Q3 2019 Earnings Call
Good morning, and welcome to the global not least third quarter earnings conference call.
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I would not let's turn the conference over to always supports executive Vice President. Please go ahead.
Thank you operator, good morning, everyone and thank you for joining us for General third quarter 2019 earnings call. This call is being webcast any investor relations section of GNS website at Www Dot global at least dot com.
Joining me today on the call to discuss the quarter's results our Gen Nelson Chief Executive Officer, and Chris Masterson, Chief Financial Officer.
The following information contains forward looking statements, which are subject to risks and uncertainties.
Warm or are these risks or uncertainties materialize actual results may differ materially from those expressed or implied by the forward looking statements.
There were for all of you to our SDC filings, including the annual report on Form 10-K for the year ended December 31st 2018 filed on February 20, 829 team and all other filings with the FCC after that date for a more detailed discussion at the risk factors that could cause these differences.
Any forward looking statements or portfolio information provided during this conference call are only made at the date of the call.
As stated in RCC filings DNL disclaims any intention or obligation to update or revise these forward looking statement or portfolio information, except as required by law.
During today's call will discuss non-GAAP financial measures, which we believe can be useful in evaluating the companys financial performance.
These measures should not be considered in isolation or as a substitute for or financial results prepared in accordance with gap.
A reconciliation of GAAP net income to the non-GAAP measures can be found in our earnings release supplement and Form 10-Q , all of which are posted to our website at www Dot global not least dotcom I'll now turn the call ever to our CEO Jim.
Thanks, Louise and good morning, everyone. Thank you all for joining us on todays call kind of special welcome to D.A., Davidson and agents capital, who initiated coverage or do you know last month, increasing our coverage to five analysts.
We're pleased to report another quarter of year over year increases in rental revenue cash NOI adjusted EBITDA and FFO.
We had an extremely active corridor, including 102 million or primarily industrial and office acquisitions, which combined with another significant retail disposition.
Progressed, our strategic goals to increase our portfolio allocation to industrial properties and decreased our retail exposure.
We saw a year over year decrease in our net debt to EBITDA ratio and we also signed an agreement with a fortune top 150 tenant to buy a domestic and international portfolio property for a total of approximately 182 million before the end of the year.
In total we have 373 million of acquisitions in our pipeline, which brings our total pipeline plus year to date acquisitions to 697 million.
Finally, we improved our financial flexibility and ability to execute on acquisition opportunities as we expanded our credit facility to 1.2 billion and entered into a new loan at favorable interest rates that helped extend our weighted average debt maturity and will help fuel our continued growth.
Total revenue for the third quarter was 77.9 million up 8.4% from 71.9 million in the prior year corridor.
Yes, I'll also increased to 40.2 million from 39.6 million in third quarter of 2018 on the strength up our week recent acquisition.
On a per share basis, AFFO was 47 cents per share compared to 57 cents per share during the same quarter last year due to a large termination fee received in the third quarter of last year and also the increase shares outstanding compared to last year, which were offered in order to fund our acquisition pipeline.
Cash NOI for the quarter was 68.6 million compared to 65.8 million in the same quarter 2018.
EBITDA was 58.7 million in this quarter compared to 48.5 million in third quarter 2018 [noise].
Overall, our 264 property portfolio is nearly fully occupied at 99.6% leased [laughter] 196 properties are located in the U.S. and 68 are in the UK and western Europe , representing 59% and 41% of annualized rental revenue.
Respectively, roughly in line with our target to reach a geographic distribution of 60% U.S., 40% Europe .
Our investment grade or implied investment grade tenets now make up over 71% of the portfolio.
Please refer to our earnings release for more information about what we consider to be implied investment grade tenants.
Our property mix is currently 52% office, 43% industrial and distribution at 5% retail.
The portfolio has a weighted average remaining lease term of eight years with no near term expirations.
During the quarter, we acquired nine net lease assets comprising of about 921000 square feet for a contract sales price of approximately 102 million.
These assets are leased at an attractive going in cap rate of 6.64% and.
And a weighted average cap rate of 7.68% with a weighted average remaining lease term of 17.1 years.
These acquisitions included seven industrial properties, an office building on a lab, which are all located in the United States.
We're very pleased to be acquiring long term leases at favorable cap rates, while improving the mix of assets on our portfolio.
I'd like to take a minute to review some of the highlights from these acquisitions.
The office and lab properties, we acquired during the quarter are part of a three pack of properties leased to Viavi solutions in California.
The tenant has an implied BW to credit rating and the least continues for 13 years.
These assets total approximately 137000 square feet and were acquired for a total contract sales price of $25.7 million.
