RTLPP Necessity Retail REIT Inc

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

Date of Report (Date of earliest event reported): August 3, 2023

 

The Necessity Retail REIT, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

Maryland		001-38597		90-0929989
(State or other jurisdiction of incorporation)		(Commission File Number)		(I.R.S. Employer Identification No.)

 

650 Fifth Avenue, 30th Floor New York, New York	10019
(Address of Principal Executive Offices)	(zip code)

 

Registrant’s telephone number, including area code: (212) 415-6500

 

Former name or former address, if changed since last report: Not Applicable

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Securities registered pursuant to section 12(b) of the Act:

 

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Class A Common Stock, $0.01 par value per share		RTL		The Nasdaq Global Select Market
7.50% Series A Cumulative Redeemable Perpetual Preferred Stock, $0.01 par value per share		RTLPP		The Nasdaq Global Select Market
7.375% Series C Cumulative Redeemable Perpetual Preferred Stock, $0.01 par value per share		RTLPO		The Nasdaq Global Select Market
Preferred Stock Purchase Rights				The Nasdaq Global Select Market

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

 

Item 7.01. Regulation FD Disclosure.

 

Earnings Call Script

 

On August 3, 2023, The Necessity Retail REIT, Inc. (the “Company”) hosted a conference call to discuss its financial and operating results for the quarter ended June 30, 2023. A transcript of the pre-recorded portion of the conference call is furnished as Exhibit 99.1 to this Current Report on Form 8-K. As previously disclosed, a replay of the entire conference call is available through November 3, 2023 by telephone as follows:

 

Domestic Dial-In (Toll Free): 1-844-512-2921

International Dial-In: 1-412-317-6671

Conference Number: 13737312 

 

The information set forth in Item 7.01 of this Current Report on Form 8-K and in the attached Exhibit 99.1 is deemed to be “furnished” and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that Section. The information set forth in Item 7.01 of this Current Report on Form 8-K, including Exhibit 99.1, shall not be deemed incorporated by reference into any filing under the Exchange Act or the Securities Act of 1933, as amended, regardless of any general incorporation language in such filing.

 

 

The statements in this Current Report on Form 8-K that are not historical facts may be forward-looking statements. These forward-looking statements involve risks and uncertainties that could cause actual results or events to be materially different. In addition, words such as “may,” “will,” “seeks,” “anticipates,” “believes,” “estimates,” expects,” “plans,” “intends,” “would,” or similar expressions indicate a forward-looking statement, although not all forward-looking statements contain these identifying words. Any statements referring to the future value of an investment in the Company, including the adjustments giving effect to the Company merging with and into Osmosis Sub I, LLC, with Osmosis Sub I continuing as the surviving entity and wholly-owned subsidiary of GNL (the “REIT Merger”) and GNL and the Company becoming internally managed (the “Internalization Merger”) as described in this communication, as well as the potential success that the Company may have in executing the REIT Merger and Internalization Merger, are also forward-looking statements. There are a number of risks, uncertainties and other important factors that could cause the Company’s actual or anticipated results to differ materially from those contemplated by such forward-looking statements, including but not limited to: (i) the Company’s ability to complete the REIT Merger and the Internalization Merger on the proposed terms or on the anticipated timeline, or at all, including risks and uncertainties related to securing the necessary stockholder approvals and satisfaction of other closing conditions to consummate the proposed transactions, (ii) the occurrence of any event, change or other circumstance that could give rise to the termination of the Internalization Merger Agreement and REIT Merger Agreement, each dated as of May 23, 2023 relating to the proposed transactions, (iii) the Company’s ability to obtain consents of applicable counterparties to certain of its lending agreements identified in the REIT Merger Agreement, (iv) failure to realize the expected benefits of the REIT Merger and the Internalization Merger, (v) significant transaction costs or unknown or inestimable liabilities, (vi) risks related to diverting the attention of the Company’s management from ongoing business operations, (vii) the risk of shareholder litigation in connection with the proposed transaction, including resulting expense or delay, (viii) the risk that the Company’s business will not be integrated successfully or that such integration may be more difficult, time-consuming or costly than expected; (ix) risks related to the market value of the GNL’s common stock to be issued in the proposed transactions; (x) potential adverse effects of the ongoing global COVID-19 pandemic, including actions taken to contain or treat COVID-19, on the Company, the Company’s tenants and the global economy and financial market, (x) the risk that one or more parties to the REIT Merger Agreement may not fulfil its obligations under the agreement, as well as the additional risks, uncertainties and other important factors set forth in the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on February 23, 2023, and all other filings with the SEC after that date, including, but not limited to, the Company’s quarterly report on Form 10-Q as of and for the quarter ended June 30, 2023, as such risks, uncertainties and other important factors may be updated from time to time in the Company’s subsequent reports. Further, forward-looking statements speak only as of the date they are made, and Company undertakes 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, except as required by law.

