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Section 1: 10-K (GNL 10-K 12.31.2017)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
 
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 For the fiscal year ended December 31, 2017
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: 001-37390
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Global Net Lease, Inc.
(Exact name of registrant as specified in its charter)
Maryland
  
45-2771978
(State or other jurisdiction of incorporation or organization)
  
(I.R.S. Employer Identification No.)
405 Park Ave., 4th Floor New York, NY 10022
(Address of principal executive offices)     
 
(Registrant’s telephone number, including area code): (212) 415-6500
 
Securities registered pursuant to section 12(b) of the Act:
 
 
 
Title of each class
 
Name of each exchange on which registered
Common Stock, $0.01 par value
 
New York Stock Exchange
7.25% Series A Cumulative Redeemable Preferred Stock, $0.01 par value
 
New York Stock Exchange
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No o 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x
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. x Yes ¨ No
Indicate by check mark whether the registrant submitted electronically and posted on its corporate Web Site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes ¨ No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x
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 definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
Accelerated filer ¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company)
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No
The aggregate market value of the registrant's common stock held by non-affiliates of the registrant was $1.5 billion based on the closing sales price on the New York Stock Exchange as of June 30, 2017, the last business day of the registrant's most recently completed second fiscal quarter.
On February 15, 2018, the registrant had 67,336,343 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s proxy statement to be delivered to stockholders in connection with the registrant’s 2018 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K. The registrant intends to file its proxy statement within 120 days after its fiscal year end.


GLOBAL NET LEASE, INC.

FORM 10-K
Year Ended December 31, 2017


 
 
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Forward-Looking Statements
Certain statements included in this Annual Report on Form 10-K are forward-looking statements including statements regarding the intent, belief or current expectations of Global Net Lease, Inc. (the "Company," "we," "our" or "us") and members of our management team, as well as the assumptions on which such statements are based, and generally are identified by the use of words such as "may," "will," "seeks," "anticipates," "believes," "estimates," "expects," "plans," "intends," "should" or similar expressions. Actual results may differ materially from those contemplated by such forward-looking statements. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time, unless required by law.
The following are some of the risks and uncertainties, although not all risks and uncertainties, that could cause our actual results to differ materially from those presented in our forward-looking statements:
All of our executive officers are also officers, managers, employees or holders of a direct or indirect controlling interest in the Advisor and other entities affiliated with AR Global Investments, LLC (the successor business to AR Capital LLC, "AR Global"). As a result, our executive officers, Global Net Lease Advisors, LLC (the "Advisor") and its affiliates face conflicts of interest, including significant conflicts created by the Advisor's compensation arrangements with us and other investment programs advised by AR Global affiliates and conflicts in allocating time among these investment programs and us. These conflicts could result in unanticipated actions.
Because investment opportunities that are suitable for us may also be suitable for other investment programs advised by affiliates of AR Global, the Advisor and its affiliates face conflicts of interest relating to the purchase of properties and other investments and these conflicts may not be resolved in our favor.
We are obligated to pay fees which may be substantial to the Advisor and its affiliates.
We depend on tenants for our rental revenue and, accordingly, our rental revenue is dependent upon the success and economic viability of our tenants.
Increases in interest rates could increase the amount of our debt payments.
We may be unable to repay, refinance, restructure or extend our indebtedness as it becomes due.
Adverse changes in exchange rates may reduce the value of our properties located outside of the United States ("U.S.").
The Advisor may not be able to identify a sufficient number of property acquisitions satisfying our investment objectives on acceptable terms and prices, or at all.
We may be unable to continue to raise additional debt or equity financing on attractive terms, or at all, and there can be no assurance we will be able to fund the acquisitions contemplated by our investment objectives.
Our credit facility may limit our ability to pay dividends on our common stock, $0.01 par value per share ("Common Stock") or our 7.25% Series A Cumulative Redeemable Preferred Stock, $0.01 par value per share ("Series A Preferred Stock").
We may be unable to pay or maintain cash dividends or increase dividends over time.
We may not generate cash flows sufficient to pay dividends to our stockholders or fund operations, and, as such, we may be forced to borrow at unfavorable rates to pay dividends to ur stockholders or fund our operations.
Any dividends that we pay on our Common Stock or Series A Preferred Stock may exceed cash flow from operations, reducing the amount of capital available to invest in properties and other permitted investments.
We are subject to risks associated with our international investments, including risks associated with compliance with and changes in foreign laws, fluctuations in foreign currency exchange rates and inflation.
We are subject to risks associated with any dislocations or liquidity disruptions that may exist or occur in the credit markets of the U.S. and Europe from time to time.
We may fail to continue to qualify as a real estate investment trust for U.S. federal income tax purposes ("REIT"), which would result in higher taxes, may adversely affect operations, and would reduce the trading price of our Common Stock and Series A Preferred Stock, and our cash available for dividends.
We may be exposed to risks due to a lack of tenant diversity, investment types and geographic diversity.
The revenue derived from, and the market value of, properties located in the United Kingdom and continental Europe may decline as a result of the U.K.'s discussions with respect to exiting the European Union (the “Brexit Process”).

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Our ability to refinance or sell properties located in the United Kingdom and continental Europe may be impacted by the economic and political uncertainty in these regions including due to the Brexit Process.
We may be exposed to changes in general economic, business and political conditions, including the possibility of intensified international hostilities, acts of terrorism, and changes in conditions of U.S. or international lending, capital and financing markets, including as a result of the Brexit Process.
All forward-looking statements should be read in light of the risks identified in Part I, Item 1A of this annual report on Form 10-K.


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PART I
Item 1. Business.
Overview
We were incorporated on July 13, 2011 as a Maryland corporation that elected and qualified to be taxed as a real estate investment trust ("REIT") for United States ("U.S.") federal income tax purposes beginning with the taxable year ended December 31, 2013. On June 2, 2015 (the "Listing Date"), we listed shares of our Common Stock on the New York Stock Exchange ("NYSE") under the symbol "GNL" (the "Listing"). We invest in commercial properties, with an emphasis on sale-leaseback transactions involving single tenant net-leased commercial properties.
On August 8, 2016, we entered into an agreement and plan of merger (the "Merger Agreement") with American Realty Capital Global Trust II, Inc. ("Global II"). We and Global II each are, or were sponsored, directly or indirectly, by an affiliate of AR Global. AR Global, through its affiliates provide or provided asset management services to us and Global II pursuant to advisory agreements. On December 22, 2016 (the "Merger Date"), pursuant to the Merger Agreement, Global II merged with and into Mayflower Acquisition LLC (the "Merger Sub"), a Maryland limited liability company and wholly owned subsidiary of ours, at which time the separate existence of Global II ceased and we became the parent of the Merger Sub (the "Merger"). In addition, pursuant to the Merger Agreement, American Realty Capital Global II Operating Partnership, L.P., a Delaware limited partnership and the operating partnership of Global II (the "Global II OP"), merged with Global Net Lease Operating Partnership, L.P. (the "OP"), a Delaware limited partnership and our operating partnership, with the OP being the surviving entity (the "Partnership Merger" and together with the Merger, the "Mergers"). As a result of the Mergers, we acquired the business of Global II, which immediately prior to the effective time of the Merger, owned a portfolio of commercial properties, including single tenant net-leased commercial properties, two of which were located in the U.S., three of which were located in the United Kingdom, and 10 of which were located in continental Europe (see Note 3 Merger Transaction to our audited consolidated financial statements in this Annual Report on Form 10-K).
Pursuant to the Fourth Amended and Restated Advisory Agreement, dated June 2, 2015, among us, the OP and the Advisor (the "Advisory Agreement"), we retained the Advisor to manage our affairs on a day-to-day basis. Substantially all of our business is conducted through the OP. Our properties are managed and leased by Global Net Lease Properties, LLC (the "Property Manager"). The Advisor, Property Manager, and Global Net Lease Special Limited Partner, LLC (the "Special Limited Partner") are under common control with AR Global, the parent of our sponsor, and as a result are related parties. These related parties receive compensation and fees for various services provided to us.
On August 8, 2015, we entered into the Second Amended and Restated Service Provider Agreement (the “Service Provider Agreement”) with the Advisor and Moor Park Capital Partners LLP (the "Service Provider"), pursuant to which the Service Provider agreed to provide, subject to the Advisor's oversight, certain real estate-related services, as well as sourcing and structuring of investment opportunities, performance of due diligence, and arranging debt financing and equity investment syndicates, solely with respect to investments in Europe. On January 16, 2018, we notified the Service Provider that it was being terminated effective as of March 17, 2018. Additionally, as a result of our termination of the Service Provider, the property management and leasing agreement among an affiliate of the Advisor and the Service Provider will terminate by its own terms. As required under its existing Advisory Agreement with us, the Advisor and its affiliates will continue to manage our affairs on a day to day basis (including management and leasing of our properties) and will remain responsible for managing and providing other services with respect to our European investments. The Advisor may engage one or more third parties to assist with these responsibilities, all subject to the terms of the Advisory Agreement. See Item 3. Legal Proceedings.
As of December 31, 2017, we owned 321 properties consisting of 22.9 million rentable square feet, which were 99.5% leased, with a weighted-average remaining lease term of 8.8 years. Based on original purchase price or acquisition value with respect to properties acquired in the Merger, 50.6% of our properties are located in the U.S. and Puerto Rico and 49.4% of our properties are located in Europe. We may also originate or acquire first mortgage loans, mezzanine loans, preferred equity or securitized loans secured by real estate. As of December 31, 2017, we did not own any first mortgage loans, mezzanine loans, preferred equity or securitized loans.
Reverse Stock Split
On February 28, 2017, we completed a reverse stock split of Common Stock, limited partnership units in the OP ("OP Units") and long term incentive plan units in the OP ("LTIP Units"), at a ratio of 1-for-3 (the “Reverse Stock Split”). No OP Units were issued in connection with the Reverse Stock Split and we repurchased any fractional shares of Common Stock resulting from the Reverse Stock Split for cash. No payments were made in respect of any fractional OP Units. The Reverse Stock Split was applied to all of the outstanding shares of Common Stock and therefore did not affect any stockholder’s relative ownership percentage. As a result of the Reverse Stock Split, the number of outstanding shares of Common Stock was reduced from 198.8 million to 66.3 million.

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Effective May 24, 2017, following approval by our board of directors, we filed an amendment to our charter with the Maryland State Department of Assessments and Taxation to decrease the total number of shares that we have authority to issue from 350.0 million to 116.7 million shares, of which (i) 100.0 million is designated as Common Stock; and (ii) 16.7 million is designated as Preferred Stock, $0.01 par value per share ("Preferred Stock"). As of December 31, 2017, our authorized capital stock consisted of 100.0 million shares of Common Stock, 5.4 million shares of Series A Preferred Stock and 11.3 million shares of Preferred Stock
All references made to share or per share amounts in the accompanying audited consolidated financial statements and applicable disclosures have been retroactively adjusted to reflect this Reverse Stock Split.
Preferred Stock Offerings
On September 7, 2017, we entered into an underwriting agreement (the “Underwriting Agreement”) with BMO Capital Markets Corp. and Stifel, Nicolaus & Company, Incorporated, as representatives of the underwriters listed on Schedule I thereto pursuant to which we agreed to issue and sell 4,000,000 shares of the Series A Preferred Stock, in an underwritten public offering at a public offering price equal to the liquidation preference of $25.00 per share. Pursuant to the Underwriting Agreement, we also granted the underwriters a 30-day option to purchase up to an additional 600,000 shares of Series A Preferred Stock. On September 12, 2017, we completed the initial issuance and sale of 4,000,000 shares of Series A Preferred Stock, which generated gross proceeds of $100.0 million and net proceeds of $96.3 million, after deducting underwriting discounts and offering costs paid by us.
On October 11, 2017, the underwriters exercised an option to purchase additional shares of Series A Preferred Stock, and we sold an additional 259,650 shares of Series A Preferred Stock, which generated gross proceeds of $6.5 million after adjusting for the amount of dividends declared per share for the period from September 12, 2017 to September 30, 2017 and payable to holders of record as of October 6, 2017, and resulted in net proceeds of $6.3 million, after deducting underwriting discounts and offering costs paid by us.
On December 19, 2017, we completed the sale of 1,150,000 additional shares of Series A Preferred Stock in an underwritten public offering at an offering price of $25.00 per share, which generated gross proceeds of $28.8 million and net proceeds of $27.8 million. These additional shares of shares of Series A Preferred Stock have been consolidated to form a single series, and are fully fungible with the outstanding Series A Preferred Stock. The Series A Preferred Stock is listed on the New York Stock Exchange, under the symbol "GNL PR A."
Equity Distribution Agreement
We have entered into an Equity Distribution Agreement with UBS Securities LLC, Robert W. Baird & Co. Incorporated, Capital One Securities, Inc., Mizuho Securities USA Inc., FBR Capital Markets & Co. and KeyBanc Capital Markets Inc. (together, the “Agents”) to offer and sell shares of Common Stock, to raise aggregate sales proceeds of up to $175.0 million, from time to time, pursuant to an “at the market” equity offering program (the “ATM Program”). Common Stock issued under the ATM Program is registered pursuant to our shelf registration statement on Form S-3 (Registration No. 333-214579). During the twelve months ended December 31, 2017, we sold 820,988 shares of Common Stock through the ATM Program for net sales proceeds of $18.3 million, after issuance costs of $0.4 million. These fees were charged to additional paid-in capital on the accompanying audited consolidated balance sheet during the ATM Program as of December 31, 2017.
Investment Strategy
Our investment strategy is to own and acquire a portfolio of commercial properties that is diversified in terms of geography, industry, and tenants. Based on original purchase price or acquisition value with respect to properties acquired in the Merger, we have approximately 50.6% of our investments in the U.S. and the Commonwealth of Puerto Rico and 49.4% in the United Kingdom and Continental Europe. Based on annualized rental income on a straight-line basis as of December 31, 2017, approximately 58.8% of our investments are in office properties, 31.6% of our investments are in industrial/distribution properties, and 9.6% of our investments are in retail properties. No individual tenant accounted for more than 10% of our annualized rental income at December 31, 2017.
We seek to:
support a stable and consistent dividend by generating stable and, consistent cash flows by acquiring properties with, or entering into new leases with, long lease terms;
facilitate dividend growth by acquiring properties with, or entering into new leases with, contractual rent escalations or inflation adjustments included in the lease terms; and
enhance the diversity of our asset base by continuously evaluating opportunities in different geographic regions of the U.S. and Europe and leveraging the market presence of the Advisor.


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Acquisition and Investment Policies
Primary Investment Focus
We focus on acquisitions of net lease properties with existing net leases, or we acquire properties pursuant to sale-leaseback transactions. We may in the future acquire or originate real estate debt such as first mortgage debt loans, mezzanine loans, preferred equity or securitized loans secured by real estate. As of December 31, 2017, we have not invested in any preferred equity or securitized loans.
In January 2018, we announced that we are pursuing a strategy of growth through property acquisitions, primarily of properties located in the U.S. Our goal is to acquire $500 million of properties during the year ending December 31, 2018. As part of this acquisition strategy, we intend to increase the percentage (based on original purchase price) of our portfolio located in the U.S. to 60% and increase the percentage (based on annualized straight-line rental income) of our portfolio consisting of industrial/distribution properties. As of December 31, 2017, we owned 321 properties, including 252 properties located in the U.S. and Puerto Rico, 43 properties located in the United Kingdom and 26 properties located across continental Europe.        
Investing in Real Property
When evaluating prospective investments in real property, our management, the Advisor considers relevant real estate and financial factors, including the location of the property, the leases and other agreements affecting the property, the creditworthiness of major tenants, its income producing capacity, its physical condition, its prospects for appreciation, its prospects for liquidity, tax considerations and other factors. In this regard, the Advisor has substantial discretion with respect to the selection of specific investments, subject to board approval.
We did not have any tenant whose total annualized rental income on a straight-line basis was more than 10% of our aggregate annual income for the years ended December 31, 2017, 2016 and 2015.
The termination, delinquency or non-renewal of leases by any major tenant may have a material adverse effect on our revenues.
Opportunistic Investments
We believe that the presence of the Advisor in the commercial real estate marketplace may present attractive opportunities to invest in properties other than long-term net leased properties, such as partially leased properties, multi-tenanted properties, vacant or undeveloped properties and properties subject to short-term net leases. In addition, we may acquire or originate investments in commercial real estate-related debt. Real estate-related debt investments include first mortgage loans, subordinated interests in first mortgage loans and mezzanine loans related to commercial real estate. We may also invest in real estate-related securities issued by real estate market participants such as real estate funds or other REITs. Real estate-related securities include commercial mortgage-backed securities ("CMBS"), preferred equity and other higher-yielding structured debt and equity investments. Investments in these opportunistic investments would be subject to maintaining the requirements for continued qualification as a REIT and for our exemption from the Investment Company Act of 1940, as amended (the "Investment Company Act"). As of December 31, 2017, we do not own any of these types of investments.
Acquisition Structure
We acquire properties through the OP and its subsidiaries. We have acquired properties through asset purchases and through purchases of the equity of entities owning properties. We typically acquire fee interests in a property (a “fee interest” is the absolute, legal possession and ownership of land, property, or rights), although we have acquired 11 leasehold interest properties (a “leasehold interest” is a right to enjoy the exclusive possession and use of an asset or property for a stated definite period as created by a written lease).
We may enter into joint ventures, partnerships and other co-ownership arrangements (including preferred equity investments) for the purpose of making investments, provided these investments would not cause us to be required to register as an "investment company" under the Investment Company Act.
Financing Strategies and Policies
On July 24, 2017, we, through the OP, entered into a credit agreement with KeyBank National Association (“KeyBank”), as agent, and the other lender parties thereto, that provides for a $500.0 million senior unsecured multi-currency revolving credit facility (the “Revolving Credit Facility”), and a €194.6 million ($225.0 million USD equivalent at closing) senior unsecured term loan facility (the “Term Facility” and, together with the Revolving Credit Facility, the “Credit Facility”). The aggregate total commitments under the Credit Facility are $725.0 million USD equivalents at closing. Upon our request, subject in all respects to the consent of the lenders in their sole discretion, these aggregate total commitments may be increased up to an aggregate additional amount of $225.0 million, allocated to either portion or among both portions of the Credit Facility, with total commitments under the Credit Facility not to exceed $950.0 million (see Note 6 — Credit Facilities to our audited consolidated financial statements in this Annual Report on Form 10-K for further information on our Credit Facility). In addition, we have various mortgage loans outstanding, which are secured by our properties. Our mortgage loans typically bear interest at margin plus a floating rate which is mostly fixed through interest rate swap agreements (see Note 5 — Mortgage Notes Payable, Net to our audited consolidated

