Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
 
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission file number: 001-38597

ARCT5LOGOCOLORNOTICKERA08.JPG

American Finance Trust, Inc.
(Exact name of registrant as specified in its charter)
Maryland
 
  
 
90-0929989
(State or other jurisdiction of incorporation or organization)
 
  
 
(I.R.S. Employer Identification No.)
405 Park Ave., 3rd Floor, New York, New York
 
  
 
10022
(Address of principal executive offices)
 
  
 
(Zip Code)
(212) 415-6500
(Registrant’s telephone number, including area code)
Securities registered pursuant to section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Class A Common Stock, $0.01 par value
 
AFIN
 
The Nasdaq Global Select Market
7.50% Series A Cumulative Redeemable Perpetual Preferred Stock, $0.01 par value
 
AFINP
 
The Nasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
 
Accelerated filer o
Non-accelerated filer x
 
Smaller reporting company o
 
 
Emerging growth company o
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
As of May 2, 2019 , the registrant had 106,211,031 shares of common stock outstanding.


AMERICAN FINANCE TRUST, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2
Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.
AMERICAN FINANCE TRUST, INC.

CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
 
March 31,
2019
 
December 31,
2018
 
(Unaudited)
 
 
ASSETS
 
 
 
Real estate investments, at cost:
 
 
 
Land
$
643,538

 
$
629,190

Buildings, fixtures and improvements
2,500,481

 
2,441,659

Acquired intangible lease assets
415,045

 
413,948

Total real estate investments, at cost
3,559,064

 
3,484,797

Less: accumulated depreciation and amortization
(467,700
)
 
(454,614
)
Total real estate investments, net
3,091,364

 
3,030,183

Cash and cash equivalents
108,042

 
91,451

Restricted cash
18,375

 
18,180

Deposits for real estate acquisitions
1,160

 
3,037

Goodwill
1,605

 
1,605

Deferred costs, net
17,050

 
16,222

Straight-line rent receivable
39,985

 
37,911

Operating lease right-of-use assets
19,166

 
—

Prepaid expenses and other assets
18,441

 
19,439

Assets held for sale
53,305

 
44,519

Total assets
$
3,368,493

 
$
3,262,547

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Mortgage notes payable, net
$
1,184,203

 
$
1,196,113

Credit facility
432,700

 
324,700

Below market lease liabilities, net
87,419

 
89,938

Accounts payable and accrued expenses (including $1,930 and $2,634 due to related parties as of March 31, 2019 and December 31, 2018, respectively)
26,798

 
28,383

Operating lease liabilities
19,276

 
—

Derivative liabilities, at fair value
1,004

 
531

Deferred rent and other liabilities
9,156

 
13,067

Dividends payable
108

 
80

Total liabilities
1,760,664

 
1,652,812

 
 
 
 
7.50% Series A cumulative redeemable perpetual preferred stock, $0.01 par value, liquidation preference $25.00 per share, 1,380,000 shares authorized, 1,200,000 issued and outstanding as of March 31, 2019 and no shares issued and outstanding as of December 31, 2018
12

 
—

Common stock, $0.01 par value per share, 300,000,000 shares authorized, 106,211,031 and 106,230,901 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively
1,062

 
1,063

Additional paid-in capital
2,441,495

 
2,412,915

Accumulated other comprehensive loss
(1,004
)
 
(531
)
Accumulated deficit
(844,773
)
 
(812,047
)
Total stockholders’ equity
1,596,792

 
1,601,400

Non-controlling interests
11,037

 
8,335

Total equity
1,607,829

 
1,609,735

Total liabilities and equity
$
3,368,493

 
$
3,262,547

The accompanying notes are an integral part of these consolidated financial statements.

3
Table of Contents
AMERICAN FINANCE TRUST, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
(In thousands, except per share data)
(Unaudited)

 
Three Months Ended March 31,
 
2019
 
2018
Revenue from tenants
$
71,541

 
$
70,119

 
 
 
 
Operating expenses:
 
 
 
Asset management fees to related party
6,038

 
5,609

Property operating
12,836

 
13,355

Impairment charges
823

 
322

Acquisition, transaction and other costs
854

 
2,016

Equity-based compensation
3,021

 
26

General and administrative
6,061

 
5,413

Depreciation and amortization
32,086

 
36,499

Total operating expenses
61,719

 
63,240

          Operating income before gain on sale of real estate investments
9,822

 
6,879

Gain on sale of real estate investments
2,873

 
24,637

   Operating income
12,695

 
31,516

Other (expense) income:
 
 
 
Interest expense
(18,440
)
 
(16,107
)
Other income
2,545

 
22

Total other expense, net
(15,895
)
 
(16,085
)
Net (loss) income
(3,200
)
 
15,431

Net loss (income) attributable to non-controlling interests
3

 
(30
)
Preferred stock dividends
(30
)
 
—

Net (loss) income attributable to common stockholders
(3,227
)
 
15,401

 
 
 
 
Other comprehensive loss:
 
 
 
Change in unrealized loss on derivatives
(473
)
 
(360
)
Comprehensive (loss) income attributable to common stockholders
$
(3,700
)
 
$
15,041

 
 
 
 
Weighted-average shares outstanding — Basic
106,076,588

 
105,196,387

Net (loss) income per share attributable to common stockholders — Basic
$
(0.03
)
 
$
0.15

Weighted-average shares outstanding — Diluted
106,076,588

 
105,415,211

Net (loss) income per share attributable to common stockholders — Diluted
$
(0.03
)
 
$
0.15

 

The accompanying notes are an integral part of these consolidated financial statements.

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AMERICAN FINANCE TRUST, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands, except share data)
(Unaudited)

 
Preferred Stock
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of
Shares
 
Par Value
 
Number of
Shares
 
Par Value
 
Additional Paid-in
Capital
 
Accumulated Other Comprehensive income (loss)
 
Accumulated Deficit
 
Total Stockholders’ Equity
 
Non-controlling Interests
 
Total Equity
Balance, December 31, 2018
—

 
$
—

 
106,230,901

 
$
1,063

 
$
2,412,915

 
$
(531
)
 
$
(812,047
)
 
$
1,601,400

 
$
8,335

 
$
1,609,735

Impact of adoption of new accounting pronouncement for leases ( Note 2 )
—

 
—

 
—

 
—

 
—

 
—

 
(170
)
 
(170
)
 
—

 
(170
)
Issuance of Preferred Stock, net
1,200,000

 
12

 
—

 
—

 
28,584

 
—

 
—

 
28,596

 
—

 
28,596

Common stock repurchases
—

 
—

 
(19,870
)
 
(1
)
 
(273
)
 
—

 
—

 
(274
)
 
—

 
(274
)
Share-based compensation
—

 
—

 
—

 
—

 
269

 
—

 
—

 
269

 
2,752

 
3,021

Dividends declared:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Common Stock, $0.28 per share
—

 
—

 
—

 
—

 
—

 
—

 
(29,207
)
 
(29,207
)
 
—

 
(29,207
)
Preferred Stock, $0.38 per share
—

 
—

 
—

 
—

 
—

 
—

 
(30
)
 
(30
)
 
—

 
(30
)
Dividends to non-controlling interest holders
—

 
—

 
—

 
—

 
—

 
—

 
(122
)
 
(122
)
 
(47
)
 
(169
)
Net loss
—

 
—

 
—

 
—

 
—

 
—

 
(3,197
)
 
(3,197
)
 
(3
)
 
(3,200
)
Other comprehensive loss
—

 
—

 
—

 
—

 
—

 
(473
)
 
—

 
(473
)
 
—

 
(473
)
Balance, March 31, 2019
1,200,000

 
$
12

 
106,211,031

 
$
1,062

 
$
2,441,495

 
$
(1,004
)
 
$
(844,773
)
 
$
1,596,792

 
$
11,037

 
$
1,607,829


 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of
Shares
 
Par Value
 
Additional Paid-in
Capital
 
Accumulated Other Comprehensive income (loss)
 
Accumulated Deficit
 
Total Stockholders' Equity
 
Non-controlling Interests
 
Total Equity
Balance, December 31, 2017
105,172,185

 
$
1,052

 
$
2,393,237

 
$
95

 
$
(657,874
)
 
$
1,736,510

 
$
4,546

 
$
1,741,056

Common stock issued through distribution reinvestment plan
503,738

 
5

 
11,768

 
—

 
—

 
11,773

 
—

 
11,773

Common stock repurchases
(896,655
)
 
(9
)
 
(16,583
)
 
—

 
—

 
(16,592
)
 
—

 
(16,592
)
Share-based compensation, net of forfeitures
—

 
—

 
26

 
—

 
—

 
26

 
—

 
26

Distributions declared on Common Stock, $0.32 per share
—

 
—

 
—

 
—

 
(33,684
)
 
(33,684
)
 
—

 
(33,684
)
Distributions to non-controlling interest holders
—

 
—

 
—

 
—

 
—

 
—

 
(65
)
 
(65
)
Net income
—

 
—

 
—

 
—

 
15,401

 
15,401

 
30

 
15,431

Other comprehensive loss
—

 
—

 
—

 
(360
)
 
—

 
(360
)
 
—

 
(360
)
Balance, March 31, 2018
104,779,268

 
$
1,048

 
$
2,388,448

 
$
(265
)
 
$
(676,157
)
 
$
1,713,074

 
$
4,511

 
$
1,717,585




The accompanying notes are an integral part of these consolidated financial statements.

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Table of Contents
AMERICAN FINANCE TRUST, INC.
  
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

 
Three Months Ended March 31,
 
2019
 
2018
Cash flows from operating activities:
 
 
 
Net (loss) income
$
(3,200
)
 
$
15,431

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation
19,168

 
22,214

Amortization of in-place lease assets
12,600

 
14,098

Amortization of deferred leasing costs
318

 
187

Amortization (including accelerated write-off) of deferred financing costs
1,311

 
1,362

Accretion of mortgage premiums on borrowings
(794
)
 
(835
)
Amortization (accretion) of market lease intangibles, net
(1,844
)
 
(1,358
)
Share-based compensation
3,021

 
26

Mark-to-market adjustments
—

 
(24
)
Gain on sale of real estate investments
(2,873
)
 
(24,637
)
Impairment charges
823

 
322

Prepayment costs on mortgages
413

 
1,797

Changes in assets and liabilities:
 
 
 
Straight-line rent receivable
(1,196
)
 
(2,253
)
Prepaid expenses and other assets
873

 
(3,496
)
Accounts payable and accrued expenses
(4,314
)
 
471

Deferred rent and other liabilities
(3,911
)
 
840

Net cash, cash equivalents and restricted cash provided by operating activities
20,395

 
24,145

Cash flows from investing activities:
 
 
 
Capital expenditures
(547
)
 
(2,141
)
Investments in real estate and other assets
(114,312
)
 
(44,165
)
Proceeds from sale of real estate investments
3,122

 
21,826

Deposits for real estate investments
1,877

 
(200
)
Net cash, cash equivalents and restricted cash used in investing activities
(109,860
)
 
(24,680
)
Cash flows from financing activities:
 
 
 

Proceeds from mortgage notes payable
—

 
29,887

Payments on mortgage notes payable
(639
)
 
(608
)
Proceeds from credit facility
108,000

 
—

Payments on credit facility
—

 
(25,000
)
Payments of financing costs
—

 
(1,166
)
Payments of prepayment costs on mortgages
(413
)
 
(1,797
)
Common stock repurchases
(274
)
 
(16,592
)
Distributions on LTIP Units and Class A Units
(131
)
 
—

Dividends paid on common stock
(29,248
)
 
(21,906
)
   Proceeds from issuance of preferred stock. net
28,956

 
—

Net cash, cash equivalents and restricted cash provided by (used in) financing activities
106,251

 
(37,182
)
Net change in cash, cash equivalents and restricted cash
16,786

 
(37,717
)
Cash, cash equivalents and restricted cash beginning of period
109,631

 
127,254

Cash, cash equivalents and restricted cash end of period
$
126,417

 
$
89,537



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Table of Contents
AMERICAN FINANCE TRUST, INC.
  
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

 
Three Months Ended March 31,
 
2019
 
2018
Cash and cash equivalents, end of period
$
108,042

 
$
71,268

Restricted cash, end of period
18,375

 
18,269

Cash, cash equivalents and restricted cash end of period
$
126,417

 
$
89,537

 
 
 
 
Supplemental Disclosures:
 
 
 
Cash paid for interest
$
17,905

 
$
15,523

Cash paid for income taxes
200

 
214

 
 
 
 
Non-Cash Investing and Financing Activities:
 
 
 
Accrued Preferred Stock offering costs
$
359

 
$
—

Mortgage notes payable released in connection with disposition of real estate
$
(11,606
)
 
$
(39,444
)
Common stock issued through distribution reinvestment plan
$
—

 
$
11,773

Accrued capital expenditures
$
2,764

 
$
3,423



The accompanying notes are an integral part of these consolidated financial statements.

7
Table of Contents
AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019
(Unaudited)


Note 1 — Organization
American Finance Trust, Inc. (the “Company”) is a diversified REIT focused on acquiring and managing a diversified portfolio of primarily service-oriented and traditional retail and distribution related commercial real estate properties in the U.S. The Company owns a diversified portfolio of commercial properties comprised primarily of freestanding single-tenant properties that are net leased to investment grade and other creditworthy tenants and a portfolio of multi-tenant retail properties consisting primarily of power centers and lifestyle centers. The Company intends to focus its future acquisitions primarily on net leased retail properties. As of March 31, 2019 , the Company owned 682 properties, comprised of 19.2 million rentable square feet, which were 94.0% leased, including 649 single tenant, net leased commercial properties ( 604 of which are retail properties) and 33 multi-tenant retail properties.
The Company, incorporated on January 22, 2013 , is a Maryland corporation that elected to be taxed as a real estate investment trust for U.S. federal income tax purposes (“REIT”) beginning with the taxable year ended December 31, 2013. Substantially all of the Company’s business is conducted through American Finance Operating Partnership, L.P. (the “OP”), a Delaware limited partnership, and its wholly-owned subsidiaries.
On July 19, 2018 (the “Listing Date”), the Company listed shares of its common stock, which had been renamed “Class A common stock” in connection with a series of corporate actions effected earlier in July 2018, on The Nasdaq Global Select Market (“Nasdaq”) under the symbol “AFIN” (the “Listing”).
To effect the Listing, and to address the potential for selling pressure that may have existed at the outset of listing, the Company listed only shares of Class A common stock, which represented approximately 50% of its outstanding shares of common stock, on Nasdaq on the Listing Date. The Company’s two other classes of outstanding stock at the time of the Listing were Class B-1 common stock, which comprised approximately 25% of the Company’s outstanding shares of common stock at that time, and Class B-2 common stock, which comprised approximately 25% of the Company’s outstanding shares of common stock at that time. In accordance with their terms, all shares of Class B-1 common stock automatically converted into shares of Class A common stock and were listed on Nasdaq on October 10, 2018 and all shares of Class B-2 common stock automatically converted into shares of Class A common stock and were listed on Nasdaq on January 9, 2019. As of March 31, 2019 , the Company had 106.2 million shares of Class A common stock outstanding, representing all shares of common stock outstanding. For additional information see Note 8 — Stockholders’ Equity.
In March 2019, the Company listed shares of its new class of 7.50% Series A Cumulative Redeemable Perpetual Preferred Stock, $0.01 par value per share (“Series A Preferred Stock”), on Nasdaq under the symbol “AFINP” in connection with the initial public offering of Series A Preferred Stock.
The Company has no employees. The Company has retained American Finance Advisors, LLC (the “Advisor”) to manage the Company’s affairs on a day-to-day basis. American Finance Properties, LLC (the “Property Manager”) serves as the Company’s property manager. The Advisor and the Property Manager are under common control with AR Global Investments, LLC (the successor business to AR Capital, LLC, “AR Global”), and these related parties of the Company receive compensation, fees and expense reimbursements for services related to managing the Company’s business. Lincoln Retail REIT Services, LLC (“Lincoln”) and its affiliates provide services to the Advisor in connection with our multi-tenant retail properties that are not net leased. The Advisor has informed the Company that the Advisor has agreed to pass through to Lincoln a portion of the fees and other expense reimbursements otherwise payable to the Advisor or its affiliates by the Company for services rendered by Lincoln. The Company is not a party to any contract with, and has no obligation to, Lincoln.
Note 2 — Summary of Significant Accounting Policies
The accompanying unaudited consolidated financial statements of the Company included herein were prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to this Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The information furnished includes all adjustments and accruals of a normal recurring nature, which, in the opinion of management, are necessary for a fair statement of results for the interim periods. All intercompany accounts and transactions have been eliminated in consolidation.The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the results for the entire year or any subsequent interim periods.

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AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019
(Unaudited)

These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto as of, and for the year ended December 31, 2018 , which are included in the Company’s Annual Report on Form 10-K filed with the SEC on March 7, 2019 . Except for those required by new accounting pronouncements discussed below, there have been no significant changes to the Company’s significant accounting policies during the three months ended March 31, 2019 .
Principles of Consolidation and Basis of Presentation
The accompanying unaudited consolidated financial statements include the accounts of the Company, the OP and its subsidiaries. All inter-company accounts and transactions are eliminated in consolidation. In determining whether the Company has a controlling financial interest in a joint venture and the requirement to consolidate the accounts of that entity, management considers factors such as ownership interest, authority to make decisions and contractual and substantive participating rights of the other partners or members as well as whether the entity is a variable interest entity (“VIE”) for which the Company is the primary beneficiary. The Company has determined the OP is a VIE of which the Company is the primary beneficiary. Substantially all of the Company’s assets and liabilities are held by the OP. Except for the OP, as of March 31, 2019 and December 31, 2018, the Company had no interests in entities which were not wholly owned.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation:
•
The Company currently presents Straight-line rent receivable on its own line item in the consolidated statement of cash flows, which was previously included within prepaid expenses and other assets.
•
The Company separated amortization of deferred leasing costs presented in the consolidated statement of cash flows onto its own line item with prior presentation of these costs included in amortization (including accelerated write-off) of deferred financing costs.
•
Gain on sale of real estate investments is now included as part of operating income.
•
The Company has aggregated revenue from its lease components and non-lease components (tenant operating expense reimbursements) into one line (see additional information in the “ Recently Issued Accounting Pronouncements” section below.
•
The Company currently presents equity-based compensation related to grants of restricted shares of common stock (“restricted shares”) in equity-based compensation in the consolidated statement of operations and comprehensive income (loss), which was previously classified in general and administrative. Also, the Company currently presents litigation costs related to the merger (the “Merger”) of the Company and American Realty Capital – Retail Centers of America, Inc. (“RCA”) in acquisition, transaction and other costs in the consolidated statement of operations and comprehensive income (loss), which were previously classified in general and administrative.
Out-of-Period Adjustments
During the three month ended March 31, 2019 , the Company identified certain historical errors in its accounting for its land leases (as lessee) which impacted the previously issued quarterly and annual financial statements. Specifically, the Company did not consider whether a penalty would be considered to exist for impairment of leasehold improvements when considering whether to include certain extension options in the lease term for accounting purposes. The land leases related to property acquired between 2013 and 2017. As of December 31, 2018, the cumulative impact of using the appropriate lease term in its straight line rent expense calculations for the operating leases was an understatement of rent expense and accrued rent liability of $0.9 million . We concluded that the errors noted above were not material to the current period or any historical periods presented and, accordingly, we have adjusted the amounts on a cumulative basis in the the three month ended March 31, 2019 .
Purchase Accounting
The Company evaluates the inputs, processes and outputs of each asset acquired to determine if the transaction is a business combination or an asset acquisition. If an acquisition qualifies as a business combination, the related transaction costs are recorded as an expense in the consolidated statements of operations. If an acquisition qualifies as an asset acquisition, the related transaction costs are generally capitalized as part of the overall purchase price.
In both a business combination and an asset acquisition, the Company allocates the purchase price of acquired properties to tangible and identifiable intangible assets or liabilities based on their respective fair values. Tangible assets may include land, land improvements, buildings, fixtures and tenant improvements. Intangible assets or liabilities may include the value of in-place leases,

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AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019
(Unaudited)

above- and below- market leases and other identifiable assets or liabilities based on lease or property specific characteristics. In addition, any assumed mortgages receivable or payable and any assumed or issued non-controlling interests (in a business combination) are recorded at their estimated fair values. In allocating the fair value to assumed mortgages, amounts are recorded to debt premiums or discounts based on the present value of the estimated cash flows, which is calculated to account for either above or below-market interest rates. In a business combination, the difference between the purchase price and the fair value of identifiable net assets acquired is either recorded as goodwill or as a bargain purchase gain. In an asset acquisition, the difference between the acquisition price (including capitalized transaction costs) and the fair value of identifiable net assets acquired is allocated to the non-current assets. All acquisitions during the three- month periods ended March 31, 2019 and 2018 were asset acquisitions.
Tangible assets include land, land improvements, buildings, fixtures and tenant improvements on an as-if vacant basis. The Company utilizes various estimates, processes and information to determine the as-if vacant property value. Estimates of value are made using customary methods, including data from appraisals, comparable sales, discounted cash flow analysis and other methods. Amounts allocated to land, land improvements, buildings and fixtures are based on cost segregation studies performed by independent third parties or on the Company’s analysis of comparable properties in the Company’s portfolio. Identifiable intangible assets include amounts allocated to acquire leases for above- and below-market lease rates and the value of in-place leases as applicable.
Factors considered in the analysis of the in-place lease intangibles include an estimate of carrying costs during the expected lease-up period for each property, taking into account current market conditions and costs to execute similar leases. In estimating carrying costs, the Company includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at contract rates during the expected lease-up period, which typically ranges from  six  to  24 months. The Company also estimates costs to execute similar leases including leasing commissions, legal and other related expenses.
Above-market and below-market lease values for acquired properties are initially recorded based on the present value (using a discount rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to each in-place lease and (ii) management’s estimate of fair market lease rates for each corresponding in-place lease, measured over a period equal to the remaining initial term of the lease for above-market leases and the remaining initial term plus the term of any below-market fixed rate renewal options for below-market leases. The capitalized above-market lease values are amortized as a reduction of base rental revenue over the remaining terms of the respective leases, and the capitalized below-market lease values are amortized as an increase to base rental revenue over the remaining initial terms plus the terms of any below-market fixed rate renewal options of the respective leases. If a tenant with a below-market rent renewal does not renew, any remaining unamortized amount will be taken into income at that time.
In making estimates of fair values for purposes of allocating purchase price, the Company utilizes a number of sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property and other market data. The Company also considers information obtained about each property as a result of the Company’s pre-acquisition due diligence in estimating the fair value of the tangible and intangible assets acquired and intangible liabilities assumed.
Impairment of Long-Lived Assets
When circumstances indicate the carrying value of a property may not be recoverable, we review the property for impairment. This review is based on an estimate of the future undiscounted cash flows, expected to result from the property’s use and eventual disposition. These estimates consider factors such as expected future operating income, market and other applicable trends and residual value, as well as the effects of leasing demand, competition and other factors. If an impairment exists, due to the inability to recover the carrying value of a property, the Company would recognize an impairment loss in the consolidated statement of operations and comprehensive income (loss) to the extent that the carrying value exceeds the estimated fair value of the property for properties to be held and used. For properties held for sale, the impairment loss recorded would equal the adjustment to fair value less estimated cost to dispose of the asset. These assessments have a direct impact on net income because recording an impairment loss results in an immediate negative adjustment to net earnings.
Goodwill
The Company has recorded goodwill of $1.6 million as of March 31, 2019 and December 31, 2018. The Company is required to assess whether its goodwill is impaired, which requires the Company to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The Company evaluates goodwill for impairment at least annually or when other market events or circumstances occur that might indicate that goodwill is impaired. The Company performed its annual assessment in December 2018 and performed a reassessment during the three months ended March 31, 2019. These assessments

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AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019
(Unaudited)

were qualitative in nature and were based primarily on the estimated value of the Company’s real estate and other market based factors. Based on these assessments, the Company determined that the goodwill was not impaired as of December 31, 2018 or March 31, 2019.
Revenue Recognition
The Company’s revenues, which are derived primarily from lease contracts, which include rents that each tenant pays in accordance with the terms of each lease reported on a straight-line basis over the initial term of the lease. As of March 31, 2019, these leases had an average remaining lease term of 8.8 years. Because many of the Company’s leases provide for rental increases at specified intervals, straight-line basis accounting requires the Company to record a receivable for, and include in revenues, unbilled rents receivable that the Company will only receive if the tenant makes all rent payments required through the expiration of the initial term of the lease. When the Company acquires a property, acquisition date is considered to be the commencement date for purposes of this calculation. For new leases after acquisition, the commencement date is considered to be the date the tenant takes control of the space. For lease modifications, the commencement date is considered to be the date the lease modification is executed. The Company defers the revenue related to lease payments received from tenants in advance of their due dates. Pursuant to certain of our lease agreements, tenants are required to reimburse us for certain property operating expenses, in addition to paying base rent, whereas under certain other lease agreements, the tenants are directly responsible for all operating costs of the respective properties. Under ASC 842, the Company has elected to report combined lease and non-lease components in a single line “Revenue from tenants.” For comparative purposes, the Company has also elected to reflect prior revenue and reimbursements reported under ASC 842 also on a single line. For expenses paid directly by the tenant, under both ASC 842 and 840, the Company has reflected them on a net basis.
The following tables present future base rent payments on a cash basis due to the Company over the periods indicated. These amounts exclude tenant reimbursements and contingent rent payments, as applicable, that may be collected from certain tenants based on provisions related to sales thresholds and increases in annual rent based on exceeding certain economic indexes among other items.
As of March 31, 2019 :
(In thousands)
 
Future  Base Rent Payments
2019 (remainder)
 
$
187,539

2020
 
232,515

2021
 
221,348

2022
 
210,490

2023
 
195,218

Thereafter
 
1,217,962

 
 
$
2,265,072

As of December 31, 2018:
(In thousands)
 
Future  Base Rent Payments
2019
 
$
232,222

2020
 
223,025

2021
 
211,918

2022
 
200,974

2023
 
185,455

Thereafter
 
1,084,424

 
 
$
2,138,018


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AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019
(Unaudited)

The Company owns certain properties with leases that include provisions for the tenant to pay contingent rental income based on a percent of the tenant’s sales upon the achievement of certain sales thresholds or other targets which may be monthly, quarterly or annual targets. As the lessor to the aforementioned leases, the Company defers the recognition of contingent rental income, until the specified target that triggered the contingent rental income is achieved, or until such sales upon which percentage rent is based are known. For the three months ended March 31, 2019 and 2018 , approximately $0.2 million and $0.2 million , respectively, in contingent rental income is included in rental income on the accompanying consolidated statements of operations and comprehensive income (loss).
The Company continually reviews receivables related to rent and unbilled rents receivable and determines collectability by taking into consideration the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located. Under the new leasing standard (see the “Recently Issued Accounting Pronouncements” section below), the Company is required to assess, based on credit risk only, if it’s probable that it will collect virtually all of the lease payments at lease commencement date and it must continue to reassess collectability periodically thereafter based on new facts and circumstances affecting the credit risk of the tenant. Partial reserves, or the ability to assume partial recovery are no longer permitted. If the Company determines that it’s probable it will collect virtually all of the lease payments (rent and common area maintenance), the lease will continue to be accounted for on an accrual basis (i.e. straight-line). However, if the Company determines it’s not probable that it will collect virtually all of the lease payments, the lease will be accounted for on a cash basis and a full reserve would be recorded on previously accrued amounts in cases where it was subsequently concluded that collection was not probable. Cost recoveries from tenants are included in operating revenue from tenants beginning on January 1, 2019, in accordance with new accounting rules, on the accompanying consolidated statements of operations and comprehensive income (loss) in the period the related costs are incurred, as applicable.
Under ASC 842, uncollectable amounts are reflected as reductions in revenue. Under ASC 840, the Company recorded such amounts as bad debt expense as part of property operating expenses. During the three month period ended March 31, 2019 and 2018 such amounts were $0.9 million and $0.4 million , respectively.
Share-Based Compensation
The Company has a stock-based award plan for its directors, which is accounted for under the guidance for employee share based payments. The cost of services received in exchange for these stock awards is measured at the grant date fair value of the award and the expense for such award is included in equity-based compensation are recognized in accordance with the service period (i.e., vesting) required or when the requirements for exercise of the award have been met.
Effective at the Listing, the Company entered into a multi-year outperformance agreement with the Advisor (the “2018 OPP”) under which a new class of units of the limited partnership designated as “LTIP Units” (“LTIP Units”) were issued to the Advisor. These awards are market based awards with a related required service period. The Company early adopted ASU 2018-07 at issuance. Accordingly, they were valued at their measurement date and that value will be reflected as a charge to earnings evenly over the service period. Further, in the event of a modification, any incremental increase in the value of the instrument measured on the date of the modification both before and after the modification, will result in an incremental amount to be reflected prospectively as a charge to earnings over the remaining service period. The expense for these non-employee awards is included in the share-based compensation - multi-year outperformance agreement line item of the consolidated statements of operations.
For additional information on the original terms, a March 2019 modification of the 2018 OPP and accounting for these awards, see Note 12 — Share-Based Compensation .
Recently Issued Accounting Pronouncements
Adopted as of January 1, 2019:
ASU No. 2016-02 — Leases
In February 2016, the FASB issued ASU No. 2016-02,  Leases (Topic 842) (“ASU 2016-02") which provides new guidance related to the accounting for leases, as well as the related disclosures. For lessors of real estate, leases are accounted for using an approach substantially the same as previous accounting guidance for operating leases and direct financing leases. For lessees, the new standard requires the application of a dual lease classification approach, classifying leases as either operating or finance leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. Lease expense for operating leases is recognized on a straight-line basis over the term of the lease, while lease expense for finance leases is recognized based on an effective interest method over the term of the lease. Also, lessees must recognize a right-of-use asset (“ROU”) and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Further, certain transactions where at inception of the lease the buyer-lessor accounted for the transaction as a purchase of real estate and a new lease, may now be

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019
(Unaudited)

required to have symmetrical accounting to the seller-lessee if the transaction was not a qualified sale-leaseback and accounted for as a financing transaction.
Upon adoption, lessors were allowed a practical expedient, which the Company has elected, by class of underlying assets to account for lease and non-lease components (such as tenant reimbursements of property operating expenses) as a single lease component as an operating lease because: (a) the non-lease components have the same timing and pattern of transfer as the associated lease component; and (b) the lease component, if accounted for separately, would be classified as an operating lease. Additionally, only incremental direct leasing costs may be capitalized under this new guidance, which is consistent with the Company’s existing policies. Also, upon adoption, companies were allowed a practical expedient package, which the Company has elected, that allowed the Company: (a) to not reassess whether any expired or existing contracts entered into prior to January 1, 2019 are or contain leases; (b) to not reassess the lease classification for any expired or existing leases entered into prior to January 1, 2019 (including assessing sale-leaseback transactions); and (c) to not reassess initial direct costs for any expired or existing leases entered into prior to January 1, 2019. As a result, all of the Company’s existing leases will continue to be classified as operating leases under the new standard. Further, any existing leases for which the property is the leased to a tenant in a transaction that at inception was a sale-leaseback transaction will continue to be treated (absent a modification) as operating leases. The Company did not have any leases that would be considered financing leases as of January 1, 2019.
The Company assessed the impact of adoption from both a lessor and lessee perspective, which is discussed in more detail below, and adopted the new guidance prospectively on January 1, 2019, using a prospective transition approach under which the Company elected to apply the guidance effective January 1, 2019 and not adjust prior comparative reporting periods (except for the Company’s presentation of lease revenue discussed below).
Lessor Accounting
As discussed above, the Company was not required to re-assess the classification of its leases, which are considered operating leases under ASU 2016-02. The following is a summary of the most significant impacts to the Company of the new accounting guidance, as lessor:
•
Since the Company elected the practical expedient noted above to not separate non-lease component revenue from the associated lease component, the Company has aggregated revenue from its lease components and non-lease components (tenant operating expense reimbursements) into one line. The prior period has been conformed to this new presentation.
•
Changes in the Company’s assessment of receivables that result in bad debt expense is now required to be recorded as an adjustment to revenue, rather than a charge to bad debt expense. This new classification applies for the first quarter of 2019 and reclassification of prior period amounts is not permitted. At transition on January 1, 2019, after assessing its reserve balances at December 31, 2018 under the new guidance, the Company wrote off accounts receivable of $0.1 million and straight-line rents receivable of $0.1 million as an adjustment to the opening balance of accumulated deficit, and accordingly rent for these tenants is currently recorded on a cash basis.
•
Indirect leasing costs in connection with new or extended tenant leases, if any, are being expensed. Under prior accounting guidance, the recognition would have been deferred.
Lessee Accounting
The Company is a lessee under ground leases for eight properties as of January 1, 2019. The following is a summary of the most significant impacts to the Company of the new accounting guidance, as lessee:
•
Upon adoption of the new standard, the Company recorded ROU assets and lease liabilities equal to $19.3 million for the present value of the lease payments related to its ground leases. These amounts are included in operating lease right-of-use assets and operating lease liabilities on the consolidated balance sheet.
•
The Company also reclassified $0.3 million related to amounts previously reported as a straight-line rent liability, $1.1 million , net related to amounts previously reported as above and below market ground lease intangibles and $0.1 million of prepaid rent to the ROU assets. For additional information and disclosures related to these operating leases, see Note 9 — Commitments and Contingencies.
Other Accounting Pronouncements
In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815) : (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-Controlling Interests with a Scope Exception guidance that changes the method to

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AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019
(Unaudited)

determine the classification of certain financial instruments with a down round feature as liabilities or equity instruments and clarify existing disclosure requirements for equity-classified instruments. A down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. As a result, a freestanding equity-linked financial instrument no longer would be accounted for as a derivative liability, rather, an entity that presents earnings per share is required to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are now subject to the specialized guidance for contingent beneficial conversion features. The revised guidance is effective for annual periods and interim periods within those annual periods, beginning after December 15, 2018. The revised guidance became effective for the Company effective January 1, 2019 and it did not have an impact on the Company's consolidated financial statements.
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities ("ASU 2017-12"). The purpose of this updated guidance is to better align a company’s financial reporting for hedging activities with the economic objectives of those activities. ASU 2017-12 is effective for public business entities for fiscal years beginning after December 15, 2018. The revised guidance became effective for the Company effective January 1, 2019 and it did not have an impact on the Company's consolidated financial statements.
In February 2018, the FASB issued ASU 2018-02, Income Statement- Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The new guidance addresses the impact of Tax Cuts and Jobs Act signed into law on December 22, 2017, (“Tax Cuts and Jobs Act”) on items within AOCI which do not reflect the appropriate tax rate. ASU 2018-02 allows the Company to retrospectively reclassify the income tax effects on items in AOCI to retained earnings for all periods in which the effect of the change in the U.S. federal corporate income tax rate was recognized. In addition, all companies are required to disclose whether the company has elected to reclassify the income tax effects of the Tax Cuts and Jobs Act to retained earnings and disclose information about any other income tax effects that are reclassified from AOCI by the Company. The amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. Companies are required to apply the proposed amendments either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. The revised guidance became effective for the Company effective January 1, 2019 and it did not have an impact on the Company's consolidated financial statements.
In July 2018, the FASB issued ASU 2018-07, Compensation- Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting ("ASU 2018-07") as an amendment and update expanding the scope of Topic 718. The amendment specifies that Topic 718 now applies to all share-based payment transactions, even non-employee awards, in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. Under the new guidance, awards to nonemployees are measured on the grant date, rather than on the earlier of the performance commitment date or the date at which the nonemployee’s performance is complete. Also, the awards would be measured by estimating the fair value of the equity instruments to be issued, rather than the fair value of the goods or services received or the fair value of the equity instruments issued, whichever can be measured more reliably. In addition, entities may use the expected term to measure nonemployee awards or elect to use the contractual term as the expected term, on an award-by-award basis. The new guidance is effective for the Company in annual periods beginning after December 15, 2018, and interim periods within those annual periods, with early adoption permitted. The Company early adopted the new guidance in 2018 and applied the new rules to its non-employee award made to the Advisor pursuant to the 2018 OPP. As a result, total equity-based compensation expense calculated as of adoption of the new guidance will be fixed as of that date and will not be remeasured in subsequent periods (unless modified). In addition, the expense will be recorded over the requisite service period. See Note 12 — Share-Based Compensation for additional information on the awards to the Advisor pursuant to the 2018 OPP.
Pending Adoption as of March 31, 2019 :
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which changes how entities measure credit losses for financial assets carried at amortized cost. The update eliminates the requirement that a credit loss must be probable before it can be recognized and instead requires an entity to recognize the current estimate of all expected credit losses. Additionally, the update requires credit losses on available-for-sale debt securities to be carried as an allowance rather than as a direct write-down of the asset. On July 25, 2018, the FASB proposed an amendment to ASU 2016-13 to clarify that operating lease receivables recorded by lessors (including unbilled straight-line rent) are explicitly excluded from the scope of ASU 2016-13. The new guidance is effective for reporting periods beginning after December 31, 2019, with early adoption permitted for reporting periods beginning after December 15, 2018 and early adoption is permitted. The Company is currently evaluating the potential impact of this new guidance.

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AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019
(Unaudited)

In January 2017, the FASB issued ASU 2017-04,  Intangibles-Goodwill and Other (Topic 350): S implifying the Test for Goodwill Impairment. This new standard simplifies subsequent measurements of goodwill by eliminating Step 2 from the goodwill impairment test. Instead, entities will perform their interim or annual goodwill impairment testing by comparing the fair value of a reporting unit with its carrying amount and recognizing an impairment charge based on the amount that the carrying amount exceeds the reporting unit's fair value. The loss recognized should not exceed the total goodwill allocated to the reporting unit. The amendments become effective for reporting periods beginning after December 15, 2019 and early adoption is permitted. The Company is currently evaluating the potential impact of this new guidance.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement . The objective of ASU 2018-13 is to improve the effectiveness of disclosures in the notes to the financial statements by removing, modifying, and adding certain fair value disclosure requirements to facilitate clear communication of the information required by generally accepted accounting principles. The amendments are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 with early adoption permitted upon issuance of this ASU. The Company is currently evaluating the potential impact of this new guidance.
Note 3 — Real Estate Investments
Property Acquisitions
The following table presents the allocation of real estate assets acquired and liabilities assumed during the periods presented. All acquisitions in both periods were considered asset acquisitions for accounting purposes.
 
 
Three Months Ended March 31,
(Dollar amounts in thousands)
 
2019
 
2018
Real estate investments, at cost:
 
 
 
 
Land
 
$
21,257

 
$
16,122

Buildings, fixtures and improvements
 
74,788

 
21,093

Total tangible assets
 
96,045

 
37,215

Acquired intangible assets and liabilities: (1)
 
 
 
 
In-place leases
 
18,182

 
7,171

Above-market lease assets
 
374

 
94

Below-market lease liabilities
 
(289
)
 
(315
)
Total intangible assets, net
 
18,267

 
6,950

Consideration paid for acquired real estate investments, net of liabilities assumed
 
$
114,312

 
$
44,165

Number of properties purchased
 
64

 
24

_____________________________________
(1)  
Weighted-average remaining amortization periods for in-place leases, above-market lease assets and below-market lease liabilities acquired during the three months ended March 31, 2019 were 19.0 years , 17.5 years and 13.8 years , respectively, as of each property’s respective acquisition date.

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AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019
(Unaudited)

The following table presents amortization expense and adjustments to revenue and property operating expenses for intangible assets and liabilities during the periods presented:
 
 
Three Months Ended March 31,
(In thousands)
 
2019
 
2018
In-place leases
 
$
12,600

 
$
14,098

Total added to depreciation and amortization
 
$
12,600

 
$
14,098

 
 
 
 
 
Above-market leases
 
$
(868
)
 
$
(1,049
)
Below-market lease liabilities
 
2,729

 
2,420

Total added to rental income
 
$
1,861

 
$
1,371

 
 
 
 
 
Below-market ground lease asset (1)
 
$
18

 
$
8

Above-market ground lease liability (1)
 
(1
)
 
—

Total added to property operating expenses
 
$
17

 
$
8

_____________________
(1) Upon adoption of ASU No. 2016-02 effective January 1, 2019, intangible balances related to ground leases were reclassified to be included as part of the Operating lease right-of-use assets presented on the consolidated balance sheet with no change to placement of the amortization expense of such balances. Refer to Note 2 — Summary of Significant Accounting Policies for additional details.
The following table provides the projected amortization expenses and adjustments to revenue and property operating expenses for intangible assets and liabilities for the next five years:
(In thousands)
 
2019 (remainder)
 
2020
 
2021
 
2022
 
2023
In-place leases
 
$
30,662

 
$
35,076

 
$
30,691

 
$
26,668

 
$
24,258

Total to be added to depreciation and amortization
 
$
30,662

 
$
35,076

 
$
30,691

 
$
26,668

 
$
24,258

 
 
 
 
 
 
 
 
 
 
 
Above-market leases
 
$
2,379

 
$
2,450

 
$
2,135

 
$
1,760

 
$
1,512

Below-market lease liabilities
 
(5,690
)
 
(6,952
)
 
(6,296
)
 
(5,891
)
 
(5,721
)
Total to be added to rental income
 
$
(3,311
)
 
$
(4,502
)
 
$
(4,161
)
 
$
(4,131
)
 
$
(4,209
)
Real Estate Held for Sale
When assets are identified by management as held for sale, the Company stops recognizing depreciation and amortization expense on the identified assets and estimates the sales price, net of costs to sell, of those assets. If the carrying amount of the assets classified as held for sale exceeds the estimated net sales price, the Company records an impairment charge equal to the amount by which the carrying amount of the assets exceeds the Company’s estimate of the net sales price of the assets. For additional information on impairment charges, see “Impairment Charges” section below.
As of March 31, 2019 and December 31, 2018 , there were nine and seven properties, respectively, classified as held for sale. During the three months ended March 31, 2019 , the Company sold four of the properties that were held for sale as of December 31, 2018 , reclassified one property back to real estate, at cost due to termination of the applicable PSA and classified seven additional properties as held for sale. The disposal of these properties does not represent a strategic shift. Accordingly, the operating results of these properties remain classified within continuing operations for all periods presented. The following table details the major classes of assets associated with the properties that have been reclassified as held for sale as of the dates indicated:

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AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019
(Unaudited)

(In thousands)
 
March 31, 2019
 
December 31, 2018
Real estate investments held for sale, at cost:
 
 
 
 
Land
 
$
10,213

 
$
6,113

Buildings, fixtures and improvements
 
44,101

 
39,343

Acquired intangible lease assets
 
12,517

 
12,517

Total real estate assets held for sale, at cost
 
66,831

 
57,973

Less accumulated depreciation and amortization
 
(12,235
)
 
(11,278
)
Total real estate investments held for sale, net
 
54,596

 
46,695

 
 
 
 
 
Impairment charges related to properties reclassified as held for sale (1)
 
(1,291
)
 
(2,176
)
Assets held for sale
 
$
53,305

 
$
44,519

(1) Impairment charges are recorded in the period in which an asset is reclassified to held for sale.

Real Estate Sales
During the three months ended March 31, 2019 , the Company closed on the sale of eight properties, including seven properties leased to SunTrust Banks, Inc. (“SunTrust”), for an aggregate contract price of $15.1 million , exclusive of closing costs and related mortgage repayments. These sales resulted in aggregate gains of $2.9 million , which are reflected in gain on sale of real estate investments on the consolidated statement of operations and comprehensive income (loss) for the three months ended March 31, 2019 .
During the three months ended March 31, 2018 , the Company sold 44 properties, including 31 leased to SunTrust, for an aggregate contract price of $161.5 million , exclusive of closing costs. These sales resulted in aggregate gains of $24.6 million , which are reflected in gain on sale of real estate investments on the consolidated statement of operations and comprehensive income (loss) for the three months ended March 31, 2018 .
Real Estate Held for Use
When circumstances indicate the carrying value of a property may not be recoverable, the Company reviews the property for impairment. For the Company, the most common triggering events are (i) concerns regarding the tenant (i.e., credit or expirations) in our single tenant properties or significant vacancy in our multi-tenant properties and (ii) changes to our expected holding period as a result of business decisions or non-recourse debt maturities. As of March 31, 2019 and December 31, 2018 , the Company owned four and seven held for use single-tenant net lease properties leased to SunTrust, which had lease terms that expired between December 31, 2017 and March 31, 2018. For all of its held for use properties, the Company had reconsidered the projected cash flows due to various performance indicators and where appropriate, the Company evaluated the impact on its ability to recover the carrying value of such properties based on the expected cash flows over its intended holding period. See Impairment Charges below for discussion of specific charges taken.
For held for use assets, the Company primarily uses a market approach to estimate the future cash flows expected to be generated. This approach involves evaluating comparable sales of properties in the same geographic region as the held for use properties in order to generate an estimated sale price. The Company makes certain assumptions in this approach including, among others, that the properties in the comparable sales used in the analysis share similar characteristics to the held for use properties, and that market and economic conditions at the time of any potential sales of these properties, such as discount rates, demand for space, competition for tenants, changes in market rental rates, and costs to operate the property, would be similar to those in the comparable sales analyzed. Where more than one possible scenario exists, the Company uses a probability weighted approach. As these factors are difficult to predict and are subject to future events that may alter management’s assumptions, the future cash flows estimated by management in its impairment analysis may not be achieved, and actual losses or impairment may be realized in the future.
For some of the held for use properties, the Company has executed a non-binding letter of intent (“LOI”) or a definitive purchase and sale agreement (“PSA”) to sell the properties, however, these do not yet meet the criteria for held for sale treatment. In those instances, the Company uses the sale price from the applicable LOI or PSA to estimate the future cash flows expected to be generated in the sale scenario. The Company made certain assumptions in this approach as well, mainly that the sale of these properties would close at the terms specified in the LOI or PSA. There can be no guarantee that the sales of these properties will close under these terms or at all.

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AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019
(Unaudited)

Impairment Charges
The Company recorded total impairment charges of $0.8 million for the three months ended March 31, 2019 . This amount is comprised of impairment charges of $0.1 million , which were recorded upon reclassification of properties to assets held for sale to adjust the properties to their fair value less estimated cost of disposal and impairment charges of $0.7 million , which was recorded on one held for use property leased to SunTrust.
The Company recorded total impairment charges of $0.3 million for the three months ended March 31, 2018 . This amount is comprised of impairment charges of $0.1 million , which were recorded upon reclassification of properties to assets held for sale to adjust the properties to their fair value less estimated cost of disposal and impairment charges of $0.2 million , which were recorded on four of the Company’s held for use properties leased to SunTrust.
Note 4 —   Mortgage Notes Payable, Net
The Company’s mortgage notes payable, net as of March 31, 2019 and December 31, 2018 consisted of the following:
 
 
 
 
Outstanding Loan Amount as of
 
Effective Interest Rate as of
 
 
 
 
 
 
Portfolio
 
Encumbered Properties
 
March 31,
2019
 
December 31,
2018
 
March 31,
2019
 
Interest Rate
 
Maturity
 
Anticipated Repayment
 
 
 
 
(In thousands)
 
(In thousands)
 
 
 
 
 
 
 
 
SAAB Sensis I
 
1
 
$
6,975

 
$
7,077

 
5.93
%
 
Fixed
 
Apr. 2025
 
Apr. 2025
SunTrust Bank II
 
23
 
11,381

 
13,412

 
5.50
%
 
Fixed
 
Jul. 2031
 
Jul. 2021
SunTrust Bank III
 
82
 
66,929

 
68,080

 
5.50
%
 
Fixed
 
Jul. 2031
 
Jul. 2021
SunTrust Bank IV
 
15
 
18,113

 
18,113

 
5.50
%
 
Fixed
 
Jul. 2031
 
Jul. 2021
Sanofi US I
 
1
 
125,000

 
125,000

 
5.16
%
 
Fixed
 
Jul. 2026
 
Jan. 2021
Stop & Shop I
 
4
 
36,610

 
36,812

 
5.63
%
 
Fixed
 
Jun. 2041
 
Jun. 2021
Mortgage Loan I
 
248
 
563,775

 
572,199

 
4.36
%
 
Fixed
 
Sep. 2020
 
Sep. 2020
Shops at Shelby Crossing
 
1
 
22,469

 
22,581

 
4.97
%
 
Fixed
 
Mar. 2024
 
Mar. 2024
Patton Creek
 
1
 
39,804

 
40,027

 
5.76
%
 
Fixed
 
Dec. 2020
 
Dec. 2020
Bob Evans I
 
23
 
23,950

 
23,950

 
4.71
%
 
Fixed
 
Sep. 2037
 
Sep. 2027
Mortgage Loan II
 
12
 
210,000

 
210,000

 
4.25
%
 
Fixed
 
Jan. 2028
 
Jan. 2028
Mortgage Loan III
 
22
 
33,400

 
33,400

 
4.12
%
 
Fixed
 
Jan. 2028
 
Jan. 2028
Mortgage Loan IV
 
39
 
29,887

 
29,887

 
5.16
%
 
Fixed
(2)  
Mar. 2025
 
Mar. 2025
Gross mortgage notes payable
 
472
 
1,188,293

 
1,200,538

 
4.64
%
(1)  
 
 
 
 
 
Deferred financing costs, net of accumulated amortization (3)
 
 
 
(10,234
)
 
(11,363
)
 
 
 
 
 
 
 
 
Mortgage premiums, net (4)
 
 
 
6,144

 
6,938

 
 
 
 
 
 
 
 
Mortgage notes payable, net
 
 
 
$
1,184,203

 
$
1,196,113

 
 
 
 
 
 
 
 
_____________________________________
(1)  
Calculated on a weighted-average basis for all mortgages outstanding as of the dates indicated.
(2)  
Fixed as a result of the Company having entered into “pay-fixed” interest rate swap agreements, which are included in derivatives, at fair value on the consolidated balance sheets as of March 31, 2019 and December 31, 2018 .
(3)  
Deferred financing costs represent commitment fees, legal fees and other costs associated with obtaining financing. These costs are amortized to interest expense over the terms of the respective financing agreements using the effective interest method. Unamortized deferred financing costs are generally expensed when the associated debt is refinanced or repaid before maturity. Costs incurred in seeking financial transactions that do not close are expensed in the period in which it is determined that it is probable the financing will not close.
(4)  
Mortgage premiums or discounts are amortized as an increase or reduction to interest expense over the remaining terms of the respective mortgages.
As of March 31, 2019 and December 31, 2018 , the Company had pledged $2.3 billion in real estate investments, at cost as collateral for its mortgage notes payable. This real estate is not available to satisfy other debts and obligations unless first satisfying the mortgage notes payable on the properties. In addition, as of March 31, 2019 and December 31, 2018 , $1.1 billion in real estate investments, at cost were included in the unencumbered asset pool comprising the borrowing base under the Credit Facility ( see Note 5 — Credit Facility for definition). Therefore, this real estate is only available to serve as collateral or satisfy other debts and obligations if it is first removed from the borrowing base under the Credit Facility.

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AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019
(Unaudited)

The following table summarizes the scheduled aggregate principal payments on mortgage notes payable based on stated maturity dates for the five years subsequent to March 31, 2019 and thereafter:
(In thousands)
 
Future Principal Payments
2019 (remainder)
 
$
1,895

2020
 
604,660

2021
 
257,565

2022
 
1,070

2023
 
1,431

Thereafter
 
321,672

 
 
$
1,188,293

The Company’s mortgage notes payable agreements require the compliance of certain property-level financial covenants including debt service coverage ratios. As of March 31, 2019 , the Company was in compliance with financial covenants under its mortgage notes payable agreements.
Note 5 — Credit Facility
On April 26, 2018, the Company, through the OP, repaid its prior revolving unsecured corporate credit facility in full and entered into a $415.0 million revolving unsecured corporate credit facility (the “Credit Facility”) with BMO Bank, as administrative agent, Citizens Bank, N.A. and SunTrust Robinson Humphrey, Inc., as joint lead arrangers, and the other lenders from time to time party thereto. In September 2018, the lenders under the Credit Facility increased the aggregate total commitments under the Credit Facility by $125.0 million , bringing total commitments to $540.0 million .
The Credit Facility includes an uncommitted “accordion feature” whereby, upon the request of the OP, but at the sole discretion of the participating lenders, the commitments under the Credit Facility may be increased by up to an additional $500.0 million , subject to obtaining commitments from new lenders or additional commitments from participating lenders and certain customary conditions. As of March 31, 2019 , as discussed above, the Company had increased its commitments through this accordion feature by $125.0 million , leaving $375.0 million of potential increase remaining.
The amount available for future borrowings under the Credit Facility is based on the lesser of (1) a percentage of the value of the pool of eligible unencumbered real estate assets comprising the borrowing base, and (2) a maximum amount permitted to maintain a minimum debt service coverage ratio with respect to the borrowing base, in each case, as of the determination date. As of March 31, 2019 , the Company had a total borrowing capacity under the Credit Facility of $478.1 million based on the value of the borrowing base under the Credit Facility. Of this amount, $432.7 million was outstanding under the Credit Facility as of March 31, 2019 and $45.4 million remained available for future borrowings. In accordance with the Credit Facility, in order for the Company to make payments required to fund certain share repurchases, the Company would be required to satisfy a maximum leverage ratio after giving effect to the payments, and would be required to have a combination of cash, cash equivalents and amounts available for future borrowings under the Credit Facility of not less than $40.0 million .
The Credit Facility is interest-only. Upon the Listing, the maturity date of the Credit Facility was automatically extended from April 26, 2020 to April 26, 2022 and the Company has a one-time right, subject to customary conditions, to extend the maturity date for an additional term of one year to April 26, 2023. Borrowings under the Credit Facility bear interest at either (i) the Base Rate (as defined in the Credit Facility) plus an applicable spread ranging from 0.60% to 1.20% , depending on the Company’s consolidated leverage ratio, or (ii) LIBOR plus an applicable spread ranging from 1.60% to 2.20% , depending on the Company’s consolidated leverage ratio. As of March 31, 2019 and December 31, 2018 , the weighted-average interest rate under the Credit Facility was 4.45% and 4.12% , respectively.
The Credit Facility contains various customary operating covenants, including a restricted payments covenant, as well as covenants restricting, among other things, the incurrence of liens, investments, fundamental changes, agreements with affiliates and changes in nature of business. The Credit Facility also contains financial maintenance covenants with respect to maximum consolidated leverage, maximum consolidated secured leverage, minimum fixed charge coverage, maximum other recourse debt to total asset value, and minimum net worth. As of March 31, 2019 , the Company was in compliance with the operating and financial covenants under the Credit Facility.

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AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019
(Unaudited)

Pursuant to the Credit Facility, the Company may not pay distributions, including cash dividends on equity securities (including the Series A Preferred Stock) in an aggregate amount exceeding 95% of Modified FFO (as defined in the Credit Facility) for any period of four consecutive fiscal quarters subject to a one-time right to elect, for a period of three consecutive fiscal quarters, to pay cash dividends or redeem or repurchase equity securities in an aggregate amount equal to no more than 110% of Modified FFO for each of those fiscal quarters. The Company relied on this exception for the quarters ended December 31, 2018 and March 31, 2019 and expects to rely on it for the quarter ending June 30, 2019. As a result, the Company will not be able to rely on this exception again without seeking consent from the lenders under the Credit Facility. There is no assurance that the lenders would consent or that the Company will generate cash flows and Modified FFO in an amount sufficient to pay dividends on the outstanding equity securities including the Series A Preferred Stock and comply with the Credit Facility. Doing so depends, in part, on the Company’s ability, and the time needed, to invest in new cash flow generating acquisitions. There is no assurance the Company will complete pending or future acquisitions. If the Company is not able to increase the amount of cash it has available to pay dividends, including through additional cash flows the Company expects to generate from completing acquisitions, the Company’s ability to comply with the Credit Facility or the terms of the Series A Preferred Stock in future periods may be adversely affected. Further, the Company may have to identify other financing sources to fund dividends. There can be no assurance that other sources will be available on favorable terms, or at all.

