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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
OR
☐ 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
AFIN-20210930_G1.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.)
650 Fifth Ave., 30th Floor, New York, NY                 10019
____________________________________________________ _________________________________________________
(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (212) 415-6500
Securities registered pursuant to section 12(b) of the Act:
Title of each class Trading Symbols Name of each exchange on which registered
Class A Common Stock, $0.01 par value per share AFIN The Nasdaq Global Select Market
7.50% Series A Cumulative Redeemable Perpetual Preferred Stock, $0.01 par value per share AFINP The Nasdaq Global Select Market
7.375% Series C Cumulative Redeemable Perpetual Preferred Stock, $0.01 par value per share AFINO The Nasdaq Global Select Market
Preferred Stock Purchase Rights 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 ☒ No ☐
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 ☒ No ☐
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 the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒   Accelerated filer ☐
Non-accelerated filer ☐ Smaller reporting company ☐
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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐ No ☒
As of October 29, 2021, the registrant had 123,506,474 shares of common stock outstanding.


AMERICAN FINANCE TRUST, INC.

TABLE OF CONTENTS

FORM 10-Q
Page
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2
PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

AMERICAN FINANCE TRUST, INC.

CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited)
September 30,
2021		 December 31,
2020
ASSETS  
Real estate investments, at cost:
Land $ 746,355  $ 723,316 
Buildings, fixtures and improvements 2,943,693  2,830,508 
Acquired intangible lease assets 462,378  454,245 
Total real estate investments, at cost 4,152,426  4,008,069 
Less: accumulated depreciation and amortization (723,792) (639,367)
Total real estate investments, net 3,428,634  3,368,702 
Cash and cash equivalents 98,989  102,860 
Restricted cash 15,863  10,537 
Deposits for real estate investments 752  137 
Derivative assets, at fair value 2,028  — 
Deferred costs, net 17,216  16,663 
Straight-line rent receivable 71,370  66,581 
Operating lease right-of-use assets 18,318  18,546 
Prepaid expenses and other assets (including $140 and $1,939 due from related parties as of September 30, 2021 and December 31, 2020, respectively)
 41,998  23,941 
Assets held for sale —  — 
Total assets $ 3,695,168  $ 3,607,967 
LIABILITIES AND EQUITY    
Mortgage notes payable, net $ 1,587,462  $ 1,490,798 
Credit facility 186,242  280,857 
Below market lease liabilities, net 79,809  78,674 
Accounts payable and accrued expenses (including $3,404 and $273 due to related parties as of September 30, 2021 and December 31, 2020, respectively)
 33,256  25,210 
Operating lease liabilities 19,209  19,237 
Derivative liabilities, at fair value —  123 
Deferred rent and other liabilities 9,976  9,794 
Dividends payable 6,000  3,675 
Total liabilities 1,921,954  1,908,368 
7.50% Series A cumulative redeemable perpetual preferred stock, $0.01 par value, liquidation preference $25.00 per share, 12,796,000 and 8,796,000 shares authorized, 7,933,711 and 7,842,008 issued and outstanding as of September 30, 2021 and December 31, 2020, respectively
 79  79 
7.375% Series C cumulative redeemable perpetual preferred stock, $0.01 par value, liquidation preference $25.00 per share, 11,536,000 and 3,680,000 shares authorized, 4,594,498 and 3,535,700 issued and outstanding as of September 30, 2021 and December 31, 2020, respectively
 46  35 
Common stock, $0.01 par value per share, 300,000,000 shares authorized, 123,506,474 and 108,837,209 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively
 1,235  1,088 
Additional paid-in capital 2,913,276  2,723,678 
Accumulated other comprehensive income (loss) 2,028  (123)
Distributions in excess of accumulated earnings (1,150,789) (1,055,680)
Total stockholders’ equity 1,765,875  1,669,077 
Non-controlling interests 7,339  30,522 
Total equity 1,773,214  1,699,599 
Total liabilities and equity $ 3,695,168  $ 3,607,967 

The accompanying notes are an integral part of these consolidated financial statements.
3
AMERICAN FINANCE TRUST, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
(In thousands, except per share data)
(Unaudited)
  Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Revenue from tenants
 $ 91,915  $ 78,489  $ 252,679  $ 227,987 
Operating expenses:      
Asset management fees to related party 9,880  6,918  25,123  20,741 
Property operating expense 13,384  14,226  40,152  39,049 
Impairment of real estate investments 4,554  —  4,645  11,502 
Acquisition, transaction and other costs 3,426  1,507  3,604  2,680 
Equity-based compensation
 4,149  3,235  13,779  9,693 
General and administrative 5,589  3,312  15,578  15,504 
Depreciation and amortization 32,762  34,951  97,509  104,729 
Total operating expenses
 73,744  64,149  200,390  203,898 
          Operating income before gain on sale of real estate investments
 18,171  14,340  52,289  24,089 
Gain on sale/exchange of real estate investments 478  2,178  775  6,456 
   Operating income
 18,649  16,518  53,064  30,545 
Other (expense) income:
Interest expense (19,232) (20,871) (58,927) (58,778)
Other income 18  871  62  1,004 
Total other expense, net
 (19,214) (20,000) (58,865) (57,774)
Net loss (565) (3,482) (5,801) (27,229)
Net (income) loss attributable to non-controlling interests (4) 10  4  39 
Allocation for preferred stock (5,837) (3,619) (17,425) (10,857)
Net loss attributable to common stockholders (6,406) (7,091) (23,222) (38,047)
Other comprehensive income (loss):
Change in unrealized income on derivatives 98  (546) 2,151  (546)
Comprehensive loss attributable to common stockholders $ (6,308) $ (7,637) $ (21,071) $ (38,593)
Weighted-average shares outstanding — Basic and Diluted
 118,862,852  108,429,315  112,770,685  108,393,269 
Net loss per share attributable to common stockholders — Basic and Diluted $ (0.06) $ (0.07) $ (0.21) $ (0.36)
 

The accompanying notes are an integral part of these consolidated financial statements.
4
AMERICAN FINANCE TRUST, INC.

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

Nine Months Ended September 30, 2021
Series A Preferred Stock Series C Preferred Stock Common Stock
  Number of
Shares		 Par Value Number of
Shares		 Par Value Number of
Shares		 Par Value Additional Paid-in
Capital		 Accumulated Other Comprehensive income (loss) Distributions in excess of accumulated earnings Total Stockholders’ Equity Non-controlling Interests Total Equity
Balance, December 31, 2020 7,842,008  $ 79  3,535,700  $ 35  108,837,209  $ 1,088  $ 2,723,678  $ (123) $ (1,055,680) $ 1,669,077  $ 30,522  $ 1,699,599 
Issuance of Common Stock, net —  —  —  —  14,456,837  145  125,937  —  —  126,082  —  126,082 
Issuance of Series A Preferred Stock, net 91,703  —  —  —  —  —  2,047  —  —  2,047  —  2,047 
Issuance of Series C Preferred Stock, net —  —  1,058,798  11  —  —  25,492  —  —  25,503  —  25,503 
Equity-based compensation (1)
 —  —  —  —  289,449  3  2,075  —  —  2,078  11,701  13,779 
Common stock shares withheld upon vesting of restricted stock —  —  —  —  (77,021) (1) (723) —  —  (724) —  (724)
Dividends declared on Common Stock,$0.63 per share
 —  —  —  —  —  —  —  —  (71,287) (71,287) —  (71,287)
Dividends declared on Series A Preferred Stock, $1.41 per share
 —  —  —  —  —  —  —  —  (11,172) (11,172) —  (11,172)
Dividends declared on Series C Preferred Stock, $1.45 per share
 —  —  —  —  —  —  —  —  (6,499) (6,499) —  (6,499)
Distributions to non-controlling interest holders —  —  —  —  —  —  —  —  (354) (354) (110) (464)
Net loss —  —  —  —  —  —  —  —  (5,797) (5,797) (4) (5,801)
Other comprehensive loss —  —  —  —  —  —  —  2,151  —  2,151  —  2,151 
Forfeiture of 2018 LTIP Units —  —  —  —  —  —  34,826  —  —  34,826  (34,826) — 
Rebalancing of ownership percentage —  —  —  —  —  —  (56) —  —  (56) 56  — 
Balance, September 30, 2021 7,933,711  $ 79  4,594,498  $ 46  123,506,474  $ 1,235  $ 2,913,276  $ 2,028  $ (1,150,789) $ 1,765,875  $ 7,339  $ 1,773,214 

Three Months Ended September 30, 2021
Series A Preferred Stock Series C Preferred Stock Common Stock
  Number of
Shares		 Par Value Number of
Shares		 Par Value Number of
Shares		 Par Value Additional Paid-in
Capital		 Accumulated Other Comprehensive income (loss) Distributions in excess of accumulated earnings Total Stockholders’ Equity Non-controlling Interests Total Equity
Balance, June 30, 2021 7,933,711  $ 79  4,594,498  $ 46  117,706,586  $ 1,177  $ 2,829,490  $ 1,930  $ (1,119,182) $ 1,713,540  $ 36,426  $ 1,749,966 
Issuance of Common Stock, net —  —  —  —  5,822,614  59  49,024  —  —  49,083  —  49,083 
Issuance of Series A Preferred Stock, net —  —  —  —  —  —  (109) —  —  (109) —  (109)
Issuance of Series C Preferred Stock, net —  —  —  —  —  —  (104) —  —  (104) —  (104)
Equity-based compensation (1)
 —  —  —  —  (4,150) —  312  —  154  466  5,773  6,239 
Common stock shares withheld upon vesting of restricted shares —  —  —  —  (18,576) (1) (164) —  —  (165) —  (165)
Dividends declared on Common Stock,$0.21 per share
 —  —  —  —  —  —  —  —  (25,190) (25,190) —  (25,190)
Dividends declared on Series A Preferred Stock, $0.47 per share
 —  —  —  —  —  —  —  —  (3,719) (3,719) —  (3,719)
Dividends declared on Series C Preferred Stock, $0.46 per share
 —  —  —  —  —  —  —  —  (2,119) (2,119) —  (2,119)
Distributions to non-controlling interest holders —  —  —  —  —  —  —  —  (164) (164) (37) (201)
Net loss —  —  —  —  —  —  —  —  (569) (569) 4  (565)
Other comprehensive loss —  —  —  —  —  —  —  98  —  98  —  98 
Forfeiture of 2018 LTIP Units —  —  —  —  —  —  34,826  —  —  34,826  (34,826) — 
Rebalancing of ownership percentage —  —  —  —  —  —  1  —  —  1  (1) — 
Balance, September 30, 2021 7,933,711  $ 79  4,594,498  $ 46  123,506,474  $ 1,235  $ 2,913,276  $ 2,028  $ (1,150,789) $ 1,765,875  $ 7,339  $ 1,773,214 
The accompanying notes are an integral part of these consolidated financial statements.