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financial statements in this Annual Report on Form 10-K for mortgage loans in respective currency and interest rate detail). As of December 31, 2017, approximately $65.1 million was available for future borrowings under the Revolving Credit Facility.
We may obtain additional financing for future investments, property improvements, tenant improvements, leasing commissions and other working capital needs. The form of our indebtedness will vary and could be long-term or short-term, secured or unsecured, or fixed-rate or floating rate. We will not enter into interest rate swaps or caps, or similar hedging transactions or derivative arrangements for speculative purposes, but may do so in order to manage or mitigate our interest rate risk on variable rate debt. As of December 31, 2017, our aggregate borrowings are equal to 48.9% of the aggregate acquisition value of our assets, or 50.2% of our net assets.
We may reevaluate and change our financing policies without a stockholder vote. Factors that we would consider when reevaluating or changing our debt policy include among other things, current economic conditions, the relative cost and availability of debt and equity capital, our expected investment opportunities, the ability of our investments to generate sufficient cash flow to cover debt service requirements.
Tax Status
We qualified to be taxed as a REIT for U.S. federal income tax purposes under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code"), commencing with our taxable year ended December 31, 2013. Commencing with such taxable year, we were organized and began operating in such a manner as to qualify for taxation as a REIT under the Code. We intend to continue to operate in such a manner to continue to qualify as a REIT for such purposes, but no assurance can be given that we will operate in a manner so as to remain qualified as a REIT for U.S. federal income tax purposes. In order to continue to qualify for taxation as a REIT, we must, among other things, distribute annually at least 90% of our REIT taxable income. REITs are subject to a number of other organizational and operational requirements. Even if we continue to qualify for taxation as a REIT, we may be subject to certain federal, state, local and foreign taxes on our income and assets, including alternative minimum taxes, taxes on any undistributed income and state, local or foreign income, franchise, property and transfer taxes if we were subject to any of these forms of taxation, it would decrease our earnings and our available cash.
On December 22, 2017, the Tax Cuts and Jobs Act was signed into law by the U.S. President. We are not aware of any provision in the final tax reform legislation or any pending tax legislation that would adversely affect our ability to operate as a REIT or to qualify as a REIT for U.S. federal income tax purposes. However, new legislation, as well as new regulations, administrative interpretations, or court decisions may be introduced, enacted, or promulgated from time to time, that could change the tax laws or interpretations of the tax laws regarding qualification as a REIT, or the federal income tax consequences of that qualification, in a manner that is adverse to our qualification as a REIT.
In addition, our international assets and operations, including those designated as direct or indirect qualified REIT subsidiaries or other disregarded entities of a REIT, continue to be subject to taxation in the foreign jurisdictions where those assets are held or those operations are conducted.
Competition
The commercial real estate market is highly competitive. In all of our markets we compete for tenants with other owners and operators of real estate. Factors affecting competition for tenants include location, rental rates, security, suitability of the property’s design to prospective tenants’ needs and the manner in which the property is operated and marketed. The adverse impact of competition may have a material effect on our occupancy levels, rental rates and/or operating expenses of our properties.
In addition, we compete with other parties engaged in real estate investment activities to identify suitable properties to acquire and to find tenants and purchasers for our properties. These competitors include American Finance Trust, Inc. ("AFIN"), a REIT sponsored by an affiliate of AR Global, with an investment strategy similar to our investment strategy with respect to properties located in the U.S., other REITs, specialty finance companies, savings and loan associations, banks, mortgage bankers, insurance companies, mutual funds, institutional investors, investment banking firms, lenders, governmental bodies and other entities. There are also other REITs with asset acquisition objectives similar to ours, and others that may be organized in the future. Some of these competitors, including larger REITs, have substantially greater marketing and financial resources than we have, and may be able to accept more risk than we can prudently manage, including risks with respect to the creditworthiness of tenants. In addition, these same competitors seek financing through similar channels as us, which may impact our ability to obtain financing. Therefore, we compete for financing in a market where funds for real estate investment may decrease.
Competition from these and other real estate investors may limit the number of suitable investment opportunities available to us. Competition also may cause us to face higher prices to acquire assets, lower yields on assets and a narrower spread of yields over our borrowing costs, making it more difficult for us to acquire new investments on attractive terms. In addition, competition for desirable investments could delay investments in desirable assets, which may in turn reduce our earnings per share and negatively affect our ability to maintain dividends to stockholders.

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Regulations - General
Our investments are subject to various federal, state, local and foreign laws, ordinances and regulations, including, among other things, zoning regulations, land use controls, environmental controls relating to air and water quality, noise pollution and indirect environmental impacts such as increased motor vehicle activity. We believe that we have all permits and approvals necessary under current law to operate our investments.
Regulations - Environmental
As an owner of real estate, we are subject to various environmental laws of federal, state and local governments and foreign governments at various levels. Compliance with existing laws has not had a material adverse effect on our financial condition or results of operations, and management does not believe it will have such an impact in the future. However, we cannot predict the impact of unforeseen environmental contingencies or new or changed laws or regulations on properties in which we hold an interest, or on properties that may be acquired directly or indirectly in the future. As part of our efforts to mitigate these risks, we typically engage third parties to perform assessments of potential environmental risks when evaluating a new acquisition of property, and we frequently require sellers to address them before closing or obtain contractual protection (indemnities, cash reserves, letters of credit, or other instruments) from property sellers, tenants, a tenant’s parent company, or another third party to address known or potential environmental issues.
Advisory Agreement
We are externally managed by the Advisor pursuant to the terms of the Advisory Agreement. The Advisory Agreement requires us to pay a base management fee (the “Base Management Fee”) in a minimum amount of $18.0 million per annum, payable in cash on a pro rata monthly basis at the beginning of each month, and including a variable fee amount equal to 1.25% of net proceeds raised from additional equity issuances, including issuances of OP Units and Series A Preferred Stock, and an incentive fee ("Incentive Compensation"), payable 50% in cash and 50% in shares of Common Stock, equal to 15% of our Core AFFO (as defined in the Advisory Agreement) in excess of $2.37 per share plus 10% of our Core AFFO in excess of $3.08 per share. The $2.37 and $3.08 incentive hurdles are eligible for annual increases of 1% to 3% based on a determination by a majority of our independent directors, in their good faith reasonable judgment, after consultation with the Advisor and our management. The amounts payable to the Advisor are capped, subject to an annual adjustment, based on the level of assets under management.
No later than April 30 of each year, our independent directors are required to determine, in good faith, whether the Advisor has satisfactorily achieved annual performance standards for the immediately preceding year based primarily on actions or inactions of the Advisor, and determines the annual performance standards for the next year.
We reimburse the Advisor or its affiliates for expenses of the Advisor and its affiliates incurred on our behalf, except for those expenses that are specifically the responsibility of the Advisor under the Advisory Agreement, such as fees and compensation paid to the Service Provider and the Advisor's overhead expenses, rent and travel expenses, professional services fees incurred with respect to the Advisor for the operation of its business, insurance expenses (other than with respect to our directors and officers) and information technology expenses.
The Advisory Agreement has an initial term expiring June 1, 2035, with automatic renewals for consecutive 5-year terms unless terminated in accordance with the terms of the Advisory Agreement. In the event of a termination in connection with a change in control of us or the Advisor's failure (based on a good faith determination by our independent directors) to meet annual performance standards for the year based primarily on actions or inactions of the Advisor, we would be required to pay a termination fee that could be up to 2.5 times the compensation paid to the Advisor in the previous year, plus expenses.
See Note 11 — Related Party Transactions to our audited consolidated financial statements in this Annual Report on Form10-K for further details.
Employees
As of December 31, 2017, we have one employee based in Europe. The employees of our Advisor, Property Manager and other affiliates of AR Global perform a full range of real estate services for us, including acquisitions, property management, accounting, legal, asset management, wholesale brokerage, transfer agent and investor relations services. Pursuant to the Service Provider Agreement, the Service Provider agreed to provide, subject to the Advisor's oversight, certain real estate-related services, as well as sourcing and structuring of investment opportunities, performance of due diligence, and arranging debt financing and equity investment syndicates, solely with respect to investments in Europe. As discussed above, on January 16, 2018, we notified the Service Provider that it was being terminated effective as of March 17, 2018. We depend on third parties and affiliates for services that are essential to us, including asset acquisition decisions, property management and other general administrative responsibilities. In the event that any of these companies were unable to provide these services to us we would be required to provide such services ourselves or obtain such services from other sources at potentially higher cost. As a result of our termination of the Service Provider, the property management and leasing agreement among an affiliate of the Advisor and the Service Provider will terminate by its own terms. As required under our existing Advisory Agreement, the Advisor and its affiliates will continue

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to manage the Company’s affairs on a day to day basis (including management and leasing of our properties) and will remain responsible for managing and providing other services with respect to our European investments.
Financial Information About Industry Segments
Our current business consists of owning, managing, operating, leasing, acquiring, investing in and disposing of real estate assets. All of our consolidated revenues are derived from our consolidated real estate properties. We internally evaluate operating performance at the individual property level, and view all of our real estate assets as a single industry segment, and, accordingly, all of our properties are aggregated into one reportable segment.
Available Information
We electronically file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports, and proxy statements, with the SEC. You may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549, or you may obtain information by calling the SEC at 1-800-SEC-0330. The SEC maintains an internet address at http://www.sec.gov that contains reports, proxy statements and information statements, and other information, which you may obtain free of charge. In addition, copies of our filings with the SEC may be obtained from the website maintained for us and our affiliates at www.globalnetlease.com. Access to these filings is free of charge. We are not incorporating our website or any information from the website into this Form 10-K.

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Item 1A. Risk Factors
Set forth below are the risk factors that we believe are material to our investors. The occurrence of any of the risks discussed in this Annual Report on Form 10-K could have a material adverse effect on our business, our financial condition, our results of operations, our ability to pay dividends and the trading price of our Common Stock and Series A Preferred Stock.
Risks Related to Our Properties and Operations
We may not achieve our acquisition goals.
Our goal is to acquire $500 million of properties during the year ending December 31, 2018. There can be no assurance we will be able to meet our goal for numerous reasons, including:
competition from other real estate investors with significant capital, including both publicly traded REITs and institutional investment funds;
agreements to acquire properties are typically subject to conditions to closing that may not be satisfied or waived; and
we may be unable to obtain debt financing or raise equity required to fund acquisitions on favorable terms, or at all.
Moreover, we depend on the Advisor to identify a sufficient number of property acquisitions on acceptable terms and prices. There also can be no assurance the Advisor will be able to do so or that we will be able to integrate and operate the properties we acquire.
Our ability to obtain sufficient funding to implement our acquisition strategy depends on our ability to access capital from external sources, and there can be no assurance we will be able to so on favorable terms or at all.
In order to meet our acquisition goal, we will need to access third-party sources of capital. Our access to capital depends, in part, on:
general market conditions;
the market’s view of the quality of our assets;
the market’s perception of our growth potential;
our current and expected debt levels;
our current and expected future earnings;
our current and expected cash flow and cash dividend payments; and
market price per share of our Common Stock, Series A Preferred Stock and any other class or series of equity security we may seek to issue that is listed on a national securities exchange.
We cannot assure you that we will be able to obtain debt financing or raise equity on terms favorable or acceptable to us or at all. If we are unable to do so, our ability to successfully pursue our strategy of growth through property acquisitions will be limited. Failure to achieve this strategic objective could adversely affect us.
There is no assurance that we will be able to continue paying dividends on our Common Stock or Series A Preferred Stock at the current rate or, with respect to our Common Stock, increase dividends over time.
We may not continue paying dividends at the current rate in the future for various reasons, including the following:
rents from properties may not increase, and future acquisitions of properties, real estate-related debt or real estate-related securities may not increase our cash available for distributions to stockholders;
we may not generate sufficient cash from operations to fund our other capital needs;
decisions on whether, when and in which amounts to make any future distributions will remain at all times entirely at the discretion of our board of directors, which reserves the right to change our dividend policy regarding Common Stock at any time and for any reason;
we may desire to retain cash to maintain or improve its credit ratings; and
the amount of distributions that our subsidiaries may distribute to us may be subject to restrictions imposed by state law, restrictions that may be imposed by state regulators and restrictions imposed by the terms of any current or future indebtedness that these subsidiaries may incur.
Our common stockholders have no contractual or other legal right to dividends or distributions that have not been declared. Moreover, failure to meet the market's expectations with regard to future earnings and cash dividends likely would adversely affect the market price of our Common Stock.
Dividends paid from sources other than our cash flows from operations will result in us having fewer funds available for the acquisition of properties and other real estate-related investments, which may adversely affect our ability to fund future dividends with cash flows from operations.

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Our cash flows provided by operations were $131.0 million for the year ended December 31, 2017. During the year ended December 31, 2017, we paid dividends of $143.9 million, which includes payments to holders of our Common and Series A Preferred Stock and distributions to holders of OP Units and LTIP Units. Of these payments, $131.0 million, or 91.0%, was funded from cash flows provided by operations, $2.3 million, or 1.6%, was funded from proceeds from sales of real estate investments and $11.0 million, or 7.7%, was funded from available cash on hand.
We are obligated under the terms of our Series A Preferred Stock to pay dividends to holders of our Series A Preferred Stock in an amount equal to $2.5 million per quarter for each quarter based on 5,409,650 shares of Series A Preferred Stock outstanding as of December 31, 2017.
Series A Preferred Stock ranks senior to our Common Stock with respect to dividend rights and rights upon our voluntary or involuntary liquidation, dissolution or winding up. If we do not generate sufficient cash flows from its operations to fund dividends, we may have to reduce or suspend dividend payments on our Common Stock or pay dividends from other sources, such as from borrowings or the sale of additional securities.
Funding dividends from borrowings could restrict the amount we can borrow for property acquisitions and investments. Funding dividends with the sale of assets, or using the proceeds from issuance of our Common Stock, Series A Preferred Stock or other equity securities to fund dividends rather than invest in assets, may affect our ability to generate cash flows. Funding dividends from the sale of additional securities could also result in a dilution of our stockholders’ investment.
The Credit Facility may limit our ability to pay dividends.
The Credit Facility prohibits us from paying distribution, including cash dividends on our Common Stock and Series A Preferred Stock, or redeeming or otherwise repurchasing shares of our capital stock, including our Common Stock and Series A Preferred Stock, in an aggregate amount exceeding 95% of our “Adjusted FFO” as defined in the Credit Facility (which is different from AFFO as discussed in this Annual Report on Form 10-K) for any period of four consecutive fiscal quarters, except in limited circumstances, including that for one fiscal quarter in each calendar year, we may pay cash dividends, make redemptions and make repurchases in an aggregate amount equal to no more than 100% of our Adjusted FFO.
Further, the Credit Facility prohibits us from paying distributions, including cash dividends payable on our Common Stock and Series A Preferred Stock, or redeeming or otherwise repurchasing shares of our capital stock, including our Common Stock and Series A Preferred Stock, after the occurrence and during the continuance of a default or an event of default under the Credit Facility, except in limited circumstances, including as necessary to enable us to maintain our qualification as a REIT. If we default under the Credit Facility in any way, we would be unable to borrow additional amounts thereunder, and upon the occurrence of an event of default under the Credit Facility, any amounts we have borrowed thereunder could become immediately due and payable.
The agreements governing future debt instruments may also include restrictions on our ability to pay dividends to holders, or redemptions or repurchases, of our Common Stock and Series A Preferred Stock.
We are dependent on the Advisor and its affiliate, the Property Manager, to provide us with executive officers, key personnel and all services required for us to conduct our operations and our operating performance may be impacted by any adverse changes in the financial health or reputation of the Advisor.
Personnel and services that we require are provided to us under contracts with the Advisor and its affiliate, the Property Manager. We depend on the Advisor, and any entities it may engage with our approval, and the Property Manager to manage our operations and to acquire and manage our portfolio of real estate assets.
Thus, our success depends to a significant degree upon the contributions of our executive officers and other key personnel of the Advisor. Neither we nor the Advisor has an employment agreement with any of these key personnel, except for the agreement between Mr. Nelson and the Advisor, and we cannot guarantee that all, or any particular one, will remain affiliated with us or the Advisor. If any of our key personnel were to cease their affiliation with the Advisor, our operating results could suffer. Further, we do not maintain key person life insurance on any person. We believe that our success depends, in large part, upon the ability of the Advisor to hire, retain or contract services of highly skilled managerial, operational and marketing personnel. Competition for skilled personnel is intense, and there can be no assurance that the Advisor will be successful in attracting and retaining skilled personnel. If the Advisor loses or is unable to obtain the services of key personnel, the Advisor's ability to implement our investment strategies could be delayed or hindered, and the value of an investment in shares of our stock may decline.
On March 8, 2017, the creditor trust established in connection with the bankruptcy of RCS Capital Corp. (“RCAP”), which prior to its bankruptcy filing was under common control with the Advisor, filed suit against AR Global, the Advisor, advisors of other entities sponsored by affiliates of AR Global, and AR Global’s principals. The suit alleges, among other things, certain breaches of duties to RCAP. We are neither a party to the suit, nor are there allegations related to the services the Advisor provides to us. On May 26, 2017, the defendants moved to dismiss. On November 30, 2017, the Court issued an opinion partially granting the defendants’ motion The Advisor has informed us that it believes the suit is without merit and intends to defend against it vigorously.