Note 6 — Fair Value Measurements
Fair Value Hierarchy
GAAP establishes a hierarchy of valuation techniques based on the observability of inputs used in measuring assets and liabilities at fair value. GAAP establishes market-based or observable inputs as the preferred sources of values, followed by valuation models using management assumptions in the absence of market inputs. The three levels of the hierarchy are described below:
Level 1 — Quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 — Inputs other than quoted prices included within Level 1 that are observable for the asset and liability or can be corroborated with observable market data for substantially the entire contractual term of the asset or liability.
Level 3 — Unobservable inputs that reflect the entity’s own assumptions about the assumptions that market participants would use in the pricing of the asset or liability and are consequently not based on market activity, but rather through particular valuation techniques.
The determination of where an asset or liability falls in the hierarchy requires significant judgment and considers factors specific to the asset or liability. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company evaluates its hierarchy disclosures each quarter and depending on various factors, it is possible that an asset or liability may be classified differently from quarter to quarter. However, the Company expects that changes in classifications between levels will be rare.
Derivative Instruments
The Company’s derivative instruments are measured at fair value on a recurring basis. Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with these derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparty. However, as of  March 31, 2019 , the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of the Company’s derivatives. As a result, the Company has determined that its derivatives valuation in its entirety is classified in Level 2 of the fair value hierarchy.
The valuation of derivative instruments is determined using a discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, as well as observable market-based inputs, including interest rate curves and implied volatilities. In addition, credit valuation adjustments are incorporated into the fair values to account for the Company’s potential nonperformance risk and the performance risk of the counterparties.
Real Estate Investments - Held for Sale

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AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019
(Unaudited)

The Company had impaired real estate investments held for sale ( see Note 3 — Real Estate Investments for additional information on impairment charges recorded by the Company), which were carried at fair value on a non-recurring basis on the consolidated balance sheets as of March 31, 2019 and December 31, 2018 . Impaired real estate investments held for sale were valued using the sale price from the applicable PSA less costs to sell, which is an observable input. As a result, the Company’s impaired real estate investments held for sale are classified in Level 2 of the fair value hierarchy.
Real Estate Investments - Held for Use
The Company also had impaired real estate investments held for use ( see Note 3 — Real Estate Investments for additional information on impairment charges recorded by the Company), which were carried at fair value on a non-recurring basis on the consolidated balance sheets as of March 31, 2019 and December 31, 2018 . The Company primarily used a market approach to estimate the future cash flows expected to be generated. This approach involved evaluating comparable sales of properties in the same geographic regions as the impaired properties in order to generate an estimated sale price, which is an unobservable input. As a result, the impaired properties that the Company evaluated using this approach are classified in Level 3 of the fair value hierarchy. For some of the impaired properties, the Company had an executed LOI or PSA to sell the property. In those instances, the Company used the sale price from the applicable LOI or PSA to estimate the future cash flows expected to be generated, which is an observable input. As a result, the impaired properties that the Company evaluated using this approach are classified in Level 2 of the fair value hierarchy.

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AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019
(Unaudited)

Financial instruments measured at fair value on a recurring basis
The following table presents information about the Company’s assets and liabilities measured at fair value as of March 31, 2019 and December 31, 2018 , aggregated by the level in the fair value hierarchy within which those instruments fall.
(In thousands)
 
Quoted Prices
in Active
Markets
Level 1
 
Significant Other
Observable
Inputs
Level 2
 
Significant
Unobservable
Inputs
Level 3
 
Total
March 31, 2019
 
 

 
 

 
 

 
 

Interest rate “Pay - Fixed” swaps - assets
 
—

 
—

 
—

 
—

Interest rate “Pay - Fixed” swaps - liabilities
 
—

 
(1,004
)
 
—

 
(1,004
)
Total
 
$
—

 
$
(1,004
)
 
$
—

 
$
(1,004
)
 
 
 
 
 
 
 
 
 
December 31, 2018
 
 
 
 
 
 
 
 
Interest rate “Pay - Fixed” swaps - assets
 
—

 
(531
)
 
—

 
(531
)
Total
 
$
—

 
$
(531
)
 
$
—

 
$
(531
)
Real Estate Investments measured at fair value on a non-recurring basis
(In thousands)
 
Quoted Prices
in Active
Markets
Level 1
 
Significant Other
Observable
Inputs
Level 2
 
Significant
Unobservable
Inputs
Level 3
 
Total
March 31, 2019
 
 

 
 

 
 

 
 

Impaired real estate investments held for sale
 
$
—

 
$
43,595

 
$
—

 
$
43,595

Impaired real estate investments held for use
 
—

 
—

 
75

 
75

Total
 
$
—

 
$
43,595

 
$
75

 
$
43,670

 
 
 
 
 
 
 
 
 
December 31, 2018
 
 
 
 
 
 
 
 
Impaired real estate investments held for sale
 
$
—

 
$
42,848

 
$
—

 
$
42,848

Impaired real estate investments held for use
 
—

 
7,765

 
886

 
8,651

Total
 
$
—

 
$
50,613

 
$
886

 
$
51,499

A review of the fair value hierarchy classification is conducted on a quarterly basis. Changes in the type of inputs may result in a reclassification for certain assets and liabilities. The Company’s policy with respect to transfers between levels of the fair value hierarchy is to recognize transfers into and out of each level as of the end of the reporting period. There were no transfers between levels of the fair value hierarchy during the three months ended March 31, 2019 and 2018 .
Financial Instruments that are not Reported at Fair Value
The fair value of short-term financial instruments such as cash and cash equivalents, restricted cash, prepaid expenses and other assets, accounts payable and accrued expenses and dividends payable approximates their carrying value on the consolidated balance sheets due to their short-term nature. The fair values of the Company’s remaining financial instruments that are not reported at fair value on the consolidated balance sheets as of March 31, 2019 and December 31, 2018 are reported in the following table:
 
 
 
 
March 31, 2019
 
December 31, 2018
(In thousands)
 
Level
 
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
Gross mortgage notes payable
 
3
 
$
1,188,293

 
$
1,205,830

 
$
1,200,538

 
$
1,209,364

Credit facilities
 
3
 
$
432,700

 
$
432,700

 
$
324,700

 
$
324,700

The fair value of gross mortgage notes payable is based on combinations of independent third party estimates and management’s estimates of market interest rates. Advances under the Prior Credit Facility or the Credit Facility are considered to be reported at fair value, because its interest rate varies with changes in LIBOR, and there has not been a significant change in the credit risk of the Company or credit markets.

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AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019
(Unaudited)

Note 7 — Derivatives and Hedging Activities
Risk Management Objective of Using Derivatives
The Company may use derivative financial instruments, including interest rate swaps, caps, options, floors and other interest rate derivative contracts, to hedge all or a portion of the interest rate risk associated with its borrowings. The principal objective of such arrangements is to minimize the risks and costs associated with the Company’s operating and financial structure as well as to hedge specific anticipated transactions. The Company does not intend to utilize derivatives for speculative or other purposes other than interest rate risk management. The use of derivative financial instruments carries certain risks, including the risk that the counterparties to these contractual arrangements are not able to perform under the agreements. To mitigate this risk, the Company only enters into derivative financial instruments with counterparties with high credit ratings and with major financial institutions with which the Company and its related parties may also have other financial relationships. The Company does not anticipate that any of the counterparties will fail to meet their obligations.
The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the consolidated balance sheets as of March 31, 2019 and December 31, 2018 :
(In thousands)
 
Balance Sheet Location
 
March 31, 2019
 
December 31, 2018
Derivatives designated as hedging instruments:
 
 
 
 
 
 
Interest Rate “Pay-fixed” Swaps
 
Derivative liabilities, at fair value
 
$
1,004

 
$
531

   Total
 
 
 
$
1,004

 
$
531

Cash Flow Hedges of Interest Rate Risk
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps and collars as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate collars designated as cash flow hedges involve the receipt of variable-rate amounts if interest rates rise above the cap strike rate on the contract and payments of variable-rate amounts if interest rates fall below the floor strike rate on the contract.
The changes in the fair value of derivatives designated and that qualify as cash flow hedges are recorded in accumulated other comprehensive loss and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the three months ended March 31, 2019 , such derivatives were used to hedge the variable cash flows associated with variable-rate debt.
Amounts reported in accumulated other comprehensive loss related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. During the next twelve months, the Company estimates that approximately $0.1 million will be reclassified from accumulated other comprehensive loss as an increase to interest expense.
As of March 31, 2019 and December 31, 2018 , the Company had the following derivatives that were designated as cash flow hedges of interest rate risk.
 
 
March 31, 2019
 
December 31, 2018
Interest Rate Derivative
 
Number of
Instruments
 
Notional Amount
 
Number of
Instruments
 
Notional Amount
 
 
 
 
(In thousands)
 
 
 
(In thousands)
Interest Rate “Pay Fixed” Swaps
 
4
 
$
29,887

 
4
 
$
29,887


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AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019
(Unaudited)

The table below details the location in the financial statements of the gain or loss recognized on interest rate derivatives designated as cash flow hedges for the three months ended March 31, 2019 and 2018 :
 
 
Three Months Ended March 31,
(In thousands)
 
2019
 
2018
Amount of loss recognized in accumulated other comprehensive loss on interest rate derivatives
 
$
(493
)
 
$
(365
)
Amount of loss reclassified from accumulated other comprehensive loss into income as interest expense
 
$
(20
)
 
$
(5
)
Total amount of interest expense presented in the consolidated income statements

 
$
(18,440
)
 
$
(16,107
)
Non-Designated Hedges
As of March 31, 2019 and 2018, the Company did not have any derivatives that were not designated as hedges of in qualifying hedging relationships, therefore no gain or loss was recorded in the three months ended March 31, 2019 and 2018.
Offsetting Derivatives
The table below presents a gross presentation, the effects of offsetting, and a net presentation of the Company’s derivatives as of March 31, 2019 and December 31, 2018 . The net amounts of derivative assets or liabilities can be reconciled to the tabular disclosure of fair value. The tabular disclosure of fair value provides the location that derivative assets and liabilities are presented on the consolidated balance sheets.
 
 
 
 
 
 
 
 
 
 
Gross Amounts Not Offset on the Balance Sheet
 
 
(In thousands)
 
Gross Amounts of Recognized Assets
 
Gross Amounts of Recognized (Liabilities)
 
Gross Amounts Offset on the Balance Sheet
 
Net Amounts of Assets (Liabilities) Presented on the Balance Sheet
 
Financial Instruments
 
Cash Collateral Received (Posted)
 
Net Amount
March 31, 2019
 
$
—

 
$
(1,004
)
 
$
—

 
$
(1,004
)
 
$
—

 
$
—

 
(1,004
)
December 31, 2018
 
$
—

 
$
(531
)
 
$
—

 
$
(531
)
 
$
—

 
$
—

 
(531
)
Credit-Risk-Related Contingent Features
The Company has agreements with each of its derivative counterparties that contain a provision where if the Company either defaults or is capable of being declared in default on any of its indebtedness, then the Company could also be declared in default on its derivative obligations.
As of March 31, 2019 , the fair value of derivatives in a net liability position including accrued interest but excluding any adjustment for nonperformance risk related to these agreements was $1.1 million . As of March 31, 2019, the Company has not posted any collateral related to these agreements and was not in breach of any agreement provisions. If the Company had breached any of these provisions, it could have been required to settle its obligations under the agreements at their aggregate termination value of $1.1 million .
Note 8 — Stockholders’ Equity
Common Stock
As of March 31, 2019 and December 31, 2018 , the Company had 106.2 million shares of Class A common stock outstanding, representing all shares of common stock outstanding.

24
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AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019
(Unaudited)

In connection with the Listing, the Company’s board of directors changed the rate at which the Company pays dividends on its common stock to an annualized rate equal to $1.10 per share, or $0.0916667 per share on a monthly basis, effective as of July 1, 2018. Additionally, effective July 1, 2018, the Company transitioned to declaring dividends based on monthly, rather than daily, record dates and will generally pay dividends on or around the 15th day of each month (or, if not a business day, the next succeeding business day) to common stock holders of record on the applicable record date of such month. Prior to July 1, 2018, dividends were payable by the fifth day following each month end to stockholders of record at the close of business each day during the prior month.
Dividend payments are dependent on the availability of funds. The Company’s board of directors may reduce the amount of dividends paid or suspend dividend payments at any time and therefore dividends payments are not assured.
Listing of the Company’s Common Stock
To address the potential for selling pressure that may have existed at the outset of listing, the Company listed only shares of Class A common stock, which represented approximately 50% of its outstanding shares of common stock, on Nasdaq on the Listing Date. The Company’s two other classes of outstanding stock at the time of the Listing were Class B-1 common stock, which comprised approximately 25% of the Company’s outstanding shares of common stock at that time and Class B-2 common stock, which comprised approximately 25% of the Company’s outstanding shares of common stock at that time. In accordance with their terms, all shares of Class B-1 common stock automatically converted into shares of Class A common stock and were listed on Nasdaq on October 10, 2018 and all shares of Class B-2 common stock automatically converted into shares of Class A common stock and were listed on Nasdaq on January 9, 2019. Fractional shares of Class B-2 common stock totaling approximately 19,863 shares were repurchased at a price of $13.78 per share by the Company as a result of the automatic conversion. Each share of Class B-1 common stock and Class B-2 common stock was otherwise identical to each share of Class A common stock in all other respects, including the right to vote on matters presented to the Company’s stockholders, and shares of all different classes of common stock received the same dividends while there were different classes of common stock outstanding.
Prior to Listing, the Company published an annual estimated net asset value per share of the Company’s common stock (“Estimated Per-Share NAV”) which was the price at which the Company sold its shares under the Pre-Listing DRIP (as defined below) and repurchased shares under the SRP (as defined below). Following the Listing, the Company’s previously published Estimated Per-Share NAV was no longer applicable, and the Company no longer publishes Estimated Per-Share NAV.
Tender Offer
On February 15, 2018, in response to an unsolicited offer to the Company’s stockholders to purchase 1,000,000 shares of the Company’s common stock at a price of $13.66 per share, the Company commenced a tender offer for up to 1,000,000 shares at a price of $14.35 per share (the “February Offer”). The Company made the February Offer in order to deter an unsolicited bidder and other potential future bidders that might have tried to exploit the illiquidity of the Company’s then unlisted common stock and acquire it from stockholders at prices substantially below the then current Estimated Per-Share NAV. In accordance with the terms of the February Offer, which expired on March 27, 2018, the Company accepted for purchase 483,716 shares for a total cost of approximately $6.9 million , excluding fees and expenses relating to the February Offer.
Authorized Repurchase Program
Effective at the Listing, the Company’s board of directors authorized a share repurchase program of up to $200.0 million of Class A common stock (the “Authorized Repurchase Program”) that the Company may implement through open market repurchases or in privately negotiated transaction based on the Company’s board of directors’ and management’s assessment of, among other things, market conditions prevailing at the particular time. The Company will have the ability to repurchase shares of Class A common stock up to this amount at its discretion, subject to authorization by the Company’s board of directors prior to any such repurchase. As of March 31, 2019 , the total of the Company’s remaining availability for future borrowings and cash and cash equivalents was $153.5 million . In accordance with the Credit Facility, if the Company make any restricted payments, which would include payments for this authorized repurchase program, or certain other payments, the Company would be required to maintain a combination of cash and availability for future borrowings totaling $40.0 million following such payments. Accordingly, if the Company decided to purchase shares under this program, the ultimate amount repurchased would depend on the amount of cash and availability for future borrowings at that time. There have not been any purchases authorized, through open market purchases or otherwise, under this program through the date of this Quarterly Report on Form 10-Q.

25
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AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019
(Unaudited)

Terminated Share Repurchase Program
In anticipation of the Listing, the Company’s board of directors terminated the Company’s previous share repurchase program (the “SRP”) in accordance with its terms, effective June 30, 2018. The Company’s board of directors had previously authorized the Company to repurchase shares pursuant to the SRP, which permitted investors to offer to sell their shares back to the Company after they held them for at least one year, subject to certain conditions and limitations. The Company repurchased shares on a semiannual basis, in its sole discretion, at each six-month period ending June 30 and December 31.
On June 14, 2017, the Company announced that its board of directors had adopted an amendment and restatement of the SRP that superseded and replaced the existing SRP effective as of July 14, 2017. Under the amended and restated SRP, subject to certain conditions, only repurchase requests made following the death or qualifying disability of stockholders that purchased shares of the Company’s common stock or received their shares from the Company (directly or indirectly) through one or more non-cash transactions were considered for repurchase. Other terms and provisions of the amended and restated SRP remained consistent with the SRP then in effect.
Under the SRP, prior to the amendment and restatement, the repurchase price per share for requests other than for death or disability was as follows:
•
after one year from the purchase date — 92.5% of the then-current Estimated Per-Share NAV ;
•
after two years from the purchase date — 95.0% of the then-current Estimated Per-Share NAV ;
•
after three years from the purchase date — 97.5% of the then-current Estimated Per-Share NAV ; and
•
after four years from the purchase date — 100.0% of the then-current Estimated Per-Share NAV .
In the case of requests for death or disability, the repurchase price per share was equal to Estimated Per-Share NAV applicable on the last day of the semiannual period, as described below.
Under the SRP, repurchases at each semiannual period were limited to a maximum of 2.5% of the weighted-average number of shares of common stock outstanding during the previous fiscal year, with a maximum for any fiscal year of 5.0% of the weighted-average number of shares of common stock outstanding during the previous fiscal year. Repurchases pursuant to the SRP for any given semiannual period were funded from proceeds received during that same semiannual period through the issuance of common stock pursuant to the Pre-Listing DRIP (as defined herein), as well as any funds reserved by the Company in the sole discretion of the Company’s board of directors. Repurchases were made at a price based on Estimated Per-Share NAV applicable on the last day of the semiannual period, as described above.
The Company’s board of directors had the right, in its sole discretion, at any time and from time to time, to reject any request for repurchase, change the purchase price for repurchases or otherwise amend the terms of, suspend or terminate the SRP pursuant to any applicable notice requirements under the SRP. Due to these limitations, the Company did not guarantee that it was able to accommodate all repurchase requests.
When a stockholder requested repurchases and the repurchases were approved, the Company reclassified such an obligation from equity to a liability based on the settlement value of the obligation. Shares repurchased have the status of authorized but unissued shares.
The Company repurchased 412,939 shares at a weighted-average price per share of $23.37 during the three months ended March 31, 2018 and has made cumulative repurchases of 3,719,803 at a weighted-average price per share of $23.90 through the SRP termination date of June 30, 2018.
Distribution Reinvestment Plan
On June 29, 2018, the Company announced that its board of directors had suspended the Company’s then effective distribution reinvestment plan (the “Pre-Listing DRIP”) effective June 30, 2018. As a result, all dividends paid for the month of June 2018 were paid in cash in July 2018. Prior to its suspension, the Company’s stockholders were able to elect to reinvest dividends by purchasing shares of common stock from the Company at the applicable Estimated Per-Share NAV. On the Listing Date, an amendment and restatement of the Pre-Listing DRIP approved by the Company’s board of directors became effective (the “Post-Listing DRIP”).
Commencing with the dividend paid on August 3, 2018 (the first dividend paid following the Listing Date), the Company’s stockholders that have elected to participate in the Post-Listing DRIP may have dividends payable with respect to all or a portion of their shares of the Company’s common stock (including Class A common stock, Class B-1 common stock, prior to its automatic conversion to Class A common stock on October 10, 2018, and Class B-2 common stock, prior to its automatic conversion to Class

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019
(Unaudited)

A common stock on January 9, 2019) reinvested in shares of Class A common stock. Shares issued pursuant to the Post-Listing DRIP represent shares that are, at the election of the Company, either (i) acquired directly from the Company, which would issue new shares, at a price based on the average of the high and low sales prices of Class A common stock on Nasdaq on the date of reinvestment, or (ii) acquired through open market purchases by the plan administrator at a price based on the weighted-average of the actual prices paid for all of the shares of Class A common stock purchased by the plan administrator with all participants’ reinvested dividends for the related quarter, less a per share processing fee. During the first quarter of 2019 and the year ended December 31, 2018 all shares acquired by participants pursuant to the Post-Listing DRIP were acquired through open market purchases by the plan administrator and not issued directly to stockholders by the Company.
Shares issued pursuant to the Pre-Listing DRIP or the Post-Listing DRIP are recorded within stockholders’ equity in the accompanying consolidated balance sheets in the period dividends are declared. During the three months ended March 31, 2019 , no shares of common stock were issued pursuant to the Post-Listing DRIP and during the three months ended March 31, 2018 , 503,738 shares of common stock were issued pursuant to the Pre-Listing DRIP.
Preferred Stock
The Company is authorized to issue up to 50,000,000 shares of preferred stock, of which it has classified and designated 1,380,000 as authorized shares of its Series A Preferred Stock, as of March 31, 2019.
Underwriting Offering — Series A Preferred Stock
On March 26, 2019, the Company completed the initial issuance and sale of 1,200,000 shares of Series A Preferred Stock, with a liquidation preference of $25.00 per share in an underwritten public offering. The offering generated gross proceeds of $30.0 million and net proceeds of $28.6 million , after deducting underwriting discounts and offering costs paid by the Company. On April 10, 2019, the underwriters in the offering exercised their option to purchase additional shares of Series A Preferred Stock (see Note 14 — Subsequent Events for additional information).
Series A Preferred Stock — Terms
Series A Preferred Stock is listed on Nasdaq under the symbol “AFINP”. Holders of Series A Preferred Stock are entitled to cumulative dividends in the amount of $1.875 per share each year, which is equivalent to the rate of 7.50% of the $25.00 liquidation preference per share per annum. The Series A Preferred Stock has no stated maturity and will remain outstanding indefinitely unless redeemed or otherwise repurchased. On and after March 26, 2024, at any time and from time to time, the Series A Preferred Stock will be redeemable in whole, or in part, at the Company’s option, at a cash redemption price of $25.00 per share, plus an amount equal to all dividends accrued and unpaid (whether or not declared), if any, to, but not including, the redemption date. In addition, upon the occurrence of a Delisting Event or a Change of Control (each as defined in the supplementary classifying and designating the terms of the Series A Preferred Stock (the “Articles Supplementary”)), the Company may, subject to certain conditions, at its option, redeem the Series A Preferred Stock, in whole but not in part, within 90 days after the first date on which the Delisting Event occurred or within 120 days after the first date on which the Change of Control occurred, as applicable, by paying the liquidation preference of $25.00 per share, plus an amount equal to all dividends accrued and unpaid (whether or not declared), if any, to, but not including, the redemption date. If the Company does not exercise these redemption rights upon the occurrence of a Delisting Event or a Change of Control, the holders of Series A Preferred Stock will have certain rights to convert Series A Preferred Stock into shares of Class A common stock.
The Series A Preferred Stock ranks senior to Class A common stock, with respect to dividend rights and rights upon the Company’s voluntary or involuntary liquidation, dissolution or winding up.
Holders of Series A Preferred Stock have the right to elect two additional directors to the Company’s board of directors if six or more quarterly dividends (whether or not consecutive) payable on the Series A Preferred Stock are in arrears, and approve amendments to the Company’s charter (which includes the Articles Supplementary) that materially and adversely affect the rights of the Series A Preferred Stock or create additional classes or series of shares of the Company’s capital stock that are senior to the Series A Preferred Stock. Other than the limited circumstances described above and in the Articles Supplementary, holders of Series A Preferred Stock do not have any voting rights.
ATM Programs
In May 2019, the Company established an “at the market” equity offering program for Class A common stock (the “Class A ATM Program”), pursuant to which the Company may sell up to $200.0 million in shares of Class A common stock, from time to time through sales agents and an “at the market” equity offering program for Series A Preferred Stock (the “Series A ATM Program”) pursuant to which the Company may sell up to $50.0 million in shares of Series A Preferred Stock, from time to time through sales agents. See Note 14 - Subsequent Events for additional information.
Note 9 — Commitments and Contingencies
Lessee Arrangements - Ground Leases
The Company leases land in the form of ground lease agreements related to acquisitions under leasehold interest arrangements for eight of its properties with lease durations, including assumed renewals, ranging from 18.8 years to 45.6 years as of March 31, 2019 . On January 1, 2019, the Company adopted ASU 2016- 02 and recorded ROU assets and lease liabilities related to these ground leases, which are all considered operating leases under the new standard (see Note 2 - Summary of Significant Accounting Polices for additional information on the impact of adopting the new standard).
As of March 31, 2019, the Company’s balance sheet includes operating lease right-of-use assets and operating lease liabilities of $19.2 million and $19.3 million , respectively. In determining operating ROU assets and lease liabilities for the Company’s existing operating leases upon the adoption of the new lease guidance as well as for new operating leases in the current period, the Company was required to estimate an appropriate incremental borrowing rate on a fully-collateralized basis for the terms of the leases. Since the terms of the Company’s ground leases are significantly longer than the terms of borrowings available to the Company on a fully-collateralized basis, our estimate of this rate required significant judgment.
The Company’s ground operating leases have a weighted-average remaining lease term, including assumed renewals, of 29.6 years and a weighted-average discount rate of 7.5% as of March 31, 2019 . For the three months ended March 31, 2019 , the Company paid cash of $0.4 million for amounts included in the measurement of lease liabilities and recorded expense of $1.3 million on a straight-line basis in accordance with the standard. The lease expense is recorded in property operating expenses in the consolidated statements of operations and comprehensive income (loss). The Company did not enter into any additional ground leases during the quarter ended March 31, 2019.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019
(Unaudited)

The following table reflects the base cash rental payments due from the Company as of March 31, 2019 :
(In thousands)
 
Future Base Rent Payments
2019 (remainder)
 
$
1,111

2020
 
1,499

2021
 
1,538

2022
 
1,554

2023
 
1,555

Thereafter
 
47,427

Total lease payments
 
54,684

Less: Effects of discounting
 
(35,408
)
Total present value of lease payments
 
$
19,276

Litigation and Regulatory Matters
On January 13, 2017, four affiliated stockholders of RCA filed in the United States District Court for the District of Maryland a putative class action lawsuit against RCA, the Company, Edward M. Weil, Jr., Leslie D. Michelson, Edward G. Rendell (Weil, Michelson and Rendell, the “Director Defendants”), and AR Global, alleging violations of Sections 14(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) by RCA and the Director Defendants, violations of Section 20(a) of the Exchange Act by AR Global and the Director Defendants, breaches of fiduciary duty by the Director Defendants, and aiding and abetting breaches of fiduciary duty by AR Global and the Company in connection with the negotiation of and proxy solicitation for a shareholder vote on what was at the time the proposed Merger and an amendment to RCA’s charter. The complaint sought on behalf of the putative class rescission of the Merger, which was voted on and approved by RCA stockholders on February 13, 2017, and closed on February 16, 2017, together with unspecified rescissory damages, unspecified actual damages, and costs and disbursements of the action. RCA was sponsored and advised by affiliates of the Advisor. On April 26, 2017, the Court appointed a lead plaintiff. Lead plaintiff, along with other stockholders of RCA, filed an amended complaint on June 19, 2017. The amended complaint named additional individuals and entities as defendants (David Gong, Stanley Perla, Lisa Kabnick, all of whom were independent directors of the Company at the time of the Merger (“Additional Director Defendants”), Nicholas Radesca, the Company’s chief financial officer at the time of the Merger and RCA’s advisor), added counts alleging violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933, as amended (the “Securities Act”) in connection with the Registration Statement for the proposed merger, under Section 13(e) of the Exchange Act, and counts for breach of contract and unjust enrichment. The Company, RCA, the Director Defendants, the Additional Director Defendants and Nicholas Radesca deny wrongdoing and liability and intend to vigorously defend the action. On August 14, 2017, defendants moved to dismiss the amended complaint. On March 29, 2018, the Court granted defendants’ motion to dismiss and dismissed the amended complaint. On April 26, 2018, the plaintiffs filed a notice of appeal of the court’s order. On March 11, 2019, the United States Court of Appeals for the Fourth Circuit affirmed the judgment of the district court dismissing the complaint. On March 25, 2019, the plaintiffs filed a Petition for Rehearing and Rehearing En Banc, which was subsequently denied on April 9, 2019 . Due to the stage of the litigation, no estimate of a probable loss or any reasonable possible losses are determinable at this time. No provisions for such losses have been recorded in the accompanying consolidated financial statements for the three months ended March 31, 2019 or 2018 .
On February 8, 2018, Carolyn St. Clair-Hibbard, a purported stockholder of the Company, filed a putative class action complaint in the United States District Court for the Southern District of New York against the Company, AR Global, the Advisor, Nicholas S. Schorsch and William M. Kahane. On February 23, 2018, the complaint was amended to, among other things, assert some claims on the plaintiff’s own behalf and other claims on behalf of herself and other similarly situated shareholders of the Company as a class. On April 26, 2018, defendants moved to dismiss the amended complaint. On May 25, 2018, plaintiff filed a second amended complaint. The second amended complaint alleges that the proxy materials used to solicit stockholder approval of the Merger at the Company’s 2017 annual meeting were materially incomplete and misleading. The complaint asserts violations of Section 14(a) of the Exchange Act against the Company, as well as control person liability against the Advisor, AR Global, and Messrs. Schorsch and Kahane under 20(a). It also asserts state law claims for breach of fiduciary duty against the Advisor, and claims for aiding and abetting such breaches, of fiduciary duty against the Advisor, AR Global and Messrs. Schorsch and Kahane. The complaint seeks unspecified damages, rescission of the Company’s advisory agreement (or severable portions thereof) which became effective when the Merger became effective, and a declaratory judgment that certain provisions of the Company’s advisory

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March 31, 2019
(Unaudited)

agreement are void. The Company believes the second amended complaint is without merit and intends to defend vigorously. On June 22, 2018, defendants moved to dismiss the second amended complaint. On August 1, 2018, plaintiff filed an opposition to defendants’ motions to dismiss. Defendants filed reply papers on August 22, 2018, and oral argument was held on September 26, 2018. That motion is now pending. Due to the early stage of the litigation, no estimate of a probable loss or any reasonably possible losses are determinable at this time.
On October 26, 2018, Terry Hibbard, a purported stockholder of the Company, filed a putative class action complaint in New York State Supreme Court, New York County, against the Company, AR Global, the Advisor, Nicholas S. Schorsch, William M. Kahane, Edward M. Weil, Jr., Nicholas Radesca, David Gong, Stanley R. Perla, and Lisa D. Kabnick.  The complaint alleges that the registration statement pursuant to which RCA shareholders acquired shares of the Company during the Merger contained materially incomplete and misleading information.  The complaint asserts violations of Section 11 of the Securities Act against Messrs. Weil, Radesca, Gong, and Perla, and Ms. Kabnick, violations of Section 12(a)(2) of the Securities Act against the Company and Mr. Weil, and control person liability against the Advisor, AR Global, and Messrs. Schorsch and Kahane under Section 15 of the Securities Act.  The complaint seeks unspecified damages and rescission of the Company’s sale of stock pursuant to the registration statement. The Company believes the complaint is without merit and intends to defend vigorously.  The case has been stayed pending a decision on the motion to dismiss in the Carolyn St. Clair-Hibbard case discussed above. Due to the early stage of the litigation, no estimate of a probable loss or any reasonably possible losses are determinable at this time.
On March 6, 2019, Susan Bracken, Michael P. Miller and Jamie Beckett, purported stockholders of the Company, filed a putative class action complaint in New York State Supreme Court, New York County, on behalf of themselves and others who purchased shares of common stock through the Pre-Listing DRIP, against the Company, AR Global, the Advisor, Nicholas S. Schorsch, William M. Kahane, Edward M. Weil, Jr., Nicholas Radesca, David Gong, Stanley R. Perla, and Lisa D. Kabnick. The complaint alleges that the April and December 2016 registration statements pursuant to which class members purchased shares contained materially incomplete and misleading information. The complaint asserts violations of Section 11 of the Securities Act against Messrs. Weil, Radesca, Gong and Perla, and Ms. Kabnick, violations of Section 12(a)(2) of the Securities Act against the Company and Mr. Weil, and control person liability against the Advisor, AR Global, and Messrs. Schorsch and Kahane under Section 15 of the Securities Act. The complaint seeks unspecified damages and either rescission of the Company’s sale of stock or rescissory damages. The Company believes the complaint is without merit and intends to defend vigorously. Due to the early stage of the litigation, no estimate of a probable loss or any reasonably possible losses are determinable at this time.
On April 30, 2019, Lynda Callaway, a purported stockholder of the Company, filed a putative class action complaint in New York State Supreme Court, New York County, against the Company, AR Global, the Advisor, Nicholas S. Schorsch, William M. Kahane, Edward M. Weil, Jr., Nicholas Radesca, David Gong, Stanley R. Perla, and Lisa D. Kabnick. The complaint alleges that the registration statement pursuant to which plaintiff and other class members acquired shares of the Company during the Merger contained materially incomplete and misleading information. The complaint asserts violations of Section 11 of the Securities Act against the Company, Messrs. Weil, Radesca, Gong, and Perla, and Ms. Kabnick, violations of Section 12(a)(2) of the Securities Act against the Company and Mr. Weil, and control person liability under Section 15 of the Securities Act against the Advisor, AR Global, and Messrs. Schorsch and Kahane. The complaint seeks unspecified damages and rescission of the Company’s sale of stock pursuant to the registration statement. Due to the early stage of the litigation, no estimate of a probable loss or any reasonably possible losses are determinable at this time.
There are no other material legal or regulatory proceedings pending or known to be contemplated against the Company.
During the three months ended March 31, 2019 and 2018 , the Company incurred approximately $0.3 million and $62,000 in legal costs related to the above litigation. A portion of these litigation costs are subject to a claim for reimbursement under the insurance policies maintained by the Company, and during the first quarter of 2019, reimbursements of $1.8 million were received and recorded in other income in the consolidated statements of operations. The Company may receive additional reimbursements in the future.
Environmental Matters
In connection with the ownership and operation of real estate, the Company may potentially be liable for costs and damages related to environmental matters. The Company maintains environmental insurance for its properties that provides coverage for potential environmental liabilities, subject to the policy’s coverage conditions and limitations. The Company has not been notified by any governmental authority of any non-compliance, liability or other claim, and is not aware of any other environmental condition that it believes will have a material adverse effect on its financial position or results of operations.

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March 31, 2019
(Unaudited)

Note 10 — Related Party Transactions and Arrangements
As of March 31, 2019 , American Finance Special Limited Partner, LLC (the “Special Limited Partner”), an entity controlled by AR Global, owned 4,444 shares of Class A common stock. As of December 31, 2018 , the Special Limited Partner owned 2,222 shares Class A common stock and 2,222 shares of Class B-2 common stock.
On September 6, 2016, the agreement of limited partnership of the OP was amended and restated (as so amended and restated, the “A&R OP Agreement”). On the Listing Date, the A&R OP Agreement was amended and restated in connection with the Listing (as so amended and restated, the “Second A&R OP Agreement”). The amendments effected to the A&R OP Agreement pursuant to the Second A&R OP Agreement generally reflect provisions more consistent with agreements of limited partnership of other operating partnerships controlled by real estate investment trusts whose securities are publicly traded and listed and make other changes in light of the transactions entered into by the Company in connection with the Listing, including designating the units of limited partnership previously designated as “OP Units” that correspond to each share of the Company’s common stock, with respect to dividends and otherwise, as “Class A Units” and setting forth the terms of a new class of units of limited partnership designated as “LTIP Units” including the Master LTIP Unit (the “Master LTIP Unit”) issued to the Advisor on the Listing Date pursuant to the 2018 OPP. In addition, the Second A&R OP Agreement describes the procedures pursuant to which holders of Class A Units may redeem all or a portion of their Class A Units for, at the Company’s election, either shares of Class A common stock or the cash equivalent thereof. The Second A&R OP Agreement also requires the Company, upon the request of a holder of Class A Units but subject to certain conditions and limitations, to register under the Securities Act the issuance or resale of the shares of Class A common stock issuable upon redemption of Class A Units in accordance with the Second A&R OP Agreement.
Holders of Class A Units have the right to redeem their Class A Units for the cash value of a corresponding number of shares of the Company’s Class A common stock or, at the option of the OP, a corresponding number of shares of the Company’s Class A common stock, in accordance with the Second A&R OP Agreement. Holders of OP Units had similar rights under the A&R OP Agreement. The remaining rights of the limited partner interests are limited, however, and do not include the ability to replace the general partner or to approve the sale, purchase or refinancing of the OP’s assets.
Subsequent to the Listing, all of the Class A Units held by the Advisor and its affiliates were redeemed for shares of Class A common stock and all of the shares of Class A common stock, Class B-1 common stock and Class B-2 common stock owned by the Advisor and its affiliates (including the Special Limited Partner) were distributed pro rata to the individual members of those entities, including Edward M. Weil, Jr., the Company’s chairman and chief executive officer. See Note 8 — Stockholders’ Equity for additional information regarding these transactions.
On March 22, 2019, the Company, in its capacity as the general partner of the OP, entered into an amendment to the Second A&R OP Agreement which designated and classified the 7.50% Series A Cumulative Redeemable Perpetual Preferred Units (“Series A Preferred Units”), which are units of limited partnership in the OP that have economic interests that are substantially similar to the designations, preferences and other rights of the Series A Preferred Stock.
Fees and Participations Incurred in Connection with the Operations of the Company
Summary of Advisory Agreement
On April 29, 2015 , the independent directors of the Company’s board of directors unanimously approved certain amendments to the Amended and Restated Advisory Agreement, as amended (the “First A&R Advisory Agreement”), by and among the Company, the OP and the Advisor (the “Second A&R Advisory Agreement”). The Second A&R Advisory Agreement, which superseded the First A&R Advisory Agreement, took effect on July 20, 2015 , the date on which the Company filed certain changes to the Company’s charter, which were approved by the Company’s stockholders on June 23, 2015 . The initial term of the Second A&R Advisory Agreement of 20 years began on April 29, 2015, and is automatically renewable for another 20 -year term upon each 20 -year anniversary unless terminated by the Company’s board of directors for cause.
On September 6, 2016, the Company entered into an amendment and restatement of the Second A&R Advisory Agreement (the “Third A&R Advisory Agreement”), which became effective on February 16, 2017, the effective date of the Merger. The Third A&R Advisory Agreement grants the Company the right to internalize the services provided under the Third A&R Advisory Agreement (“Internalization”) and thereby terminate the Third A&R Advisory Agreement pursuant to a notice received by the Advisor after January 1, 2018 as long as (i) more than 67% of the Company’s independent directors have approved the Internalization; and (ii) the Company pays the Advisor a specified Internalization fee pursuant to the terms of the Third A&R Advisory Agreement, which is equal to $15.0 million plus either (x) if the Internalization occurs on or before December 31, 2028, Subject Fees multiplied by 4.5 and (y) if the Internalization occurs on or after January 1, 2029, Subject Fees multiplied by 3.5 plus 1% of the purchase price of each acquisition or merger that occurs between the date of the notice of Internalization received by

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March 31, 2019
(Unaudited)

the Advisor and the Internalization or 1% of the cumulative net proceeds of any equity raised by the Company between the end of the fiscal quarter in which notice was received and the Internalization. The “Subject Fees” are equal to (i) the product of four multiplied by the sum of (A) the actual base management fee plus (B) the actual variable management fee, in each of clauses (A) and (B), payable for the fiscal quarter in which the notice of Internalization is received by the Advisor, plus, (ii) without duplication, the annual increase in the base management fee resulting from the cumulative net proceeds of any equity raised in respect of the fiscal quarter in which the notice of Internalization is received by the Advisor. Up to 10% of the Internalization fee may be payable in shares of common stock subject to certain conditions.
The initial term of the Third A&R Advisory Agreement expires on April 29, 2035, the twentieth anniversary of Second A&R Advisory Agreement. This term is automatically renewed for successive twenty -year terms upon expiration unless the Third A&R Advisory Agreement is terminated (1) in accordance with an Internalization, (2) by the Company or the Advisor with cause, without penalty, with 60 days’ notice, (3) by the Advisor for (a) a failure to obtain a satisfactory agreement for any successor to the Company to assume and agree to perform obligations under the Third A&R Advisory Agreement or (b) any material breach of the Third A&R Advisory Agreement of any nature whatsoever by the Company, or (4) by the Advisor in connection with a change of control of the Company. Upon the termination of the Third A&R Advisory Agreement, the Advisor will be entitled to receive from the Company all amounts due to the Advisor, as well as the then-present fair market value of the Advisor’s interest in the Company.
2019 Advisory Agreement Amendment
On March 18, 2019, the Company entered into Amendment No.2 to the Third A&R Advisory Agreement (“Amendment No. 2”), by and among the OP and the Advisor. Amendment No.2 revised the section of the Third A&R Advisory Agreement specifically related to reimbursable administrative service expenses, including reasonable salaries and wages, benefits and overhead of employees of the Advisor or its affiliates, including those of certain executive officers of the Company. See the “Professional Fees and Other Reimbursements” section below for details.
In-Sourced Expenses
The Advisor has been and may continue to be reimbursed for costs it incurs in providing investment-related services, or “insourced expenses.” These insourced expenses may not exceed 0.5% of the contract purchase price of each acquired property and 0.5% of the amount advanced for a loan or other investment. Additionally, the Company has paid and may continue to pay third party acquisition expenses. The aggregate amount of acquisition fees and financing coordination fees (of which there were none) were not to exceed 1.5% of the contract purchase price and the amount advanced for a loan or other investment for all the assets acquired. The Company has incurred $0.1 million and $0.1 million of acquisition expenses and related cost reimbursements for the three months ended March 31, 2019 and 2018, respectively.
Asset Management Fees and Variable Management/Incentive Fees
Under the Second A&R Advisory Agreement, the Company was required to pay a fixed base management fee of $18.0 million annually. Under the Third A&R Advisory Agreement, the fixed portion of the base management fee increased from $18.0 million annually to (i) $21.0 million for the first year starting February 16, 2017, the effective date of the Third A&R Advisory Agreement, until February 16, 2018; (ii) $22.5 million for the second year starting February 17, 2018 until February 16, 2019; and (iii) $24.0 million annually for the remainder of the term. If the Company acquires (whether by merger, consolidation or otherwise) any other REIT, that is advised by an entity that is wholly-owned, directly or indirectly, by AR Global, other than any joint ventures, (a “Specified Transaction”), the fixed portion of the base management fee will be increased by an amount equal to the consideration paid for the acquired company’s equity multiplied by 0.0031 , 0.0047 and 0.0062 for years one, two and three and thereafter, respectively, following a Specified Transaction. The variable portion of the base management fee changed from a quarterly fee equal to 0.375% of the cumulative net proceeds of any equity raised (including certain convertible debt, proceeds from the Pre-Listing DRIP (if any) and any cumulative Core Earnings (as defined below) in excess of dividends paid on common stock but excluding equity based compensation and proceeds from a Specified Transaction) after the Company lists its common stock on a national securities exchange to a monthly fee equal to one-twelfth of 1.25% of the cumulative net proceeds of any equity raised by the Company or its subsidiaries from and after February 16, 2017. Base management fees, including the variable portion, are included in asset management fees to related party on the consolidated statement of operations and comprehensive income (loss) for the three months ended March 31, 2019 and 2018.
In addition, under the Third A&R Advisory Agreement, the Company is required to pay the Advisor a variable management fee. Prior to the Listing Date, the amount that was required to be paid was equal to the product of (1) the fully diluted shares of common stock outstanding multiplied by (2) (x) 15.0% of the applicable quarter’s Core Earnings per share in excess of $0.375 per share plus (y) 10.0% of the applicable quarter’s Core Earnings per share in excess of $0.50 per share, in each case as adjusted for changes in the number of shares of common stock outstanding. On the Listing Date, the Company entered into an amendment

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March 31, 2019
(Unaudited)

to the Third A&R Advisory Agreement (the “Listing Amendment") which lowered the quarterly thresholds of Core Earnings per share the Company must reach in a particular quarter for the Advisor to receive a Variable Management Fee (as defined in the Third A&R Advisory Agreement) from $0.375 and $0.50 to $0.275 and $0.3125 . The Listing Amendment also revised the definition of Adjusted Outstanding Shares (as defined in the Third A&R Advisory Agreement), which is used to calculate Core Earnings per share, to be based on the Company’s reported diluted weighted-average shares outstanding. The Company’s board of directors unanimously approved the Listing Amendment upon the unanimous recommendation of the Company’s nominating and corporate governance committee, which is comprised entirely of independent directors.
Core Earnings is defined as, for the applicable period, net income or loss computed in accordance with GAAP excluding non-cash equity compensation expense, the variable management fee, acquisition and transaction related fees and expenses, financing related fees and expenses, depreciation and amortization, realized gains and losses on the sale of assets, any unrealized gains or losses or other non-cash items recorded in net income or loss for the applicable period, regardless of whether such items are included in other comprehensive income (loss), or in net income, one-time events pursuant to changes in GAAP and certain non-cash charges, impairment losses on real estate related investments and other than temporary impairments of securities, amortization of deferred financing costs, amortization of tenant inducements, amortization of straight-line rent, amortization of market lease intangibles, provision for loss loans, and other non-recurring revenue and expenses (in each case after discussions between the Advisor and the independent directors and the approval of a majority of the independent directors). The variable management fee is payable to the Advisor or its assignees in cash or shares, or a combination of both, the form of payment to be determined in the sole discretion of the Advisor and the value of any share to be determined by the Advisor acting in good faith on the basis of such quotations and other information as it considers, in its reasonable judgment, appropriate. The Company did not incur a variable management fee during the three months ended March 31, 2019 and 2018 .
Prior to the Listing, in aggregate, the Company’s board of directors had approved the cumulative issuance of 1,052,420 Class B Units to the Advisor. Pursuant to the terms of the A&R OP Agreement, the Advisor was entitled to receive dividends on unvested Class B Units equal to the dividend amount received on the same number of shares of the Company’s common stock. Such distributions on issued Class B Units were included in general and administrative expenses in the consolidated statements of operations and comprehensive income (loss). As a result of the Listing and the prior determination by the Company’s board of directors that the applicable conditions under the A&R OP Agreement had been satisfied, the Class B Units vested in accordance with their terms. The Class B Units were converted into an equal number of Class A Units. In addition, effective at the Listing following this conversion and as approved by the Company’s board of directors, these Class A Units were redeemed for an equal number of newly issued shares of Class A common stock consistent with the redemption provisions contained in the Second A&R OP Agreement. As a result, the Company recorded a non-cash expense of approximately $15.8 million recorded in vesting and conversion of Class B Units in the consolidated statements of operations and comprehensive income (loss) for the three months ended September 30, 2018.
Property Management Fees
The Company has a property management agreement (the “Multi-Tenant Property Management Agreement”), a leasing agreement (the “Multi-Tenant Leasing Agreement”) and a net lease property management and leasing agreement (“Net Lease Property Management Agreement”) with the Property Manager. The Multi-Tenant Property Management Agreement, the Multi-Tenant Leasing Agreement and the Net Lease Property Management Agreement each became effective on February 16, 2017.
The Multi-Tenant Property Management Agreement provides that, unless a property is subject to a separate property management agreement with the Property Manager, the Property Manager is the sole and exclusive property manager for the Company’s multi-tenant properties, which are generally anchored, retail properties, such as power centers and lifestyle centers. In December 2017, in connection with a $210.0 million mortgage loan secured by 12 of the Company’s anchored, stabilized core retail properties, the Company entered into 12 identical property management agreements with the Property Manager, the substantive terms of which are substantially identical to the terms of the Multi-Tenant Property Management Agreement, with the exception of the transition fees described below.
The Multi-Tenant Property Management Agreement provides that the Property Manager is entitled to a management fee equal to 4% of the gross rental receipts from the multi-tenant properties, including common area maintenance reimbursements, tax and insurance reimbursements, percentage rental payments, utility reimbursements, late fees, vending machine collections, service charges, rental interruption insurance, and a 15% administrative charge for common area expenses.
In addition, the Property Manager is entitled to transition fees of up to $2,500 for each multi-tenant property managed, a construction fee equal to 6% of construction costs incurred, if any, and reimbursement of all expenses specifically related to the operation of a multi-tenant property, including compensation and benefits of property management, accounting, lease

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019
(Unaudited)

administration, executive and supervisory personnel of the Property Manager, and excluding expenses of the Property Manager’s corporate and general management office and excluding compensation and other expenses applicable to time spent on matters other than the multi-tenant properties.
Pursuant to the Multi-Tenant Leasing Agreement, the Company may, under certain circumstances and subject to certain conditions, pay the Property Manager a leasing fee for services in leasing multi-tenant properties to third parties.
The Company’s double- and triple-net leased single- tenant properties are managed by the Property Manager pursuant to the Net Lease Property Management Agreement, which permits the Property Manager to subcontract its duties to third parties and provides that the Company is responsible for all costs and expenses of managing the properties, except for general overhead and administrative expenses of the Property Manager.
The current terms of each of the Multi-Tenant Property Management Agreement, the Multi-Tenant Leasing Agreement and the Net Lease Property Management Agreement ends on October 1, 2019, with automatic renewal for successive one -year terms unless terminated 60 days prior to the end of a term or terminated for cause due to material breach of the agreement, fraud, criminal conduct or willful misconduct, insolvency or bankruptcy of the Property Manager.
Professional Fees and Other Reimbursements
The Company reimburses the Advisor’s costs of providing administrative services. During the three months ended March 31, 2019 and 2018, the Company incurred $2.7 million and $1.9 million respectively, of reimbursement expenses for the Advisor providing administrative services, which for the three months ended March 31, 2019 included $1.8 million related to salaries, wages, benefits and overhead for employees of the Advisor or its affiliates directly involved in the performance of services on behalf of the Company. These reimbursements are exclusive of fees and other expense reimbursements incurred from and due to the Advisor that are passed through and ultimately paid to Lincoln as a result of the Advisor’s arrangements with Lincoln and the reimbursement includes reasonable overhead expenses, including the reimbursement of rent expense at certain properties that are both occupied by employees of the Advisor or its affiliates and owned by affiliates of the Advisor. These reimbursements are included in general and administrative expense on the consolidated statements of operations and comprehensive income (loss).
Pursuant to the Third A&R Advisory Agreement, including prior to Amendment No.2, the Company has been required to reimburse the Advisor for, among other things, reasonable salaries and wages, benefits and overhead of all employees of the Advisor or its affiliates, except for costs to the extent that the employees perform services for which the Advisor receives a saparate fee. Under Amendment No.2, the Company is also required to reimburse the Advisor or its affiliates for the reasonable salaries and wages, benefits and overhead of the Company’s executive officers, except for any executive officer that is also a partner, member or equity owner of AR Global. In addition, pursuant to Amendment No. 2, the aggregate amount of expenses relating to salaries, wages and benefits, including for executive officers and all other employees of the Advisor or its affiliates (the “Capped Reimbursement Amount”), for any fiscal year, is limited to the greater of:
(a) $7.0 million (the “Fixed Component”) and
(b) the variable component (the “Variable Component”), which is defined in Amendment No. 2 as, for any fiscal year:
(i) the sum of the total real estate investments, at cost as recorded on the balance sheet dated as of the last day of each fiscal quarter (the “Real Estate Cost”) in the year divided by four , which amount is then (ii) multiplied by 0.20% .
Both the Fixed Component and the Variable Component will also be increased by an annual cost of living adjustment equal to the portion of the Capped Reimbursement Amount (as determined above) multiplied by the greater of (x) 3.0% and (y) the CPI, as defined in Amendment No. 2, for the prior year ended December 31st.
In the event of a reduction in the Real Estate Cost by 25% or more pursuant to instructions from the Company’s board of directors, in one or a series of related dispositions in which the proceeds of the disposition(s) are not reinvested in Investments (as defined in the Third A&R Advisory Agreement), then within 12 months following the disposition(s), the Advisor and the Company will enter into good faith negotiations to reset the Fixed Component; provided that if the proceeds of the disposition(s) are paid to shareholders of the Company as a special distribution or used to repay loans with no intent of subsequently re-financing and re-investing the proceeds thereof in investments, the Advisor and the Company will enter into good faith negotiations to reset the Fixed Component within 90 days thereof, in each case taking into account reasonable projections of reimbursable costs in light of the reduced assets of the Company.
Summary of fees, expenses and related payables

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019
(Unaudited)

The following table details amounts incurred and payable to related parties in connection with the operations-related services described above as of and for the periods presented. Amounts below are inclusive of fees and other expense reimbursements incurred from and due to the Advisor that are passed through and ultimately paid to Lincoln as a result of the Advisor’s arrangements with Lincoln:
 
 
Three Months Ended March 31,
 
Payable as of
 
(In thousands)
 
2019
 
2018
 
March 31,
2019
 
December 31,
2018
 
Non-recurring fees and reimbursements:
 
 
 
 
 
 
 
 
 
Acquisition cost reimbursements  (1)
 
$
91

 
$
118

 
$
49

 
$
70

 
Vesting and conversion of Class B Units
 
—

 
—

 
—

 
—

 
Ongoing fees:
 
 
 
 
 
 
 
 
 
Asset management fees to related party
 
6,038

 
5,609

 
80

 
95

 
Property management and leasing fees  (2)
 
2,690

 
2,073

 
1,288

 
1,272

 
Professional fees and other reimbursements (3)
 
2,870

 
2,103

 
808

(4)  
1,197

(4)  
Distributions on Class B Units (3) (5)
 
—

 
338

 
—

 
—

 
Total related party operating fees and reimbursements
 
$
11,689

 
$
10,241

 
$
2,225

 
$
2,634

 
_________________________________
(1) Amounts for the three months ended March 31, 2019 and 2018 included in acquisition and transaction related expenses in the consolidated statements of operations and comprehensive income (loss).
(2) Amounts for the three months ended March 31, 2019 and 2018 are included in property operating expenses in the consolidated statements of operations and comprehensive income (loss).
(3) Amounts for the three months ended March 31, 2019 and 2018 are included in general and administrative expense in the consolidated statements of operations and comprehensive income (loss).
(4) Balance includes costs which were incurred and accrued due to American National Stock Transfer, LLC, a subsidiary of RCS Capital Corporation (“RCAP”), which at that time and prior to its bankruptcy filing was under common control with our Advisor. RCAP was also the parent company of Realty Capital Securities, LLC, the dealer manager in the Company’s initial public offering.
(5) Subsequent to the Listing the Class B Units were fully vested and converted to Class A Units, which were then redeemed for shares of Class A common stock. Distributions with respect to shares of Class A common stock are treated as equity distributions whereas distributions with respect to Class B Units were treated as additional compensation and expensed.
Listing Arrangements
Fees Incurred in Connection with a Listing
Pursuant to the A&R OP Agreement, in connection with the Listing, the OP was obligated to distribute to the Special Limited Partner a promissory note in an aggregate amount (the “Listing Amount”) equal to 15.0% of the difference (to the extent the result is a positive number) between:
•
the sum of (i) the market value (as defined in the A&R OP Agreement) of the Company’s common stock plus (ii) the sum of all distributions or dividends (from any source) paid by the Company to its stockholders prior to the Listing; and
•
the sum of (i) the gross proceeds (“Gross Proceeds”) of all public and private offerings, including issuance of the Company’s common stock pursuant to a merger (including the Merger)or business combination (an “Offering”) as of the Listing Date plus (ii) the total amount of cash that, if distributed to those stockholders who purchased shares of the Company’s common stock in an Offering prior to the Listing, would have provided those stockholders a 6.0% cumulative, non-compounded, pre-tax annual return (based on a 365-day year) on the Gross Proceeds.
Effective at the Listing, the OP entered into a listing note agreement with respect to this obligation (the “Listing Note”) with the Special Limited Partner and entered into a related subordination agreement (the “Subordination Agreement”) with the administrative agent under the Credit Facility, BMO Bank. The Listing Note evidences the OP’s obligation to distribute to the Special Limited Partner the Listing Amount, which will be calculated based on the Market Value of the Company’s common stock. The measurement period used to calculate the Market Value of the Company’s common stock will not be determinable until the end of the 30 consecutive trading days commencing on the 180 th day following the date on which shares of Class B-2 common stock convert into shares of Class A common stock. Because the conversion of shares of Class B-2 common stock into shares of

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AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019
(Unaudited)

Class A common stock occurred on January 9, 2019, the measurement period will be the 30 trading days commencing on July 8, 2019 and ending on August 16, 2019. Until the amount of the Listing Note can be determined, the Listing Note will be considered a liability which will be marked to fair value at each reporting date, with changes in the fair value recorded in the consolidated statements of operations and comprehensive income (loss). The fair value of the Listing Note at issuance and at March 31, 2019 was zero and was determined using a Monte Carlo simulation, which uses a combination of observable and unobservable inputs. If another liquidity event occurs prior to the end of the measurement period, the Listing Note provides for appropriate adjustment to the calculation of the Listing Amount. The Special Limited Partner has the right to receive distributions of Net Sales Proceeds (as defined in the Listing Note), until the Listing Note is paid in full; provided that, the Special Limited Partner has the right, but not the obligation, to convert its entire special limited partnership interest in the OP into Class A Units.
Multi-Year Outperformance Agreement
On the Listing Date, the Company granted a performance-based equity award to the Advisor in the form of a Master LTIP Unit pursuant to the 2018 OPP which, together with the Second A&R OP Agreement, superseded in all respects the general terms of the multi-year outperformance agreement and the amendment and restatement of the limited partnership agreement of the OP previously approved by the Company’s board of directors in April 2015 to be effective upon a listing of the Company’s common stock. On August 30, 2018, the Master LTIP Units automatically converted into 4,496,796 LTIP Units in accordance with its terms. For additional information on the 2018 OPP, see Note 12 — Share-Based Compensation.
Note 11 — Economic Dependency
Under various agreements, the Company has engaged or will engage the Advisor, its affiliates and entities under common control with the Advisor to provide certain services that are essential to the Company, including asset management services, supervision of the management and leasing of properties owned by the Company, asset acquisition and disposition decisions, as well as other administrative responsibilities for the Company including accounting and legal services, human resources and information technology.
As a result of these relationships, the Company is dependent upon the Advisor and its affiliates. In the event that these companies are unable to provide the Company with the respective services, the Company will be required to find alternative providers of these services.
Note 12 — Share-Based Compensation
Equity Plans
Restricted Share Plan
Prior to the Listing, the Company’s board of directors had adopted an employee and director restricted share plan (the “RSP”), pursuant to which the Company could issue restricted shares and restricted stock units in respect of shares of common stock (“RSUs”) under specific award agreements to the Company’s directors, officers and employees (if the Company ever has employees), employees of the Advisor and its affiliates, employees of entities that provide services to the Company, directors of the Advisor or of entities that provide services to the Company, certain consultants to the Company and the Advisor and its affiliates or to entities that provide services to the Company.
2018 Equity Plan
Effective at the Listing, the Company’s board of directors adopted an equity plan for the Advisor (the “Advisor Plan”) and an equity plan for individuals (the “Individual Plan” and together with the Advisor Plan, the “2018 Equity Plan”). The Advisor Plan is substantially similar to the Individual Plan, except with respect to the eligible participants. Participation in the Individual Plan

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019
(Unaudited)

is open to the Company’s directors, officers and employees (if the Company ever has employees), employees of the Advisor and its affiliates, employees of entities that provide services to the Company, directors of the Advisor or of entities that provide services to the Company, certain consultants to the Company and the Advisor and its affiliates or to entities that provide services to the Company. By contrast, participation in the Advisor Plan is only open to the Advisor.
The 2018 Equity Plan succeeded and replaced the existing RSP. Following the effectiveness of the 2018 Equity Plan at the Listing, no further awards will be issued under the RSP; provided, however, that any outstanding awards under the RSP, such as unvested restricted shares held by the Company’s independent directors, will remain outstanding in accordance with their terms and the terms of the RSP until all those awards are vested, forfeited, canceled, expired or otherwise terminated in accordance with their terms. The Company accounts for forfeitures when they occur. The 2018 Equity Plan, in addition to restricted shares and RSUs which were previously provided for the RSP, permits awards of options, stock appreciation rights, stock awards, LTIP Units and other equity awards. The 2018 Equity Plan has a term of 10 years , commencing on the Listing Date. Identical to the RSP, the number of shares of the Company’s capital stock available for awards under the 2018 Equity Plan, in the aggregate, is equal to 10.0% of the Company’s outstanding shares of common stock on a fully diluted basis at any time. Shares subject to awards under the Individual Plan reduce the number of shares available for awards under the Advisor Plan on a one-for-one basis and vice versa. If any awards granted under the RSP are forfeited for any reason, the number of forfeited shares is again available for purposes of granting awards under the RSP.
Restricted Shares and RSUs
Restricted shares are shares of common stock awarded under terms that provide for vesting over a specified period of time. For restricted shares awarded prior to July 1, 2015 under the RSP, the awards would typically be forfeited with respect to the unvested restricted shares upon the termination of the recipient’s relationship with the Company. For restricted shares awarded on or after July 1, 2015 under the RSP and restricted shares awarded under the Individual Plan, the awards provide for accelerated vesting of the portion of the unvested restricted shares scheduled to vest in the year of the recipient’s termination of his or her position as a director of the Company due to a voluntary resignation or failure to be re-elected to the Company’s board of directors following nomination therefor. All unvested restricted shares also vest in the event of a Change of Control (as defined in the RSP or the Individual Plan) or a termination of a directorship without cause or as a result of death or disability. Restricted shares may not, in general, be sold or otherwise transferred until restrictions are removed and the shares have vested. Holders of restricted shares may receive cash dividends prior to the time that the restrictions on the restricted shares have lapsed. Any dividends to holders of restricted shares payable in shares of common stock are subject to the same restrictions as the underlying restricted shares.
The following table reflects vesting activity of restricted shares awarded for the three months ended March 31, 2019 :
 
Number of Shares of Common Stock
 
Weighted-Average Issue Price
Unvested, December 31, 2018
136,234

 
$
16.51

Granted
—

 
—

Vested
(496
)
 
24.19

Forfeited
—

 
—

Unvested, March 31, 2019
135,738

 
16.49

As of March 31, 2019 , the Company had $1.6 million of unrecognized compensation cost related to unvested restricted share awards granted, which is expected to be recognized over a weighted-average period of 2.1 years .
The fair value of the restricted shares is being expensed in accordance with the service period required. Compensation expense related to restricted shares was approximately $0.3 million and $26,000 for the three months ended March 31, 2019 and 2018 , respectively. Compensation expense related to restricted shares is included in share-based compensation on the accompanying consolidated statements of operations and comprehensive income (loss).