(1) Presented net of forfeitures. 24,025 restricted shares with a fair value of approximately $165,000 were forfeited during the period.
5
AMERICAN FINANCE TRUST, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands, except share data)
(Unaudited)
Nine Months Ended September 30, 2020
Preferred Stock Common Stock
  Number of
Shares		 Par Value Number of
Shares		 Par Value Additional Paid-in
Capital		 Accumulated Other Comprehensive income (loss) Distributions in excess of accumulated earnings Total Stockholders' Equity Non-controlling Interests Total Equity
Balance, December 31, 2019 6,917,230  $ 69  108,475,266  $ 1,085  $ 2,615,089  $ —  $ (932,912) $ 1,683,331  $ 18,899  $ 1,702,230 
Issuance of Common Stock, net —  —  —  —  (184) —  —  (184) —  (184)
Issuance of Preferred Stock, net 802,459  8  —  —  19,509  —  —  19,517  —  19,517 
Equity-based compensation —  —  361,943  3  797  —  —  800  8,893  9,693 
Dividends declared on Common Stock, $0.70 per share
 —  —  —  —  —  —  (75,954) (75,954) —  (75,954)
Dividends declared on Preferred Stock, $1.41 per share
 —  —  —  —  —  —  (10,856) (10,856) —  (10,856)
Distributions to non-controlling interest holders —  —  —  —  —  —  (315) (315) (120) (435)
Other comprehensive loss —  —  —  —  —  (546) —  (546) —  (546)
Net loss —  —  —  —  —  —  (27,190) (27,190) (39) (27,229)
Rebalancing of ownership percentage —  —  —  —  65  —  —  65  (65) — 
Balance, September 30, 2020 7,719,689  $ 77  108,837,209  $ 1,088  $ 2,635,276  $ (546) $ (1,047,227) $ 1,588,668  $ 27,568  $ 1,616,236 

Three Months Ended September 30, 2020
Preferred Stock Common Stock
  Number of
Shares		 Par Value Number of
Shares		 Par Value Additional Paid-in
Capital		 Accumulated Other Comprehensive income (loss) Distributions in excess of accumulated earnings Total Stockholders' Equity Non-controlling Interests Total Equity
Balance, June 30, 2020 7,719,689  $ 77  108,527,734  $ 1,085  $ 2,635,166  $ —  $ (1,016,977) $ 1,619,351  $ 24,678  $ 1,644,029 
Issuance of Common Stock, net —  —  —  —  (94) —  —  (94) —  (94)
Issuance of Preferred Stock, net —  —  —  —  (92) —  —  (92) —  (92)
Equity-based compensation
 —  —  309,475  3  269  —  —  272  2,963  3,235 
Dividends declared on Common Stock,$0.21 per share
 —  —  —  —  —  —  (23,065) (23,065) —  (23,065)
Dividends declared on Preferred Stock,$0.47 per share
 —  —  —  —  —  —  (3,618) (3,618) —  (3,618)
Distributions to non-controlling interest holders
 —  —  —  —  —  —  (95) (95) (36) (131)
Other comprehensive loss —  —  —  —  —  (546) —  (546) —  (546)
Net loss —  —  —  —  —  —  (3,472) (3,472) (10) (3,482)
Rebalancing of ownership percentage —  —  —  —  27  —  —  27  (27) — 
Balance, September 30, 2020 7,719,689  $ 77  108,837,209  $ 1,088  $ 2,635,276  $ (546) $ (1,047,227) $ 1,588,668  $ 27,568  $ 1,616,236 

The accompanying notes are an integral part of these consolidated financial statements.
6
AMERICAN FINANCE TRUST, INC.
  
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended September 30,
2021 2020
Cash flows from operating activities:    
Net (loss) income $ (5,801) $ (27,229)
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation 67,463  66,919 
Amortization of in-place lease assets 28,429  36,104 
Amortization of deferred leasing costs 1,617  1,707 
Amortization (including accelerated write-off) of deferred financing costs 7,991  5,813 
Amortization of mortgage (premiums) and discounts on borrowings, net (972) (1,670)
Accretion of market lease and other intangibles, net
 (3,450) (4,933)
Equity-based compensation 13,779  9,693 
Gain on sale/exchange of real estate investments (775) (6,456)
Impairment of real estate investments 4,645  11,502 
Payments of prepayment costs on mortgages 3,327  807 
Changes in assets and liabilities:
Straight-line rent receivable (5,068) (15,694)
Straight-line rent payable 190  244 
Prepaid expenses and other assets (16,316) (11,017)
Accounts payable and accrued expenses 5,282  4,963 
Deferred rent and other liabilities 182  (928)
Net cash provided by operating activities 100,523  69,825 
Cash flows from investing activities:
Capital expenditures (10,106) (6,901)
Investments in real estate and other assets (153,704) (158,014)
Proceeds from sale of real estate investments 4,579  6,707 
Deposits for real estate investments (615) (1,801)
Net cash used in investing activities (159,846) (160,009)
Cash flows from financing activities:    
Proceeds from mortgage notes payable 239,928  840,000 
Payments on mortgage notes payable (137,905) (624,240)
Proceeds from credit facility 30,500  205,000 
Payments on credit facility (125,114) (232,291)
Payments of financing costs and deposits (10,059) (30,192)
Payments of prepayment costs on mortgages (3,327) (807)
Common stock repurchases (560) — 
Distributions on LTIP Units and Class A Units (320) (436)
Dividends paid on Class A common stock (71,287) (75,951)
Dividends paid on Series A preferred stock (11,129) (10,537)
Dividends paid on Series C preferred stock (4,380) — 
Class A common stock offering costs —  (161)
   Proceeds from issuance of Series A preferred stock, net 1,974  19,530 
   Proceeds from issuance of Series C preferred stock, net 25,555  — 
Proceeds from issuance of Class A common stock, net 126,902  — 
Net cash provided by financing activities 60,778  89,915 
Net change in cash, cash equivalents and restricted cash 1,455  (269)
Cash, cash equivalents and restricted cash beginning of period 113,397  99,840 
Cash, cash equivalents and restricted cash end of period $ 114,852  $ 99,571 

The accompanying notes are an integral part of these consolidated financial statements.
7
AMERICAN FINANCE TRUST, INC.
  
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended September 30,
2021 2020
Cash and cash equivalents, end of period $ 98,989  $ 86,265 
Restricted cash, end of period 15,863  13,306 
Cash, cash equivalents and restricted cash end of period $ 114,852  $ 99,571 
Supplemental Disclosures:
Cash paid for interest, net of amounts capitalized $ 52,887  $ 54,965 
Cash paid for income and franchise taxes 1,112  665 
Non-Cash Investing and Financing Activities:
Accrued Series A preferred stock offering costs $ 70  $ 2 
Accrued Series C preferred stock offering costs 69  — 
Accrued Class A common stock offering costs 827  — 
Series A preferred stock dividend declared 3,719  3,619 
Series C preferred stock dividend declared 2,118  — 
Proceeds from real estate sales used to pay off related mortgage notes payable
 1,108  5,586 
Mortgage notes payable released in connection with disposition of real estate (1,108) (5,586)
Accrued capital expenditures 1,583  3,536 
Assets provided through real estate substitution —  (2,202)
Assets received through real estate substitution —  4,380 




The accompanying notes are an integral part of these consolidated financial statements.
8
AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021
(Unaudited)

Note 1 — Organization
American Finance Trust, Inc. (the “Company”), is an externally managed real estate investment trust for U.S. federal income tax purposes (“REIT”) focusing on acquiring and managing a diversified portfolio of primarily service-oriented and traditional retail and distribution-related commercial real estate properties located primarily in the United States. The Company’s assets consist 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, single-tenant service retail properties, defined as properties leased to tenants in the retail banking, restaurant, grocery, pharmacy, gas, convenience, fitness, and auto services sectors. As of September 30, 2021, the Company owned 968 properties, comprised of 20.1 million rentable square feet, which were 93.2% leased, including 935 single-tenant net leased commercial properties (893 of which are retail properties) and 33 multi-tenant retail properties.
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. American Finance Advisors, LLC (the “Advisor”) manages the Company’s day-to-day business with the assistance of the Company’s property manager, American Finance Properties, LLC (the “Property Manager”). The Advisor and the Property Manager are under common control with AR Global Investments, LLC (“AR Global”) and these related parties receive compensation and fees for providing services to us. The Company also reimburses these entities for certain expenses they incur in providing these services to the Company.
Note 2 — Summary of Significant Accounting Policies
Basis of Accounting
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 and nine month periods ended September 30, 2021 and 2020 are not necessarily indicative of the results for the entire year or any subsequent interim periods.
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, 2020, which are included in the Company’s Annual Report on Form 10-K filed with the SEC on February 25, 2021. 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 nine months ended September 30, 2021.
Principles of Consolidation
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 September 30, 2021 and December 31, 2020, the Company had no interests in entities that were not wholly owned.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Management makes significant estimates regarding revenue recognition, purchase price allocations to record investments in real estate, and fair value measurements, as applicable.