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Any adverse changes in the financial condition or financial health of, or our relationship with, the Advisor, including any change resulting from an adverse outcome in any litigation, could hinder its ability to successfully manage our operations and our portfolio of investments. Additionally, changes in ownership or management practices, the occurrence of adverse events affecting the Advisor or its affiliates or other companies advised by the Advisor and its affiliates could create adverse publicity and adversely affect us and our relationship with lenders, tenants or counterparties.
We may terminate the Advisory Agreement in only limited circumstances, which may require payment of a termination fee.
We have limited rights to terminate the Advisor. The initial term of the Advisory Agreement expires on June 1, 2035, but is automatically renewed for consecutive five-year terms unless notice of termination is provided by either party 365 days in advance of the expiration of the term. Further, we may terminate the agreement only under limited circumstances. In the event of a termination in connection with a change in control of us or the Advisor’s failure (based on a good faith determination by our independent directors) to meet annual performance standards for the prior year based primarily on actions or inactions of the Advisor, we would be required to pay a termination fee that could be up to 2.5 times the compensation paid to the Advisor in the previous year, plus expenses. The limited termination rights of the Advisory Agreement will make it difficult for us to renegotiate the terms of the Advisory Agreement or replace the Advisor even if the terms of the Advisory Agreement are no longer consistent with the terms generally available to externally-managed REITs for similar services.
We rely significantly on major tenants and therefore are subject to tenant credit concentrations that make us more susceptible to adverse events with respect to those tenants.
As of December 31, 2017, we derived 5.0% of our consolidated annualized rental income on a straight-line basis from FedEx. Reductions or revisions in FedEx’s budget may adversely affect its ability to make payments pursuant to the terms or its lease. The value of our investment in a real estate asset is historically driven by the credit quality of the underlying tenant, and an adverse change in a major tenant’s financial condition or a decline in the credit rating of such tenant may result in a decline in the value of our investments.
A high concentration of our properties in a particular geographic area magnifies the effects of downturns in that geographic area and could have a disproportionate adverse effect on the value of our investments.
As of December 31, 2017, we derived 5.0% or more of our consolidated annualized rental income on a straight-line basis from the following countries and states:
Country
 
December 31, 2017
European Countries:
 
 
United Kingdom
 
22.1%
Germany
 
8.5%
The Netherlands
 
7.0%
Finland
 
6.2%
France
 
5.2%
Other European Countries
 
2.1%
Total European Countries
 
51.1%
United States & Puerto Rico:
 

Texas
 
8.2%
Michigan
 
7.7%
California
 
5.1%
Other States and Puerto Rico
 
27.9%
Total United States and Puerto Rico
 
48.9%
Total
 
100.0%
Any adverse situation that disproportionately affects the states and countries listed above may have a magnified adverse effect on us. Factors that may negatively affect economic conditions in these states or countries include:
restrictions on international trade;
business layoffs, downsizing or relocations;
industry slowdowns;
changing demographics;
increased telecommuting and use of alternative work places;
infrastructure quality;

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any oversupply of, or reduced demand for, real estate;
concessions or reduced rental rates under new leases for properties where tenants defaulted; and
increased insurance premiums.
Brexit could adversely affect us.
On June 23, 2016, the United Kingdom held a referendum in which a majority of voters approved an exit from the European Union, commonly referred to as “Brexit.” On March 29, 2017, the United Kingdom gave formal notice of its exit from the European Union and commenced the two-year period of negotiations to determine the terms of the United Kingdom’s relationship with the European Union after the exit, including, among other things, the terms of trade between the United Kingdom and the European Union. These negotiations are ongoing. Any final agreement requires the approval of Parliament in both the United Kingdom and the European Union. The uncertainty surrounding when and on what terms the United Kingdom will ultimately exit the European Union, as well as uncertainty surrounding the ultimate impact of these events on both the United Kingdom and the European Union, has caused, and may continue to cause, significant volatility in global stock markets and currency exchange fluctuations, including a sharp decline in the value of the British pound sterling as compared to the U.S. dollar and other currencies. In addition to the long-term effects of Brexit that depend on whether the United Kingdom is able to retain access to European Union markets either during a transitional period or more permanently, Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the United Kingdom determines which European Union laws to replace or replicate. As a general matter, Brexit may:
adversely affect European and worldwide economic and market conditions;
adversely affect commercial property market values and rental rates in the United Kingdom and continental Europe;
result in foreign currency exchange rate fluctuations that could adversely affect our results of operations, especially if we are unable to effectively hedge currency exchange exposure; and
adversely affect the availability of financing for commercial properties in the United Kingdom and continental Europe, which could impair our ability to acquire properties and may reduce the price for which we are able to sell properties we have acquired.
The effects of Brexit, including effects we cannot anticipate, could adversely affect us. However, until the terms and timing of Brexit become more clear, it is not possible to determine the ultimate impact that the United Kingdom’s departure from the European Union or any related matters may have on us.
We are subject to additional risks from our international investments.
Based on original purchase price or acquisition value with respect to properties acquired in the Merger, 50.4% of our properties are located in Europe, primarily in the United Kingdom, France, Germany, Luxembourg, The Netherlands and Finland, and 49.6% of our properties are located in the U.S. and the Commonwealth of Puerto Rico. As part of our strategy of growth through property acquisitions, we intend to increase the percentage (based on original purchase price) of our portfolio located in the U.S. to 60%, but, even while implementing this strategy, we may purchase other properties and may make additional investments in Europe or elsewhere. These investments may be affected by factors peculiar to the laws and business practices of the jurisdictions in which the properties are located. These laws and business practices may expose us to risks that are different from and in addition to those commonly found in the U.S. Foreign investments pose several risks, including the following:
the burden of complying with a wide variety of foreign laws;
changing governmental rules and policies, including changes in land use and zoning laws, more stringent environmental laws or changes in such laws;
existing or new laws relating to the foreign ownership of real property or loans and laws restricting the ability of foreign persons or companies to remove profits earned from activities within the country to the person's or company's country of origin;
the potential for expropriation;
possible currency transfer restrictions;
imposition of adverse or confiscatory taxes;
changes in real estate and other tax rates and changes in other operating expenses in particular countries;
possible challenges to the anticipated tax treatment of the structures that allow us to acquire and hold investments;
adverse market conditions caused by terrorism, civil unrest and changes in national or local governmental or economic conditions;
the willingness of domestic or foreign lenders to make loans in certain countries and changes in the availability, cost and terms of loan funds resulting from varying national economic policies;
general political and economic instability in certain regions;
the potential difficulty of enforcing obligations in other countries; and
the Advisor’s limited experience and expertise in foreign countries relative to its experience and expertise in the U.S.

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Investments in properties or other real estate investments outside the U.S. subject us to foreign currency risks.
Investments we make outside the U.S. are generally subject to foreign currency risk due to fluctuations in exchange rates between foreign currencies and the U.S. dollar. Revenues generated from properties or other real estate investments acquired are generally denominated in the local currency. As of December 31, 2017, we had $992.3 million, ($301.0 million, £223.2 million and €325.7 million) in outstanding mortgage debt, $298.9 million ($209 million, £40.0 million and €30.0 million) in outstanding debt under the Revolving Credit Facility and $229.9 million, net (€194.6 million) of outstanding debt under the Term Facility. We may continue borrow in local currencies when purchasing properties outside the Unites States, including draws under our revolving credit facility. As a result, changes in exchange rates of any of these foreign currencies to U.S. dollars may affect our revenues, operating margins and the amount of cash we have available to pay dividends and may also affect the book value of our assets and the amount of stockholders' equity.
Changes in foreign currency exchange rates used to value a REIT's foreign assets may be considered changes in the value of the REIT's assets. These changes may adversely affect our status as a REIT.
Foreign exchange rates may be influenced by many factors, including:
changing supply and demand for a particular currency;
monetary policies of governments (including exchange control programs, restrictions on local exchanges or markets and limitations on foreign investment in a country or an investment by residents of a country in other countries);
changes in balances of payments and trade;
trade restrictions; and
currency devaluations and revaluations.
Also, governments from time to time intervene in the currency markets, directly and by regulation, in order to influence prices. These events and actions are unpredictable.
We use foreign currency derivatives including options, currency forward and cross currency swap agreements to manage our exposure to fluctuations in GBP-USD and EUR-USD exchange rates, but there can be no assurance our hedging strategy will be successful. If we fail to effectively hedge our currency exposure, or if we experience other losses related to our exposure to foreign currencies, our operating results could be negatively impacted and cash flows could be reduced.
Market and economic challenges experienced by the U.S. and global economies may adversely impact aspects of our operating results and operating condition.
Our business may be affected by market and economic challenges experienced by the U.S. and global economies. These conditions may materially affect the commercial real estate industry, the businesses of our tenants and the value and performance of our properties, and may affect our ability to pay dividends, and the availability or the terms of financing that we have or may anticipate utilizing. Challenging economic conditions may also impact the ability of certain of our tenants to enter into new leasing transactions or satisfy rental payments under existing leases. Specifically, global market and economic challenges may have adverse consequences, including:
decreased demand for our properties due to significant job losses that occur or may occur in the future, resulting in lower rents and occupancy levels;
an increase in the number of bankruptcies or insolvency proceedings of our tenants and lease guarantors, which could delay or preclude our efforts to collect rent and any past due balances under the relevant leases;
widening credit spreads as investors demand higher risk premiums, resulting in lenders increasing the cost for debt financing;
reduction in the amount of capital that is available to finance real estate, which, in turn, could lead to a decline in real estate values generally, slow real estate transaction activity, a reduction the loan-to-value ratio upon which lenders are willing to lend, and difficulty refinancing our debt;
a decrease in the market value of our properties, which may limit our ability to obtain debt financing secured by our properties;
a need for us to establish significant provisions for losses or impairments;
reduction in the value and liquidity of our short-term investments and increased volatility in market rates for such investments; and
reduction in cash flows from our operations as a result of foreign currency losses resulting from our operations in continental Europe and the United Kingdom if we are unsuccessful in hedging these potential losses or if, as part of our risk management strategies, we choose not to hedge some or all of the risk.

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Continuing concerns regarding European debt, market perceptions concerning the instability of the Euro and recent volatility and price movements in the rate of exchange between the U.S. Dollar and the Euro could adversely affect our business, results of operations and our ability to obtain financing.
Concerns persist regarding the debt burden of certain Eurozone countries and their potential inability to meet their future financial obligations, the overall stability of the Euro. These concerns could lead to the re-introduction of individual currencies in one or more Eurozone countries, or, in more extreme circumstances, the possible dissolution of the Euro currency entirely. If the European Union dissolves, the legal and contractual consequences for holders of Euro-denominated obligations would be uncertain. This uncertainty would extend to, among other factors, whether obligations previously expressed to be owed and payable in Euros would be re-denominated in a new currency (with considerable uncertainty over the conversion rates), what laws would govern and which country’s courts would have jurisdiction. These potential developments, or market perceptions concerning these and related issues, could materially adversely affect the value of our Euro-denominated investments and obligations.
Furthermore, market concerns about economic growth in the Eurozone relative to the U.S. and speculation surrounding the potential impact on the Euro of a country sovereign default or exit from the Eurozone may continue to exert downward pressure on the rate of exchange between the U.S. Dollar and the Euro.
Inflation may have an adverse effect on our investments.
Certain countries have in the past experienced extremely high rates of inflation. Inflation, along with governmental measures to curb inflation, coupled with public speculation about the possible future governmental measures to be adopted, has had significant negative effects on these international economies in the past and this could occur again in the future.
Inflation could erode the value of long-term leases that do not contain indexed escalation provisions. High inflation in the countries in which we own or purchase real estate or make other investments could also increase expenses, and we may not be able to pass these increased costs onto our tenants. An increase in our expenses or a decrease in revenues could adversely impact results of operations. As of December 31, 2017, certain our leases, based on annualized rental income on a straight-line basis, for properties in foreign countries contain upward adjustments to fair market value every five years or contain capped indexed escalation provisions, but there can be no assurance that future leases on properties in foreign countries will contain such provisions or that such provisions will protect us from all potential adverse effects of inflation.
Conversely, low inflation can cause deflation, or an outright decline in prices. Deflation can lead to a negative cycle where consumers delay purchases in anticipation of lower prices, causing businesses to stop hiring and postpone investments as sales weaken. Deflation would have a serious impact on economic growth and may adversely affect the financial condition of our tenants and the rental rates at which we renew or enter into leases.
A high concentration of our tenants in a similar industry magnifies the effects of downturns in that industry and would have a disproportionate adverse effect on the value of investments.
If tenants of our properties are concentrated in a certain industry category, any adverse effect to that industry generally would have a disproportionately adverse effect on our portfolio. As of December 31, 2017, the following industries had concentrations of properties representing 5.0% of our consolidated annualized rental income on a straight-line basis:
Industry
 
December 31, 2017
Financial Services
 
13.9%
Technology
 
6.6%
Discount Retail
 
6.4%
Aerospace
 
6.2%
Healthcare
 
5.4%
Telecommunications
 
5.9%
Government Services
 
5.7%
Freight
 
5.2%
Utilities
 
5.2%
Any adverse situation that disproportionately affects the industries listed above may have a magnified adverse effect on our portfolio.