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AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019
(Unaudited)

RSUs represent a contingent right to receive shares of common stock at a future settlement date, subject to satisfaction of applicable vesting conditions and/or other restrictions, as set forth in the RSP and an award agreement evidencing the grant of RSUs. RSUs may not, in general, be sold or otherwise transferred until restrictions are removed and the rights to the shares of common stock have vested. Holders of RSUs do not have or receive any voting rights with respect to the RSUs or any shares underlying any award of RSUs, but such holders are generally credited with dividend or other distribution equivalents which are subject to the same vesting conditions and/or other restrictions as the underlying RSUs and only paid at the time such RSUs are settled in shares of common stock. The Company has not granted any RSUs, and no unvested RSUs were outstanding for the three months ended March 31, 2019 .
Multi-Year Outperformance Agreement
On the Listing Date, the Company granted a performance-based equity award to the Advisor in the form of a Master LTIP Unit pursuant to the 2018 OPP. The Master LTIP Unit was automatically converted on August 30, 2018 (the “Effective Date”), the 30 th trading day following the Listing Date, into 4,496,796 LTIP Units (the “Award LTIP Units”) equal to the quotient of $72.0 million divided by $16.0114 , the ten-day trailing average closing price of the Company’s Class A common stock on Nasdaq over the ten consecutive trading days immediately prior to the Effective Date (the “Initial Share Price”). The Effective Date was the grant date for accounting purposes. In accordance with the early adoption of ASU 2018-07 (see Note 2 — Summary of Significant Accounting Policies ), the total fair value of the Award LTIP Units of $32.0 million was calculated and fixed as of the grant date, and will be recorded over the requisite service period of three years . In March 2019, the Company entered into an amendment to the 2018 OPP in light of the effectiveness of a merger of one member of the peer group, Select Income REIT, with Government Properties Income Trust, with the entity surviving the merger renamed as Office Properties Income Trust. Under the accounting rules, the Company was required to calculate any excess of the new value of Award LTIP Units in accordance with the provisions of the amendment ( $10.9 million ) over the fair value immediately prior to the amendment ( $8.1 million ). This excess of approximately $2.8 million is being expensed over the period from March 4, 2019, the date the Company’s compensation committee approved the amendment through August 30, 2021.
As a result, during the three months ended March 31, 2019 , the Company recorded share-based compensation expense related to the Award LTIP Units of $2.8 million , which is recorded in share-based compensation — multi-year outperformance agreement in the unaudited consolidated statements of operations and comprehensive income (loss). As of March 31, 2019 , the Company had $24.4 million of unrecognized compensation expense related the Award LTIP Units which is expected to be recognized over a period of 2.3 years .
The Award LTIP Units represent the maximum number of LTIP Units that may be earned by the Advisor during a performance period (the “Performance Period”) commencing on the Listing Date and ending on the earliest of (i) July 19, 2021, the third anniversary of the Listing Date, (ii) the effective date of any Change of Control (as defined in the 2018 OPP) and (iii) the effective date of any termination of the Advisor’s service as advisor of the Company.
Half of the Award LTIP Units (the “Absolute TSR LTIPs”) are eligible to be earned as of the last day of the Performance Period (the “Valuation Date”) if the Company achieves an absolute total stockholder return (“TSR”) for the Performance Period as follows:
Performance Level
 
   Absolute TSR
 
  Percentage of Award LTIPs Earned
Below Threshold
 
 Less than
24
%
 
 
—
%
Threshold
 
 
24
%
 
 
25
%
Target
 
 
30
%
 
 
50
%
Maximum
 
 
36
%
or higher
 
100
%
If the Company’s absolute TSR is more than 24% but less than 30% , or more than 30% but less than 36% , the percentage of the Absolute TSR LTIPs earned is determined using linear interpolation as between those tiers, respectively.
Half of the Award LTIP Units (the “Relative TSR LTIPs”) are eligible to be earned as of the Valuation Date if the amount, expressed in terms of basis points, whether positive or negative, by which the Company’s absolute TSR on the Valuation Date exceeds the average TSR of a peer group as of the Valuation Date consisting of Colony Capital, Inc., Lexington Realty Trust, Ramco-Gershenson Properties Trust, Spirit Realty Capital, Inc. and Office Properties Income Trust as follows:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019
(Unaudited)

Performance Level
 
   Relative TSR Excess
 
  Percentage of Relative TSR Award LTIPs Earned
Below Threshold
 
 Less than
-600

basis points
 
—
%
Threshold
 
 
-600

basis points
 
25
%
Target
 
 
—

basis points
 
50
%
Maximum
 
 
+600

basis points
 
100
%
If the relative TSR excess is more than -600 bps but less than 0 bps, or more than 0 bps but less than +600 bps, the percentage of the Relative TSR LTIPs earned is determined using linear interpolation as between those tiers, respectively.
Until an LTIP Unit is earned in accordance with the provisions of the 2018 OPP, the holder of the LTIP Unit will be entitled to distributions on the LTIP Unit equal to 10% of the distributions made per Class A Unit (other than distribution of sale proceeds). Distributions paid with respect to an LTIP Unit are not subject to forfeiture, even if the LTIP Unit is ultimately forfeited because it is not earned in accordance with the 2018 OPP. Moreover, the Master LTIP Unit was entitled, on the Effective Date, to receive a distribution equal to the product of 10% of the distributions made per Class A Unit during the period from the Listing Date to the Effective Date multiplied by the number of Award LTIP Units. For the three months ended March 31, 2019 , the Company recorded distributions related to the LTIP Units of $0.1 million , which is recorded in the unaudited consolidated statement of changes in equity. After an LTIP Unit is earned, the holder will be entitled to a priority catch-up distribution per earned LTIP Unit equal to the aggregate distributions paid on a Class A Unit during the Performance Period, less the aggregate distributions paid on the LTIP Unit during the Performance Period. As of the Valuation Date, the earned LTIP Units will become entitled to receive the same distributions as are paid on Class A Units. At the time the Advisor’s capital account with respect to an LTIP Unit is economically equivalent to the average capital account balance of a Class A Unit, the LTIP Unit has been earned and it has been vested for 30 days , the Advisor, in its sole discretion, will be entitled to convert the LTIP Unit into a Class A Unit in accordance with the Second A&R OP Agreement. In accordance with, and subject to the terms of, the Second A&R OP Agreement, Class A Units may be redeemed on a one-for-one basis for, at the Company’s election, shares of Class A common stock or the cash equivalent thereof.
If the Valuation Date is the effective date of a Change of Control or a termination of the Advisor without Cause (as defined in the Third A&R Advisory Agreement), then calculations relating to the number of LTIP Units earned pursuant to the 2018 OPP will be performed based on actual performance as of (and including) the effective date of the Change of Control or termination (as applicable) based on the performance through the last trading day prior to the effective date of the Change of Control or termination (as applicable), with the hurdles for calculating absolute TSR pro-rated to reflect that the Performance Period lasted less than three years but without pro-rating the number of Absolute TSR LTIPs or Relative TSR LTIPs the Advisor would be eligible to earn to reflect the shortened period.
If the Valuation Date is the effective date of a termination of the Advisor with Cause, then calculations relating to the number of LTIP Units earned pursuant to the 2018 OPP will also be performed based on actual performance as of (and including) the effective date of the termination based on the performance through the last trading day prior to the effective date of the termination, with the hurdles for calculating absolute TSR pro-rated to reflect that the Performance Period lasted less than three years and with the number of Absolute TSR LTIPss or Relative TSR LTIPs the Advisor would be eligible to earn also pro-rated to reflect the shortened period.
The award of LTIP Units under the 2018 OPP is administered by the compensation committee, provided that any of the compensation committee’s powers can be exercised instead by the Company’s board of directors if the board of directors so elects. Following the Valuation Date, the compensation committee is responsible for determining the number of Absolute TSR LTIPs and Relative TSR LTIPs earned, as calculated by an independent consultant engaged by the compensation committee and as approved by the compensation committee in its reasonable and good faith discretion. The compensation committee also must approve the transfer of any Absolute TSR LTIPs and Relative TSR LTIPs (or Class A Units into which they may be converted in accordance with the terms of the A&R LPA).
LTIP Units earned as of the Valuation Date will also become vested as of the Valuation Date. Any LTIP Units that are not earned and vested after the compensation committee makes the required determination will automatically and without notice be forfeited without the payment of any consideration by the Company or the OP, effective as of the Valuation Date.
Director Compensation
Effective on the Listing Date, the Company’s board of directors approved a new director compensation program, which replaced the Company’s existing director compensation program and superseded in all respects the director compensation previously

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AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019
(Unaudited)

approved by the Company’s board of directors in April 2015. Under the new director compensation program, each of the Company’s directors received a one-time retention grant on September 5, 2018 of 21,234 restricted shares, representing the number of restricted shares equal to the quotient of $340,000 divided by the Initial Share Price, vesting annually over a three -year period commencing on the Listing Date in equal installments. In addition, under the new director compensation program, on a regular basis, each independent director will receive an annual cash retainer of $60,000 and, in connection with each of the Company’s annual meetings of stockholders, a grant of $85,000 in restricted shares, vesting on the one -year anniversary of the annual meeting. Also, members of the Company’s board of directors will no longer be receiving fees for attending meetings or taking actions by written consent. Because the independent directors did not receive an annual grant of restricted shares in connection with the Company’s 2018 annual meeting of stockholders pursuant to the Company’s existing director compensation program, on September 5, 2018 the independent directors received a grant of 5,308 restricted shares pursuant to the new director compensation program, representing the number of restricted shares equal to the quotient of $85,000 divided by the Initial Share price, vesting on the first anniversary of the Listing Date.
The lead independent director receives an additional annual cash retainer of $100,000 , the chair of the audit committee of the Company’s board of directors receives an additional annual cash retainer of $30,000 , each other member of the audit committee receives an additional annual cash retainer of $15,000 , the chair of each of the compensation committee and the nominating and corporate governance committee of the Company’s board of directors receives an additional annual cash retainer of $15,000 , and each other member of each of the compensation committee and the nominating and corporate governance committee will receive an additional annual cash retainer of $10,000 .
The Company continues to reimburse directors for reasonable out-of-pocket expenses incurred in connection with attendance at meetings of the Company’s board of directors and its committees and pay each independent director for each external seminar, conference, panel, forum or other industry-related event attended in person and in which the independent director actively participates, solely in his or her capacity as an independent director of the Company.
Other Share-Based Compensation
The Company may issue common stock in lieu of cash to pay fees earned by the Company’s directors at each director’s election. There are no restrictions on the shares issued since these payments in lieu of cash relate to fees earned for services performed. There were no shares of common stock issued to directors in lieu of cash compensation during the three months ended March 31, 2019 and 2018 .
Note 13 — Net Income (Loss) Per Share
The following table sets forth the basic and diluted net income (loss) per share computations:
 
 
Three Months Ended March 31,
(In thousands, except share and per share amounts)
 
2019
 
2018
Net (loss) income attributable to common stockholders — Basic and Diluted
 
$
(3,227
)
 
$
15,401

 
 
 
 
 
Weighted-average shares outstanding — Basic
 
106,076,588

 
105,196,387

Unvested restricted shares
 
—

 
15,212

OP Units
 
—

 
203,612

Weighted-average shares outstanding — Diluted
 
106,076,588

 
105,415,211

 
 
 
 
 
Net (loss) income per share attributable to common stockholders — Basic
 
$
(0.03
)
 
$
0.15

Net (loss) income per share attributable to common stockholders — Diluted
 
$
(0.03
)
 
$
0.15


39
Table of Contents
AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019
(Unaudited)

Diluted net income (loss) per share assumes the vesting or conversion of restricted shares and OP Units into an equivalent number of unrestricted shares of common stock and the conversion of Class B Units, prior to their vesting and conversion into Class A Units which were redeemed for shares of Class A common stock in connection with the Listing (see Note 10 - Related Party Transactions and Arrangements for additional information), unless the effect is antidilutive. The Company had the following restricted shares, OP Units, Class B Units and LTIP Units on a weighted-average basis that were excluded from the calculation of diluted net loss per share as their effect would have been antidilutive for the periods presented, or in the case of Class B Units, certain contingencies had not been met as of March 31, 2018 :
 
 
Three Months Ended March 31,
 
 
2019
 
2018
Unvested restricted shares (1)
 
135,990

 
—

OP Units (2)
 
172,671

 
—

Class B Units (3)
 
—

 
1,052,420

LTIP Units (4)
 
4,496,796

 
—

Total
 
4,805,457

 
1,052,420

_____________________________________
(1)  
Weighted-average number of shares of unvested restricted shares outstanding for the periods presented. There were 135,735 unvested restricted shares outstanding as of March 31, 2019 .
(2)  
Weighted-average number of OP Units outstanding for the periods presented. There were 172,921 OP Units outstanding as of March 31, 2019 .
(3)  
Weighted-average number of Class B Units outstanding for the periods presented. There were no Class B Units outstanding as of March 31, 2019 and 1,052,420 Class B Units outstanding as of March 31, 2018 .
(4)  
Weighted-average number of LTIP Units outstanding for the periods presented. There were 4,496,796 LTIP Units outstanding as of March 31, 2019 and none outstanding as of March 31, 2018 .
Conditionally issuable shares relating to the 2018 OPP award (see Note 12 — Share-Based Compensation ) are included in the computation of fully diluted EPS on a weighted average basis for the year ended December 31, 2018 based on shares that would be issued if the balance sheet date were the end of the measurement period. No LTIP Unit share equivalents were included in the computation for the three months ended March 31, 2019 because no LTIP Units would have been earned based on the stock price at March 31, 2019. There were no LTIP Units outstanding during the three months ended March 31, 2018.
Note 14 — Subsequent Events
The Company has evaluated subsequent events through the filing of this Quarterly Report on Form 10-Q, and determined that there have not been any material events that have occurred that would require adjustments to, or disclosures in, the consolidated financial statements except for the following disclosures:
Acquisitions
Subsequent to March 31, 2019 , the Company acquired one property with an aggregate base purchase price of $3.0 million , excluding acquisition related costs.
Dispositions
Subsequent to March 31, 2019 , the Company sold two properties with an aggregate contract sale price of approximately $45.2 million .
Preferred Stock Issuance
On April 10, 2019, the underwriters of the Company’s initial offering of Series A Preferred Stock conducted during March 2019 exercised their option to purchase additional shares of Series A Preferred Stock in the offering, and the Company sold an additional 146,000 shares of Series A Preferred Stock, which generated gross proceeds of $3.7 million and resulted in net proceeds of approximately $3.5 million , after deducting underwriting discounts.
Tenant Termination Agreement

40
Table of Contents
AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019
(Unaudited)

On April 1, 2019, the Company entered into a termination agreement with a tenant at one of its multi-tenant properties which contains a termination fee of approximately $8.0 million . The Company has entered into leases to replace the tenant.
Common Stock Dividend Declaration
On April 1, 2019, American Finance Trust, Inc. (the “Company”) issued a press release announcing the declaration of a dividend of $0.0916667 (based on the annualized rate of $1.10 per share) on each share of the Company’s common stock payable on April 15, 2019, May 15, 2019 and June 17, 2019 to holders of record of shares of the Company’s common stock at the close of business on April 10, 2019, May 8, 2019 and June 10, 2019, respectively.
ATM Programs
On May 8, 2019, the Company and the OP entered into an Equity Distribution Agreement for the Class A ATM Program (the “Class A Equity Distribution Agreement”) with BMO Capital Markets Corp., KeyBanc Capital Markets Inc., SunTrust Robinson Humphrey, BBVA Securities Inc., Citizens Capital Markets, Inc., B. Riley FBR, Inc. and Ladenburg Thalmann & Co. Inc.(collectively, the “Agents”), pursuant to which the Company may, from time to time, offer, issue and sell to the public, through the Agents, shares of Class A common stock having an aggregate offering price of up to $200.0 million .
On May 8, 2019, the Company and the OP also entered into an Equity Distribution Agreement for the Series A ATM Program (together with the Class A Distribution Agreement, the “Equity Distribution Agreements”) with the Agents, pursuant to which the Company may, from time to time, offer, issue and sell to the public, through the Agents, shares of the Series A Preferred Stock having an aggregate offering price of up to $50.0 million .
Subject to the terms and conditions of the Equity Distribution Agreements, the Agents will use their commercially reasonable efforts to sell, on the Company’s behalf, shares offered by the Company under and in accordance with the Equity Distribution Agreements. The sales, if any, of shares made under the Equity Distribution Agreements will be made by means of ordinary brokers’ transactions or otherwise at market prices prevailing at the time of sale, at prices related to prevailing market prices or at negotiated prices. Actual sales will depend on a variety of factors to be determined by us from time to time.
The shares of Class A common stock and Series A Preferred Stock will be issued pursuant to the Company’s shelf registration statement on Form S-3 (Registration No. 333-226252). The Company will file a prospectus supplement for Class A ATM Program and the Series A ATM Program, each dated May 8, 2019, with the Securities and Exchange Commission in connection with the offer and sale of shares pursuant thereto.
The Equity Distribution Agreements contain customary representations, warranties and indemnification rights.
Articles Supplementary
On May 8, 2019, in connection with the Series A ATM Program, the Company filed an Articles Supplementary with the State Department of Assessments and Taxation of the State of Maryland, which became effective upon acceptance for record. The Articles Supplementary classified an additional 2,000,000 shares of our authorized shares of preferred stock, $0.01 par value per share, as Series A Preferred Stock.
Amendment to the Operating Partnership Agreement
On May 8, 2019, in connection with the Series A ATM Program, the Company, in its capacity as the general partner of the OP, entered into an amendment to the Second A&R OP Agreement, increasing by 2,000,000 the number of authorized Series A Preferred Units, which are units of limited partnership in the OP that have economic interests that are substantially similar to the designations, preferences and other rights of the Series A Preferred Stock.




41
Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements of American Finance Trust, Inc. and the notes thereto. As used herein, the terms “Company,” “we,” “our” and “us” refer to American Finance Trust, Inc. , a Maryland corporation, including, as required by context, American Finance Operating Partnership, L.P., a Delaware limited partnership, which we refer to as the “OP,” and its subsidiaries. The Company is externally managed by American Finance Advisors, LLC (our “Advisor”), a Delaware limited liability company.
Forward-Looking Statements
Certain statements included in this Quarterly Report on Form 10-Q are forward-looking statements. Those statements include statements regarding the intent, belief or current expectations of us, our Advisor and members of our management team, as well as the assumptions on which such statements are based, and generally are identified by the use of words such as “may,” “will,” “seeks,” “anticipates,” “believes,” “estimates,” “expects,” “plans,” “intends,” “should” or similar expressions. Actual results may differ materially from those contemplated by such forward-looking statements. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time, unless required by law.
The following are some of the risks and uncertainties, although not all risks and uncertainties, that could cause our actual results to differ materially from those presented in our forward-looking statements:
•
All of our executive officers are also officers, managers, employees or holders of a direct or indirect controlling interest in the Advisor or other entities under common control with AR Global Investments, LLC (the successor business to AR Capital, LLC, “AR Global”). As a result, our executive officers, the Advisor and its affiliates face conflicts of interest, including significant conflicts created by the Advisor’s compensation arrangements with us and other investment programs advised by affiliates of AR Global and conflicts in allocating time among these entities and us, which could negatively impact our operating results.
•
The trading price of our Class A common stock and 7.50% Series A Cumulative Redeemable Perpetual Preferred Stock, $0.01 par value per share (the “Series A Preferred Stock”), may fluctuate significantly.
•
Lincoln Retail REIT Services, LLC (“Lincoln”) and its affiliates, which provide services to the Advisor in connection with our retail portfolio, faces conflicts of interest in allocating its employees’ time between providing real estate-related services to the Advisor and other programs and activities in which they are presently involved or may be involved in the future.
•
The performance of our retail portfolio is linked to the market for retail space generally and factors that may impact our retail tenants, such as the increasing use of the Internet by retailers and consumers.
•
Our rental revenue is dependent upon the success and economic viability of our tenants.
•
We may be unable to enter into and consummate property acquisitions on advantageous terms or our property acquisitions may not perform as we expect.
•
Provisions in our revolving unsecured corporate credit facility (our “Credit Facility”) may limit our ability to pay dividends on our Class A common stock, our Series A Preferred Stock or any other stock we may issue.
•
We have not generated, and in the future may not generate, operating cash flows sufficient to fund all of the dividends we pay our stockholders, and, as such, we may be forced to fund dividends from other sources, including borrowings, which may not be available on favorable terms, or at all.
•
We may be unable to pay or maintain cash dividends at the current rate or increase dividends over time.
•
We are obligated to pay fees, which may be substantial, to the Advisor and its affiliates.
•
Our operating results are affected by economic and regulatory changes that have an adverse impact on the real estate market in general, and we are subject to risks associated with any dislocation or liquidity disruptions that may exist or occur in global financial markets, including the credit markets of the United States of America.
•
We may fail to continue to qualify to be treated as a real estate investment trust (“REIT”) for U.S. federal income tax purposes, which would result in higher taxes, may adversely affect our operations and would reduce the value of an investment in our common stock and our cash available for dividends.
Overview
We are a diversified REIT focused on acquiring and managing a diversified portfolio of primarily service-oriented and traditional retail and distribution related commercial real estate properties in the U.S. We own a diversified portfolio of commercial properties comprised primarily of freestanding single-tenant properties that are net leased to investment grade and other creditworthy tenants and a portfolio of multi-tenant retail properties consisting primarily of power centers and lifestyle centers. We intend to focus our future acquisitions primarily on net leased retail properties. As of March 31, 2019 , we owned 682 properties, comprised of 19.2 million rentable square feet, which were 94.0% leased, including 649 single-tenant net leased commercial properties ( 604 of which are retail properties) and 33 multi-tenant retail properties.
We are a Maryland corporation, incorporated on January 22, 2013 , that elected to be taxed as a real estate investment trust for U.S. federal income tax purposes (“REIT”) beginning with the taxable year ended December 31, 2013. Substantially all of our business is conducted through the OP.
On July 19, 2018 (the “Listing Date”), we listed shares of our common stock, which had been renamed “Class A common stock” in connection with a series of corporate actions effected earlier in July 2018, on The Nasdaq Global Select Market (“Nasdaq”) under the symbol “AFIN” (the “Listing”). To effect the Listing, and to address the potential for selling pressure that may have existed at the outset of listing, we listed only shares of Class A common stock, which represented approximately 50% of our outstanding shares of common stock, on Nasdaq on the Listing Date. Our two other classes of outstanding stock at the time of the Listing were Class B-1 common stock, which comprised approximately 25% of our outstanding shares of common stock at that time, and Class B-2 common stock, which comprised approximately 25% of our outstanding shares of common stock at that time. In accordance with their terms, all shares of Class B-1 common stock automatically converted into shares of Class A common stock and were listed on Nasdaq on October 10, 2018 and all shares of Class B-2 common stock were automatically converted into shares of Class A common stock and were listed on Nasdaq on January 9, 2019. As of March 31, 2019, we had 106.2 million shares of Class A common stock outstanding, representing all shares of common stock outstanding. For additional information, see Note 8 — Stockholders’ Equity to our consolidated financial statements in this Quarterly Report on Form 10-Q.
In March 2019, we listed shares of Series A Preferred Stock on Nasdaq under the symbol “AFINP” in connection with the initial public offering of Series A Preferred Stock.
We have no employees. We have retained the Advisor to manage our affairs on a day-to-day basis. American Finance Properties, LLC (the “Property Manager”) serves as our property manager. The Advisor and the Property Manager are under common control with AR Global, and these related parties of ours receive compensation, fees and expense reimbursements for services related to managing our business. Lincoln and its affiliates provide services to the Advisor in connection with our multi-tenant retail properties that are not net leased. The Advisor has informed us that the Advisor has agreed to pass through to Lincoln a portion of the fees and other expense reimbursements otherwise payable to the Advisor or its affiliates by us for services rendered by Lincoln. We are not a party to any contract with, and have no obligation to Lincoln.
Significant Accounting Estimates and Critical Accounting Policies
For a discussion about our significant accounting estimates and critical accounting policies, see the “Significant Accounting Estimates and Critical Accounting Policies” section of our 2018 Annual Report on Form 10-K. Except for those required by new accounting pronouncements discussed below, there have been no material changes from these significant accounting estimates and critical accounting policies.
Recently Issued Accounting Pronouncements
Please see Note 2  — Summary of Significant Accounting Policies - Recently Issued Accounting Pronouncements to our consolidated financial statements in this Quarterly Report on Form 10-Q for further discussion.

42
Table of Contents

Properties
The following table represents certain additional information about the properties we own at March 31, 2019 :
Portfolio
 
Acquisition Date
 
Number of
Properties
 
Rentable Square Feet
( thousands )
 
Remaining Lease Term  (1)
 
Percentage Leased
Dollar General I
 
Apr. & May 2013
 
2
 
18
 
9.1
 
100.0%
Walgreens I
 
Jul. 2013
 
1
 
11
 
18.5
 
100.0%
Dollar General II
 
Jul. 2013
 
2
 
18
 
9.2
 
100.0%
AutoZone I
 
Jul. 2013
 
1
 
7
 
8.3
 
100.0%
Dollar General III
 
Jul. 2013
 
5
 
46
 
9.1
 
100.0%
BSFS I
 
Jul. 2013
 
1
 
9
 
4.8
 
100.0%
Dollar General IV
 
Jul. 2013
 
2
 
18
 
6.9
 
100.0%
Tractor Supply I
 
Aug. 2013
 
1
 
19
 
8.7
 
100.0%
Dollar General V
 
Aug. 2013
 
1
 
12
 
8.8
 
100.0%
Mattress Firm I
 
Aug. & Nov. 2013; Feb, Mar. 2014 & Apr. 2014
 
5
 
24
 
7.7
 
100.0%
Family Dollar I
 
Aug. 2013
 
1
 
8
 
2.3
 
100.0%
Lowe's I
 
Aug. 2013
 
5
 
671
 
10.3
 
100.0%
O'Reilly Auto Parts I
 
Aug. 2013
 
1
 
11
 
11.3
 
100.0%
Food Lion I
 
Aug. 2013
 
1
 
45
 
10.6
 
100.0%
Family Dollar II
 
Aug. 2013
 
1
 
8
 
4.3
 
100.0%
Walgreens II
 
Aug. 2013
 
1
 
14
 
14.0
 
100.0%
Dollar General VI
 
Aug. 2013
 
1
 
9
 
6.9
 
100.0%
Dollar General VII
 
Aug. 2013
 
1
 
9
 
9.0
 
100.0%
Family Dollar III
 
Aug. 2013
 
1
 
8
 
3.5
 
100.0%
Chili's I
 
Aug. 2013
 
2
 
13
 
6.7
 
100.0%
CVS I
 
Aug. 2013
 
1
 
10
 
6.8
 
100.0%
Joe's Crab Shack I
 
Aug. 2013
 
1
 
8
 
8.0
 
100.0%
Dollar General VIII
 
Sep. 2013
 
1
 
9
 
9.3
 
100.0%
Tire Kingdom I
 
Sep. 2013
 
1
 
7
 
6.0
 
100.0%
AutoZone II
 
Sep. 2013
 
1
 
7
 
4.2
 
100.0%
Family Dollar IV
 
Sep. 2013
 
1
 
8
 
4.3
 
100.0%
Fresenius I
 
Sep. 2013
 
1
 
6
 
6.3
 
100.0%
Dollar General IX
 
Sep. 2013
 
1
 
9
 
6.1
 
100.0%
Advance Auto I
 
Sep. 2013
 
1
 
11
 
4.3
 
100.0%
Walgreens III
 
Sep. 2013
 
1
 
15
 
7.0
 
100.0%
Walgreens IV
 
Sep. 2013
 
1
 
14
 
5.5
 
100.0%
CVS II
 
Sep. 2013
 
1
 
14
 
17.9
 
100.0%
Arby's I
 
Sep. 2013
 
1
 
3
 
9.3
 
100.0%
Dollar General X
 
Sep. 2013
 
1
 
9
 
9.0
 
100.0%
AmeriCold I
 
Sep. 2013
 
9
 
1,407
 
8.5
 
100.0%
Home Depot I
 
Sep. 2013
 
2
 
1,315
 
7.8
 
100.0%
New Breed Logistics I
 
Sep. 2013
 
1
 
390
 
2.6
 
100.0%
American Express Travel Related Services I
 
Sep. 2013
 
1
 
396
 
1.0
 
100.0%
SunTrust Bank I (2)
 
Sep. 2013
 
21
 
108
 
9.1
 
94.4%
National Tire & Battery I
 
Sep. 2013
 
1
 
11
 
4.7
 
100.0%
Circle K I
 
Sep. 2013
 
19
 
55
 
9.6
 
100.0%
Walgreens V
 
Sep. 2013
 
1
 
14
 
8.4
 
100.0%
Walgreens VI
 
Sep. 2013
 
1
 
15
 
10.1
 
100.0%
FedEx Ground I
 
Sep. 2013
 
1
 
22
 
4.2
 
100.0%
Walgreens VII
 
Sep. 2013
 
8
 
113
 
10.4
 
100.0%
O'Charley's I
 
Sep. 2013
 
20
 
136
 
12.6
 
100.0%
Krystal I
 
Sep. 2013
 
6
 
13
 
10.5
 
100.0%

43
Table of Contents

Portfolio
 
Acquisition Date
 
Number of
Properties
 
Rentable Square Feet
( thousands )
 
Remaining Lease Term  (1)
 
Percentage Leased
1st Constitution Bancorp I
 
Sep. 2013
 
1
 
5
 
4.8
 
100.0%
American Tire Distributors I
 
Sep. 2013
 
1
 
125
 
4.8
 
100.0%
Tractor Supply II
 
Oct. 2013
 
1
 
24
 
4.5
 
100.0%
United Healthcare I
 
Oct. 2013
 
1
 
400
 
2.3
 
100.0%
National Tire & Battery II
 
Oct. 2013
 
1
 
7
 
13.2
 
100.0%
Tractor Supply III
 
Oct. 2013
 
1
 
19
 
9.1
 
100.0%
Mattress Firm II
 
Oct. 2013
 
1
 
4
 
4.4
 
100.0%
Dollar General XI
 
Oct. 2013
 
1
 
9
 
8.1
 
100.0%
Talecris Plasma Resources I
 
Oct. 2013
 
1
 
22
 
4.0
 
100.0%
Amazon I
 
Oct. 2013
 
1
 
79
 
4.3
 
100.0%
Fresenius II
 
Oct. 2013
 
2
 
16
 
8.4
 
100.0%
Dollar General XII
 
Nov. 2013 & Jan. 2014
 
2
 
18
 
9.7
 
100.0%
Dollar General XIII
 
Nov. 2013
 
1
 
9
 
7.0
 
100.0%
Advance Auto II
 
Nov. 2013
 
2
 
14
 
4.1
 
100.0%
FedEx Ground II
 
Nov. 2013
 
1
 
49
 
4.3
 
100.0%
Burger King I
 
Nov. 2013
 
41
 
168
 
14.7
 
100.0%
Dollar General XIV
 
Nov. 2013
 
3
 
27
 
9.2
 
100.0%
Dollar General XV
 
Nov. 2013
 
1
 
9
 
9.6
 
100.0%
FedEx Ground III
 
Nov. 2013
 
1
 
24
 
4.4
 
100.0%
Dollar General XVI
 
Nov. 2013
 
1
 
9
 
6.7
 
100.0%
Family Dollar V
 
Nov. 2013
 
1
 
8
 
4.0
 
100.0%
CVS III
 
Dec. 2013
 
1
 
11
 
4.8
 
100.0%
Mattress Firm III
 
Dec. 2013
 
1
 
5
 
9.3
 
100.0%
Arby's II
 
Dec. 2013
 
1
 
3
 
9.1
 
100.0%
Family Dollar VI
 
Dec. 2013
 
2
 
17
 
4.8
 
100.0%
SAAB Sensis I
 
Dec. 2013
 
1
 
91
 
6.0
 
100.0%
Citizens Bank I
 
Dec. 2013
 
9
 
35
 
5.0
 
100.0%
SunTrust Bank II (2)
 
Jan. 2014
 
23
 
115
 
9.8
 
100.0%
Mattress Firm IV
 
Jan. 2014
 
1
 
5
 
5.4
 
100.0%
FedEx Ground IV
 
Jan. 2014
 
1
 
59
 
4.3
 
100.0%
Mattress Firm V
 
Jan. 2014
 
1
 
6
 
4.6
 
100.0%
Family Dollar VII
 
Feb. 2014
 
1
 
8
 
5.3
 
100.0%
Aaron's I
 
Feb. 2014
 
1
 
8
 
4.4
 
100.0%
AutoZone III
 
Feb. 2014
 
1
 
7
 
4.0
 
100.0%
C&S Wholesale Grocer I
 
Feb. 2014
 
2
 
1,671
 
4.0
 
100.0%
Advance Auto III
 
Feb. 2014
 
1
 
6
 
5.4
 
100.0%
Family Dollar VIII
 
Mar. 2014
 
3
 
25
 
4.3
 
100.0%
Dollar General XVII
 
Mar. & May 2014
 
3
 
27
 
9.0
 
100.0%
SunTrust Bank III (2)
 
Mar. 2014
 
82
 
478
 
10.6
 
96.3%
SunTrust Bank IV (2)
 
Mar. 2014
 
15
 
84
 
10.8
 
100.0%
Dollar General XVIII
 
Mar. 2014
 
1
 
9
 
9.0
 
100.0%
Sanofi US I
 
Mar. 2014
 
1
 
737
 
13.8
 
100.0%
Family Dollar IX
 
Apr. 2014
 
1
 
8
 
5.0
 
100.0%
Stop & Shop I
 
May 2014
 
7
 
492
 
7.8
 
100.0%
Bi-Lo I
 
May 2014
 
1
 
56
 
6.8
 
100.0%
Dollar General XIX
 
May 2014
 
1
 
12
 
9.4
 
100.0%
Dollar General XX
 
May 2014
 
5
 
49
 
8.1
 
100.0%
Dollar General XXI
 
May 2014
 
1
 
9
 
9.4
 
100.0%
Dollar General XXII
 
May 2014
 
1
 
11
 
8.1
 
100.0%
FedEx Ground V
 
Feb. 2016
 
1
 
46
 
6.3
 
100.0%
FedEx Ground VI
 
Feb. 2016
 
1
 
121
 
6.4
 
100.0%

44
Table of Contents

Portfolio
 
Acquisition Date
 
Number of
Properties
 
Rentable Square Feet
( thousands )
 
Remaining Lease Term  (1)
 
Percentage Leased
FedEx Ground VII
 
Feb. 2016
 
1
 
42
 
6.5
 
100.0%
FedEx Ground VIII
 
Feb. 2016
 
1
 
79
 
6.6
 
100.0%
Liberty Crossing
 
Feb. 2017
 
1
 
106
 
4.5
 
90.9%
San Pedro Crossing
 
Feb. 2017
 
1
 
202
 
3.4
 
59.9%
Tiffany Springs MarketCenter
 
Feb. 2017
 
1
 
265
 
6.1
 
89.6%
The Streets of West Chester
 
Feb. 2017
 
1
 
237
 
9.9
 
95.1%
Prairie Towne Center
 
Feb. 2017
 
1
 
289
 
4.0
 
40.8%
Southway Shopping Center
 
Feb. 2017
 
1
 
182
 
4.1
 
87.9%
Stirling Slidell Centre
 
Feb. 2017
 
1
 
134
 
2.9
 
48.5%
Northwoods Marketplace
 
Feb. 2017
 
1
 
236
 
2.9
 
96.5%
Centennial Plaza
 
Feb. 2017
 
1
 
234
 
4.4
 
77.8%
Northlake Commons
 
Feb. 2017
 
1
 
109
 
2.8
 
86.6%
Shops at Shelby Crossing
 
Feb. 2017
 
1
 
236
 
3.7
 
98.5%
Shoppes of West Melbourne
 
Feb. 2017
 
1
 
144
 
3.1
 
97.3%
The Centrum
 
Feb. 2017
 
1
 
271
 
4.1
 
52.5%
Shoppes at Wyomissing
 
Feb. 2017
 
1
 
103
 
3.1
 
90.0%
Southroads Shopping Center
 
Feb. 2017
 
1
 
438
 
4.5
 
71.2%
Parkside Shopping Center
 
Feb. 2017
 
1
 
182
 
4.0
 
92.0%
Colonial Landing
 
Feb. 2017
 
1
 
264
 
3.9
 
70.0%
The Shops at West End
 
Feb. 2017
 
1
 
382
 
7.6
 
73.7%
Township Marketplace
 
Feb. 2017
 
1
 
299
 
3.9
 
93.9%
Cross Pointe Centre
 
Feb. 2017
 
1
 
226
 
9.8
 
100.0%
Towne Centre Plaza
 
Feb. 2017
 
1
 
94
 
3.8
 
100.0%
Village at Quail Springs
 
Feb. 2017
 
1
 
100
 
6.5
 
100.0%
Pine Ridge Plaza
 
Feb. 2017
 
1
 
239
 
3.7
 
97.4%
Bison Hollow
 
Feb. 2017
 
1
 
135
 
4.7
 
100.0%
Jefferson Commons
 
Feb. 2017
 
1
 
206
 
7.3
 
93.7%
Northpark Center
 
Feb. 2017
 
1
 
318
 
5.4
 
99.2%
Anderson Station
 
Feb. 2017
 
1
 
244
 
4.2
 
99.0%
Patton Creek
 
Feb. 2017
 
1
 
491
 
3.8
 
85.9%
North Lakeland Plaza
 
Feb. 2017
 
1
 
171
 
1.5
 
94.9%
Riverbend Marketplace
 
Feb. 2017
 
1
 
143
 
4.9
 
91.6%
Montecito Crossing
 
Feb. 2017
 
1
 
180
 
3.4
 
93.7%
Best on the Boulevard
 
Feb. 2017
 
1
 
205
 
4.1
 
91.0%
Shops at RiverGate South
 
Feb. 2017
 
1
 
141
 
6.4
 
100.0%
Dollar General XXIII
 
Mar. & May 2017
 
8
 
72
 
10.4
 
100.0%
Jo-Ann Fabrics I
 
Apr. 2017
 
1
 
18
 
5.8
 
100.0%
Bob Evans I
 
Apr. 2017
 
23
 
117
 
18.1
 
100.0%
FedEx Ground IX
 
May 2017
 
1
 
54
 
7.2
 
100.0%
Chili's II
 
May 2017
 
1
 
6
 
8.6
 
100.0%
Sonic Drive In I
 
June 2017
 
2
 
3
 
13.3
 
100.0%
Bridgestone HOSEPower I
 
June 2017
 
2
 
41
 
10.4
 
100.0%
Bridgestone HOSEPower II
 
July 2017
 
1
 
25
 
10.6
 
100.0%
FedEx Ground X
 
July 2017
 
1
 
142
 
8.3
 
100.0%
Chili's III
 
Aug. 2017
 
1
 
6
 
8.6
 
100.0%
FedEx Ground XI
 
Sep. 2017
 
1
 
29
 
8.3
 
100.0%
Hardee's I
 
Sep. 2017
 
4
 
13
 
18.5
 
100.0%
Tractor Supply IV
 
Oct. 2017
 
2
 
51
 
7.6
 
100.0%
Circle K II
 
Nov. 2017
 
6
 
20
 
18.3
 
100.0%
Sonic Drive In II
 
Nov. 2017
 
20
 
30
 
18.7
 
100.0%
Bridgestone HOSEPower III
 
Dec. 2017
 
1
 
21
 
11.3
 
100.0%

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Table of Contents

Portfolio
 
Acquisition Date
 
Number of
Properties
 
Rentable Square Feet
( thousands )
 
Remaining Lease Term  (1)
 
Percentage Leased
Sonny's BBQ I
 
Jan. 2018
 
3
 
19
 
14.9
 
100.0%
Mountain Express I
 
Jan. 2018
 
9
 
30
 
18.8
 
100.0%
Kum & Go I
 
Feb. 2018
 
1
 
5
 
9.2
 
100.0%
DaVita I
 
Feb. 2018
 
2
 
13
 
6.9
 
100.0%
White Oak I
 
Mar. 2018
 
9
 
22
 
19.6
 
100.0%
Mountain Express II
 
June 2018
 
15
 
59
 
19.1
 
100.0%
Dialysis I
 
July 2018
 
7
 
65
 
9.2
 
100.0%
Children of America I
 
Aug. 2018
 
2
 
32
 
14.4
 
100.0%
Burger King II
 
Aug. 2018
 
1
 
3
 
14.4
 
100.0%
White Oak II
 
Aug. 2018
 
9
 
18
 
18.6
 
100.0%
Bob Evans II
 
Aug. 2018
 
22
 
112
 
18.1
 
100.0%
Mountain Express III
 
Sep. 2018
 
14
 
47
 
19.4
 
100.0%
Taco John's
 
Sep. 2018
 
7
 
15
 
14.6
 
100.0%
White Oak III
 
Oct. 2018
 
1
 
4
 
19.6
 
100.0%
DaVita II
 
Oct. 2018
 
1
 
10
 
8.5
 
100.0%
Pizza Hut I
 
Oct. 2018
 
9
 
23
 
14.6
 
100.0%
Little Caesars I
 
Dec. 2018
 
11
 
19
 
19.8
 
100.0%
Caliber Collision I
 
Dec. 2018
 
3
 
48
 
13.0
 
100.0%
Tractor Supply V
 
Dec. 2018
 
4
 
79
 
12.5
 
100.0%
Fresenius III
 
Jan. 2019
 
6
 
44
 
7.2
 
100.0%
Pizza Hut II
 
Jan. 2019
 
31
 
90
 
19.9
 
100.0%
Mountain Express IV
 
Feb. 2019
 
8
 
28
 
19.9
 
100.0%
Mountain Express V
 
Feb. 2019
 
17
 
90
 
19.9
 
100.0%
Fresenius IV
 
Mar. 2019
 
1
 
9
 
12.7
 
100.0%
Tractor Supply V
 
Mar. 2019
 
1
 
19
 
12.5
 
100.0%
 
 
 
 
682
 
19,237
 
8.8
 
94.0%
_____________________
(1)  
Remaining lease term in years as of March 31, 2019 . If the portfolio has multiple properties with varying lease expirations, remaining lease term is calculated on a weighted-average basis.
(2)  
Includes certain of the four properties leased to SunTrust Banks, Inc. (“SunTrust”) which were unoccupied as of March 31, 2019 . As of March 31, 2019 , these properties were either being marketed for sale, subject to a non-binding letter of intent (“LOI”) or subject to a definitive purchase and sale agreement (“PSA”). There can be no guarantee that these properties will be sold on the terms contemplated by any applicable LOI or PSA, or at all. Please see Note 3 — Real Estate Investments to our consolidated financial statements in this Quarterly Report on Form 10-Q for further details.
Results of Operations
Comparison of the Three Months Ended March 31, 2019 and 2018
There were 488 properties that we owned for the entirety of both the three months ended March 31, 2019 and 2018 (our “Three Month Same Store”) that were 93.7% leased as of March 31, 2019 . From January 1, 2018 through March 31, 2019 , we acquired 194 properties (our “Acquisitions Since January 1, 2018 ’’) that were 100.0% leased as of March 31, 2019 . From January 1, 2018 through March 31, 2019 , we sold 52 properties (our “Disposals Since January 1, 2018 ’’).

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Table of Contents

The following table summarizes our leasing activity during the three months ended March 31, 2019 :
 
 
Three Months Ended March 31, 2019
 
 
 
 
 
 
(In thousands)
 
 
 
 
Number of Leases
 
Rentable Square Feet
 
Annualized SLR (1)  prior to Lease Execution/Renewal/Termination
 
Annualized SLR (1)  after Lease Execution/Renewal
 
Costs to execute lease
 
Costs to execute lease per square foot
New leases (2)
 
4

 
9,044

 
$
—

 
$
164

 
$
29

 
$
3.21

Lease renewals/amendments (2)
 
30

 
221,874

 
3,393

 
3,247

 
166

 
$
0.75

Lease terminations (3)
 
(4
)
 
(174,940
)
 
1,350

 
—

 
—

 
$
—

_____________________________________
(1)  
Rental income on a straight-line basis.
(2)  
New leases reflect leases in which a new tenant took possession of the space during the three months ended March 31, 2019 , excluding new property acquisitions. Lease renewals/amendments reflect leases in which an existing tenant executed terms to extend the term or change the rental terms of the lease during the three months ended March 31, 2019 .
(3)  
Represents leases that were terminated prior to their contractual lease expiration dates.
Net Loss Attributable to Common Stockholders
Net loss attributable to common stockholders was $3.2 million for the three months ended March 31, 2019 , as compared to net income attributable to common stock holders of $15.4 million for the three months ended March 31, 2018 . The change in net loss attributable to common stockholders is discussed in detail for each line item of the consolidated statements of operations and comprehensive income (loss) in the sections that follow.
Property Results of Operations
 
Same Store
 
Acquisitions
 
Disposals
 
Total
 
Three Months Ended March 31,
 
Increase (Decrease)
 
Three Months Ended March 31,
 
Increase (Decrease)
 
Three Months Ended March 31,
 
Increase (Decrease)
 
Total
 
Increase (Decrease)
 
2019
 
2018
 
$
 
2019
 
2018
 
$
 
2019
 
2018
 
$
 
2019
 
2018
 
$
Revenue from tenants
$
65,386

 
$
66,285

 
$
(899
)
 
$
6,224

 
$
548

 
$
5,676

 
$
(69
)
 
$
3,286

 
$
(3,355
)
 
$
71,541

 
$
70,119

 
$
1,422

Less: Property operating
12,743

 
12,620

 
123

 
98

 
1

 
97

 
(5
)
 
734

 
(739
)
 
12,836

 
13,355

 
(519
)
NOI
$
52,643

 
$
53,665

 
$
(1,022
)
 
$
6,126

 
$
547

 
$
5,579

 
$
(64
)
 
$
2,552

 
$
(2,616
)
 
$
58,705

 
$
56,764

 
$
1,941

Net operating income (“NOI”) is a non-GAAP financial measure used by us to evaluate the operating performance of our real estate portfolio. NOI is equal to rental income and operating expense reimbursements less property operating expense. NOI excludes all other financial statement amounts included in net income (loss) attributable to common stockholders. We believe NOI provides useful and relevant information because it reflects only those income and expense items that are incurred at the property level and presents such items on an unlevered basis. See “Non-GAAP Financial Measures” included elsewhere in this Quarterly Report on Form 10-Q for additional disclosure and a reconciliation to our net income (loss) attributable to common stockholders.
Revenue from Tenants
Revenue from tenants increased $1.4 million to $71.5 million for the three months ended March 31, 2019 , compared to $70.1 million for the three months ended March 31, 2018 . This increase was due to incremental income from our Acquisitions Since January 1, 2018 and an increase of approximately $5.7 million , partially offset by a decrease of $3.4 million from our Disposals Since January 1, 2018 and a decrease of $0.9 million from our Three Month Same Store properties.
Property operating expenses decreased $0.5 million to $12.8 million for the three months ended March 31, 2019 compared to $13.4 million for the three months ended March 31, 2018 . This decrease was primarily driven by a decrease of $0.7 million due to our Disposals Since January 1, 2018 .
Asset Management Fees to Related Party
Asset management fees paid to the Advisor, which include a fixed base management fee and a variable base management fee, increased $0.4 million to $6.0 million for the three months ended March 31, 2019 , compared to $5.6 million for the three months ended March 31, 2018 . We pay these fees to the Advisor for managing our day-to-day operations. The fixed portion of the base management fee is (i) $21.0 million annually until February 16, 2018; (ii) $22.5 million annually from February 17, 2018 to February 16, 2019; and (iii) $24.0 million annually for the remainder of the term. The variable portion of the base management fee is payable monthly in an amount equal to one-twelfth of 1.25% , changed from a quarterly fee equal to 0.375% of the cumulative net proceeds of any equity raised by us, including our subsidiaries, from and after February 16, 2017 (including certain convertible debt, proceeds from the Post-Listing DRIP (if any) and any cumulative Core Earnings (as defined in Note 10 - Related Party Transactions and Arrangements ) in excess of dividends paid on Class A common stock but excluding equity based compensation and proceeds from a Specified Transaction) (as defined in Note 10 - Related Party Transactions and Arrangements )).

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Table of Contents

In addition, under the Third A&R Advisory Agreement, the Company is required to pay the Advisor a variable management fee. We did not incur any variable management fees during the three months ended March 31, 2019 and 2018 . Please see Note 10 — Related Party Transactions and Arrangements to our consolidated financial statements included in this Quarterly Report on Form 10-Q for more information on fees incurred from the Advisor.
Impairment Charges
We recognized $0.8 million of impairment charges during the three months ended March 31, 2019 , of which $0.6 million related to one property classified as held for use, as the carrying amount of the long-lived assets associated with these properties was greater than our estimate of their fair value based on a PSA. The remaining $0.2 million of impairment charges were taken on properties classified as held for sale as of March 31, 2019, as the carrying amount of the long-lived assets associated with these properties was greater than our estimate of their fair value based on an executed LOI and PSA.
We recognized $0.3 million of impairment charges during the three months ended March 31, 2018 , $0.1 million of which related to properties reclassified as held for sale, as the carrying amount of the long-lived assets associated with these properties was greater than our estimate of their fair value less estimated costs to sell. The remaining $0.2 million of impairment charges were taken on properties classified as held for use as of March 31, 2018, as the carrying amount of the long-lived assets associated with these properties was greater than our estimate of their fair value based on an executed LOI and PSA.
See Note 3 — Real Estate Investments to our consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information on impairment charges.
Acquisition, Transaction and Other Costs
Acquisition and transaction related expense decreased $1.2 million to $0.9 million for the three months ended March 31, 2019 , compared to $2.0 million and 2018 . The decrease was due to lower prepayment charges on mortgages related to our dispositions, partially offset by higher litigation costs, as compared to the prior year quarter. The prepayment charges on mortgages were $0.4 million and $1.8 million during the three month periods ended March 31, 2019 and 2018, respectively.
Share-Based Compensation
During the three months ended March 31, 2019 , we recorded non-cash share based compensation expense of $3.0 million relating to restricted shares and a multi-year outperformance agreement with the Advisor, effective at the Listing (the “2018 OPP”) under which a new class of units of limited partnership designated as “LTIP Units” (“LTIP Units”) were issued to the Advisor. There was no related charge in the three months ended March 31, 2018 .
For additional details on the 2018 OPP, see Note 12 — Share-Based Compensation to our consolidated financial statements included in this Quarterly Report on Form 10-Q.
General and Administrative Expense
General and administrative expense increased $0.7 million to $6.1 million for the three months ended March 31, 2019 , compared to $5.4 million for the three months ended March 31, 2018 . The increase was due to higher legal and professional fees, and general and administrative expense reimbursements to our Advisor, which increased $0.8 million to $2.9 million for three months ended March 31, 2019 , compared to $2.1 million for the three months ended March 31, 2018 .
Depreciation and Amortization Expense
Depreciation and amortization expense decreased $4.4 million to $32.1 million for the three months ended March 31, 2019 , compared to $36.5 million for the three months ended March 31, 2018 . The decrease was primarily due to a decrease of $4.4 million related to our Three Month Same Store properties and a decrease of $2.0 million from our Disposals Since January 1, 2018 . These increases were partially offset by an increase of $2.0 million as a result of the Acquisitions Since January 1, 2018 . The purchase price of acquired properties is allocated to tangible and identifiable intangible assets and depreciated or amortized over their estimated useful lives.
Interest Expense
Interest expense increased $2.3 million to $18.4 million for the three months ended March 31, 2019 , compared to $16.1 million for the three months ended March 31, 2018 . This increase is primarily related to higher average balance on our revolving Credit Facility when compared to our prior revolving unsecured corporate credit facility (the “Prior Credit Facility”), which was repaid with the proceeds from the Credit Facility in May 2018. As of March 31, 2018 , $70.0 million was outstanding under our Prior Credit Facility, and as of March 31, 2019 , $432.7 million was outstanding under our Credit Facility. Also contributing to the higher interest expense was a higher weighted-average interest rate on our Credit Facility and mortgage notes payable. For the three months ended March 31, 2019 and 2018 , the weighted-average interest rates on our Credit Facility were 4.45% and 3.04%, respectively, and the weighted average interest rates on our mortgage notes payable were 4.64% and 4.61%, respectively.