9
AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021
(Unaudited)
Impacts of the COVID-19 Pandemic
During the first quarter of 2020, the global COVID-19 pandemic that has spread around the world and to every state in the United States commenced. The pandemic has had and could continue to have an adverse impact on economic and market conditions, including a global economic slowdown, recession, or period of slow growth. The continued rapid development and fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19 on economic and market conditions. The Company believes the estimates and assumptions underlying its consolidated financial statements are reasonable and supportable based on the information available as of September 30, 2021, however uncertainty over the ultimate impact COVID-19 will have on the global economy generally, and the Company’s business in particular, makes any estimates and assumptions as of September 30, 2021 inherently less certain than they would be absent the current and potential impacts of COVID-19. Actual results may ultimately differ from those estimates.
The financial stability and overall health of tenants is critical to the Company’s business. The negative effects that the global pandemic has had on the economy includes the closure or reduction in activity for many retail operations such as some of those operated by the Company’s tenants (e.g., restaurants). This has impacted the ability of some of the Company’s tenants to pay their monthly rent either temporarily or in the long-term. The Company experienced delays in rent collections in the second, third and fourth quarters of 2020 and the first quarter of 2021. The Company took a proactive approach to achieve mutually agreeable solutions with its tenants and in some cases, in the second, third and fourth quarters of 2020 and throughout 2021, the Company has executed several types of lease amendments. These agreements include deferrals and abatements and also may include extensions to the term of the leases.
For accounting purposes, in accordance with ASC 842: Leases, normally a company would be required to assess a lease modification to determine if the lease modification should be treated as a separate lease and if not, modification accounting would be applied which would require a company to reassess the classification of the lease (including leases for which the prior classification under ASC 840 was retained as part of the election to apply the package of practical expedients allowed upon the adoption of ASC 842, which does not apply to leases subsequently modified). However, in light of the COVID-19 pandemic in which many leases are being modified, the FASB and SEC provided relief that allowed companies to make a policy election as to whether they treat COVID-19 related lease amendments as a provision included in the pre-concession arrangement, and therefore, not a lease modification, or to treat the lease amendment as a modification. In order to be considered COVID-19 related, cash flows must be substantially the same or less than those prior to the concession. For COVID-19 relief qualified changes, there are two methods to potentially account for such rent deferrals or abatements under the relief, (1) as if the changes were originally contemplated in the lease contract or (2) as if the deferred payments are variable lease payments contained in the lease contract. For all other lease changes that did not qualify for FASB relief, the Company is required to apply modification accounting including assessing classification under ASC 842.
Some, but not all of the Company’s lease modifications qualify for the FASB relief. In accordance with the relief provisions, instead of treating these qualifying leases as modifications, the Company has elected to treat the modifications as if previously contained in the lease and recast rents receivable prospectively (if necessary). Under that accounting, for modifications that were deferrals only, there would be no impact on overall rental revenue and for any abatement amounts that reduced total rent to be received, the impact would be recognized ratably over the remaining life of the lease.
For leases not qualifying for this relief, the Company has applied modification accounting and determined that there were no changes in the current classification of its leases impacted by negotiations with its tenants.
Revenue Recognition
The Company’s revenues, which are derived primarily from lease contracts, 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 September 30, 2021, these leases had an average remaining lease term of approximately 8.7 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 revenue from tenants, 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, the 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 the Company’s lease agreements, tenants are required to reimburse the Company 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.
10
AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021
(Unaudited)
Under ASC 842, the Company elected to report combined lease and non-lease components in a single line “Revenue from tenants.” For comparative purposes, the Company 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 table presents future base rent payments on a cash basis due to the Company over the next five years and thereafter. 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 September 30, 2021:
(In thousands) Future  Base Rent Payments
2021 (remainder) $ 69,143 
2022 274,645 
2023 261,254 
2024 245,207 
2025 227,540 
2026 210,747 
Thereafter 1,267,169 
  $ 2,555,705 
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 and nine months ended September 30, 2021, such amounts were $0.3 million and $0.9 million, respectively, and for the three and nine months ended September 30, 2020, such amounts were $0.4 million and $0.7 million, respectively.
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 leasing standard adopted on January 1, 2019 (see the “Recently Issued Accounting Pronouncements” section below), the Company is required to assess, based on credit risk only, if it is probable that the Company 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 not 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. In the second, third and fourth quarters of 2020 and throughout 2021, this assessment included consideration of the impacts of the COVID-19 pandemic on the ability of the Company’s tenants to pay rents in accordance with their contracts. The assessment included all of the Company’s tenants with a focus on the Company’s multi-tenant retail properties which have been more negatively impacted by the COVID-19 pandemic than the Company’s single-tenant properties.
11
AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021
(Unaudited)
In accordance with the lease accounting rules, the Company records uncollectable amounts as reductions in revenue from tenants. During the three months ended September 30, 2021 the Company recorded a net recovery of $0.1 million of uncollectable amounts during the period. During the nine months ended September 30, 2021, uncollectable amounts were $1.3 million, not including a recovery of $0.8 million relating to a lease settlement fee from a tenant in one of the Company’s multi-tenant properties that terminated its lease. Such amounts were $0.5 million and $5.2 million for the three and nine months ended September 30, 2020, respectively.
During the third quarter of 2021, the Company entered into a lease termination agreement with a tenant at 12 of its properties. The Company recorded approximately $10.5 million in revenue from tenants in the Company’s consolidated statements of operations for the three and nine months ended September 30, 2021 as a result of all of the accounting impacts of related to this lease termination. This amount consists of a lease termination fee of $10.4 million, a $0.7 million below market lease intangibles write off (see Note 3 — Real Estate Investments. Net), less $0.6 million in previously recorded straight-line rent receivables accrued on these leases. In addition, the nine months ended September 30, 2021 also includes $0.8 million in lease termination fees from a tenant in one of the Company’s multi-tenant properties that terminated its lease.
The $10.4 million termination fee is recorded in prepaid expenses and other assets on the Company’s consolidated balance sheet as of September 30, 2021. The payment was received by the Company in October 2021.
Investments in Real Estate
Investments in real estate are recorded at cost. Improvements and replacements are capitalized when they extend the useful life of the asset. Costs of repairs and maintenance are expensed as incurred. At the time an asset is acquired, the Company evaluates the inputs, processes and outputs of the asset acquired to determine if the transaction is a business combination or 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 and comprehensive loss. If an acquisition qualifies as an asset acquisition, the related transaction costs are generally capitalized and subsequently amortized over the useful life of the acquired assets. See the Purchase Price Allocation section in this Note for a discussion of the initial accounting for investments in real estate.
Disposal of real estate investments that represent a strategic shift in operations that will have a major effect on the Company's operations and financial results are required to be presented as discontinued operations in the consolidated statements of operations. No properties were presented as discontinued operations during the quarters ended September 30, 2021 and 2020. Properties that are intended to be sold are to be designated as “held for sale” on the consolidated balance sheets at the lesser of carrying amount or fair value less estimated selling costs when they meet specific criteria to be presented as held for sale, most significantly that the sale is probable within one year. The Company evaluates probability of sale based on specific facts including whether a sales agreement is in place and the buyer has made significant non-refundable deposits. Properties are no longer depreciated when they are classified as held for sale. As of September 30, 2021, no properties were considered held for sale, and as of December 31, 2020, the Company had no properties classified as held for sale.
In accordance with the lease accounting standard, all of the Company’s leases as lessor prior to adoption of ASC 842 were accounted for as operating leases and the Company continued to account for them as operating leases under the transition guidance. The Company evaluates new leases originated after the adoption date (by the Company or by a predecessor lessor/owner) pursuant to the new guidance where a lease for some or all of a building is classified by a lessor as a sales-type lease if the significant risks and rewards of ownership reside with the tenant. This situation is met if, among other things, there is an automatic transfer of title during the lease, a bargain purchase option, the non-cancelable lease term is for more than major part of remaining economic useful life of the asset (e.g., equal to or greater than 75%), if the present value of the minimum lease payments represents substantially all (e.g., equal to or greater than 90%) of the leased property’s fair value at lease inception, or if the asset so specialized in nature that it provides no alternative use to the lessor (and therefore would not provide any future value to the lessor) after the lease term. Further, such new leases would be evaluated to consider whether they would be failed sale-leaseback transactions and accounted for as financing transactions by the lessor. During the three and nine months ended September 30, 2021 or year ended December 31, 2020, the Company had no leases as a lessor that would be considered as sales-type leases or financings under sale-leaseback rules.