The industrial properties, we acquired are leased to see of sour and suite go and are located in Kentucky, South Carolina, California, and Florida.
C F sour is a cooking products business. It makes extract and other food products suite go is a world leader in particle separation of size reduction solutions.
These industrial assets total approximately 790000 square feet and were acquired for a total contract sales price of 76.3 million.
We continue to take advantage of available opportunities to recycle capital and optimize our mix of asset types and credits.
During the third quarter, we continue to act on this type of opportunity selling a total of 33 properties.
Quoting a portfolio of 32 family dollar retail stores, which were sold for a gain that 7.25% cap rate.
Reducing gn else retail concentration.
Last quarter, we sold 62 family dollar stores.
As a part of the company's active tenant evaluation and disciplined asset management strategy, we determined that eliminating our current exposure to family dollar would be the best for the portfolio.
Upon evaluation, we were no longer comfortable with family Dollar's underperforming financials more broadly retail assets are not our focus and we felt this disturbing disposition was appropriate and increases the quality of our portfolio.
The balance of the retail assets on our portfolio are performing and we do not expect to dispose of these assets in the near term.
We will continue to evaluate this position going forward as we do for all of our assets and tenants.
As we continue to grow and refine our asset mix. We are focused on acquiring primarily industrial distribution and some select office property.
At the end of the corridor, we agreed to terms on a significant U.S. and European sale leaseback transaction with a fortune top 150 investment grade tenant.
This $182 million portfolio with a great fit for us and demonstrates the strength in expertise of our global capabilities to source execute on transaction such as this.
Inclusive of this portfolio.
We have a total of 373 million of attractive assets, which we anticipate closing in the fourth quarter, which will bring our total 2019 acquisitions to approximately 697 million at a 6.88% going in cap rate, a 7.76 average cap rate and.
14 years of average lease duration.
Recently I along with several other members of our management team, we're able to attend Expo Reale conference in Munich.
This is the largest real estate conference in Europe , and brings together over 24000 real estate professionals, including onerous brokers and lenders and service providers. This was a great opportunity to efficiently build on our existing relationships and make new connections with vendors from all over Europe .
With that I'll turn the call over to Chris to walk through the operating results and our balance sheet in more detail and then I will follow up with some closing remarks, Chris.
Thanks, Jim third quarter revenue was 77.9 million up 2.4% over the second quarter 2019 figure and F. O was 37.9 million up 3% over the second quarter moving on core FFO grew 0.7% over the second quarter to 38.6 million an f. hours.
40.2 million, a 0.4% over the prior quarter I.
Hi, AFFO per share was flat quarter over quarter due to an increase in the weighted average number of shares outstanding.
During the quarter, we paid common stock dividends of 45 million.
On our balance sheet, we ended the third quarter with net that which has that less cash and cash equivalents of 1.6 billion at a weighted average interest rate of 3% per annum.
Our weighted average that maturity has lengthened to 5.7 years at the end of third quarter, an improvement from 3.8 years at the close of the 2018 third quarter. This includes 122.8 million of debt that matures in 2019.
Components of our that include 101.4 million on the Multicurrency revolving credit facility 392.5 million on the term loan and 1.4 billion of outstanding gross mortgage that.
Yes that was approximately 93% fixed rate, which is inclusive the floating rate that with in place interest rate swaps an improvement over the quarter ended June Thirtyth 2019 were 84.6% was fixed.
Our net debt to annualized adjusted EBITDA improved to 6.7 times from 6.9 times in the third quarter 2018, with a strong interest coverage ratio of 4.1 times.
As of September Thirtyth 2019 liquidity was approximately 407 million, which is comprised of 306 million of cash on hand, and 101 million of availability under our revolving credit facility.
GNSS net debt to enterprise value was 45% with an enterprise value of 3.5 billion based on September Thirtyth 2019 closing share price of $19 in 50 cents per common shares and $25 insecticides for series a preferred shares.
During the third quarter, we entered into a CMBS loan to finance 12 properties located in United States. The 10 year or 204 million dollar loan carries a fixed interest rate of 3.65%.
We also utilized our ATM programs that during the third quarter raising gross total of $128 million approximately 110 million of this was common equity the remaining $18 million reason our series a preferred stock.
Finally, with respect to dividend, we paid dividends equating to 53 and a quarter cents per common share for the quarter.
With that I'll turn the call back to Gen for some closing remarks, thanks, Chris.
We had an excellent corridor from a real estate perspective, and we believe we have put the pieces in place to finished the year very strong.
The portfolio and the rental income generated by the portfolio continued to grow.
