Commitments and Contingencies

Lessee Arrangements — Ground Leases

The Company leases land under ground leases for seven of its properties with lease durations ranging from 16 to 85 years as of March 31, 2019. On January 1, 2019, the Company adopted ASU 2016- 02 and recorded ROU assets and lease liabilities related to these ground leases, which are all considered operating leases under the new standard (see Note 2 — Summary of Significant Accounting Polices for additional information on the impact of adopting the new standard).

As of March 31, 2019, the Company’s balance sheet includes ROU assets and liabilities of $50.8 million and $23.7 million, respectively, which are included in prepaid expenses and other assets and accounts payable and accrued expenses, respectively. In determining operating ROU assets and lease liabilities for the Company’s existing operating leases upon the adoption of the new lease guidance as well as for new operating leases in the current period, the Company was required to estimate an appropriate incremental borrowing rate on a fully-collateralized basis for the terms of the leases. Since the terms of the Company's ground leases are significantly longer than the terms of borrowings available to the Company on a fully-collateralized basis, the Company's estimate of this rate required significant judgment.

The Company's ground operating leases have a weighted-average remaining lease term of approximately 34.0 years and a weighted-average discount rate of 4.33% as of March 31, 2019. For the three months ended March 31, 2019, the Company paid cash of approximately $1.3 million for amounts included in the measurement of lease liabilities and recorded expense of $0.3 million on a straight-line basis in accordance with the standard. The lease expense is recorded in property operating expenses in the consolidated statements of operations and comprehensive loss. The Company did not enter into any additional ground leases during the quarter ended March 31, 2019. The Company incurred rent expense on ground leases of $0.4 million during the three months ended March 31, 2018.

The following table reflects the base cash rental payments due from the Company as of March 31, 2019:



(In thousands)	Future Base Rent Payments ⁽¹⁾
2019 (remainder)	$	1,008
2020	1,344
2021	1,344
2022	1,344
2023	1,344
2024	1,348
Thereafter	38,382
Total minimum lease payments⁽²⁾	46,114
Less: Effects of discounting	(22,397		)
Total present value of lease payments	$	23,717


⁽¹⁾	Assumes exchange rates of £1.00 to $1.30 for GBP and €1.00 to $1.12 for EUR as of March 31, 2019 for illustrative purposes, as applicable.


⁽²⁾	Ground lease rental payments due for the Company's ING Amsterdam lease are not included in the table above as the Company's ground for this property is prepaid through 2050.

The following table reflects the base cash rental payments due from the Company as of December 31, 2018:



(In thousands)	Future Base Rent Payments ⁽¹⁾
2019	$	1,371
2020	1,371
2021	1,371
2022	1,371
2023	1,371
Thereafter	40,519
Total minimum lease payments⁽²⁾	47,374
Less: Effects of discounting	(23,370		)
Total present value of lease payments	$	24,004


⁽¹⁾	Assumes exchange rates of £1.00 to $1.27 for GBP and €1.00 to $1.14 for EUR as of December 31, 2018 for illustrative purposes, as applicable.


⁽²⁾	Ground lease rental payments due for the Company's ING Amsterdam lease are not included in the table above as the Company's ground for this property is prepaid through 2050.

Litigation and Regulatory Matters

In the ordinary course of business, the Company may become subject to litigation, claims and regulatory matters. There are no material legal or regulatory proceedings pending or known to be contemplated against the Company.

On January 25, 2018, the Former Service Provider filed a complaint against (i) the Company and the OP; (ii) the Property Manager, Global Net Lease Special Limited Partner, LLC, an affiliate of AR Global that directly owns the Advisor and the Property Manager, and the Advisor (collectively, the “GNL Advisor Defendants”); and (iii) AR Capital Global Holdings, LLC, and AR Global (together, the “AR Defendants”), in the Supreme Court of the State of New York, County of New York ("New York Supreme Court"). The complaint alleged that the notice sent to the Former Service Provider by the Company on January 15, 2018, terminating the Former Service Provider Agreement, was a pretext to enable the AR Defendants to seize the Former Service Provider's business. The complaint alleged breach of contract against the Company, the OP and the GNL Advisor Defendants, and tortious interference against the AR Defendants. The complaint sought: (i) monetary damages against the defendants, (ii) to enjoin the termination of the Service Provider Agreement, and (iii) judgment declaring the termination to be void. On March 4, 2019, the parties entered into a settlement agreement pursuant to which the lawsuit was dismissed. The Company paid $7.4 million to the Former Service Provider pursuant to the settlement agreement. The Company recorded a reserve of $7.4 million related to the then anticipated settlement payment during the fourth quarter of 2018 and subsequently paid the settlement amount during the first quarter of 2019. During the first quarter of 2019, the Company incurred $0.3 million in additional legal expenses related to this litigation. These costs are included in acquisition, transaction and other costs in the consolidated statement of operations.

Environmental Matters

In connection with the ownership and operation of real estate, the Company may potentially be liable for costs and damages related to environmental matters. As of March 31, 2019, the Company had not been notified by any governmental authority of any non-compliance, liability or other claim, and is not aware of any other environmental condition that it believes will have a material adverse effect on the results of operations.