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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

Date of Report (Date of earliest event reported): April 22, 2022

 

The Necessity Retail REIT, Inc.

(Exact Name of Registrant as Specified in Charter)

 

Maryland   001-38597   90-0929989

(State or other jurisdiction

of incorporation)

  (Commission File Number)  

(I.R.S. Employer

Identification No.)

 

650 Fifth Avenue, 30th Floor
New York, New York 10019

(Address, including zip code, of Principal Executive Offices)

 

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

 

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

 

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

 

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

 

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

 

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

 

Emerging growth company ¨

 

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

 

 

 

 

 

Item 1.01 Entry into a Material Definitive Agreement

 

On April 22, 2022, in connection with debt assumptions related to the acquisition of the properties discussed below, each of ARG MAWILVA001, LLC, ARG WCSALNC001, LLC, ARG ASVALGA001, LLC and ARG WGHUNAL001, LLC, each a Delaware limited liability company (each, a “Borrower”) entered into a Property Management Agreement (“PMA”) with Necessity Retail Properties, LLC (f/k/a American Finance Properties, LLC) (the “Property Manager”), an affiliate of Necessity Retail Advisors, LLC (f/k/a American Finance Advisors, LLC), the advisor to The Necessity Retail REIT, Inc., a Maryland corporation (the “Company”) to manage the respective properties.

 

Pursuant to each PMA, the Property Manager is responsible for servicing and administering the properties and leases and maintaining current servicing records and systems.

 

Consistent with the property management agreement between the Company and the Property Manager, each PMA entitles the Property Manager to a management fee equal to 4% of the gross rental receipts from the properties, including common area maintenance reimbursements, tax and insurance reimbursements, percentage rental payments, utility reimbursements, late fees, vending machine collections, service charges, rental interruption insurance, and a 15.0% administrative charge for common area expenses. In addition, under these PMAs, the Property Manager is entitled to a construction fee equal to 6.0% of construction costs incurred, if any, and reimbursement of all expenses specifically related to the operation of a multi-tenant property, including compensation and benefits of property management, accounting, lease administration, executive and supervisory personnel of the Property Manager, and excluding expenses of the Property Manager’s corporate and general management office and excluding compensation and other expenses applicable to time spent on matters other than the properties.

 

The foregoing description is only a summary and is qualified in its entirety by the terms of the PMA, a form of which is attached to this Current Report on Form 8-K as Exhibit 10.10, and incorporated herein by reference.

 

Item 2.01 Completion of Acquisition or Disposition of Assets

 

On April 22, 2022, the Company, through wholly owned subsidiaries of The Necessity Retail REIT Operating Partnership, L.P., the Company’s operating partnership (the “Operating Partnership"), acquired five properties (the “Fourth Closing Properties”) from certain subsidiaries of CIM Real Estate Finance Trust, Inc. (the “Sellers”) pursuant to the previously disclosed purchase and sale agreement (the “PSA”) among the Company, the Operating Partnership and the Sellers dated December 17, 2021. The Fourth Closing Properties consist of three power centers and grocery-anchored multi-tenant retail centers and two single-tenant retail properties that represent the fourth tranche of the Company’s previously announced acquisition of 81 properties (together, the “CIM Portfolio”) from the Sellers. As previously reported on the Company’s Current Reports on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on February 14, 2022, February 28, 2022 and March 21, 2022, the Company acquired 56 power centers and grocery-anchored multi-tenant retail centers and a detention pond parcel at an aggregate purchase price of approximately $800 million, excluding closing costs. Neither the Sellers nor CIM Real Estate Finance Trust have a material relationship with the Company, the Operating Partnership or any of their respective subsidiaries and the acquisition was not an affiliated transaction.

 

The aggregate purchase price of the Fourth Closing Properties was $49.9 million, excluding closing costs. The Company funded the purchase price of the Fourth Closing Properties from a combination of assumed mortgages of $25.3 million (described herein) and $24.6 million under the Company’s credit facility. The Fourth Closing Properties contain approximately 395,414 rentable square feet, were 99% leased to 21 tenants and had a weighted average remaining lease term of 6.3 years and 6.0 years as of September 30, 2021 and December 31, 2021, respectively. There have been no material changes to the terms of the leases, the composition of the tenant base or the occupancy at these properties since that date.