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Our bank deposits in excess of insured limits expose us to risk of failure of any bank in which we deposit our funds.
We hold cash and cash equivalents at several banking institutions. These institutions are generally insured by the Federal Deposit Insurance Corporation in the U.S. or other entities in Europe, and each of these entities generally only insure limited amounts per depositor per insured bank. We have cash and cash equivalents and restricted cash deposited in interest-bearing accounts at certain financial institutions exceeding these insured levels. If any of the banking institutions in which we have deposited funds ultimately fails, we may lose the portion of the deposits that exceed the insured levels.
Our business and operations could suffer if the Advisor or any other party that provides us with services essential to our operations experiences system failures or cyber incidents or a deficiency in cyber security.
Despite system redundancy, the implementation of security measures and the existence of a disaster recovery plan for the internal information technology networks and related systems of the Advisor and other parties that provide us with services essential to our operations, these systems are vulnerable to damages from any number of sources, including computer viruses, unauthorized access, energy blackouts, natural disasters, terrorism, war and telecommunication failures. Any system failure or accident that causes interruptions in our operations could results in a material disruption to our business. We may also incur additional costs to remedy damages caused by such disruptions.
A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity or availability of information resources. More specifically, a cyber incident is an intentional attack or an unintentional event that can include gaining unauthorized access to systems to disrupt operations, corrupt data or steal confidential information. As reliance on technology has increased, so have the risks posed to the systems of the Advisor and other parties that provide us with services essential to our operations. In addition, the risk of a cyber incident, including by computer hackers, foreign governments and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. Even the most well protected information, networks, systems and facilities remain potentially vulnerable because the techniques used in such attempted attacks and intrusions evolve and generally are not recognized until launched against a target, and in some cases are designed not to be detected and, in fact, may not be detected.
The remediation costs and lost revenues experienced by a victim of a cyber incident may be significant and significant resources may be required to repair system damage, protect against the threat of future security breaches or to alleviate problems, including reputational harm, loss of revenues and litigation, caused by any breaches.
In addition, a security breach or other significant disruption involving the information technology networks and related systems of the Advisor or any other party that provides us with services essential to our operations could:
result in misstated financial reports, violations of loan covenants, missed reporting deadlines and/or missed permitting deadlines;
affect our ability to properly monitor our compliance with the rules and regulations regarding our qualification as a REIT;
result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of, proprietary, confidential, sensitive or otherwise valuable information (including information about tenants), which others could use to compete against us or for disruptive, destructive or otherwise harmful purposes and outcomes;
result in our inability to maintain the building systems relied upon by its tenants for the efficient use of their leased space;
require significant management attention and resources to remedy any damages that result;
subject us to claims for breach of contract, damages, credits, penalties or termination of leases or other agreements; or
adversely impact our reputation among its tenants and investors generally.
Although the Advisor and other parties that provide us with services essential to our operations intend to continue to implement industry-standard security measures, there can be no assurance that those measures will be sufficient, and any material adverse effect experienced by the Advisor and other parties that provide us with services essential to our operations could, in turn, have an adverse impact on us.
We are in litigation with the Service Provider related to our termination of the Service Provider.
On January 25, 2018, the Service Provider filed a complaint against us, the Property Manager, the Special Limited Partner, the OP, the Advisor (collectively, the "GNL Defendants") and AR Capital Global Holdings, LLC and AR Global (the "AR Global Defendants") in the Supreme Court of the State of New York, County of New York. The complaint alleges that the termination of the Service Provider Agreement was a pretext to enable the AR Global Defendants to seize the Service Provider’s business with us. The complaint further alleges breach of contract against the GNL Defendants, and tortious interference against the AR Global Defendants. The complaint seeks, among other things: (i) monetary damages against the defendants, and (ii) to enjoin the GNL Defendants from terminating the Service Provider Agreement based on the Termination Letters. On January 26, 2018, the Service Provider made a motion seeking to preliminarily enjoin the defendants from terminating the Service Provider Agreement pending resolution of the lawsuit. On February 13, 2018, the defendants responded and moved to dismiss. Both motions remain pending.
We believe this lawsuit is without merit and intend to contest it vigorously, but there can be no assurance that we will be successful. An unfavorable judgment against us could have a material adverse impact on our financial condition, liquidity, our

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business and our acquisition strategy. Further, if the termination is enjoined, the Advisor would be required to maintain its relationship with the Service Provider, which could adversely affect the quality of the services provided to us. As with any litigation, the dispute and resulting litigation may divert management’s attention from the day-to-day operations of our business and result in substantial cost to us, including amounts that may become payable to reimburse the AR Global, the Advisor and their affiliates for their legal costs in defending themselves against the Service Provider’s lawsuit pursuant to our indemnification obligations to them.
Risks Related to Conflicts of Interest
The Advisor faces conflicts of interest relating to the purchase and leasing of properties, and these conflicts may not be resolved in our favor, which could adversely affect our investment opportunities.
We rely on AR Global and the executive officers and other key real estate professionals at the Advisor to identify suitable investment opportunities for us. Several of the other key real estate professionals of the Advisor are also the key real estate professionals at the parent of AR Global and their other public programs. Many investment opportunities that are suitable for us may also be suitable for other programs sponsored directly or indirectly by the parent of AR Global. For example, AFIN seeks, like us, to invest in a diversified portfolio of commercial properties, with an emphasis on sale-leaseback transactions involving single tenant net-leased commercial properties, in the U.S. Thus, the executive officers and real estate professionals of the Advisor could direct attractive investment opportunities to other entities, such as AFIN.
We and other programs sponsored directly or indirectly by the parent of AR Global also rely on these real estate professionals, to supervise the property management and leasing of properties. Our executive officers and key real estate professionals, as well as AR Global, are not prohibited from engaging, directly or indirectly, in any business or from possessing interests in other businesses and ventures, including businesses and ventures involved in the acquisition, development, ownership, leasing or sale of real estate investments.
The Advisor faces conflicts of interest relating to joint ventures, which could result in a disproportionate benefit to the other venture partners at our expense.
We may enter into joint ventures with other programs sponsored directly or indirectly by the parent of AR Global for the acquisition, development or improvement of properties. The Advisor may have conflicts of interest in determining which programs sponsored directly or indirectly by the parent of AR Global should enter into any particular joint venture agreement. The co-venturer may have economic or business interests or goals that are or may become inconsistent with our business interests or goals. In addition, the Advisor may face a conflict in structuring the terms of the relationship between our interests and the interest of the affiliated co-venturer and in managing the joint venture. Due to the role of the Advisor and its affiliates, agreements and transactions between the co-venturers with respect to any such joint venture will not have the benefit of arm’s-length negotiation of the type normally conducted between unrelated co-venturers, which may result in the co-venturer receiving benefits greater than the benefits that we receive. In addition, we may assume liabilities related to the joint venture that exceeds the percentage of our investment in the joint venture.
Our officers and directors face conflicts of interest related to the positions they hold with related parties, which could hinder our ability to successfully implement its business strategy and to generate returns to you.
Certain of our executive officers, including James Nelson, chief executive officer and president, and Christopher Masterson, chief financial officer, treasurer and secretary, also are officers of the Advisor and the Property Manager. Our directors also are directors of other REITs sponsored directly or indirectly by the parent of AR Global. As a result, these individuals owe fiduciary duties to these other entities which may conflict with the duties that they owe to us.
These conflicting duties could result in actions or inactions that are detrimental to our business. Conflicts with our business and interests are most likely to arise from involvement in activities related to (a) allocation of new investments and management time and services between us and the other entities, (b) our purchase of properties from, or sale of properties, to entities sponsored by or affiliated with AR Global, (c) the timing and terms of the investment in or sale of an asset, (d) development of our properties by affiliates of AR Global, (e) investments with affiliates of the Advisor, and (f) compensation to the Advisor and its affiliates, including the Property Manager.
Moreover, the management of multiple REITs by certain of the key personnel of the Advisor may significantly reduce the amount of time they are able to spend on activities related to us, which may cause our operating results to suffer.
The Advisor faces conflicts of interest relating to the structure of the fees it may receive.
Under the Advisory Agreement, the partnership agreement of the OP, and the OPP (as defined in “Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities-Share-Based Compensation-Multi-Year Outperformance Agreement”), the Advisor is entitled to substantial minimum compensation regardless of performance. Further, because the Advisor does not maintain a significant equity interest in us and is entitled to receive fees and earn LTIP Units (as defined in “Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities-Share-Based Compensation-Multi-Year Outperformance Agreement”) based on performance, the Advisor may be incentivized to

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recommend investments that are riskier or more speculative than investments recommended by an advisor with a more significant investment in us.
Risks Related to our Corporate Structure, Common Stock and Series A Preferred Stock
The trading prices of our Common Stock and Series A Preferred Stock may fluctuate significantly.
Our Common Stock and Series A Preferred Stock are listed on the NYSE. The trading prices of our Common Stock and Series A Preferred Stock are impacted by a number of factors, many of which are outside our control. Among the factors that could affect the prices of our Common Stock and Series A Preferred Stock are:    
our financial condition and performance;
our ability to achieve our strategy of growth through property acquisitions, and the terms, including with respect to financing, upon which we are able to do so;
the financial condition of our tenants, including the extent of tenant bankruptcies or defaults;
actual or anticipated quarterly fluctuations in our operating results and financial condition;
the amount and frequency of our payment of dividends;
additional issuances of equity securities, including Common Stock or Series A Preferred Stock;
the reputation of REITs and real estate investments generally and the attractiveness of REIT equity securities in comparison to other equity securities, and fixed income securities;
our reputation and the reputation of AR Global, its affiliates or entities sponsored by AR Global;
uncertainty and volatility in the equity and credit markets;
fluctuations in interest rates;
changes in revenue or earnings estimates or publication of research reports and recommendations by financial analysts or actions taken by rating agencies with respect to our securities or those of other REITs;
failure to meet analysts’ revenue or earnings estimates;
strategic actions by us or our competitors, such as acquisitions or restructurings;
the extent of institutional investor interest in us;
the extent of short-selling of our Common Stock;
general financial and economic market conditions and, in particular, developments related to market conditions for REITs and other real estate related companies;
failure to maintain our REIT status;
changes in tax laws;
domestic and international economic factors unrelated to our performance; and
all other risk factors addressed elsewhere in this Annual Report on the Form 10-K.
Moreover, although an active market has developed for our Series A Preferred Stock, there can be no assurance that an active and liquid trading market will be maintained. If an active and liquid trading market is not maintained, the market price and liquidity of our Series A Preferred Stock may be adversely affected.
We depend on our OP and its subsidiaries for cash flow and are structurally subordinated in right of payment to the obligations of our OP and its subsidiaries.
Our only significant asset is the partnership interest we own in our OP. We conduct, and intend to continue conducting, all of our business operations through our OP. Accordingly, our only source of cash to pay our obligations is dividends from our OP and its subsidiaries. Until such time as the LTIP Units held by the Advisor are fully earned in accordance with the provisions of the OPP, the LTIP Units are entitled to dividends equal to 10% of the dividends made on the OP Units. After the LTIP Units are fully earned, they are entitled to a catch-up distribution and then receive the same distribution as the OP Units.
There is no assurance that our OP or its subsidiaries will be able to, or be permitted to, pay dividends to us that will enable us to pay dividends to our stockholders, holders of OP Units and holders of LTIP Units from cash flows from operations or otherwise pay any other obligations. Each of our OP's subsidiaries is a distinct legal entity and, under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from these entities. In addition, any claims we may have will be structurally subordinated to all existing and future liabilities and obligations of our operating partnership and its subsidiaries. Therefore, in the event of our bankruptcy, liquidation or reorganization, our assets and those of our OP and its subsidiaries will be available to satisfy the claims of our creditors or to pay dividends to our stockholders only after all the liabilities and obligations of our OP and its subsidiaries have been paid in full.
A stockholder's interest in us could be diluted if we issue additional equity securities, which could adversely affect the value of our Common Stock and Series A Preferred Stock.
Existing stockholders do not have preemptive rights to any shares issued by us in the future. Our charter authorizes us to issue up to 116,670,000 shares of stock, consisting of 100,000,000 shares of common stock, par value $0.01 per share, and 16,670,000 shares of preferred stock, par value $0.01 per share. As of December 31, 2017, we had the following stock issued and outstanding: (i) 67,287,231 shares of Common Stock, and (ii) 5,409,650 shares of Series A Preferred Stock. Subject to the rights of holders of

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our Series A Preferred Stock authorization or issuance of equity securities ranking senior to the Series A Preferred Stock, our board of directors may amend our charter from time to time to increase or decrease the aggregate number of authorized shares of stock, or the number of authorized shares of any class or series of stock, or may classify or reclassify any unissued shares into the classes or series of stock without the necessity of obtaining stockholder approval. All of our authorized but unissued shares of stock may be issued in the discretion of our board of directors. The issuance of additional shares of our Common Stock could dilute the interests of the holders of our Common Stock, and any issuance of shares of preferred stock senior to our Common Stock, such as our Series A Preferred Stock, or of additional indebtedness could affect our ability to pay dividends on our Common Stock. The issuance of additional shares of preferred stock ranking equal or senior to our Series A Preferred Stock, including preferred stock convertible into shares of our Common Stock, could dilute the interests of the holders of Common Stock and Series A Preferred Stock, and any issuance of shares of preferred stock senior to our Series A Preferred Stock or of additional indebtedness could affect our ability to pay dividends on, redeem or pay the liquidation preference on our Series A Preferred Stock. These issuances could also adversely affect the trading price of our Common Stock and our Series A Preferred Stock.
In addition, we may issue shares of our Common Stock pursuant to stock awards granted to our officers and directors, pursuant to the Advisory Agreement in payment of fees thereunder or in connection with the Advisor earning LTIP Units pursuant to the OPP. As of December 31, 2017, no shares of our Common Stock have been issued pursuant to the Advisory Agreement and no LTIP Units have been earned. LTIP Units are convertible into OP Units subject to being earned and vested and several other conditions. We may also issue OP Units to sellers of properties we acquire. We also may issue shares of our Common Stock pursuant to our ATM Program or any similar future program.
Any issuance of additional equity securities by us could dilute the interest of our existing stockholders.
The limit on the number of shares a person may own may discourage a takeover that could otherwise result in a premium price to our stockholders.
Our charter, with certain exceptions, authorizes our directors to take such actions as are necessary and desirable to preserve our qualification as a REIT. Unless exempted by our board of directors, no person may own more than 9.8% in value of the aggregate of the outstanding shares of our stock or more than 9.8% (in value or in number of shares, whichever is more restrictive) of any class or series of shares of our stock. This restriction may have the effect of delaying, deferring or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all our assets) that might provide a premium price for holders of our Common Stock.
The terms of our Series A Preferred Stock, and the terms other preferred stock we may issue, may discourage a third party from acquiring us in a manner that might result in a premium price to our stockholders.
The change of control conversion and redemption features of our Series A Preferred Stock may make it more difficult for a party to acquire us or discourage a party from seeking to acquire us. Upon the occurrence of a change of control, holders of Series A Preferred Stock will, under certain circumstances, have the right to convert some of or all their shares of Series A Preferred Stock into shares of our Common Stock (or equivalent value of alternative consideration) and under these circumstances we will also have a special optional redemption right to redeem shares of Series A Preferred Stock. These features of our Series A Preferred Stock may have the effect of discouraging a third party from seeking to acquire us or of delaying, deferring or preventing a change of control under circumstances that otherwise could provide the holders of our Common Stock and Series A Preferred Stock with the opportunity to realize a premium over the then-current market price or that stockholders may otherwise believe is in their best interests. We may also issue other classes or series of preferred stock that could also have the same effect.
Maryland law prohibits certain business combinations, which may make it more difficult for us to be acquired and may discourage a takeover that could otherwise result in a premium price to our stockholders.
Under Maryland law, “business combinations” between a Maryland corporation and an interested stockholder or an affiliate of an interested stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. These business combinations include a merger, consolidation, share exchange or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities. An interested stockholder is defined as:
any person who beneficially owns, directly or indirectly, 10% or more of the voting power of the corporation’s outstanding voting stock; or
an affiliate or associate of the corporation who, at any time within the two-year period prior to the date in question, was the beneficial owner, directly or indirectly, of 10% or more of the voting power of the then outstanding stock of the corporation.
A person is not an interested stockholder under the statute if the board of directors approved in advance the transaction by which he or she otherwise would have become an interested stockholder. However, in approving a transaction, the board of directors may provide that its approval is subject to compliance, at or after the time of approval, with any terms and conditions determined by the board.

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After the five-year prohibition, any business combination between the Maryland corporation and an interested stockholder generally must be recommended by the board of directors of the corporation and approved by the affirmative vote of at least:
80% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation; and
two-thirds of the votes entitled to be cast by holders of voting stock of the corporation other than shares held by the interested stockholder with whom or with whose affiliate the business combination is to be effected or held by an affiliate or associate of the interested stockholder.
These super-majority vote requirements do not apply if the corporation’s common stockholders receive a minimum price, as defined under Maryland law, for their shares in the form of cash or other consideration in the same form as previously paid by the interested stockholder for its shares. The business combination statute permits various exemptions from its provisions, including business combinations that are exempted by the board of directors prior to the time that the interested stockholder becomes an interested stockholder. Pursuant to the statute, our board of directors has exempted any business combination involving the Advisor or any affiliate of the Advisor. Consequently, the five-year prohibition and the super-majority vote requirements will not apply to business combinations between us and the Advisor or any affiliate of the Advisor. As a result, the Advisor and any affiliate of the Advisor may be able to enter into business combinations with us that may not be in the best interest of our stockholders, without compliance with the super-majority vote requirements and the other provisions of the statute. The business combination statute may discourage others from trying to acquire control of us and increase the difficulty of consummating any offer.
Maryland law limits the ability of a third-party to buy a large stake in us and exercise voting power in electing directors, which may discourage a takeover that could otherwise result in a premium price to our stockholders.
The Maryland Control Share Acquisition Act provides that holders of “control shares” of a Maryland corporation acquired in a “control share acquisition” have no voting rights except to the extent approved by stockholders by the affirmative vote of stockholders entitled to cast at least two-thirds of the votes entitled to be cast on the matter. Shares of stock owned by the acquirer, by officers or by employees who are directors of the corporation, are excluded from shares entitled to vote on the matter. “Control shares” are voting shares of stock which, if aggregated with all other shares of stock owned by the acquirer or in respect of which the acquirer can exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquirer to exercise voting power in electing directors within specified ranges of voting power. Control shares do not include shares the acquiring person is then entitled to vote as a result of having previously obtained stockholder approval or shares acquired directly from the corporation. A “control share acquisition” means the acquisition of issued and outstanding control shares. The control share acquisition statute does not apply (a) to shares acquired in a merger, consolidation or share exchange if the corporation is a party to the transaction, or (b) to acquisitions approved or exempted by the charter or bylaws of the corporation. Our bylaws contain a provision exempting from the Maryland Control Share Acquisition Act any and all acquisitions of our stock by any person. There can be no assurance that this provision will not be amended or eliminated at any time in the future.
Our board of directors may change our investment policies without stockholder approval, which could alter the nature of our portfolio.
Our board of directors may change our investment policies over time. The methods of implementing our investment policies also may vary, as new real estate development trends emerge and new investment techniques are developed. Our investment policies, the methods for their implementation, and our other objectives, policies and procedures may be altered by our board of directors without the approval of our stockholders. As a result, the nature of a stockholder's investment could change without the consent of stockholders.
Our rights and the rights of our stockholders to recover claims against our officers, directors and the Advisor are limited, which could reduce recoveries against them if they cause us to incur losses.
Maryland law provides that a director has no liability in that capacity if he or she performs his or her duties in good faith, in a manner he or she reasonably believes to be in the corporation’s best interests and with the care that an ordinarily prudent person in a like position would use under similar circumstances. In addition, subject to certain limitations set forth therein or under Maryland law, our charter provides that no director or officer will be liable to us or our stockholders for monetary damages and requires us to indemnify our directors, our officers and the Advisor and the Advisor’s affiliates and permits us to indemnify our employees and agents. We and our stockholders also may have more limited rights against our directors, officers, employees and agents, and the Advisor and its affiliates, than might otherwise exist under common law, which could reduce recoveries against them. In addition, we may be obligated to fund the defense costs incurred by our directors, officers, employees and agents or the Advisor and its affiliates in some cases.
Payment of fees to the Advisor and its affiliates reduces cash available for investment and other uses including payment of dividends to our stockholders.
The Advisor its affiliates perform services for us in connection with the selection and acquisition of our investments, the management of our properties, the servicing of our debt, and the administration of our investments. They are paid substantial fees for these services, which reduces cash available for investment, other corporate purposes, including payment of dividends to our stockholders.