48
Table of Contents

Other Income
Other income was $2.5 million for the three months ended March 31, 2019 , compared to $22,000 for the three months ended March 31, 2018 . The increase was primarily due to receipt of insurance reimbursements of approximately $1.8 million for litigation costs that we had previously paid related to the merger (the “Merger”) between us and American Realty Capital – Retail Centers of America, Inc. (“RCA”) completed in February 2017.
Gain on Sale of Real Estate Investments
During the three months ended March 31, 2019 , we sold eight properties which resulted in gains on sale. These properties sold for an aggregate contract price of $15.1 million , resulting in aggregate gains on sale of $2.9 million . During the three months ended March 31, 2018 , we sold six properties for an aggregate contract price of $62.8 million, resulting in aggregate gains on sale of $24.6 million .
Cash Flows from Operating Activities
Our cash flows from operating activities was $20.4 million during the three months ended March 31, 2019 and consisted of net loss of $3.2 million , adjusted for non-cash items of $31.7 million , including depreciation and amortization of tangible and intangible real estate assets, amortization of deferred financing costs, amortization of mortgage premiums on borrowings, share-based compensation, gain on sale of real estate investments and impairment charges. In addition, the increase in the straight-line rent receivable of $1.2 million , the decrease in deferred rent of $3.9 million and the decrease in accounts payable and accrued expenses of $4.3 million were partially offset by a decrease in prepaid expenses and other assets of $0.9 million
Cash flows from operating activities was $24.1 million during the quarter ended March 31, 2018 and consisted of net income of $15.4 million, adjusted for non-cash items of $11.3 million, including depreciation and amortization of tangible and intangible real estate assets, amortization of deferred financing costs, impairment charges, share-based compensation, amortization of mortgage premiums, discount accretion and premium amortization on investments, net and gain on sale of real estate investments. In addition, the increase in accounts payable and accrued expenses of $0.5 million and the increase in deferred rent of $0.8 million were partially offset by an increase in prepaid expenses and other assets of $5.7 million.
Cash Flows from Investing Activities
The net cash used in investing activities during the three months ended March 31, 2019 of $109.9 million consisted primarily of cash paid for investments in real estate and other assets of $114.3 million and capital expenditures of $0.5 million , partially offset by cash received from the sale of real estate investments of $3.1 million and deposits for real estate acquisitions of $1.9 million .
The net cash used in investing activities during the quarter ended March 31, 2018 of $24.7 million consisted primarily of cash paid for investments in real estate and other assets of $44.2 million and capital expenditures of $2.1 million, partially offset by cash received from the sale of real estate investments of $21.8 million.
Cash Flows from Financing Activities
The net cash provided by financing activities of $106.3 million during the three months ended March 31, 2019 consisted primarily of proceeds from our Credit Facility of $108.0 million and net proceeds from the issuance of our Series A Preferred Stock of $29.0 million , partially offset by payments of mortgage notes payable of $0.6 million , prepayment charges on mortgages of $0.4 million , common stock repurchases of $0.3 million and cash dividends of $29.2 million .
The net cash used in financing activities of $37.2 million during the quarter ended March 31, 2018 consisted primarily of payments on the Credit Facility of $25.0 million, common stock repurchases of $16.6 million, cash distributions of $21.9 million, payments of deferred financing costs of $1.2 million and payments of mortgage notes payable of $0.6 million. These financing cash outflows were partially offset by proceeds from mortgage notes payable of $29.9 million.
Liquidity and Capital Resources
We expect to fund our future short-term operating liquidity requirements through a combination of cash on hand, net cash provided by our property operations and proceeds from our Credit Facility. We may also generate additional liquidity through property dispositions and, to the extent available, secured or unsecured borrowings, our “at the market” equity offering program for Class A common stock (the “Class A ATM Program”), our “at the market” equity offering program for Series A Preferred Stock (the “Series A ATM Program”) or other offerings of debt or equity securities. As of March 31, 2019 and December 31, 2018 , we had cash and cash equivalent s of $108.0 million and $91.5 million , respectively. Our principal demands for funds are for payment of our operating and administrative expenses, property acquisitions, capital expenditures, debt service obligations, cash dividends to our stockholders and share repurchases, if any, as authorized by our board of directors.
Mortgage Notes Payable and Credit Facility
As of March 31, 2019 , we had $1.2 billion  of mortgage notes payable outstanding and $432.7 million outstanding under the Credit Facility, with a net debt to gross asset value ratio of 39% . Net debt is calculated as the total principal amount of our outstanding debt (excluding the effect of deferred financing costs, net and mortgage premiums, net) less cash and cash equivalents. Gross asset value is defined as total carrying value of our assets plus accumulated depreciation and amortization. During the three months ended March 31, 2019 , the weighted-average interest rate on the mortgage notes payable and Credit Facility was 4.64% and 4.45% , respectively. Future scheduled principal payments on our mortgage notes payable for the remainder of 2019 and the year ended December 31, 2020 are $1.9 million and $604.7 million , respectively.
As of March 31, 2019 , we had $3.6 billion in gross real estate assets, at carrying value, and we had pledged $2.3 billion in gross real estate assets, at carrying value, as collateral for our mortgage notes payable. In addition, $1.1 billion in gross real estate investments were included in the unencumbered asset pool comprising the borrowing base under the Credit Facility. Therefore, this real estate is only available to serve as collateral or satisfy other debts and obligations if it is first removed from the borrowing base under the Credit Facility.

49
Table of Contents


Credit Facility - Terms and Capacity
On April 26, 2018, we repaid the Prior Credit Facility and entered into the Credit Facility. The Credit Facility initially provided for commitments for aggregate revolving loan borrowings of up to $415.0 million . In September 2018, the lenders under the Credit Facility increased the aggregate total commitments under the Credit Facility by $125.0 million , bringing total commitments to $540.0 million . The Credit Facility includes an uncommitted “accordion feature” whereby, upon the request of the OP, but at the sole discretion of the participating lenders, the commitments under the Credit Facility may be increased by up to an additional $500.0 million , subject to obtaining commitments from new lenders or additional commitments from participating lenders and certain customary conditions. As of March 31, 2019 , we increased our commitments through this accordion feature by $125.0 million , leaving $375.0 million remaining.
The amount available for future borrowings under the Credit Facility is based on the lesser of (1) a percentage of the value of the pool of eligible unencumbered real estate assets comprising the borrowing base, and (2) a maximum amount permitted to maintain a minimum debt service coverage ratio with respect to the borrowing base, in each case, as of the determination date. As of March 31, 2019 , we had a total borrowing capacity under the Credit Facility of $478.1 million based on the value of the borrowing base under the Credit Facility. Of this amount, $432.7 million was outstanding under the Credit Facility as of March 31, 2019 and $45.4 million remained available for future borrowings. As of December 31, 2018, $324.7 million was outstanding under the Credit Facility.
The Credit Facility is interest-only. Upon the Listing, the maturity date of the Credit Facility was automatically extended from April 26, 2020 to April 26, 2022. We also have a one-time right, subject to customary conditions, to extend the maturity date for an additional term of one year, to April 26, 2023. Borrowings under the Credit Facility will bear interest at either (i) the Base Rate (as defined in the Credit Facility) plus an applicable spread ranging from 0.60% to 1.20% , depending on our consolidated leverage ratio, or (ii) LIBOR plus an applicable spread ranging from 1.60% to 2.20% , depending on our consolidated leverage ratio.
Acquisitions and Dispositions — Three Months Ended March 31, 2019
One of our primary uses of cash during the three months ended March 31, 2019 has been for acquisitions of properties.
During the three months ended March 31, 2019 , we acquired 64 properties for $114.3 million , including capitalized acquisition costs. These acquisitions were funded through draws on the Credit Facility of $108.0 million (see Credit Facility discussion above), proceeds from dispositions of properties (see below) and available cash on hand.
During the three months ended March 31, 2019 , we sold eight properties, for an aggregate contract price of $15.1 million , excluding disposition relate d costs. In connection with these sales, we repaid $11.6 million of mortgage debt. After all disposition related costs, net proceeds from these dispositions, classified as investing cash flows, were $3.1 million .
Acquisitions and Dispositions — Subsequent to March 31, 2019
Subsequent to March 31, 2019 , and through April 15, 2019, we acquired one additional property with an aggregate base purchase price of $3.0 million , excluding acquisition related costs. We have also entered into PSAs to acquire an additional 16 properties for an aggregate contract purchase price of approximately  $41.3 million and LOIs to acquire an additional 17 properties for approximately $30.5 million . The PSAs are subject to conditions, and the LOIs are non-binding. There can be no assurance we will complete any of these acquisitions on their contemplated terms, or at all. We anticipate using available cash on hand, proceeds from future dispositions of properties and proceeds from borrowings (including mortgage borrowings and borrowings under the Credit Facility) to pay the consideration required to complete these acquisitions.
Subsequent to March 31, 2019 , and through April 15, 2019, we sold two properties with an aggregate contract sale price of approximately $45.2 million . We also have entered into PSAs to dispose of additional ten properties ( eight leased to SunTrust), for an aggregate contract sale price of approximately $49.0 million . The PSAs are subject to conditions. There can be no assurance we will complete any of these dispositions on their contemplated terms, or at all.
Preferred Stock Offering
On March 26, 2019, we completed the initial issuance and sale of 1,200,000 shares of Series A Preferred Stock, in an underwritten public offering. The issuance of the Series A Preferred Stock generated gross proceeds of $30.0 million and net proceeds of $28.6 million , after deducting underwriting discounts and offering costs paid by us. On April 10, 2019, the underwriters in the offering exercised their option to purchase 146,000 additional shares of Series A Preferred Stock, which generated gross proceeds of $3.7 million and resulted in net proceeds of approximately $3.5 million , after deducting underwriting discounts.
ATM Programs
In May 2019, we established the Class A ATM Program pursuant to which we may sell up to $200.0 million in shares of Class A common stock, from time to time through our sales agents and the Series A ATM Program pursuant to which we may sell up to $50.0 million in shares of Series A Preferred Stock, from time to time through our sales agents. We intend to use any net proceeds

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from these offerings for general corporate purposes, including funding property acquisitions, repaying outstanding indebtedness (including borrowings under our Credit Facility), and for working capital. See “Item 5. Other Information” for more information.
Common Stock Repurchases
During the three months ended March 31, 2019 , we repurchased 19,863 fractional shares of Class B-2 common stock in connection with the automatic conversion of all shares of Class B-2 common stock into shares of Class A common stock on January 9, 2019 at a price of $13.78 per share for a total of approximately $0.3 million , funded from cash on hand.

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Authorized Repurchase Program
Effective at the Listing, our board of directors authorized, repurchase, from time to time, of up to $200.0 million of Class A common stock we may implement through open market repurchases or in privately negotiated transaction based on our board of directors’ and management’s assessment of, among other things, market conditions prevailing at the particular time. We will have the ability to repurchase shares of Class A common stock up to this amount at its discretion, subject to authorization by our board of directors prior to any such repurchase. As of March 31, 2019 the total of our remaining availability for future borrowings and cash and cash equivalents was $153.5 million . In accordance with our Credit Facility, if we make any restricted payments, which would include payments for this authorized repurchase program, or certain other payments, we would be required to maintain a combination of cash and availability for future borrowings totaling $40.0 million following such payments. Accordingly, if we decided to purchase shares under this program, the ultimate amount repurchased would depend on the amount of cash and availability for future borrowings at that time. There have not been any purchases authorized, through open market purchases or otherwise, under this program through the date of this Annual Report on Form 10-Q.
Distribution Reinvestment Program
Our Pre-Listing DRIP was suspended on June 29, 2018 in anticipation of the Listing, and reinstated, amended and restated, effective on the Listing Date with the Post-Listing DRIP. Participants in the Pre-Listing DRIP prior to this amendment and restatement continued to be participants in the Post-Listing DRIP. Commencing with the dividend paid on August 3, 2018 (the first dividend paid following the Listing Date), our stockholders that have elected to participate in the Post-Listing DRIP may have dividends payable with respect to all or a portion of their shares of each class of our common stock reinvested in shares of Class A common stock. Shares issued pursuant to the Post-Listing DRIP are, at our election, either (i) acquired directly from us, by issuing new shares, at a price based on the average of the high and low sales prices of Class A common stock on Nasdaq on the date of reinvestment, or (ii) acquired through open market purchases by the plan administrator at a price based on the weighted-average of the actual prices paid for all of the shares of Class A common stock purchased by the plan administrator with all participants’ reinvested dividends for the related quarter, less a per share processing fee. During the first quarter of 2019 and the year ended December 31, 2018 , all shares acquired by participants pursuant to the Post-Listing DRIP were acquired through open market purchases by the plan administrator and not issued directly to stockholders by the Company.
Non-GAAP Financial Measures
This section includes non-GAAP financial measures, including Funds from Operations (“FFO”), Adjusted Funds from Operations (“AFFO”) and NOI. While NOI is a property-level measure, AFFO is based on our total performance and therefore reflects the impact of other items not specifically associated with NOI such as, interest expense, general and administrative expenses and operating fees to related parties. Additionally, NOI as defined here, includes an adjustment for straight-line rent which is excluded from AFFO. A description of these non-GAAP measures and reconciliations to the most directly comparable GAAP measure, which is net income(loss), is provided below. Adjustments for unconsolidated partnerships and joint ventures are calculated to exclude the proportionate share of the non-controlling interest to arrive at FFO, AFFO and NOI attributable to stockholders.
Funds from Operations and Adjusted Funds from Operations
Funds from Operations
Due to certain unique operating characteristics of real estate companies, as discussed below, the National Association of Real Estate Investment Trusts (“NAREIT”), an industry trade group, has promulgated a performance measure known as FFO, which we believe to be an appropriate supplemental measure to reflect the operating performance of a REIT. FFO is not equivalent to net income or loss as determined under GAAP.
We calculate FFO, a non-GAAP measure, consistent with the standards established over time by the Board of Governors of NAREIT, as restated in a White Paper and approved by the Board of Governors of NAREIT effective in December 2018 (the “White Paper”). The White Paper defines FFO as net income or loss computed in accordance with GAAP, excluding depreciation and amortization related to real estate, gains and losses from sales of certain real estate assets, gain and losses from change in control and impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity. Adjustments for consolidated partially-owned entities (including our OP) and equity in earnings of unconsolidated affiliates are made to arrive at our proportionate share of FFO attributable to our stockholders. Our FFO calculation complies with NAREIT’s definition.
The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, and straight-line amortization of intangibles, which implies that the value of a real estate asset diminishes predictably over time, especially if not adequately maintained or repaired and renovated as required by relevant circumstances or as requested or required by lessees for operational purposes in order to maintain the value disclosed. We believe that, because real estate values historically rise and fall with market conditions, including inflation, interest rates, unemployment and consumer spending, presentations of operating results for a REIT using historical accounting for depreciation and certain other items may be less informative. Historical accounting for real estate involves the use of GAAP. Any other method of accounting for real estate such as the fair value method cannot be construed to be any more accurate or relevant than the comparable methodologies of real estate valuation found in GAAP. Nevertheless, we believe that the use of
FFO, which excludes the impact of real estate related depreciation and amortization, among other things, provides a more complete understanding of our performance to investors and to management, and when compared year over year, reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income.
Adjusted Funds from Operations
In calculating AFFO, we start with FFO, then we exclude certain income or expense items from AFFO that we consider to be more reflective of investing activities, such as fees related to the Listing, non-cash income and expense items and the income and expense effects of other activities that are not a fundamental attribute of our day to day operating business plan, such as amounts related to litigation arising out the Merger. These amounts include legal costs incurred as a result of the litigation, portions of which have been and may in the future be reimbursed under insurance policies maintained by us. Insurance reimbursements are deducted from AFFO in the period of reimbursement. We believe that excluding the litigation costs and subsequent insurance reimbursements related to litigation arising out the Merger helps to provide a better understanding of the operating performance of our business. Other income and expense items also include early extinguishment of debt and unrealized gains and losses, which may not ultimately be realized, such as gains or losses on derivative instruments and gains and losses on investments. In addition, by excluding non-cash income and expense items such as amortization of above-market and below-market leases intangibles, amortization of deferred financing costs, straight-line rent, vesting and conversion of the Class B Units and share-based compensation related to restricted shares and the 2018 OPP from AFFO, we believe we provide useful information regarding those income and expense items which have a direct impact on our ongoing operating performance. By providing AFFO, we believe we are presenting useful information that can be used to better assess the sustainability of our ongoing operating performance without the impact of transactions or other items that are not related to the ongoing performance of our portfolio of properties. AFFO presented by us may not be comparable to AFFO reported by other REITs that define AFFO differently.
In calculating AFFO, we exclude certain expenses which under GAAP are characterized as operating expenses in determining operating net income (loss). All paid and accrued merger, acquisition and transaction related fees and certain other expenses negatively impact our operating performance during the period in which expenses are incurred or properties are acquired will also have negative effects on returns to investors, but are not reflective of our on-going performance. Further, under GAAP, certain contemplated non-cash fair value and other non-cash adjustments are considered operating non-cash adjustments to net income (loss). In addition, as discussed above, we view gains and losses from fair value adjustments as items which are unrealized and may not ultimately be realized and not reflective of ongoing operations and are therefore typically adjusted for when assessing operating performance. Excluding income and expense items detailed above from our calculation of AFFO provides information consistent with management’s analysis of our operating performance. Additionally, fair value adjustments, which are based on the impact of current market fluctuations and underlying assessments of general market conditions, but can also result from operational factors such as rental and occupancy rates, may not be directly related or attributable to our current operating performance. By excluding such changes that may reflect anticipated and unrealized gains or losses, we believe AFFO provides useful supplemental information. We believe that in order to facilitate a clear understanding of our operating results, AFFO should be examined in conjunction with net income (loss) as presented in our consolidated financial statements. AFFO should not be considered as an alternative to net income (loss) as an indication of our performance or to cash flows as a measure of our liquidity or ability to pay dividends.
The tables below reflect the items deducted from or added to net loss in our calculation of FFO and AFFO for the periods presented:
 
 
Three Months Ended March 31,
(In thousands)
 
2019
 
2018
Net (loss) income attributable to common stockholders (in accordance with GAAP)
 
$
(3,227
)
 
$
15,401

Impairment charges
 
823

 
322

Depreciation and amortization
 
32,086

 
36,499

Gain on sale of real estate investments
 
(2,873
)
 
(24,637
)
Proportionate share of adjustments for non-controlling interests to arrive at FFO
 
(49
)
 
(24
)
FFO (as defined by NAREIT) attributable to common stockholders
 
26,760

 
27,561

Acquisition, transaction and other costs [1]
 
854

 
2,016

Litigation cost reimbursements related to the Merger [2]
 
(1,833
)
 
—

Amortization of market lease and other intangibles, net
 
(1,839
)
 
(1,358
)
Straight-line rent
 
(1,196
)
 
(2,253
)
Amortization of mortgage premiums on borrowings
 
(794
)
 
(835
)
Mark-to-market adjustments
 
—

 
(24
)
Equity-based compensation  [3]
 
3,021

 
26

Amortization of deferred financing costs, net and change in accrued interest
 
1,329

 
1,419

Proportionate share of adjustments for non-controlling interests to arrive at AFFO
 
1

 
1

AFFO attributable to common stockholders
 
$
26,303

 
$
26,553


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[1] Includes litigation costs related to the Merger which are included as an adjustment in the calculation above beginning in the fourth quarter of 2018, and were not presented as an adjustment in our Annual Report on Form 10-K for the year ended December 31, 2017 or our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2018, June 30, 2018 and September 30, 2018.
[2] Included in "Other income" in the Company's consolidated statement of operations and comprehensive income (loss).
[3] Includes expense related to the amortization of restricted shares and LTIP Units related to its multi- year outperformance agreement, which were previously presented in separate lines within the table above.
Net Operating Income
NOI is a non-GAAP financial measure used by us to evaluate the operating performance of our real estate. NOI is equal to total revenues, excluding contingent purchase price consideration, less property operating and maintenance expense. NOI excludes all other items of expense and income included in the financial statements in calculating net income (loss).
We believe NOI provides useful and relevant information because it reflects only those income and expense items that are incurred at the property level and presents such items on an unlevered basis. We use NOI to assess and compare property level performance and to make decisions concerning the operation of the properties. Further, we believe NOI is useful to investors as a performance measure because, when compared across periods, NOI reflects the impact on operations from trends in occupancy rates, rental rates, operating expenses and acquisition activity on an unleveraged basis, providing perspective not immediately apparent from net income (loss).
NOI excludes certain items included in calculating net income (loss) in order to provide results that are more closely related to a property’s results of operations. For example, interest expense is not necessarily linked to the operating performance of a real estate asset. In addition, depreciation and amortization, because of historical cost accounting and useful life estimates, may distort operating performance at the property level. NOI presented by us may not be comparable to NOI reported by other REITs that define NOI differently. We believe that in order to facilitate a clear understanding of our operating results, NOI should be examined in conjunction with net income (loss) as presented in our consolidated financial statements. NOI should not be considered as an alternative to net income (loss) as an indication of our performance or to cash flows as a measure of our liquidity or ability to pay dividends.

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The following table reflects the items deducted from or added to net income (loss) attributable to common stockholders in our calculation of NOI for the three months ended March 31, 2019 :
(In thousands)
 
Same Store
 
Acquisitions
 
Disposals
 
Non-Property Specific
 
Total
Net income (loss) attributable to common stockholders (in accordance with GAAP)
 
$
7,846

 
$
3,989

 
$
2,763

 
$
(17,825
)
 
$
(3,227
)
Asset management fees to related party
 
—

 
—

 
—

 
6,038

 
6,038

Impairment charges
 
799

 
—

 
24

 
—

 
823

Acquisition, transaction and other costs
 
419

 
2

 
—

 
433

 
854

Equity-based compensation
 
—

 
—

 
—

 
3,021

 
3,021

General and administrative
 
314

 
7

 
1

 
5,739

 
6,061

Depreciation and amortization
 
29,937

 
2,128

 
21

 
—

 
32,086

Interest expense
 
14,022

 
—

 
—

 
4,418

 
18,440

Gain on sale of real estate investments
 
—

 
—

 
(2,873
)
 
—

 
(2,873
)
Other income
 
(694
)
 
—

 
—

 
(1,851
)
 
(2,545
)
Preferred Stock dividends
 
—

 
—

 
—

 
30

 
30

Net loss attributable to non-controlling interests
 
—

 
—

 
—

 
(3
)
 
(3
)
NOI
 
$
52,643

 
$
6,126

 
$
(64
)
 
$
—

 
$
58,705

The following table reflects the items deducted from or added to net income (loss) attributable to stockholders in our calculation of NOI for the three months ended March 31, 2018 :
(In thousands)
 
Same Store
 
Acquisitions
 
Disposals
 
Non-Property Specific
 
Total
Net income (loss) attributable to common stockholders (in accordance with GAAP)
 
$
1,829

 
$
249

 
$
24,846

 
$
(11,523
)
 
$
15,401

Asset management fees to related party
 
—

 
—

 
—

 
5,609

 
5,609

Impairment charges
 
23

 
—

 
299

 
—

 
322

Acquisition, transaction and other costs

 
1,833

 
118

 
—

 
65

 
2,016

Equity-based compensation
 
—

 
—

 
—

 
26

 
26

General and administrative
 
328

 
23

 
15

 
5,047

 
5,413

Depreciation and amortization
 
34,313

 
157

 
2,029

 
—

 
36,499

Interest expense
 
15,348

 
 
 
—

 
759

 
16,107

Gain on sale of real estate investments
 
—

 
—

 
(24,637
)
 
—

 
(24,637
)
Other income
 
(9
)
 
—

 
—

 
(13
)
 
(22
)
Net loss attributable to non-controlling interests
 
—

 
—

 
—

 
30

 
30

NOI
 
$
53,665

 
$
547

 
$
2,552

 
$
—

 
$
56,764

Dividends and Distributions
In connection with the Listing, our board of directors changed the rate at which we pay dividends on our common stock from an annualized rate equal to $1.30 per share to an annualized rate equal to $1.10 per share, or $0.0916667 per share on a monthly basis, effective as of July 1, 2018. Also, effective July 1, 2018, we transitioned to declaring dividends on our common stock based on monthly, rather than daily, record dates and will generally pay dividends on the 15th day of each month (or, if not a business day, the next succeeding business day) to common stock holders of record on the applicable record date of such month. Prior to July 1, 2018, dividends were payable by the fifth day following each month end to stockholders of record at the close of business each day during the prior month. Dividends are paid on shares of Class A common stock, Class B-1 common stock (which automatically converted to Class A common stock in accordance with their terms on October 10, 2018) and Class B-2 common stock (which automatically converted to Class A common stock in accordance with their terms on January 9, 2019) at the same

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rate. The first dividends declared on our common stock under the new rate were paid in August 2018. The amount of common stock dividends payable to our common stock holders is determined by our board of directors and is dependent on a number of factors, including funds available for dividends, our financial condition, capital expenditure requirements, as applicable, requirements of Maryland law and annual distribution requirements needed to maintain our status as a REIT.
Dividends on our Series A Preferred Stock accrue in an amount equal to $1.875 per share each year, which is equivalent to the rate of 7.50% of the $25.00 liquidation preference per share per annum. Dividends on the Series A Preferred Stock will be payable quarterly in arrears on the 15 day of each of January, April, July and October of each year (or, if not a business day, the next succeeding business day) to holders of record on the applicable record date. The first quarterly dividend payment date for the Series A Preferred Stock will be July 15, 2019 and will represent an accrual for more than a full quarter, covering the period from March 26, 2019 to June 30, 2019.
During the three months ended March 31, 2019 , cash used to pay common stock dividends, distributions for LTIP Units and distributions for limited partnership units designated as “Class A Units” that correspond to each share of the Company’s common stock, was generated from cash flows provided by operations and cash on hand, which consists of proceeds from financings and sales of real estate investments. We have not yet paid any distributions on our Series A Preferred Stock as of March 31, 2019.
Pursuant to our Credit Facility, we may not pay distributions, including cash dividends on equity securities (including the Series A Preferred Stock) in an aggregate amount exceeding 95% of our Modified FFO (as defined in our Credit Facility) for any period of four consecutive fiscal quarters subject to a one-time right to elect, for a period of three consecutive fiscal quarters, to pay cash dividends or redeem or repurchase equity securities in an aggregate amount equal to no more than 110% of our Modified FFO for each of those fiscal quarters. We relied on this exception for the quarters ended December 31, 2018 and March 31, 2019 and expect we will also rely on it for the quarter ending June 30, 2019. As a result, we will not be able to rely on this exception in the quarter ending September 30, 2019 or future periods without seeking consent from the lenders under our Credit Facility. There is no assurance that the lenders would consent or that we will generate cash flows and Modified FFO in an amount sufficient to pay dividends on our outstanding equity securities including the Series A Preferred Stock and comply with our Credit Facility. Doing so depends, in part, on our ability, and the time needed, to invest in new cash flow generating acquisitions. There is no assurance we will complete pending or future acquisitions. If we are not able to increase the amount of cash we have available to pay dividends, including through additional cash flows we expect to generate from completing acquisitions, our ability to comply with our Credit Facility or the terms of the Series A Preferred Stock in future periods may be adversely affected. Further, we may have to identify other financing sources to fund dividends. There can be no assurance that other sources will be available on favorable terms, or at all.
We have not generated, and in the future may not generate, operating cash flows sufficient to fund all of the dividends we pay to our stockholders. If we do not generate sufficient cash flows from our operations in the future we may have to reduce our dividend rate on the Class A common stock or continue to fund dividends from other sources, such as from borrowings or the sale of properties, loans or securities, and available cash on hand, which consists of proceeds from sale of real estate investments and proceeds from financings. Moreover, our board of directors may change our dividend policy, in its sole discretion, at any time to either reduce the amount of dividends that we pay or use other sources to fund dividends such as borrowing monies, using the proceeds from asset sales or using the proceeds from the sale of shares, including shares sold under our Post-Listing DRIP, if any. Funding dividends from borrowings could restrict the amount that we can borrow for investments. Funding dividends with the sale of assets may affect our ability to generate additional operating cash flows. Funding dividends from the sale of additional securities could dilute each stockholder’s interest in us if we sell shares of our common stock or securities that are convertible or exercisable into shares of our common stock to third-party investors. Payment of dividends from these sources could restrict our ability to generate sufficient cash flows from operations, affect our profitability or affect the dividends payable to stockholders upon a liquidity event, any or all of which may have an adverse effect on an investment in our shares.











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The following table shows the sources for the payment of dividends and other distributions:
 
 
Three Months Ended March 31, 2019
 
 
(In thousands)
 
$
 
Percentage of Dividends
Cash dividends paid to stockholders
 
$
29,248

 
99.6
%
Cash distributions on LTIP Units
 
84

 
0.3
%
Cash distributions on Class A Units
 
47

 
0.2
%
Total dividends and distributions paid
 
$
29,379

 
100.0
%
 
 
 
 
 
Source of dividend coverage:
 
 
 
 
Cash flows provided by operations
 
$
20,395

 
69.4
%
Available cash on hand  [1]
 
8,984

 
30.6
%
Total source of dividend coverage
 
$
29,379

 
100.0
%
 
 
 
 
 
Cash flows provided by operations (GAAP basis)
 
$
20,395

 
 
Net loss (in accordance with GAAP)
 
$
(3,227
)
 
 
[1] Consists of cash on hand including borrowings under the Credit Facility and proceeds from dispositions.
Loan Obligations
The payment terms of certain of our mortgage loan obligations require principal and interest payments monthly, with all unpaid principal and interest due at maturity. Our loan agreements stipulate that we comply with specific reporting covenants. As of March 31, 2019 , we were in compliance with the debt covenants under our loan agreements, including the Credit Facility.
Contractual Obligations
Except as disclosed in this Quarterly Report on Form 10-Q, there were no material changes in our contractual obligations at  March 31, 2019 , as compared to those reported in our Annual Report on Form 10-K for the year ended December 31, 2018.
Election as a REIT
We elected to be taxed as a REIT under Sections 856 through 860 of the Code, effective for our taxable year ended December 31, 2013. We believe that, commencing with such taxable year, we have been organized and have operated in a manner so that we qualify for taxation as a REIT under the Code. We intend to continue to operate in such a manner, but no assurance can be given that we will operate in a manner so as to remain qualified as a REIT. In order to continue to qualify for taxation as a REIT, we must distribute annually at least 90% of our REIT taxable income (which does not equal net income as calculated in accordance with GAAP), determined without regard for the deduction for dividends paid and excluding net capital gains, and must comply with a number of other organizational and operational requirements. If we continue to qualify for taxation as a REIT, we generally will not be subject to federal corporate income tax on that portion of our REIT taxable income that we distribute to our stockholders. Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income and properties, as well as federal income and excise taxes on our undistributed income.
Inflation
Some of our leases with our tenants contain provisions designed to mitigate the adverse impact of inflation. These provisions generally increase rental rates during the terms of the leases either at fixed rates or indexed escalations (based on the Consumer Price Index or other measures). We may be adversely impacted by inflation on the leases that do not contain indexed escalation provisions. However, our net leases require the tenant to pay its allocable share of operating expenses, which may include common area maintenance costs, real estate taxes and insurance. This may reduce our exposure to increases in costs and operating expenses resulting from inflation.
Related-Party Transactions and Agreements
Please see Note 10 — Related Party Transactions and Arrangements to our consolidated financial statements in this Quarterly Report on Form 10-Q.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There has been no material change in our exposure to market risk during the  three months ended March 31, 2019 . For a discussion of our exposure to market risk, refer to Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
In accordance with Rules 13a-15(b) and 15d-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q and determined that our disclosure controls and procedures are effective.
Changes in Internal Control Over Financial Reporting
No change occurred in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the three months ended  March 31, 2019  that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
On January 13, 2017, four affiliated stockholders of RCA filed in the United States District Court for the District of Maryland a putative class action lawsuit against us, RCA, Edward M. Weil, Jr., Leslie D. Michelson, Edward G. Rendell (Weil, Michelson and Rendell, the “Director Defendants”), and AR Global, alleging violations of Sections 14(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) by RCA and the Director Defendants, violations of Section 20(a) of the Exchange Act by AR Global and the Director Defendants, breaches of fiduciary duty by the Director Defendants, and aiding and abetting breaches of fiduciary duty by AR Global and us in connection with the negotiation of and proxy solicitation for a shareholder vote on what was at the time proposed Merger and an amendment to RCA’s charter.  The complaint sought on behalf of the putative class rescission of the Merger, which was voted on and approved by RCA stockholders on February 13, 2017, and closed on February 16, 2017, together with unspecified rescissory damages, unspecified actual damages, and costs and disbursements of the action. RCA was sponsored and advised by affiliates of the Advisor. On April 26, 2017, the Court appointed a lead plaintiff. Lead plaintiff, along with other stockholders of RCA, filed an amended complaint on June 19, 2017. The amended complaint named additional individuals and entities as defendants (David Gong, Stanley Perla, Lisa Kabnick, all of whom were independent directors of ours at the time of the merger (“Additional Director Defendants”), Nicholas Radesca, our chief financial officer at the time of the Merger, and RCA’s advisor), added counts alleging violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933, as amended (the “Securities Act”) in connection with the Registration Statement for the proposed merger, under Section 13(e) of the Exchange Act, and counts for breach of contract and unjust enrichment. We, in addition to RCA, the Director Defendants, the Additional Director Defendants and Nicholas Radesca deny wrongdoing and liability and intend to vigorously defend the action. On August 14, 2017, defendants moved to dismiss the amended complaint. On March 29, 2018, the Court granted defendants’ motion to dismiss and dismissed the amended complaint. On April 26, 2018, the plaintiffs filed a notice of appeal of the court’s order. On March 11, 2019, the United States Court of Appeals for the Fourth Circuit affirmed the judgment of the district court dismissing the complaint. On March 25, 2019, the plaintiffs filed a Petition for Rehearing and Rehearing En Banc, which was subsequently denied on April 9, 2019 . Due to the stage of the litigation, no estimate of a probable loss or any reasonable possible losses are determinable at this time. No provisions for such losses have been recorded in the accompanying consolidated financial statements for the three months ended March 31, 2019 or 2018.
On February 8, 2018, Carolyn St. Clair-Hibbard, a purported stockholder of ours, filed a putative class action complaint in the United States District Court for the Southern District of New York against us, AR Global, the Advisor, Nicholas S. Schorsch and William M. Kahane. On February 23, 2018, the complaint was amended to, among other things, assert some claims on the plaintiff’s own behalf and other claims on behalf of herself and other similarly situated shareholders of ours as a class. On April 26, 2018, defendants moved to dismiss the amended complaint. On May 25, 2018, plaintiff filed a second amended complaint. The second amended complaint alleges that the proxy materials used to solicit stockholder approval of the Merger at our 2017 annual meeting were materially incomplete and misleading. The complaint asserts violations of Section 14(a) of the Exchange Act against us, as well as control person liability against the Advisor, AR Global, and Messrs. Schorsch and Kahane under 20(a). It also asserts state law claims for breach of fiduciary duty against the Advisor, and claims for aiding and abetting such breaches, of fiduciary duty against the Advisor, AR Global and Messrs. Schorsch and Kahane. The complaint seeks unspecified damages, rescission of our advisory agreement (or severable portions thereof) which became effective when the Merger became effective, and a declaratory judgment that certain provisions of our advisory agreement are void. We believe the second amended complaint is without merit and intend to defend vigorously. On June 22, 2018, defendants moved to dismiss the second amended complaint. On August 1, 2018, plaintiff filed an opposition to defendants’ motions to dismiss. Defendants filed reply papers on August 22, 2018, and oral argument was held on September 26, 2018. That motion is now pending. Due to the early stage of the litigation, no estimate of a probable loss or any reasonably possible losses are determinable at this time.
On October 26, 2018, Terry Hibbard, a purported stockholder of ours, filed a putative class action complaint in New York State Supreme Court, New York County, against us, AR Global, the Advisor, Nicholas S. Schorsch, William M. Kahane, Edward M. Weil, Jr., Nicholas Radesca, David Gong, Stanley R. Perla, and Lisa D. Kabnick.  The complaint alleges that the registration statement pursuant to which RCA shareholders acquired shares of our common stock during the Merger contained materially incomplete and misleading information.  The complaint asserts violations of Section 11 of the Securities Act against Messrs. Weil, Radesca, Gong, and Perla, and Ms. Kabnick, violations of Section 12(a)(2) of the Securities Act against us and Mr. Weil, and control person liability against the Advisor, AR Global, and Messrs. Schorsch and Kahane under Section 15 of the Securities Act.  The complaint seeks unspecified damages and rescission of our sale of stock pursuant to the registration statement. We believe the complaint is without merit and intend to defend vigorously. The case has been stayed pending a decision on the motion to dismiss in the Carolyn St. Clair-Hibbard case discussed above. Due to the early stage of the litigation, no estimate of a probable loss or any reasonably possible losses are determinable at this time.
On March 6, 2019, Susan Bracken, Michael P. Miller and Jamie Beckett, purported stockholders of ours, filed a putative class action complaint in New York State Supreme Court, New York County, on behalf of themselves and others who purchased shares of our common stock through our then effective distribution reinvestment plan, against us, AR Global, the Advisor, Nicholas S.

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Schorsch, William M. Kahane, Edward M. Weil, Jr., Nicholas Radesca, David Gong, Stanley R. Perla, and Lisa D. Kabnick. The complaint alleges that the April and December 2016 registration statements pursuant to which class members purchased shares contained materially incomplete and misleading information. The complaint asserts violations of Section 11 of the Securities Act against Messrs. Weil, Radesca, Gong and Perla, and Ms. Kabnick, violations of Section 12(a)(2) of the Securities Act against us and Mr. Weil, and control person liability against the Advisor, AR Global, and Messrs. Schorsch and Kahane under Section 15 of the Securities Act. The complaint seeks unspecified damages and either rescission of our sale of stock or rescissory damages. We believe the complaint is without merit and intend to defend vigorously. Due to the early stage of the litigation, no estimate of a probable loss or any reasonably possible losses are determinable at this time.
On April 30, 2019, Lynda Callaway, a purported stockholder of ours, filed a putative class action complaint in New York State Supreme Court, New York County, against us, AR Global, the Advisor, Nicholas S. Schorsch, William M. Kahane, Edward M. Weil, Jr., Nicholas Radesca, David Gong, Stanley R. Perla, and Lisa D. Kabnick. The complaint alleges that the registration statement pursuant to which plaintiff and other class members acquired our shares during the Merger contained materially incomplete and misleading information. The complaint asserts violations of Section 11 of the Securities Act against us, Messrs. Weil, Radesca, Gong, and Perla, and Ms. Kabnick, violations of Section 12(a)(2) of the Securities Act against us and Mr. Weil, and control person liability under Section 15 of the Securities Act against the Advisor, AR Global, and Messrs. Schorsch and Kahane. The complaint seeks unspecified damages and rescission of our sale of stock pursuant to the registration statement. Due to the early stage of the litigation, no estimate of a probable loss or any reasonably possible losses are determinable at this time.
There are no other material legal or regulatory proceedings pending or known to be contemplated against us.
During the three months ended March 31, 2019 and 2018 , we incurred approximately $0.3 million and $62,000 in legal costs related to the above litigation. A portion of these litigation costs are subject to a claim for reimbursement under the insurance policies maintained by us, and during the first quarter of 2019, reimbursements of $1.8 million were received and recorded in other income in the consolidated statements of operations. We may receive additional reimbursements in the future.
Item 1A. Risk Factors.
There have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018 , except as set forth below:
If we are not able to increase the amount of cash we have available to pay dividends, including through additional cash flows we expect to generate from completing acquisitions, our ability to comply with our Credit Facility may be adversely affected.
Pursuant to our Credit Facility, we may not pay distributions, including cash dividends on equity securities (including the Series A Preferred Stock) in an aggregate amount exceeding 95% of our Modified FFO (as defined in our Credit Facility) for any period of four consecutive fiscal quarters subject to a one-time right to elect, for a period of three consecutive fiscal quarters, to pay cash dividends or redeem or repurchase equity securities in an aggregate amount equal to no more than 110% of our Modified FFO for each of those fiscal quarters. We relied on this exception for the quarters ended December 31, 2018 and March 31, 2019 and expect we will also rely on this exception for the quarter ending June 30, 2019. As a result, we will not be able to rely on this exception in the quarter ending September 30, 2019 or future periods without seeking consent from the lenders under our Credit Facility. There is no assurance that the lenders would consent or that we will generate cash flows and Modified FFO in an amount sufficient to pay dividends on our outstanding equity securities including the Series A Preferred Stock and comply with our Credit Facility. Doing so depends, in part, on our ability, and the time needed, to invest in new cash flow generating acquisitions. There is no assurance we will complete pending or future acquisitions. If we are not able to increase the amount of cash we have available to pay dividends, including through additional cash flows we expect to generate from completing acquisitions, our ability to comply with our Credit Facility or the terms of the Series A Preferred Stock in future periods may be adversely affected. Further, we may have to identify other financing sources to fund dividends. There can be no assurance that other sources will be available on favorable terms, or at all.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Recent Sale of Unregistered Equity Securities
There were no unregistered sales of our equity securities during the three months ended March 31, 2019 .
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
On January 9, 2019, we repurchased approximately 19,863 fractional shares of Class B-1 common stock in connection with the automatic conversion of all shares of Class B-2 common stock into shares of Class A common stock at a price of $13.78 per share, the closing price of Class A common stock on January 8, 2019. See Note 8 — Stockholders’ Equity to our consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information.

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Effective at the Listing, our board of directors authorized us to repurchase, from time to time, up to $200.0 million of Class A common stock, which we may implement through open market repurchases or in privately negotiated transaction based on our board of directors’ and management’s assessment of, among other things, market conditions prevailing at the particular time. We will have the ability to repurchase shares of Class A common stock up to this amount at its discretion, subject to authorization by our board of directors prior to any such repurchase. There have not been any purchases authorized, through open market repurchases or otherwise, under this program through the date of this Quarterly Report on Form 10-Q.
As of March 31, 2019 the total of our remaining availability for future borrowings and cash and cash equivalents was $153.5 million million. In accordance with our Credit Facility, if we make any restricted payments, which would include payments for this authorized repurchase program, or certain other payments, we would be required to maintain a combination of cash and availability for future borrowings totaling $40.0 million following such payments. Accordingly, if we decided to purchase shares under this program, the ultimate amount repurchased would depend on the amount of cash and availability for future borrowings at that time. See “Item 1A. Risk Factors. If we are not able to increase the amount of cash we have available to pay dividends, including through additional cash flows we expect to generate from completing acquisitions, our ability to comply with our Credit Facility may be adversely affected.” included in this Quarterly Report on Form 10-Q for additional information.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
ATM Programs
On May 8, 2019, we and the OP entered into an Equity Distribution Agreement for the Class A ATM Program (the “Class A Equity Distribution Agreement”) with BMO Capital Markets Corp., KeyBanc Capital Markets Inc., SunTrust Robinson Humphrey, BBVA Securities Inc., Citizens Capital Markets, Inc., B. Riley FBR, Inc. and Ladenburg Thalmann & Co. Inc.(collectively, the “Agents”), pursuant to which we may, from time to time, offer, issue and sell to the public, through the Agents, shares of our Class A common stock having an aggregate offering price of up to $200,000,000 .
On May 8, 2019, we and the OP also entered into an Equity Distribution Agreement for the Series A ATM Program (together with the Class A Distribution Agreement, the “Equity Distribution Agreements”) with the Agents, pursuant to which we may, from time to time, offer, issue and sell to the public, through the Agents, shares of the Series A Preferred Stock having an aggregate offering price of up to $50,000,000 .
Subject to the terms and conditions of the Equity Distribution Agreements, the Agents will use their commercially reasonable efforts to sell, on our behalf, shares offered by us under and in accordance with the Equity Distribution Agreements. The sales, if any, of shares made under the Equity Distribution Agreements will be made by means of ordinary brokers’ transactions or otherwise at market prices prevailing at the time of sale, at prices related to prevailing market prices or at negotiated prices. Actual sales will depend on a variety of factors to be determined by us from time to time.
The shares of Class A common stock and Series A Preferred Stock will be issued pursuant to our shelf registration statement on Form S-3 (Registration No. 333-226252). The Company will file a prospectus supplement for Class A ATM Program and the Series A ATM Program, each dated May 8, 2019, with the Securities and Exchange Commission in connection with the offer and sale of shares pursuant thereto.
The Equity Distribution Agreements contain customary representations, warranties and indemnification rights.
An affiliate of BMO Capital Markets Corp. is administrative agent, as well as a lender, under the Credit Facility, and certain of the other Agents or their affiliates are also lenders under the Credit Facility. Certain of the Agents or their affiliates are lenders under certain of our mortgage loans or counterparties with respect to certain of our swaps.
The foregoing description of the Equity Distribution Agreements does not purport to be a complete description and is qualified in its entirety by reference to the Equity Distribution Agreements, each of which is filed as an Exhibit to this Quarterly Report on Form 10-Q and incorporated by reference herein.


Articles Supplementary
On May 8, 2019, in connection with the Series A ATM Program, we filed an Articles Supplementary with the State Department of Assessments and Taxation of the State of Maryland, which became effective upon acceptance for record. The Articles Supplementary classified an additional 2,000,000 shares of our authorized shares of preferred stock, $0.01 par value per share, as Series A Preferred Stock.

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The foregoing description of the Articles Supplementary does not purport to be a complete description and is qualified in its entirety by reference to the Articles Supplementary, which is filed as an Exhibit to this Quarterly Report on Form 10-Q and incorporated by reference herein.
Amendment to the Operating Partnership Agreement
On May 8, 2019, in connection with the Series A ATM Program, we, in our capacity as the general partner of the OP, entered into an amendment to the limited partnership agreement of the OP, increasing by 2,000,0000 the number of authorized 7.50% Series A Cumulative Redeemable Perpetual Preferred Units, which are units of limited partnership in the OP that have economic interests that are substantially similar to the designations, preferences and other rights of the Series A Preferred Stock.
The foregoing description of the amendment does not purport to be a complete description and is qualified in its entirety by reference to the amendment, which is filed as an Exhibit to this Quarterly Report on Form 10-Q and incorporated by reference herein.
Item 6. Exhibits.
The exhibits listed on the Exhibit Index (following the signatures section of this report) are included, or incorporated by reference, in this Quarterly Report on Form 10-Q.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
American Finance Trust, Inc.
 
 
 
 
By:
/s/ Edward M. Weil, Jr.
 
 
Edward M. Weil, Jr.
 
 
Chief Executive Officer and President
(Principal Executive Officer)
 
 
 
 
By:
/s/ Katie P. Kurtz
 
 
Katie P. Kurtz
 
 
Chief Financial Officer, Treasurer and Secretary
(Principal Financial Officer and Principal Accounting Officer)
Dated: May 8, 2019

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EXHIBITS INDEX

The following exhibits are included, or incorporated by reference, in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2019 (and are numbered in accordance with Item 601 of Regulation S-K).
Exhibit No.
  
Description
1.1   (1)
 
Underwriting Agreement, dated March 22, 2019, by and among American Finance Trust, Inc., American Finance Operating Partnership, L.P. and the underwriters listed on Schedule I attached thereto, for whom BMO Capital Markets Corp. and Stifel, Nicolaus & Company, Incorporated acted as representatives

1.2  *
 
Equity Distribution Agreement, May 8, 2019, among the American Finance Trust, Inc., American Finance Operating Partnership, L.P., BMO Capital Markets Corp., BBVA Securities Inc., Capital One Securities, Inc., Citizens Capital Markets, Inc., KeyBanc Capital Markets Inc., Mizuho Securities USA LLC and SunTrust Robinson Humphrey, Inc. (Class A common stock)
1.3  *
 
Equity Distribution Agreement, May 8, 2019, among the American Finance Trust, Inc., American Finance Operating Partnership, L.P., BMO Capital Markets Corp., BBVA Securities Inc., Capital One Securities, Inc., Citizens Capital Markets, Inc., KeyBanc Capital Markets Inc., Mizuho Securities USA LLC and SunTrust Robinson Humphrey, Inc. (Series A Preferred Stock)
3.1   (2)
 
Articles of Amendment and Restatement
3.2   (3)
 
Fourth Amended and Restated Bylaws
3.3   (4)
 
Articles Supplementary relating to election to be subject to Section 3-803 of MGCL
3.4   (5)
 
Articles of Amendment relating to reverse stock split, dated July 3, 2018
3.5   (5)
 
Articles of Amendment relating to par value decrease, dated July 3, 2018
3.6   (5)
 
Articles of Amendment relating to common stock name change, dated July 3, 2018
3.7   (5)
 
Articles Supplementary relating to reclassification of common stock, dated July 3, 2018
3.8   (6)
 
Certification of Notice of American Finance Trust, Inc. filed with the State Department of Assessments and Taxation of Maryland on September 18, 2018
3.9   (7)
 
Certification of Notice of American Finance Trust, Inc. filed with the State Department of Assessments and Taxation of Maryland on December 20, 2018
3.10   (8)
 
Articles Supplementary designating 7.50% Series A Cumulative Redeemable Preferred Stock, $0.01 par value per share
3.11  *
 
Articles Supplementary designating additional shares of 7.50% Series A Cumulative Redeemable Preferred Stock, $0.01 par value per share
4.1   (9)
 
Second Amendment, dated March 22, 2019, to the Second Amended and Restated Agreement of Limited Partnership of American Finance Operating Partnership, L.P, dated as of July 19, 2018
4.2  *
 
Third Amendment, dated May 8, 2019, to the Second Amended and Restated Agreement of Limited Partnership of American Finance Operating Partnership, L.P, dated as of July 19, 2018
5.1  *
 
Opinion of Venable LLP - Class A common stock
5.2  *
 
Opinion of Venable LLP - Series A Preferred Stock
10.1   (10)
 
Amendment No. 2, dated as of March 18, 2019, to the Third Amended and Restated Advisory Agreement, by and among American Finance Trust, Inc., American Finance Operating Partnership, L.P. and American Finance Advisors, LLC
23.1
 
Consent of Venable LLP - Class A common stock (included in Exhibit 5.1 hereto)
23.2
 
Consent of Venable LLP - Series A Preferred Stock (included in Exhibit 5.2 hereto)
31.1  *
 
Certification of the Principal Executive Officer of the Company pursuant to Securities Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2  *
 
Certification of the Principal Financial Officer of the Company pursuant to Securities Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32  *
 
Written statements of the Principal Executive Officer and Principal Financial Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101 *
 
XBRL (eXtensible Business Reporting Language). The following materials from American Finance Trust, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, formatted in XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations and Comprehensive Income (Loss), (iii) the Consolidated Statement of Changes in Equity, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to the Consolidated Financial Statements.
____________________
*
Filed herewith.

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EXHIBITS INDEX

(1)  
Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on March 25, 2019.
(2)  
Filed as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 filed with the SEC on August 11, 2015.
(3)  
Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on July 19, 2018.
(4)  
Filed as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2017 filed with the SEC on November 13, 2017.
(5)  
Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on July 9, 2018.
(6)  
Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on September 20, 2018.
(7)  
Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on December 20, 2018.
(8) Filed as an exhibit to the Company’s registration statement on Form 8-A filed with the SEC on March 25, 2019.
(9)  
Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on March 25, 2019.
(10)  
Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on March 18, 2019.




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Exhibit 1.2
AMERICAN FINANCE TRUST, INC.
$200,000,000
Shares of Class A Common Stock
EQUITY DISTRIBUTION AGREEMENT
May 8, 2019
BMO Capital Markets Corp.
3 Times Square
New York, New York 10036

BBVA Securities Inc.
1345 Avenue of the Americas, 44 th Floor
New York, New York 10105

B. Riley FBR, Inc.
299 Park Avenue, 21st Floor
New York, New York 10171

Citizens Capital Markets, Inc.
600 Washington Blvd., 11th Floor
Stamford, Connecticut 06901

KeyBanc Capital Markets Inc.
127 Public Square, 11th Floor
Cleveland, Ohio 44114

Ladenburg Thalmann & Co. Inc.
277 Park Avenue, 26 th Floor
New York, New York 10172

SunTrust Robinson Humphrey, Inc.
3333 Peachtree Road NE, 11th Floor
Atlanta, Georgia 30326
Ladies and Gentlemen:
American Finance Trust, Inc., a Maryland corporation (the “Company”), and American Finance Operating Partnership, L.P., a Delaware limited partnership (the “Operating Partnership”),

1


each confirms its agreement (this “Agreement”) with BMO Capital Markets Corp., BBVA Securities Inc., B. Riley FBR, Inc., Citizens Capital Markets, Inc., KeyBanc Capital Markets Corp., Ladenburg Thalmann & Co. Inc. and SunTrust Robinson Humphrey, Inc. (each an “Agent” and collectively, the “Agents”), with respect to the issuance and sale from time to time by the Company of shares (the “Shares”) of the Company’s Class A common stock, $0.01 par value per share (“Common Stock”), having an aggregate offering price of up to $200,000,000 (the “Maximum Amount”) through or to the Agents, acting as sales agent or principal, on the terms and subject to the conditions set forth in this Agreement.
An “automatic shelf registration statement” (the “registration statement”) as defined in Rule 405 under the Securities Act of 1933, as amended, and the rules and regulations thereunder (collectively called the “Act”), on Form S-3 (File No. 333-226252) in respect of the Shares, including a form of prospectus, has been prepared and filed by the Company not earlier than three years prior to the date hereof, in conformity with the requirements of the Act, and the rules and regulations of the Securities and Exchange Commission (the “Commission”) thereunder (the “Rules and Regulations”). The registration statement contains, or incorporates by reference to documents that the Company has filed or will file in accordance with the provisions of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (collectively, the “Exchange Act”), certain information concerning the offering and sale of the Common Stock, including the Shares, and contains or incorporates by reference additional information concerning the Company and its business; the Commission has not issued an order preventing or suspending the use of the Basic Prospectus (as defined below), the Prospectus Supplement (as defined below), the Prospectus (as defined below) or any Permitted Free Writing Prospectus (as defined below), or the effectiveness of the Registration Statement, and no proceeding for that purpose or pursuant to Section 8A of the Act has been instituted or, to the Company’s or the Operating Partnership’s knowledge, threatened by the Commission. Except where the context otherwise requires, the term “Registration Statement” means the registration statement, as amended at the time of the registration statement’s effectiveness for purposes of Section 11 of the Act, as such section applies to the Agents, including (i) all documents filed as a part thereof or incorporated, or deemed to be incorporated, by reference therein and (ii) any information contained or incorporated by reference in a prospectus filed with the Commission pursuant to Rule 424(b) of the Rules and Regulations, to the extent such information is deemed, pursuant to Rule 430B or Rule 430C of the Rules and Regulations, to be part of the registration statement at the effective time. Except where the context requires, the term “Basic Prospectus” means the prospectus dated July 20, 2018, filed as part of the Registration Statement, including the documents incorporated by reference therein as of the date of such prospectus. Except where the context otherwise requires, the term “Prospectus Supplement” means the prospectus supplement relating to the Shares, to be filed by the Company with the Commission pursuant to Rule 424(b) of the Rules and Regulations on or before the second business day after the date hereof (or such earlier time as may be required under the Act), in the form furnished by the Company to the Agents in connection with the offering of the Shares. Except where the context otherwise requires, the term “Prospectus” means the Prospectus Supplement (and any additional prospectus supplement prepared in accordance with the last sentence of Section 3(cc) and filed in accordance with the provisions of Rule 424(b) of the Rules and Regulations), together with the Basic Prospectus attached to or used with the Prospectus Supplement. “Permitted Free Writing Prospectus” has the meaning set forth in Section 3(g). Any reference herein to the

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Registration Statement, the Basic Prospectus, the Prospectus Supplement, the Prospectus and any Permitted Free Writing Prospectus shall, unless otherwise stated, be deemed to refer to and include the documents, if any, incorporated, or deemed to be incorporated, by reference therein (the “Incorporated Documents”), including, unless the context otherwise requires, the documents, if any, filed as exhibits to such Incorporated Documents. Any reference herein to the terms “amend,” “amendment” or “supplement” with respect to the Registration Statement, the Basic Prospectus, the Prospectus Supplement, the Prospectus or any Permitted Free Writing Prospectus shall, unless stated otherwise, be deemed to refer to and include the filing of any document under the Exchange Act on or after the initial effective date of the Registration Statement or the date of the Basic Prospectus, the Prospectus Supplement, the Prospectus or such Permitted Free Writing Prospectus, as the case may be, and deemed to be incorporated therein by reference.
The Company and the Operating Partnership each confirm their agreement with the Agents as follows:
1. Sale and Delivery of the Shares .
(a)      Agency Transactions. On the basis of the representations, warranties and agreements of the Company and the Operating Partnership herein contained, but subject to the terms and conditions herein set forth, the Company and each Agent agree that the Company may issue and sell through each Agent, acting as sales agent for the Company, the Shares (an “Agency Transaction”) as follows:
(i)      The Company may, from time to time, propose to such Agent the terms of an Agency Transaction by means of a telephone call confirmed promptly by electronic mail in a form substantially similar to Exhibit A hereto (an “Agency Transaction Notice”) from any of the individuals listed as authorized representatives of the Company on Schedule 1 hereto (each, an “Authorized Company Representative”), such proposal to include: the trading day(s) for The Nasdaq Global Select Market (“Nasdaq”) (which may not be a day on which Nasdaq is scheduled to close prior to its regular weekday closing time) on which the Shares are to be sold (each, a “Trading Day”); the maximum number of Shares that the Company wishes to sell in the aggregate and on each Trading Day; and the minimum price at which the Company is willing to sell the Shares (the “Floor Price”).
(ii)      If such proposed terms for an Agency Transaction are acceptable to such Agent, it shall confirm the terms by countersigning the Agency Transaction Notice for such Agency Transaction and emailing it to an Authorized Company Representative.
(iii)      Subject to the terms and conditions hereof, such Agent shall use its commercially reasonable efforts to sell all of the Shares designated in, and subject to the terms of, such Agency Transaction Notice. The Agents shall not sell any Share at a price lower than the Floor Price. The Company and the Operating Partnership acknowledge and agree with the Agents that (x) there can be no assurance that any Agents will be successful in selling all or any of such Shares, (y) no Agent will incur any liability or obligation to the Company or any other person or entity if it does not sell any Shares for any reason and (z) each Agent shall be under no obligation to purchase any Shares on a principal basis pursuant to this Agreement except in the case of a Principal

3


Transaction (as defined below) pursuant to this Agreement and the relevant Terms Agreement (as defined below).
(iv)      The Company, acting through an Authorized Company Representative, or an Agent may, upon notice to the other party hereto by telephone (confirmed promptly by electronic mail), suspend an offering of Shares (including for Shares that have been sold but have not yet settled) pursuant to an Agency Transaction; provided , however , that such suspension shall not affect or impair the parties’ respective obligations with respect to the Shares sold hereunder prior to the giving of such notice.
(v)      If the terms of any Agency Transaction as set forth in an Agency Transaction Notice contemplate that the Shares shall be sold on more than one Trading Day, then the Company and such Agent shall mutually agree to such additional terms and conditions as they deem necessary in respect of such multiple Trading Days, and such additional terms and conditions shall be binding to the same extent as any other terms contained in the relevant Agency Transaction Notice.
(vi)      Each Agent, as sales agent in an Agency Transaction, shall not make any sales of the Shares on behalf of the Company, pursuant to this Agreement, other than (x) by means of ordinary brokers’ transactions that qualify for delivery of the Prospectus in accordance with Rule 153 of the Rules and Regulations and meet the definition of an “at the market offering” under Rule 415(a)(4) of the Rules and Regulations and (y) such other sales of the Shares on behalf of the Company in its capacity as agent of the Company as shall be agreed by the Company and such Agent in writing.
(vii)      The amount of any discount, commission or other compensation to be paid by the Company to the Agents in connection with the sale of the Shares in an Agency Transaction shall be calculated in accordance with the terms set forth in Schedule 5 hereto and the applicable Agency Transaction Notice. Each Agent shall provide written confirmation to the Company (which may be provided by email to an Authorized Company Representative) following the close of trading on Nasdaq on each Trading Day on which Shares are sold in an Agency Transaction under this Agreement, setting forth (i) the number of Shares sold on such Trading Day, (ii) the gross offering proceeds received from such sales, (iii) the commission payable by the Company to the Agents with respect to such sales and (iv) the net offering proceeds (being the gross offering proceeds for such sales less the commission payable for such sales) (the “Net Offering Proceeds”).
(viii)      Settlement for sales of the Shares in an Agency Transaction pursuant to this Agreement shall occur on the second Trading Day (or such earlier day as is industry practice for regular-way trading) following the date on which such sales are made (each such day, an “Agency Settlement Date”). On each Agency Settlement Date, the Shares sold through such Agent in Agency Transactions for settlement on such date shall be issued and delivered by the Company to such Agent against payment by the Agent to the Company of the Net Offering Proceeds from the sale of such Shares. Settlement for all such Shares shall be effected by free delivery of the Shares by the Company or its transfer agent to such Agent’s or its designee’s account ( provided that such Agent shall have given the Company written notice of such designee prior to the relevant Agency Settlement

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Date) at The Depository Trust Company or by such other means of delivery as may be mutually agreed upon by the parties hereto, which in all cases shall be freely tradable, transferable, registered shares of Common Stock in good deliverable form, in return for payment in same-day funds delivered to the account designated by the Company. If the Company, or its transfer agent (if applicable), shall default on its obligation to deliver the Shares on any Agency Settlement Date, the Company shall (i) hold such Agent harmless against any loss, claim, damage, or expense (including, without limitation, reasonable legal fees and expenses), as incurred, arising out of or in connection with such default by the Company and (ii) pay such Agent any commission, discount or other compensation to which it would otherwise be entitled absent such default.
(ix)      The Company agrees that any offer to sell Shares, any solicitation of an offer to buy Shares, or any sales of Shares shall only be effected by or through only one Agent on any single given day, but in no event by more than one, and the Company shall in no event request that multiple Agents sell Shares on the same day.
(b)      Principal Transactions. If the Company wishes to issue and sell the Shares in a transaction pursuant to this Agreement in which an Agent would act as principal in connection with any offer and sale of Shares and not an agent as set forth in subsection (a) of this Section 1 (each, a “Principal Transaction”), the Company will notify an Agent of the proposed terms of such Principal Transaction. If such Agent, acting as principal, wishes to accept such proposed terms (which it may decline to do for any reason in its sole discretion) or, following discussions with the Company, wishes to accept amended terms, such Agent and the Company will enter into an agreement in substantially the form of Exhibit B hereto (each, a “Terms Agreement”) that sets forth the terms of such Principal Transaction, including, without limitation, the time, date and place of delivery of and payment for the Shares to be sold pursuant to such Principal Transaction (each of such date and each Agency Settlement Date, a “Settlement Date”). The terms set forth in a Terms Agreement shall not be binding on the Company or such Agent unless and until each of the Company and such Agent has executed such Terms Agreement accepting all of such terms. The commitment of such Agent to purchase the Shares pursuant to any Terms Agreement shall be deemed to have been made on the basis of the representations and warranties of the Company herein contained and shall be subject to the terms and conditions herein set forth. In the event of a conflict between the terms of this Agreement and the terms of any Terms Agreement, the terms of such Terms Agreement shall control.
(c)      Maximum Number of Shares. Under no circumstances shall the Company propose to the Agents, or the Agents effect, a sale of Shares in an Agency Transaction or a Principal Transaction pursuant to this Agreement if such sale would (i) cause the aggregate gross sales proceeds of the Shares sold pursuant to this Agreement to exceed the Maximum Amount, (ii) cause the number of Shares sold to exceed the number of shares of Common Stock available for offer and sale under the then effective Registration Statement or (iii) cause the number of Shares sold pursuant to this Agreement to exceed the number of Shares authorized from time to time to be issued and sold pursuant to this Agreement by the Company’s board of directors, or a duly authorized committee thereof, and notified to the Agents in writing.