 

 

 

 

The following table lists information about the Fourth Closing Properties:

 

Portfolio   Number of
Properties
    Rentable Square
Feet
    Remaining Lease
Term(1)
    Percentage
Leased(2)
 
Academy Sports     1       71,690       9.3 /9.1       100 %
Walgreens     1       15,120       4.7 /4.4       100 %
Wallace Commons     1       98,509       5.6 /5.2       100 %
Terrell Mill Village     1       75,184       6.5 /6.2       93 %
The Marquis     1       134,911       5.0 /4.7       100 %
Total     5       395,414       6.3/6.0       99 %

 

(1) Remaining lease term in years as of September 30, 2021 and December 31, 2021. Because the portfolio has multiple properties with varying lease expirations, the remaining lease term is calculated as a weighted-average based on annualized rental income on a straight-line basis.

 

(2) Occupancy data as of September 30, 2021 and December 31, 2021. There have been no material changes to the terms of the leases or the composition of the tenant base at these properties since that date.

 

The Company expects to complete the acquisition of the remaining properties in the CIM Portfolio in the second quarter of 2022.

 

Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

 

On April 22, 2022, the Company, through the Operating Partnership, drew $24.6 million from its existing credit facility with BMO Harris Bank, N.A. in connection with the acquisition of the Fourth Closing Properties. A description of the credit facility is included in the Company’s Current Report on Form 8-K filed with the SEC on October 4, 2021. The description is a summary and is qualified in its entirety by the terms of the credit agreement relating to the credit facility, which was filed with the SEC as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 4, 2021 and is incorporated by reference herein. In total, the Company has drawn $369.6 million from its existing credit facility in relation to the acquisition.

 

On April 22, 2022, in connection with the acquisition of the Fourth Closing Properties, the Company and the Sellers entered into two Assumption Agreements, (together, the “Assumption Agreements”) in which the Company assumed the loans by Wells Fargo Bank, National Association and U.S. Bank, National Association, each as trustee for the lenders, to the Sellers, as borrower, for the outstanding principal balance of approximately $16.7 million and $8.6 million, respectively, at the time each loan was assumed by the Company. The original amount of each loan was $16.7 million and $8.6 million, respectively, and each loan has a fixed interest rate of 4.62% and 3.90% per annum, maturing in September 2023 and May 2023, respectively.

 

The statements contained in this Current Report on Form 8-K that are not historical facts may be forward-looking statements. These forward-looking statements involve risks and uncertainties that could cause the outcome to be materially different. In addition, words such as “anticipates,” “believes,” “expects,” “estimates,” “projects,” “plans,” “intends,” “seek,” “may,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements are subject to risks, uncertainties and other factors, many of which are outside of the Company’s control, which could cause actual results to differ materially from the results contemplated by the forward-looking statements. These risks and uncertainties include the potential adverse effects of the ongoing global COVID-19 pandemic, including actions taken to contain or treat COVID-19, on the Company, the Company’s tenants and the global economy and financial markets as well as those set forth in the Company’s Current Reports on Form 8-K dated December 20, 2021, February 14, 2022, February 28, 2022 and March 21, 2022 describing additional facts and risk factors relating to the transaction described in this filing and the Risk Factors section of the Company’s most recent Annual Report on Form 10-K for the year ended December 31, 2021 filed on February 24, 2022 and all other filings with the SEC after that date, as such risks, uncertainties and other important factors may be updated from time to time in the Company’s subsequent reports. In particular, the transactions described are subject to closing conditions, including conditions that are outside of the Company’s control, and the transactions described may not be completed on the contemplated terms, or at all, or they may be delayed. The Company may not be able to obtain financing to acquire the remaining properties. Forward looking statements speak only as of the date they are made, and the Company undertakes no obligation to update or revise any forward-looking statement to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results, unless required to do so by law. 