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Risks Related to Net Lease Sale-Leaseback Investments
The inability of a tenant in single-tenant properties to pay rent will materially reduce our revenues.
Substantially all of our properties are occupied by single tenants and, therefore, the success of our investments is materially dependent on the financial stability of these individual tenants. A default of any tenant on its lease payments to us would cause us to lose the revenue from the property and cause us to have to find an alternative source of revenue to meet any mortgage payment and prevent a foreclosure if the property is subject to a mortgage. In the event of a default, we may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment and reletting our property. If a lease is terminated, there is no assurance that we will be able to lease the property for the rent previously received or sell the property without incurring a loss. A default by a tenant, the failure of a guarantor to fulfill its obligations or other premature termination of a lease, or a tenant’s election not to extend a lease upon its expiration, could have an adverse effect.
Single-tenant properties may be difficult to sell or re-lease upon tenant defaults or early lease terminations.
If a lease for one of our single-tenant properties is terminated or not renewed or, in the case of a mortgage loan, if we take such property in foreclosure, we may be required to renovate the property or to make rent concessions in order to lease the property to another tenant or sell the property. Special use single-tenant properties may be relatively illiquid compared to other types of real estate and financial assets. This illiquidity will limit our ability to quickly change our portfolio in response to changes in economic or other conditions. In addition, in the event we are forced to sell the property, we may have difficulty selling it to a party other than the tenant or borrower due to the special purpose for which the property may have been designed. These and other limitations may affect our ability to re-lease or sell properties.
Acquisitions of properties in sale-leaseback transactions could be recharacterized in a tenant’s bankruptcy proceeding, which could adversely affect our financial condition and ability to pay dividends.
We have entered, and may continue to enter, into sale-leaseback transactions whereby we would purchase a property and then lease the same property back to the person from whom we purchased it. In the event of the bankruptcy, the transaction may be re-characterized as either a financing or a joint venture. If the sale-leaseback was re-characterized as a financing, we might not be considered the owner of the property, and as a result would have the status of a creditor, not a property owner. In that event, we would no longer have the right to sell or encumber our ownership interest in the property. Instead, we would have a claim against the tenant for the amounts owed under the lease. The tenant/debtor might have the ability to propose a plan restructuring the term, interest rate and amortization schedule of its outstanding balance. If such a plan is confirmed by the bankruptcy court, we could be bound by the new terms. If the sale-leaseback were characterized as a joint venture, our lessee and we could be treated as co-venturers with regard to the property. As a result, we could be held liable, under some circumstances, for debts incurred by the lessee relating to the property.
Highly leveraged tenants may have a higher possibility of filing for bankruptcy or insolvency.
Highly leveraged tenants that experience downturns in their operating results due to adverse changes to their business or economic conditions may have a higher possibility of filing for bankruptcy or insolvency. In bankruptcy or insolvency, a tenant may have the option of vacating a property instead of paying rent. Until such a property is released from bankruptcy, our revenues may be reduced.
If a tenant declares bankruptcy or becomes insolvent, we may be unable to collect balances due under relevant leases.
Any of our tenants, or any guarantor of a tenant’s lease obligations, could become insolvent or be subject to a bankruptcy proceeding pursuant to Title 11 of the bankruptcy laws of the United States. A bankruptcy filing of our tenants or any guarantor of a tenant’s lease obligations would bar all efforts by us to collect pre-bankruptcy debts from these entities or their assets, unless we receive an enabling order from the bankruptcy court. If a lease is assumed by the tenant, all pre-bankruptcy balances owing under it must be paid in full. If a lease is rejected by a tenant in bankruptcy, we would have a general unsecured claim for damages. If a lease is rejected, it is unlikely we would receive any payments from the tenant because our claim is capped at the rent reserved under the lease, without acceleration, for the greater of one year or 15% of the remaining term of the lease, but not greater than three years, plus rent already due but unpaid. This claim could be paid only if funds were available, and then only in the same percentage as that realized on other unsecured claims.
A tenant or lease guarantor bankruptcy could delay efforts to collect past due balances under the relevant leases, and could ultimately preclude full collection of these sums. A tenant or lease guarantor bankruptcy could cause a decrease or cessation of rental payments that would mean a reduction in our cash flow and the amount available for dividends to our stockholders. In the event of a bankruptcy, there can be no assurance that the tenant or its trustee will assume our lease.
The credit profile of our tenants may create a higher risk of lease defaults and therefore lower revenues.
Based on annualized rental income on a straight-line basis as of December 31, 2017, 23.7% of our tenants are not evaluated or ranked by credit rating agencies, or are ranked below "investment grade," which includes both actual investment grade ratings

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of the tenant and “implied investment grade,” which includes ratings of the tenant’s parent (regardless of whether or not the parent has guaranteed the tenant’s obligation under the lease) or lease guarantor.
Our long-term leases with certain of these tenants may therefore pose a higher risk of default than would long-term leases with tenants who have investment grade ratings.
Net leases may not result in fair market lease rates over time, which could negatively impact our income.
As of December 31, 2017, all of our rental income was generated from net leases, which generally provide the tenant greater discretion in using the leased property than ordinary property leases, such as the right to freely sublease the property, to make alterations in the leased premises and to terminate the lease prior to its expiration under specified circumstances. Net leases may not result in fair market lease rates over time, which could negatively impact our income.
Long-term leases may result in income lower than short term leases.
We generally seek to enter into long-term leases with our tenants. As of December 31, 2017, 23.5% of our annualized rental income on a straight-line basis was generated from net leases, with remaining lease term of more than 10 years. Leases of long duration, or with renewal options that specify a maximum rate increase, may not result in fair market lease rates over time if we do not accurately judge the potential for increases in market rental rates.
Certain of our leases do not contain any rent escalation provisions. As a result, our income may be lower than it would otherwise be if we did not lease properties through long-term leases. Further, if our properties are leased for long term leases at below market rental rates, our properties will be less attractive to potential buyers, which could affect our ability to sell the property at an advantageous price.
General Risks Related to Investments in Real Estate
Our operating results are affected by economic and regulatory changes that have an adverse impact on the real estate market in general. These changes affect our profitability and ability to realize growth in the value of our real estate properties.
Our operating results are subject to risks generally incident to the ownership of real estate, including:
changes in general economic and local economic conditions;
changes in supply of and demand for, similar or competing properties in the areas in which our properties are located;
changes in interest rates and availability of debt financing; and
changes in tax, real estate, environmental and zoning laws
These and other factors may affect the profitability and the value of our properties.
Properties that have vacancies for a significant period of time could be difficult to sell, which could diminish the return on your investment.
A property may experience vacancies either by the continued default of tenants under their leases or the expiration of tenant leases. Properties that are vacant will produce no revenue, and the cost of owning the property may be substantial. Vacancies will result in less cash being available to be distributed to stockholders. In addition, because properties’ market values depend principally upon the value of the properties’ leases, the resale value of properties with prolonged vacancies would be lower.
We generally obtain only limited warranties when we purchase a property and therefore have only limited recourse if our due diligence does not identify any issues that lower the value of our property, which could adversely affect our financial condition and ability to pay dividends to you.
We have acquired, and may continue to acquire, properties in “as is” condition on a “where is” basis and “with all faults,” without any warranties of merchantability or fitness for a particular use or purpose. In addition, purchase agreements may contain only limited warranties, representations and indemnifications that will only survive for a limited period after the closing. The purchase of properties with limited warranties increases the risk that we may lose some or all of our invested capital in the property as well as the loss of rental income from that property.
We may be unable to secure funds for future tenant improvements or capital needs, which could impact the value of the applicable property or our ability to lease the applicable property on favorable terms.
If a tenant does not renew its lease or otherwise vacate its space, we likely will be required to expend substantial funds for tenant improvements and tenant refurbishments to the vacated space. In addition, we will likely be responsible for any major structural repairs, such as repairs to the foundation, exterior walls and rooftops, even if our leases with tenants require tenants to pay routine property maintenance costs. We will have to obtain financing from sources, such as cash flow from operations, borrowings, property sales or future equity offerings to fund these capital requirements. These sources of funding may not be available on attractive terms or at all. If we cannot procure additional funding for capital improvements, the value of the applicable property or our ability to lease the applicable property on favorable terms could be adversely impacted.

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We may not be able to sell a property when we desire to do so.
The real estate market is affected by many factors, such as general economic conditions, availability of financing, interest rates and other factors, including supply and demand, that are beyond our control. In addition, we may not have funds available to correct defects or make improvements that are necessary or desirable before the sale of a property. We cannot predict whether we will be able to sell any property for the price or on the terms set by us, or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We cannot predict the length of time needed to find a willing purchaser and to close the sale of a property. In addition, our ability to sell properties that have been held for less than two years is limited as any gain recognized on the sale or other disposition of such property could be subject to the 100% prohibited transaction tax, as discussed in more detail below.
We have acquired or financed, and may continue to acquire or finance, properties with lock-out provisions which may prohibit us from selling a property, or may require us to maintain specified debt levels for a period of years on some properties.
Lock-out provisions, such as the provisions contained in certain mortgage loans we have entered into, could materially restrict us from selling or otherwise disposing of or refinancing properties, including by requiring the payment of a yield maintenance premium in connection with the required prepayment of principal upon a sale or disposition. Lock-out provisions may also prohibit us from reducing the outstanding indebtedness with respect to any properties, refinancing such indebtedness on a non-recourse basis at maturity, or increasing the amount of indebtedness with respect to such properties. Lock-out provisions could also impair our ability to take other actions during the lock-out period that may otherwise be in the best interests of our stockholders. In particular, lock-out provisions could preclude us from participating in major transactions that could result in a disposition of our assets or a change in control. Payment of yield maintenance premiums in connection with dispositions or refinancings could adversely affect our results of operations and cash available to pay dividends.
Rising expenses could reduce cash flow.
Any properties that we own now or buy in the future are and will be subject to operating risks common to real estate in general, any or all of which may negatively affect us. If any property is not fully occupied or if rents are being paid in an amount that is insufficient to cover operating expenses, we could be required to expend funds with respect to that property for operating expenses. The properties will be subject to increases in tax rates, utility costs, operating expenses, insurance costs, repairs and maintenance and administrative expenses. Renewals of leases or future leases may not be negotiated on that basis, in which event we may have to pay those costs. If we are unable to lease properties on a triple-net-lease basis or on a basis requiring the tenants to pay all or some of such expenses, or if tenants fail to pay required tax, utility and other impositions, we could be required to pay those costs which would, among other things, limit the amount of funds we have available for other purposes, including the payment of dividends and future acquisitions.
Real estate-related taxes may increase and if these increases are not passed on to tenants, our income will be reduced.
Some local real property tax assessors may seek to reassess some of our properties as a result of our acquisition of the property, and, from time to time, our property taxes may increase as property values or assessment rates change or for other reasons deemed relevant by the assessors. An increase in the assessed valuation of a property for real estate tax purposes will result in an increase in the related real estate taxes on that property. There is no assurance that renewal leases or future leases will be negotiated on the same basis. Increases not passed through to tenants will adversely affect our income.
Our properties and our tenants may face competition that may affect tenants’ ability to pay rent.
Our properties typically are, and we expect properties we acquire in the future will be, located in developed areas. Therefore, there are and will be numerous other properties within the market area of each of our properties that will compete with us for tenants. The number of competitive properties could have a material effect on our ability to rent space at our properties and the amount of rents charged. We could be adversely affected if additional competitive properties are built in locations competitive with our properties, causing increased competition for customer traffic and creditworthy tenants. Tenants may also face competition from such properties if they are leased to tenants in a similar industry. For example, as of December 31, 2017, 9.6% of our properties, based on annualized rental income on a straight-line basis, were retail properties, and our retail tenants face competition from numerous retail channels such as discount or value retailers, factory outlet centers and wholesale clubs. Retail tenants may also face competition from alternative retail channels, such as mail order catalogs and operators, television shopping networks and shopping via the internet. Competition that we face from other properties within our market areas, and competition our tenants face from tenants in such properties could result in decreased cash flow from tenants and may require us to make capital improvements.
Costs of complying with governmental laws and regulations, including those relating to environmental matters, may adversely affect our income and the cash available for any dividends.
All real property and the operations conducted on real property are subject to federal, state and local laws and regulations, and various foreign laws and regulations, relating to environmental protection and human health and safety. These laws and regulations generally govern wastewater discharges, air emissions, the operation and removal of underground and above-ground

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storage tanks, the use, storage, treatment, transportation and disposal of solid and hazardous materials, and the remediation of contamination associated with disposals. Environmental laws and regulations may impose joint and several liability on tenants, owners or operators for the costs to investigate or remediate contaminated properties, regardless of fault or whether the acts causing the contamination were legal. This liability could be substantial. In addition, the presence of hazardous substances, or the failure to properly remediate them, may adversely affect our ability to sell, rent or pledge a property as collateral for future borrowings.
Some of these laws and regulations have been amended so as to require compliance with new or more stringent standards as of future dates. Compliance with new or more stringent laws or regulations or stricter interpretation of existing laws may require material expenditures by us. State and federal laws in this area are constantly evolving. Future laws, ordinances or regulations may impose material environmental liability. Additionally, our tenants’ operations, the existing condition of land when we buy it, operations in the vicinity of our properties, such as the presence of underground storage tanks, or activities of unrelated third parties may affect our properties. In addition, there are various local, state and federal fire, health, life-safety and similar regulations with which we may be required to comply, and that may subject us to liability in the form of fines or damages for noncompliance.
Although we generally hire third parties to conduct environmental reviews of the real property that we purchase, we may not obtain an independent third-party environmental assessment for every property we acquire. In addition, any assessment that we do obtain may not reveal all environmental liabilities or that a prior owner of a property did not create a material environmental condition not known to us.
If we sell properties by providing financing to purchasers, we will be exposed to defaults by the purchasers.
In some instances we may sell our properties by providing financing to purchasers. If we provide financing to purchasers, we will bear the risk that the purchaser may default, which could negatively impact our cash dividends to stockholders. Even in the absence of a purchaser default, the distribution of the proceeds of sales to our stockholders, or their reinvestment in other assets, will be delayed until the promissory notes or other property we may accept upon the sale are actually paid, sold, refinanced or otherwise disposed of. In some cases, we may receive initial down payments in cash and other property in the year of sale in an amount less than the selling price and subsequent payments will be spread over a number of years.
Our costs associated with complying with the Americans with Disabilities Act may affect cash available for dividends.
Our domestic properties are subject to the Americans with Disabilities Act of 1990 (the "Disabilities Act"). Under the Disabilities Act, all places of public accommodation are required to comply with federal requirements related to access and use by disabled persons. The Disabilities Act has separate compliance requirements for “public accommodations” and “commercial facilities” that generally require that buildings and services, including restaurants and retail stores, be made accessible and available to people with disabilities. The Disabilities Act’s requirements could require removal of access barriers and could result in the imposition of injunctive relief, monetary penalties, or, in some cases, an award of damages. However, there can be no assurance that we will be able to acquire properties or allocate responsibilities in this manner.
Terrorist attacks and other acts of violence, civilian unrest, or war may affect the markets in which we operate our business and our profitability.
We own and acquire real estate assets located in major metropolitan areas as well as densely populated sub-markets that are susceptible to terrorist attack. In addition, any kind of terrorist activity or violent criminal acts, including terrorist acts against public institutions or buildings or modes of public transportation (including airlines, trains or buses) could have a negative effect on our business. These events may directly impact the value of our assets through damage, destruction, loss or increased security costs. Although we may obtain terrorism insurance, we may not be able to obtain sufficient coverage to fund any losses we may incur. The Terrorism Risk Insurance Act, which was designed for a sharing of terrorism losses between insurance companies and the federal government, will expire on December 31, 2020, and there can be no assurance that Congress will act to renew or replace it.
More generally, any terrorist attack, other act of violence or war, including armed conflicts, could result in increased volatility in, or damage to, the worldwide financial markets and economy. Increased economic volatility could adversely affect us and our properties.
Upcoming changes in U.S. accounting standards regarding operating leases may make the leasing of our properties less attractive to our potential tenants, which could reduce overall demand for our properties.
Under current authoritative accounting guidance for leases, a lease is classified by a tenant as a capital lease if the significant risks and rewards of ownership are considered to reside with the tenant. Under capital lease accounting for a tenant, both the leased asset and liability are reflected on their balance sheet. If the lease does not meet any of the criteria for a capital lease, the lease is considered an operating lease by the tenant, and the obligation does not appear on the tenant’s balance sheet, rather, the contractual future minimum payment obligations are only disclosed in the footnotes thereto. Thus, entering into an operating lease can appear to enhance a tenant’s balance sheet in comparison to direct ownership. The upcoming standard, which is expected to become effective in 2019, could affect both our accounting for leases as well as that of our current and potential tenants. These changes

