Blackwells Capital LLC, an activist investor in former non-traded real estate investment trusts externally managed by AR Global (formerly known as American Realty Capital, or ARC), has nominated two candidates for the boards of director of Necessity Retail REIT Inc. (NASDAQ: RTL) and Global Net Lease (NYSE:GNL) at the upcoming 2023 annual meetings of shareholders of both companies. Necessity Retail REIT was formerly known as American Finance Trust, while Global Net Lease was formerly known as American Realty Capital Global Trust.
Additionally, Blackwells announced its intent to propose two additional independent directors at the company’s 2024 annual meetings and has indicated its intent to pursue a number of corporate governance initiatives that would impact each of the REITs.
“RTL is impaired by the same issues as Global Net Lease Inc., a value stripping management agreement that serves to enrich an external manager [AR Gloabal] at the expense of shareholders, and a total disregard for governance norms that would otherwise protect shareholders,” said Jason Aintabi, chief investment officer of Blackwells. “While pitiful, it is unsurprising that RTL trades at a 68.5% discount to its NAV – the worst of its nineteen-company triple net peer set – burdened by what we believe can only be labelled a corporate piracy of the highest order.”
According to Blackwells, 16 out of every 100 dollars that RTL makes is spent on payments to AR Global, which is a holding company that RTL’s chairman and chief executive officer, Edward (“Michael”) Weil, owns and controls as chief executive officer. Since 2018, fees of more than $227 million dollars, representing 16% of revenues during this period, have been paid to AR Global while the company claims RTL’s stockholders have had a 58% decline in share price.
Similarly, Blackwells claims more than one out of every 10 dollars that GNL makes is spent on payments to AR Global. Since 2016, fees of more than $200 million dollars, representing more than 10% of revenues during every reporting period, have been paid to AR Global.
GNL’s stockholders experienced a 61% decline in share price while the U.S. Diversified REIT Index returned a positive 48%, and the S&P 500 returned a positive 78% between June 2, 2015 through Oct. 21, 2022 according to Blackwells. GNL trades at almost a 50% discount to net asset value, and Blackwells expects that the gap will not be closed until stockholders vote to put an end to what Blackwells believes “is a raiding of GNL’s shareholder coffers.”
“We believe that AR Global has no place managing the affairs of public shareholders, and in any event certainly not managing the affairs of owners of RTL,” Aintabi continued. “Our campaigns for change at both Global Net Lease Inc. and Necessity Retail revolve around one common theme: that we believe AR Global has been syphoning money to line their pockets, always at the expense of suffering shareholders. Thankfully, change is coming.”
RTL’s annualized total operating load represented 5.9% of the company’s total book value for the 2021 fiscal year, producing a sum that would cover the management of a REIT.
GNL’s total operating load represented 4.1% of the company’s total book value for the 2021 fiscal year, producing a sum that would cover the management of a REIT many times larger, according to Blackwells.
Blackwells says it is “firmly committed” to supporting board nominees at both REITs that will seek the immediate termination of AR Global as their external managers without any termination fee paid.
Further, Blackwells says it plans to pursue all legal remedies available, including potentially seeking personal liability damages against Messrs. Weil and other AR Global executives in the event that the management agreement with AR Global is not promptly terminated, or in the event that the board or management engage in any activities that will interfere with the shareholder voter franchise until shareholders have had the opportunity at the ballot box.
Blackwells plans to reform RTL and GNL as a leader in proper governance standards by pursuing the following agenda:
1) Nominating “highly qualified” director candidates with the necessary character and fiduciary experience to lead each company;
2) Proposing the repeal of the existing poison pill and other anti-takeover measures, which are due to expire;
3) Proposing the repeal of the recently enacted bylaws, which requires the continued representation of certain of both companies’ advisors on each board of directors;
4) Proposing changes to the boards of directors, including the declassification of the boards of directors and the adoption of director resignation policies;
5) Proposing that the boards of directors designate strategic review committees, comprised only of independent directors, to conduct a strategic review process to pursue possible extraordinary transactions, including the power to engage a financial advisor to evaluate a potential sale of the company; and
6) Proposing an amendment to the companies’ bylaws to allow stockholders the ability to amend the bylaws.
According to Blackwells, the company will demonstrate that “a conflicted group of managers have caused tremendous harm to shareholders and that there is no alternative other than to purge the group and reset corporate governance and proper commercial practices.”
Blackwells’ nominees for election to the RTL and GNL boards of directors at the 2023 annual meeting are Richard L. O’Toole and Jim Lozier.
Richard L. O’Toole is executive vice president of Related Companies, where he is responsible for tax structuring and origination of new business opportunities. Prior to joining Related Companies in 2005, O’Toole worked at Paul Hastings LLP, where he served as a partner in the Tax Department from 2000 to 2005. Prior to Paul Hastings LLP, O’Toole was a partner in the Tax Department at Battle Fowler LLP for 13 years. O’Toole earned a Juris Doctor degree from St. John’s University School of Law in 1981, a Master of Laws from New York University School of Law in 1984 and a B.A. from St. John’s University. O’Toole is a member of the board of directors of Webster Financial Corporation and Equinox Holdings Inc.
James L. Lozier has served as a private consultant since 2012. Lozier served as co-founder and chief executive officer of Archon Group L.P., a diversified international real estate services and advisory company, from its formation in 1996 until 2012. Under Lozier’s leadership, the Archon Group, a wholly owned subsidiary of Goldman Sachs Group Inc. managed, at its peak, 36,000 assets with a gross value of approximately $59 billion and had over 8,500 employees in offices located throughout the U.S., Asia and Europe. Prior to the formation of Archon Group, Lozier was an employee of the J.E. Robert Company, a global real estate investment management company, and was responsible for managing the joint venture between Goldman Sachs and J.E. Robert for two years. Lozier directed the acquisition efforts of the joint venture between Goldman Sachs and J.E. Robert from 1991 to 1995. Since 2015, he has served as an external director for Hunt Companies, Inc., a private full-service real estate company that develops, invests, manages and finances real estate assets in the public and private sectors, and he served as an external director for Equity Commonwealth from May 2014 to May 2021. Lozier earned his B.B.A. from Baylor University in 1977.
As of June 30, 2022, Necessity Retail REIT Inc. owned 1,056 properties, comprised of 28.9 million rentable square feet, which were 90.8% leased, including 944 single-tenant net leased commercial properties, 906 of which are retail properties, and 112 multi-tenant retail properties. The company’s total assets were $4.69 billion.
As of June 30, 2022, Global Net Lease Inc. owned 311 properties consisting of 39.5 million rentable square feet, which were 98.9% leased, with a weighted-average remaining lease term of 8.3 years. Based on the percentage of annualized rental income on a straight-line basis as of June 30, 2022, 62% of the Company’s properties are located in the U.S. and Canada and 38% in Europe. In addition, the company’s portfolio was comprised of 55% industrial/distribution properties, 42% office properties and 3% retail properties. The company’s total assets were $4.04 billion.
Blackwells Capital was founded in 2016 by Jason Aintabi and invests in public securities, ranging property development and management to REITs and adjacent real estate activities, including financing, origination, and managing real estate backed securities, including direct mezzanine and equity investments.