The Company is also the lessee under certain land leases which were previously classified prior to adoption of lease accounting and will continue to be classified as operating leases under transition elections unless subsequently modified. These leases are reflected on the balance sheet and the rent expense is reflected on a straight-line basis over the lease term.
12
AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021
(Unaudited)
Purchase Price Allocation
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 on an as if vacant basis. Intangible assets may include the value of in-place leases and 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 and nine month periods ended September 30, 2021 and 2020 were asset acquisitions.
For acquired properties with leases classified as operating leases, the Company allocates the purchase price to tangible and identifiable intangible assets acquired and liabilities assumed based on their respective fair values. 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.
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. The Company estimates fair value using data from appraisals, comparable sales, discounted cash flow analysis and other methods. Fair value estimates are also made using significant assumptions such as capitalization rates, fair market lease rates, discount rates, and land values per square foot.
Identifiable intangible assets include amounts allocated to acquired leases for above- and below-market lease rates and the value of in-place leases. 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.
Gain on Sale/Exchange of Real Estate Investments
Gains on sales of rental real estate are not considered sales to customers and are generally recognized pursuant to the provisions included in ASC 610-20, Gains and Losses from the Derecognition of Nonfinancial Assets (“ASC 610-20”).
In accordance with ASC 845-10, Accounting for Non-Monetary Transactions, if a nonmonetary exchange has commercial substance, the cost of a nonmonetary asset acquired in exchange for another nonmonetary asset is the fair value of the asset surrendered to obtain it, and a gain or loss shall be recognized on the exchange.
13
AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021
(Unaudited)
Impairment of Long-Lived Assets
When circumstances indicate the carrying value of a property may not be recoverable, the Company reviews 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 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.
Depreciation and Amortization
Depreciation is computed using the straight-line method over the estimated useful lives of up to 40 years for buildings, 15 years  for land improvements, five years for fixtures and improvements and the shorter of the useful life or the remaining lease term for tenant improvements and leasehold interests.
The value of in-place leases, exclusive of the value of above-market and below-market in-place leases, is amortized to expense over the remaining periods of the respective leases.
The value of customer relationship intangibles, if any, is amortized to expense over the initial term of the lease and any renewal periods in the respective leases, but in no event does the amortization period for intangible assets exceed the remaining depreciable life of the building. If a tenant terminates its lease, the unamortized portion of the in-place lease value and customer relationship intangibles is charged to expense.
Assumed mortgage premiums or discounts are amortized as an increase or reduction to interest expense over the remaining terms of the respective mortgages.
Above and Below-Market Lease Amortization
Capitalized above-market lease values are amortized as a reduction of revenue from tenants over the remaining terms of the respective leases and the capitalized below-market lease values are amortized as an increase to revenue from tenants 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.
Capitalized above-market ground lease values are amortized as a reduction of property operating expense over the remaining terms of the respective leases. Capitalized below-market ground lease values are amortized as an increase to property operating expense over the remaining terms of the respective leases and expected below-market renewal option periods.
Upon termination of an above or below-market lease any unamortized amounts would be recognized in the period of termination.
Equity-Based Compensation
The Company has stock-based plans under which its directors, officers and other employees of the Advisor or its affiliates who are involved in providing services to the Company are eligible to receive awards. Awards granted thereunder are 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 an award is included in the equity-based compensation line item of the consolidated statements of operations and is 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 of the Company’s Class A Common Stock, $0.01 par value per share (“Class A common stock”) on The Nasdaq Global Select Market (“Nasdaq”) on July 19, 2018 (the “Listing Date ”), 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 were market-based awards with a related required service period. In accordance with ASC 718, the LTIP Units were valued at their grant date and that value was reflected as a charge to earnings evenly over the service period. The expense for the LTIP Units was included in the equity-based compensation line item of the consolidated statements of operations. The cumulative expense is reflected as part of non-controlling interest in the Company’s balance sheets and statements of equity.
14
AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021
(Unaudited)
On May 4, 2021, the Company’s independent directors, acting as a group, authorized the issuance of a new award of LTIP Units after the performance period under the 2018 OPP expired on July 19, 2021, with the number of LTIP Units to be issued to the Advisor to be equal to the quotient of $72.0 million divided by the ten-trading day trailing average closing stock price of the Company’s Class A common stock for the ten trading days up to and including July 19, 2021 (the “Initial Share Price”). This resulted in $5.2 million of additional expense for equity-based compensation during the nine months ended September 30, 2021. On July 21, 2021, the Company entered into the multi-year outperformance agreement with the Advisor (the “2021 OPP”) pursuant to which the Advisor was granted an award of 8,528,885 LTIP Units, representing the quotient of $72.0 million divided by $8.4419, the Initial Share Price. As a result, the LTIP Units issued under the 2021 OPP were reclassified as an equity award with the cumulative expense reflected as part of non-controlling interest in the Company’s consolidated balance sheets and equity statements. For additional information, see Note 12— Equity-Based Compensation.
In the event of a modification of any of the awards discussed above, 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. For additional information on these awards, see Note 12 — Equity-Based Compensation.
Following the end of the performance period under the 2018 OPP on July 19, 2021, the compensation committee of the board of directors of the Company determined that none of the 4,496,796 of the LTIP Units subject to the 2018 OPP had been earned, and these LTIP Units were thus automatically forfeited. On that date, the Company reclassified amounts reflected in non-controlling interest for these LTIP Units to additional paid in capital on its balance sheet and statement of equity.
Accounting for Leases
Lessor Accounting
As a lessor of real estate, 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 the accounting guidance. Indirect leasing costs in connection with new or extended tenant leases, if any, are being expensed.
Lessee Accounting
For lessees, the accounting 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 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. For additional information and disclosures related to the Company’s operating leases, see Note 9 — Commitments and Contingencies.
Recently Issued Accounting Pronouncements
Adopted as of January 1, 2020:
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 amended standard 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
15
AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021
(Unaudited)
effective for the Company beginning on January 1, 2020. The Company adopted the new guidance on January 1, 2020 and determined it did not have a material impact on its consolidated financial statements.
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 amended guidance is effective for the Company beginning on January 1, 2020. The Company adopted the new guidance on January 1, 2020 and determined it did not have a material impact on its consolidated financial statements.
Pending Adoption:
In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Topic 470) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Topic 815). The new standard reduces the number of accounting models for convertible debt instruments and convertible preferred stock, and amends the guidance for the derivatives scope exception for contracts in an entity's own equity. The standard also amends and makes targeted improvements to the related earnings per share guidance. The new standard is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The standard allows for either modified or full retrospective transition methods. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848). Topic 848 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in Topic 848 is optional and may be elected over the period March 12, 2020 through December 31, 2022 as reference rate reform activities occur. During the year ended December 31, 2020, the Company elected to apply the hedge accounting expedients related to (i) the assertion that its hedged forecasted transactions remain probable and (ii) the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of the Company’s derivatives, which will be consistent with its past presentation. The Company will continue to evaluate the impact of the guidance and may apply other elections, as applicable, as additional changes in the market occur.
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.
Nine Months Ended September 30,
(Dollar amounts in thousands)
2021 (2)
 2020
Real estate investments, at cost:
Land $ 27,168  $ 33,935 
Buildings, fixtures and improvements 113,576  105,447 
Total tangible assets 140,744  139,382 
Acquired intangible assets and liabilities: (1)
In-place leases 19,121  18,915 
Above-market lease assets
 —  1,743 
Below-market lease liabilities
 (6,161) (2,026)
Total intangible assets, net 12,960  18,632 
Consideration paid for acquired real estate investments, net of liabilities assumed $ 153,704  $ 158,014 
Number of properties purchased 56  72 
________
(1)Weighted-average remaining amortization periods for in-place leases and below-market lease liabilities acquired during the nine months ended September 30, 2021 were 14.9 years and 19.2 years, respectively, as of each property’s respective acquisition date. No above-market lease assets were acquired during the nine months ended September 30, 2021.
16
AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021
(Unaudited)
(2)Includes two acquisitions of parcels adjacent to one of the Company’s multi-tenant properties.