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may affect how the real estate leasing business is conducted. For example, as a result of the revised accounting standards regarding the financial statement classification of operating leases, companies may be less willing to enter into leases in general or desire to enter into leases with shorter terms because the apparent benefits to their balance sheets could be reduced or eliminated.
Risks Associated with Debt Financing
Our level of indebtedness may increase our business risks.
We generally acquire real properties by using either existing financing or borrowing new funds. In addition, we typically incur mortgage debt and may pledge all or some of our real properties as security for that debt to obtain funds to acquire additional real properties or fund working capital. As of December 31, 2017, our aggregate indebtedness was $1.5 billion. We may incur significant additional debt in the future, including borrowings under the Revolving Credit Facility, for various purposes including to fund future acquisitions and other working capital requirements.
We may also borrow if we need funds to continue to satisfy the REIT tax qualification requirement that we generally distribute annually at least 90% of our REIT taxable income (which does not equal net income as calculated in accordance with GAAP) to our stockholders, determined without regard to the deduction for dividends paid and excluding net capital gain. We also may borrow if we otherwise deem it necessary or advisable to ensure that we maintain our qualification as a REIT.
If there is a shortfall between the cash flow from a property and the cash flow required to service mortgage debt on a property, then we must identify other sources to fund the payment or risk defaulting on the indebtedness. In addition, incurring mortgage debt increases the risk of loss because defaults on indebtedness secured by a property may result in lenders initiating foreclosure actions. In that case, we could lose the property securing the loan that is in default. For U.S. federal income tax purposes, a foreclosure of any of our properties would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure, but would not receive any cash proceeds. In this event, we may be unable to pay the amount of dividends required in order to maintain our REIT status. We may give full or partial guarantees to lenders of mortgage debt to the entities that own our properties. If we provide a guaranty on behalf of an entity that owns one of our properties, we will be responsible to the lender for repaying the debt if it is not paid by the entity. If any mortgages contain cross-collateralization or cross-default provisions, a default on a single property could affect multiple properties.
The Credit Facility, and certain of our other indebtedness, contains restrictive covenants that limit our operating flexibility.
The Credit Facility imposes certain affirmative and negative covenants on us including restrictive covenants with respect to, among other things, liens, indebtedness, investments, distributions, mergers, asset sales and replacing the Advisor, as well as financial covenants requiring us maintain, among other things, ratios related to leverage, secured leverage, fixed charge coverage and unencumbered debt services, as well as a minimum consolidated tangible net worth. Certain of our other indebtedness, and future indebtedness we may incur, contain or may contain similar restrictions. These or other restrictions may adversely affect our flexibility and our ability to achieve our investment and operating objectives.
Changes in the debt markets could have a material adverse impact on our earnings and financial condition.
The domestic and international commercial real estate debt markets are subject to changing levels of volatility, resulting in, from time to time, the tightening of underwriting standards by lenders and credit rating agencies. If our overall cost of borrowings increase, either due to increases in the index rates or due to increases in lender spreads, we will need to factor such increases into the economics of future acquisitions. This may result in future acquisitions generating lower overall economic returns. If these disruptions in the debt markets persist, our ability to borrow monies to finance the purchase of, or other activities related to, real estate assets will be negatively impacted.
If we are unable to borrow monies on terms and conditions that we find acceptable, we likely will have to reduce the number of properties we can purchase, and the return on the properties we do purchase may be lower. In addition, we may find it difficult, costly or impossible to refinance maturing indebtedness.
In addition, the state of the debt markets could have an impact on the overall amount of capital investing in real estate, which may result in price or value decreases of real estate assets. This could negatively impact the value of our assets after the time we acquire them.
Increases in mortgage rates may make it difficult for us to finance or refinance properties.
We have incurred, and may continue to incur, mortgage debt. We run the risk of being unable to refinance the loans when they come due, or of being unable to refinance on favorable terms. If interest rates are higher when the properties are refinanced, we may not be able to refinance the loan and we may be required to obtain equity financing to repay the mortgage or the property may be subject to foreclosure.

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Increases in interest rates could increase the amount of our debt payments and adversely affect our ability to pay dividends.
We have incurred, and may continue to incur, variable-rate debt. Increases in interest rates on our variable-rate debt would increase our interest cost. In addition, if we need to repay existing debt during periods of rising interest rates, we could be required to liquidate one or more of our investments in properties at times that may not permit realization of the maximum return on such investments.
U.S. Federal Income Tax Risks
Our failure to remain qualified as a REIT would subject us to U.S. federal income tax and potentially state and local tax, and would adversely affect our operations and the market price of our Common Stock and Series A Preferred Stock.
We qualified to be taxed as a REIT for U.S. federal income tax purposes, commencing with our taxable year ended December 31, 2013 and intend to operate in a manner that would allow us to continue to qualify as a REIT for U.S. federal income tax purposes. However, we may terminate our REIT qualification, if our board of directors determines that not qualifying as a REIT is in the best interests of our stockholders, or inadvertently. Our qualification as a REIT depends upon our satisfaction of certain asset, income, organizational, distribution, stockholder ownership and other requirements on a continuing basis. We have structured and intend to continue structuring our activities in a manner designed to satisfy all the requirements for qualification as a REIT. However, the REIT qualification requirements are extremely complex and interpretation of the U.S. federal income tax laws governing qualification as a REIT is limited. Furthermore, any opinion of our counsel, including tax counsel, as to our eligibility to remain qualified as a REIT is not binding on the Internal Revenue Service (the "IRS") and is not a guarantee that we will continue to qualify as a REIT. Accordingly, we cannot be certain that we will be successful in operating so we can remain qualified as a REIT. Our ability to satisfy the asset tests depends on our analysis of the characterization and fair market values of our assets, some of which are not susceptible to a precise determination, and for which we will not obtain independent appraisals. Our compliance with the REIT income or quarterly asset requirements also depends on our ability to successfully manage the composition of our income and assets on an ongoing basis. Accordingly, if certain of our operations were to be recharacterized by the IRS, such recharacterization would jeopardize our ability to continue to satisfy all the requirements for continued qualification as a REIT. Furthermore, future legislative, judicial or administrative changes to the U.S. federal income tax laws could be applied retroactively, which could result in our disqualification as a REIT.
If we fail to continue to qualify as a REIT for any taxable year, and we do not qualify for certain statutory relief provisions, we will be subject to U.S. federal income tax on our taxable income at corporate rates. In addition, we would generally be disqualified from treatment as a REIT for the four taxable years following the year of losing our REIT qualification. Losing our REIT qualification would reduce our net earnings available for investment or distributions to stockholders because of the additional tax liability. In addition, distributions to stockholders would no longer qualify for the dividends paid deduction, and we would no longer be required to make distributions. If this occurs, we might be required to borrow funds or liquidate some investments in order to pay the applicable tax.
Even if we continue to qualify as a REIT, in certain circumstances, we may incur tax liabilities that would reduce our cash available for distribution to you.
Even if we maintain our status as a REIT, we may be subject to U.S. federal, state and local income taxes. For example, net income from the sale of properties that are “dealer” properties sold by a REIT (a “prohibited transaction” under the Code) will be subject to a 100% tax. We may not make sufficient distributions to avoid excise taxes applicable to REITs. Similarly, if we were to fail an income test (and did not lose our REIT status because such failure was due to reasonable cause and not willful neglect) we would be subject to tax on the income that does not meet the income test requirements. We also may decide to retain net capital gain we earn from the sale or other disposition of our property and pay U.S. federal income tax directly on such income. In that event, our stockholders would be treated as if they earned that income and paid the tax on it directly. However, stockholders that are tax-exempt, such as charities or qualified pension plans, would have no benefit from their deemed payment of such tax liability unless they file U.S. federal income tax returns and thereon seek a refund of such tax. We also will be subject to corporate tax on any undistributed REIT taxable income. We also may be subject to state and local taxes on our income or property, including franchise, payroll and transfer taxes, either directly or at the level of our operating partnership or at the level of the other companies through which we indirectly own our assets, such as our taxable REIT subsidiaries, which are subject to full U.S. federal, state, local and foreign corporate-level income taxes.
To continue to qualify as a REIT we must meet annual distribution requirements, which may force us to forgo otherwise attractive opportunities or borrow funds during unfavorable market conditions. This could delay or hinder our ability to meet our investment objectives.
In order to continue to qualify as a REIT, we must distribute annually to our stockholders at least 90% of our REIT taxable income (which does not equal net income as calculated in accordance with GAAP), determined without regard to the deduction for dividends paid and excluding net capital gain. We will be subject to U.S. federal income tax on our undistributed REIT taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which distributions we make with respect to any calendar year are less than the sum of (a) 85% of our ordinary income, (b) 95% of our capital gain net income and (c) 100%

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of our undistributed income from prior years. These requirements could cause us to distribute amounts that otherwise would be spent on investments in real estate assets and it is possible that we might be required to borrow funds, possibly at unfavorable rates, or sell assets to fund these distributions. Although we intend to make distributions sufficient to meet the annual distribution requirements and to avoid U.S. federal income and excise taxes on our earnings while we continue to qualify as a REIT, it is possible that we might not always be able to do so.
Recharacterization of sale-leaseback transactions may cause us to lose our REIT status.
With respect to properties acquired in sale-leaseback transactions, we will use commercially reasonable efforts to structure any such sale-leaseback transaction such that the lease will be characterized as a "true lease" for U.S. federal income tax purposes, thereby allowing us to be treated as the owner of the property for U.S. federal income tax purposes. However, the IRS may challenge such characterization. In the event that any such sale-leaseback transaction is challenged and recharacterized as a financing transaction or loan for U.S. federal income tax purposes, deductions for depreciation and cost recovery relating to such property would be disallowed. If a sale-leaseback transaction were so recharacterized, we might fail to continue to satisfy the REIT qualification "asset tests" or "income tests" and, consequently, lose our REIT status effective with the year of recharacterization. Alternatively, the amount of our REIT taxable income could be recalculated which might also cause us to fail to meet the dividend requirement for a taxable year.
Certain of our business activities are potentially subject to the prohibited transaction tax.
For so long as we continue to qualify as a REIT, our ability to dispose of property during the first few years following acquisition may be restricted to a substantial extent as a result of our REIT qualification. Under applicable provisions of the Code regarding prohibited transactions by REITs, while we qualify as a REIT, we will be subject to a 100% penalty tax on the net income from the sale or other disposition of any property (other than foreclosure property) that we own, directly or indirectly through any subsidiary entity, including our operating partnership, but generally excluding taxable REIT subsidiaries, that is deemed to be inventory or property held primarily for sale to customers in the ordinary course of a trade or business. Whether property is inventory or otherwise held primarily for sale to customers in the ordinary course of a trade or business depends on the particular facts and circumstances surrounding each property. We intend to avoid the 100% prohibited transaction tax by (1) conducting activities that may otherwise be considered prohibited transactions through a taxable REIT subsidiary (but such taxable REIT subsidiary will incur corporate rate income taxes with respect to any income or gain recognized by it), (2) conducting our operations in such a manner so that no sale or other disposition of an asset we own, directly or through any subsidiary, will be treated as a prohibited transaction or (3) structuring certain dispositions of our properties to comply with the requirements of the prohibited transaction safe harbor available under the Code for properties that, among other requirements, have been held for at least two years. Despite our present intention, no assurance can be given that any particular property we own, directly or through any subsidiary entity, including our operating partnership, but generally excluding taxable REIT subsidiaries, will not be treated as inventory or property held primarily for sale to customers in the ordinary course of a trade or business.
Our taxable REIT subsidiaries are subject to corporate-level taxes and our dealings with our taxable REIT subsidiaries may be subject to 100% excise tax.
A REIT may own up to 100% of the stock of one or more taxable REIT subsidiaries. Both the subsidiary and the REIT must jointly elect to treat the subsidiary as a taxable REIT subsidiary. A corporation of which a taxable REIT subsidiary directly or indirectly owns more than 35% of the voting power or value of the stock will automatically be treated as a taxable REIT subsidiary. Overall, no more than 20% (25% for our taxable years prior to January 1, 2018) of the gross value of a REIT’s assets may consist of stock or securities of one or more taxable REIT subsidiaries. A taxable REIT subsidiary may hold assets and earn income that would not be qualifying assets or income if held or earned directly by a REIT, including gross income from operations pursuant to management contracts. Accordingly, we may use taxable REIT subsidiaries generally to hold properties for sale in the ordinary course of a trade or business or to hold assets or conduct activities that we cannot conduct directly as a REIT. A taxable REIT subsidiary will be subject to applicable U.S. federal, state, local and foreign income tax on its taxable income. In addition, the rules, which are applicable to us as a REIT, also impose a 100% excise tax on certain transactions between a taxable REIT subsidiary and its parent REIT that are not conducted on an arm’s-length basis.
If our operating partnership failed to qualify as a partnership or is not otherwise disregarded for U.S. federal income tax purposes, we would cease to qualify as a REIT.
If the IRS were to successfully challenge the status of our operating partnership as a partnership or disregarded entity for such purposes, it would be taxable as a corporation. In such event, this would reduce the amount of distributions that the operating partnership could make to us. This also would result in our failing to maintain our REIT qualification and becoming subject to a corporate level tax on our income. This substantially would reduce our cash available to pay distributions to our stockholders. In addition, if any of the partnerships or limited liability companies through which our operating partnership owns its properties, in whole or in part, loses its characterization as a partnership and is otherwise not disregarded for U.S. federal income tax purposes, it would be subject to taxation as a corporation, thereby reducing distributions to the operating partnership. Such a recharacterization of an underlying property owner could also threaten our ability to maintain our REIT qualification.

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Our investments in certain debt instruments may cause us to recognize income for U.S. federal income tax purposes even though no cash payments have been received on the debt instruments, and certain modifications of such debt by us could cause the modified debt to not qualify as a good REIT asset, thereby jeopardizing our REIT qualification.
Our taxable income may substantially exceed our net income as determined based on GAAP, or differences in timing between the recognition of taxable income and the actual receipt of cash may occur. For example, we may acquire assets, including debt securities requiring us to accrue original issue discount ("OID"), or recognize market discount income, that generate taxable income in excess of economic income or in advance of the corresponding cash flow from the assets. In addition, if a borrower with respect to a particular debt instrument encounters financial difficulty rendering it unable to pay stated interest as due, we may nonetheless be required to continue to recognize the unpaid interest as taxable income with the effect that we will recognize income but will not have a corresponding amount of cash available for distribution.
As a result of the foregoing, we may generate less cash flow than taxable income in a particular year and find it difficult or impossible to meet the REIT distribution requirements in certain circumstances. In such circumstances, we may be required to (a) sell assets in adverse market conditions, (b) borrow on unfavorable terms, (c) distribute amounts that would otherwise be used for future acquisitions or used to repay debt, or (d) make a taxable distributions of our shares of our Common Stock as part of a distribution in which stockholders may elect to receive shares of our Common Stock or (subject to a limit measured as a percentage of the total distribution) cash, in order to comply with the REIT distribution requirements.
The failure of a mezzanine loan to qualify as a real estate asset would adversely affect our ability to continue to qualify as a REIT.
In general, in order for a loan to be treated as a qualifying real estate asset producing qualifying income for purposes of the REIT asset and income tests, the loan must be secured by real property or an interest in real property. We may acquire mezzanine loans that are not directly secured by real property or an interest in real property but instead are secured by equity interests in a partnership or limited liability company that directly or indirectly owns real property. In Revenue Procedure 2003-65, the IRS provided a safe harbor pursuant to which a mezzanine loan that is not secured by real estate would, if it meets each of the requirements contained in the Revenue Procedure, be treated by the IRS as a qualifying real estate asset. Although the Revenue Procedure provides a safe harbor on which taxpayers may rely, it does not prescribe rules of substantive tax law and in many cases it may not be possible for us to meet all the requirements of the safe harbor. We cannot provide assurance that any mezzanine loan in which we invest would be treated as a qualifying asset producing qualifying income for REIT qualification purposes. If any such loan fails either the REIT income or asset tests, we may be disqualified as a REIT.
We may choose to pay dividends in our own stock, in which case you may be required to pay U.S. federal income taxes in excess of the cash dividends you receive.
In connection with our continued qualification as a REIT, we are required to distribute annually to our stockholders at least 90% of our REIT taxable income (which does not equal net income as calculated in accordance with GAAP), determined without regard to the deduction for dividends paid and excluding net capital gain. In order to satisfy this requirement, we may make distributions with respect to our Common Stock that are payable in cash and/or shares of our Common Stock (which could account for up to 80% of the aggregate amount of such distributions) at the election of each stockholder. Taxable stockholders receiving such distributions will be required to include the full amount of such distributions as ordinary dividend income to the extent of our current or accumulated earnings and profits, as determined for U.S. federal income tax purposes. As a result, U.S. stockholders may be required to pay U.S. federal income taxes with respect to such distributions in excess of the cash portion of the dividend received. Accordingly, U.S. stockholders receiving a distribution of our shares may be required to sell shares received in such distribution or may be required to sell other stock or assets owned by them, at a time that may be disadvantageous, in order to satisfy any tax imposed on such distribution. If a U.S. stockholder sells the stock that it receives as part of the distribution in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the distribution, depending on the market price of our stock at the time of the sale. Furthermore, with respect to certain non-U.S. stockholders, we may be required to withhold U.S. tax with respect to such distribution, including in respect of all or a portion of such distribution that is payable in stock, by withholding or disposing of part of the shares included in such distribution and using the proceeds of such disposition to satisfy the withholding tax imposed. In addition, if a significant number of our stockholders determine to sell shares of our Common Stock in order to pay taxes owed on dividend income, such sale may put downward pressure on the market price of our Common Stock.
Various tax aspects of such a taxable cash/stock distribution are uncertain and have not yet been addressed by the IRS. No assurance can be given that the IRS will not impose requirements in the future with respect to taxable cash/stock distributions, including on a retroactive basis, or assert that the requirements for such taxable cash/stock distributions have not been met.