We have a strong balance sheet that allows us flexibility to close on our $373 million of pipeline acquisitions of long term lease primarily industrial assets.
Selling the family dollar portfolio illustrates our disciplined asset management strategy and provides the opportunity to use the net proceeds to improve our asset mix.
We anticipate growth in the portfolio as the proceeds from our second and third quarter dispositions are fully redeployed and we'll continue to be a net acquirer of high quality long term net leased office distribution and industrial assets.
Finally, as we have discussed our ability to negotiate favorable financings in local markets and at the corporate level have extended our average debt maturity with that operator, we can open the line for questions.
Thank you before we go to the question answer session I'd like to turn the corner Christmas or some for recent announcement.
Thank you operator, and good morning, everyone. This is Chris Masterson, Chief Financial Officer of Global not leave you just listen to our scripted remarks that we recorded a few days ago forgiving begin Q and I I watch what you know that Jim is taking care of a personal health issue as unable to join US for today's keep an eye Jim expects to return to the office soon.
We wish him a speedy recovery.
Joining me today for the Q and I as Brian mandatory SVP of acquisitions.
Operator, we're ready for the first question.
And as a reminder to everyone to ask a question you remember stores and one on your telephone keypad.
We are using the speaker phone, we actually had placed for governor handset for pressing the keys.
Your question. Please press Star then to today's first question comes from Ben Zucker Aegis capital. Please go ahead.
Thanks for taking my questions and congratulations on posting some a solid improvements in your core operating fundamentals.
What's the real quickly about him that impairment charge of six in the have 6.4 million. What I said were assets what was that related to.
So is it the property ACMI a in the Netherlands, we actually sold it during the fourth quarter and that was a property they were still paying rent the lease extended for four years, but they were going to be moving out and we thought that the best option for us was to sell the property now and recycle the capital.
Okay, great and while we're talking about the Netherlands could you just quickly give us kind of your view of the the total market opportunity in the U.S. covers a broad currently I think that your acquisitions over the first six months of the year had a strong if not exclusive biased to the U.S., but it looks like some of your Threeq you and subsequent activity.
He has picked up overseas a little bit so just kind of wondering how you're viewing the comparative landscape right now between the two.
Sure. So I mean, obviously, we're still looking at both the U.S. in Europe and as you can see what we found so far has been primarily based in the U.S., where we found the better deals, but there are some some European acquisitions that are popping up on the radar and it's something that we're going to keep mind monitoring, but as you can see.
We have found some opportunities in Europe and outside the U.S.
Very helpful and so Chris you guys are really flushed with capital at the moment and I'm trying to get a sense of what kind of full deployment looks like for you guys. So how much cash as a percentage of total company equity do you guys generally look to hold for you know just kind of corporate liquidity purposes.
Obviously, the this value is pretty elevated at the ended the quarter, especially.
With the with the pace in volume of the ATM program, you guys were utilizing but I'm just trying to get a feel for how kind of how far we can stretch portfolio growth with you guys.
Sure. So I mean, it probably is simple way to look at is when we acquired properties. We typically look to lever them at 50%. So if you're doing modeling purposes, I would say to build that and from a cash perspective like you mentioned, we obviously were elevated a quarter and a lot of it had to deal with the timing of capital raise and then some sales.
But I think probably the easiest way to look out of cash position would be maybe to go back to some previous quarters and in general we had been pretty consistent I'm, an Apple Park about 100 million in cash on the balance sheet. So I think that historical is probably the the best way to look at it right now.
But that's helpful. And then real quickly lastly, as a little bit a housekeeping what the preferred stock sales do you have any idea kind of is the pace of sales that we saw in Threeq is that something that you would be extrapolating out as we're trying to think about how the preferred interest expense line item should be moving or is this something that's a little bit.
More intermittent them up.
Well I'd say, it's very hard to say I mean, when it comes to issuing equity it it's going to be difficult to necessarily project and we're going to evaluate kind of as as needed and as the market is there.
Understood well that's it for me so thanks for taking my questions Chris.
Uh huh.
Next question is when it comes from Mitch Germain Oh JMP Securities. Please go ahead.
Thank you, Chris obviously, you've been pretty opportunistic and using the European markets for.
Some funding you've got about a 60 40 mix <unk> you kinda topped out or is that a market that you have to add some additional assets to be able to use you know a european debt going forward.
Well from European debt perspective, we do have the ability to draw on the credit facility in euros in pounds, but it's also something that we want to make sure that we don't go too far one direction and I'm a currency. If we don't have assets to match up with it right now, we I think where we're comfortable where where we stand but we do have.
Opportunities there, if we need to tap into them.