The following table presents amortization expense and adjustments to revenue from tenants and property operating expenses for intangible assets and liabilities during the periods presented:
Three Months Ended September 30, Nine Months Ended September 30,
(In thousands) 2021 2020 2021 2020
In-place leases, included in depreciation and amortization (1)
 $ 9,220  $ 12,768  $ 28,429  $ 36,104 
Above-market lease intangibles $ (587) $ (747) $ (1,877) $ (2,149)
Below-market lease liabilities (2)
 2,075  2,412  5,371  7,120 
Total included in revenue from tenants
 $ 1,488  $ 1,665  $ 3,494  $ 4,971 
Below-market ground lease asset (3)
 $ 8  $ 8  $ 24  $ 24 
Above-market ground lease liability (3)
 —  —  —  (1)
Total included in property operating expenses
 $ 8  $ 8  $ 24  $ 23 
______
(1) Includes approximately $3.3 million in accelerated write-offs in the nine months ended September 30, 2020 as a result of tenant lease terminations.
(2)    Includes approximately $0.7 million in accelerated write-offs in the three and nine months ended September 30, 2021 as a result of a tenant’s lease termination for 12 properties.
(3) In accordance with lease accounting rules effective January 1, 2019, intangible balances related to ground leases are included as part of the operating lease right-of-use assets presented on the consolidated balance sheet and the amortization expense of such balances is included in property operating expenses on the consolidated statement of operations and comprehensive loss.
The following table provides the projected amortization expense and adjustments to revenue from tenants for intangible assets and liabilities for the next five years:
(In thousands) 2021 (remainder) 2022 2023 2024 2025
In-place leases, to be included in depreciation and amortization $ 8,986  $ 34,178  $ 31,793  $ 29,144  $ 25,946 
Above-market lease intangibles $ 568  $ 2,069  $ 1,767  $ 1,653  $ 1,290 
Below-market lease liabilities (1,643) (6,363) (6,221) (6,026) (5,800)
Total to be included in revenue from tenants
 $ (1,075) $ (4,294) $ (4,454) $ (4,373) $ (4,510)
Real Estate Held for Sale
When assets are identified by management as held for sale, the Company ceases depreciation and amortization of 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 September 30, 2021 no properties were considered held for sale, and as of December 31, 2020 there were no properties classified as held for sale.
Real Estate Sales/Exchanges
During the nine months ended September 30, 2021, the Company sold eight properties, one of which was leased to Truist Bank, for an aggregate contract price of $6.1 million, resulting in a gain of $0.8 million, which is reflected in gain on sale of real estate investments on the consolidated statement of operations and comprehensive loss for the nine months ended September 30, 2021.
17
AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021
(Unaudited)
During the nine months ended September 30, 2020, the Company sold six properties leased to Truist Bank for an aggregate contract price of $13.3 million, exclusive of closing costs and related mortgage repayments. These sales resulted in aggregate gains of $4.3 million, which are reflected in gain on sale of real estate investments on the consolidated statement of operations and comprehensive loss for the nine months ended September 30, 2020. In addition, the Company recorded a gain on sale of $2.2 million related to a non-monetary exchange of two properties then owned by the Company pursuant to a tenant’s exercise of its right to substitute properties under its lease, resulting in a total gain on sale/exchange of $6.5 million, which is reflected in gain on sale/exchange of real estate investments on the consolidated statement of operations and comprehensive loss for the nine months ended September 30, 2020.
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 the Company’s single-tenant properties (ii) significant or sustained vacancy in the Company’s multi-tenant properties and (iii) changes to the Company’s expected holding period as a result of business decisions or non-recourse debt maturities. For all of its held for use properties, the Company had reconsidered the projected cash flows due to various performance indicators and where appropriate, and the Company evaluated the impact on its ability to recover the carrying value of such properties based on the expected cash flows over the intended holding period. See “Impairment Charges” below for discussion of specific charges taken.
If a triggering event for held for use single-tenant properties is identified, the Company uses either a market approach or an income approach to estimate the future cash flows expected to be generated.
The market approach involves evaluating comparable sales of properties in the same geographic region as the held for use properties in order to determine an estimated sale price. The Company makes certain assumptions 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.
Under the income approach, the Company evaluates the impact on its ability to recover the carrying value of such properties based on the expected cash flows over its intended holding period. The Company makes certain assumptions in this approach including, among others, the market and economic conditions, expected cash flow projections, intended holding periods and assessments of terminal values.
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 additional impairment may be realized in the future.
Impairment Charges
The Company recorded an impairment charge of $4.6 million for the three and nine months ended September 30, 2021. Of this amount, $0.1 million related to a vacant single-tenant held-for-use property in Brunswick, Georgia, which was recorded to adjust the property to its fair value as determined by a purchase and sale agreement which was terminated in the second quarter of 2021. An impairment charge of approximately $4.6 million was recorded in the three months ended September 30, 2021 related to six vacant held-for-use properties located in various states. Five of these properties were impaired to adjust their fair value as determined by their respective signed purchase and sales agreements (“PSAs”) or non-binding letters of intent (“LOIs”), and one property was impaired to adjust its fair value as determined by the income approach as described above.
The Company recorded no impairments for the three months ended September 30, 2020 and $11.5 million of impairment charge for the nine months ended September 30, 2020 related to one of its multi-tenant held-for-use properties which was recorded to adjust the property to its fair value as determined by the income approach described above.
Tenant Improvements Write-Off
During the second quarter of 2020, a tenant in the health club business in one of our multi-tenant properties declared bankruptcy and vacated its space while in the process of improving the space. The Company had already reimbursed $0.8 million to the tenant for these improvements. As a result of the tenant’s bankruptcy, improvements being made by the tenant were not paid for by the tenant and the Company additionally accrued approximately $2.3 million to pay liens on the property by the tenant’s contractors. The Company determined that certain of the improvements no longer had any value in
18
AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021
(Unaudited)
connection with any foreseeable replacement tenant and wrote off approximately $3.1 million which is recorded in depreciation and amortization expense in the consolidated statement of operations for the nine months ended September 30, 2020.
Note 4 — Mortgage Notes Payable, Net
The Company’s mortgage notes payable, net as of September 30, 2021 and December 31, 2020 consisted of the following:
Outstanding Loan Amount as of
Effective Interest Rate as of
Portfolio
Encumbered Properties
 September 30,
2021		 December 31,
2020		 September 30,
2021
Interest Rate
Maturity
 Anticipated Repayment
(In thousands) (In thousands)
2019 Class A-1 Net Lease Mortgage Notes 98 $ 118,380  $ 119,084  3.83  % Fixed May 2049 May 2026
2019 Class A-2 Net Lease Mortgage Notes 106 120,796  121,000  4.52  % Fixed May 2049 May 2029
2021 Class A-1 Net-Lease Mortgage Notes 35 54,707  —  2.24  % Fixed May 2051 May 2028
2021 Class A-2 Net-Lease Mortgage Notes 61 94,493  —  2.83  % Fixed May 2051 May 2031
2021 Class A-3 Net-Lease Mortgage Notes 22 35,000  —  3.07  % Fixed May 2051 May 2028
2021 Class A-4 Net-Lease Mortgage Notes 35 55,000  —  3.65  % Fixed May 2051 May 2031
     Total Net Lease Mortgage Notes 357 478,376  240,084 
SAAB Sensis I — —  (6) 6,217  6.01  % Fixed Apr. 2025 Apr. 2025
Truist Bank II — —  (5) 9,560  5.50  % Fixed Jul. 2031 Jul. 2021
Truist Bank III — —  (5) 60,952  5.50  % Fixed Jul. 2031 Jul. 2021
Truist Bank IV — —  (5) 3,792  5.50  % Fixed Jul. 2031 Jul. 2021
Sanofi US I 1 125,000  (7) 125,000  3.27  %
Fixed (4)
 Sep. 2025 Sep. 2025
Stop & Shop
 4 45,000  45,000  3.50  % Fixed Jan. 2030 Jan. 2030
Column Financial Mortgage Notes 368 715,000  715,000  3.79  % Fixed Aug. 2025 Aug. 2025
Shops at Shelby Crossing
 — —  (6) 21,677  4.97  % Fixed Mar. 2024 Mar. 2024
Patton Creek
 — —  34,000  4.82  % Variable Dec. 2021 Dec. 2021
Bob Evans I
 22 22,842  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
Gross mortgage notes payable
 786 1,629,618  1,528,632  3.75  %
 (1)
Deferred financing costs, net of accumulated amortization (2)
 (42,037) (38,760)
Mortgage (discounts) and premiums, net (3)
 (119) 926 
Mortgage notes payable, net
 $ 1,587,462  $ 1,490,798 
__________
(1) Calculated on a weighted-average basis for all mortgages outstanding as of September 30, 2021.
(2) 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.
(3) Mortgage premiums or discounts are amortized as an increase or reduction to interest expense over the remaining terms of the respective mortgages.
(4) Mortgage is fixed by an interest rate swap agreement which fixes the effective interest rate at 3.27%. In October 2021, in connection with the repayment of the mortgage, this interest rate swap agreement was terminated. See Note 14 — Subsequent Events for additional information.
(5) Mortgage was fully repaid with proceeds from the 2021 Net Lease Mortgage Notes discussed below.
(6) Mortgages were fully repaid with proceeds from borrowings under the Credit Facility during the third quarter of 2021.
(7) In October 2021, this mortgage was fully repaid with proceeds from the issuance of the Senior Notes (as defined in Note 14 —-Subsequent Events). See Note 14 — Subsequent Events for additional information.
In connection with refinancing certain properties, the Company may incur prepayment penalties relating to its prior debt obligations. During the three and nine months ended September 30, 2021, such amounts were $3.3 million. During the three and nine months ended September 30, 2020, such amounts were $0.5 million and $0.8 million, respectively. These prepayment penalties are included in acquisition, transaction, and other costs in the consolidated statement of operations.
19
AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021
(Unaudited)
As of September 30, 2021 and December 31, 2020, the Company had pledged $2.7 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 September 30, 2021 and December 31, 2020, $1.3 billion in real estate investments, at cost were included in the unencumbered asset pool comprising the borrowing base under the Company’s revolving unsecured corporate credit facility (see Note 5 — Credit Facility for more details). The asset pool comprising the borrowing base under the credit facility 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.
The following table summarizes the scheduled aggregate principal payments on mortgage notes payable based on anticipated maturity dates for the five years subsequent to September 30, 2021 and thereafter:
(In thousands) Future Principal Payments
2021 (remainder) $ 902 
2022 3,712 
2023 2,629 
2024 1,646 
2025 841,670 
2026 116,929 
Thereafter 662,130 
  $ 1,629,618 
The Company’s mortgage notes payable agreements require compliance with certain property-level financial covenants including debt service coverage ratios. As of September 30, 2021, the Company was in compliance with all operating and financial covenants under these agreements.
Net Lease Mortgage Notes
On June 3, 2021, certain subsidiaries of the Company (the “2021 Issuers”) completed the issuance of $318.0 million aggregate principal amount of Net Lease Mortgage Notes (the “2021 Net Lease Mortgage Notes”) in a private placement exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”). The 2021 Net Lease Mortgage Notes are cross-collateralized with the $242.0 million in aggregate principal amount of Net Lease Mortgage Notes issued in 2019 (the “2019 Net Lease Mortgage Notes” and, together with the 2021 Net Lease Mortgage Notes, the “Notes”) issued by certain other subsidiaries of the Company (the “2019 Issuers” and, together with the 2021 Issuers, the “Issuers”). The Notes were issued using a master trust structure, which enables additional series of notes to be issued upon the contribution of additional properties to the collateral pool without the need to structure a new securitization transaction. Any new notes that are so issued will be cross-collateralized with the Notes.
The 2021 Net Lease Mortgage Notes were issued in six classes, Class A-1 (AAA), Class A-2 (AAA), Class A-3 (A), Class A-4 (A), Class B-1 (BBB) and Class B-2 (BBB). The Class A-1 (AAA) Notes were initially rated AAA (sf) by Standard & Poors and are comprised of $55.0 million initial principal amount of 2021 Net Lease Mortgage Notes with an anticipated repayment date in May 2028 and an interest rate of 2.21%. The Class A-2 (AAA) Notes were initially rated AAA (sf) by Standard & Poors and are comprised of $95.0 million initial principal amount of 2021 Net Lease Mortgage Notes with an anticipated repayment date in May 2031 and an interest rate of 2.79%. The Class A-3 (A) Notes were initially rated A (sf) by Standard & Poors and are comprised of $35.0 million initial principal amount of 2021 Net Lease Mortgage Notes with an anticipated repayment date in May 2028 and an interest rate of 3.03%. The Class A-4 (A) Notes were initially rated A (sf) by Standard & Poors and are comprised of $55.0 million initial principal amount of 2021 Net Lease Mortgage Notes with an anticipated repayment date in May 2031 and an interest rate of 3.60%.
