021 | (200,506 | ) | ||
| Pro forma gain on sale of Sanofi property if closed as of December 31, 2021 | 54,012 | |||
| Less: Depreciation from January 1, 2021 to December 31, 2021 | (9,432 | ) | ||
| Pro forma gain on sale of Sanofi property if closed as of January 1, 2021 | $ | 44,580 | ||
| (L) | The purchase and sale agreement included the planned issuance of shares of the Company’s Class A common stock or Class A units in the Operating Partnership of up to $53.4 million in value. The number of shares issued (6,450,107) was based on the value of the shares that may have been issued divided by the per-share volume weighted average price of the Company’s Class A common stock measured over a five-day consecutive trading period immediately preceding (but not including) the date on which written notice is delivered, indicating the seller’s election to receive either shares or units, to the Operating Partnership (the price of which is to be limited by a 7.5% collar in either direction from the per share volume weighted-average price of the Company’s Class A common stock measured over a ten-day consecutive trading period immediately preceding (but not including) the effective date of the PSA, which was $8.34 per share. The Company concluded that this arrangement constituted an embedded derivative which requires separate accounting. The initial value of the embedded derivative was an asset upon the signing of the PSA of $1.7 million, and was a liability of $2.3 million as of December 31, 2021 in the Company’s balance sheet. Upon consummation, the stock portion of the transaction closed at values which were within the collar and accordingly, the liability for the derivative at closing should be reduced from $2.3 million to zero. The adjusted loss represents the original value of the embedded derivative (which is also part of purchase accounting). This is expected to be a non-recurring loss. |