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(d)      Regulation M. If either party hereto has reason to believe that the exemptive provisions set forth in Rule 101(c)(1) of Regulation M under the Exchange Act are not satisfied with respect to the Company or the Shares, it shall promptly notify the other party and sales of Shares under this Agreement shall be suspended until that or other exemptive provisions have been satisfied in the judgment of each party hereto.
(e)      Black-out Periods. Notwithstanding any other provision of this Agreement, no sales of Shares shall take place, the Company shall not request the sales of any Shares that would be sold and the Agents shall not be obligated to sell or offer to sell any Shares, during any period in which the Company’s insider trading or similar policy, as it exists on the date of this Agreement, would prohibit the purchase or sale of Common Stock by persons subject to such policy, or during any other period in which the Company is, or could be deemed to be, in possession of material non-public information with respect to the Company.
(f)      Continuing Accuracy of Representations and Warranties. Any obligation of the Agents to use their commercially reasonable efforts to sell the Shares on behalf of the Company as sales agents shall be subject to the continuing accuracy of the representations and warranties of the Company herein, to the performance by the Company of its obligations hereunder and to the continuing satisfaction of the conditions specified in Section 4 of this Agreement.
2.      Representations and Warranties of the Company and the Operating Partnership . The Company and the Operating Partnership, jointly and severally, represent and warrant to and agree with each Agent that:
(a)      Effectiveness of Registration. The Registration Statement and any post-effective amendment thereto have become effective. The Company has responded to all requests, if any, of the Commission for additional or supplemental information. No stop order suspending the effectiveness of the Registration Statement is in effect and no proceedings for such purpose have been instituted or are pending or, to the best knowledge of the Company or the Operating Partnership, are contemplated or threatened by the Commission. (i) At the time of filing the Registration Statement, (ii) at the time of the most recent amendment thereto for purposes of complying with Section 10(a)(3) of the Act (whether such amendment was by filing of a post-effective amendment, incorporated report filed pursuant to Section 13 or 15(d) of the Exchange Act or a form of prospectus) and (iii) at the time the Company or any person acting on its behalf (within the meaning, for this clause only, of Rule 163(c) of the Rules and Regulations) made any offer relating to the Shares in reliance on the exemption of Rule 163 of the Rules and Regulations, the Company was and is a “well-known seasoned issuer” as defined in Rule 405 of the Rules and Regulations. The Registration Statement is an “automatic shelf registration statement” as defined in Rule 405 of the Rules and Regulations, and the Shares, since their registration on the Registration Statement, have been and remain eligible for registration by the Company on an “automatic shelf registration statement.” The Company has not received from the Commission any notice pursuant to Rule 401(g)(2) of the Rules and Regulations objecting to use of the automatic shelf registration statement form and the Company has not otherwise ceased to be eligible to use the automatic shelf registration statement form.

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(b)      Accuracy of the Registration Statement, the Prospectus and any Permitted Free Writing Prospectus. (i) At the respective times the Registration Statement and any post-effective amendment thereto became effective, (ii) at each deemed effective date with respect to the Agents pursuant to Rule 430B(f)(2) under the Act, (iii) as of each Time of Sale (as defined below), (iv) at each Settlement Date and (v) at all times during such period as the Prospectus is required by law to be delivered (whether physically, deemed to be delivered pursuant to Rule 153 or through compliance with Rule 172 of the Rules and Regulations or any similar rule) in connection with sales of the Shares (the “Prospectus Delivery Period”), the Registration Statement complied and will comply in all material respects with the Act and the Rules and Regulations, and did not and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. As of each Time of Sale and each Settlement Date and at all times during the Prospectus Delivery Period, the Prospectus, as amended or supplemented, complied and will comply in all material respects with the Act and the Rules and Regulations, and, together with all Permitted Free Writing Prospectuses, if any, did not and will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The Basic Prospectus (including any amendment thereto) complied when so filed in all material respects with the Rules and Regulations, and the Prospectus (including the Basic Prospectus included therein) delivered to the Agents for use in connection with the transactions contemplated by this Agreement is identical to the electronically transmitted copy thereof filed with the Commission on EDGAR, except to the extent permitted by Regulation S-T. The foregoing representations and warranties in this Section 2(b) do not apply to any statements contained in the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus in reliance upon and in conformity with information relating to any Agent and furnished in writing to the Company by or on behalf of such Agent specifically for inclusion in the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus (or any amendment or supplement thereto), which constitutes the information set forth in Schedule 2 hereto. “Time of Sale” means, (i) with respect to an Agency Transaction, the time of such Agent’s initial entry into contracts with investors for the sale of such Shares and (ii) with respect to a Principal Transaction, the time of sale of such Shares.
(c)      Documents Incorporated by Reference. The Incorporated Documents, at the time they were or hereafter are filed with the Commission, conformed and will conform in all material respects to the requirements of the Act or the Exchange Act, as applicable, and, when read together with the other information in the Prospectus, at the time the Registration Statement and any amendments thereto become effective, as of each Time of Sale and each Settlement Date and at all times during the Prospectus Delivery Period, will not contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.
(d)      Company Not Ineligible Issuer . (i) At the time of filing the Registration Statement, (ii) at the earliest time that the Company or another offering participant made a bona fide offer (within the meaning of Rule 164(h)(2) of the Rules and Regulations) of the Shares and (iii) at the date hereof, the Company was not and is not an “ineligible issuer” (as defined in Rule 405 of the Rules and Regulations).

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(e)      Free Writing Prospectuses. Prior to the execution of this Agreement, the Company has not, directly or indirectly, offered or sold any Shares by means of any “prospectus” or “free writing prospectus” (in each case within the meaning of the Act) or used any “prospectus” or “free writing prospectus” (in each case within the meaning of the Act) in connection with the offer or sale of the Shares, and from and after the execution of this Agreement, the Company will not, directly or indirectly, offer or sell any Shares by means of any “prospectus” or “free writing prospectus” (in each case within the meaning of the Act) or use any “prospectus” or “free writing prospectus” (in each case within the meaning of the Act) in connection with the offer or sale of the Shares, other than the Prospectus, as amended or supplemented from time to time in accordance with the provisions of this Agreement, and any Permitted Free Writing Prospectuses; the Company has not, directly or indirectly, prepared, used or referred to any Permitted Free Writing Prospectus except in compliance with Rule 163 or with Rules 164 and 433 under the Act; assuming that any such Permitted Free Writing Prospectus is so sent or given after the Registration Statement was filed with the Commission (and after such Permitted Free Writing Prospectus was, if required pursuant to Rule 433(d) under the Act, filed with the Commission), the sending or giving, by each Agent, of any Permitted Free Writing Prospectus will satisfy the provisions of Rule 164 or Rule 433 (without reliance on subsections (b), (c) and (d) of Rule 164); the conditions set forth in one or more of subclauses (i) through (iv), inclusive, of Rule 433(b)(1) under the Act are satisfied, and the Registration Statement relating to the offering of the Shares contemplated hereby, as initially filed with the Commission, includes a prospectus that, other than by reason of Rule 433 or Rule 431 under the Act, satisfies the requirements of Section 10 of the Act; the Company is not disqualified, by reason of subsection (f) or (g) of Rule 164 under the Act, from using, in connection with the offer and sale of the Shares, “free writing prospectuses” (as defined in Rule 405 under the Act) pursuant to Rules 164 and 433 under the Act; the Company is not an “ineligible issuer” (as defined in Rule 405 under the Act) as of the eligibility determination date for purposes of Rules 164 and 433 under the Act with respect to the offering of the Shares contemplated by the Registration Statement.
(f)      Due Incorporation; Subsidiaries . (i) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Maryland, with full corporate power and authority to own, lease and operate its properties and conduct its business as described in the Registration Statement, the Prospectus and the Permitted Free Writing Prospectuses, if any, and, in the case of the Company and the Operating Partnership, to execute and deliver this Agreement and to issue, sell and deliver the Shares as contemplated herein; (ii) the Company is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction where the ownership or leasing of its properties or the conduct of its business requires such qualification, except where the failure to be so qualified and in good standing would not, individually or in the aggregate, (A) have a material adverse effect on the business, properties, financial condition, results of operations or prospects of the Company and the Subsidiaries (as defined below) taken as a whole, (B) prevent or materially interfere with consummation of the transactions contemplated hereby or (C) result in the delisting of shares of Common Stock from Nasdaq (the occurrence of any such effect or any such prevention or interference or any such result described in the foregoing clauses (A), (B) and (C) being herein referred to as a “Material Adverse Effect”); and (iii) as of the date of this Agreement, the Company

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has no subsidiaries (as defined under the Act) other than those subsidiaries listed on Schedule 4 hereto (collectively, the “Subsidiaries”).
(g)      Capitalization. The authorized, issued and outstanding capital stock of the Company, including the Common Stock, is as set forth in the Registration Statement and the Prospectus. The Shares have been duly and validly authorized and, when issued and delivered against payment therefor as provided herein, will be duly and validly issued, fully paid and non-assessable and free of statutory and contractual preemptive rights, first refusal rights or similar rights; the Shares, when issued and delivered against payment therefor as provided herein, will be free of any restriction upon the voting or transfer thereof pursuant to the Company’s charter or bylaws or any agreement or other instrument to which the Company is a party other than the restrictions on ownership and transfer set forth in the Company’s charter. All of the other issued and outstanding shares of capital stock, including the Preferred Stock, have been duly authorized and validly issued and are fully paid and non-assessable, have been issued in compliance with all applicable securities laws and were not issued in violation of any preemptive right, resale right, right of first refusal or similar right. The capital stock of the Company, including the Shares, conforms in all material respects to each description thereof, if any, contained or incorporated by reference in the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus; and the certificates for the Shares, if any have been issued, are in due and proper form. The description of the Common Stock included or incorporated by reference in the Registration Statement and the Prospectus is complete and accurate in all material respects. Except as described in the Registration Statement and the Prospectus, the Company does not have outstanding any options to purchase, or any rights or warrants to subscribe for, or any securities or obligations convertible into, or any contracts or commitments to issue or sell, any shares of capital stock of the Company or of any subsidiary of the Company or any such warrants, convertible securities or obligations. All of the issued and outstanding shares of capital stock of the Company have been duly authorized and validly issued and are fully paid and non-assessable, have been issued in compliance with all applicable securities laws and were not issued in violation of any preemptive right, resale right, right of first refusal or similar right; the Shares are duly listed, and admitted and authorized for trading, subject to official notice of issuance, on Nasdaq.
(h)      Financial Statements. The financial statements included or incorporated by reference in the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus, together with the related notes and schedules, present fairly the consolidated financial position of the Company and the Subsidiaries as of the dates indicated and the consolidated results of operations, cash flows and changes in stockholders’ equity of the Company and the Subsidiaries for the periods specified and have been prepared in compliance with the applicable requirements of the Act and Exchange Act and in conformity with U.S. generally accepted accounting principles (“GAAP”) applied on a consistent basis during the periods involved; all pro forma financial statements or data, if any, included or incorporated by reference in the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus comply with the applicable requirements of the Act and the Exchange Act, and the assumptions used in the preparation of such pro forma financial statements and data are reasonable, the pro forma adjustments used therein are appropriate to give effect to the transactions or circumstances described therein and the pro forma adjustments have been properly applied to the historical amounts in the compilation of those statements and data; the other financial

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and statistical data contained or incorporated by reference in the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus are accurately and fairly presented and prepared on a basis consistent with the financial statements and books and records of the Company and the Subsidiaries; there are no financial statements (historical or pro forma) that are required to be included or incorporated by reference in the Registration Statement or the Prospectus that are not included or incorporated by reference as required; neither the Company nor any of the Subsidiaries has any material liabilities or obligations, direct or contingent (including any off-balance sheet obligations), required to be disclosed in the Registration Statement, not described in the Registration Statement (excluding the exhibits thereto) and the Prospectus; and all disclosures contained or incorporated by reference in the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus regarding “non-GAAP financial measures” (as such term is defined by the rules and regulations of the Commission) comply with Regulation G of the Exchange Act and Item 10 of Regulation S-K under the Act, to the extent applicable.
(i)      Independent Accountants. KPMG LLP, whose report on the consolidated financial statements of the Company and the Subsidiaries is included or incorporated by reference in the Registration Statement and the Prospectus, are independent registered public accountants as required by the Act and by the rules of the Public Company Accounting Oversight Board. PricewaterhouseCoopers LLP are independent registered public accountants as required by the Act and by the rules of the Public Company Accounting Oversight Board.
(j)      No Material Adverse Effect. Subsequent to the respective dates as of which information is given in the Registration Statement, the Prospectus and the Permitted Free Writing Prospectuses, if any, there has not been (i) any material adverse change, or any development involving a prospective material adverse change, in the business, properties, management, financial condition or results of operations or prospects of the Company and the Subsidiaries taken as a whole, (ii) any transaction which is material to the Company and the Subsidiaries taken as a whole, (iii) any obligation or liability, direct or contingent (including any off-balance sheet obligations), incurred by the Company or any Subsidiary, which is material to the Company and the Subsidiaries taken as a whole, (iv) any material change in the capital stock or outstanding indebtedness of the Company or any Subsidiaries or (v) any dividend or other distribution of any kind declared, paid or made on the capital stock of the Company or any Subsidiary; except in each case as otherwise disclosed in the Registration Statement and the Prospectus, and except as would not, individually or in the aggregate, have a Material Adverse Effect.
(k)      Investment Company. Neither the Company nor any Subsidiary is, and at no time during which a prospectus is required by the Act to be delivered (whether physically or through compliance with Rule 172 under the Act or any similar rule) in connection with any sale of Shares will any of them be, and, after giving effect to the offering and sale of the Shares, neither of them will be, an “investment company” or an entity “controlled” by an “investment company,” as such terms are defined in the Investment Company Act of 1940, as amended.
(l)      Litigation. There are no actions, suits, claims, investigations or proceedings pending or, to the Company’s or the Operating Partnership’s knowledge, threatened, to which the Company or any of the Subsidiaries or any of their respective directors or officers is or would be

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a party or of which any of their respective properties is or would be subject at law or in equity, before or by any federal, state, local or foreign governmental or regulatory commission, board, body, authority or agency, or before or by any self-regulatory organization or other nongovernmental regulatory authority (including, without limitation, Nasdaq), except any such action, suit, claim, investigation or proceeding which, if resolved adversely to the Company or any Subsidiary, would not, individually or in the aggregate, have a Material Adverse Effect.
(m)      Necessary Licenses, Compliance with Laws and Regulations and Performance of Obligations and Contracts. Each of the Company and the Subsidiaries has all necessary licenses, authorizations, consents and approvals and has made all necessary filings required under any applicable law, regulation or rule, and has obtained all necessary licenses, authorizations, consents and approvals from other persons, in order to conduct their respective businesses, except where failure to obtain or maintain such licenses, authorizations, consents or approvals or make such filings would not, individually or in the aggregate, have a Material Adverse Effect; neither the Company nor any of the Subsidiaries is in violation of, or in default under, or has received notice of any proceedings relating to revocation or modification of, any such license, authorization, consent or approval or any federal, state, local or foreign law, regulation or rule or any decree, order or judgment applicable to the Company or any of the Subsidiaries, except where such violation, default, revocation or modification would not, individually or in the aggregate, have a Material Adverse Effect. The execution, delivery and performance of this Agreement, the issuance and sale of the Shares and the consummation of the transactions contemplated hereby will not conflict with, result in any breach or violation of or constitute a default under (nor constitute any event which, with notice, lapse of time or both, would result in any breach or violation of, constitute a default under or give the holder of any indebtedness (or a person acting on such holder’s behalf) the right to require the repurchase, redemption or repayment of all or a part of such indebtedness under) (or result in the creation or imposition of a lien, charge or encumbrance on any property or assets of the Company or any Subsidiary pursuant to) (i) the charter or bylaws, the limited liability company agreements, the partnership agreements or other organizational documents of the Company or any of the Subsidiaries, or (ii) any indenture, mortgage, deed of trust, bank loan or credit agreement or other evidence of indebtedness, or any license, lease, contract or other agreement or instrument to which the Company or any of the Subsidiaries is a party or by which any of them or any of their respective properties may be bound or affected, or (iii) any federal, state, local or foreign law, regulation or rule, or (iv) any rule or regulation of any self-regulatory organization or other non-governmental regulatory authority (including, without limitation, the rules and regulations of Nasdaq), or (v) any decree, judgment or order applicable to the Company or any of the Subsidiaries or any of their respective properties, except for any of the foregoing in (ii), (iii), (iv) or (v) as would not, individually or in the aggregate, have a Material Adverse Effect.
(n)      No Consent of Governmental Body Needed. No approval, authorization, consent or order of or filing with any federal, state, local or foreign governmental or regulatory commission, board, body, authority or agency, or of or with any self-regulatory organization or other non-governmental regulatory authority (including, without limitation, Nasdaq), or approval of the stockholders of the Company, is required in connection with the issuance and sale of the Shares or the consummation by the Company and the Operating Partnership of the transactions contemplated hereby, other than (i) registration of the Shares under the Act, which has been or will

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be effected, (ii) any necessary notice or qualification under the securities or blue sky laws of the various jurisdictions in which the Shares are being offered by the Agents or (iii) under the Conduct Rules of the Financial Industry Regulatory Authority, Inc. (“FINRA”).
(o)      Agreement Duly Authorized and No Breach of Obligations or Charter. The Company and the Operating Partnership have full power and authority to enter into this Agreement. This Agreement has been duly authorized, executed and delivered by the Company and the Operating Partnership. This Agreement constitutes a valid and binding agreement of the Company and the Operating Partnership and is enforceable against the Company and the Operating Partnership in accordance with its terms, except as the enforceability hereof and thereof may be limited by applicable bankruptcy, insolvency, reorganization and similar laws affecting creditors’ rights generally and moratorium laws in effect from time to time and by equitable principles restricting the availability of equitable remedies. Neither the Company nor any of the Subsidiaries is in breach or violation of or in default under (nor has any event occurred which, with notice, lapse of time or both, would result in any breach or violation of, constitute a default under or give the holder of any indebtedness (or a person acting on such holder’s behalf) the right to require the repurchase, redemption or repayment of all or a part of such indebtedness under) (i) its charter or bylaws, or (ii) any indenture, mortgage, deed of trust, bank loan or credit agreement or other evidence of indebtedness, or any license, lease, contract or other agreement or instrument to which it is a party or by which it or any of its properties may be bound or affected, or (iii) any federal, state, local or foreign law, regulation or rule, or (iv) any rule or regulation of any self-regulatory organization or other non-governmental regulatory authority (including, without limitation, the rules and regulations of Nasdaq), or (v) any decree, judgment or order applicable to it or any of its properties, except for any of the foregoing in (ii), (iii), (iv) or (v) as would not, individually or in the aggregate, have a Material Adverse Effect.
(p)      Title to Real and Personal Property. The Company and each of the Subsidiaries have good and marketable title to all property (real and personal) described in the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus as being owned by any of them, free and clear of all liens, claims, security interests or other encumbrances; all the property described in the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus as being held under lease by the Company or a Subsidiary is held thereby under valid, subsisting and enforceable leases.
(q)      Documents Described in Registration Statement. Except as described in the Registration Statement and Prospectus, neither the Company nor any Subsidiary has sent or received any communication regarding termination of, or intent not to renew, any of the contracts or agreements referred to or described in the Prospectus or any Permitted Free Writing Prospectus, or referred to or described in, or filed as an exhibit to, the Registration Statement or any Incorporated Document, and no such termination or non-renewal has been threatened by the Company or any Subsidiary or, to the Company’s or the Operating Partnership’s knowledge, any other party to any such contract or agreement.
(r)      No Untrue Statement; Statistical and Market Data. All statistical or market-related data included or incorporated by reference in the Registration Statement, the Prospectus or

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any Permitted Free Writing Prospectus are based on or derived from sources that the Company believes to be reliable and accurate, and the Company has obtained the written consent to the use of such data from such sources to the extent required.
(s)      No Price Stabilization or Manipulation. Neither the Company nor any of its directors, officers or controlling persons has taken, directly or indirectly, any action intended to cause or result in, or which might reasonably be expected to cause or result in, or which has constituted, stabilization or manipulation, under the Act or otherwise, of the price of any security of the Company to facilitate the sale or resale of the Shares.
(t)      No Registration Rights. Except as described in the Registration Statement (excluding the exhibits thereto) and the Prospectus, (i) no person has the right, contractual or otherwise, to cause the Company to issue or sell to it any shares of Common Stock or shares of any other capital stock or other equity interests of the Company, (ii) no person has any preemptive rights, resale rights, rights of first refusal or other rights to purchase any shares of Common Stock or shares of any other capital stock of or other equity interests in the Company and (iii) no person has the right to act as an underwriter, agent, financial advisor to the Company or in any similar capacity in connection with the offer and sale of the Shares; no person has the right, contractual or otherwise, to cause the Company to register under the Act any shares of Common Stock or shares of any other capital stock of or other equity interests in the Company, or to include any such shares or interests in the Registration Statement or any offering contemplated thereby.
(u)      No Affiliations. To the Company’s and the Operating Partnership’s knowledge, there are no affiliations or associations between (i) any member of the FINRA and (ii) the Company or any of the Company’s officers, directors or 5% or greater security holders or any beneficial owner of the Company’s unregistered equity securities that were acquired at any time on or after the 180th day immediately preceding the date the Registration Statement was initially filed with the Commission.
(v)      No Similar Arrangements. The Company has not entered into any other sales agency or distribution agreements or similar arrangements with any agent or other representative similar in nature to the equity shelf program established by this Agreement for the offer and sale of shares of Common Stock.
(w)      Taxes. All income and other material foreign, federal, state and local tax returns that are filed or required to be filed by the Company or any of the Subsidiaries have been timely filed (taking into account any extension of time within which to file such tax returns), and all such returns are true, complete and accurate in all material respects. All material foreign, federal, state and local taxes and other assessments of a similar nature (whether imposed directly or through withholding) including any interest, additions to tax or penalties applicable thereto due or claimed to be due from such entities have been timely paid, other than those being contested in good faith which have not been finally determined and for which adequate reserves have been provided in accordance with GAAP, or that would not be required to be disclosed in the Registration Statement.
(x)      Insurance. The Company and each of the Subsidiaries maintain insurance covering their respective properties, operations, personnel and businesses as the Company

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reasonably deems adequate; such insurance insures against such losses and risks to an extent which is adequate in accordance with customary industry practice to protect the Company and the Subsidiaries and their respective businesses; all such insurance is fully in force on the date hereof and will be fully in force at each Time of Sale and Settlement Date; neither the Company nor any Subsidiary has reason to believe that it will not be able to renew any such insurance as and when such insurance expires. Neither the Company nor any of the Subsidiaries has sustained since the date of the last audited consolidated financial statements of the Company included or incorporated by reference in the Registration Statement and the Prospectus any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, except as would not, individually or in the aggregate, be expected to have a Material Adverse Effect.
(y)      Defined Benefit Plans. Neither the Company nor any of the Subsidiaries is engaged in any unfair labor practice; except for matters which would not, individually or in the aggregate, have a Material Adverse Effect, (i) there is (A) no unfair labor practice complaint pending or, to the Company’s or the Operating Partnership’s knowledge, threatened against the Company or any of the Subsidiaries before the National Labor Relations Board, and no grievance or arbitration proceeding arising out of or under collective bargaining agreements is pending or, to the Company’s or the Operating Partnership’s knowledge, threatened, (B) no strike, labor dispute, slowdown or stoppage pending or, to the Company’s or the Operating Partnership’s knowledge, threatened against the Company or any of the Subsidiaries and (C) no union representation dispute currently existing concerning the employees of the Company or any of the Subsidiaries, (ii) to the Company’s or the Operating Partnership’s knowledge, no union organizing activities are currently taking place concerning the employees of the Company or any of the Subsidiaries and (iii) there has been no violation of any federal, state, local or foreign law relating to discrimination in the hiring, promotion or pay of employees, any applicable wage or hour laws or any provision of the Employee Retirement Income Security Act of 1974 (“ERISA”) or the rules and regulations promulgated thereunder concerning the employees of the Company or any of the Subsidiaries.
(z)      Title to Intellectual Property. The Company and the Subsidiaries own or possess sufficient trademarks, trade names, patent rights, copyrights, domain names, licenses, approvals, trade secrets and other similar rights (collectively, “Intellectual Property”) reasonably necessary to conduct their businesses as now conducted. Neither the Company nor any of the Subsidiaries has received any notice of infringement or conflict with asserted Intellectual Property of others. The Company is not a party to or bound by any options, licenses or agreements with respect to the Intellectual Property Rights of any other person or entity that are required to be described in the Registration Statement or the Prospectus and are not described therein. None of the technology employed by the Company or any of the Subsidiaries has been obtained or is being used by the Company or any of the Subsidiaries in violation of any contractual obligation binding on the Company or any of the Subsidiaries or any of its or the Subsidiaries’ officers, directors or employees or otherwise in violation of the rights of any persons, except for such violations that would not, individually or in the aggregate, have a Material Adverse Effect.
(aa)      Real Estate Investment Trust. Commencing with the Company’s taxable year ended on December 31, 2013, the Company has been organized in conformity with the requirements

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for qualification and taxation as a real estate investment trust (a “REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”), and all applicable regulations under the Code, and its actual method of operation through the date hereof has enabled it to meet, and its proposed method of operation will enable it to continue to meet, the requirements for qualification and taxation as a REIT under the Code and all applicable regulations under the Code for its taxable year ending December 31, 2019 and thereafter; all statements in the Registration Statement and the Basic Prospectus under the caption “Material U.S. Federal Income Tax Considerations,” as supplemented in the Prospectus Supplement under the caption “Supplemental Material U.S. Federal Income Tax Considerations,” regarding its qualification and taxation as a REIT are correct in all material respects. The Company intends to continue to qualify as a REIT under the Code and all applicable regulations under the Code for all subsequent years, and the Company, after reasonable inquiry and diligence, does not know of any event that would reasonably be expected to cause the Company to fail to qualify as a REIT at any time. The Operating Partnership has been and will be taxed as a partnership or as a “disregarded entity” (within the meaning of Treasury Regulation Section 301.7701-2(c)(2)(i)) and not as an association or publicly traded partnership (within the meaning of Section 7704) subject to tax as a corporation, for U.S. federal income tax purposes beginning with its first taxable year; the Company does not know of any event that would cause or would reasonably be expected to cause the Operating Partnership to cease being taxed as a partnership or as a “disregarded entity” (within the meaning of Treasury Regulation Section 301.7701-2(c)(2)(i)) for U.S. federal income tax purposes, and the Company does not know of any event that would cause or would reasonably be expected to cause the Operating Partnership to be treated as an association or publicly traded partnership subject to tax as a corporation for U.S. federal income tax purposes.
(bb)      Internal Accounting Controls. The Company and each of the Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain accountability for assets; access to assets is permitted only in accordance with management’s general or specific authorization; and the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences.
(cc)      Related Party Transactions. There is no relationship, direct or indirect, that exists between or among the Company or any of the Subsidiaries on the one hand, and the directors, officers, stockholders, customers or suppliers of the Company or any of the Subsidiaries on the other hand, which is required by the Act to be described in the Registration Statement or the Prospectus, which is not so described.
(dd)      Environmental Matters. The Company and the Subsidiaries and their respective properties, assets and operations are in compliance with, and the Company and each of the Subsidiaries hold all permits, authorizations and approvals required under, Environmental Laws (as defined below), except to the extent that failure to so comply or to hold such permits, authorizations or approvals would not, individually or in the aggregate, have a Material Adverse Effect; except as would not, individually or in the aggregate, be expected to have a Material Adverse Effect, there are no past, present or, to the Company’s or the Operating Partnership’s knowledge,

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reasonably anticipated future events, conditions, circumstances, activities, practices, actions, omissions or plans that could reasonably be expected to give rise to any costs or liabilities to the Company or any Subsidiary under, or to interfere with or prevent compliance by the Company or any Subsidiary with, Environmental Laws; except as would not, individually or in the aggregate, have a Material Adverse Effect, neither the Company nor any of the Subsidiaries (i) is, to the Company’s or the Operating Partnership’s knowledge, the subject of any investigation, (ii) has received any notice or claim, (iii) is a party to or affected by any pending or, to the Company’s or the Operating Partnership’s knowledge, threatened action, suit or proceeding, (iv) is bound by any judgment, decree or order or (v) has entered into any agreement, in each case relating to any alleged violation of any Environmental Law or any actual or alleged release or threatened release or cleanup at any location of any Hazardous Materials (as defined below) (as used herein, “Environmental Law” means any federal, state or local law, statute, ordinance, rule, regulation, order, decree, judgment or injunction, or common law, relating to the protection, cleanup or restoration of the environment or natural resources, including those relating to the distribution, processing, generation, treatment, storage, disposal, transportation, other handling or release or threatened release of Hazardous Materials, and “Hazardous Materials” means any material (including, without limitation, pollutants, contaminants, hazardous or toxic substances or wastes) that is regulated by or may give rise to liability under any Environmental Law).
(ee)      No Prohibition on Subsidiaries from Paying Dividends or Making Other Distributions. No Subsidiary is currently prohibited, directly or indirectly, from paying any dividends to the Company, from making any other distribution on such Subsidiary’s capital stock, from repaying to the Company any loans or advances to such Subsidiary from the Company or from transferring any of such Subsidiary’s property or assets to the Company or any other Subsidiary of the Company, except as described in the Registration Statement (excluding the exhibits thereto) and the Prospectus, and except as such limitations would not, taken as a whole, be material to the Company.
(ff)      Disclosure Controls and Procedures. The Company has established and maintains and evaluates “disclosure controls and procedures” (as such term is defined in Rule 13a-15 and 15d-15 under the Exchange Act) and “internal control over financial reporting” (as such term is defined in Rule 13a-15 and 15d-15 under the Exchange Act); such disclosure controls and procedures are designed to ensure that material information relating to the Company and the Subsidiaries, is made known to the Company’s Chief Executive Officer and its Chief Financial Officer by others within those entities, and such disclosure controls and procedures are effective to perform the functions for which they were established; the Company’s independent auditors and the Audit Committee of the Company’s board of directors have been advised of: (i) all significant deficiencies, if any, in the design or operation of internal controls which could adversely affect the Company’s ability to record, process, summarize and report financial data; and (ii) all fraud, if any, whether or not material, that involves management or other employees who have a role in the Company’s internal controls; all material weaknesses, if any, in internal controls have been identified to the Company’s independent auditors; since the date of the most recent evaluation of such disclosure controls and procedures and internal controls, there have been no significant changes in internal controls or in other factors that could significantly affect internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses; the principal

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executive officers (or their equivalents) and principal financial officers (or their equivalents) of the Company have made all applicable certifications required by the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) and any related rules and regulations promulgated by the Commission, and the statements contained in each such certification are complete and correct; the Company, the Subsidiaries and the Company’s directors and officers are each in compliance in all material respects with all applicable effective provisions of the Sarbanes-Oxley Act and the rules and regulations of the Commission and Nasdaq promulgated thereunder.
(gg)      No Unlawful Contributions or Payments. Neither the Company nor any of its Subsidiaries, nor any director or officer of the Company or its Subsidiaries, nor, to the knowledge of the Company, any agent, employee or representative of the Company or its Subsidiaries, affiliate or other person associated with or acting on behalf of the Company or its Subsidiaries, has: (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity; (ii) made or taken an act in furtherance of an offer, promise or authorization of any direct or indirect unlawful payment of corporate funds or benefit to any foreign or domestic government or regulatory official or employee, including, without limitation, of any government-owned or controlled entity or of a public international organization, or any person acting in an official capacity for or on behalf of any of the foregoing, or any political party or party official or candidate for political office; (iii) violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended, the U.K. Bribery Act 2010, or any applicable law or regulation implementing the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, or committed an offense under any other applicable anti-bribery or anti-corruption laws; or (iv) made, offered, agreed, requested or taken an act in furtherance of any unlawful bribe or other unlawful benefit, including, without limitation, any rebate, payoff, influence payment, kickback or other unlawful or improper payment or benefit. The Company has instituted, maintained and enforced, and will continue to maintain and enforce policies and procedures designed to promote and ensure compliance with all applicable anti-bribery and anti-corruption laws.
(hh)      Compliance with Anti-Money Laundering Laws. The operations of the Company and its Subsidiaries are and have been conducted at all times in compliance with applicable financial recordkeeping and reporting requirements, including those of the Currency and Foreign Transactions Reporting Act of 1970, as amended, those of the Bank Secrecy Act, as amended by Title III of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA Patriot Act), and the applicable money laundering statutes of all jurisdictions in which the Company and its Subsidiaries conduct business, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any governmental or regulatory agency (collectively, the “Money Laundering Laws”), and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or its Subsidiaries with respect to the Money Laundering Laws is pending or, to the Company’s knowledge, threatened.
(ii)      No Conflicts with Sanctions Laws . Neither the Company nor any of its Subsidiaries, nor any director or officer of the Company or its Subsidiaries, nor, to the knowledge of the Company, any agent, employee or representative of the Company or its Subsidiaries, affiliate

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or other person associated with or acting on behalf of the Company or its Subsidiaries is currently the subject or target of any sanctions administered or enforced by the U.S. government (including, without limitation, the Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”) or the U.S. Department of State and including, without limitation, the designation as a “specially designated national” or “blocked person”), the United Nations Security Council, the European Union, Her Majesty’s Treasury or other relevant sanctions authority (collectively, “Sanctions”), nor is the Company or any of its Subsidiaries located, organized or resident in a country or territory that is the subject or the target of Sanctions, including, without limitation, Cuba, Iran, North Korea, Sudan, Syria and Crimea (each, a “Sanctioned Country”); and the Company will not directly or indirectly use the proceeds of the offering of the Shares hereunder, or lend, contribute or otherwise make available such proceeds to any Subsidiary, joint venture partner or other person or entity (i) to fund or facilitate any activities of or business with any person that, at the time of such funding or facilitation, is the subject or the target of Sanctions, (ii) to fund or facilitate any activities of or business in any Sanctioned Country or (iii) in any other manner that will result in a violation by any person (including any person participating in the transaction, whether as agent, principal, advisor, investor or otherwise) of Sanctions. For the past five years, the Company and its Subsidiaries have not knowingly engaged in, are not now knowingly engaged in, and will not engage in, any dealings or transactions with any person that at the time of the dealing or transaction is or was the subject or the target of Sanctions or with any Sanctioned Country.
(jj)      Brokers and Finders. Except pursuant to this Agreement, neither the Company nor any of the Subsidiaries has incurred any liability for any finder’s or broker’s fee or agent’s commission in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby or by the Registration Statement.
(kk)      Forward-Looking Statements . Each “forward-looking statement” (within the meaning of Section 27A of the Act or Section 21E of the Exchange Act) contained or incorporated by reference in the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus has been made with a reasonable basis and in good faith.
(ll)      No Indebtedness. There are no outstanding loans, extensions of credit or advances or guarantees of indebtedness by the Company or any of the Subsidiaries to or for the benefit of any of the officers or directors of the Company or any of the Subsidiaries or any of the members of the families of any of them.
In addition, any certificate signed by any officer of the Company or any of the Subsidiaries and delivered to any of the Agents or counsel for such Agents in connection with the offering of the Shares shall be deemed to be a representation and warranty by the Company or the Operating Partnership, as to matters covered thereby, to such Agents.
(mm)      Advisory Agreement. The Third Amended and Restated Advisory Agreement among the Company, the Operating Partnership and American Finance Advisors, LLC and all amendments thereto have been duly authorized, executed and delivered by the Company, and it is a legal, valid and binding agreement of the Company enforceable in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights generally, and by general equitable principles.

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(nn)      Lending Relationships. Except as disclosed in the Registration Statement and the Prospectus, neither the Company nor any of the Subsidiaries has any lending or similar relationship with any Agent or any bank of other lending institution affiliated with any Agent.
(oo)      Transfer Taxes . There are no stock or other transfer taxes, stamp duties, capital duties or other similar duties, taxes or charges payable in connection with the execution or delivery of this Agreement or the issuance or sale by the Company of the Shares to be sold by the Company to the Agents.
(pp)      Cybersecurity. (i)(x) Except as disclosed in the Registration Statement and the Prospectus, to the knowledge of the Company, there has been no security breach or other compromise of or relating to any of the Company’s information technology and computer systems, networks, hardware, software, data (including the data of their respective customers, employees, suppliers, vendors and any third party data maintained by or on behalf of them), equipment or technology (collectively, “ IT Systems and Data ”) and (y) the Company has not been notified of, and has no knowledge of, any event or condition that would reasonably be expected to result in, any security breach or other compromise to their IT Systems and Data; (ii) the Company is presently in compliance with all applicable laws or statutes and all judgments, orders, rules and regulations of any court or arbitrator or governmental or regulatory authority, internal policies and contractual obligations relating to the privacy and security of IT Systems and Data and to the protection of such IT Systems and Data from unauthorized use, access, misappropriation or modification, except as would not, in the case of this clause (ii), individually or in the aggregate, have a Material Adverse Effect; and (iii) the Company has implemented backup and disaster recovery technology consistent with industry standards and practices.
3.      Agreements of the Company and the Operating Partnership . The Company and the Operating Partnership, jointly and severally, covenant and agree with each Agent:
(a)      Amendments and Supplements to the Registration Statement, the Prospectus and any Permitted Free Writing Prospectus. The Company shall not, during the Prospectus Delivery Period, amend or supplement the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus (including, without limitation, by filing any document under the Exchange Act if such document would be deemed to be incorporated by reference into the Prospectus), unless a copy of such amendment or supplement thereto (or such document) shall first have been submitted to the Agents within a reasonable period of time prior to the filing or, if no filing is required, the use thereof and the Agents shall not have objected thereto.
(b)      Material Misstatements or Omissions and Other Compliance with Applicable Law. If, after the date hereof and during the Prospectus Delivery Period, any event or development shall occur or condition shall exist as a result of which the Prospectus or any Permitted Free Writing Prospectus, as amended or supplemented at that time, would include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it shall be necessary to amend or supplement the Prospectus or any Permitted Free Writing Prospectus, or to file any document in order to comply with the Act or the Exchange Act, in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if in the

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opinion of the Agents it is otherwise necessary to amend or supplement the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus or to file any document in order to comply with the Act or the Exchange Act, including, without limitation, in connection with the delivery of the Prospectus, the Company shall promptly (i) notify the Agents of any such event, development or condition (and confirm such notice in writing) and (ii) instruct the Agent to suspend the sale of any Shares (including Shares that have been sold but have not yet settled). The Company may thereafter send a new Agency Transaction Notice if and when it (A) prepares (subject to subsections (a) and (g) of this Section 3) an amendment or supplement to the Prospectus or such Permitted Free Writing Prospectus, necessary in order to make the statements in the Prospectus or such Permitted Free Writing Prospectus as so amended or supplemented, in the light of the circumstances under which they were made, not misleading or so that the Registration Statement, the Prospectus or such Permitted Free Writing Prospectus, as amended or supplemented, will comply with the Act or the Exchange Act, (B) files with the Commission such amendment, supplement or document in order to comply with the Act or the Exchange Act and (C) furnishes at its own expense to the Agents as many copies as the Agents may reasonably request of such amendment, supplement or document. Notwithstanding the foregoing, nothing herein shall require the Company to file any such amendment or supplement.
(c)      Notifications to the Agents. The Company shall notify the Agents promptly, and shall confirm such notice in writing, (i) when any post-effective amendment to the Registration Statement becomes effective, (ii) of any request by the Commission for an amendment or supplement to the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus or for additional information, (iii) of the commencement by the Commission or by any state securities commission of any proceedings for the suspension of the qualification of any of the Shares for offering or sale in any jurisdiction or of the initiation, or the threatening, of any proceeding for that purpose, including, without limitation, the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose or the threat thereof, (iv) of the happening of any event during the Prospectus Delivery Period that in the judgment of the Company makes any statement made in the Registration Statement or the Prospectus untrue or that requires the making of any amendment or supplement to the Prospectus or any Permitted Free Writing Prospectus in order to make the statements therein, in the light of the circumstances in which they were made, not misleading and (v) of receipt by the Company or any representative of the Company of any other communication from the Commission relating to the Company, the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus. If at any time the Commission shall issue any stop order suspending the effectiveness of the Registration Statement, the Company shall use its best efforts to obtain the withdrawal of the stop order at the earliest possible moment. The Company shall use its best efforts to comply with the provisions of and make all requisite filings with the Commission pursuant to Rules 424(b), 430A, 430B, 430C and 462(b) of the Rules and Regulations and to notify the Agents promptly of all such filings.
(d)      Executed Registration Statements. The Company shall furnish to the Agents, without charge, two signed copies of the Registration Statement and of any post-effective amendment thereto, including financial statements and schedules, and all exhibits thereto (including

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any document filed under the Exchange Act that is deemed to be incorporated by reference into the Prospectus).
(e)      Undertakings. The Company and the Operating Partnership shall comply with all the provisions of any undertakings contained or required to be contained in the Registration Statement.
(f)      Prospectus. The Company shall furnish to the Agents, without charge, as many copies of the Prospectus and any amendment or supplement thereto as the Agents may reasonably request (to the extent not previously delivered or filed on the Commission’s Electronic Data Gathering, Analysis and Retrieval system or any successor system thereto) via electronic mail in “.pdf” format and, at the Agents’ request, to furnish copies of the Prospectus to Nasdaq and each other exchange or market on which sales of the Shares were or are expected to be effected, in each case, as may be required by the rules or regulations of Nasdaq or such other exchange or market. The Company consents to the use of the Prospectus and any amendment or supplement thereto by the Agents during the Prospectus Delivery Period. If the Agents are required to deliver, under the Act (whether physically, deemed to be delivered pursuant to Rule 153 or through compliance with Rule 172 under the Act or any similar rule), a prospectus relating to the Shares after the nine-month period referred to in Section 10(a)(3) of the Act, or after that time a post-effective amendment to the Registration Statement is required pursuant to Item 512(a) of Regulation S-K under the Act, then, upon the request of the Agents, and at the Company’s own expense, the Company shall prepare and deliver to the Agents as many copies as the Agents may request of an amended Registration Statement or amended and supplemented Prospectus complying with Item 512(a) of Regulation S-K or Section 10(a)(3) of the Act, as the case may be.
(g)      Permitted Free Writing Prospectuses. The Company and the Operating Partnership represents and agrees that it has not made and, unless it obtains the prior written consent of the Agents, shall not make, any offer relating to the Shares that would constitute a “free writing prospectus” as defined in Rule 405 of the Rules and Regulations, which is required to be retained by the Company under Rule 433 of the Rules and Regulations; provided that the prior written consent of the Agents hereto shall be deemed to have been given in respect of each of the free writing prospectuses set forth in Schedule 3 hereto. Any such free writing prospectus consented to by the Agents is herein referred to as a “Permitted Free Writing Prospectus.” The Company represents and agrees that (i) it has treated and shall treat, as the case may be, each Permitted Free Writing Prospectus as a “free writing prospectus” as defined in Rule 405 of the Rules and Regulations and (ii) it has complied and shall comply, as the case may be, with the requirements of Rules 164 and 433 of the Act applicable to any Permitted Free Writing Prospectus, including, without limitation, in respect of timely filing with the Commission, legending and record keeping. The Company agrees not to take any action that would result in the Agents or the Company being required to file pursuant to Rule 433(d) under the Act a free writing prospectus prepared by or on behalf of the Agents that the Agents otherwise would not have been required to file thereunder.
(h)      Registration Statement Renewal Deadline. If, immediately prior to the third anniversary of the initial effective date of the Registration Statement relating to the Shares (the “Renewal Deadline”), any of the Shares remain unsold by the Agents, the Company shall prior to

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the Renewal Deadline (i) file, if it has not already done so (subject to subsection (a) of this Section 3), a new shelf registration statement relating to the Shares or a new shelf registration statement together with a new prospectus supplement relating to the Shares, in either case in a form satisfactory to the Agents, (ii) use its best efforts to cause such registration statement to be declared effective within 60 days after the Renewal Deadline (if the Company is not then eligible to file an automatic shelf registration statement) and (iii) take all other action necessary or appropriate to permit the public offering and sale of the Shares to continue as contemplated herein and in the expired registration statement relating to the Shares. References herein to the Registration Statement relating to the Shares shall include any new shelf registration statement contemplated by this Section 3(h) and references to the Prospectus Supplement relating to the Shares shall include any new prospectus supplement contemplated by this Section 3(h).
(i)      Notice of Inability to Use Automatic Shelf Registration Statement Form. If, at any time when the Shares remain unsold by the Agents, the Company receives from the Commission a notice pursuant to Rule 401(g)(2) of the Rules and Regulations or otherwise ceases to be eligible to use the automatic shelf registration statement form, the Company shall (i) promptly notify the Agents, (ii) promptly file a new registration statement or post-effective amendment to the existing Registration Statement on the proper form relating to the Shares, in a form satisfactory to the Agents and subject to subsection (a) of this Section 3, (iii) use its best efforts to cause such registration statement or post-effective amendment to be declared effective as soon as practicable, and (iv) promptly notify the Agents upon such effectiveness. The Company shall take all other action necessary or appropriate to permit the public offering and sale of the Shares to continue as contemplated herein and in the Registration Statement that was the subject of the notice pursuant to Rule 401(g)(2) or for which the Company has otherwise become ineligible to use. References herein to the Registration Statement relating to the Shares shall include such new registration statement or post-effective amendment, as the case may be.
(j)      Filing Fees . The Company agrees to pay the required Commission filing fees relating to the Shares within the time required by Rule 456(b)(1) without regard to the proviso therein and otherwise in accordance with Rules 456(b) and 457(r).
(k)      Compliance with Blue Sky Laws. The Company and the Operating Partnership shall cooperate with the Agents and counsel therefor in connection with the registration or qualification (or the obtaining of exemptions therefrom) of the Shares for the offering and sale under the securities or Blue Sky laws of such jurisdictions as the Agents may request, including, without limitation, the provinces and territories of Canada and other jurisdictions outside the United States, and to continue such registration or qualification in effect so long as necessary under such laws for the distribution of the Shares; provided , however , that in no event shall the Company be obligated to qualify to do business in any jurisdiction where it is not now so qualified or to take any action which would subject it to general service of process in any jurisdiction where it is not now so subject (except service of process with respect to the offering and sale of the Shares).
(l)      Delivery of Financial Statements. During the period of five years commencing on the later of the date hereof and the effective date of the Registration Statement for the distribution of the Shares, the Company and the Operating Partnership shall furnish to the Agents

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copies of such financial statements and other periodic and special reports as the Company may from time to time distribute generally to the holders of any class of its capital stock, and shall furnish to the Agents a copy of each annual or other report it shall be required to file with the Commission.
(m)      Availability of Earnings Statements. The Company shall make generally available to holders of its securities and the Agents as soon as may be practicable but in no event later than the last day of the fifteenth full calendar month following the date hereof, an earnings statement (which need not be audited but shall be in reasonable detail) covering the period of 12 months commencing after the date hereof, and satisfying the provisions of Section 11(a) of the Act (including Rule 158 of the Rules and Regulations).
(n)      Reimbursement of Certain Expenses. Whether or not any of the transactions contemplated by this Agreement are consummated or this Agreement is terminated, the Company and the Operating Partnership, jointly and severally agree, that they shall pay, or reimburse if paid by the Agents, all costs and expenses incident to the performance of the obligations of the Company under this Agreement, including, without limitation, costs and expenses of or relating to (i) the preparation, printing and filing of the Registration Statement and exhibits to it, each Permitted Free Writing Prospectus, the Prospectus and any amendment or supplement to the Registration Statement or the Prospectus (including the filing fees payable to the Commission relating to the Shares within the time required by Rule 456 of the Rules and Regulations), (ii) the preparation and delivery of certificates representing the Shares, (iii) the printing of this Agreement, (iv) furnishing (including costs of shipping, mailing and courier) such copies of the Registration Statement, the Prospectus, and any Permitted Free Writing Prospectus, and all amendments and supplements thereto, as may be requested for use in connection with the offering and sale of the Shares by the Agents, (v) the listing of the Shares on Nasdaq, (vi) any filings required to be made by the Agents with FINRA, and the fees, disbursements and other charges of counsel for the Agents in connection therewith, (vii) the registration or qualification of the Shares for offer and sale under the Act and the securities or Blue Sky laws of such jurisdictions designated pursuant to subsection (k) of this Section 3, including the fees, disbursements and other charges of counsel to the Agents in connection therewith, and, if requested by the Agents, the preparation and printing of preliminary, supplemental and final Blue Sky or Legal Investment memoranda, (viii) counsel to the Company, (ix) The Depository Trust Company and any other depositary, transfer agent or registrar for the Shares, (x) KPMG LLP and PricewaterhouseCoopers LLP (the “Accountants”), (xi) the marketing of the offering by the Company, including, without limitation, all costs and expenses of commercial airline tickets, hotels, meals and other travel expenses of officers, employees, agents and other representatives of the Company, (xii) all out-of-pocket fees, disbursements and other charges of the Agents incurred in connection with the offering, including, without limitation, the fees and disbursements of counsel to the Agents and (xiii) all fees, costs and expenses for consultants used by the Company in connection with the offering; provided , however the fees and expenses of Agents’ counsel subject to reimbursement by the Company pursuant to clause (xii) of this Section 3(n): (A) shall not exceed $100,000 with respect to the establishment of the at-the-market program contemplated by this Agreement, including the negotiation, preparation and execution of this Agreement, and (B) shall not exceed $25,000 per year (with the first such year commencing on the date of execution of this Agreement) with

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respect to the ongoing implementation of the at-the-market program contemplated by this Agreement. For the avoidance of doubt, the parties acknowledge that except as provided in this Section 3(n) and Section 7 hereof, the Agents will pay all of their own out-of-pocket costs and expenses incurred in connection with entering into this Agreement and the transactions contemplated by this Agreement.
(o)      No Stabilization or Manipulation. The Company shall not at any time, directly or indirectly (including, without limitation, through the Subsidiaries), take any action intended to cause or result in, or which might reasonably be expected to cause or result in, or which will constitute, stabilization or manipulation, under the Act or otherwise, of the price of the shares of Common Stock to facilitate the sale or resale of any of the Shares.
(p)      Use of Proceeds. The Company and the Operating Partnership shall apply the net proceeds from the offering and sale of the Shares to be sold by the Company in the manner set forth in the Prospectus under “Use of Proceeds.”
(q)      Clear Market. The Company shall not offer to sell, sell, pledge, hypothecate, contract or agree to sell, purchase any option to sell, grant any option for the purchase of, lend, or otherwise dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock or warrants or other rights to acquire shares of Common Stock or any other securities of the Company that are substantially similar to the Common Stock or permit the registration under the Act of any shares of Common Stock, in each case without giving the Agents at least three business days’ prior written notice specifying the nature and date of such proposed transaction. Notwithstanding the foregoing, the Company may (i) register the offering and sale of the Shares through the Agents pursuant to this Agreement, (ii) issue shares of Common Stock upon the exercise of an option or warrant or the conversion of a security outstanding on the date hereof and referred to in the Prospectus, (iii) issue shares upon the exchange of units of limited partnership interest of the Operating Partnership designated as “LTIP Units” outstanding as of the date of this Agreement and described in the Company’s reports filed with the Commission under the Exchange Act, (iv) issue shares of Common Stock, options to purchase Common Stock or other permitted awards granted pursuant to existing equity incentive compensation plans of the Company or (v) issue shares of Common Stock pursuant to any non-employee director stock plan, dividend reinvestment plan or stock purchase plan of the Company. If notice of a proposed transaction is provided by the Company pursuant to this subsection (q), the Agents may suspend activity of the transactions contemplated by this Agreement for such period of time as may be requested by the Company or as may be deemed appropriate by the Agents.
(r)      Stock Exchange Listing. The Company shall use its best efforts to cause the Shares to be listed on Nasdaq and to maintain such listing.
(s)      Additional Notices . The Company shall notify the Agents immediately after it shall have received notice or obtained knowledge of any information or fact that would alter or affect any opinion, certificate, letter or any other document provided to the Agents pursuant to Section 4 below.