Got you you talked about you know the family dollar sales, reducing your exposure in retail, but you still got about 5% retail and can potentially opportunistically use that retail to buy industrial so I'm curious about your decision to conclude any sales and that's.
For the time being.
Well at this point all of the tenants that we have in the retail space are performing well, we're happy with 'em, we're going to obviously keep evaluating them and if anything changes. Then then we may decide to make decisions, but right now we're happy with with what we have in the retail space.
Okay, and then just curious about the competitive landscape, obviously, everybody wants on industrial assets.
I guess you have the ability to do a sale leaseback deal that's a little bit unique in both U.S. in Europe , but I'm curious about your ability to source transactions and how important are the the local demographics in terms of your underwriting or you are really just talking looking more at credit line.
Each time and.
And other factors like that.
Well I mean honestly, we look at all of that if any other pieces are lacking or have problems. Then then typically we probably wouldn't be able to close on it. So it's really we have to look at the full picture what would make an acquisition.
Got you and then probably last question it seems like from a funding perspective with the cash on hand, plus some debt you're pretty good.
What was the I. I might've missed it in your remarks, but I know the you raised equity what was the average price on on the last equity raise.
For the quarter I don't have the average price with me, but it's pretty consistent to where we raised it during the first quarter.
Gotcha, Okay that helps thank you bye.
Thanks.
Our next question comes from Bryan Maher or B. Riley LCR. Please go ahead.
Ah, yes, you're kind of following up a little bit on the Europe , you know nice to see your dipping your toe back in the market. There are you seeing any movement in rates over there and any of that particular.
Countries and who are you source thing a acquisitions from how are you being shown things to buy over there.
Just actually pass that to the Brian If you look more insight on that sure. So a as Chris mentioned, where were very active in evaluating opportunities overseas I think the market generally speaking has been pretty consistent over the past few quarters.
Obviously.
Capital is cheap and that's driving cap rates, but you know everything has been pretty consistent as far as we've seen.
Okay, and then you're in the U.S. I mean, you've looked at and made some successful acquisition in industrial but I think probably everybody on this call knows that everybody seems to want industrial in the U.S.
When it comes to the asset individually or in the small portfolios you've acquired who are you bumping up against a in the bidding process and kind of how much you underwriting relative to how much you're actually getting a deal done.
A lot of what we're seeing in the market right. Now is is coming from relationship driven opportunities. So we're not putting heads with a lot of the big institutional competitors, which which we think is great.
We're sourcing our deals from longstanding brokers.
As well as the developer relationships and also private equity sponsors on the sale leaseback side.
Alright, great. Thank you that's all for me.
Thanks, Brian .
Ladies and gentlemen, as a reminder, if you'd like to ask your question. Please press Star then one today's next question comes from German Soccer of Ladenburg Thalmann. Please go ahead good morning.
Orange I'm. So on the leverage side, you guys kind of trended down the last couple of quarters I know some of that maybe you simply you know you raised to meet T M.
Reach you probably to Prefund, a pretty robust pipeline here for the rest of the year, but should we expect that to kind of stay at this level, maybe trend back up as you deploy the capital or just any kind of guidance on what do you think leverage is going to trend here for the next six to 12 months would be helpful.
Well, what I would say here is that we're looking to be consistent we did raise capital at the end of the quarter typically from a net debt to EBITDA perspective, we were roughly about seven and we're looking to remain consistent for now ultimately in the long run at something we would like to to bring down but in the short term or we will be consistent.
Okay. So consistent with the current level, though John Washington, with where we've been previously this current level with the capital coming in at the end pulled that down a little bit. Okay. And then do you have any update potentially on the timing for closing of the Germany office sales is that still have a 2019 event or could that slip into 2020.
After 2019 event that's perfect.
And then more generally speaking there was some office in both the pipeline that you closed this quarter how much of that just kind of headquarters or is any of it more kind of I guess what people on the health care Rightside would call MLB or medical office properties.
I'll pass the Brian Health, we they look more detail everything we're looking out in the office spaces is traditional office are there headquarter or administrative so nothing nothing that we're doing is medical office in any sense of the words, so yeah pretty pretty consistent in terms of the types of office buildings that were looking at.
Okay.
That's it from me up past my best wishes onto a Jim thanks.
Thanks, John .
Thank you ladies and gentlemen that concludes my question answer session I'm going to turn the conference back over to Chris Masterson for any closing remarks.
Well, thanks, a lot for everyone for dialing in and hopefully we'll see some of you out married next week. Thanks Bye. Thank you Sir Todays conference has now concluded. Thank you all for attending today's presentation. You may now disconnect your lines I don't want or full day.