The Class B Notes are currently retained by the OP and are eliminated upon consolidation, and therefore not presented in the Company’s consolidated financial statements/ The Class B Notes may be sold to unaffiliated third parties in the future. The Class B-1 (BBB) Notes were initially rated BBB (sf) by Standard & Poors and are comprised of $30.0 million initial principal amount of 2021 Net Lease Mortgage Notes with an anticipated repayment date in May 2028 and an interest rate of 4.02%. The Class B-2 (BBB) Notes were initially rated BBB (sf) by Standard & Poors and are comprised of $48.0 million initial principal amount of 2021 Net Lease Mortgage Notes with an anticipated repayment date in May 2031 and an interest rate of 4.58%. The 2021 Net Lease Mortgage Notes have a rated final payment date in May 2051.
20
AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021
(Unaudited)
The 2019 Net Lease Mortgage Notes were issued in two classes, Class A-1 (AAA) and Class A-2 (A). The Class A-1 (AAA) Notes are rated AAA (sf) by Standard & Poors and are comprised of $121.0 million initial principal amount of 2019 Net Lease Mortgage Notes with an anticipated repayment date in May 2026 and an interest rate of 3.78%. The Class A-2 (a) Notes are rated A (sf) by Standard & Poors and are comprised of $121.0 million initial principal amount of 2019 Net Lease Mortgage Notes with an anticipated repayment date in May 2029 with an interest rate of 4.46%. The 2019 Net Lease Mortgage Notes have a rated final payment date in May 2049.
The Notes may be redeemed at any time prior to their anticipated repayment date subject to payment of a make-whole premium. The 2021 Net Lease Mortgage Notes (excluding the Class B Notes) are collectively amortizing at a rate of approximately 0.86% per annum. The 2019 Net Lease Mortgage Notes are collectively amortizing at a rate of approximately 0.5% per annum. If any class of Notes is not paid in full at its respective anticipated repayment date, additional interest will begin to accrue on those Notes.
The collateral pool for the Notes is comprised of 357 of the Company’s double- and triple-net leased single tenant properties, together with the related leases and certain other rights and interests. 17 of such properties were owned by the 2021 Issuers prior to the issuance of the 2021 Net Lease Mortgage Notes, 136 of such properties were transferred to the 2021 Issuers in connection with the issuance of the 2021 Net Lease Mortgage Notes, and 204 of such properties were already owned by the 2019 Issuers and securing the 2019 Net Lease Mortgage Notes. The net proceeds from the sale of the 2021 Net Lease Mortgage Notes were used to repay $74.6 million in indebtedness secured by mortgages on 101 individual properties and $80.1 million that was outstanding under the Credit Facility. Approximately $75.0 million of the remaining net proceeds were available to the Company for general corporate purposes. A total of 153 properties were added as part of the collateral pool securing the Notes, which are comprised of 108 properties which were removed from the borrowing base under the Credit Facility (reducing availability under the Credit Facility), 41 properties previously secured by mortgages and four previously unencumbered properties, two of which were recently acquired. The 357 properties that serve as part of the collateral pool for the Notes are diversified by industry as follows: gas and convenience at 28%, commercial banking at 15%, limited-service restaurants at 15%, car washes at 9%, full-service restaurants at 9%, kidney dialysis care at 9%, used car dealers at 6%, all other general merchandise stores at 3%, wholesale trade at 3%, warehouse clubs and supercenters at 2%, child day care services at 1%, pharmacies and drug stores at less than 1% and automotive parts and supply stores at less than 1%, weighted by allocated loan amount.
The Issuers may release or exchange properties from the collateral pool securing the Notes subject to various terms and conditions, including paying any applicable make-whole premium and limiting the total value of properties released or exchanged to not more than 35% of the aggregate collateral value. These conditions, including the make-whole premium, do not apply under certain circumstances, including a prepayment in an aggregate amount of up to 35% of the initial principal balance if the prepayment is funded with proceeds from qualifying deleveraging events, such as a firm commitment underwritten registered public equity offering by the Company that generates at least $75.0 million in net proceeds.
Note 5 — Credit Facility
On April 26, 2018, the Company repaid its prior revolving unsecured corporate credit facility in full and entered into the Credit Facility with BMO Harris Bank, N.A. (“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 (the “Credit Facility”). On October 1, 2021, Company entered into an amendment and restatement of the Credit Facility with BMO Harris Bank N.A., as administrative agent, and the other lender parties thereto. Also, upon the closing of the Senior Notes (as defined in Note 14 — Subsequent Events) on October 7, 2021, the Company used a portion of the proceeds to repay all outstanding borrowings under the Credit Facility at the time. Such amounts are available to be reborrowed subject to the Company’s availability. For additional details on the amendment and restatement of the Credit Facility and the issuance of the Senior Notes, see Note 14 — Subsequent Events.
21
AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021
(Unaudited)
The aggregate total commitments prior to the amendment and restatement of the Credit Facility were $540.0 million as of September 30, 2021, and through an uncommitted “accordion feature” would have allowed for increased commitments under the Credit Facility of up to $375.0 million. The amount available for future borrowings under the Credit Facility was based on the lesser of (i) 60% of the value of the pool of eligible unencumbered real estate assets comprising the borrowing base, and (ii) a maximum amount of total unsecured indebtedness that could be incurred while maintaining a minimum unsecured interest coverage ratio with respect to the borrowing base, in each case, as of the determination date. As of September 30, 2021, and after giving effect to the amendment and restatement of the Credit Facility, the Company had a total borrowing capacity under the Credit Facility of $494.1 million based on the value of the borrowing base under the Credit Facility, and of this amount, $186.2 million was outstanding under the Credit Facility as of September 30, 2021 and $307.9 million remained available for future borrowings.
The Credit Facility requires payments of interest only. Prior to the amendment and restatement, borrowings under the Credit Facility bore 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. Pursuant to the amendment to the Credit Facility in July 2020, from July 24, 2020 until delivery of the compliance certificate for the fiscal quarter ended June 30, 2021, the margin was 1.5% with respect to the Base Rate and 2.5% with respect to LIBOR regardless of the Company’s consolidated leverage ratio. The “floor” on LIBOR was 0.25%. As of September 30, 2021 and December 31, 2020, the weighted-average interest rate under the Credit Facility was 2.17% and 2.79%, respectively.
In July 2017, the Financial Conduct Authority (the authority that regulates LIBOR) announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. As a result, the Federal Reserve Board and the Federal Reserve Bank of New York organized the Alternative Reference Rates Committee, which identified the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative to LIBOR in derivatives and other financial contracts. On March 5, 2021, the Financial Conduct Authority confirmed a partial extension of this deadline, announcing that it will cease the publication of the one-week and two-month USD LIBOR settings immediately following December 31, 2021. The remaining USD LIBOR settings will continue to be published through June 30, 2023. The Company is not able to predict when there will be sufficient liquidity in the SOFR market. The Company is monitoring and evaluating the risks related to changes in LIBOR availability, which include potential changes in interest paid on debt and amounts received and paid on interest rate swaps. In addition, the value of debt or derivative instruments tied to LIBOR will also be impacted as LIBOR is limited and discontinued and contracts must be transitioned to a new alternative rate. While the Company expects LIBOR to be available in substantially its current form until at least June 30, 2023, it is possible that LIBOR will become unavailable prior to that time. This could occur, for example, if a sufficient number of banks decline to make submissions to the LIBOR administrator. The Credit Facility contains language governing the establishment of a replacement benchmark index to serve as an alternative to LIBOR, when necessary.
The Credit Facility contained various customary operating covenants, including the restricted payments covenant described in more detail below, 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 contained 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.
Under Credit Facility, subject to certain exceptions, the Company is not permitted to pay distributions, including cash dividends on equity securities (including the Company’s 7.50% Series A Cumulative Redeemable Perpetual Preferred Stock, $0.01 par value per share (“Series A Preferred Stock”)) and 7.375% Series C Cumulative Redeemable Perpetual Preferred Stock, $0.01 par value per share (“Series C Preferred Stock”) in an aggregate amount exceeding 95% of MFFO (as defined in the Credit Facility) for any look-back period of four consecutive fiscal quarters without seeking consent from the lenders under the Credit Facility. However, the Credit Facility also permits the Company to pay distributions in an aggregate amount not exceeding 105% of MFFO for any applicable period if, as of the last day of the period, the Company was able to satisfy a maximum leverage ratio after giving effect to the payments and also had a combination of cash, cash equivalents and amounts available for future borrowings under the Credit Facility of not less than $60.0 million. Moreover, if applicable, during the continuance of an event of default under the Credit Facility, the Company could not pay dividends or other distributions in excess of the amount necessary for the Company to maintain its status as a REIT.
As of September 30, 2021, the Company was in compliance with the operating and financial covenants under the Credit Facility.
22
AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021
(Unaudited)
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.
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 September 30, 2021 and 2020.
Financial Instruments Measured at Fair Value on a Recurring Basis
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 this derivative 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 September 30, 2021, 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 Measured at Fair Value on a Non-Recurring Basis
Real Estate Investments - Held for Sale
The Company has had impaired real estate investments classified as held for sale. There were no impaired real estate investments held for sale as of September 30, 2021 and December 31, 2020. Carrying value of impaired real estate investments held for sale on the consolidated balance sheet represents their estimated fair value less cost to sell. Impaired real estate investments held for sale are generally classified in Level 3 of the fair value hierarchy.
Real Estate Investments - Held for Use
The Company has had impaired real estate investments classified as held for use at the time of impairment. The carrying value of these held for use impaired real estate investments held for use on the consolidated balance sheet represents their
23
AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021
(Unaudited)
estimated fair value at the time of impairment. The Company primarily uses a market approach to estimate the future cash flows expected to be generated. Impaired real estate investments which are held for use are generally classified in Level 3 of the fair value hierarchy.
Financial Instruments that are not Reported at Fair Value
The carrying 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 fair value due to their short-term nature.
As of September 30, 2021 and December 31, 2020, the carrying value of advances to the Company under the Credit Facility were $186.2 million and $280.9 million. The fair value of the advances to the Company under the Credit Facility was $186.4 million and $278.8 million as of September 30, 2021 and December 31, 2020, respectively, due to the widening of the credit spreads during the current period.
The carrying value of the Company’s mortgage notes payable as of September 30, 2021 and December 31, 2020 were $1.6 billion and $1.5 billion, respectively, and the fair value was $1.6 billion and $1.6 billion, respectively. The fair value of gross mortgage notes payable is based on estimates of market interest rates. This approach relies on unobservable inputs and therefore is classified as Level 3 in the fair value hierarchy.
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 Company entered into an interest rate swap on September 1, 2020 in a notional amount of $125.0 million. The interest rate swap became effective on October 13, 2020, and fixed the interest rate on a mortgage loan that was refinanced on September 4, 2020 at an effective interest rate of 3.26% and was to expire in July 2026. Subsequent to September 30, 2021, this interest rate swap was terminated when the mortgage loan was repaid and the Company received $2.1 million as a result of the termination. See Note 14—Subsequent Events for additional information. Additionally, in conjunction with the refinancing of a mortgage loan in December 2020, the Company entered into an interest rate cap agreement in a notional amount of $34.0 million. The fair value of this interest rate cap is insignificant and therefore is not shown on the consolidated balance sheet as of September 30, 2021 or December 31, 2020.
The table below presents the fair value of the Company’s derivative financial instrument as well as its classification on the consolidated balance sheet as of September 30, 2021 and December 31, 2020.
(In thousands) Balance Sheet Location September 30, 2021 December 31, 2020
Interest Rate “Pay-fixed” Swaps Derivative assets, at fair value $ 2,028  $ — 
Interest Rate “Pay-fixed” Swaps Derivative liabilities, at fair value $ —  $ 123 