 

 

 

 

Item 9.01 Financial Statements and Exhibits

 

(a) Financial Statements of Properties Acquired.

 

The financial statements required to be filed under Item 9.01(a) of this Current Report on Form 8-K will be filed by amendment to this Current Report on Form 8-K no later than 71 days after the date the initial report on Form 8-K is required to be filed.

 

(b) Pro Forma Financial Information.

 

The pro forma financial information required to be filed under Item 9.01(b) of this Current Report on Form 8-K will be filed by amendment to this Current Report on Form 8-K no later than 71 days after the date the initial report on Form 8-K is required to be filed.

 

(d) Exhibits.

 

Exhibit

Number

  Description
10.1   Agreement of Purchase and Sale, dated as of December 17, 2021, by and between the Sellers identified therein and American Finance Operating Partnership, L.P. (incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on December 20, 2021).
10.2   First Amendment to Agreement of Purchase and Sale, L.P., dated January 3, 2022, by and between the Sellers identified therein and American Finance Operating Partnership (incorporated herein by reference to Exhibit 10.45 to the Annual Report on Form 10-K for the year ended December 31, 2021 filed on February 24, 2022).
10.3   Second Amendment to Agreement of Purchase and Sale, dated January 10, 2022, by and between the Sellers identified therein and American Finance Operating Partnership, L.P. (incorporated herein by reference to Exhibit 10.46 to the Annual Report on Form 10-K for the year ended December 31, 2021 filed on February 24, 2022).
10.4   Third Amendment to Agreement of Purchase and Sale, dated January 14, 2022, by and between the Sellers identified therein and American Finance Operating Partnership, L.P. (incorporated herein by reference to Exhibit 10.47 to the Annual Report on Form 10-K for the year ended December 31, 2021 filed on February 24, 2022).
10.5   Fourth Amendment to Agreement of Purchase and Sale, dated January 19, 2022, by and between the Sellers identified therein and American Finance Operating Partnership, L.P. (incorporated herein by reference to Exhibit 10.48 to the Annual Report on Form 10-K for the year ended December 31, 2021 filed on February 24, 2022).
10.6   Fifth Amendment to Agreement of Purchase and Sale, dated January 21, 2022, by and between the Sellers identified therein and American Finance Operating Partnership, L.P. (incorporated herein by reference to Exhibit 10.49 to the Annual Report on Form 10-K for the year ended December 31, 2021 filed on February 24, 2022).
10.7   Leasing Earnout Side Letter Agreement, dated February 9, 2022, by and between the Sellers identified therein and American Finance Operating Partnership, L.P. (incorporated herein by reference to Exhibit 10.50 to the Annual Report on Form 10-K for the year ended December 31, 2021 filed on February 24, 2022).
10.8   Sixth Amendment to Agreement of Purchase and Sale, dated February 10, 2022, by and between the Sellers identified therein and The Necessity Retail REIT Operating Partnership, L.P. (incorporated herein by reference to Exhibit 10.51 to the Annual Report on Form 10-K for the year ended December 31, 2021 filed on February 24, 2022).
10.9   Seventh Amendment to Agreement of Purchase and Sale, dated February 11, 2022, by and between the Sellers identified therein and The Necessity Retail REIT Operating Partnership, L.P. (incorporated herein by reference to Exhibit 10.52 to the Annual Report on Form 10-K for the year ended December 31, 2021 filed on February 24, 2022).
10.10   Form of Property Management Agreement by and between Necessity Retail Properties, LLC and certain subsidiaries of The Necessity Retail REIT Operating Partnership, L.P.
104   Cover Page Interactive Data File – the cover page XBRL tags are embedded within the Inline XBRL document.

 

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

  THE NECESSITY RETAIL REIT, INC.
     
Date: April 25, 2022 By: /s/ Edward M. Weil, Jr.
    Name:  Edward M. Weil, Jr.
    Title:  Chief Executive Officer and President

 

 

 

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