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(t)      Representation Date Certificates . Upon commencement of the offering of the Shares under this Agreement (and upon the commencement of the offering of the Shares under this Agreement following the termination of a suspension of sales hereunder), and each time that § the Registration Statement or the Prospectus is amended or supplemented (other than by the filing with the Commission of any document incorporated by reference therein (excluding supplements not related to the Shares), which shall be subject to the provisions of subclause § below, and other than a prospectus supplement filed pursuant to Rule 424(b) under the Act, relating solely to the offering of securities pursuant to the Registration Statement other than the Shares), (ii) there is filed with the Commission any document incorporated by reference into the Prospectus (other than a Current Report on Form 8-K, unless the Agents shall otherwise reasonably request), § the Agents may reasonably request and § Shares are delivered to the Agents pursuant to a Terms Agreement (such commencement date, any such recommencement date, if applicable, and each such date referred to in clauses (i), (ii), (iii) and (iv) above, except as otherwise agreed between the Company and the Agents, a “Representation Date”), to furnish or cause to be furnished to the Agents forthwith a certificate dated and delivered as of such date, in form reasonably satisfactory to the Agents, to the effect that the statements contained in the certificate(s) referred to in Section 4(c) are true and correct at the time of such commencement, recommencement, amendment, supplement or filing, as the case may be, as though made at and as of such time and modified as necessary to relate to the Registration Statement and the Prospectus as amended and supplemented to the time of delivery of such certificate.
(u)      Company Counsel Legal Opinions . On each Representation Date, the Company shall cause to be furnished to the Agents, addressed to the Agents and in form and substance satisfactory to the Agents, written opinions of Proskauer Rose LLP, outside counsel for the Company, and a written opinion of Venable LLP, Maryland counsel for the Company, as described in Section 4(d), to the effect set forth in Exhibit C-1, Exhibit C-2, Exhibit C-3 and Exhibit C-4 hereto but modified as necessary to relate to the Registration Statement and the Prospectus as amended and supplemented to the time of delivery of such opinion. In lieu of delivering such an opinion for dates subsequent to the commencement of the offering of the Shares under this Agreement such counsel may furnish the Agents with a letter (a “Reliance Letter”) to the effect that the Agents may rely on a prior opinion delivered under this Section 3(u) to the same extent as if it were dated the date of such letter (except that statements in such prior opinion shall be deemed to relate to the Registration Statement and the Prospectus as amended or supplemented as of such subsequent date).
(v)      Comfort Letters . On each Representation Date, the Company shall cause the Accountants to deliver to the Agents the comfort letter(s) described in Section 4(f).
(w)      Due Diligence . The Company shall reasonably cooperate with any reasonable due diligence review requested by the Agents or their counsel from time to time in connection with the transactions contemplated hereby or any Terms Agreement, including, without limitation, (i) prior to the open of trading on each intended Purchase Date and any Time of Sale or Settlement Date, making available appropriate corporate officers of the Company and, upon reasonable request, representatives of the Accountants for an update on diligence matters with representatives of the Agents and their counsel and (ii) at each Representation Date or otherwise as the Agents may reasonably request, providing information and making available documents and

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appropriate corporate officers of the Company and representatives of the Accountants for one or more due diligence sessions with representatives of the Agents and their counsel.
(x)      Reservation of the Shares . The Company shall reserve and keep available at all times, free of preemptive rights, Shares for the purpose of enabling the Company to satisfy its obligations hereunder.
(y)      Trading . The Company hereby consents to any Agent trading in the Common Stock for such Agent’s own account and for the account of its clients at the same time as sales of the Shares pursuant to this Agreement.
(z)      Deemed Representations and Warranties . The Company hereby agrees that each acceptance by it of an offer to purchase Shares hereunder shall be deemed to be (i) an affirmation to the Agents that the representations and warranties of the Company contained in or made pursuant to this Agreement are true and correct as of the date of such acceptance as though made at and as of such date and (ii) an undertaking that such representations and warranties will be true and correct as of the Time of Sale and the Settlement Date for the Shares relating to such acceptance as though made at and as of each of such dates (except that such representations and warranties shall be deemed to relate to the Registration Statement and the Prospectus as amended and supplemented to the date of such acceptance, such Time of Sale or such Settlement Date, as the case may be).
(aa)      Board Authorization . Prior to delivering notice of the proposed terms of an Agency Transaction or a Principal Transaction pursuant to Section 1 (or at such time as otherwise agreed between the Company and the Agents), the Company shall have (i) obtained from its board of directors or a duly authorized committee established thereby all necessary corporate authority for the sale of the Shares pursuant to the relevant Agency Transaction or Principal Transaction, as the case may be, and (ii) provided to the Agents a copy of the relevant board resolutions or other authority.
(bb)      Offer to Refuse to Purchase . If to the knowledge of the Company any condition set forth in Section 4(a) of this Agreement shall not have been satisfied on the applicable Settlement Date, the Company shall offer to any person who has agreed to purchase Shares from the Company as the result of an offer to purchase solicited by the Agents the right to refuse to purchase and pay for such Shares.
(cc)      Exchange Act Reports . The Company shall, subject to subsection (a) of this Section 3, § timely file all reports and any definitive proxy or information statements required to be filed by the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date hereof and for the duration of the Prospectus Delivery Period and § disclose in its quarterly reports on Form 10-Q and in its annual report on Form 10-K a summary detailing, for the relevant reporting period, the number of Shares sold through or to the Agents under this Agreement, the net proceeds received by the Company from such sales and the compensation paid by the Company to the Agents with respect to such sales. In lieu of compliance with the requirement set forth in clause (ii) of the immediately preceding sentence, the Company may prepare a prospectus supplement with such summary information and, at least once a quarter and subject to subsection

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(a) of this Section 3, file such prospectus supplement pursuant to Rule 424(b) under the Act (and within the time periods required by Rule 424(b) and Rule 430A, 430B or 430C under the Act).
(dd)      REIT Qualification . The Company will use its reasonable best efforts to continue to meet the requirements for qualification and taxation as a REIT under the Code, subject to any future determination by the Company’s board of directors that it is no longer in the Company’s best interests to qualify as a REIT.
4.      Conditions of the Agents’ Obligations . The obligations of each Agent hereunder are subject to (i) the accuracy of the representations and warranties of the Company and the Operating Partnership on the date hereof, on each Representation Date and as of each Time of Sale and Settlement Date, (ii) the performance by the Company and the Operating Partnership of their obligations hereunder and (iii) the following additional conditions:
(a)      No Stop Orders, Requests for Information and No Amendments. (i) No stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall be pending or are, to the best knowledge of the Company, threatened by the Commission, and the Company shall not have received from the Commission any notice pursuant to Rule 401(g)(2) of the Act objecting to use of the automatic shelf registration statement form, (ii) no order suspending the qualification or registration of the Shares under the securities or Blue Sky laws of any jurisdiction shall be in effect and no proceeding for such purpose shall be pending before or threatened or contemplated by the authorities of any such jurisdiction, (iii) any request for additional information on the part of the staff of the Commission or any such authorities shall have been complied with to the satisfaction of the staff of the Commission or such authorities and (iv) after the date hereof no amendment or supplement to the Registration Statement or the Prospectus shall have been filed unless a copy thereof was first submitted to the Agents and the Agents did not object thereto.
(b)      No Material Adverse Effect. Since the date of the most recent financial statements of the Company included or incorporated by reference in the Registration Statement and the Prospectus, except as described in the Registration Statement and the Prospectus, there shall not have been a Material Adverse Effect.
(c)      Officers’ Certificates. The Agents shall have received, on each Representation Date, one or more accurate certificates, signed by an executive officer of the Company, in form and substance satisfactory to the Agents, to the effect set forth in clauses (a) and (b) above and to the effect that:
(i)      each signer of such certificate has carefully examined the Registration Statement, the Prospectus (including any documents filed under the Exchange Act and deemed to be incorporated by reference into the Prospectus) and each Permitted Free Writing Prospectus, if any;
(ii)      as of such date and as of each Time of Sale subsequent to the immediately preceding Representation Date, if any, neither the Registration Statement, the Prospectus nor any Permitted Free Writing Prospectus contained any untrue statement of a material

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fact or omitted to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading;
(iii)      each of the representations and warranties of the Company and the Operating Partnership contained in this Agreement are, as of such date and each Time of Sale subsequent to the immediately preceding Representation Date, if any, true and correct, except to the extent such representation or warranty speaks as of a specific date, in which case, such representation or warranty was true and correct as of such specific date; and
(iv)      each of the covenants and agreements required herein to be performed by the Company and the Operating Partnership on or prior to such date has been duly, timely and fully performed and each condition herein required to be complied with by the Company and the Operating Partnership on or prior to such date has been duly, timely and fully complied with.
(d)      Opinions of Counsel to the Company. The Agents shall have received, on each Representation Date, written opinions of Proskauer Rose LLP, outside counsel for the Company, and a written opinion of Venable LLP, Maryland counsel for the Company, or other counsel satisfactory to the Agents, in form and substance satisfactory to the Agents, and addressed to the Agents, to the effect set forth in Exhibit C-1, Exhibit C-2, Exhibit C-3 and Exhibit C-4.
(e)      Opinion of Counsel to the Agents. The Agents shall have received, on Representation Date, an opinion of Mayer Brown LLP, outside counsel for the Agents such date and addressed to the Agents, in form and substance reasonably satisfactory to the Agents.
(f)      Accountants’ Comfort Letter. The Agents shall have received, on each Representation Date, letters addressed to the Agents and in form and substance reasonably satisfactory to the Agents, (i) confirming that the Accountants are an independent registered public accounting firm within the meaning of the Act, the Exchange Act and the Public Company Accounting Oversight Board (“PCAOB”), (ii) stating, as of such date, the conclusions and information of the type ordinarily included in accountants’ “comfort letters” to sales agents in connection with registered “at the market” offerings with respect to the audited and unaudited financial statements and certain other financial information contained or incorporated by reference in the Registration Statement and the Prospectus (the first such letter, the “Initial Comfort Letter”) and (iii) in the case of any such letter after the Initial Comfort Letter, updating the Initial Comfort Letter with any information that would have been included in the Initial Comfort Letter had it been given on such date and modified as necessary to relate to the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus, as amended or supplemented to the date of such letter.
(g)      Due Diligence . The Company shall have complied with all of its due diligence obligations required pursuant to Section 3(w).
(h)      Compliance with Blue Sky Laws. The Shares shall be qualified for sale in such states and jurisdictions as the Agents may reasonably request, including, without limitation, the provinces and territories of Canada and other jurisdictions outside the United States, and each such qualification shall be in effect and not subject to any stop order or other proceeding on the relevant Representation Date.

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(i)      Stock Exchange Listing. The Shares shall have been approved for listing on Nasdaq, subject only to notice of issuance at or prior to the applicable Settlement Date.
(j)      Regulation M . The Common Stock shall be an “actively-traded security” excepted from the requirements of Rule 101 of Regulation M under the Exchange Act by subsection (c)(1) of such rule.
(k)      Additional Certificates. The Company shall have furnished to the Agents such certificate or certificates, in addition to those specifically mentioned herein, as the Agents may have reasonably requested as to the accuracy and completeness at each Representation Date of any statement in the Registration Statement or the Prospectus or any documents filed under the Exchange Act and deemed to be incorporated by reference into the Prospectus, as to the accuracy at such Representation Date of the representations and warranties of the Company herein, as to the performance by the Company of its obligations hereunder, or as to the fulfillment of the conditions concurrent and precedent to the obligations hereunder of the Agents.
5.      Indemnification .
(a)      Indemnification of the Agents. The Company and the Operating Partnership, jointly and severally, agree to indemnify and hold harmless each Agent, the directors, officers, employees, counsel and agents of each Agent and each person, if any, who controls such Agent within the meaning of Section 15 of the Act or Section 20 of the Exchange Act from and against any and all losses, claims, liabilities, expenses and damages (including, without limitation, any and all investigative, legal and other expenses reasonably incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding between any of the indemnified parties and any indemnifying parties or between any indemnified party and any third party, or otherwise, or any claim asserted), to which they, or any of them, may become subject under the Act, the Exchange Act or other federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, liabilities, expenses or damages arise out of or are based on (i) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment thereto), including any information deemed to be a part thereof pursuant to Rules 430A, 430B or 430C under the Act, as applicable, including all documents incorporated therein by reference, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or (ii) any untrue statement or alleged untrue statement of a material fact contained in any Permitted Free Writing Prospectus or the Prospectus (or any amendment or supplement thereto) or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading or (iii) any untrue statement or alleged untrue statement of a material fact contained in any materials or information provided to investors by, or with the approval of, the Company and the Operating Partnership in connection with the marketing of the offering of the Shares, including any roadshow or investor presentations made to investors by the Company and the Operating Partnership (whether in person or electronically) or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided , however , that the Company and the Operating Partnership shall not be liable to the extent

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that such loss, claim, liability, expense or damage arises from the sale of the Shares in the public offering to any person by the Agents and is based on an untrue statement or omission or alleged untrue statement or omission made in reliance on and in conformity with information relating to the Agents furnished in writing to the Company by the Agents expressly for inclusion in the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus. The indemnity obligation in this Section 5(a) is in addition to any liability that the Company or the Operating Partnership might otherwise have under applicable law.
(b)      Indemnification of the Company and the Operating Partnership. Each Agent, severally and not jointly, agrees to indemnify and hold harmless the Company and the Operating Partnership, their agents, each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, each director of the Company and each officer of the Company who signs the Registration Statement to the same extent as the foregoing indemnity in Section 5(a) from the Company and the Operating Partnership to the Agents, but only insofar as losses, claims, liabilities, expenses or damages arise out of or are based on any untrue statement or omission or alleged untrue statement or omission made in reliance on and in conformity with information relating to the Agents furnished in writing to the Company by the Agents expressly for inclusion in the Registration Statement, any Permitted Free Writing Prospectus or the Prospectus. The indemnity obligation in this Section 5(b) is in addition to any liability that the Agents might otherwise have under applicable law.
(c)      Indemnification Procedures. Any party that proposes to assert the right to be indemnified under this Section 5 shall, promptly after receipt of notice of commencement of any action against such party in respect of which a claim is to be made against an indemnifying party or parties under this Section 5, notify each such indemnifying party of the commencement of such action, enclosing a copy of all papers served, but the omission so to notify such indemnifying party shall not relieve the indemnifying party from any liability that it may have to any indemnified party under the foregoing provisions of this Section 5 unless, and only to the extent that, such omission results in the forfeiture of substantive rights or defenses by the indemnifying party. If any such action is brought against any indemnified party and it notifies the indemnifying party of its commencement, the indemnifying party will be entitled to participate in and, to the extent that it elects, by delivering written notice to the indemnified party promptly after receiving notice of the commencement of the action from the indemnified party, jointly with any other indemnifying party similarly notified, to assume the defense of the action, with counsel satisfactory to the indemnified party, and after notice from the indemnifying party to the indemnified party of its election to assume the defense, the indemnifying party will not be liable to the indemnified party for any legal or other expenses except as provided below and except for the reasonable costs of investigation subsequently incurred by the indemnified party in connection with the defense. The indemnified party will have the right to employ its own counsel in any such action, but the fees, expenses and other charges of such counsel will be at the expense of such indemnified party unless (i) the employment of counsel by the indemnified party has been authorized in writing by the indemnifying party, (ii) the indemnified party has reasonably concluded (based on advice of counsel) that there may be legal defenses available to it or other indemnified parties that are different from or in addition to those available to the indemnifying party, (iii) a conflict or potential conflict exists (based on advice of counsel to the indemnified party) between the indemnified party and the indemnifying party (in

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which case the indemnifying party shall not have the right to direct the defense of such action on behalf of the indemnified party) or (iv) the indemnifying party has not in fact employed counsel to assume the defense of such action within a reasonable time after receiving notice of the commencement of the action, in each of which cases the reasonable fees, disbursements and other charges of counsel shall be at the expense of the indemnifying party or parties. It is understood that the indemnifying party or parties shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees, disbursements and other charges of more than one separate counsel (in addition to any local counsel) at any one time for all such indemnified party or parties. All such fees, disbursements and other charges shall be reimbursed by the indemnifying party promptly as they are incurred. An indemnifying party shall not be liable for any settlement of any action or claim effected without its written consent (which consent will not be unreasonably withheld or delayed). No indemnifying party shall, without the prior written consent of each indemnified party, settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action or proceeding relating to the matters contemplated by this Section 5 (whether or not any indemnified party is a party thereto), unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party from all liability arising or that may arise out of such claim, action or proceeding and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. Notwithstanding the foregoing, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by this Section 5(c), the indemnifying party agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 45 days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall have received notice of the terms of such settlement at least 30 days prior to such settlement being entered into and (iii) such indemnifying party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement.
(d)      Contribution. In order to provide for just and equitable contribution in circumstances in which the indemnification provided for in the foregoing paragraphs of this Section 5 is applicable in accordance with its terms but for any reason is held to be unavailable to an indemnified party under subsections (a) and (b) of this Section 5, the Company, the Operating Partnership and the Agents shall contribute to the total losses, claims, liabilities, expenses and damages (including, without limitation, any investigative, legal and other expenses reasonably incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claim asserted, but after deducting any contribution received by the Company or the Operating Partnership from persons other than the Agents, such as persons who control the Company within the meaning of the Act, officers of the Company and directors of the Company, who also may be liable for contribution) to which the Company and the Operating Partnership, on the one hand, and the Agents, on the other hand, may be subject in such proportion as shall be appropriate to reflect the relative benefits received by the Company and the Operating Partnership on the one hand, and the Agents, on the other hand. The relative benefits received by the Company and the Operating Partnership, on the one hand, and the Agents, on the other hand shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company and the Operating Partnership bear to the sum of (i) the total compensation to the Agents pursuant to Section 1(a)(vii) (in the case of one or more Agency Transactions hereunder) and (ii)

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the underwriting discounts and commissions received by the Agents as set forth in the table on the cover page of the Prospectus (in the case of one or more Principal Transactions pursuant to Terms Agreements). If, but only if, the allocation provided by the foregoing sentence is not permitted by applicable law, the allocation of contribution shall be made in such proportion as is appropriate to reflect not only the relative benefits referred to in the foregoing sentence but also the relative fault of the Company and the Operating Partnership, on the one hand, and the Agents, on the other hand, with respect to the statements or omissions which resulted in such loss, claim, liability, expense or damage, or action in respect thereof, as well as any other relevant equitable considerations with respect to such offering. Such relative fault shall be determined by reference to whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company, the Operating Partnership or the Agents, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by an indemnified party as a result of the loss, claim, liability, expense or damage, or action in respect thereof, referred to above in this subsection (d) shall be deemed to include, for purpose of this subsection (d), any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (d), the Agents shall not be required to contribute any amount in excess of the sum of (i) the total compensation to the Agents pursuant to Section 1(a)(vii) (in the case of one or more Agency Transactions hereunder) and (ii) the underwriting discounts and commissions received by the Agents as set forth in the table on the cover page of the Prospectus (in the case of one or more Principal Transactions pursuant to Terms Agreements), and no person found guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this subsection (d), any person who controls a party to this Agreement within the meaning of the Act will have the same rights to contribution as that party, and each officer of the Company who signed the Registration Statement will have the same rights to contribution as the Company, subject in each case to the provisions hereof. Any party entitled to contribution, promptly after receipt of notice of commencement of any action against such party in respect of which a claim for contribution may be made under this subsection (d), will notify any such party from whom contribution may be sought, but the omission so to notify will not relieve the party from whom contribution may be sought from any other obligation it may have under this subsection (d). No party will be liable for contribution with respect to any action or claim settled without its written consent (which consent will not be unreasonably withheld).
(e)      Survival. The obligations of the Company and the Operating Partnership under this Section 5 shall be in addition to any liability which the Company and the Operating Partnership may otherwise have and shall extend, upon the same terms and conditions, to any affiliate of each Agent and each person, if any, who controls each Agent or any such affiliate within the meaning of the Act; and the obligations of the Agents under this Section 5 shall be in addition to any liability which it may otherwise have and shall extend, upon the same terms and conditions, to each officer and director of the Company and to each person, if any, who controls the Company within the meaning of the Act. The indemnity and contribution agreements contained in this Section 5 and the representations and warranties of the Company contained in this Agreement shall remain operative and in full force and effect regardless of (i) any investigation made by or on behalf of the

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Agents, (ii) acceptance of any of the Shares and payment therefor or (iii) any termination of this Agreement.
6.      Termination .
(a)      The Company may terminate this Agreement in its sole discretion at any time upon giving prior written notice to the Agents. Any such termination shall be without liability of any party to the other party, except that (i) with respect to any pending sale, the obligations of the Company, including, without limitation, in respect of compensation to the Agents, shall remain in full force and effect notwithstanding such termination; and (ii) the provisions of Sections 2, 3 (except that if no Shares have been previously sold hereunder or under any Terms Agreement, only Section 3(n)), 5 and 7(d) of this Agreement shall remain in full force and effect notwithstanding such termination. In the case of any sale by the Company pursuant to a Terms Agreement, the obligations of the Company pursuant to such Terms Agreement may not be terminated by the Company without the prior written consent of the Agents party to such Terms Agreement.
(b)      Each Agent may terminate this Agreement in its sole discretion at any time upon giving prior written notice to the Company. Any such termination shall be without liability of any party to the other party, except that (i) with respect to any pending sale, the obligations of the Company, including, without limitation, in respect of compensation of the Agents, shall remain in full force and effect notwithstanding such termination; and (ii) the provisions of Sections 2, 3 (except that if no Shares have been previously sold hereunder or under any Terms Agreement, only Section 3(n)), 5 and 7 of this Agreement shall remain in full force and effect notwithstanding such termination. In the case of any purchase by any of the Agents pursuant to a Terms Agreement, such Agent may, by written notice to the Company, terminate its obligations pursuant to such Terms Agreement at any time prior to or on the Settlement Date if, since the time of execution of the Terms Agreement or the respective dates as of which information is given in the Registration Statement and the Prospectus:
(i)      trading of any securities of the Company shall have been suspended on any exchange or in any over-the-counter market;
(ii)      trading generally shall have been suspended or limited on or by, as the case may be, any “national securities exchange” (as defined in the Exchange Act), or minimum or maximum prices shall have been generally established on any such exchange, or additional material governmental restrictions, not in force on the date of this Agreement, shall have been imposed upon trading in securities generally by any such exchange or by order of the Commission or any court or other governmental authority;
(iii)      a general banking moratorium shall have been declared by any of federal, New York or Delaware authorities;
(iv)      the United States shall have become engaged in new hostilities, there shall have been an escalation in hostilities involving the United States or there shall have been a declaration of a national emergency or war by the United States or there shall have occurred such a material adverse change in general economic, political or financial conditions, including, without

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limitation, as a result of terrorist activities after the date hereof (or the effect of international conditions on the financial markets in the United States shall be such), or any other calamity or crisis shall have occurred, the effect of any of which is such as to make it impracticable or inadvisable to market the Shares on the terms and in the manner contemplated by the Prospectus;
(v)      if the Company or any of the Subsidiaries shall have sustained a loss material or substantial to the Company or any of the Subsidiaries by reason of flood, fire, accident, hurricane, earthquake, theft, sabotage, or other calamity or malicious act, whether or not such loss shall have been insured, the effect of any of which is such as to make it impracticable or inadvisable to market the Shares on the terms and in the manner contemplated by the Prospectus; or
(vi)      if there shall have been a Material Adverse Change.
(c)      This Agreement shall remain in full force and effect until the earliest to occur of (i) termination of this Agreement pursuant to subsection (a) or (b) above or otherwise by mutual written agreement of the parties and (ii) such date that the aggregate gross sales proceeds of the Shares sold pursuant to this Agreement (including, without limitation, one or more Terms Agreements pursuant hereto) equals the Maximum Amount, in each case except that (x) with respect to any pending sale, the obligations of the Company, including, without limitation, in respect of compensation of the Agents, shall remain in full force and effect notwithstanding such termination; and (y) the provisions of Sections 2, 3 (except that if no Shares have been previously sold hereunder or under any Terms Agreement, only Section 3(n)), 5 and 7(j) of this Agreement shall remain in full force and effect notwithstanding such termination.
(d)      Any termination of this Agreement shall be effective on the date specified in the notice of termination; provided that such termination shall not be effective until the close of business on the date of receipt of such notice by the Agents or the Company, as the case may be. If such termination shall occur prior to the Settlement Date for any sale of Shares, such sale shall settle in accordance with the provisions of Section 1 (in the case of an Agency Transaction) or in accordance with the relevant Terms Agreement (in the case of a Principal Transaction).
7.      Miscellaneous .
(a)      Notices. Notice given pursuant to any of the provisions of this Agreement shall be in writing and, unless otherwise specified, shall be mailed, hand delivered or telecopied and, if to the Agents, shall be sufficient in all respects if delivered or sent to (i) BMO Capital Markets Corp., 3 Times Square, 25th Floor, New York, New York 10036, Attention: Equity Capital Markets Desk, with a copy to the Legal Department, Fax No. (212) 702-1205; BBVA Securities Inc., 1345 Avenue of the Americas, 44th Floor New York, New York 10105, Attention: US Capital Markets; B. Riley FBR, Inc., 299 Park Avenue, 21 st Floor, New York, New York 10171, Attention: General Counsel, Fax No. (212) 457-9947; Citizens Capital Markets, Inc., 600 Washington Blvd., 11th Floor, Stamford, Connecticut 06901, Attention: Equity Syndicate Department, Fax No. (203) 437-6913; KeyBanc Capital Markets Inc., 127 Public Square, 4th Floor, Cleveland, Ohio 44114, Attention: Equity Capital Markets, Fax No. (216) 689-0845; Ladenburg Thalmann & Co. Inc., 277 Park Ave., 26 th Floor, New York, New York 10172, Attention: Steven Kaplan, Managing Director, Fax No. (212) 409-2169; and SunTrust Robinson

34


Humphrey, Inc., 3333 Peachtree Road NE, 11th Floor, Atlanta, Georgia 30326, Attention: Equity Capital Markets, Fax No. (404) 926-5872; and, if to the Company or the Operating Partnership it shall be sufficient in all respects if delivered or sent to the Company at the offices of the Company at American Finance Trust, Inc., 405 Park Avenue, New York, New York 10022-4405, Attention: Legal Department, Fax No. (646) 861-7743. Any such notice shall be effective only upon receipt. Any notice under Section 5 may be made by telecopy or telephone, but if so made shall be subsequently confirmed in writing (which may include, in the case of the Agents, electronic mail to any Authorized Company Representative).
(b)      Recognition of U.S. Special Resolution Regimes. In the event that any Agent that is a Covered Entity becomes subject to a proceeding under a U.S. Special Resolution Regime, the transfer from such Agent of this Agreement, and any interest and obligation in or under this Agreement, will be effective to the same extent as the transfer would be effective under the U.S. Special Resolution Regime if this Agreement, and any such interest and obligation, were governed by the laws of the United States or a state of the United States. In the event that any Agent that is a Covered Entity or a BHC Act Affiliate of such Agent becomes subject to a proceeding under a U.S. Special Resolution Regime, Default Rights under this Agreement that may be exercised against such Agent are permitted to be exercised to no greater extent than such Default Rights could be exercised under the U.S. Special Resolution Regime if this Agreement were governed by the laws of the United States or a state of the United States. As used in this Section, the following terms have the respective meanings set forth below: (i) “BHC Act Affiliate” has the meaning assigned to the term “affiliate” in, and shall be interpreted in accordance with, 12 U.S.C. § 1841(k); (ii) “Covered Entity” means any of (x) a “covered entity” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 252.82(b), (y) a “covered bank” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 47.3(b), or (z) a “covered FSI” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 382.2(b); (iii) “Default Rights” has the meaning assigned to that term in, and shall be interpreted in accordance with, 12 C.F.R. §§ 252.81, 47.2 or 382.1, as applicable; and (iv) “U.S. Special Resolution Regime” means each of (x) the Federal Deposit Insurance Act of 1950, as amended, and the regulations promulgated thereunder and (y) Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, as amended, and the regulations promulgated thereunder.
(c)      No Third Party Beneficiaries. The Company and the Operating Partnership acknowledge and agree that each Agent is acting solely in the capacity of an arm’s length contractual counterparty to the Company and the Operating Partnership with respect to the offering of Shares contemplated hereby (including in connection with determining the terms of the offering) and not as a financial advisor or a fiduciary to, or an agent of, the Company or any other person. Additionally, the Agents are not advising the Company or any other person as to any legal, tax, investment, accounting or regulatory matters in any jurisdiction in connection with the transactions contemplated by this Agreement or any matters related thereto. The Company and the Operating Partnership shall consult with their own advisors concerning such matters and shall be responsible for making its own independent investigation and appraisal of the transactions contemplated hereby, and the Agents shall have no responsibility or liability to the Company with respect thereto. Any review by the Agents of the Company, the transactions contemplated hereby or other matters relating to such

35


transactions will be performed solely for the benefit of the Agents and shall not be on behalf of the Company and/or the Operating Partnership.
(d)      Survival of Representations and Warranties. All representations, warranties and agreements of the Company and the Operating Partnership contained herein or in certificates or other instruments delivered pursuant hereto (including, without limitation, any Terms Agreement) shall remain operative and in full force and effect regardless of any investigation made by or on behalf of the Agents or any of their controlling persons and shall survive delivery of and payment for the Shares hereunder.
(e)      Disclaimer of Fiduciary Relationship . The Company and the Operating Partnership acknowledge and agree that (i) the purchase and sale of the Shares pursuant to this Agreement, including the determination of the terms of the offering and any related discounts and commissions, is an arm’s-length commercial transaction between the Company and the Operating Partnership, on the one hand, and the Agents, on the other hand, (ii) in connection with the offering contemplated by this Agreement and the process leading to such transaction, each Agent owes no fiduciary duties to the Company, the Operating Partnership, or its securityholders, creditors, employees or any other party, (iii) each Agent has not assumed nor will it assume any advisory or fiduciary responsibility in favor of the Company with respect to the offering of the Shares contemplated by this Agreement or the process leading thereto (irrespective of whether any Agent or its affiliates has advised or is currently advising the Company on other matters) and no Agent had any obligation to the Company with respect to the offering of the Shares contemplated by this Agreement except the obligations expressly set forth in this Agreement, (iv) each Agent and its affiliates may be engaged in a broad range of transactions that involve interests that differ from those of the Company and (v) each Agent has not provided any legal, accounting, regulatory or tax advice with respect to the offering contemplated by this Agreement and the Company and the Operating Partnership have consulted their own legal, accounting, regulatory and tax advisors to the extent it deemed appropriate.
(f)      Adjustments for Stock Splits . The parties acknowledge and agree that all share related numbers contained in this Agreement shall be adjusted to take into account any stock split effected with respect to the Shares.
(g)      Governing Law. THIS AGREEMENT AND EACH TERMS AGREEMENT, AND ANY DISPUTE, CLAIM OR CONTROVERSY ARISING UNDER OR RELATED TO THIS AGREEMENT OR SUCH TERMS AGREEMENT, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE. Each party hereto hereby irrevocably submits for purposes of any action arising from this Agreement or any Terms Agreement brought by the other party hereto to the jurisdiction of the courts of New York State located in the Borough of Manhattan and the U.S. District Court for the Southern District of New York.
(h)      Counterparts . This Agreement and each Terms Agreement may be signed in two or more counterparts with the same effect as if the signatures thereto and hereto were upon the same instrument.

36


(i)      Survival of Provisions Upon Invalidity of Any Single Provision. In case any provision in this Agreement or any Terms Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
(j)      Waiver of Jury Trial. Each of the Company, the Operating Partnership and the Agents hereby irrevocably waives any right it may have to a trial by jury in respect of any claim based upon or arising out of this Agreement, any Terms Agreement or the transactions contemplated hereby or thereby.
(k)      Titles and Subtitles. The titles of the sections and subsections of this Agreement and any Terms Agreement are for convenience and reference only and are not to be considered in construing this Agreement or such Terms Agreement.
(l)      Entire Agreement. Other than the terms set forth in each Transaction Notice delivered hereunder and each Terms Agreement executed and delivered pursuant hereto, this Agreement embodies the entire agreement and understanding between the parties hereto and supersedes all prior agreements and understandings relating to the subject matter hereof. Neither this Agreement nor any Terms Agreement may be amended or otherwise modified or any provision hereof waived except by an instrument in writing signed by the Agents, the Operating Partnership and the Company.
(m)      Successors and Assigns . This Agreement shall be binding upon each Agent and the Company and the Operating Partnership and their successors and assigns and any successor or assign of any substantial portion of the Company’s and the Operating Partnership’s and each Agent’s respective business or assets.


37


Please confirm that the foregoing correctly sets forth the agreement between the Company, the Operating Partnership and the Agents.
 
 
Very truly yours,
 
 
 
AMERICAN FINANCE TRUST, INC.
 
 
 

 
By:
/s/ Edward M. Weil, Jr.
 
 
Name: Edward M. Weil, Jr.
 
 
Title: Chief Executive Officer and President
 
 
AMERICAN FINANCE OPERATING PARTNERSHIP, L.P.
 
 
 
 
 
 
 
By:
/s/ Edward M. Weil, Jr.
 
 
Name: Edward M. Weil, Jr.
 
 
Title: Chief Executive Officer and President


[Signature Page to the Equity Distribution Agreement]


Confirmed as of the date first above mentioned:

BMO CAPITAL MARKETS CORP.  


By:   /s/   Stephan Richford      
   Name: Stephan Richford  
   Title:  Managing Director
BBVA SECURITIES INC.  


By:   /s/ James A. Brodt      
   Name: James A. Brodt  
   Title:  Executive Director
B. RILEY FBR, INC.  

By:   /s/ Patrice McNicoll      
   Name: Patrice McNicoll  
   Title:  Co-Head of Investment Banking
CITIZENS CAPITAL MARKETS, INC.  

By:   /s/ Mark Sanko      
   Name: Mark Sanko  
   Title:  Managing Director
KEYBANC CAPITAL MARKETS INC.  


By:   /s/ John Harrison      
   Name: John Harrison  
   Title:  Managing Director
LADENBURG THALMANN & CO., INC.  

By:   /s/ Steve Kaplan      
   Name: Steve Kaplan  
   Title:  Head of Capital Markets
SUNTRUST ROBINSON HUMPHREY, INC.  

By:   /s/ Keith Carpenter      
   Name: Keith Carpenter  
   Title:  Director

 
 







Sch. 4-1


SCHEDULE 5
COMPENSATION

The Agents shall be paid compensation in an agreed-upon amount not to exceed 1.5% of the gross proceeds from the sale of Shares pursuant to the terms of this Agreement.



Sch. 5-1


EXHIBIT A
[Company Letterhead]

[_______], 20[__]
[•]
VIA EMAIL
TRANSACTION NOTICE
Ladies and Gentlemen:
The purpose of this Transaction Notice is to propose certain terms of the Agency Transaction entered into with [•] under, and pursuant to, that certain Equity Distribution Agreement between the American Finance Trust, Inc., a Maryland corporation (the “Company”), and American Finance Operating Partnership, L.P., a Delaware limited partnership (the “Operating Partnership”), BMO Capital Markets Corp., BBVA Securities Inc., B. Riley FBR, Inc., Citizens Capital Markets, Inc., KeyBanc Capital Markets Corp., Ladenburg Thalmann & Co. Inc. and SunTrust Robinson Humphrey, Inc. (each an “Agent” and collectively, the “Agents”), dated May [ ], 2019 (the “Agreement”). Please indicate your acceptance of the proposed terms below. Upon acceptance, the particular Agency Transaction to which this Transaction Notice relates shall supplement, form a part of, and be subject to, the Agreement. Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Agreement.
The terms of the particular Agency Transaction to which this Transaction Notice relates are as follows:
Trading Day(s) on which Shares may be Sold:
[_______], 20[__], [_______], 20[__] . . . [_______], 20[__]
Maximum Number of Shares
to be Sold in the Aggregate:
[_______]
Maximum Number of Shares
to be Sold on each Trading Day:
[_______]
Floor Price:
USD[__.__]
Compensation:
[_______]% of the gross proceeds from the sale of Shares
[ Remainder of Page Intentionally Blank ]

A-1


Very truly yours,

 
AMERICAN FINANCE TRUST, INC.
 
 
 
 
By:
 
 
 
Name:
 
 
Title:
 
 
AMERICAN FINANCE OPERATING PARTNERSHIP, L.P.
 
 
 
 
 
 
 
By:
 
 
 
Name:
 
 
Title:

Accepted and agreed as of
the date first above written:
[•]
By:______________________________
Name:
Title:



A-2


EXHIBIT B
[NAME OF COMPANY]
Class A Common Stock
TERMS AGREEMENT
[_______], 20[__]

[•]

Ladies and Gentlemen:
American Finance Trust, Inc., a Maryland corporation (the “Company”), proposes, subject to the terms and conditions stated herein, in the Schedule hereto and in the Equity Distribution Agreement, dated May [ ], 2019 (the “Equity Distribution Agreement”), between the Company and American Finance Operating Partnership, L.P., a Delaware limited partnership (the “Operating Partnership”), BMO Capital Markets Corp., BBVA Securities Inc., B. Riley FBR, Inc., Citizens Capital Markets, Inc., KeyBanc Capital Markets Corp., Ladenburg Thalmann & Co. Inc. and SunTrust Robinson Humphrey, Inc. (each an “Agent” and collectively, the “Agents”), to issue and sell to [•] [_______] shares of the Company’s Class A common stock, par value $[_.__] per share (the “Purchased Shares”) [, and, solely for the purpose of covering over-allotments, to grant to [•] the option to purchase an additional [_______] shares of such common stock (the “Additional Shares”)]. Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Agreement.
[[•] shall have the right to purchase from the Company all or a portion of the Additional Shares as may be necessary to cover over-allotments made in connection with the offering of the Purchased Shares at the same purchase price per share to be paid by [•] to the Company for the Purchased Shares. This option may be exercised by [•] at any time (but not more than once) on or before the thirtieth day following the date of this Terms Agreement, by written notice to the Company. Such notice shall set forth the aggregate number of Additional Shares as to which the option is being exercised, and the date and time when the Additional Shares are to be delivered (such date, the “Option Settlement Date”); provided , however , that the Option Settlement Date shall not be earlier than the Settlement Date (as set forth in the Schedule hereto) nor earlier than the second business day after the date on which the option shall have been exercised nor later than the fifth business day after the date on which the option shall have been exercised. Payment of the purchase price for the Additional Shares shall be made at the Option Settlement Date in the same manner and at the same office as the payment for the Purchased Shares.]
Each of the provisions of the Equity Distribution Agreement not specifically related to the solicitation by [•], as agent of the Company, of offers to purchase Shares in Agency Transactions is incorporated herein by reference in its entirety, and shall be deemed to be part of this Terms Agreement to the same extent as if such provisions had been set forth in full herein.

B-1


An amendment to the Registration Statement, or a supplement to the Prospectus, as the case may be, relating to the Purchased Shares [and the Additional Shares], in the form heretofore delivered to [•] is now proposed to be filed with the Securities and Exchange Commission.
Subject to the terms and conditions set forth herein and in the Schedule hereto and subject the terms and conditions of the Equity Distribution Agreement incorporated herein as provided in the second immediately preceding paragraph, the Company agrees to issue and sell to [•], and [•] agrees to purchase from the Company, the Purchased Shares at the time and place and at the purchase price set forth in the Schedule hereto.
[ Remainder of Page Intentionally Blank ]

B-2


If the foregoing is in accordance with your understanding, please sign and return to us a counterpart hereof, whereupon this Terms Agreement, including those provisions of the Equity Distribution Agreement incorporated herein by reference, shall constitute a binding agreement between [•] and the Company.
 
AMERICAN FINANCE TRUST, INC.
 
 
 
 
By:
 
 
 
Name:
 
 
Title:
 
 
AMERICAN FINANCE OPERATING PARTNERSHIP, L.P.
 
 
 
 
 
 
 
By:
 
 
 
Name:
 
 
Title:


Accepted and agreed as of
the date first above written:

[•]

By:_____________________________
Name:
Title:

B-3


Schedule to Terms Agreement
[Price to Public:
USD[__.__] per share]

Purchase Price by [•]:
USD[__.__] per share

Method of and Specified Funds for Payment of Purchase Price:
[By wire transfer to a bank account specified by the Company in same day funds.]

Method of Delivery:
[To [•]’s account, or the account of [•]’s designee, at The Depository Trust Company via DWAC in return for payment of the purchase price.]

Settlement Date:
[_______], 20[__]

Closing Location:
[_______]

Documents to be Delivered:

The following documents referred to in the Equity Distribution Agreement shall be delivered as a condition to the closing (which documents shall be dated on or as of the date of the Terms Agreement to which this Scheduled is annexed):
•
the officer’s certificate referred to in Section 4(c);

•
the legal opinions referred to in Section 4(d) and (e);

•
the “comfort letter” referred to in Section 4(f); and

•
such other documents as [•] shall reasonably request.

[Indemnity:
[_______]]

[Lockup:
In addition to, and without limiting the generality of, the covenant set forth in Section 3(q) of the Equity Distribution Agreement, [________].]



B-4




C-3-1



Exhibit 1.3
AMERICAN FINANCE TRUST, INC.
$50,000,000
Shares of 7.50% Series A Cumulative Redeemable Perpetual Preferred Stock
EQUITY DISTRIBUTION AGREEMENT
May 8, 2019
BMO Capital Markets Corp.
3 Times Square
New York, New York 10036

BBVA Securities Inc.
1345 Avenue of the Americas, 44 th Floor
New York, New York 10105

B. Riley FBR, Inc.
299 Park Avenue, 21st Floor
New York, New York 10171

Citizens Capital Markets, Inc.
600 Washington Blvd., 11th Floor
Stamford, Connecticut 06901

KeyBanc Capital Markets Inc.
127 Public Square, 11th Floor
Cleveland, Ohio 44114

Ladenburg Thalmann & Co. Inc.
277 Park Avenue, 26 th Floor
New York, New York 10172

SunTrust Robinson Humphrey, Inc.
3333 Peachtree Road NE, 11th Floor
Atlanta, Georgia 30326
Ladies and Gentlemen:
American Finance Trust, Inc., a Maryland corporation (the “Company”), and American Finance Operating Partnership, L.P., a Delaware limited partnership (the “Operating Partnership”),

1


each confirms its agreement (this “Agreement”) with BMO Capital Markets Corp., BBVA Securities Inc., B. Riley FBR, Inc., Citizens Capital Markets, Inc., KeyBanc Capital Markets Corp., Ladenburg Thalmann & Co. Inc. and SunTrust Robinson Humphrey, Inc. (each an “Agent” and collectively, the “Agents”), with respect to the issuance and sale from time to time by the Company of shares (the “Shares”) of the Company’s 7.50% Series A Cumulative Redeemable Perpetual Preferred Stock (“Preferred Stock”) having an aggregate offering price of up to $50,000,000 (the “Maximum Amount”) through or to the Agents, acting as sales agent or principal, on the terms and subject to the conditions set forth in this Agreement.
An “automatic shelf registration statement” (the “registration statement”) as defined in Rule 405 under the Securities Act of 1933, as amended, and the rules and regulations thereunder (collectively called the “Act”), on Form S-3 (File No. 333-226252) in respect of the Shares, including a form of prospectus, has been prepared and filed by the Company not earlier than three years prior to the date hereof, in conformity with the requirements of the Act, and the rules and regulations of the Securities and Exchange Commission (the “Commission”) thereunder (the “Rules and Regulations”). The registration statement contains, or incorporates by reference to documents that the Company has filed or will file in accordance with the provisions of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (collectively, the “Exchange Act”), certain information concerning the offering and sale of the Preferred Stock, including the Shares, and contains or incorporates by reference additional information concerning the Company and its business; the Commission has not issued an order preventing or suspending the use of the Basic Prospectus (as defined below), the Prospectus Supplement (as defined below), the Prospectus (as defined below) or any Permitted Free Writing Prospectus (as defined below), or the effectiveness of the Registration Statement, and no proceeding for that purpose or pursuant to Section 8A of the Act has been instituted or, to the Company’s or the Operating Partnership’s knowledge, threatened by the Commission. Except where the context otherwise requires, the term “Registration Statement” means the registration statement, as amended at the time of the registration statement’s effectiveness for purposes of Section 11 of the Act, as such section applies to the Agents, including (i) all documents filed as a part thereof or incorporated, or deemed to be incorporated, by reference therein and (ii) any information contained or incorporated by reference in a prospectus filed with the Commission pursuant to Rule 424(b) of the Rules and Regulations, to the extent such information is deemed, pursuant to Rule 430B or Rule 430C of the Rules and Regulations, to be part of the registration statement at the effective time. Except where the context requires, the term “Basic Prospectus” means the prospectus dated July 20, 2018, filed as part of the Registration Statement, including the documents incorporated by reference therein as of the date of such prospectus. Except where the context otherwise requires, the term “Prospectus Supplement” means the prospectus supplement relating to the Shares, to be filed by the Company with the Commission pursuant to Rule 424(b) of the Rules and Regulations on or before the second business day after the date hereof (or such earlier time as may be required under the Act), in the form furnished by the Company to the Agents in connection with the offering of the Shares. Except where the context otherwise requires, the term “Prospectus” means the Prospectus Supplement (and any additional prospectus supplement prepared in accordance with the last sentence of Section 3(cc) and filed in accordance with the provisions of Rule 424(b) of the Rules and Regulations), together with the Basic Prospectus attached to or used with the Prospectus Supplement. “Permitted Free Writing Prospectus” has the meaning set forth in Section 3(g). Any reference herein to the

2


Registration Statement, the Basic Prospectus, the Prospectus Supplement, the Prospectus and any Permitted Free Writing Prospectus shall, unless otherwise stated, be deemed to refer to and include the documents, if any, incorporated, or deemed to be incorporated, by reference therein (the “Incorporated Documents”), including, unless the context otherwise requires, the documents, if any, filed as exhibits to such Incorporated Documents. Any reference herein to the terms “amend,” “amendment” or “supplement” with respect to the Registration Statement, the Basic Prospectus, the Prospectus Supplement, the Prospectus or any Permitted Free Writing Prospectus shall, unless stated otherwise, be deemed to refer to and include the filing of any document under the Exchange Act on or after the initial effective date of the Registration Statement or the date of the Basic Prospectus, the Prospectus Supplement, the Prospectus or such Permitted Free Writing Prospectus, as the case may be, and deemed to be incorporated therein by reference.
In connection with any sale of Shares under this Agreement, the Company will contribute the net proceeds from the sale of the Shares to the Operating Partnership in exchange for units of limited partnership interest of the Operating Partnership designated as “7.50% Series A Cumulative Redeemable Perpetual Preferred Units” (the “Preferred Units”).
The Company and the Operating Partnership each confirm their agreement with the Agents as follows:
1. Sale and Delivery of the Shares .
(a)      Agency Transactions. On the basis of the representations, warranties and agreements of the Company and the Operating Partnership herein contained, but subject to the terms and conditions herein set forth, the Company and each Agent agree that the Company may issue and sell through each Agent, acting as sales agent for the Company, the Shares (an “Agency Transaction”) as follows:
(i)      The Company may, from time to time, propose to such Agent the terms of an Agency Transaction by means of a telephone call confirmed promptly by electronic mail in a form substantially similar to Exhibit A hereto (an “Agency Transaction Notice”) from any of the individuals listed as authorized representatives of the Company on Schedule 1 hereto (each, an “Authorized Company Representative”), such proposal to include: the trading day(s) for The Nasdaq Global Select Market (“Nasdaq”) (which may not be a day on which Nasdaq is scheduled to close prior to its regular weekday closing time) on which the Shares are to be sold (each, a “Trading Day”); the maximum number of Shares that the Company wishes to sell in the aggregate and on each Trading Day; and the minimum price at which the Company is willing to sell the Shares (the “Floor Price”).
(ii)      If such proposed terms for an Agency Transaction are acceptable to such Agent, it shall confirm the terms by countersigning the Agency Transaction Notice for such Agency Transaction and emailing it to an Authorized Company Representative.
(iii)      Subject to the terms and conditions hereof, such Agent shall use its commercially reasonable efforts to sell all of the Shares designated in, and subject to the terms of, such Agency Transaction Notice. The Agents shall not sell any Share at a price lower than the Floor

3


Price. The Company and the Operating Partnership acknowledge and agree with the Agents that (x) there can be no assurance that any Agents will be successful in selling all or any of such Shares, (y) no Agent will incur any liability or obligation to the Company or any other person or entity if it does not sell any Shares for any reason and (z) each Agent shall be under no obligation to purchase any Shares on a principal basis pursuant to this Agreement except in the case of a Principal Transaction (as defined below) pursuant to this Agreement and the relevant Terms Agreement (as defined below).
(iv)      The Company, acting through an Authorized Company Representative, or an Agent may, upon notice to the other party hereto by telephone (confirmed promptly by electronic mail), suspend an offering of Shares (including for Shares that have been sold but have not yet settled) pursuant to an Agency Transaction; provided , however , that such suspension shall not affect or impair the parties’ respective obligations with respect to the Shares sold hereunder prior to the giving of such notice.
(v)      If the terms of any Agency Transaction as set forth in an Agency Transaction Notice contemplate that the Shares shall be sold on more than one Trading Day, then the Company and such Agent shall mutually agree to such additional terms and conditions as they deem necessary in respect of such multiple Trading Days, and such additional terms and conditions shall be binding to the same extent as any other terms contained in the relevant Agency Transaction Notice.
(vi)      Each Agent, as sales agent in an Agency Transaction, shall not make any sales of the Shares on behalf of the Company, pursuant to this Agreement, other than (x) by means of ordinary brokers’ transactions that qualify for delivery of the Prospectus in accordance with Rule 153 of the Rules and Regulations and meet the definition of an “at the market offering” under Rule 415(a)(4) of the Rules and Regulations and (y) such other sales of the Shares on behalf of the Company in its capacity as agent of the Company as shall be agreed by the Company and such Agent in writing.
(vii)      The amount of any discount, commission or other compensation to be paid by the Company to the Agents in connection with the sale of the Shares in an Agency Transaction shall be calculated in accordance with the terms set forth in Schedule 5 hereto and the applicable Agency Transaction Notice. Each Agent shall provide written confirmation to the Company (which may be provided by email to an Authorized Company Representative) following the close of trading on Nasdaq on each Trading Day on which Shares are sold in an Agency Transaction under this Agreement, setting forth (i) the number of Shares sold on such Trading Day, (ii) the gross offering proceeds received from such sales, (iii) the commission payable by the Company to the Agents with respect to such sales and (iv) the net offering proceeds (being the gross offering proceeds for such sales less the commission payable for such sales) (the “Net Offering Proceeds”).
(viii)      Settlement for sales of the Shares in an Agency Transaction pursuant to this Agreement shall occur on the second Trading Day (or such earlier day as is industry practice for regular-way trading) following the date on which such sales are made (each such day, an “Agency Settlement Date”). On each Agency Settlement Date, the Shares sold through such Agent in Agency

4


Transactions for settlement on such date shall be issued and delivered by the Company to such Agent against payment by the Agent to the Company of the Net Offering Proceeds from the sale of such Shares. Settlement for all such Shares shall be effected by free delivery of the Shares by the Company or its transfer agent to such Agent’s or its designee’s account ( provided that such Agent shall have given the Company written notice of such designee prior to the relevant Agency Settlement Date) at The Depository Trust Company or by such other means of delivery as may be mutually agreed upon by the parties hereto, which in all cases shall be freely tradable, transferable, registered shares of Preferred Stock in good deliverable form, in return for payment in same-day funds delivered to the account designated by the Company. If the Company, or its transfer agent (if applicable), shall default on its obligation to deliver the Shares on any Agency Settlement Date, the Company shall (i) hold such Agent harmless against any loss, claim, damage, or expense (including, without limitation, reasonable legal fees and expenses), as incurred, arising out of or in connection with such default by the Company and (ii) pay such Agent any commission, discount or other compensation to which it would otherwise be entitled absent such default.
(ix)      The Company agrees that any offer to sell Shares, any solicitation of an offer to buy Shares, or any sales of Shares shall only be effected by or through only one Agent on any single given day, but in no event by more than one, and the Company shall in no event request that multiple Agents sell Shares on the same day.
(b)      Principal Transactions. If the Company wishes to issue and sell the Shares in a transaction pursuant to this Agreement in which an Agent would act as principal in connection with any offer and sale of Shares and not an agent as set forth in subsection (a) of this Section 1 (each, a “Principal Transaction”), the Company will notify an Agent of the proposed terms of such Principal Transaction. If such Agent, acting as principal, wishes to accept such proposed terms (which it may decline to do for any reason in its sole discretion) or, following discussions with the Company, wishes to accept amended terms, such Agent and the Company will enter into an agreement in substantially the form of Exhibit B hereto (each, a “Terms Agreement”) that sets forth the terms of such Principal Transaction, including, without limitation, the time, date and place of delivery of and payment for the Shares to be sold pursuant to such Principal Transaction (each of such date and each Agency Settlement Date, a “Settlement Date”). The terms set forth in a Terms Agreement shall not be binding on the Company or such Agent unless and until each of the Company and such Agent has executed such Terms Agreement accepting all of such terms. The commitment of such Agent to purchase the Shares pursuant to any Terms Agreement shall be deemed to have been made on the basis of the representations and warranties of the Company herein contained and shall be subject to the terms and conditions herein set forth. In the event of a conflict between the terms of this Agreement and the terms of any Terms Agreement, the terms of such Terms Agreement shall control.
(c)      Maximum Number of Shares. Under no circumstances shall the Company propose to the Agents, or the Agents effect, a sale of Shares in an Agency Transaction or a Principal Transaction pursuant to this Agreement if such sale would (i) cause the aggregate gross sales proceeds of the Shares sold pursuant to this Agreement to exceed the Maximum Amount, (ii) cause the number of Shares sold to exceed the number of shares of Preferred Stock available for offer and sale under the then effective Registration Statement or (iii) cause the number of Shares sold pursuant

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to this Agreement to exceed the number of Shares authorized from time to time to be issued and sold pursuant to this Agreement by the Company’s board of directors, or a duly authorized committee thereof, and notified to the Agents in writing.
(d)      Regulation M. If either party hereto has reason to believe that the exemptive provisions set forth in Rule 101(c)(1) of Regulation M under the Exchange Act are not satisfied with respect to the Company or the Shares, it shall promptly notify the other party and sales of Shares under this Agreement shall be suspended until that or other exemptive provisions have been satisfied in the judgment of each party hereto.
(e)      Black-out Periods. Notwithstanding any other provision of this Agreement, no sales of Shares shall take place, the Company shall not request the sales of any Shares that would be sold and the Agents shall not be obligated to sell or offer to sell any Shares, during any period in which the Company’s insider trading or similar policy, as it exists on the date of this Agreement, would prohibit the purchase or sale of Preferred Stock by persons subject to such policy, or during any other period in which the Company is, or could be deemed to be, in possession of material non-public information with respect to the Company.
(f)      Continuing Accuracy of Representations and Warranties. Any obligation of the Agents to use their commercially reasonable efforts to sell the Shares on behalf of the Company as sales agents shall be subject to the continuing accuracy of the representations and warranties of the Company herein, to the performance by the Company of its obligations hereunder and to the continuing satisfaction of the conditions specified in Section 4 of this Agreement.
2.      Representations and Warranties of the Company and the Operating Partnership . The Company and the Operating Partnership, jointly and severally, represent and warrant to and agree with each Agent that:
(a)      Effectiveness of Registration. The Registration Statement and any post-effective amendment thereto have become effective. The Company has responded to all requests, if any, of the Commission for additional or supplemental information. No stop order suspending the effectiveness of the Registration Statement is in effect and no proceedings for such purpose have been instituted or are pending or, to the best knowledge of the Company or the Operating Partnership, are contemplated or threatened by the Commission. (i) At the time of filing the Registration Statement, (ii) at the time of the most recent amendment thereto for purposes of complying with Section 10(a)(3) of the Act (whether such amendment was by filing of a post-effective amendment, incorporated report filed pursuant to Section 13 or 15(d) of the Exchange Act or a form of prospectus) and (iii) at the time the Company or any person acting on its behalf (within the meaning, for this clause only, of Rule 163(c) of the Rules and Regulations) made any offer relating to the Shares in reliance on the exemption of Rule 163 of the Rules and Regulations, the Company was and is a “well-known seasoned issuer” as defined in Rule 405 of the Rules and Regulations. The Registration Statement is an “automatic shelf registration statement” as defined in Rule 405 of the Rules and Regulations, and the Shares, since their registration on the Registration Statement, have been and remain eligible for registration by the Company on an “automatic shelf registration statement.” The Company has not received from the Commission any notice pursuant to Rule 401(g)(2) of the Rules and Regulations objecting to use of the automatic shelf registration