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The taxation of distributions to you can be complex; however, distributions that we make to you generally will be taxable as ordinary income, which may reduce the anticipated return from an investment in us.
Distributions that we make to our taxable stockholders out of current and accumulated earnings and profits (and not designated as capital gain dividends or qualified dividend income) generally will be taxable as ordinary income. For tax years beginning after December 31, 2017, noncorporate stockholders are entitled to a 20% deduction with respect to these ordinary REIT dividends which would, if allowed in full, result in a maximum effective federal income tax rate on them of 29.6% (or 33.4% including the 3.8% surtax on net investment income). However, a portion of our distributions may (1) be designated by us as capital gain dividends generally taxable as long-term capital gain to the extent that they are attributable to net capital gain recognized by us, (2) be designated by us as qualified dividend income taxable at capital gains rates generally to the extent they are attributable to dividends we receive from our taxable REIT subsidiaries, or (3) constitute a return of capital generally to the extent that they exceed our accumulated earnings and profits as determined for U.S. federal income tax purposes. A return of capital is not taxable, but has the effect of reducing the tax basis of a stockholder’s investment in our stock. Distributions that exceed our current and accumulated earnings and profits and a stockholder’s tax basis in our stock generally will be taxable as capital gain.
Dividends payable by REITs generally do not qualify for the reduced tax rates available for some dividends.
Currently, the maximum tax rate applicable to qualified dividend income payable to U.S. stockholders that are individuals, trusts and estates is 20%. Dividends payable by REITs, however, generally are not eligible for this reduced rate. Although this legislation does not adversely affect the taxation of REITs or dividends payable by REITs, the more favorable rates applicable to regular corporate qualified dividends could cause investors who are individuals, trusts and estates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs, including our stock. Tax rates could be changed in future legislation.
Complying with REIT requirements may limit our ability to hedge our liabilities effectively and may cause us to incur tax liabilities.
The REIT provisions of the Code may limit our ability to hedge our liabilities. Any income from a hedging transaction we enter into to manage risk of interest rate changes, price changes or currency fluctuations with respect to borrowings made or to be made to acquire or carry real estate assets or in certain cases to hedge previously acquired hedges entered into to manage risks associated with property that has been disposed of or liabilities that have been extinguished, if properly identified under applicable Treasury Regulations, does not constitute “gross income” for purposes of the 75% or 95% gross income tests. To the extent that we enter into other types of hedging transactions, the income from those transactions will likely be treated as non-qualifying income for purposes of both of the gross income tests. As a result of these rules, we may need to limit our use of advantageous hedging techniques or implement those hedges through a taxable REIT subsidiary. This could increase the cost of our hedging activities because our taxable REIT subsidiaries would be subject to tax on gains or expose us to greater risks associated with changes in interest rates than we would otherwise want to bear. In addition, losses in a taxable REIT subsidiary generally will not provide any tax benefit, except for being carried forward against future taxable income of such taxable REIT subsidiary.
Complying with REIT requirements may force us to forgo or liquidate otherwise attractive investment opportunities.
To continue to qualify as a REIT, we must ensure that we meet the REIT gross income tests annually and that at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, government securities and qualified REIT real estate assets, including certain mortgage loans and certain kinds of mortgage-related securities. The remainder of our investment in securities (other than government securities and qualified real estate assets) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our assets can consist of the securities of any one issuer (other than government securities and qualified real estate assets), and no more than 20% of the value of our total assets can be represented by securities of one or more taxable REIT subsidiaries. If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences. As a result, we may be required to liquidate assets from our portfolio or not make otherwise attractive investments in order to maintain our qualification as a REIT.
The ability of our board of directors to revoke our REIT qualification without stockholder approval may subject us to U.S. federal income tax and reduce distributions to you.
Our charter provides that our board of directors may revoke or otherwise terminate our REIT election, without the approval of our stockholders, if it determines that it is no longer in our best interest to continue to qualify as a REIT. While we intend to continue to qualify as a REIT, we may terminate our REIT election if we determine that continuing to qualify as a REIT is no longer in our best interests. If we cease to be a REIT, we would become subject to U.S. federal income tax on our taxable income and would no longer be required to distribute most of our taxable income to our stockholders, which may have adverse consequences on our total return to our stockholders and on the market price of our Common Stock and Series A Preferred Stock.

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We may be subject to adverse legislative or regulatory tax changes that could increase our tax liability, reduce our operating flexibility and reduce the market price of our Common Stock and Series A Preferred Stock.
In recent years, numerous legislative, judicial and administrative changes have been made in the provisions of U.S. federal income tax laws applicable to investments similar to an investment in shares of our Common Stock or Series A Preferred Stock. Additional changes to the tax laws are likely to continue to occur, and there can be no assurance that any such changes will not adversely affect the taxation of a stockholder. Any such changes could have an adverse effect on an investment in our shares or on the market value or the resale potential of our assets. Investors are urged to consult with an independent tax advisor with respect to the impact of recent legislation on any investment in our shares and the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in our shares. Investors also should note that our counsel’s tax opinion is based upon existing law, applicable as of the date of its opinion, all of which will be subject to change, either prospectively or retroactively.
Although REITs generally receive better tax treatment than entities taxed as regular corporations, it is possible that future legislation would result in a REIT having fewer tax advantages, and it could become more advantageous for a company that invests in real estate to elect to be treated for U.S. federal income tax purposes as a corporation. As a result, our charter provides our board of directors with the power, under certain circumstances, to revoke or otherwise terminate our REIT election and cause us to be taxed as a regular corporation, without the vote of our stockholders. Our board of directors has fiduciary duties to us and our stockholders and could only cause such changes in our tax treatment if it determines in good faith that such changes are in the best interest of our stockholders.
The share ownership restrictions of the Code for REITs and the 9.8% share ownership limit in our charter may inhibit market activity in our shares of stock and restrict our business combination opportunities.
In order to continue to qualify as a REIT, five or fewer individuals, as defined in the Code, may not own, actually or constructively, more than 50% in value of our issued and outstanding shares of stock at any time during the last half of each taxable year, other than the first year for which a REIT election is made. Attribution rules in the Code determine if any individual or entity actually or constructively owns our shares of stock under this requirement. Additionally, at least 100 persons must beneficially own our shares of stock during at least 335 days of a taxable year for each taxable year, other than the first year for which a REIT election is made. To help ensure that we meet these tests, among other purposes, our charter restricts the acquisition and ownership of our shares of stock.
Our charter, with certain exceptions, authorizes our directors to take such actions as are necessary and desirable to preserve our qualification as a REIT while we so qualify. Unless exempted by our board of directors, for so long as we continue to qualify as a REIT, our charter prohibits, among other limitations on ownership and transfer of shares of our stock, any person from beneficially or constructively owning (applying certain attribution rules under the Code) more than 9.8% in value of the aggregate of our outstanding shares of stock and more than 9.8% (in value or in number of shares, whichever is more restrictive) of any class or series of our shares of stock. Our board of directors may not grant an exemption from these restrictions to any proposed transferee whose ownership in excess of the 9.8% ownership limit would result in the termination of our continued qualification as a REIT. These restrictions on transferability and ownership will not apply, however, if our board of directors determines that it is no longer in our best interest to continue to qualify as a REIT or that compliance with the restrictions is no longer required in order for us to continue to qualify as a REIT.
These ownership limits could delay or prevent a transaction or a change in control that might involve a premium price for our Common Stock or Series A Preferred Stock or otherwise be in the best interest of the stockholders.
Non-U.S. stockholders will be subject to U.S. federal withholding tax and may be subject to U.S. federal income tax on distributions received from us and upon the disposition of our shares.
Subject to certain exceptions, distributions received from us will be treated as dividends of ordinary income to the extent of our current or accumulated earnings and profits. Such dividends ordinarily will be subject to U.S. withholding tax at a 30% rate, or such lower rate as may be specified by an applicable income tax treaty, unless the distributions are treated as “effectively connected” with the conduct by the non-U.S. stockholder of a U.S. trade or business. Pursuant to the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"), capital gain distributions attributable to sales or exchanges of “U.S. real property interests" ("USRPIs"), generally will be taxed to a non-U.S. stockholder (other than a qualified foreign pension plan) as if such gain were effectively connected with a U.S. trade or business. However, a capital gain dividend will not be treated as effectively connected income if (a) the distribution is received with respect to a class of stock that is regularly traded on an established securities market located in the U.S. and (b) the non-U.S. stockholder does not own more than 10% of the class of our stock at any time during the one-year period ending on the date the distribution is received.
Gain recognized by a non-U.S. stockholder upon the sale or exchange of our Common Stock or Series A Preferred Stock generally will not be subject to U.S. federal income taxation unless such stock constitutes a USRPI under FIRPTA. Our Common Stock and Series A Preferred Stock will not constitute a USRPI so long as we are a “domestically-controlled qualified investment entity.” A domestically-controlled qualified investment entity includes a REIT if at all times during a specified testing period, less

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than 50% in value of such REIT’s stock is held directly or indirectly by non-U.S. stockholders. We believe, but there can be no assurance, that we will be a domestically-controlled qualified investment entity.
Even if we do not qualify as a domestically-controlled qualified investment entity at the time a non-U.S. stockholder sells or exchanges our Common Stock or Series A Preferred Stock, gain arising from such a sale or exchange would not be subject to U.S. taxation under FIRPTA as a sale of a USRPI if: (a) the shares are of a class of our stock that is “regularly traded,” as defined by applicable Treasury regulations, on an established securities market, and (b) such non-U.S. stockholder owned, actually and constructively, 10% or less of our outstanding shares of that class at any time during the five-year period ending on the date of the sale.
Potential characterization of distributions or gain on sale may be treated as unrelated business taxable income to tax-exempt investors.
If (a) we are a “pension-held REIT,” (b) a tax-exempt stockholder has incurred (or is deemed to have incurred) debt to purchase or hold our Common Stock, or (c) a holder of our Common Stock is a certain type of tax-exempt stockholder, dividends on, and gains recognized on the sale of, Common Stock by such tax-exempt stockholder may be subject to U.S. federal income tax as unrelated business taxable income under the Code.
Item 1B. Unresolved Staff Comments.
None.

32

Table of Contents

Item 2. Properties.
We acquire and operate commercial properties. All such properties may be acquired and operated by us alone or jointly with another party. Our portfolio of real estate properties was comprised of the following properties as of December 31, 2017:
Portfolio
 