 

Item 9.01. Financial Statements and Exhibits.

 

(d) Exhibits

 

Exhibit No.		Description
99.1		Transcript
104		Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL Document.

 

 

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.

 

THE NECESSITY RETAIL REIT, INC.
By:	/s/ Edward M. Weil, Jr.
	Edward M. Weil, Jr.
	Chief Executive Officer and President (Principal Executive Officer)

 

Dated: August 3, 2023

 

 

Exhibit 99.1

 

The Necessity Retail REIT, Inc. (NASDAQ:RTL) Q2 2023 Earnings Conference Call

 

Executives

 

Michael Weil - President & CEO

Jason Doyle - CFO

Curtis Parker - Senior Vice President

 

Operator

 

Good morning and welcome to the Necessity Retail REIT, Inc. Second Quarter 2023 Earnings Call. [Operator Instructions]. I would now like to turn the conference over to Curtis Parker, Senior Vice President. Please go ahead.

 

Curtis Parker

 

Thank you, operator.

 

Good morning everyone and thank you for joining us. This call is being webcast in the Investor Relations section of RTL's website at www.necessityretailreit.com. Joining me today on the call to discuss the results are Michael Weil, President and Chief Executive Officer, and Jason Doyle, Chief Financial Officer.

 

The following information contains forward-looking statements, which are subject to risks and uncertainties. Should one or more of these risks or uncertainties materialize, actual results may differ materially from those expressed or implied by the forward-looking statements. We refer all of you to our SEC filings including the Annual Report on Form 10-K for the year ended December 31, 2022 filed on February 23, 2023 and all other filings with the SEC after that date for a more detailed discussion of the risk factors that could cause these differences or otherwise impact our business.

 

 

Any forward-looking statements provided during this conference call are only made as of the date of this call. As stated in our SEC filings, RTL disclaims any intent or obligation to update or revise these forward-looking statements except as required to so by law. Also, during today's call, we will discuss non-GAAP financial measures, which we believe can be useful in evaluating the company's financial performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measure is available in our earnings release which is posted on our website. Please also refer to our earnings release for more information about what we consider to be implied investment grade tenants, a term we will use throughout today's call.

 

I'll now turn the call over to Mike Weil. Mike?

 

Mike Weil

 

Thanks, Curtis. Good morning and thank you all for joining us today.

 

Before we get into our results, I will provide a brief update on the proposed merger with Global Net Lease, which was announced in May and is expected to close next month. We expect that the merger with GNL - and the simultaneous internalization of GNL's management and operations, paired with numerous governance enhancements - will establish the third largest publicly traded, global net-lease REIT, with a portfolio that we believe is unmatched and positioned for long-term growth. GNL is one of the premier owners of international triple-net leased space and a leader in sale-leasebacks, particularly with multi-national companies.

 

RTL stockholders will receive 0.67 shares of GNL for each common share of RTL, which represented a 35% premium to RTL’s 30-day volume-weighted average price as of the transaction announcement on May 23, 2023. RTL stockholders are also expected to receive a 12% increase to the quarterly dividend they currently receive from RTL, and there is the potential for a credit rating upgrade upon the close of the transaction which could drive borrowing costs lower in the future. Following the closing of the merger, RTL shareholders are expected to benefit from becoming shareholders of a company that has a credit facility with an interest rate that we believe is 100 to 150 basis points lower than similar financing at RTL. By combining two complementary and sizable portfolios, we expect the merger to be 9% accretive to GNL's annualized AFFO per share in the first full quarter after the merger is completed, compared to the first quarter of 2023. Additionally, we anticipate the combined entity will have increased scale and operating efficiencies, along with reduced leverage and lower G&A expenses.

 

 

In July, the SEC declared the registration statement for the merger and internalization effective and we have set a record date of August 8, 2023 for the special meeting of stockholders to vote on the proposed merger, which will be on September 8, 2023. Based on the expected timeline, this may be the last time I get to provide a quarterly update for RTL and I look forward to updating you next quarter as co-CEO of GNL along with Jim Nelson. We are both very excited about the opportunities that lie ahead and will work to harness the potential of our large asset base, scaled post-closing capital structure, and deep tenant relationships to drive accretive growth for many years to come.

