Blackwells Files Lawsuit Against AR Global

Blackwells Capital LLC announced the filing of a complaint in Maryland state court against Global Net Lease Inc. (NYSE: GNL) and The Necessity Retail REIT Inc. (NASDAQ: RTL), both of which are externally managed by Nicholas Schorsch-led AR Global.

The suit “calls on GNL and RTL to immediately accept its nominations and end the value destructive entrenchment of their external manager, AR Global, so that this conflicted and deplorably performing enterprise is forced to face what they know is enemy number one: the ballot box.”

As The DI Wire reported in October, Blackwells originally charged AR Global with “corporate piracy of the highest order” in regards to their management of the formerly non-traded REITs.

The lawsuit was filed in response to each company’s rejection of Blackwells’ director candidate nominations.

“The boards of GNL and RTL are grasping at straws to keep stockholders from having a voice in the direction of these public companies,” said Jason Aintabi, chief investment officer of Blackwells. “By relying on a guileful interpretation of recent bylaw amendments, and by fabricating other pretexts to reject our valid nomination notices, these boards seem to be acting only as marionettes to help AR Global with its sordid bidding.”

“Under the stewardship of AR Global, GNL and RTL have seen their share prices decline by negative 61% and negative 57% and have dramatically underperformed the U.S Diversified REIT Index returns by 110% and 71% respectively,” said Aintabi. “During the same periods, AR Global collected a jaw-dropping $838 million dollars in compensation, fees and general and administrative expenses from the companies. While market capitalization at GNL and RTL have gone down in excess of $3.3 billion dollars. It is of little wonder that AR Global is now fighting against stockholder democracy with such zest to protect their golden geese.”

According to Blackwells, seemingly reactionary bylaw amendments appear to be part of a “bad faith effort by AR Global to suffocate any meaningful stockholder participation in the governance of GNL and RTL.”

In July 2022, GNL and RTL, along with Healthcare Trust Inc. and New York City REIT Inc., four entities externally managed by AR Global, amended their respective bylaws to state that the boards shall have “up to” two “managing directors,” meaning individuals designated by AR Global. Although the bylaw amendments plainly set a maximum number of “managing directors” rather than a minimum number, GNL and RTL now want to interpret them as providing AR Global and its affiliates with sole and exclusive discretion to appoint two directors to the boards, effectively “trampling” stockholders’ rights.

Blackwells argues that if the bylaw amendments did what GNL and RTL suggest they do, it would mean that AR Global has an ability, which no other stockholder has, to install directors through an uncontested election. The company believes that stockholders “must not allow for that possibility, nor for the possibility that GNL and RTL created a ‘trojan horse bylaw amendment’ to give AR Global disguised governance rights.”

According to Blackwells, AR Global has a long history of “fostering egregious corporate governance practices and using corporate resources to line its own pockets at the expense of stockholders.”

AR Global is the successor to AR Capital, which faced a $1 billion lawsuit accusing it of defrauding investors. Blackwells accuses AR Global and its affiliates of being embroiled in fraud lawsuits for decades and have settled an explosive lawsuit brought by the Securities and Exchange Commission that accused the defendants of misconduct including wrongfully obtaining fees and failing to disclose conflicted compensation structures to stockholders.

Also, the recent bylaw amendments at GNL and RTL, according to Blackwells, follow two consecutive annual meetings at which every director candidate put forward by GNL received an overwhelming number of “AGAINST” or “WITHHOLD” votes. Subsequently, every director candidate failed to win majority support from GNL stockholders. Additionally, RTL has also failed to respond to directors’ lack of majority support in 2021.

According to Blackwells, GNL, RTL and AR Global are now attempting to use these bylaw adjustments to prevent stockholders from voting for Blackwells’ two nominees, Richard O’Toole and Jim Lozier, who according to the company, would improve governance, hold the external manager and the company accountable and support efforts to maximize value for stockholders.

“The time has come for Nicholas Schorsch and AR Global’s seedy game of corporate piracy and boardroom shenanigans to end. And if it takes a lawsuit to force them to that point, so be it,” said Aintabi. “Their continued self-enrichment in the face of disastrous shareholder returns is, in and of itself, an affront to basic corporate responsibility. When adding the long history of alarming behavior connected with AR Global, AR Capital and Mr. Schorsch to the companies’ febrile attempt to dismiss Blackwells’ nominees, who are committed to resolving the significant governance and underperformance issues at GNL and RTL, the result is a slap in the face of all stockholders.”

As of Sept. 30, 2022, Global Net Lease Inc. owned 310 properties consisting of 39.5 million rentable square feet, which were 98.6% leased, with a weighted-average remaining lease term of 8.1 years. Based on the percentage of annualized rental income on a straight-line basis as of Sept. 30, 2022, 66% of the Company’s properties are located in the U.S. and Canada and 34% in Europe. In addition, the company’s portfolio was comprised of 56% industrial/distribution properties, 41% office properties and 3% retail properties. The company’s total assets were $4.0 billion.

As of Sept. 30, 2022, Necessity Retail REIT Inc. owned 1,050 properties, comprised of 28.8 million rentable square feet, which were 92.6% leased, including 939 single-tenant net leased commercial properties, 900 of which are retail properties, and 111 multi-tenant retail properties.

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.

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