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 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.
24
AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021
(Unaudited)
The changes in the fair value of derivatives designated and that qualify as cash flow hedges are recorded in accumulated other comprehensive loss (“AOCI”) and are subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.
Amounts reported in accumulated other comprehensive income 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 $2.0 million will be reclassified from other comprehensive income as a decrease to interest expense as the interest rate “pay-fixed” swap agreement was terminated and the Company received $2.1 million after settlement. See Note 14—Subsequent Events for additional information.
As of September 30, 2021 and December 31, 2020 the Company had the following derivatives that were designated as cash flow hedges of interest rate risk:
September 30, 2021 December 31, 2020
Interest Rate Derivative Number of
Instruments		 Notional Amount Number of
Instruments		 Notional Amount
Interest Rate “Pay-fixed” Swaps 1  $ 125,000  1  $ 125,000 
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 and nine months ended September 30, 2021 and 2020:
Three Months Ended September 30, Nine Months Ended September 30,
(In thousands) 2021 2020 2021 2020
Amount of gain (loss) recognized in AOCI on interest rate derivatives $ 24  $ (546) $ 1,943  $ (546)
Amount of (loss) reclassified from AOCI into income as interest expense $ (74) $ —  $ (208) $ — 
Total amount of interest expense presented in the consolidated income statements
 $ 19,232  $ 20,871  $ 58,927  $ 58,778 
Non-Designated Hedges
These derivatives are used to manage the Company’s exposure to interest rate movements, but do not meet the strict hedge accounting requirements to be classified as hedging instruments or derivatives that the Company has not elected to treat as hedges for purposes of administrative ease. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings. The Company recorded an immaterial loss on non-designated hedging relationships. during the three and nine months ended September 30, 2021. The Company did not record any gains or losses during the three and nine months ended September 30, 2020 since the Company did not have any derivatives that were not designated as hedges of in qualifying hedging relationships during those years. As of September 30, 2021, the Company had the following outstanding derivatives that were not designated as hedges under qualifying hedging relationships.
September 30, 2021 December 31, 2020
Interest Rate Derivative Number of
Instruments		 Notional Amount Number of
Instruments		 Notional Amount
Interest Rate Cap 1  $ 34,000  1  $ 34,000 
Offsetting Derivatives
The table below presents a gross presentation, the effects of offsetting, and a net presentation of the Company’s derivatives as of September 30, 2021 and December 31, 2020. 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 Balance Sheet.
25
AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021
(Unaudited)
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
September 30, 2021 $ 2,028  $ —  $ —  $ 2,028  $ —  $ —  2,028 
December 31, 2020 $ —  $ (123) $ —  $ (123) $ —  $ —  (123)
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 September 30, 2021, the fair value of derivatives in a net asset position including accrued interest but excluding any adjustment for nonperformance risk related to these agreements was $2.0 million. As of September 30, 2021, the Company has not posted any collateral related to these agreements and was not in breach of any agreement provisions.
Note 8 — Stockholders’ Equity
Common Stock
As of September 30, 2021 and December 31, 2020, the Company had 123.5 million and 108.8 million shares, respectively, of Class A common stock outstanding including restricted shares of Class A common stock (“restricted shares”) and excluding LTIP Units. LTIP Units may ultimately be convertible into shares of Class A common stock in the future if certain conditions are met.
In January, February and March of 2020, the Company paid dividends on its Class A common stock at an annualized rate equal to $1.10 per share, or $0.0916667 per share on a monthly basis. In March 2020, the Company’s board of directors approved a reduction in the Company’s annualized common stock dividend to $0.85 per share, or $0.0708333 per share on a monthly basis. The new common stock dividend rate became effective beginning with the Company’s April 1, 2020 dividend declaration.
Historically, and through September 30, 2020, the Company declared dividends on its common stock based on monthly record dates and generally paid dividends, once declared, on or around the 15th day of each month (or, if not a business day, the next succeeding business day) to Class A common stockholders of record on the applicable record date. On August 27, 2020, the Company’s board of directors approved a change in the Company’s Class A common stock dividend policy. The Company anticipates paying future dividends authorized by its board of directors on shares of Class A common stock on a quarterly basis in arrears on the 15th day of the first month following the end of each fiscal quarter (unless otherwise specified) to Class A common stockholders of record on the record date for such payment. This change affected the frequency of dividend payments only, and did not impact the annualized dividend rate on Class A common stock of $0.85.
Distribution Reinvestment Plan
Effective on the Listing Date, an amendment and restatement of the then effective distribution reinvestment plan approved by the Company’s board of directors became effective (the “DRIP”). The DRIP allows stockholders who have elected to participate in the DRIP to have dividends payable with respect to all or a portion of their shares of Class A common stock reinvested in additional shares of Class A common stock. Shares issued pursuant to the 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.
Shares issued pursuant to the DRIP are recorded within stockholders’ equity in the accompanying consolidated balance sheets in the period dividends are declared. During the three and nine months ended September 30, 2021 and 2020 all shares acquired by participants pursuant to the DRIP were acquired through open market purchases by the plan administrator and not acquired directly from the Company.