 

During the quarter we continued to make great progress on many of our key strategic objectives. We proactively leased available space, renewed leases with existing tenants, and enhanced our balance sheet through strategic dispositions. As a result, we reduced our net debt by approximately $74.0 million from the prior quarter. Our high-quality portfolio features an impressive Top 20 tenant roster that is 69% actual or implied investment grade with no one tenant representing more than 5% of annualized straight line rent as of June 30, 2023.

 

We completed over $100 million in strategic dispositions during the second quarter, bringing total dispositions for the first half of the year to $172.2 million. As previously announced, the largest disposition during the quarter was the $93 million sale of 44 Bob Evans restaurants, reducing our total portfolio exposure to casual dining to less than 2% from 4%, based on annualized straight-line rent. We believe the reduction of our exposure to this industry is prudent in a slowing economy. As we indicated we would on prior calls, we have been using the net proceeds from these sales to fortify our balance sheet by reducing our net debt, as we have previously.

 

 

The significant commitment we've made to asset and property management continues to deliver results. Our executed leases at the end of the second quarter 2023, plus our leasing pipeline as of August 1st will raise occupancy in our portfolio to 94.4%, up 2.3% from actual occupancy at the end of the previous quarter. In addition, we will increase straight line rent by $6.5 million, assuming executed leases commence and signed LOIs lead to definitive leases on their contemplated terms. New and renewal leases signed during the second quarter in our multi-tenant portfolio totaled over 710,000 square feet. This includes 245,000 square feet across 26 new leases with a combined $3.0 million of annualized straight-line rent plus 465,000 square feet on 41 lease renewals representing $7.1 million in annualized straight-line rent. In our single tenant portfolio we completed 17 lease renewals for 248,000 square feet, with annualized straight-line rent of $3.4 million.

 

Our leasing results continue to illustrate the quality of our assets, driving leasing rates higher even in the current environment. During the second quarter, the multi-tenant lease renewals we signed achieved a positive spread of 4.6% between the previous rent and the rent payable under the terms of the renewal, demonstrating the strong renewal demand for our suburban multi-tenant assets. The positive spread on renewal leases is both encouraging and consistent with the high demand we are experiencing at our shopping centers. Moreover, we have a robust leasing pipeline as of August 1st, which includes leases executed after the end of the second quarter and LOIs, of over 463,000 square feet for $5.5 million in annualized straight-line rent in the multi-tenant portfolio.

 

 

One of the strengths that RTL will contribute upon the completion of the merger with GNL is our broad, diversified retail portfolio. At quarter end, our $4.9 billion portfolio was comprised of 991 properties, with executed occupancy plus leasing pipeline of 94.4%, up from 91.3% a year ago, and a weighted-average remaining lease term of 6.9 years. We own properties in 46 states and the District of Columbia, and our tenants operate across 40 different industries, with no single state or single industry representing more than 8% of our portfolio and no tenant representing more than 5% of our portfolio based on straight-line rent. As of the quarter end, the tenants in our single-tenant portfolio were 65.9% actual or implied investment-grade rated, and 36.5% of anchor tenants in our multi-tenant portfolio were actual or implied investment-grade rated.

 

Based on straight-line rent, 64.9% of leases across the portfolio include contractual rent increases that grow the cash that is due under the leases over time by approximately 1.0% per year on average. At quarter end, 69.3% of our top 20 tenants were actual or implied investment grade rated. The necessity-based nature and high percentage of actual or implied investment grade tenants in our portfolio provide dependable long-term cash flows, and we believe the potential for continued rental growth remains through leasing up available space.

 

I am very proud of what we have accomplished at RTL in a turbulent market. Our team is consistently looking ahead to anticipate challenges and to develop new ways to grow, while maintaining the size and diversity of our portfolio to ensure no individual tenant or industry has an outsized effect on our results.

 

I'll turn it over to Jason Doyle to take us through the numbers in greater detail. Jason?

 

Jason Doyle

 

Thanks Mike. Second quarter revenue was $106.7 million, compared to $116.9 million in the second quarter of 2022, reflecting the disposition of 53 properties in the first half of the year. Second quarter revenue last year also benefited from a non-recurring $5.7 million lease termination payment. The net loss for the quarter was $53.5 million compared to a net loss of $56.3 million in the second quarter of 2022. Second quarter AFFO was $27.9 million or $0.21 per share, down compared to same quarter in 2022, which was $0.29 per share due to the benefit of the $5.7 million lease termination payment. AFFO per share decreased $0.02 from the prior quarter, primarily due to rejected leases related to the bankruptcies of former tenants TOMS King and American Car Centers. As always, a reconciliation of GAAP net income to non-GAAP measures can be found in our earnings release, supplement and Form 10-Q.