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statement form and the Company has not otherwise ceased to be eligible to use the automatic shelf registration statement form.
(b)      Accuracy of the Registration Statement, the Prospectus and any Permitted Free Writing Prospectus. (i) At the respective times the Registration Statement and any post-effective amendment thereto became effective, (ii) at each deemed effective date with respect to the Agents pursuant to Rule 430B(f)(2) under the Act, (iii) as of each Time of Sale (as defined below), (iv) at each Settlement Date and (v) at all times during such period as the Prospectus is required by law to be delivered (whether physically, deemed to be delivered pursuant to Rule 153 or through compliance with Rule 172 of the Rules and Regulations or any similar rule) in connection with sales of the Shares (the “Prospectus Delivery Period”), the Registration Statement complied and will comply in all material respects with the Act and the Rules and Regulations, and did not and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. As of each Time of Sale and each Settlement Date and at all times during the Prospectus Delivery Period, the Prospectus, as amended or supplemented, complied and will comply in all material respects with the Act and the Rules and Regulations, and, together with all Permitted Free Writing Prospectuses, if any, did not and will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The Basic Prospectus (including any amendment thereto) complied when so filed in all material respects with the Rules and Regulations, and the Prospectus (including the Basic Prospectus included therein) delivered to the Agents for use in connection with the transactions contemplated by this Agreement is identical to the electronically transmitted copy thereof filed with the Commission on EDGAR, except to the extent permitted by Regulation S-T. The foregoing representations and warranties in this Section 2(b) do not apply to any statements contained in the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus in reliance upon and in conformity with information relating to any Agent and furnished in writing to the Company by or on behalf of such Agent specifically for inclusion in the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus (or any amendment or supplement thereto), which constitutes the information set forth in Schedule 2 hereto. “Time of Sale” means, (i) with respect to an Agency Transaction, the time of such Agent’s initial entry into contracts with investors for the sale of such Shares and (ii) with respect to a Principal Transaction, the time of sale of such Shares.
(c)      Documents Incorporated by Reference. The Incorporated Documents, at the time they were or hereafter are filed with the Commission, conformed and will conform in all material respects to the requirements of the Act or the Exchange Act, as applicable, and, when read together with the other information in the Prospectus, at the time the Registration Statement and any amendments thereto become effective, as of each Time of Sale and each Settlement Date and at all times during the Prospectus Delivery Period, will not contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.
(d)      Company Not Ineligible Issuer . (i) At the time of filing the Registration Statement, (ii) at the earliest time that the Company or another offering participant made a bona

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fide offer (within the meaning of Rule 164(h)(2) of the Rules and Regulations) of the Shares and (iii) at the date hereof, the Company was not and is not an “ineligible issuer” (as defined in Rule 405 of the Rules and Regulations).
(e)      Free Writing Prospectuses. Prior to the execution of this Agreement, the Company has not, directly or indirectly, offered or sold any Shares by means of any “prospectus” or “free writing prospectus” (in each case within the meaning of the Act) or used any “prospectus” or “free writing prospectus” (in each case within the meaning of the Act) in connection with the offer or sale of the Shares, and from and after the execution of this Agreement, the Company will not, directly or indirectly, offer or sell any Shares by means of any “prospectus” or “free writing prospectus” (in each case within the meaning of the Act) or use any “prospectus” or “free writing prospectus” (in each case within the meaning of the Act) in connection with the offer or sale of the Shares, other than the Prospectus, as amended or supplemented from time to time in accordance with the provisions of this Agreement, and any Permitted Free Writing Prospectuses; the Company has not, directly or indirectly, prepared, used or referred to any Permitted Free Writing Prospectus except in compliance with Rule 163 or with Rules 164 and 433 under the Act; assuming that any such Permitted Free Writing Prospectus is so sent or given after the Registration Statement was filed with the Commission (and after such Permitted Free Writing Prospectus was, if required pursuant to Rule 433(d) under the Act, filed with the Commission), the sending or giving, by each Agent, of any Permitted Free Writing Prospectus will satisfy the provisions of Rule 164 or Rule 433 (without reliance on subsections (b), (c) and (d) of Rule 164); the conditions set forth in one or more of subclauses (i) through (iv), inclusive, of Rule 433(b)(1) under the Act are satisfied, and the Registration Statement relating to the offering of the Shares contemplated hereby, as initially filed with the Commission, includes a prospectus that, other than by reason of Rule 433 or Rule 431 under the Act, satisfies the requirements of Section 10 of the Act; the Company is not disqualified, by reason of subsection (f) or (g) of Rule 164 under the Act, from using, in connection with the offer and sale of the Shares, “free writing prospectuses” (as defined in Rule 405 under the Act) pursuant to Rules 164 and 433 under the Act; the Company is not an “ineligible issuer” (as defined in Rule 405 under the Act) as of the eligibility determination date for purposes of Rules 164 and 433 under the Act with respect to the offering of the Shares contemplated by the Registration Statement.
(f)      Reserved for Future Issuance . The Company has reserved for future issuance, and will keep available at all times, a sufficient number of shares of Class A common stock, $0.01 par value per share (the “Common Stock”), to be issued upon conversion of the shares of Preferred Stock then outstanding and the shares of Common Stock when issued upon conversion and surrender of such shares of Preferred Stock in accordance with the New Articles Supplementary (as defined below) will be validly issued, fully paid and non-assessable, will have been issued in compliance with all applicable state and federal securities laws and will not have been issued in violation of or subject to any preemptive, first refusal or similar right.
(g)      Articles Supplementary. The Articles Supplementary, dated as of March 22, 2019, set forth the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption of the Preferred Stock and reflect the classification of 1,380,000 shares as shares of Preferred Stock. The new Articles

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Supplementary classify 2,000,000 additional shares of authorized but unissued preferred stock, $0.01 par value per share, of the Company as additional shares of Preferred Stock (the “ New Articles Supplementary ”). The New Articles Supplementary will have been filed with the State Department of Assessments and Taxation of Maryland (the “ SDAT ”), will have become effective under the Maryland General Corporation Law (the “ MGCL ”) and will comply with all applicable requirements under the MGCL on or prior to any sale under this Agreement.
(h)      Operating Partnership Agreement Amendment . The Second Amendment, dated as of March 22, 2019, to the Second Amended and Restated Agreement of Limited Partnership of the Operating Partnership, dated as of July 19, 2018 (as amended from time to time, the “ Operating Partnership Agreement ”), sets forth the designations, preferences and other rights and terms of the Preferred Units. An amendment to the Operating Partnership Agreement increasing the number of authorized Preferred Units (the “ Operating Partnership Agreement Amendment ”) will be, prior to any sale under this Agreement, duly authorized, executed and delivered. The Company, as the sole general partner of the Operating Partnership, will duly authorize, execute and deliver the Operating Partnership Agreement Amendment.
(i)      Due Incorporation; Subsidiaries . (i) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Maryland, with full corporate power and authority to own, lease and operate its properties and conduct its business as described in the Registration Statement, the Prospectus and the Permitted Free Writing Prospectuses, if any, and, in the case of the Company and the Operating Partnership, to execute and deliver this Agreement and to issue, sell and deliver the Shares as contemplated herein; (ii) the Company is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction where the ownership or leasing of its properties or the conduct of its business requires such qualification, except where the failure to be so qualified and in good standing would not, individually or in the aggregate, (A) have a material adverse effect on the business, properties, financial condition, results of operations or prospects of the Company and the Subsidiaries (as defined below) taken as a whole, (B) prevent or materially interfere with consummation of the transactions contemplated hereby or (C) result in the delisting of shares of Preferred Stock from Nasdaq (the occurrence of any such effect or any such prevention or interference or any such result described in the foregoing clauses (A), (B) and (C) being herein referred to as a “Material Adverse Effect”); and (iii) as of the date of this Agreement, the Company has no subsidiaries (as defined under the Act) other than those subsidiaries listed on Schedule 4 hereto (collectively, the “Subsidiaries”).
(j)      Capitalization. The authorized, issued and outstanding capital stock, including the Preferred Stock, of the Company is as set forth in the Registration Statement and the Prospectus. The Shares have been duly and validly authorized and, when issued and delivered against payment therefor as provided herein, will be duly and validly issued, fully paid and non-assessable and free of statutory and contractual preemptive rights, first refusal rights or similar rights; the Shares, when issued and delivered against payment therefor as provided herein, will be free of any restriction upon the voting or transfer thereof pursuant to the Company’s charter or bylaws or any agreement or other instrument to which the Company is a party other than the restrictions on ownership and transfer set forth in the Company’s charter. All of the other issued

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and outstanding shares of capital stock, including the Common Stock, have been duly authorized and validly issued and are fully paid and non-assessable, have been issued in compliance with all applicable securities laws and were not issued in violation of any preemptive right, resale right, right of first refusal or similar right. The capital stock of the Company, including the Shares, conforms in all material respects to each description thereof, if any, contained or incorporated by reference in the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus; and the certificates for the Shares, if any have been issued, are in due and proper form. The description of the Preferred Stock included or incorporated by reference in the Registration Statement and the Prospectus is complete and accurate in all material respects. Except as described in the Registration Statement and the Prospectus, the Company does not have outstanding any options to purchase, or any rights or warrants to subscribe for, or any securities or obligations convertible into, or any contracts or commitments to issue or sell, any shares of capital stock of the Company or of any subsidiary of the Company or any such warrants, convertible securities or obligations. All of the issued and outstanding shares of capital stock of the Company have been duly authorized and validly issued and are fully paid and non-assessable, have been issued in compliance with all applicable securities laws and were not issued in violation of any preemptive right, resale right, right of first refusal or similar right; the Shares are duly listed, and admitted and authorized for trading, subject to official notice of issuance, on Nasdaq.
(k)      Financial Statements. The financial statements included or incorporated by reference in the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus, together with the related notes and schedules, present fairly the consolidated financial position of the Company and the Subsidiaries as of the dates indicated and the consolidated results of operations, cash flows and changes in stockholders’ equity of the Company and the Subsidiaries for the periods specified and have been prepared in compliance with the applicable requirements of the Act and Exchange Act and in conformity with U.S. generally accepted accounting principles (“GAAP”) applied on a consistent basis during the periods involved; all pro forma financial statements or data, if any, included or incorporated by reference in the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus comply with the applicable requirements of the Act and the Exchange Act, and the assumptions used in the preparation of such pro forma financial statements and data are reasonable, the pro forma adjustments used therein are appropriate to give effect to the transactions or circumstances described therein and the pro forma adjustments have been properly applied to the historical amounts in the compilation of those statements and data; the other financial and statistical data contained or incorporated by reference in the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus are accurately and fairly presented and prepared on a basis consistent with the financial statements and books and records of the Company and the Subsidiaries; there are no financial statements (historical or pro forma) that are required to be included or incorporated by reference in the Registration Statement or the Prospectus that are not included or incorporated by reference as required; neither the Company nor any of the Subsidiaries has any material liabilities or obligations, direct or contingent (including any off-balance sheet obligations), required to be disclosed in the Registration Statement, not described in the Registration Statement (excluding the exhibits thereto) and the Prospectus; and all disclosures contained or incorporated by reference in the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus regarding “non-GAAP financial measures” (as such term is defined by the

10


rules and regulations of the Commission) comply with Regulation G of the Exchange Act and Item 10 of Regulation S-K under the Act, to the extent applicable.
(l)      Independent Accountants. KPMG LLP, whose report on the consolidated financial statements of the Company and the Subsidiaries is included or incorporated by reference in the Registration Statement and the Prospectus, are independent registered public accountants as required by the Act and by the rules of the Public Company Accounting Oversight Board. PricewaterhouseCoopers LLP are independent registered public accountants as required by the Act and by the rules of the Public Company Accounting Oversight Board.
(m)      No Material Adverse Effect. Subsequent to the respective dates as of which information is given in the Registration Statement, the Prospectus and the Permitted Free Writing Prospectuses, if any, there has not been (i) any material adverse change, or any development involving a prospective material adverse change, in the business, properties, management, financial condition or results of operations or prospects of the Company and the Subsidiaries taken as a whole, (ii) any transaction which is material to the Company and the Subsidiaries taken as a whole, (iii) any obligation or liability, direct or contingent (including any off-balance sheet obligations), incurred by the Company or any Subsidiary, which is material to the Company and the Subsidiaries taken as a whole, (iv) any material change in the capital stock or outstanding indebtedness of the Company or any Subsidiaries or (v) any dividend or other distribution of any kind declared, paid or made on the capital stock of the Company or any Subsidiary; except in each case as otherwise disclosed in the Registration Statement and the Prospectus, and except as would not, individually or in the aggregate, have a Material Adverse Effect.
(n)      Investment Company. Neither the Company nor any Subsidiary is, and at no time during which a prospectus is required by the Act to be delivered (whether physically or through compliance with Rule 172 under the Act or any similar rule) in connection with any sale of Shares will any of them be, and, after giving effect to the offering and sale of the Shares, neither of them will be, an “investment company” or an entity “controlled” by an “investment company,” as such terms are defined in the Investment Company Act of 1940, as amended.
(o)      Litigation. There are no actions, suits, claims, investigations or proceedings pending or, to the Company’s or the Operating Partnership’s knowledge, threatened, to which the Company or any of the Subsidiaries or any of their respective directors or officers is or would be a party or of which any of their respective properties is or would be subject at law or in equity, before or by any federal, state, local or foreign governmental or regulatory commission, board, body, authority or agency, or before or by any self-regulatory organization or other nongovernmental regulatory authority (including, without limitation, Nasdaq), except any such action, suit, claim, investigation or proceeding which, if resolved adversely to the Company or any Subsidiary, would not, individually or in the aggregate, have a Material Adverse Effect.
(p)      Necessary Licenses, Compliance with Laws and Regulations and Performance of Obligations and Contracts. Each of the Company and the Subsidiaries has all necessary licenses, authorizations, consents and approvals and has made all necessary filings required under any applicable law, regulation or rule, and has obtained all necessary licenses, authorizations, consents and approvals from other persons, in order to conduct their respective

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businesses, except where failure to obtain or maintain such licenses, authorizations, consents or approvals or make such filings would not, individually or in the aggregate, have a Material Adverse Effect; neither the Company nor any of the Subsidiaries is in violation of, or in default under, or has received notice of any proceedings relating to revocation or modification of, any such license, authorization, consent or approval or any federal, state, local or foreign law, regulation or rule or any decree, order or judgment applicable to the Company or any of the Subsidiaries, except where such violation, default, revocation or modification would not, individually or in the aggregate, have a Material Adverse Effect. The execution, delivery and performance of this Agreement, the issuance and sale of the Shares and the consummation of the transactions contemplated hereby will not conflict with, result in any breach or violation of or constitute a default under (nor constitute any event which, with notice, lapse of time or both, would result in any breach or violation of, constitute a default under or give the holder of any indebtedness (or a person acting on such holder’s behalf) the right to require the repurchase, redemption or repayment of all or a part of such indebtedness under) (or result in the creation or imposition of a lien, charge or encumbrance on any property or assets of the Company or any Subsidiary pursuant to) (i) the charter or bylaws, the limited liability company agreements, the partnership agreements or other organizational documents of the Company or any of the Subsidiaries, or (ii) any indenture, mortgage, deed of trust, bank loan or credit agreement or other evidence of indebtedness, or any license, lease, contract or other agreement or instrument to which the Company or any of the Subsidiaries is a party or by which any of them or any of their respective properties may be bound or affected, or (iii) any federal, state, local or foreign law, regulation or rule, or (iv) any rule or regulation of any self-regulatory organization or other non-governmental regulatory authority (including, without limitation, the rules and regulations of Nasdaq), or (v) any decree, judgment or order applicable to the Company or any of the Subsidiaries or any of their respective properties, except for any of the foregoing in (ii), (iii), (iv) or (v) as would not, individually or in the aggregate, have a Material Adverse Effect.
(q)      No Consent of Governmental Body Needed. No approval, authorization, consent or order of or filing with any federal, state, local or foreign governmental or regulatory commission, board, body, authority or agency, or of or with any self-regulatory organization or other non-governmental regulatory authority (including, without limitation, Nasdaq), or approval of the stockholders of the Company, is required in connection with the issuance and sale of the Shares or the consummation by the Company and the Operating Partnership of the transactions contemplated hereby, other than (i) registration of the Shares under the Act and filing of the New Articles Supplementary with the SDAT, which has been or will be effected, (ii) any necessary notice or qualification under the securities or blue sky laws of the various jurisdictions in which the Shares are being offered by the Agents or (iii) under the Conduct Rules of the Financial Industry Regulatory Authority, Inc. (“FINRA”).
(r)      Agreement Duly Authorized and No Breach of Obligations or Charter. The Company and the Operating Partnership have full power and authority to enter into this Agreement. This Agreement has been duly authorized, executed and delivered by the Company and the Operating Partnership. This Agreement constitutes a valid and binding agreement of the Company and the Operating Partnership and is enforceable against the Company and the Operating Partnership in accordance with its terms, except as the enforceability hereof and thereof may be limited by applicable bankruptcy, insolvency, reorganization and similar laws affecting creditors’ rights

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generally and moratorium laws in effect from time to time and by equitable principles restricting the availability of equitable remedies. Neither the Company nor any of the Subsidiaries is in breach or violation of or in default under (nor has any event occurred which, with notice, lapse of time or both, would result in any breach or violation of, constitute a default under or give the holder of any indebtedness (or a person acting on such holder’s behalf) the right to require the repurchase, redemption or repayment of all or a part of such indebtedness under) (i) its charter or bylaws, or (ii) any indenture, mortgage, deed of trust, bank loan or credit agreement or other evidence of indebtedness, or any license, lease, contract or other agreement or instrument to which it is a party or by which it or any of its properties may be bound or affected, or (iii) any federal, state, local or foreign law, regulation or rule, or (iv) any rule or regulation of any self-regulatory organization or other non-governmental regulatory authority (including, without limitation, the rules and regulations of Nasdaq), or (v) any decree, judgment or order applicable to it or any of its properties, except for any of the foregoing in (ii), (iii), (iv) or (v) as would not, individually or in the aggregate, have a Material Adverse Effect.
(s)      Title to Real and Personal Property. The Company and each of the Subsidiaries have good and marketable title to all property (real and personal) described in the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus as being owned by any of them, free and clear of all liens, claims, security interests or other encumbrances; all the property described in the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus as being held under lease by the Company or a Subsidiary is held thereby under valid, subsisting and enforceable leases.
(t)      Documents Described in Registration Statement. Except as described in the Registration Statement and Prospectus, neither the Company nor any Subsidiary has sent or received any communication regarding termination of, or intent not to renew, any of the contracts or agreements referred to or described in the Prospectus or any Permitted Free Writing Prospectus, or referred to or described in, or filed as an exhibit to, the Registration Statement or any Incorporated Document, and no such termination or non-renewal has been threatened by the Company or any Subsidiary or, to the Company’s or the Operating Partnership’s knowledge, any other party to any such contract or agreement.
(u)      No Untrue Statement; Statistical and Market Data. All statistical or market-related data included or incorporated by reference in the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus are based on or derived from sources that the Company believes to be reliable and accurate, and the Company has obtained the written consent to the use of such data from such sources to the extent required.
(v)      No Price Stabilization or Manipulation. Neither the Company nor any of its directors, officers or controlling persons has taken, directly or indirectly, any action intended to cause or result in, or which might reasonably be expected to cause or result in, or which has constituted, stabilization or manipulation, under the Act or otherwise, of the price of any security of the Company to facilitate the sale or resale of the Shares.
(w)      No Registration Rights. Except as described in the Registration Statement (excluding the exhibits thereto) and the Prospectus, (i) no person has the right, contractual

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or otherwise, to cause the Company to issue or sell to it any shares of Preferred Stock or shares of any other capital stock or other equity interests of the Company, (ii) no person has any preemptive rights, resale rights, rights of first refusal or other rights to purchase any shares of Preferred Stock or shares of any other capital stock of or other equity interests in the Company and (iii) no person has the right to act as an underwriter, agent, financial advisor to the Company or in any similar capacity in connection with the offer and sale of the Shares; no person has the right, contractual or otherwise, to cause the Company to register under the Act any shares of Preferred Stock or shares of any other capital stock of or other equity interests in the Company, or to include any such shares or interests in the Registration Statement or any offering contemplated thereby.
(x)      No Affiliations. To the Company’s and the Operating Partnership’s knowledge, there are no affiliations or associations between (i) any member of the FINRA and (ii) the Company or any of the Company’s officers, directors or 5% or greater security holders or any beneficial owner of the Company’s unregistered equity securities that were acquired at any time on or after the 180th day immediately preceding the date the Registration Statement was initially filed with the Commission.
(y)      No Similar Arrangements. The Company has not entered into any other sales agency or distribution agreements or similar arrangements with any agent or other representative similar in nature to the equity shelf program established by this Agreement for the offer and sale of shares of Preferred Stock.
(z)      Taxes. All income and other material foreign, federal, state and local tax returns that are filed or required to be filed by the Company or any of the Subsidiaries have been timely filed (taking into account any extension of time within which to file such tax returns), and all such returns are true, complete and accurate in all material respects. All material foreign, federal, state and local taxes and other assessments of a similar nature (whether imposed directly or through withholding) including any interest, additions to tax or penalties applicable thereto due or claimed to be due from such entities have been timely paid, other than those being contested in good faith which have not been finally determined and for which adequate reserves have been provided in accordance with GAAP, or that would not be required to be disclosed in the Registration Statement.
(aa)      Insurance. The Company and each of the Subsidiaries maintain insurance covering their respective properties, operations, personnel and businesses as the Company reasonably deems adequate; such insurance insures against such losses and risks to an extent which is adequate in accordance with customary industry practice to protect the Company and the Subsidiaries and their respective businesses; all such insurance is fully in force on the date hereof and will be fully in force at each Time of Sale and Settlement Date; neither the Company nor any Subsidiary has reason to believe that it will not be able to renew any such insurance as and when such insurance expires. Neither the Company nor any of the Subsidiaries has sustained since the date of the last audited consolidated financial statements of the Company included or incorporated by reference in the Registration Statement and the Prospectus any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, except as would not, individually or in the aggregate, be expected to have a Material Adverse Effect.

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(bb)      Defined Benefit Plans. Neither the Company nor any of the Subsidiaries is engaged in any unfair labor practice; except for matters which would not, individually or in the aggregate, have a Material Adverse Effect, (i) there is (A) no unfair labor practice complaint pending or, to the Company’s or the Operating Partnership’s knowledge, threatened against the Company or any of the Subsidiaries before the National Labor Relations Board, and no grievance or arbitration proceeding arising out of or under collective bargaining agreements is pending or, to the Company’s or the Operating Partnership’s knowledge, threatened, (B) no strike, labor dispute, slowdown or stoppage pending or, to the Company’s or the Operating Partnership’s knowledge, threatened against the Company or any of the Subsidiaries and (C) no union representation dispute currently existing concerning the employees of the Company or any of the Subsidiaries, (ii) to the Company’s or the Operating Partnership’s knowledge, no union organizing activities are currently taking place concerning the employees of the Company or any of the Subsidiaries and (iii) there has been no violation of any federal, state, local or foreign law relating to discrimination in the hiring, promotion or pay of employees, any applicable wage or hour laws or any provision of the Employee Retirement Income Security Act of 1974 (“ERISA”) or the rules and regulations promulgated thereunder concerning the employees of the Company or any of the Subsidiaries.
(cc)      Title to Intellectual Property. The Company and the Subsidiaries own or possess sufficient trademarks, trade names, patent rights, copyrights, domain names, licenses, approvals, trade secrets and other similar rights (collectively, “Intellectual Property”) reasonably necessary to conduct their businesses as now conducted. Neither the Company nor any of the Subsidiaries has received any notice of infringement or conflict with asserted Intellectual Property of others. The Company is not a party to or bound by any options, licenses or agreements with respect to the Intellectual Property Rights of any other person or entity that are required to be described in the Registration Statement or the Prospectus and are not described therein. None of the technology employed by the Company or any of the Subsidiaries has been obtained or is being used by the Company or any of the Subsidiaries in violation of any contractual obligation binding on the Company or any of the Subsidiaries or any of its or the Subsidiaries’ officers, directors or employees or otherwise in violation of the rights of any persons, except for such violations that would not, individually or in the aggregate, have a Material Adverse Effect.
(dd)      Real Estate Investment Trust. Commencing with the Company’s taxable year ended on December 31, 2013, the Company has been organized in conformity with the requirements for qualification and taxation as a real estate investment trust (a “REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”), and all applicable regulations under the Code, and its actual method of operation through the date hereof has enabled it to meet, and its proposed method of operation will enable it to continue to meet, the requirements for qualification and taxation as a REIT under the Code and all applicable regulations under the Code for its taxable year ending December 31, 2019 and thereafter; all statements in the Registration Statement and the Basic Prospectus under the caption “Material U.S. Federal Income Tax Considerations,” as supplemented in the Prospectus Supplement under the caption “Supplemental Material U.S. Federal Income Tax Considerations,” regarding its qualification and taxation as a REIT are correct in all material respects. The Company intends to continue to qualify as a REIT under the Code and all applicable regulations under the Code for all subsequent years, and the Company, after reasonable inquiry and diligence, does not know of any event that would reasonably be expected to cause the Company to fail to

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qualify as a REIT at any time. The Operating Partnership has been and will be taxed as a partnership or as a “disregarded entity” (within the meaning of Treasury Regulation Section 301.7701-2(c)(2)(i)) and not as an association or publicly traded partnership (within the meaning of Section 7704) subject to tax as a corporation, for U.S. federal income tax purposes beginning with its first taxable year; the Company does not know of any event that would cause or would reasonably be expected to cause the Operating Partnership to cease being taxed as a partnership or as a “disregarded entity” (within the meaning of Treasury Regulation Section 301.7701-2(c)(2)(i)) for U.S. federal income tax purposes, and the Company does not know of any event that would cause or would reasonably be expected to cause the Operating Partnership to be treated as an association or publicly traded partnership subject to tax as a corporation for U.S. federal income tax purposes.
(ee)      Internal Accounting Controls. The Company and each of the Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain accountability for assets; access to assets is permitted only in accordance with management’s general or specific authorization; and the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences.
(ff)      Related Party Transactions. There is no relationship, direct or indirect, that exists between or among the Company or any of the Subsidiaries on the one hand, and the directors, officers, stockholders, customers or suppliers of the Company or any of the Subsidiaries on the other hand, which is required by the Act to be described in the Registration Statement or the Prospectus, which is not so described.
(gg)      Environmental Matters. The Company and the Subsidiaries and their respective properties, assets and operations are in compliance with, and the Company and each of the Subsidiaries hold all permits, authorizations and approvals required under, Environmental Laws (as defined below), except to the extent that failure to so comply or to hold such permits, authorizations or approvals would not, individually or in the aggregate, have a Material Adverse Effect; except as would not, individually or in the aggregate, be expected to have a Material Adverse Effect, there are no past, present or, to the Company’s or the Operating Partnership’s knowledge, reasonably anticipated future events, conditions, circumstances, activities, practices, actions, omissions or plans that could reasonably be expected to give rise to any costs or liabilities to the Company or any Subsidiary under, or to interfere with or prevent compliance by the Company or any Subsidiary with, Environmental Laws; except as would not, individually or in the aggregate, have a Material Adverse Effect, neither the Company nor any of the Subsidiaries (i) is, to the Company’s or the Operating Partnership’s knowledge, the subject of any investigation, (ii) has received any notice or claim, (iii) is a party to or affected by any pending or, to the Company’s or the Operating Partnership’s knowledge, threatened action, suit or proceeding, (iv) is bound by any judgment, decree or order or (v) has entered into any agreement, in each case relating to any alleged violation of any Environmental Law or any actual or alleged release or threatened release or cleanup at any location of any Hazardous Materials (as defined below) (as used herein, “Environmental Law” means any federal, state or local law, statute, ordinance, rule, regulation, order, decree,

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judgment or injunction, or common law, relating to the protection, cleanup or restoration of the environment or natural resources, including those relating to the distribution, processing, generation, treatment, storage, disposal, transportation, other handling or release or threatened release of Hazardous Materials, and “Hazardous Materials” means any material (including, without limitation, pollutants, contaminants, hazardous or toxic substances or wastes) that is regulated by or may give rise to liability under any Environmental Law).
(hh)      No Prohibition on Subsidiaries from Paying Dividends or Making Other Distributions. No Subsidiary is currently prohibited, directly or indirectly, from paying any dividends to the Company, from making any other distribution on such Subsidiary’s capital stock, from repaying to the Company any loans or advances to such Subsidiary from the Company or from transferring any of such Subsidiary’s property or assets to the Company or any other Subsidiary of the Company, except as described in the Registration Statement (excluding the exhibits thereto) and the Prospectus, and except as such limitations would not, taken as a whole, be material to the Company.
(ii)      Disclosure Controls and Procedures. The Company has established and maintains and evaluates “disclosure controls and procedures” (as such term is defined in Rule 13a-15 and 15d-15 under the Exchange Act) and “internal control over financial reporting” (as such term is defined in Rule 13a-15 and 15d-15 under the Exchange Act); such disclosure controls and procedures are designed to ensure that material information relating to the Company and the Subsidiaries, is made known to the Company’s Chief Executive Officer and its Chief Financial Officer by others within those entities, and such disclosure controls and procedures are effective to perform the functions for which they were established; the Company’s independent auditors and the Audit Committee of the Company’s board of directors have been advised of: (i) all significant deficiencies, if any, in the design or operation of internal controls which could adversely affect the Company’s ability to record, process, summarize and report financial data; and (ii) all fraud, if any, whether or not material, that involves management or other employees who have a role in the Company’s internal controls; all material weaknesses, if any, in internal controls have been identified to the Company’s independent auditors; since the date of the most recent evaluation of such disclosure controls and procedures and internal controls, there have been no significant changes in internal controls or in other factors that could significantly affect internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses; the principal executive officers (or their equivalents) and principal financial officers (or their equivalents) of the Company have made all applicable certifications required by the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) and any related rules and regulations promulgated by the Commission, and the statements contained in each such certification are complete and correct; the Company, the Subsidiaries and the Company’s directors and officers are each in compliance in all material respects with all applicable effective provisions of the Sarbanes-Oxley Act and the rules and regulations of the Commission and Nasdaq promulgated thereunder.
(jj)      No Unlawful Contributions or Payments. Neither the Company nor any of its Subsidiaries, nor any director or officer of the Company or its Subsidiaries, nor, to the knowledge of the Company, any agent, employee or representative of the Company or its Subsidiaries, affiliate or other person associated with or acting on behalf of the Company or its Subsidiaries, has: (i) used

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any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity; (ii) made or taken an act in furtherance of an offer, promise or authorization of any direct or indirect unlawful payment of corporate funds or benefit to any foreign or domestic government or regulatory official or employee, including, without limitation, of any government-owned or controlled entity or of a public international organization, or any person acting in an official capacity for or on behalf of any of the foregoing, or any political party or party official or candidate for political office; (iii) violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended, the U.K. Bribery Act 2010, or any applicable law or regulation implementing the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, or committed an offense under any other applicable anti-bribery or anti-corruption laws; or (iv) made, offered, agreed, requested or taken an act in furtherance of any unlawful bribe or other unlawful benefit, including, without limitation, any rebate, payoff, influence payment, kickback or other unlawful or improper payment or benefit. The Company has instituted, maintained and enforced, and will continue to maintain and enforce policies and procedures designed to promote and ensure compliance with all applicable anti-bribery and anti-corruption laws.
(kk)      Compliance with Anti-Money Laundering Laws. The operations of the Company and its Subsidiaries are and have been conducted at all times in compliance with applicable financial recordkeeping and reporting requirements, including those of the Currency and Foreign Transactions Reporting Act of 1970, as amended, those of the Bank Secrecy Act, as amended by Title III of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA Patriot Act), and the applicable money laundering statutes of all jurisdictions in which the Company and its Subsidiaries conduct business, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any governmental or regulatory agency (collectively, the “Money Laundering Laws”), and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or its Subsidiaries with respect to the Money Laundering Laws is pending or, to the Company’s knowledge, threatened.
(ll)      No Conflicts with Sanctions Laws . Neither the Company nor any of its Subsidiaries, nor any director or officer of the Company or its Subsidiaries, nor, to the knowledge of the Company, any agent, employee or representative of the Company or its Subsidiaries, affiliate or other person associated with or acting on behalf of the Company or its Subsidiaries is currently the subject or target of any sanctions administered or enforced by the U.S. government (including, without limitation, the Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”) or the U.S. Department of State and including, without limitation, the designation as a “specially designated national” or “blocked person”), the United Nations Security Council, the European Union, Her Majesty’s Treasury or other relevant sanctions authority (collectively, “Sanctions”), nor is the Company or any of its Subsidiaries located, organized or resident in a country or territory that is the subject or the target of Sanctions, including, without limitation, Cuba, Iran, North Korea, Sudan, Syria and Crimea (each, a “Sanctioned Country”); and the Company will not directly or indirectly use the proceeds of the offering of the Shares hereunder, or lend, contribute or otherwise make available such proceeds to any Subsidiary, joint venture partner or other person or entity (i) to fund or facilitate any activities of or business with any person that, at the time of such funding

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or facilitation, is the subject or the target of Sanctions, (ii) to fund or facilitate any activities of or business in any Sanctioned Country or (iii) in any other manner that will result in a violation by any person (including any person participating in the transaction, whether as agent, principal, advisor, investor or otherwise) of Sanctions. For the past five years, the Company and its Subsidiaries have not knowingly engaged in, are not now knowingly engaged in, and will not engage in, any dealings or transactions with any person that at the time of the dealing or transaction is or was the subject or the target of Sanctions or with any Sanctioned Country.
(mm)      Brokers and Finders. Except pursuant to this Agreement, neither the Company nor any of the Subsidiaries has incurred any liability for any finder’s or broker’s fee or agent’s commission in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby or by the Registration Statement.
(nn)      Forward-Looking Statements . Each “forward-looking statement” (within the meaning of Section 27A of the Act or Section 21E of the Exchange Act) contained or incorporated by reference in the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus has been made with a reasonable basis and in good faith.
(oo)      No Indebtedness. There are no outstanding loans, extensions of credit or advances or guarantees of indebtedness by the Company or any of the Subsidiaries to or for the benefit of any of the officers or directors of the Company or any of the Subsidiaries or any of the members of the families of any of them.
In addition, any certificate signed by any officer of the Company or any of the Subsidiaries and delivered to any of the Agents or counsel for such Agents in connection with the offering of the Shares shall be deemed to be a representation and warranty by the Company or the Operating Partnership, as to matters covered thereby, to such Agents.
(pp)      Advisory Agreement. The Third Amended and Restated Advisory Agreement among the Company, the Operating Partnership and American Finance Advisors, LLC and all amendments thereto have been duly authorized, executed and delivered by the Company, and it is a legal, valid and binding agreement of the Company enforceable in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights generally, and by general equitable principles.
(qq)      Lending Relationships. Except as disclosed in the Registration Statement and the Prospectus, neither the Company nor any of the Subsidiaries has any lending or similar relationship with any Agent or any bank of other lending institution affiliated with any Agent.
(rr)      Transfer Taxes. There are no stock or other transfer taxes, stamp duties, capital duties or other similar duties, taxes or charges payable in connection with the execution or delivery of this Agreement or the issuance or sale by the Company of the Shares to be sold by the Company to the Agents.

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(ss)      Cybersecurity. (i)(x) Except as disclosed in the Registration Statement and the Prospectus, to the knowledge of the Company, there has been no security breach or other compromise of or relating to any of the Company’s information technology and computer systems, networks, hardware, software, data (including the data of their respective customers, employees, suppliers, vendors and any third party data maintained by or on behalf of them), equipment or technology (collectively, “ IT Systems and Data ”) and (y) the Company has not been notified of, and has no knowledge of, any event or condition that would reasonably be expected to result in, any security breach or other compromise to their IT Systems and Data; (ii) the Company is presently in compliance with all applicable laws or statutes and all judgments, orders, rules and regulations of any court or arbitrator or governmental or regulatory authority, internal policies and contractual obligations relating to the privacy and security of IT Systems and Data and to the protection of such IT Systems and Data from unauthorized use, access, misappropriation or modification, except as would not, in the case of this clause (ii), individually or in the aggregate, have a Material Adverse Effect; and (iii) the Company has implemented backup and disaster recovery technology consistent with industry standards and practices.
(tt)      Regulation M . Unless the Company has otherwise promptly notified the Agents in writing prior to the time when such representation is required to be made (or deemed to have been affirmed pursuant to Section 3(z) hereof), the Preferred Stock is an “actively-traded security” excepted from the requirements of Rule 101 of Regulation M under the Exchange Act by subsection (c)(1) of such rule.
3.      Agreements of the Company and the Operating Partnership . The Company and the Operating Partnership, jointly and severally, covenant and agree with each Agent:
(a)      Amendments and Supplements to the Registration Statement, the Prospectus and any Permitted Free Writing Prospectus. The Company shall not, during the Prospectus Delivery Period, amend or supplement the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus (including, without limitation, by filing any document under the Exchange Act if such document would be deemed to be incorporated by reference into the Prospectus), unless a copy of such amendment or supplement thereto (or such document) shall first have been submitted to the Agents within a reasonable period of time prior to the filing or, if no filing is required, the use thereof and the Agents shall not have objected thereto.
(b)      Material Misstatements or Omissions and Other Compliance with Applicable Law. If, after the date hereof and during the Prospectus Delivery Period, any event or development shall occur or condition shall exist as a result of which the Prospectus or any Permitted Free Writing Prospectus, as amended or supplemented at that time, would include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it shall be necessary to amend or supplement the Prospectus or any Permitted Free Writing Prospectus, or to file any document in order to comply with the Act or the Exchange Act, in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if in the opinion of the Agents it is otherwise necessary to amend or supplement the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus or to file any document in order to comply

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with the Act or the Exchange Act, including, without limitation, in connection with the delivery of the Prospectus, the Company shall promptly (i) notify the Agents of any such event, development or condition (and confirm such notice in writing) and (ii) instruct the Agent to suspend the sale of any Shares (including Shares that have been sold but have not yet settled). The Company may thereafter send a new Agency Transaction Notice if and when it (A) prepares (subject to subsections (a) and (g) of this Section 3) an amendment or supplement to the Prospectus or such Permitted Free Writing Prospectus, necessary in order to make the statements in the Prospectus or such Permitted Free Writing Prospectus as so amended or supplemented, in the light of the circumstances under which they were made, not misleading or so that the Registration Statement, the Prospectus or such Permitted Free Writing Prospectus, as amended or supplemented, will comply with the Act or the Exchange Act, (B) files with the Commission such amendment, supplement or document in order to comply with the Act or the Exchange Act and (C) furnishes at its own expense to the Agents as many copies as the Agents may reasonably request of such amendment, supplement or document. Notwithstanding the foregoing, nothing herein shall require the Company to file any such amendment or supplement.
(c)      Notifications to the Agents. The Company shall notify the Agents promptly, and shall confirm such notice in writing, (i) when any post-effective amendment to the Registration Statement becomes effective, (ii) of any request by the Commission for an amendment or supplement to the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus or for additional information, (iii) of the commencement by the Commission or by any state securities commission of any proceedings for the suspension of the qualification of any of the Shares for offering or sale in any jurisdiction or of the initiation, or the threatening, of any proceeding for that purpose, including, without limitation, the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose or the threat thereof, (iv) of the happening of any event during the Prospectus Delivery Period that in the judgment of the Company makes any statement made in the Registration Statement or the Prospectus untrue or that requires the making of any amendment or supplement to the Prospectus or any Permitted Free Writing Prospectus in order to make the statements therein, in the light of the circumstances in which they were made, not misleading and (v) of receipt by the Company or any representative of the Company of any other communication from the Commission relating to the Company, the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus. If at any time the Commission shall issue any stop order suspending the effectiveness of the Registration Statement, the Company shall use its best efforts to obtain the withdrawal of the stop order at the earliest possible moment. The Company shall use its best efforts to comply with the provisions of and make all requisite filings with the Commission pursuant to Rules 424(b), 430A, 430B, 430C and 462(b) of the Rules and Regulations and to notify the Agents promptly of all such filings.
(d)      Executed Registration Statements. The Company shall furnish to the Agents, without charge, two signed copies of the Registration Statement and of any post-effective amendment thereto, including financial statements and schedules, and all exhibits thereto (including any document filed under the Exchange Act that is deemed to be incorporated by reference into the Prospectus).

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(e)      Undertakings. The Company and the Operating Partnership shall comply with all the provisions of any undertakings contained or required to be contained in the Registration Statement.
(f)      Prospectus. The Company shall furnish to the Agents, without charge, as many copies of the Prospectus and any amendment or supplement thereto as the Agents may reasonably request (to the extent not previously delivered or filed on the Commission’s Electronic Data Gathering, Analysis and Retrieval system or any successor system thereto) via electronic mail in “.pdf” format and, at the Agents’ request, to furnish copies of the Prospectus to Nasdaq and each other exchange or market on which sales of the Shares were or are expected to be effected, in each case, as may be required by the rules or regulations of Nasdaq or such other exchange or market. The Company consents to the use of the Prospectus and any amendment or supplement thereto by the Agents during the Prospectus Delivery Period. If the Agents are required to deliver, under the Act (whether physically, deemed to be delivered pursuant to Rule 153 or through compliance with Rule 172 under the Act or any similar rule), a prospectus relating to the Shares after the nine-month period referred to in Section 10(a)(3) of the Act, or after that time a post-effective amendment to the Registration Statement is required pursuant to Item 512(a) of Regulation S-K under the Act, then, upon the request of the Agents, and at the Company’s own expense, the Company shall prepare and deliver to the Agents as many copies as the Agents may request of an amended Registration Statement or amended and supplemented Prospectus complying with Item 512(a) of Regulation S-K or Section 10(a)(3) of the Act, as the case may be.
(g)      Permitted Free Writing Prospectuses. The Company and the Operating Partnership represents and agrees that it has not made and, unless it obtains the prior written consent of the Agents, shall not make, any offer relating to the Shares that would constitute a “free writing prospectus” as defined in Rule 405 of the Rules and Regulations, which is required to be retained by the Company under Rule 433 of the Rules and Regulations; provided that the prior written consent of the Agents hereto shall be deemed to have been given in respect of each of the free writing prospectuses set forth in Schedule 3 hereto. Any such free writing prospectus consented to by the Agents is herein referred to as a “Permitted Free Writing Prospectus.” The Company represents and agrees that (i) it has treated and shall treat, as the case may be, each Permitted Free Writing Prospectus as a “free writing prospectus” as defined in Rule 405 of the Rules and Regulations and (ii) it has complied and shall comply, as the case may be, with the requirements of Rules 164 and 433 of the Act applicable to any Permitted Free Writing Prospectus, including, without limitation, in respect of timely filing with the Commission, legending and record keeping. The Company agrees not to take any action that would result in the Agents or the Company being required to file pursuant to Rule 433(d) under the Act a free writing prospectus prepared by or on behalf of the Agents that the Agents otherwise would not have been required to file thereunder.
(h)      Registration Statement Renewal Deadline. If, immediately prior to the third anniversary of the initial effective date of the Registration Statement relating to the Shares (the “Renewal Deadline”), any of the Shares remain unsold by the Agents, the Company shall prior to the Renewal Deadline (i) file, if it has not already done so (subject to subsection (a) of this Section 3), a new shelf registration statement relating to the Shares or a new shelf registration statement together with a new prospectus supplement relating to the Shares, in either case in a form satisfactory

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to the Agents, (ii) use its best efforts to cause such registration statement to be declared effective within 60 days after the Renewal Deadline (if the Company is not then eligible to file an automatic shelf registration statement) and (iii) take all other action necessary or appropriate to permit the public offering and sale of the Shares to continue as contemplated herein and in the expired registration statement relating to the Shares. References herein to the Registration Statement relating to the Shares shall include any new shelf registration statement contemplated by this Section 3(h) and references to the Prospectus Supplement relating to the Shares shall include any new prospectus supplement contemplated by this Section 3(h).
(i)      Notice of Inability to Use Automatic Shelf Registration Statement Form. If, at any time when the Shares remain unsold by the Agents, the Company receives from the Commission a notice pursuant to Rule 401(g)(2) of the Rules and Regulations or otherwise ceases to be eligible to use the automatic shelf registration statement form, the Company shall (i) promptly notify the Agents, (ii) promptly file a new registration statement or post-effective amendment to the existing Registration Statement on the proper form relating to the Shares, in a form satisfactory to the Agents and subject to subsection (a) of this Section 3, (iii) use its best efforts to cause such registration statement or post-effective amendment to be declared effective as soon as practicable, and (iv) promptly notify the Agents upon such effectiveness. The Company shall take all other action necessary or appropriate to permit the public offering and sale of the Shares to continue as contemplated herein and in the Registration Statement that was the subject of the notice pursuant to Rule 401(g)(2) or for which the Company has otherwise become ineligible to use. References herein to the Registration Statement relating to the Shares shall include such new registration statement or post-effective amendment, as the case may be.
(j)      Filing Fees . The Company agrees to pay the required Commission filing fees relating to the Shares within the time required by Rule 456(b)(1) without regard to the proviso therein and otherwise in accordance with Rules 456(b) and 457(r).
(k)      Compliance with Blue Sky Laws. The Company and the Operating Partnership shall cooperate with the Agents and counsel therefor in connection with the registration or qualification (or the obtaining of exemptions therefrom) of the Shares for the offering and sale under the securities or Blue Sky laws of such jurisdictions as the Agents may request, including, without limitation, the provinces and territories of Canada and other jurisdictions outside the United States, and to continue such registration or qualification in effect so long as necessary under such laws for the distribution of the Shares; provided , however , that in no event shall the Company be obligated to qualify to do business in any jurisdiction where it is not now so qualified or to take any action which would subject it to general service of process in any jurisdiction where it is not now so subject (except service of process with respect to the offering and sale of the Shares).
(l)      Delivery of Financial Statements. During the period of five years commencing on the later of the date hereof and the effective date of the Registration Statement for the distribution of the Shares, the Company and the Operating Partnership shall furnish to the Agents copies of such financial statements and other periodic and special reports as the Company may from time to time distribute generally to the holders of any class of its capital stock, and shall furnish to the Agents a copy of each annual or other report it shall be required to file with the Commission.

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(m)      Availability of Earnings Statements. The Company shall make generally available to holders of its securities and the Agents as soon as may be practicable but in no event later than the last day of the fifteenth full calendar month following the date hereof, an earnings statement (which need not be audited but shall be in reasonable detail) covering the period of 12 months commencing after the date hereof, and satisfying the provisions of Section 11(a) of the Act (including Rule 158 of the Rules and Regulations).
(n)      Reimbursement of Certain Expenses. Whether or not any of the transactions contemplated by this Agreement are consummated or this Agreement is terminated, the Company and the Operating Partnership, jointly and severally agree, that they shall pay, or reimburse if paid by the Agents, all costs and expenses incident to the performance of the obligations of the Company under this Agreement, including, without limitation, costs and expenses of or relating to (i) the preparation, printing and filing of the Registration Statement and exhibits to it, each Permitted Free Writing Prospectus, the Prospectus and any amendment or supplement to the Registration Statement or the Prospectus (including the filing fees payable to the Commission relating to the Shares within the time required by Rule 456 of the Rules and Regulations), (ii) the preparation and delivery of certificates representing the Shares, (iii) the printing of this Agreement, (iv) furnishing (including costs of shipping, mailing and courier) such copies of the Registration Statement, the Prospectus, and any Permitted Free Writing Prospectus, and all amendments and supplements thereto, as may be requested for use in connection with the offering and sale of the Shares by the Agents, (v) the listing of the Shares on Nasdaq, (vi) any filings required to be made by the Agents with FINRA, and the fees, disbursements and other charges of counsel for the Agents in connection therewith, (vii) the registration or qualification of the Shares for offer and sale under the Act and the securities or Blue Sky laws of such jurisdictions designated pursuant to subsection (k) of this Section 3, including the fees, disbursements and other charges of counsel to the Agents in connection therewith, and, if requested by the Agents, the preparation and printing of preliminary, supplemental and final Blue Sky or Legal Investment memoranda, (viii) counsel to the Company, (ix) The Depository Trust Company and any other depositary, transfer agent or registrar for the Shares, (x) KPMG LLP and PricewaterhouseCoopers LLP (the “Accountants”), (xi) the marketing of the offering by the Company, including, without limitation, all costs and expenses of commercial airline tickets, hotels, meals and other travel expenses of officers, employees, agents and other representatives of the Company, (xii) all out-of-pocket fees, disbursements and other charges of the Agents incurred in connection with the offering, including, without limitation, the fees and disbursements of counsel to the Agents and (xiii) all fees, costs and expenses for consultants used by the Company in connection with the offering; provided , however the fees and expenses of Agents’ counsel subject to reimbursement by the Company pursuant to clause (xii) of this Section 3(n): (A) shall not exceed $100,000 with respect to the establishment of the at-the-market program contemplated by this Agreement, including the negotiation, preparation and execution of this Agreement, and (B) shall not exceed $25,000 per year (with the first such year commencing on the date of execution of this Agreement) with respect to the ongoing implementation of the at-the-market program contemplated by this Agreement. For the avoidance of doubt, the parties acknowledge that except as provided in this Section 3(n) and Section 7 hereof, the Agents will pay all of their own out-of-pocket costs and

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expenses incurred in connection with entering into this Agreement and the transactions contemplated by this Agreement.
(o)      No Stabilization or Manipulation. The Company shall not at any time, directly or indirectly (including, without limitation, through the Subsidiaries), take any action intended to cause or result in, or which might reasonably be expected to cause or result in, or which will constitute, stabilization or manipulation, under the Act or otherwise, of the price of the shares of Preferred Stock to facilitate the sale or resale of any of the Shares.
(p)      Use of Proceeds. The Company and the Operating Partnership shall apply the net proceeds from the offering and sale of the Shares to be sold by the Company in the manner set forth in the Prospectus under “Use of Proceeds.”
(q)      Clear Market. The Company shall not offer to sell, sell, pledge, hypothecate, contract or agree to sell, purchase any option to sell, grant any option for the purchase of, lend, or otherwise dispose of, directly or indirectly, any shares of Preferred Stock or any securities convertible into or exercisable or exchangeable for Preferred Stock or warrants or other rights to acquire shares of Preferred Stock or any other securities of the Company that are substantially similar to the Preferred Stock or permit the registration under the Act of any shares of Preferred Stock, in each case without giving the Agents at least three business days’ prior written notice specifying the nature and date of such proposed transaction. Notwithstanding the foregoing, the Company may (i) register the offering and sale of the Shares through the Agents pursuant to this Agreement, (ii) issue shares of Preferred Stock upon the exercise of an option or warrant or the conversion of a security outstanding on the date hereof and referred to in the Prospectus, (iii) issue shares upon the exchange of units of limited partnership interest of the Operating Partnership designated as “LTIP Units” outstanding as of the date of this Agreement and described in the Company’s reports filed with the Commission under the Exchange Act, (iv) issue shares of Preferred Stock, options to purchase Preferred Stock or other permitted awards granted pursuant to existing equity incentive compensation plans of the Company or (v) issue shares of Preferred Stock pursuant to any non-employee director stock plan, dividend reinvestment plan or stock purchase plan of the Company. If notice of a proposed transaction is provided by the Company pursuant to this subsection (q), the Agents may suspend activity of the transactions contemplated by this Agreement for such period of time as may be requested by the Company or as may be deemed appropriate by the Agents.
(r)      Stock Exchange Listing. The Company shall use its best efforts to cause the Shares to be listed on Nasdaq and to maintain such listing.
(s)      Additional Notices . The Company shall notify the Agents immediately after it shall have received notice or obtained knowledge of any information or fact that would alter or affect any opinion, certificate, letter or any other document provided to the Agents pursuant to Section 4 below.
(t)      Representation Date Certificates . Upon commencement of the offering of the Shares under this Agreement (and upon the commencement of the offering of the Shares under this Agreement following the termination of a suspension of sales hereunder), and each time that § the Registration Statement or the Prospectus is amended or supplemented (other than by the filing

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with the Commission of any document incorporated by reference therein (excluding supplements not related to the Shares), which shall be subject to the provisions of subclause § below, and other than a prospectus supplement filed pursuant to Rule 424(b) under the Act, relating solely to the offering of securities pursuant to the Registration Statement other than the Shares), (ii) there is filed with the Commission any document incorporated by reference into the Prospectus (other than a Current Report on Form 8-K, unless the Agents shall otherwise reasonably request), § the Agents may reasonably request and § Shares are delivered to the Agents pursuant to a Terms Agreement (such commencement date, any such recommencement date, if applicable, and each such date referred to in clauses (i), (ii), (iii) and (iv) above, except as otherwise agreed between the Company and the Agents, a “Representation Date”), to furnish or cause to be furnished to the Agents forthwith a certificate dated and delivered as of such date, in form reasonably satisfactory to the Agents, to the effect that the statements contained in the certificate(s) referred to in Section 4(c) are true and correct at the time of such commencement, recommencement, amendment, supplement or filing, as the case may be, as though made at and as of such time and modified as necessary to relate to the Registration Statement and the Prospectus as amended and supplemented to the time of delivery of such certificate.
(u)      Company Counsel Legal Opinions . On each Representation Date, the Company shall cause to be furnished to the Agents, addressed to the Agents and in form and substance satisfactory to the Agents, written opinions of Proskauer Rose LLP, outside counsel for the Company, and a written opinion of Venable LLP, Maryland counsel for the Company, as described in Section 4(d), to the effect set forth in Exhibit C-1, Exhibit C-2, Exhibit C-3 and Exhibit C-4 hereto but modified as necessary to relate to the Registration Statement and the Prospectus as amended and supplemented to the time of delivery of such opinion. In lieu of delivering such an opinion for dates subsequent to the commencement of the offering of the Shares under this Agreement such counsel may furnish the Agents with a letter (a “Reliance Letter”) to the effect that the Agents may rely on a prior opinion delivered under this Section 3(u) to the same extent as if it were dated the date of such letter (except that statements in such prior opinion shall be deemed to relate to the Registration Statement and the Prospectus as amended or supplemented as of such subsequent date).
(v)      Comfort Letters . On each Representation Date, the Company shall cause the Accountants to deliver to the Agents the comfort letter(s) described in Section 4(f).
(w)      Due Diligence . The Company shall reasonably cooperate with any reasonable due diligence review requested by the Agents or their counsel from time to time in connection with the transactions contemplated hereby or any Terms Agreement, including, without limitation, (i) prior to the open of trading on each intended Purchase Date and any Time of Sale or Settlement Date, making available appropriate corporate officers of the Company and, upon reasonable request, representatives of the Accountants for an update on diligence matters with representatives of the Agents and their counsel and (ii) at each Representation Date or otherwise as the Agents may reasonably request, providing information and making available documents and appropriate corporate officers of the Company and representatives of the Accountants for one or more due diligence sessions with representatives of the Agents and their counsel.

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(x)      Reservation of the Shares . The Company shall reserve and keep available at all times, free of preemptive rights, Shares for the purpose of enabling the Company to satisfy its obligations hereunder.
(y)      Trading . The Company hereby consents to any Agent trading in the Preferred Stock for such Agent’s own account and for the account of its clients at the same time as sales of the Shares pursuant to this Agreement.
(z)      Deemed Representations and Warranties . The Company hereby agrees that each acceptance by it of an offer to purchase Shares hereunder shall be deemed to be (i) an affirmation to the Agents that the representations and warranties of the Company contained in or made pursuant to this Agreement are true and correct as of the date of such acceptance as though made at and as of such date and (ii) an undertaking that such representations and warranties will be true and correct as of the Time of Sale and the Settlement Date for the Shares relating to such acceptance as though made at and as of each of such dates (except that such representations and warranties shall be deemed to relate to the Registration Statement and the Prospectus as amended and supplemented to the date of such acceptance, such Time of Sale or such Settlement Date, as the case may be).
(aa)      Board Authorization . Prior to delivering notice of the proposed terms of an Agency Transaction or a Principal Transaction pursuant to Section 1 (or at such time as otherwise agreed between the Company and the Agents), the Company shall have (i) obtained from its board of directors or a duly authorized committee established thereby all necessary corporate authority for the sale of the Shares pursuant to the relevant Agency Transaction or Principal Transaction, as the case may be, and (ii) provided to the Agents a copy of the relevant board resolutions or other authority.
(bb)      Offer to Refuse to Purchase . If to the knowledge of the Company any condition set forth in Section 4(a) of this Agreement shall not have been satisfied on the applicable Settlement Date, the Company shall offer to any person who has agreed to purchase Shares from the Company as the result of an offer to purchase solicited by the Agents the right to refuse to purchase and pay for such Shares.
(cc)      Exchange Act Reports . The Company shall, subject to subsection (a) of this Section 3, § timely file all reports and any definitive proxy or information statements required to be filed by the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date hereof and for the duration of the Prospectus Delivery Period and § disclose in its quarterly reports on Form 10-Q and in its annual report on Form 10-K a summary detailing, for the relevant reporting period, the number of Shares sold through or to the Agents under this Agreement, the net proceeds received by the Company from such sales and the compensation paid by the Company to the Agents with respect to such sales. In lieu of compliance with the requirement set forth in clause (ii) of the immediately preceding sentence, the Company may prepare a prospectus supplement with such summary information and, at least once a quarter and subject to subsection (a) of this Section 3, file such prospectus supplement pursuant to Rule 424(b) under the Act (and within the time periods required by Rule 424(b) and Rule 430A, 430B or 430C under the Act).