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AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021
(Unaudited)
ATM Program — Class A Common Stock
In May 2019, the Company established an “at the market” equity offering program for Class A common stock (the “Class A Common Stock ATM Program”), pursuant to which the Company may from time to time, offer, issue and sell to the public up to $200.0 million in shares of Class A common stock, through sales agents.
The Company sold 5,822,614 shares of Class A common stock through its Class A Common Stock ATM program during the three months ended September 30, 2021, which generated $49.9 million of gross proceeds, and net proceeds of $49.1 million after commissions and fees of $0.8 million. The Company sold 14,456,837 shares of Class A common stock through its Class A Common Stock ATM program during the nine months ended September 30, 2021, which generated $128.2 million of gross proceeds, and net proceeds of $126.1 million after commissions and fees of $2.1 million. The Company did not sell any shares under the Class A Common Stock ATM Program during the three and nine months ended September 30, 2020.
Preferred Stock
The Company is authorized to issue up to 50,000,000 shares of preferred stock, of which it has classified and designated 12,796,000 as authorized shares of its Series A Preferred Stock, 120,000 as authorized shares of its Series B Preferred Stock, $0.01 par value per share (“Series B Preferred Stock”) and 11,536,000 as authorized shares of its Series C Preferred Stock as of September 30, 2021. The Company had 7,933,711 and 7,842,008 shares of Series A Preferred Stock issued and outstanding as of September 30, 2021 and December 31, 2020, respectively. No shares of Series B Preferred Stock were issued or outstanding as of September 30, 2021 or December 31, 2020. The Company had 4,594,498 and 3,535,700 shares of its Series C Preferred Stock issued and outstanding as of September 30, 2021 and December 31, 2020, respectively.
ATM Program — Series A Preferred Stock
In May 2019, the Company established an “at the market” equity offering program for its Series A Preferred Stock (the “Series A Preferred Stock ATM Program”) pursuant to which the Company may, from time to time, offer, issue and sell to the public, through sales agents, shares of the Series A Preferred Stock having an aggregate offering price of up to $50.0 million which was subsequently increased to $100.0 million in October 2019 and was then increased again to $200.0 million in January 2021.
The Company did not sell any shares of Series A Preferred Stock during the three months ended September 30, 2021. During the nine months ended September 30, 2021, the Company sold 91,703 shares under the Series A Preferred Stock ATM Program for gross proceeds of $2.3 million and net proceeds of $2.3 million, after commissions paid of approximately $35,000. The Company did not sell any shares of Series A Preferred Stock during the three months ended September 30, 2020. During the nine months ended September 30, 2020, the Company sold 802,459 shares of Series A Preferred Stock through the Series A Preferred Stock ATM Program for gross proceeds of $20.3 million and net proceeds of $20.0 million, before commissions paid of approximately $0.3 million.
ATM Program — Series C Preferred Stock
In January 2021, the Company established an “at the market” equity offering program for its Series C Preferred Stock (the “Series C Preferred Stock ATM Program”) pursuant to which the Company may, from time to time, offer, issue and sell to the public, through sales agents, shares of the Series C Preferred Stock having an aggregate offering price of up to $200.0 million.
The Company did not sell any shares of Series C Preferred Stock during the three months ended September 30, 2021. During the nine months ended September 30, 2021, the Company sold 1,058,798 shares under the Series C Preferred Stock ATM Program for gross proceeds of $26.5 million and net proceeds of $25.6 million, after commissions and fees paid of approximately $0.9 million.
Stockholder Rights Plan
In April 2020 the Company announced that its board of directors approved a stockholder rights plan (the “Plan”) to protect the long-term interests of the Company. The Company adopted the Plan due to the substantial volatility in the trading of the Company’s Class A common stock that has resulted from the ongoing COVID-19 pandemic. The adoption of the Plan is intended to allow the Company to realize the long-term value of the Company’s assets by protecting the Company from the actions of third parties that the Company’s board of directors determines are not in the best interest of the Company. By adopting the Plan, the Company believes that it has best positioned itself to navigate through this period of volatility brought on by COVID-19. The Company’s Plan is designed to reduce the likelihood that any person or group (including a group of persons that are acting in concert with each other) would gain control of the Company through open market accumulation of stock by imposing significant penalties upon any person or group that acquires 4.9% or more of the outstanding shares of Class A
27
AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021
(Unaudited)
common stock without the approval of the Company’s board of directors. In connection with the adoption of the Plan, the Company’s board of directors authorized a dividend of one preferred share purchase right for each outstanding share of Class A common stock to stockholders of record on April 23, 2020 to purchase from the Company one one-thousandth of a share of Series B Preferred Stock for an exercise price of $35.00 per one-thousandth of a share, once the rights become exercisable, subject to adjustment as provided in the related rights agreement. By the terms of the Plan, the rights will initially trade with Class A common stock and will generally only become exercisable on the 10th business day after the Company’s board of directors become aware that a person or entity has become the owner of 4.9% or more of the shares of Class A common stock or the commencement of a tender or exchange offer which would result in the offeror becoming an owner of 4.9% or more of the Class A common stock. The Plan was set to expire on April 12, 2021, however, in February 2021, the Company amended the rights agreement to extend the expiration date of the rights under the plan from April 2021 to April 2024 unless earlier exercised, exchanged, amended, redeemed or terminated.
Non-Controlling Interest
Non-controlling interests resulted from the issuance of OP Units in conjunction with the merger with American Realty Capital-Retail Centers of America, Inc. (“RCA”) in February 2017 (the “Merger”) and were recognized at fair value as of the effective time of the Merger on February 16, 2017. In addition, under the 2021 OPP, the OP issued LTIP Units, which are also reflected as part of non-controlling interest as of September 30, 2021 and December 31, 2020. See Note 12 — Equity Based Compensation - Multi-Year Outperformance Agreement for more information regarding the LTIP Units and related accounting.
On May 4, 2021, the Company’s independent directors, acting as a group, authorized the issuance of a new award of LTIP Units pursuant to the 2021 OPP to the Advisor after the performance period under the 2018 OPP expired on July 19, 2021. Accordingly, these new LTIPs are reflected in non-controlling interest on the Company’s balance sheet or statement of equity as of September 30, 2021. For additional information, see Note 12 — Equity-Based Compensation relating to the accounting impacts of (i) the end of the performance period under the 2018 OPP and the forfeiture of all LTIP Units awarded thereunder, and (ii) the beginning of the performance period under the 2021 OPP and the grant of an award of LTIP Units thereunder.
As of September 30, 2021 and December 31, 2020, non-controlling interest is comprised of the following components:
(In thousands) September 30, 2021 December 31, 2020
Non-controlling interest attributable to LTIP Units $ 5,191  $ 28,317 
Non-controlling interest attributable to Class A Units 2,148  2,205 
   Total non-controlling interest $ 7,339  $ 30,522 
Following the end of the performance period under the 2018 OPP on July 19, 2021, the compensation committee of the board of directors of the Company determined that none of the 4,496,796 of the LTIP Units subject to the 2018 OPP had been earned, and these LTIP Units were thus automatically forfeited. On that date, the Company reclassified $34.8 million of amounts reflected in non-controlling interest for these LTIP Units to additional paid in capital on its consolidated balance sheet and consolidated statement of changes in equity.
Note 9 — Commitments and Contingencies
Lessee Arrangements - Ground Leases
The Company is a lessee in ground lease agreements for seven of its properties. The ground leases have lease durations, including assumed renewals, ranging from 16.3 years to 33.9 years as of September 30, 2021. As of September 30, 2021, the Company’s balance sheet includes operating lease right-of-use assets and operating lease liabilities of $18.3 million and $19.2 million, respectively. In determining operating ROU assets and lease liabilities for the Company’s existing operating leases upon the initial adoption of the new lease guidance in 2019, as well as for new operating leases entered into after adoption, the Company estimated an appropriate incremental borrowing rate on a fully-collateralized basis for the terms of the leases. Because 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, the Company’s estimate of this rate required significant judgment. The Company did not enter into any additional ground leases during the three months ended September 30, 2021.
The Company’s operating ground leases have a weighted-average remaining lease term, including assumed renewals, of 27.2 years and a weighted-average discount rate of 7.5% as of September 30, 2021. For the three and nine months ended September 30, 2021, the Company paid cash of $0.5 million and $1.2 million, respectively, for amounts included in the
28
AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021
(Unaudited)
measurement of lease liabilities and recorded expense of $0.5 million and $1.4 million, respectively. For the three and nine months ended September 30, 2020, the Company paid cash of $0.5 million and $1.2 million recorded expense of $0.5 million and $1.4 million, respectively. The lease expense is recorded on a straight-line basis in property operating expenses in the consolidated statements of operations and comprehensive loss.
The following table reflects the base cash rental payments due from the Company as of September 30, 2021:
(In thousands) Future Base Rent Payments
2021 (remainder) $ 347 
2022 1,532 
2023 1,549 
2024 1,560 
2025 1,598 
Thereafter 44,358 
Total lease payments 50,944 
Less: Effects of discounting (31,735)
Total present value of lease payments $ 19,209 
Litigation and Regulatory Matters
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, and both individuals who previously served as the Company’s chief executive officer and chair of the board of directors (the “Former Chairmen”). 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 the Former Chairmen 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 the Former Chairmen. The complaint seeks unspecified damages, rescission of the Company’s advisory agreement with the Advisor (the “Advisory Agreement”) (or severable portions thereof) which became effective when the Merger became effective, and a declaratory judgment that certain provisions of the Advisory 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. On September 23, 2019, the Court granted defendants’ motions and dismissed the complaint with prejudice, and the plaintiff appealed. On May 5, 2020, the United States Court of Appeals for the Second Circuit affirmed the lower court’s dismissal of the complaint.
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, the Former Chairmen, the Company’s chief financial officer at the time of the Merger and each of the Company’s directors immediately prior to the Merger. All of the directors immediately prior to the Merger, except for David Gong, currently serve as directors of the Company. The complaint alleged 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 asserted violations of Section 11 of the Securities Act of 1933, as amended (the “Securities Act”) against the Company’s chief financial officer at the time of the Merger and each of the Company’s directors immediately prior to the Merger, violations of Section 12(a)(2) of the Securities Act against the Company and the Company’s current chief executive officer, president and chair of the board of directors, and control person liability against the Advisor, AR Global and the Former Chairmen— under Section 15 of the Securities Act. The complaint sought unspecified damages and rescission of the Company’s sale of stock pursuant to the registration statement.
29
AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021
(Unaudited)
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 Company’s then effective distribution reinvestment plan, against the Company, AR Global, the Advisor, the Former Chairmen, the Company’s chief financial officer at the time of the Merger and each of the Company’s directors immediately prior to the Merger. The complaint alleged that the April and December 2016 registration statements pursuant to which class members purchased shares contained materially incomplete and misleading information. The complaint asserted violations of Section 11 of the Securities Act against the Company, the Company’s chief financial officer at the time of the Merger and each of the Company’s directors immediately prior to the Merger, violations of Section 12(a)(2) of the Securities Act against the Company and the Company’s current chief executive officer, president and chair of the board of directors, and control person liability against the Advisor, AR Global and the Former Chairmen under Section 15 of the Securities Act. The complaint sought unspecified damages and either rescission of the Company’s sale of stock or rescissory damages.
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, the Former Chairmen, the Company’s chief financial officer at the time of the Merger and each of the Company’s directors immediately prior to the Merger. The complaint alleged 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 asserted violations of Section 11 of the Securities Act against the Company, the Company’s chief financial officer at the time of the Merger and each of the Company’s directors immediately prior to the Merger, violations of Section 12(a)(2) of the Securities Act against the Company and the Company’s current chief executive officer, president and chair of the board of directors, and control person liability under Section 15 of the Securities Act against the Advisor, AR Global, and the Former Chairmen. The complaint sought unspecified damages and rescission of the Company’s sale of stock pursuant to the registration statement.
On July 11, 2019, the New York State Supreme Court issued an order consolidating the three above-mentioned cases: Terry Hibbard, Bracken, and Callaway (the “Consolidated Cases”). The Court also stayed the Consolidated Cases pending a decision on the motions to dismiss in the St. Clair-Hibbard litigation pending in the United States District Court for the Southern District of New York. Following the federal court’s decision on the St. Clair-Hibbard motions to dismiss, on October 31, 2019 plaintiffs filed an amended consolidated class action complaint in the Consolidated Cases seeking substantially similar remedies from the same defendants. The Company moved to dismiss the amended consolidated complaint on December 16, 2019. After the parties completed briefing on this motion, the United States Court of Appeals for the Second Circuit issued its decision affirming dismissal of the St. Clair-Hibbard action. Plaintiffs moved to amend their complaint, purportedly to limit it to claims still viable in spite of the results of the federal action. The proposed second amended complaint no longer contains direct claims against the Company. Instead, plaintiffs seek to pursue state law claims derivatively against the Advisor, AR Global, the Company’s initial chief executive officer and chair of the board of directors, the Company’s current directors and David Gong, a former director, with the Company as a nominal defendant. Plaintiffs’ motion to amend has been fully briefed, and oral argument was held in November 2020. The parties are now awaiting a decision from the Court. The Company believes that the proposed second amended complaint is without merit and intends to defend against it 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.
There are no other material legal or regulatory proceedings pending or known to be contemplated against the Company.
The Company did not incur any legal costs related to the above litigation in the three months ended September 30, 2021, and in the three months ended September 30, 2020, the Company incurred legal costs of approximately $0.2 million. For the nine months ended September 30, 2021 and 2020, the Company incurred legal costs related to the above litigation of approximately $30,000 and $0.7 million, respectively. A portion of these litigation costs are subject to a claim for reimbursement under the insurance policies maintained by the Company (the “Policies”), and during the three months ended March 31, 2020, reimbursements of $9,000 were received and recorded in other income in the consolidated statements of operations and comprehensive loss. There were no such reimbursements recorded thereafter. The Company may receive additional reimbursements in the future. However, the Policies are subject to other claims that have priority over the Company’s claim for reimbursement, and the Company therefore does not believe it is likely to recover any additional reimbursements.
30
AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021
(Unaudited)
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.
Note 10 — Related Party Transactions and Arrangements
Fees and Participations Incurred in Connection with the Operations of the Company
Summary of Advisory Agreement
The initial term of the Advisory Agreement expires on April 29, 2035. This term is automatically renewed for successive 20-year terms upon expiration unless the 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 Advisory Agreement or (b) any material breach of the 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 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.
The Advisory Agreement grants the Company the right to internalize the services provided under the Advisory Agreement (“Internalization”) and to terminate the Advisory Agreement pursuant to a notice received by the Advisor as long as (i) more than 67% of the Company’s independent directors have approved the Internalization; and (ii) the Company pays the Advisor an Internalization fee equal to (1) $15.0 million plus (2) either (x) if the Internalization occurs on or before December 31, 2028, the Subject Fees (defined below) multiplied by 4.5 or (y) if the Internalization occurs on or after January 1, 2029, the Subject Fees multiplied by 3.5 plus (3) 1.0% multiplied by (x) the purchase price of properties or other investments acquired after the end of the fiscal quarter in which the notice of Internalization is received by the Advisor and prior to the Internalization and (y) without duplication, the cumulative net proceeds of any equity raised by the Company during the period following the end of the fiscal quarter in which notice is 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 (including both the fixed and variable portion thereof) 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 Class A common stock subject to certain conditions.
2019 Advisory Agreement Amendment
On March 18, 2019, the Company entered into Amendment No.2 to the Advisory Agreement, by and among the OP and the Advisor. Amendment No.2 revised the section of the Advisory Agreement specifically related to reimbursable administrative service expenses, including reasonable salaries and wages, benefits and overhead of all 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.
2020 Advisory Agreement Amendment
On March 30, 2020, the Company entered into Amendment No.3 to the Advisory Agreement, by and among the OP and the Advisor. Amendment No.3 revised the section of the Advisory Agreement to temporarily lower the quarterly thresholds of Core Earnings Per Adjusted Share (as defined in the Advisory Agreement) the Company must reach on a quarterly basis for the Advisor to receive the Variable Management Fee (as defined in the Advisory Agreement). For additional information, see the “Asset Management Fees and Variable Management/Incentive Fees” section below.
2021 Advisory Agreement Amendment