 

 

From a balance sheet perspective, Net debt decreased by $74.0 million in the second quarter, down to $2.6 billion with a weighted-average interest rate of 4.7%. Our net debt to gross asset value was 51.0% as of the end of the quarter. As Mike mentioned, although our net debt decreased from the strategic dispositions, our Net Debt to Adjusted EBITDA ratio ticked up this quarter to 9.9x from 9.6x last quarter. This increase is due to GAAP write-offs for lease rejections due to the tenant bankruptcies we’ve discussed. Excluding the impacts of these non-recurring write-offs, Net Debt to Adjusted EBITDA would have been 9.3x this quarter.

 

As of June 30, 2023, the components of our debt included $604.0 million drawn on our credit facility, $1.6 billion of outstanding secured debt and $500 million of senior unsecured notes. The amount drawn under our credit facility represents the entirety of our floating rate debt. Liquidity, which is measured as undrawn availability under our credit facility plus cash and cash equivalents, stood at $101.5 million, based on our June 30th cash balance and borrowing availability.

 

With that, I'll turn the call back to Mike for some closing remarks.

 

Mike Weil

 

Thanks, Jason.

 

We continue to execute on our asset management strategy while we work toward completion of the proposed merger with GNL. We believe that the RTL portfolio will be complementary to GNL's assets and that the combined company will enjoy the benefits of reduced leverage and increased prominence and scale as the third largest global net lease REIT. The all-stock merger represents a 35% premium to RTL shareholders at the time it was announced, and RTL shareholders are expected to see a 12% increase in dividends as a result of the transaction. The anticipated corporate synergies are expected to result in cost savings in G&A, along with the savings expected to be realized from the internalization of GNL's management team, which is expected to be accretive to AFFO in the first full quarter after completion of the merger. We also believe that upon the closure of the merger, the simplified corporate structure and enhanced corporate governance of the combined company will drive increased value. Given the increased size and scale, we expect to see growing institutional investor interest over time.

 

We look forward to new opportunities and the bright future for the combined company. I want to thank you all for your ownership of RTL, your thoughtful insight, and your trust in our management team. I look forward to talking to you next quarter as GNL shareholders after the closing of the merger. Operator, please open the line for questions.

 

Question-and-Answer Session

 

 

v3.23.2

Cover	Aug. 03, 2023
Document Information [Line Items]
Document Type	8-K
Amendment Flag	false
Document Period End Date	Aug. 03, 2023
Entity File Number	001-38597
Entity Registrant Name	The Necessity Retail REIT, Inc.
Entity Central Index Key	0001568162
Entity Tax Identification Number	90-0929989
Entity Incorporation, State or Country Code	MD
Entity Address, Address Line One	650 Fifth Avenue
Entity Address, Address Line Two	30th Floor
Entity Address, City or Town	New York
Entity Address, State or Province	NY
Entity Address, Postal Zip Code	10019
City Area Code	212
Local Phone Number	415-6500
Written Communications	false
Soliciting Material	false
Pre-commencement Tender Offer	false
Pre-commencement Issuer Tender Offer	false
Entity Emerging Growth Company	false
Common Stock [Member]
Document Information [Line Items]
Title of 12(b) Security	Class A Common Stock, $0.01 par value per share
Trading Symbol	RTL
Security Exchange Name	NASDAQ
Series A Preferred Stock [Member]
Document Information [Line Items]
Title of 12(b) Security	7.50% Series A Cumulative Redeemable Perpetual Preferred Stock, $0.01 par value per share
Trading Symbol	RTLPP
Security Exchange Name	NASDAQ
Series C Preferred Stock [Member]
Document Information [Line Items]
Title of 12(b) Security	7.375% Series C Cumulative Redeemable Perpetual Preferred Stock, $0.01 par value per share
Trading Symbol	RTLPO
Security Exchange Name	NASDAQ
Preferred Stock Purchase Rights [Member]
Document Information [Line Items]
Title of 12(b) Security	Preferred Stock Purchase Rights
No Trading Symbol Flag	true
Security Exchange Name	NASDAQ

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