Acquisition Date
 
Country
 
Number of Properties
 
Square Feet
 
Average Remaining Lease Term (1)
McDonald's
 
Oct. 2012
 
UK
 
1
 
9,094

 
6.5
Wickes Building Supplies I
 
May 2013
 
UK
 
1
 
29,679

 
7.0
Everything Everywhere
 
Jun. 2013
 
UK
 
1
 
64,832

 
9.8
Thames Water
 
Jul. 2013
 
UK
 
1
 
78,650

 
4.9
Wickes Building Supplies II
 
Jul. 2013
 
UK
 
1
 
28,758

 
9.2
PPD Global Labs
 
Aug. 2013
 
US
 
1
 
76,820

 
7.2
Northern Rock
 
Sep. 2013
 
UK
 
2
 
86,290

 
5.9
Wickes Building Supplies III
 
Nov. 2013
 
UK
 
1
 
28,465

 
11.2
Con-way Freight
 
Nov. 2013
 
US
 
7
 
105,090

 
6.2
Wolverine
 
Dec. 2013
 
US
 
1
 
468,635

 
5.3
Western Digital
 
Dec. 2013
 
US
 
1
 
286,330

 
3.2
Encanto
 
Dec. 2013
 
PR
 
18
 
65,262

 
7.8
Rheinmetall
 
Jan. 2014
 
GER
 
1
 
320,102

 
6.3
GE Aviation
 
Jan. 2014
 
US
 
1
 
369,000

 
8.3
Provident Financial
 
Feb. 2014
 
UK
 
1
 
117,003

 
18.1
Crown Crest
 
Feb. 2014
 
UK
 
1
 
805,530

 
21.4
Trane
 
Feb. 2014
 
US
 
1
 
25,000

 
6.2
Aviva
 
Mar. 2014
 
UK
 
1
 
131,614

 
11.7
DFS Trading I
 
Mar. 2014
 
UK
 
5
 
240,230

 
12.5
GSA I
 
Mar. 2014
 
US
 
1
 
135,373

 
4.9
National Oilwell Varco I
 
Mar. 2014
 
US
 
1
 
24,450

 
5.8
Talk Talk
 
Apr. 2014
 
UK
 
1
 
48,415

 
7.5
OBI DIY
 
Apr. 2014
 
GER
 
1
 
143,633

 
6.3
GSA II
 
Apr. 2014
 
US
 
2
 
24,957

 
5.4
DFS Trading II
 
Apr. 2014
 
UK
 
2
 
39,331

 
12.5
GSA III
 
Apr. 2014
 
US
 
2
 
28,364

 
7.6
GSA IV
 
May 2014
 
US
 
1
 
33,000

 
7.8
Indiana Department of Revenue
 
May 2014
 
US
 
1
 
98,542

 
5.3
National Oilwell Varco II
 
May 2014
 
US
 
1
 
23,475

 
12.4
Nissan
 
May 2014
 
US
 
1
 
462,155

 
11.0
GSA V
 
Jun. 2014
 
US
 
1
 
26,533

 
5.5
Lippert Components
 
Jun. 2014
 
US
 
1
 
539,137

 
8.9
Select Energy Services I
 
Jun. 2014
 
US
 
3
 
135,877

 
9.1
Bell Supply Co I
 
Jun. 2014
 
US
 
6
 
79,829

 
11.3
Axon Energy Products (3)
 
Jun. 2014
 
US
 
3
 
213,634

 
6.9
Lhoist
 
Jun. 2014
 
US
 
1
 
22,500

 
5.3
GE Oil & Gas
 
Jun. 2014
 
US
 
2
 
69,846

 
6.0
Select Energy Services II
 
Jun. 2014
 
US
 
4
 
143,417

 
9.1
Bell Supply Co II
 
Jun. 2014
 
US
 
2
 
19,136

 
11.3
Superior Energy Services
 
Jun. 2014
 
US
 
2
 
42,470

 
6.5
Amcor Packaging
 
Jun. 2014
 
UK
 
7
 
294,580

 
7.2
GSA VI
 
Jun. 2014
 
US
 
1
 
6,921

 
6.5
Nimble Storage
 
Jun. 2014
 
US
 
1
 
164,608

 
4.1
FedEx -3-Pack
 
Jul. 2014
 
US
 
3
 
338,862

 
4.8
Sandoz, Inc.
 
Jul. 2014
 
US
 
1
 
154,101

 
8.8
Wyndham
 
Jul. 2014
 
US
 
1
 
31,881

 
7.6
Valassis
 
Jul. 2014
 
US
 
1
 
100,597

 
5.6
GSA VII
 
Jul. 2014
 
US
 
1
 
25,603

 
7.1

33

Table of Contents

Portfolio
 
Acquisition Date
 
Country
 
Number of Properties
 
Square Feet
 
Average Remaining Lease Term (1)
AT&T Services
 
Jul. 2014
 
US
 
1
 
401,516

 
8.8
PNC - 2-Pack
 
Jul. 2014
 
US
 
2
 
210,256

 
11.8
Fujitisu
 
Jul. 2014
 
UK
 
3
 
162,888

 
12.5
Continental Tire
 
Jul. 2014
 
US
 
1
 
90,994

 
4.8
Achmea
 
Jul. 2014
 
NETH
 
2
 
190,252

 
6.3
BP Oil
 
Aug. 2014
 
UK
 
1
 
2,650

 
8.1
Malthurst
 
Aug. 2014
 
UK
 
2
 
3,784

 
8.1
HBOS
 
Aug. 2014
 
UK
 
3
 
36,071

 
7.8
Thermo Fisher
 
Aug. 2014
 
US
 
1
 
114,700

 
6.9
Black & Decker
 
Aug. 2014
 
US
 
1
 
71,259

 
4.3
Capgemini
 
Aug. 2014
 
UK
 
1
 
90,475

 
5.5
Merck & Co.
 
Aug. 2014
 
US
 
1
 
146,366

 
7.9
Dollar Tree - 65-Pack
 
Aug. 2014
 
US
 
58
 
485,992

 
11.9
GSA VIII
 
Aug. 2014
 
US
 
1
 
23,969

 
6.9
Waste Management
 
Sep. 2014
 
US
 
1
 
84,119

 
5.3
Intier Automotive Interiors
 
Sep. 2014
 
UK
 
1
 
152,711

 
6.6
HP Enterprise Services
 
Sep. 2014
 
UK
 
1
 
99,444

 
8.5
Shaw Aero Devices, Inc.
 
Sep. 2014
 
US
 
1
 
130,581

 
5.0
FedEx II
 
Sep. 2014
 
US
 
1
 
11,501

 
6.5
Dollar General - 39-Pack
 
Sep. 2014
 
US
 
21
 
199,946

 
10.5
FedEx III
 
Sep. 2014
 
US
 
2
 
221,260

 
6.8
Mallinkrodt Pharmaceuticals
 
Sep. 2014
 
US
 
1
 
89,900

 
6.9
Kuka
 
Sep. 2014
 
US
 
1
 
200,000

 
6.8
CHE Trinity
 
Sep. 2014
 
US
 
2
 
373,593

 
5.2
FedEx IV
 
Sep. 2014
 
US
 
2
 
255,037

 
5.3
GE Aviation
 
Sep. 2014
 
US
 
1
 
102,000

 
5.3
DNV GL
 
Oct. 2014
 
US
 
1
 
82,000

 
7.4
Bradford & Bingley
 
Oct. 2014
 
UK
 
1
 
120,618

 
12.0
Rexam
 
Oct. 2014
 
GER
 
1
 
175,615

 
7.4
FedEx V
 
Oct. 2014
 
US
 
1
 
76,035

 
6.8
C&J Energy
 
Oct. 2014
 
US
 
1
 
96,803

 
6.1
Dollar Tree II
 
Oct. 2014
 
US
 
34
 
282,730

 
12.0
Panasonic
 
Oct. 2014
 
US
 
1
 
48,497

 
10.8
Onguard
 
Oct. 2014
 
US
 
1
 
120,000

 
6.3
Metro Tonic
 
Oct. 2014
 
GER
 
1
 
636,066

 
8.0
Axon Energy Products
 
Oct. 2014
 
US
 
1
 
26,400

 
7.1
Tokmanni
 
Oct. 2014
 
FIN
 
1
 
800,834

 
15.9
Fife Council
 
Nov. 2014
 
UK
 
1
 
37,331

 
6.4
Dollar Tree III
 
Nov. 2014
 
US
 
2
 
16,442

 
11.9
GSA IX
 
Nov. 2014
 
US
 
1
 
28,300

 
4.6
KPN BV
 
Nov. 2014
 
NETH
 
1
 
133,053

 
9.3
RWE AG
 
Nov. 2014
 
GER
 
3
 
594,415

 
7.2
Follett School
 
Nov. 2014
 
US
 
1
 
486,868

 
7.3
Quest Diagnostics
 
Dec. 2014
 
US
 
1
 
223,894

 
6.9
Diebold
 
Dec. 2014
 
US
 
1
 
158,330

 
4.3
Weatherford Intl
 
Dec. 2014
 
US
 
1
 
19,855

 
8.1
AM Castle
 
Dec. 2014
 
US
 
1
 
127,600

 
7.1
FedEx VI
 
Dec. 2014
 
US
 
1
 
27,771

 
6.9
Constellium Auto
 
Dec. 2014
 
US
 
1
 
320,680

 
12.2
C&J Energy II
 
Mar. 2015
 
US
 
1
 
125,000

 
6.1
Fedex VII
 
Mar. 2015
 
US
 
1
 
12,018

 
7.0

34

Table of Contents

Portfolio
 
Acquisition Date
 
Country
 
Number of Properties
 
Square Feet
 
Average Remaining Lease Term (1)
Fedex VIII
 
Apr. 2015
 
US
 
1
 
25,852

 
7.0
Crown Group I
 
Aug. 2015
 
US
 
3
 
295,974

 
17.8
Crown Group II
 
Aug. 2015
 
US
 
3
 
642,595

 
17.9
Mapes & Sprowl Steel, Ltd.
 
Sep. 2015
 
US
 
1
 
60,798

 
12.3
JIT Steel Services
 
Sep. 2015
 
US
 
2
 
126,983

 
12.3
Beacon Health System, Inc.
 
Sep. 2015
 
US
 
1
 
49,712

 
8.5
Hannibal/Lex JV LLC
 
Sep. 2015
 
US
 
1
 
109,000

 
12.0
FedEx Ground
 
Sep. 2015
 
US
 
1
 
91,029

 
7.8
Office Depot
 
Sep. 2015
 
NETH
 
1
 
206,331

 
11.4
Finnair
 
Sep. 2015
 
FIN
 
4
 
656,275

 
6.9
Auchan (2)
 
Dec. 2016
 
FR
 
1
 
152,235

 
5.9
Pole Emploi (2)
 
Dec. 2016
 
FR
 
1
 
41,452

 
5.8
Veolia Water (2)
 
Dec. 2016
 
US
 
1
 
70,000

 
8.3
Sagemcom (2)
 
Dec. 2016
 
FR
 
1
 
265,309

 
6.3
NCR Dundee ()
 
Dec. 2016
 
UK
 
1
 
132,182

 
9.1
FedEx Freight (2)
 
Dec. 2016
 
US
 
1
 
68,960

 
6.3
DB Luxembourg (2)
 
Dec. 2016
 
LUX
 
1
 
156,098

 
6.2
ING Amsterdam (2)
 
Dec. 2016
 
NETH
 
1
 
509,369

 
7.8
Worldline (2)
 
Dec. 2016
 
FR
 
1
 
111,338

 
6.3
Foster Wheeler (2)
 
Dec. 2016
 
UK
 
1
 
365,832

 
6.8
ID Logistics I (2)
 
Dec. 2016
 
GER
 
1
 
308,579

 
7.1
ID Logistics II (2)
 
Dec. 2016
 
FR
 
2
 
964,489

 
7.2
Harper Collins (2)
 
Dec. 2016
 
UK
 
1
 
873,119

 
7.9
DCNS (2)
 
Dec. 2016
 
FR
 
1
 
96,995

 
7.0
Cott Beverages Inc
 
Feb. 2017
 
US
 
1
 
170,000

 
9.3
FedEx Ground - 2 Pack
 
Mar. 2017
 
US
 
2
 
157,660

 
9.0
Bridgestone Tire
 
Sep. 2017
 
US
 
1
 
48,300

 
9.8
GKN Aerospace
 
Oct. 2017
 
US
 
1
 
97,864

 
9.0
NSA-St. Johnsbury I
 
Oct. 2017
 
US
 
1
 
87,100

 
14.8
NSA-St. Johnsbury II
 
Oct. 2017
 
US
 
1
 
84,949

 
14.8
NSA-St. Johnsbury III
 
Oct. 2017
 
US
 
1
 
40,800

 
14.8
Tremec North America
 
Nov. 2017
 
US
 
1
 
127,105

 
9.8
Cummins
 
Dec. 2017
 
US
 
1
 
58,546

 
7.4
GSA X
 
Dec. 2017
 
US
 
1
 
25,604

 
12.0
NSA Industries
 
Dec. 2017
 
US
 
1
 
82,862

 
15.0
Total
 
 
 
 
 
321
 
22,897,326

 
8.8
______________________________________________________
(1) 
If the portfolio has multiple properties with varying lease expirations, average remaining lease term is calculated on a weighted-average basis. Weighted-average remaining lease term in years calculated based on square feet as of December 31, 2017.
(2) 
Properties acquired as part of the Merger.
(3) 
Of the three properties, one location is vacant while the other two properties remain in use.

35

Table of Contents

The following table details distribution of our portfolio by country/location as of December 31, 2017:
Country
 
Acquisition Date
 
Number of
Properties
 
Square
Feet
 
Percentage of Properties by Square Feet
 
Average Remaining Lease Term (1)
Finland
 
Nov. 2014 - Sep. 2015
 
5
 
1,457,109

 
6.4%
 
11.2
France
 
Dec. 2016
 
7
 
1,631,818

 
7.1%
 
6.3
Germany
 
Jan. 2014 - Dec. 2016
 
8
 
2,178,410

 
9.5%
 
6.8
Luxembourg
 
Dec. 2016
 
1
 
156,098

 
0.7%
 
6.0
The Netherlands
 
Jul. 2014 - Dec. 2016
 
5
 
1,039,005

 
4.5%
 
8.4
United Kingdom
 
Oct. 2012 - Dec. 2016
 
43
 
4,079,576

 
17.8%
 
9.5
United States
 
Aug. 2013 - Dec. 2017
 
234
 
12,290,048

 
53.7%
 
9.7
Puerto Rico
 
Dec. 2013
 
18
 
65,262

 
0.3%
 
7.5
Total
 
 
 
321
 
22,897,326

 
100.0%
 
8.8
_______________________________________________________
(1) 
If the portfolio has multiple properties with varying lease expirations, average remaining lease term is calculated on a weighted-average basis. Weighted average remaining lease term in years is calculated based on square feet as of December 31, 2017.

36

Table of Contents

The following table details the tenant industry distribution of our portfolio as of December 31, 2017:
Industry
 
Number of Properties
 
Square Feet
 
Square Feet as a Percentage of the Total Portfolio
 
Annualized Rental Income (1)
 
Annualized Rental Income as a Percentage of the Total Portfolio
 
 
 
 
 
 
 
 
(In thousands)
 
 
Aerospace
 
8
 
1,355,720

 
5.9
%
 
$
15,608

 
6.2
%
Auto Manufacturing
 
8
 
1,939,861

 
8.5
%
 
6,617

 
2.6
%
Automation
 
1
 
200,000

 
0.9
%
 
1,092

 
0.4
%
Automotive Parts Manufacturing
 
3
 
259,557

 
1.1
%
 
2,209

 
0.9
%
Automotive Parts Supplier
 
2
 
411,096

 
1.8
%
 
3,583

 
1.4
%
Biotechnology
 
1
 
114,700

 
0.5
%
 
1,014

 
0.4
%
Consulting
 
1
 
82,000

 
0.4
%
 
576

 
0.2
%
Consumer Goods
 
3
 
271,874

 
1.2
%
 
2,117

 
0.8
%
Contract Research
 
1
 
76,820

 
0.3
%
 
895

 
0.4
%
Defense
 
1
 
96,995

 
0.4
%
 
1,671

 
0.7
%
Discount Retail
 
116
 
1,785,944

 
7.8
%
 
16,165

 
6.4
%
Education
 
1
 
486,868

 
2.1
%
 
1,935

 
0.8
%
Electronics
 
1
 
48,497

 
0.2
%
 
686

 
0.3
%
Energy
 
29
 
1,042,692

 
4.6
%
 
11,848

 
4.7
%
Engineering
 
1
 
365,832

 
1.6
%
 
11,462

 
4.5
%
Environmental Services
 
1
 
70,000

 
0.3
%
 
570

 
0.2
%
Financial Services
 
13
 
2,315,896

 
10.1
%
 
35,140

 
13.9
%
Foot Apparel
 
2
 
588,635

 
2.6
%
 
2,141

 
0.8
%
Freight
 
23
 
1,391,075

 
6.1
%
 
13,248

 
5.2
%
Government Services
 
15
 
535,949

 
2.3
%
 
14,365

 
5.7
%
Healthcare
 
4
 
647,199

 
2.8
%
 
13,680

 
5.4
%
Home Maintenance
 
4
 
230,535

 
1.0
%
 
2,356

 
0.9
%
Hospitality
 
1
 
31,881

 
0.1
%
 
403

 
0.2
%
Logistics
 
3
 
1,273,068

 
5.6
%
 
3,352

 
1.3
%
Marketing
 
1
 
100,597

 
0.4
%
 
1,194

 
0.5
%
Metal Fabrication
 
9
 
719,597

 
3.1
%
 
5,368

 
2.1
%
Metal Processing
 
2
 
448,280

 
2.0
%
 
2,862

 
1.1
%
Office Supplies
 
1
 
206,331

 
0.9
%
 
2,437

 
1.0
%
Packaging Goods
 
7
 
294,580

 
1.3
%
 
1,145

 
0.5
%
Petroleum Services
 
3
 
6,434

 
*

 
714

 
0.3
%
Pharmaceuticals
 
3
 
390,367

 
1.7
%
 
9,789

 
3.9
%
Publishing
 
1
 
873,119

 
3.8
%
 
6,924

 
2.7
%
Restaurant - Quick Service
 
19
 
74,356

 
0.3
%
 
3,401

 
1.3
%
Retail Banking
 
3
 
36,071

 
0.2
%
 
1,154

 
0.5
%
Retail Food Distribution
 
3
 
1,127,765

 
4.9
%
 
7,656

 
3.0
%
Specialty Retail
 
7
 
279,561

 
1.2
%
 
3,090

 
1.2
%
Technology
 
9
 
1,047,265

 
4.6
%
 
16,832

 
6.6
%
Telecommunications
 
5
 
913,125

 
4.0
%
 
14,838

 
5.9
%
Utilities
 
4
 
673,065

 
2.9
%
 
13,142

 
5.2
%
Waste Management
 
1
 
84,119

 
0.6
%
 
358

 
0.1
%
Total
 
321
 
22,897,326

 
100
%
 
$
253,637

 
100
%
________________________________
(1)
Annualized rental income converted from local currency into USD as of December 31, 2017 for the in-place lease in the property on a straight-line basis, which includes tenant concessions such as free rent, as applicable.
*Amount is below 0.1%.

37

Table of Contents

The following table details the geographic distribution, by U.S. state or country/location, of our portfolio as of December 31, 2017:
Country
State
 
Number of Properties
 
Square Feet
 
Square Feet as a Percentage of the Total Portfolio
 
Annualized Rental Income (1)
 
Annualized Rental Income as a Percentage of the Total Portfolio
 
 
 
 
 
 
 
 
 
(In thousands)
 
 
Finland
 
5
 
1,457,109

 
6.4
%
 
$
15,623

 
6.2
%
France
 
 
7
 
1,631,818

 
7.1
%
 
13,275

 
5.2
%
Germany
 
 
8
 
2,178,410

 
9.5
%
 
21,576

 
8.5
%
Luxembourg
 
1
 
156,098

 
0.7
%
 
5,418

 
2.1
%
The Netherlands
 
5
 
1,039,005

 
4.5
%
 
17,654

 
7.0
%
United Kingdom
 
43
 
4,079,576

 
17.8
%
 
56,070

 
22.1
%
United States and Puerto Rico:
 
 
 
 
 
 
 
 
 
 
 
Alabama
 
9
 
73,554

 
0.3
%
 
804

 
0.3
%
 
Arizona
 
2
 
15,605

 
0.1
%
 
156

 
0.1
%
 
Arkansas
 
1
 
8,320

 
*

 
91

 
*

 
California
 
3
 
674,832

 
2.9
%
 
12,890

 
5.1
%
 
Colorado
 
1
 
26,533

 
0.1
%
 
1,088

 
0.4
%
 
Delaware
 
1
 
9,967

 
*

 
361

 
0.1
%
 
Florida
 
8
 
205,690

 
0.9
%
 
3,017

 
1.2
%
 
Georgia
 
5
 
41,320

 
0.2
%
 
452

 
0.2
%
 
Idaho
 
2
 
16,267

 
0.1
%
 
203

 
0.1
%
 
Illinois
 
4
 
570,737

 
2.5
%
 
2,629

 
1.0
%
 
Indiana
 
6
 
1,113,636

 
4.9
%
 
4,490

 
1.8
%
 
Iowa
 
2
 
32,399

 
0.1
%
 
296

 
0.1
%
 
Kansas
 
6
 
178,807

 
0.8
%
 
1,275

 
0.5
%
 
Kentucky
 
6
 
355,420

 
1.6
%
 
2,740

 
1.1
%
 
Louisiana
 
7
 
136,850

 
0.6
%
 
1,265

 
0.5
%
 
Maine
 
2
 
49,572

 
0.2
%
 
1,879

 
0.7
%
 
Maryland
 
1
 
120,000

 
0.5
%
 
785

 
0.3
%
 
Massachusetts
 
2
 
127,456

 
0.6
%
 
1,757

 
0.7
%
 
Michigan
 
16
 
2,423,379

 
10.6
%
 
19,643

 
7.7
%
 
Minnesota
 
4
 
149,690

 
0.7
%
 
2,138

 
0.8
%