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(dd)      REIT Qualification . The Company will use its reasonable best efforts to continue to meet the requirements for qualification and taxation as a REIT under the Code, subject to any future determination by the Company’s board of directors that it is no longer in the Company’s best interests to qualify as a REIT.
4.      Conditions of the Agents’ Obligations . The obligations of each Agent hereunder are subject to (i) the accuracy of the representations and warranties of the Company and the Operating Partnership on the date hereof, on each Representation Date and as of each Time of Sale and Settlement Date, (ii) the performance by the Company and the Operating Partnership of their obligations hereunder and (iii) the following additional conditions:
(a)      No Stop Orders, Requests for Information and No Amendments. (i) No stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall be pending or are, to the best knowledge of the Company, threatened by the Commission, and the Company shall not have received from the Commission any notice pursuant to Rule 401(g)(2) of the Act objecting to use of the automatic shelf registration statement form, (ii) no order suspending the qualification or registration of the Shares under the securities or Blue Sky laws of any jurisdiction shall be in effect and no proceeding for such purpose shall be pending before or threatened or contemplated by the authorities of any such jurisdiction, (iii) any request for additional information on the part of the staff of the Commission or any such authorities shall have been complied with to the satisfaction of the staff of the Commission or such authorities and (iv) after the date hereof no amendment or supplement to the Registration Statement or the Prospectus shall have been filed unless a copy thereof was first submitted to the Agents and the Agents did not object thereto.
(b)      No Material Adverse Effect. Since the date of the most recent financial statements of the Company included or incorporated by reference in the Registration Statement and the Prospectus, except as described in the Registration Statement and the Prospectus, there shall not have been a Material Adverse Effect.
(c)      Officers’ Certificates. The Agents shall have received, on each Representation Date, one or more accurate certificates, signed by an executive officer of the Company, in form and substance satisfactory to the Agents, to the effect set forth in clauses (a) and (b) above and to the effect that:
(i)      each signer of such certificate has carefully examined the Registration Statement, the Prospectus (including any documents filed under the Exchange Act and deemed to be incorporated by reference into the Prospectus) and each Permitted Free Writing Prospectus, if any;
(ii)      as of such date and as of each Time of Sale subsequent to the immediately preceding Representation Date, if any, neither the Registration Statement, the Prospectus nor any Permitted Free Writing Prospectus contained any untrue statement of a material fact or omitted to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading;

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(iii)      each of the representations and warranties of the Company and the Operating Partnership contained in this Agreement are, as of such date and each Time of Sale subsequent to the immediately preceding Representation Date, if any, true and correct, except to the extent such representation or warranty speaks as of a specific date, in which case, such representation or warranty was true and correct as of such specific date; and
(iv)      each of the covenants and agreements required herein to be performed by the Company and the Operating Partnership on or prior to such date has been duly, timely and fully performed and each condition herein required to be complied with by the Company and the Operating Partnership on or prior to such date has been duly, timely and fully complied with.
(d)      Opinions of Counsel to the Company. The Agents shall have received, on each Representation Date, written opinions of Proskauer Rose LLP, outside counsel for the Company, and a written opinion of Venable LLP, Maryland counsel for the Company, or other counsel satisfactory to the Agents, in form and substance satisfactory to the Agents, and addressed to the Agents, to the effect set forth in Exhibit C-1, Exhibit C-2, Exhibit C-3 and Exhibit C-4.
(e)      Opinion of Counsel to the Agents. The Agents shall have received, on Representation Date, an opinion of Mayer Brown LLP, outside counsel for the Agents such date and addressed to the Agents, in form and substance reasonably satisfactory to the Agents.
(f)      Accountants’ Comfort Letter. The Agents shall have received, on each Representation Date, letters addressed to the Agents and in form and substance reasonably satisfactory to the Agents, (i) confirming that the Accountants are an independent registered public accounting firm within the meaning of the Act, the Exchange Act and the Public Company Accounting Oversight Board (“PCAOB”), (ii) stating, as of such date, the conclusions and information of the type ordinarily included in accountants’ “comfort letters” to sales agents in connection with registered “at the market” offerings with respect to the audited and unaudited financial statements and certain other financial information contained or incorporated by reference in the Registration Statement and the Prospectus (the first such letter, the “Initial Comfort Letter”) and (iii) in the case of any such letter after the Initial Comfort Letter, updating the Initial Comfort Letter with any information that would have been included in the Initial Comfort Letter had it been given on such date and modified as necessary to relate to the Registration Statement, the Prospectus or any Permitted Free Writing Prospectus, as amended or supplemented to the date of such letter.
(g)      Due Diligence . The Company shall have complied with all of its due diligence obligations required pursuant to Section 3(w).
(h)      Articles Supplementary . The Company shall have filed the New Articles Supplementary with the SDAT.
(i)      Compliance with Blue Sky Laws. The Shares shall be qualified for sale in such states and jurisdictions as the Agents may reasonably request, including, without limitation, the provinces and territories of Canada and other jurisdictions outside the United States, and each such qualification shall be in effect and not subject to any stop order or other proceeding on the relevant Representation Date.

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(j)      Stock Exchange Listing. The Shares shall have been approved for listing on Nasdaq, subject only to notice of issuance at or prior to the applicable Settlement Date.
(k)      Additional Certificates. The Company shall have furnished to the Agents such certificate or certificates, in addition to those specifically mentioned herein, as the Agents may have reasonably requested as to the accuracy and completeness at each Representation Date of any statement in the Registration Statement or the Prospectus or any documents filed under the Exchange Act and deemed to be incorporated by reference into the Prospectus, as to the accuracy at such Representation Date of the representations and warranties of the Company herein, as to the performance by the Company of its obligations hereunder, or as to the fulfillment of the conditions concurrent and precedent to the obligations hereunder of the Agents.
5.      Indemnification .
(a)      Indemnification of the Agents. The Company and the Operating Partnership, jointly and severally, agree to indemnify and hold harmless each Agent, the directors, officers, employees, counsel and agents of each Agent and each person, if any, who controls such Agent within the meaning of Section 15 of the Act or Section 20 of the Exchange Act from and against any and all losses, claims, liabilities, expenses and damages (including, without limitation, any and all investigative, legal and other expenses reasonably incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding between any of the indemnified parties and any indemnifying parties or between any indemnified party and any third party, or otherwise, or any claim asserted), to which they, or any of them, may become subject under the Act, the Exchange Act or other federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, liabilities, expenses or damages arise out of or are based on (i) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment thereto), including any information deemed to be a part thereof pursuant to Rules 430A, 430B or 430C under the Act, as applicable, including all documents incorporated therein by reference, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or (ii) any untrue statement or alleged untrue statement of a material fact contained in any Permitted Free Writing Prospectus or the Prospectus (or any amendment or supplement thereto) or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading or (iii) any untrue statement or alleged untrue statement of a material fact contained in any materials or information provided to investors by, or with the approval of, the Company and the Operating Partnership in connection with the marketing of the offering of the Shares, including any roadshow or investor presentations made to investors by the Company and the Operating Partnership (whether in person or electronically) or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided , however , that the Company and the Operating Partnership shall not be liable to the extent that such loss, claim, liability, expense or damage arises from the sale of the Shares in the public offering to any person by the Agents and is based on an untrue statement or omission or alleged untrue statement or omission made in reliance on and in conformity with information relating to the Agents furnished in writing to the Company by the Agents expressly for inclusion in the

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Registration Statement, the Prospectus or any Permitted Free Writing Prospectus. The indemnity obligation in this Section 5(a) is in addition to any liability that the Company or the Operating Partnership might otherwise have under applicable law.
(b)      Indemnification of the Company and the Operating Partnership. Each Agent, severally and not jointly, agrees to indemnify and hold harmless the Company and the Operating Partnership, their agents, each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, each director of the Company and each officer of the Company who signs the Registration Statement to the same extent as the foregoing indemnity in Section 5(a) from the Company and the Operating Partnership to the Agents, but only insofar as losses, claims, liabilities, expenses or damages arise out of or are based on any untrue statement or omission or alleged untrue statement or omission made in reliance on and in conformity with information relating to the Agents furnished in writing to the Company by the Agents expressly for inclusion in the Registration Statement, any Permitted Free Writing Prospectus or the Prospectus. The indemnity obligation in this Section 5(b) is in addition to any liability that the Agents might otherwise have under applicable law.
(c)      Indemnification Procedures. Any party that proposes to assert the right to be indemnified under this Section 5 shall, promptly after receipt of notice of commencement of any action against such party in respect of which a claim is to be made against an indemnifying party or parties under this Section 5, notify each such indemnifying party of the commencement of such action, enclosing a copy of all papers served, but the omission so to notify such indemnifying party shall not relieve the indemnifying party from any liability that it may have to any indemnified party under the foregoing provisions of this Section 5 unless, and only to the extent that, such omission results in the forfeiture of substantive rights or defenses by the indemnifying party. If any such action is brought against any indemnified party and it notifies the indemnifying party of its commencement, the indemnifying party will be entitled to participate in and, to the extent that it elects, by delivering written notice to the indemnified party promptly after receiving notice of the commencement of the action from the indemnified party, jointly with any other indemnifying party similarly notified, to assume the defense of the action, with counsel satisfactory to the indemnified party, and after notice from the indemnifying party to the indemnified party of its election to assume the defense, the indemnifying party will not be liable to the indemnified party for any legal or other expenses except as provided below and except for the reasonable costs of investigation subsequently incurred by the indemnified party in connection with the defense. The indemnified party will have the right to employ its own counsel in any such action, but the fees, expenses and other charges of such counsel will be at the expense of such indemnified party unless (i) the employment of counsel by the indemnified party has been authorized in writing by the indemnifying party, (ii) the indemnified party has reasonably concluded (based on advice of counsel) that there may be legal defenses available to it or other indemnified parties that are different from or in addition to those available to the indemnifying party, (iii) a conflict or potential conflict exists (based on advice of counsel to the indemnified party) between the indemnified party and the indemnifying party (in which case the indemnifying party shall not have the right to direct the defense of such action on behalf of the indemnified party) or (iv) the indemnifying party has not in fact employed counsel to assume the defense of such action within a reasonable time after receiving notice of the commencement of the action, in each of which cases the reasonable fees, disbursements and other

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charges of counsel shall be at the expense of the indemnifying party or parties. It is understood that the indemnifying party or parties shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees, disbursements and other charges of more than one separate counsel (in addition to any local counsel) at any one time for all such indemnified party or parties. All such fees, disbursements and other charges shall be reimbursed by the indemnifying party promptly as they are incurred. An indemnifying party shall not be liable for any settlement of any action or claim effected without its written consent (which consent will not be unreasonably withheld or delayed). No indemnifying party shall, without the prior written consent of each indemnified party, settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action or proceeding relating to the matters contemplated by this Section 5 (whether or not any indemnified party is a party thereto), unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party from all liability arising or that may arise out of such claim, action or proceeding and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. Notwithstanding the foregoing, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by this Section 5(c), the indemnifying party agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 45 days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall have received notice of the terms of such settlement at least 30 days prior to such settlement being entered into and (iii) such indemnifying party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement.
(d)      Contribution. In order to provide for just and equitable contribution in circumstances in which the indemnification provided for in the foregoing paragraphs of this Section 5 is applicable in accordance with its terms but for any reason is held to be unavailable to an indemnified party under subsections (a) and (b) of this Section 5, the Company, the Operating Partnership and the Agents shall contribute to the total losses, claims, liabilities, expenses and damages (including, without limitation, any investigative, legal and other expenses reasonably incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claim asserted, but after deducting any contribution received by the Company or the Operating Partnership from persons other than the Agents, such as persons who control the Company within the meaning of the Act, officers of the Company and directors of the Company, who also may be liable for contribution) to which the Company and the Operating Partnership, on the one hand, and the Agents, on the other hand, may be subject in such proportion as shall be appropriate to reflect the relative benefits received by the Company and the Operating Partnership on the one hand, and the Agents, on the other hand. The relative benefits received by the Company and the Operating Partnership, on the one hand, and the Agents, on the other hand shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company and the Operating Partnership bear to the sum of (i) the total compensation to the Agents pursuant to Section 1(a)(vii) (in the case of one or more Agency Transactions hereunder) and (ii) the underwriting discounts and commissions received by the Agents as set forth in the table on the cover page of the Prospectus (in the case of one or more Principal Transactions pursuant to Terms Agreements). If, but only if, the allocation provided by the foregoing sentence is not permitted by applicable law, the allocation of contribution shall be made in such proportion as is appropriate to

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reflect not only the relative benefits referred to in the foregoing sentence but also the relative fault of the Company and the Operating Partnership, on the one hand, and the Agents, on the other hand, with respect to the statements or omissions which resulted in such loss, claim, liability, expense or damage, or action in respect thereof, as well as any other relevant equitable considerations with respect to such offering. Such relative fault shall be determined by reference to whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company, the Operating Partnership or the Agents, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by an indemnified party as a result of the loss, claim, liability, expense or damage, or action in respect thereof, referred to above in this subsection (d) shall be deemed to include, for purpose of this subsection (d), any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (d), the Agents shall not be required to contribute any amount in excess of the sum of (i) the total compensation to the Agents pursuant to Section 1(a)(vii) (in the case of one or more Agency Transactions hereunder) and (ii) the underwriting discounts and commissions received by the Agents as set forth in the table on the cover page of the Prospectus (in the case of one or more Principal Transactions pursuant to Terms Agreements), and no person found guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this subsection (d), any person who controls a party to this Agreement within the meaning of the Act will have the same rights to contribution as that party, and each officer of the Company who signed the Registration Statement will have the same rights to contribution as the Company, subject in each case to the provisions hereof. Any party entitled to contribution, promptly after receipt of notice of commencement of any action against such party in respect of which a claim for contribution may be made under this subsection (d), will notify any such party from whom contribution may be sought, but the omission so to notify will not relieve the party from whom contribution may be sought from any other obligation it may have under this subsection (d). No party will be liable for contribution with respect to any action or claim settled without its written consent (which consent will not be unreasonably withheld).
(e)      Survival. The obligations of the Company and the Operating Partnership under this Section 5 shall be in addition to any liability which the Company and the Operating Partnership may otherwise have and shall extend, upon the same terms and conditions, to any affiliate of each Agent and each person, if any, who controls each Agent or any such affiliate within the meaning of the Act; and the obligations of the Agents under this Section 5 shall be in addition to any liability which it may otherwise have and shall extend, upon the same terms and conditions, to each officer and director of the Company and to each person, if any, who controls the Company within the meaning of the Act. The indemnity and contribution agreements contained in this Section 5 and the representations and warranties of the Company contained in this Agreement shall remain operative and in full force and effect regardless of (i) any investigation made by or on behalf of the Agents, (ii) acceptance of any of the Shares and payment therefor or (iii) any termination of this Agreement.
6.      Termination .

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(a)      The Company may terminate this Agreement in its sole discretion at any time upon giving prior written notice to the Agents. Any such termination shall be without liability of any party to the other party, except that (i) with respect to any pending sale, the obligations of the Company, including, without limitation, in respect of compensation to the Agents, shall remain in full force and effect notwithstanding such termination; and (ii) the provisions of Sections 2, 3 (except that if no Shares have been previously sold hereunder or under any Terms Agreement, only Section 3(n)), 5, and 7(j) of this Agreement shall remain in full force and effect notwithstanding such termination. In the case of any sale by the Company pursuant to a Terms Agreement, the obligations of the Company pursuant to such Terms Agreement may not be terminated by the Company without the prior written consent of the Agents party to such Terms Agreement.
(b)      Each Agent may terminate this Agreement in its sole discretion at any time upon giving prior written notice to the Company. Any such termination shall be without liability of any party to the other party, except that (i) with respect to any pending sale, the obligations of the Company, including, without limitation, in respect of compensation of the Agents, shall remain in full force and effect notwithstanding such termination; and (ii) the provisions of Sections 2, 3 (except that if no Shares have been previously sold hereunder or under any Terms Agreement, only Section 3(n)), 5, and 7(j) of this Agreement shall remain in full force and effect notwithstanding such termination. In the case of any purchase by any of the Agents pursuant to a Terms Agreement, such Agent may, by written notice to the Company, terminate its obligations pursuant to such Terms Agreement at any time prior to or on the Settlement Date if, since the time of execution of the Terms Agreement or the respective dates as of which information is given in the Registration Statement and the Prospectus:
(i)      trading of any securities of the Company shall have been suspended on any exchange or in any over-the-counter market;
(ii)      trading generally shall have been suspended or limited on or by, as the case may be, any “national securities exchange” (as defined in the Exchange Act), or minimum or maximum prices shall have been generally established on any such exchange, or additional material governmental restrictions, not in force on the date of this Agreement, shall have been imposed upon trading in securities generally by any such exchange or by order of the Commission or any court or other governmental authority;
(iii)      a general banking moratorium shall have been declared by any of federal, New York or Delaware authorities;
(iv)      the United States shall have become engaged in new hostilities, there shall have been an escalation in hostilities involving the United States or there shall have been a declaration of a national emergency or war by the United States or there shall have occurred such a material adverse change in general economic, political or financial conditions, including, without limitation, as a result of terrorist activities after the date hereof (or the effect of international conditions on the financial markets in the United States shall be such), or any other calamity or crisis shall have occurred, the effect of any of which is such as to make it impracticable or inadvisable to market the Shares on the terms and in the manner contemplated by the Prospectus;

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(v)      if the Company or any of the Subsidiaries shall have sustained a loss material or substantial to the Company or any of the Subsidiaries by reason of flood, fire, accident, hurricane, earthquake, theft, sabotage, or other calamity or malicious act, whether or not such loss shall have been insured, the effect of any of which is such as to make it impracticable or inadvisable to market the Shares on the terms and in the manner contemplated by the Prospectus; or
(vi)      if there shall have been a Material Adverse Change.
(c)      This Agreement shall remain in full force and effect until the earliest to occur of (i) termination of this Agreement pursuant to subsection (a) or (b) above or otherwise by mutual written agreement of the parties and (ii) such date that the aggregate gross sales proceeds of the Shares sold pursuant to this Agreement (including, without limitation, one or more Terms Agreements pursuant hereto) equals the Maximum Amount, in each case except that (x) with respect to any pending sale, the obligations of the Company, including, without limitation, in respect of compensation of the Agents, shall remain in full force and effect notwithstanding such termination; and (y) the provisions of Sections 2, 3 (except that if no Shares have been previously sold hereunder or under any Terms Agreement, only Section 3(n)), 5, and 7(j) of this Agreement shall remain in full force and effect notwithstanding such termination.
(d)      Any termination of this Agreement shall be effective on the date specified in the notice of termination; provided that such termination shall not be effective until the close of business on the date of receipt of such notice by the Agents or the Company, as the case may be. If such termination shall occur prior to the Settlement Date for any sale of Shares, such sale shall settle in accordance with the provisions of Section 1 (in the case of an Agency Transaction) or in accordance with the relevant Terms Agreement (in the case of a Principal Transaction).
7.      Miscellaneous .
(a)      Notices. Notice given pursuant to any of the provisions of this Agreement shall be in writing and, unless otherwise specified, shall be mailed, hand delivered or telecopied and, if to the Agents, shall be sufficient in all respects if delivered or sent to (i) BMO Capital Markets Corp., 3 Times Square, 25th Floor, New York, New York 10036, Attention: Equity Capital Markets Desk, with a copy to the Legal Department, Fax No. (212) 702-1205; BBVA Securities Inc., 1345 Avenue of the Americas, 44th Floor New York, New York 10105, Attention: US Capital Markets; B. Riley FBR, Inc., 299 Park Avenue, 21 st Floor, New York, New York 10171, Attention: General Counsel, Fax No. (212) 457-9947; Citizens Capital Markets, Inc., 600 Washington Blvd., 11th Floor, Stamford, Connecticut 06901, Attention: Equity Syndicate Department, Fax No. (203) 437-6913; KeyBanc Capital Markets Inc., 127 Public Square, 4th Floor, Cleveland, Ohio 44114, Attention: Equity Capital Markets, Fax No. (216) 689-0845; Ladenburg Thalmann & Co. Inc., 277 Park Ave., 26 th Floor, New York, New York 10172, Attention: Steven Kaplan, Managing Director, Fax No. (212) 409-2169; and SunTrust Robinson Humphrey, Inc., 3333 Peachtree Road NE, 11th Floor, Atlanta, Georgia 30326, Attention: Equity Capital Markets, Fax No. (404) 926-5872; and, if to the Company or the Operating Partnership it shall be sufficient in all respects if delivered or sent to the Company at the offices of the Company at American Finance Trust, Inc., 405 Park Avenue, New York, New York 10022-4405, Attention: Legal Department, Fax No. (646) 861-7743. Any such notice shall be effective only

35


upon receipt. Any notice under Section 5 may be made by telecopy or telephone, but if so made shall be subsequently confirmed in writing (which may include, in the case of the Agents, electronic mail to any Authorized Company Representative).
(b)      Recognition of U.S. Special Resolution Regimes. In the event that any Agent that is a Covered Entity becomes subject to a proceeding under a U.S. Special Resolution Regime, the transfer from such Agent of this Agreement, and any interest and obligation in or under this Agreement, will be effective to the same extent as the transfer would be effective under the U.S. Special Resolution Regime if this Agreement, and any such interest and obligation, were governed by the laws of the United States or a state of the United States. In the event that any Agent that is a Covered Entity or a BHC Act Affiliate of such Agent becomes subject to a proceeding under a U.S. Special Resolution Regime, Default Rights under this Agreement that may be exercised against such Agent are permitted to be exercised to no greater extent than such Default Rights could be exercised under the U.S. Special Resolution Regime if this Agreement were governed by the laws of the United States or a state of the United States. As used in this Section, the following terms have the respective meanings set forth below: (i) “BHC Act Affiliate” has the meaning assigned to the term “affiliate” in, and shall be interpreted in accordance with, 12 U.S.C. § 1841(k); (ii) “Covered Entity” means any of (x) a “covered entity” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 252.82(b), (y) a “covered bank” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 47.3(b), or (z) a “covered FSI” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 382.2(b); (iii) “Default Rights” has the meaning assigned to that term in, and shall be interpreted in accordance with, 12 C.F.R. §§ 252.81, 47.2 or 382.1, as applicable; and (iv) “U.S. Special Resolution Regime” means each of (x) the Federal Deposit Insurance Act of 1950, as amended, and the regulations promulgated thereunder and (y) Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, as amended, and the regulations promulgated thereunder.
(c)      No Third Party Beneficiaries. The Company and the Operating Partnership acknowledge and agree that each Agent is acting solely in the capacity of an arm’s length contractual counterparty to the Company and the Operating Partnership with respect to the offering of Shares contemplated hereby (including in connection with determining the terms of the offering) and not as a financial advisor or a fiduciary to, or an agent of, the Company or any other person. Additionally, the Agents are not advising the Company or any other person as to any legal, tax, investment, accounting or regulatory matters in any jurisdiction in connection with the transactions contemplated by this Agreement or any matters related thereto. The Company and the Operating Partnership shall consult with their own advisors concerning such matters and shall be responsible for making its own independent investigation and appraisal of the transactions contemplated hereby, and the Agents shall have no responsibility or liability to the Company with respect thereto. Any review by the Agents of the Company, the transactions contemplated hereby or other matters relating to such transactions will be performed solely for the benefit of the Agents and shall not be on behalf of the Company and/or the Operating Partnership.
(d)      Survival of Representations and Warranties. All representations, warranties and agreements of the Company and the Operating Partnership contained herein or in certificates

36


or other instruments delivered pursuant hereto (including, without limitation, any Terms Agreement) shall remain operative and in full force and effect regardless of any investigation made by or on behalf of the Agents or any of their controlling persons and shall survive delivery of and payment for the Shares hereunder.
(e)      Disclaimer of Fiduciary Relationship . The Company and the Operating Partnership acknowledge and agree that (i) the purchase and sale of the Shares pursuant to this Agreement, including the determination of the terms of the offering and any related discounts and commissions, is an arm’s-length commercial transaction between the Company and the Operating Partnership, on the one hand, and the Agents, on the other hand, (ii) in connection with the offering contemplated by this Agreement and the process leading to such transaction, each Agent owes no fiduciary duties to the Company, the Operating Partnership, or its securityholders, creditors, employees or any other party, (iii) each Agent has not assumed nor will it assume any advisory or fiduciary responsibility in favor of the Company with respect to the offering of the Shares contemplated by this Agreement or the process leading thereto (irrespective of whether any Agent or its affiliates has advised or is currently advising the Company on other matters) and no Agent had any obligation to the Company with respect to the offering of the Shares contemplated by this Agreement except the obligations expressly set forth in this Agreement, (iv) each Agent and its affiliates may be engaged in a broad range of transactions that involve interests that differ from those of the Company and (v) each Agent has not provided any legal, accounting, regulatory or tax advice with respect to the offering contemplated by this Agreement and the Company and the Operating Partnership have consulted their own legal, accounting, regulatory and tax advisors to the extent it deemed appropriate.
(f)      Adjustments for Stock Splits . The parties acknowledge and agree that all share related numbers contained in this Agreement shall be adjusted to take into account any stock split effected with respect to the Shares.
(g)      Governing Law. THIS AGREEMENT AND EACH TERMS AGREEMENT, AND ANY DISPUTE, CLAIM OR CONTROVERSY ARISING UNDER OR RELATED TO THIS AGREEMENT OR SUCH TERMS AGREEMENT, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE. Each party hereto hereby irrevocably submits for purposes of any action arising from this Agreement or any Terms Agreement brought by the other party hereto to the jurisdiction of the courts of New York State located in the Borough of Manhattan and the U.S. District Court for the Southern District of New York.
(h)      Counterparts . This Agreement and each Terms Agreement may be signed in two or more counterparts with the same effect as if the signatures thereto and hereto were upon the same instrument.
(i)      Survival of Provisions Upon Invalidity of Any Single Provision. In case any provision in this Agreement or any Terms Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

37


(j)      Waiver of Jury Trial. Each of the Company, the Operating Partnership and the Agents hereby irrevocably waives any right it may have to a trial by jury in respect of any claim based upon or arising out of this Agreement, any Terms Agreement or the transactions contemplated hereby or thereby.
(k)      Titles and Subtitles. The titles of the sections and subsections of this Agreement and any Terms Agreement are for convenience and reference only and are not to be considered in construing this Agreement or such Terms Agreement.
(l)      Entire Agreement. Other than the terms set forth in each Transaction Notice delivered hereunder and each Terms Agreement executed and delivered pursuant hereto, this Agreement embodies the entire agreement and understanding between the parties hereto and supersedes all prior agreements and understandings relating to the subject matter hereof. Neither this Agreement nor any Terms Agreement may be amended or otherwise modified or any provision hereof waived except by an instrument in writing signed by the Agents, the Operating Partnership and the Company.
(m)      Successors and Assigns . This Agreement shall be binding upon each Agent and the Company and the Operating Partnership and their successors and assigns and any successor or assign of any substantial portion of the Company’s and the Operating Partnership’s and each Agent’s respective business or assets.


38


Please confirm that the foregoing correctly sets forth the agreement between the Company, the Operating Partnership and the Agents.
 
 
Very truly yours,
 
 
 
AMERICAN FINANCE TRUST, INC.
 
 
 

 
By:
/s/ Edward M. Weil, Jr.
 
 
Name: Edward M. Weil, Jr.
 
 
Title: Chief Executive Officer and President
 
 
AMERICAN FINANCE OPERATING PARTNERSHIP, L.P.
 
 
 
 
 
 
 
By:
/s/ Edward M. Weil, Jr.
 
 
Name: Edward M. Weil, Jr.
 
 
Title: Chief Executive Officer and President


[Signature Page to the Equity Distribution Agreement]


Confirmed as of the date first above mentioned:

BMO CAPITAL MARKETS CORP.  


By:   /s/   Stephan Richford      
   Name: Stephan Richford  
   Title:  Managing Director
BBVA SECURITIES INC.  


By:   /s/ James A. Brodt      
   Name: James A. Brodt  
   Title:  Executive Director
B. RILEY FBR, INC.  

By:   /s/ Patrice McNicoll      
   Name: Patrice McNicoll  
   Title:  Co-Head of Investment Banking
CITIZENS CAPITAL MARKETS, INC.  

By:   /s/ Mark Sanko      
   Name: Mark Sanko  
   Title:  Managing Director
KEYBANC CAPITAL MARKETS INC.  


By:   /s/ John Harrison      
   Name: John Harrison  
   Title:  Managing Director
LADENBURG THALMANN & CO., INC.  

By:   /s/ Steve Kaplan      
   Name: Steve Kaplan  
   Title:  Head of Capital Markets
SUNTRUST ROBINSON HUMPHREY, INC.  

By:   /s/ Keith Carpenter      
   Name: Keith Carpenter  
   Title:  Director


 
 

            

SCHEDULE 5
COMPENSATION

The Agents shall be paid compensation in an agreed-upon amount not to exceed 1.5% of the gross proceeds from the sale of Shares pursuant to the terms of this Agreement.


EXHIBIT A
[Company Letterhead]

[_______], 20[__]
[•]
VIA EMAIL
TRANSACTION NOTICE
Ladies and Gentlemen:
The purpose of this Transaction Notice is to propose certain terms of the Agency Transaction entered into with [•] under, and pursuant to, that certain Equity Distribution Agreement between the American Finance Trust, Inc., a Maryland corporation (the “Company”), and American Finance Operating Partnership, L.P., a Delaware limited partnership (the “Operating Partnership”), BMO Capital Markets Corp., BBVA Securities Inc., B. Riley FBR, Inc., Citizens Capital Markets, Inc., KeyBanc Capital Markets Corp., Ladenburg Thalmann & Co. Inc. and SunTrust Robinson Humphrey, Inc. (each an “Agent” and collectively, the “Agents”), dated May [ ], 2019 (the “Agreement”). Please indicate your acceptance of the proposed terms below. Upon acceptance, the particular Agency Transaction to which this Transaction Notice relates shall supplement, form a part of, and be subject to, the Agreement. Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Agreement.
The terms of the particular Agency Transaction to which this Transaction Notice relates are as follows:
Trading Day(s) on which Shares may be Sold:
[_______], 20[__], [_______], 20[__] . . . [_______], 20[__]
Maximum Number of Shares
to be Sold in the Aggregate:
[_______]
Maximum Number of Shares
to be Sold on each Trading Day:
[_______]
Floor Price:
USD[__.__]
Compensation:
[_______]% of the gross proceeds from the sale of Shares
[ Remainder of Page Intentionally Blank ]
Very truly yours,

 
AMERICAN FINANCE TRUST, INC.
 
 
 
 
By:
 
 
 
Name:
 
 
Title:
 
 
AMERICAN FINANCE OPERATING PARTNERSHIP, L.P.
 
 
 
 
 
 
 
By:
 
 
 
Name:
 
 
Title:

Accepted and agreed as of
the date first above written:
[•]
By:______________________________
Name:
Title:


EXHIBIT B
[NAME OF COMPANY]
7.50% Series A Cumulative Redeemable Perpetual Preferred Stock
TERMS AGREEMENT
[_______], 20[__]

[•]

Ladies and Gentlemen:
American Finance Trust, Inc., a Maryland corporation (the “Company”), proposes, subject to the terms and conditions stated herein, in the Schedule hereto and in the Equity Distribution Agreement, dated May [ ], 2019 (the “Equity Distribution Agreement”), between the Company and American Finance Operating Partnership, L.P., a Delaware limited partnership (the “Operating Partnership”), BMO Capital Markets Corp., BBVA Securities Inc., B. Riley FBR, Inc., Citizens Capital Markets, Inc., KeyBanc Capital Markets Corp., Ladenburg Thalmann & Co. Inc. and SunTrust Robinson Humphrey, Inc. (each an “Agent” and collectively, the “Agents”), to issue and sell to [•] [_______] shares of the Company’s 7.50% Series A Cumulative Redeemable Perpetual Preferred Stock (the “Purchased Shares”) [, and, solely for the purpose of covering over-allotments, to grant to [•] the option to purchase an additional [_______] shares of such preferred stock (the “Additional Shares”)]. Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Agreement.
[[•] shall have the right to purchase from the Company all or a portion of the Additional Shares as may be necessary to cover over-allotments made in connection with the offering of the Purchased Shares at the same purchase price per share to be paid by [•] to the Company for the Purchased Shares. This option may be exercised by [•] at any time (but not more than once) on or before the thirtieth day following the date of this Terms Agreement, by written notice to the Company. Such notice shall set forth the aggregate number of Additional Shares as to which the option is being exercised, and the date and time when the Additional Shares are to be delivered (such date, the “Option Settlement Date”); provided , however , that the Option Settlement Date shall not be earlier than the Settlement Date (as set forth in the Schedule hereto) nor earlier than the second business day after the date on which the option shall have been exercised nor later than the fifth business day after the date on which the option shall have been exercised. Payment of the purchase price for the Additional Shares shall be made at the Option Settlement Date in the same manner and at the same office as the payment for the Purchased Shares.]
Each of the provisions of the Equity Distribution Agreement not specifically related to the solicitation by [•], as agent of the Company, of offers to purchase Shares in Agency Transactions is incorporated herein by reference in its entirety, and shall be deemed to be part of this Terms Agreement to the same extent as if such provisions had been set forth in full herein.
An amendment to the Registration Statement, or a supplement to the Prospectus, as the case may be, relating to the Purchased Shares [and the Additional Shares], in the form heretofore delivered to [•] is now proposed to be filed with the Securities and Exchange Commission.
Subject to the terms and conditions set forth herein and in the Schedule hereto and subject the terms and conditions of the Equity Distribution Agreement incorporated herein as provided in the second immediately preceding paragraph, the Company agrees to issue and sell to [•], and [•] agrees to purchase from the Company, the Purchased Shares at the time and place and at the purchase price set forth in the Schedule hereto.
[ Remainder of Page Intentionally Blank ]
If the foregoing is in accordance with your understanding, please sign and return to us a counterpart hereof, whereupon this Terms Agreement, including those provisions of the Equity Distribution Agreement incorporated herein by reference, shall constitute a binding agreement between [•] and the Company.
 
AMERICAN FINANCE TRUST, INC.
 
 
 
 
By:
 
 
 
Name:
 
 
Title:
 
 
AMERICAN FINANCE OPERATING PARTNERSHIP, L.P.
 
 
 
 
 
 
 
By:
 
 
 
Name:
 
 
Title:


Accepted and agreed as of
the date first above written:

[•]

By:_____________________________
Name:
Title:
Schedule to Terms Agreement
[Price to Public:
USD[__.__] per share]

Purchase Price by [•]:
USD[__.__] per share

Method of and Specified Funds for Payment of Purchase Price:
[By wire transfer to a bank account specified by the Company in same day funds.]

Method of Delivery:
[To [•]’s account, or the account of [•]’s designee, at The Depository Trust Company via DWAC in return for payment of the purchase price.]

Settlement Date:
[_______], 20[__]

Closing Location:
[_______]

Documents to be Delivered:

The following documents referred to in the Equity Distribution Agreement shall be delivered as a condition to the closing (which documents shall be dated on or as of the date of the Terms Agreement to which this Scheduled is annexed):
•
the officer’s certificate referred to in Section 4(c);

•
the legal opinions referred to in Section 4(d) and (e);

•
the “comfort letter” referred to in Section 4(f); and

•
such other documents as [•] shall reasonably request.

[Indemnity:
[_______]]

[Lockup:
In addition to, and without limiting the generality of, the covenant set forth in Section 3(q) of the Equity Distribution Agreement, [________].]





Exhibit 3.11

AMERICAN FINANCE TRUST, INC.
ARTICLES SUPPLEMENTARY
American Finance Trust, Inc., a Maryland corporation (the “Company”), hereby certifies to the State Department of Assessments and Taxation of Maryland that:
FIRST : Under a power contained in Section 5.1 of Article V of the charter of the Company (the “Charter”), the Board of Directors of the Company (the “Board”) and a duly authorized committee thereof, by duly adopted resolutions, classified 2,000,000 shares of authorized but unissued preferred stock, $0.01 par value per share, of the Company as additional shares (the “Additional Shares”) of 7.50% Series A Cumulative Redeemable Perpetual Preferred Stock (the “Series A Preferred Stock”), having the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications, and terms and conditions of redemption set forth in the Charter.

SECOND : The Additional Shares have been classified and designated by the Board under the authority contained in the Charter. After giving effect to the classification of the Additional Shares set forth herein, the total number of shares of Series A Preferred Stock that the Company has authority to issue is 3,380,000.
THIRD : These Articles Supplementary have been approved by the Board in the manner and by the vote required by law.
FOURTH : The undersigned acknowledges these Articles Supplementary to be the corporate act of the Company and, as to all matters or facts required to be verified under oath, the undersigned acknowledges that, to the best of his knowledge, information and belief, these matters and facts are true in all material respects and that this statement is made under the penalties for perjury.




IN WITNESS WHEREOF, the Company has caused these Articles Supplementary to be signed in its name and on its behalf by its Chief Executive Officer and President and attested to by its Secretary on this 8th day of May , 2019.
ATTEST:                    AMERICAN FINANCE TRUST, INC.


/s/ Katie Kurtz     By: /s/ Michael Weil             (SEAL)
Name: Katie Kurtz                 Name: Michael Weil
Title: Secretary                 Title: Chief Executive Officer and President
    




2
Exhibit 4.2

THIRD AMENDMENT
TO
SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF AMERICAN FINANCE OPERATING PARTNERSHIP, L.P.

THIS THIRD AMENDMENT TO SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF AMERICAN FINANCE OPERATING PARTNERSHIP, L.P. (this “ Amendment ”), dated as of May 8, 2019, is entered into by AMERICAN FINANCE TRUST, INC., a Maryland corporation, as general partner (the “ General Partner ”) of AMERICAN FINANCE OPERATING PARTNERSHIP, L.P., a Delaware limited partnership (the “ Partnership ”), for itself and on behalf of any limited partners of the Partnership.

WHEREAS , the Second Amended and Restated Agreement of Limited Partnership of the Partnership was entered into on July 19, 2018 (as now or hereafter amended, restated, modified, supplemented or replaced, the “ Partnership Agreement ”);

WHEREAS , on March 22, 2019, the General Partner, for itself and on behalf of any limited partners of the Partnership, entered into the Second Amendment to the Partnership Agreement (the “ Second Amendment ”) to set forth the designations, allocations, preferences, conversion and other special rights, powers and duties of a new series of Preferred Units (as defined in the Second Amendment) of the Partnership designated the “7.50% Series A Cumulative Redeemable Perpetual Preferred Units” (the “ Series A Preferred Units ”);

WHEREAS , the Series A Preferred Units were created and were initially issued in conjunction with the General Partner’s initial issuance and sale of shares of its 7.50% Series A Cumulative Redeemable Perpetual Preferred Stock, par value $0.01 per share (the “ Series A Preferred Stock ”), and, as such, the Series A Preferred Units are intended to have designations, preferences and other rights and terms that are substantially the same as those of the Series A Preferred Stock, all such that the economic interests of the Series A Preferred Units and the Series A Preferred Stock are substantially similar;

WHEREAS , on March 26, 2019, the General Partner issued and sold 1,200,000 shares of Series A Preferred Stock in an underwritten public offering, and, on April 10, 2019, the General Partner issued and sold an additional 146,000 shares of Series A Preferred Stock upon the underwriters’ exercise of their option to purchase additional shares in such offering, and the General Partner contributed the net proceeds of such issuances and sales to the Partnership in exchange for, and caused the Partnership to issue to the General Partner, 1,346,000 Series A Preferred Units;

WHEREAS , the General Partner has authorized the issuance and sale from time to time of up to 2,000,000 additional shares of Series A Preferred Stock in an at-the-market offering, and, in connection therewith, the General Partner, pursuant to Section 4.02(b) of the Partnership Agreement, will, upon the issuance and sale of any shares of Series A Preferred Stock in such offering, contribute the net proceeds of such issuances and sales to the Partnership in exchange for, and will cause the Partnership to issue to the General Partner, a number of Series A Preferred Units equal to the number of shares of Series A Preferred Stock actually issued in such offering from time to time;

WHEREAS , pursuant to the authority granted to the General Partner pursuant to Section 4.02(a) and Article 14 of the Partnership Agreement, and as authorized by the resolutions of the Board of Directors of the General Partner, at a meeting held on May 6, 2019, the General Partner desires to amend the Partnership Agreement to increase the number of Series A Preferred Units it is authorized to issue and to issue additional Series A Preferred Units to the General Partner.



 
NOW, THEREFORE , in consideration of good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the General Partner hereby amends the Partnership Agreement as follows:




 
Annex A to the Partnership Agreement is hereby amended by deleting Section 1 thereof and replacing such Section with the following new Section 1:

“1.  Designation and Number . A series of Preferred Units (as defined below) of American Finance Operating Partnership, L.P., a Delaware limited partnership (the “ Partnership ”), designated the “7.50% Series A Cumulative Redeemable Perpetual Preferred Units” (the “ Series A Preferred Units ”), is hereby established. The number of authorized Series A Preferred Units shall be 3,380,000.”

Except as modified herein, all terms and conditions of the Partnership Agreement shall remain in full force and effect, which terms and conditions the General Partner hereby ratifies and confirms.
[SIGNATURE PAGE FOLLOWS]
 

IN WITNESS WHEREOF , the undersigned has executed this Amendment as of the date first set forth above.
 

GENERAL PARTNER:

AMERICAN FINANCE TRUST, INC.


By: /s/ Edward M. Weil, Jr.        
Name: Edward M. Weil, Jr.
Title: Chief Executive Officer and President





VENABLEEXHIBIT51OPINI_IMAGE2.JPG


Exhibit 5.1

May 8, 2019


American Finance Trust, Inc.
405 Park Avenue
New York, New York 10022

Re:     Registration Statement on Form S-3 (File No. 333-226252)

Ladies and Gentlemen:

We have served as Maryland counsel to American Finance Trust, Inc., a Maryland corporation (the “Company”), in connection with certain matters of Maryland law arising out of the registration of up to $200,000,000 aggregate offering price of shares (the “Shares”) of Class A common stock, par value $0.01 per share (the “Class A Common Stock”), of the Company, covered by the above-referenced Registration Statement, and all amendments thereto (the “Registration Statement”), filed by the Company with the United States Securities and Exchange Commission (the “Commission”) under the Securities Act of 1933, as amended (the “1933 Act”). The Shares are to be issued pursuant to the Prospectus Supplement and the Distribution Agreement (each as defined below) in one or more transactions deemed to be “at the market” offerings (each, an “Offering” and, collectively, the “Offerings”) under Rule 415 of the 1933 Act.

In connection with our representation of the Company, and as a basis for the opinion hereinafter set forth, we have examined originals, or copies certified or otherwise identified to our satisfaction, of the following documents (hereinafter collectively referred to as the “Documents”):

1.    The Registration Statement;

2.    The Prospectus, dated July 20, 2018, as supplemented by a Prospectus Supplement, dated May 8, 2019 (the “Prospectus Supplement”), filed with the Commission pursuant to Rule 424(b) of the General Rules and Regulations promulgated under the 1933 Act;

3.    The charter of the Company (the “Charter”), certified by the State Department of Assessments and Taxation of Maryland (the “SDAT”);

4.    The Amended and Restated Bylaws of the Company, certified as of the date hereof by an officer of the Company;
5.    A certificate of the SDAT as to the good standing of the Company, dated as of a recent date;

VENABLEEXHIBIT51OPINI_IMAGE1.JPG

American Finance Trust, Inc.
May 8, 2019
Page 2



6.    Resolutions adopted by the Board of Directors of the Company (the “Board”) relating to, among other matters, (a) the authorization of the sale, issuance and registration of the Shares and the execution and delivery of the Distribution Agreement and (b) the delegation to a Trading Authorization Committee (the “Committee”) of the power to determine, subject to certain parameters, the number of Shares and the offering price of each Share to be sold in each Offering (the “Resolutions”), certified as of the date hereof by an officer of the Company;

7.    The Equity Distribution Agreement, dated as of the date hereof (the “Distribution Agreement”), by and among the Company, American Finance Operating Partnership, L.P., a Delaware limited partnership, and BMO Capital Markets Corp., KeyBanc Capital Markets Corp., SunTrust Robinson Humphrey, Inc., BBVA Securities Inc., Citizens Capital Markets, Inc., B. Riley FBR, Inc. and Ladenburg Thalmann & Co. Inc., as agents;

8.    A certificate executed by an officer of the Company, dated as of the date hereof; and

9.    Such other documents and matters as we have deemed necessary or appropriate to express the opinion set forth below, subject to the assumptions, limitations and qualifications stated herein.

In expressing the opinion set forth below, we have assumed the following:

1.      Each individual executing any of the Documents, whether on behalf of such individual or any other person, is legally competent to do so.

2.      Each individual executing any of the Documents on behalf of a party (other than the Company) is duly authorized to do so.

3.      Each of the parties (other than the Company) executing any of the Documents has duly and validly executed and delivered each of the Documents to which such party is a signatory, and such party’s obligations set forth therein are legal, valid and binding and are enforceable in accordance with all stated terms.

4.      All Documents submitted to us as originals are authentic. The form and content of all Documents submitted to us as unexecuted drafts do not differ in any respect relevant to this opinion from the form and content of such Documents as executed and delivered. All Documents submitted to us as certified or photostatic copies conform to the original documents. All signatures on all Documents are genuine. All public records reviewed or relied upon by us or on our behalf are true and complete. All representations, warranties, statements and information contained in the Documents are true and complete. There has been no oral or written modification of or amendment to any of the Documents, and there has been no waiver of any provision of any of the Documents, by action or omission of the parties or otherwise.

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American Finance Trust, Inc.
May 8, 2019
Page 3



5.      The Shares will not be issued in violation of any restriction or limitation contained in Section 5.7 of Article V of the Charter.
6.      Upon the issuance of any of the Shares, the total number of shares of Class A Common Stock issued and outstanding will not exceed the total number of shares of Class A Common Stock that the Company is then authorized to issue under the Charter.
7.      The number of Shares, and the offering price of each Share, to be issued by the Company from time to time pursuant to the Distribution Agreement will be authorized and approved by the Board or the Committee in accordance with the Maryland General Corporation Law, the Charter, the Bylaws and the Resolutions (with such approvals referred to hereinafter as the “Corporate Proceedings”) prior to the issuance thereof.
Based upon the foregoing, and subject to the assumptions, limitations and qualifications stated herein, it is our opinion that:

1.      The Company is a corporation duly incorporated and existing under and by virtue of the laws of the State of Maryland and is in good standing with the SDAT.

2.      The issuance of the Shares has been duly authorized by the Company and, when issued and delivered against payment therefor in accordance with the Distribution Agreement, the Resolutions and the Corporate Proceedings, the Shares will be validly issued, fully paid and nonassessable.

The foregoing opinion is limited to the laws of the State of Maryland and we do not express any opinion herein concerning federal law or the laws of any other state. We express no opinion as to compliance with any federal or state securities laws, including the securities laws of the State of Maryland, or as to federal or state laws regarding fraudulent transfers. To the extent that any matter as to which our opinion is expressed herein would be governed by the laws of any jurisdiction other than the State of Maryland, we do not express any opinion on such matter. The opinion expressed herein is subject to the effect of judicial decisions which may permit the introduction of parol evidence to modify the terms or the interpretation of agreements.

The opinion expressed herein is limited to the matters specifically set forth herein and no other opinion shall be inferred beyond the matters expressly stated. We assume no obligation to supplement this opinion if any applicable law changes after the date hereof or if we become aware of any fact that might change the opinion expressed herein after the date hereof.
This opinion is being furnished to you for submission to the Commission as an exhibit to the Company’s Quarterly Report on Form 10-Q relating to the Offerings (the “Quarterly Report”), which is incorporated by reference in the Registration Statement. We hereby consent to the filing of this opinion as an exhibit to the Quarterly Report and the said incorporation by reference and to the use of the name of our firm therein. In giving this consent, we do not admit that we are within the category of persons whose consent is required by Section 7 of the 1933 Act.

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American Finance Trust, Inc.
May 8, 2019
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Very truly yours,
/s/ Venable LLP




























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Exhibit 5.2

May 8, 2019


American Finance Trust, Inc.
405 Park Avenue
New York, New York 10022

Re:     Registration Statement on Form S-3 (File No. 333-226252)

Ladies and Gentlemen:

We have served as Maryland counsel to American Finance Trust, Inc., a Maryland corporation (the “Company”), in connection with certain matters of Maryland law arising out of the registration of up to $50,000,000 aggregate offering price of shares (the “Shares”) of 7.50% Series A Cumulative Redeemable Perpetual Preferred Stock, $0.01 par value per share (the “Series A Preferred Stock”), of the Company, covered by the above-referenced Registration Statement, and all amendments thereto (the “Registration Statement”), filed by the Company with the United States Securities and Exchange Commission (the “Commission”) under the Securities Act of 1933, as amended (the “1933 Act”). The Shares are to be issued pursuant to the Prospectus Supplement and the Distribution Agreement (each as defined below) in one or more transactions deemed to be “at the market” offerings (each, an “Offering” and, collectively, the “Offerings”) under Rule 415 of the 1933 Act.

In connection with our representation of the Company, and as a basis for the opinion hereinafter set forth, we have examined originals, or copies certified or otherwise identified to our satisfaction, of the following documents (hereinafter collectively referred to as the “Documents”):

1.    The Registration Statement;

2.    The Prospectus, dated July 20, 2018, as supplemented by a Prospectus Supplement, dated May 8, 2019 (the “Prospectus Supplement”), filed with the Commission pursuant to Rule 424(b) of the General Rules and Regulations promulgated under the 1933 Act;

3.    The charter of the Company (the “Charter”), certified by the State Department of Assessments and Taxation of Maryland (the “SDAT”);

4.    The Amended and Restated Bylaws of the Company, certified as of the date hereof by an officer of the Company;
5.    A certificate of the SDAT as to the good standing of the Company, dated as of a recent date;

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6.    Resolutions adopted by the Board of Directors of the Company (the “Board”) relating to, among other matters, (a) the authorization of the sale, issuance and registration of the Shares and the execution and delivery of the Distribution Agreement and (b) the delegation to a Trading Authorization Committee (the “Committee”) of the power to determine, subject to certain parameters, the number of Shares and the offering price of each Share to be sold in each Offering (the “Resolutions”), certified as of the date hereof by an officer of the Company;

7.    The Equity Distribution Agreement, dated as of the date hereof (the “Distribution Agreement”), by and among the Company, American Finance Operating Partnership, L.P., a Delaware limited partnership, and BMO Capital Markets Corp., KeyBanc Capital Markets Corp., SunTrust Robinson Humphrey, Inc., BBVA Securities Inc., Citizens Capital Markets, Inc., B. Riley FBR, Inc. and Ladenburg Thalmann & Co. Inc., as agents;

8.    A certificate executed by an officer of the Company, dated as of the date hereof; and

9.    Such other documents and matters as we have deemed necessary or appropriate to express the opinion set forth below, subject to the assumptions, limitations and qualifications stated herein.

In expressing the opinion set forth below, we have assumed the following:

1.      Each individual executing any of the Documents, whether on behalf of such individual or any other person, is legally competent to do so.

2.      Each individual executing any of the Documents on behalf of a party (other than the Company) is duly authorized to do so.

3.      Each of the parties (other than the Company) executing any of the Documents has duly and validly executed and delivered each of the Documents to which such party is a signatory, and such party’s obligations set forth therein are legal, valid and binding and are enforceable in accordance with all stated terms.

4.      All Documents submitted to us as originals are authentic. The form and content of all Documents submitted to us as unexecuted drafts do not differ in any respect relevant to this opinion from the form and content of such Documents as executed and delivered. All Documents submitted to us as certified or photostatic copies conform to the original documents. All signatures on all Documents are genuine. All public records reviewed or relied
upon by us or on our behalf are true and complete. All representations, warranties, statements and information contained in the Documents are true and complete. There has been no oral or written modification of or amendment to any of the Documents, and there has been no waiver of any provision of any of the Documents, by action or omission of the parties or otherwise.

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5.      The Shares will not be issued in violation of any restriction or limitation contained in Section 5.7 of Article V of the Charter.
6.      Upon the issuance of any of the Shares, the total number of shares of Series A Preferred Stock issued and outstanding will not exceed the total number of shares of Series A Preferred Stock that the Company is then authorized to issue under the Charter.
7.      The number of Shares, and the offering price of each Share, to be issued by the Company from time to time pursuant to the Distribution Agreement will be authorized and approved by the Board or the Committee in accordance with the Maryland General Corporation Law, the Charter, the Bylaws and the Resolutions (with such approvals referred to hereinafter as the “Corporate Proceedings”) prior to the issuance thereof.
Based upon the foregoing, and subject to the assumptions, limitations and qualifications stated herein, it is our opinion that:

1.      The Company is a corporation duly incorporated and existing under and by virtue of the laws of the State of Maryland and is in good standing with the SDAT.

2.      The issuance of the Shares has been duly authorized by the Company and, when issued and delivered against payment therefor in accordance with the Distribution Agreement, the Resolutions and the Corporate Proceedings, the Shares will be validly issued, fully paid and nonassessable.

The foregoing opinion is limited to the laws of the State of Maryland and we do not express any opinion herein concerning federal law or the laws of any other state. We express no opinion as to compliance with any federal or state securities laws, including the securities laws of the State of Maryland, or as to federal or state laws regarding fraudulent transfers. To the extent that any matter as to which our opinion is expressed herein would be governed by the laws of any jurisdiction other than the State of Maryland, we do not express any opinion on such matter. The opinion expressed herein is subject to the effect of judicial decisions which may permit the introduction of parol evidence to modify the terms or the interpretation of agreements.

The opinion expressed herein is limited to the matters specifically set forth herein and no other opinion shall be inferred beyond the matters expressly stated. We assume no obligation to supplement this opinion if any applicable law changes after the date hereof or if we become aware of any fact that might change the opinion expressed herein after the date hereof.
This opinion is being furnished to you for submission to the Commission as an exhibit to the Company’s Quarterly Report on Form 10-Q relating to the Offerings (the “Quarterly Report”), which is incorporated by reference in the Registration Statement. We hereby consent to the filing of this opinion as an exhibit to the Quarterly Report and the said incorporation by reference and to the use of the name of our firm therein. In giving this consent, we do not admit that we are within the category of persons whose consent is required by Section 7 of the 1933 Act.

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American Finance Trust, Inc.
May 8, 2019
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Very truly yours,
/s/ Venable LLP



























125145/434023

46501389-v2

Exhibit 31.1
CERTIFICATION PURSUANT TO RULE 13a-14(a) AND 15d-14(a) UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED

I, Edward M. Weil, Jr., certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of American Finance Trust, Inc. ;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated this 8th day of May, 2019
 
/s/ Edward M. Weil, Jr.
 
 
Edward M. Weil, Jr.
 
 
Chief Executive Officer and President
 
 
(Principal Executive Officer)






Exhibit 31.2
CERTIFICATION PURSUANT TO RULE 13a-14(a) AND 15d-14(a) UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED

I, Katie P. Kurtz, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of American Finance Trust, Inc. ;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated this 8th day of May, 2019
 
/s/ Katie P. Kurtz
 
 
Katie P. Kurtz
 
 
Chief Financial Officer, Treasurer and Secretary
 
 
(Principal Financial Officer and Principal Accounting Officer)







Exhibit 32
SECTION 1350 CERTIFICATIONS

This Certificate is being delivered pursuant to the requirements of Section 1350 of Chapter 63 (Mail Fraud) of Title 18 (Crimes and Criminal Procedures) of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
The undersigned, who are the Chief Executive Officer and Chief Financial Officer of American Finance Trust, Inc. (the “Company”), each hereby certify as follows:
The Quarterly Report on Form 10-Q of the Company, which accompanies this Certificate, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and all information contained in this quarterly report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated this 8th day of May, 2019

 
/s/ Edward M. Weil, Jr.
 
Edward M. Weil, Jr.
 
Chief Executive Officer and President
 
(Principal Executive Officer)
 
 
 
 
 
 
 
/s/ Katie P. Kurtz
 
Katie P. Kurtz
 
Chief Financial Officer, Treasurer and Secretary
 
(Principal Financial Officer and Principal Accounting Officer)