Q1 2020 Earnings Call
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Good morning, and welcome to the global net lease first quarter 2020 earnings conference call.
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I would now like to turn the conference over to lose Luisa Court, though is that get a vice President Investor Relations. Please go ahead.
Thank you operator, good morning, everyone and thank you for joining Astra piano first quarter 2020, I'd call, it's called being webcast any Investor Relations section. After you announced last night at Daddy's W. W dot level, not least dot com.
Joining me today on the call to discuss the quarter's results that you don't know than she will now be chief Executive Officer, Masterson, Jan <unk> Chief Financial Officer.
The following information contains forward looking statements, which are subject to risks and uncertainty.
Well I don't want Beach, Florida, uncertainties materialize actual results may differ materially I love expressed from my side of forward looking statement.
We're all ideas to RFP filings, including the form 10-K weather here in late December 31st 2019 filed on February 20, 2020, and all other filings with the FTC. After that date far more do you can tell discussion I think this crackers that have caused these different.
Any forward looking statements provided during this conference call are only made up of the data this call.
See you filings do you how disclaims any intent.
Our obligation.
To update or revise these forward looking statements, except as required by law.
Also during today's call will discuss non-GAAP financial measures, which we believe can be useful and I read the companys financial performance.
These measures should not be considered in isolation like a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measurements in the most directly comparable GAAP measure is available in our earnings when we bought woman and form 10-K, all of which are posted to our website at www dot com will not be dotcom. Please.
I would refer to our earnings release for more information about what we consider to the implied indefinite great and then he terminal used throughout todays call I'll now turn the call over to Jim nothing our CEO.
Thank you Louise Thanks, again to everyone for joining us on today's call.
Before we start our discussion on June else quarterly results I would like to express our hope that you your families and colleagues remain healthy and safe during these unprecedented times and offer our heartfelt appreciation for the heroic efforts of the health care in front line workers, who are leading the efforts to address the effects of the cobot 19 pen down.
We are encouraged by the improving situation and see many signs of strength and resiliency across our portfolio.
Well our price pro priority is the health and safety of our tenants teams and business partners. Our focus remains on preserving and driving long term value for our stockholders.
Although this call will discuss our first quarter 2020 results I think the best place to begin is where everyone is currently focused which is on covert 19 and any potential impacts a pandemic has had in our portfolio.
We're pleased to report that as of April Thirtyth 2020, we've collected over 98% of cash rents that were payable during the months, including 100% of the cash rent payable from the top 20 tenants in our portfolio [noise].
Our historic emphasis on credit quality underwriting and due diligence is making a tremendous difference in our portfolio's performance.
Further we are in contact with the tenants the constitute the remaining 2% of rent.
And we continue to look to collect this outstanding balance.
On a geographic basis, GL collected 100% of the cash rent payable from our UK based assets [laughter], 99% from our other European tenants and 96% from our U.S. based assets.
Well, there's still much unknown and we cannot predict the full economic impact of this pandemic. We believe our balance of mission critical industrial and distribution assets limited to retail exposure and high investment grade rated concentration will continue to perform as underwritten.
We believe we will emerge from this crisis well position to capitalize on the opportunities that inevitably arise from such a widespread disruptive event.
As previously disclosed G.N.L. has taken steps to enhance our financial flexibility and manage risk during this uncertain time.
As a result of these steps liquidity or cash on our balance sheet and availability for future borrowings under our credit facility totaled 366.6 million at the under the first quarter.
Which we believe favorably positions the company for the months ahead.
In March we drew on our credit facility to enhance our cash position at the scope of the crisis became apparent.
Additionally, the board approved a change in the common stock dividend to an annualized rate of $1.60 per share or quarterly 40 cents per share beginning in the second quarter 2020.
Our first quarter, a AFFO was 44 cents per share. We believe that this action was prudent in the current environment and will strengthen Jan else cash flow by over 12 million per quarter as we prioritize preservation of capital.
In April the board adopted a short term stockholder rights plan to discourage the accumulation of our stock through open market trading.
The board believes that the plan along with our other recently announced actions are the best interests of the company.
We believe that G.N. else solid foundation continues to position us well for the long run we remain committed to executing on our global investment strategy of acquiring and owning a portfolio of well diversified properties leased long term to high quality tenants, who consider these properties to be critical to their business operates.
Ships.
Given our platform that spans from North America to Europe, our capital resources, and evolving real estate markets and macro economic conditions. We believe we will be well position to capitalize on select opportunities as they arise.
While we may still be in the middle innings of a global health crisis, We believe our portfolio has shown impressive resiliency thus far.
And we'll continue to demonstrate its strength as we move ahead.
Turning now to the first quarter, we acquired 10 properties for an aggregate contract purchase price.
Of 114 million, including the completion of the Whirlpool sale leaseback, we discussed on our last call.
The acquisitions located in the U.S., Canada, and Italy have an average remaining lease term of 18.9 years and were acquired at a weighted average cap rate of 8.5%.
We also signed lease extensions for four properties leased to finnair, the flag carrier and largest airline in Finland and majority owned by the finished government.
We were able to extend the weighted average remaining lease term on the properties from 4.7 years to 11 years, providing further stability and increased cash flow to GE Anil.
Including these closings are 3.8 billion 288 property portfolio was nearly fully occupied at 99.6% leased.
And that's a weighted average remaining lease term of nine years up from 8.1 years a year ago.
We have no 2020 lease expirations and contractual rent growth is embedded at 94% of leases.
223 of our properties are in the U.S. and Canada and 65 are in the UK and Western Europe, representing 65 and 35%.
Annualized rent revenue, respectively. Our property mix is currently 48% office, 47% industrial and distribution and 5% retail compared to 53% office, 39% industrial and distribution and 8% retail a year ago.
A reflection of our focus on industrial acquisitions and retail dispositions over the last year.
We believe that this emphasis on industrial acquisitions and the reduction of our exposure to retail has aided our success in the current environment as has our focus on tenant credit.
Across the portfolio, 66.7% of straight line rent.
It was from investment grade or implied investment grade tenants, including 90% of our top 10 tenants.
Going forward, we're adopting it prudent stance with potential acquisition opportunities as we reevaluate historical cap rates. During this uncertain time, we're carefully determining the appropriate risk adjusted cap rate targets for potential new acquisitions going forward and will ensure that all assets meet our revised criteria.
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Taking a look at financial highlights we're pleased to report year over year increases in adjusted EBITDA revenue from tenants and an ally.
Adjusted EBITDA increased to 60.1 million in the first quarter 2020, and total revenue was up 5% to 79.2 million.
Net operating income also increased 5.5% to 71 point Ninemillion from 68.1 million in the first quarter 2019, and 1.2% from 71 million in the previous quarter.
On a per share basis, a AFFO decreased year over year to 44 cents per share, but this was primarily due to preferred dividends on our series B preferred shares which were issued in the fourth quarter.
The proceeds of which were largely used to help fund acquisitions during the first quarter.
Of this year, a AFFO per share was flat over the fourth quarter 2019.
With that I'll turn the call over to Chris to walk through the operating results in more detail before I follow up with some closing remarks, Chris.
Thanks, Jim we posted improved financial results for the first quarter compared to the prior year.
For the first quarter 2020, we recorded EBITDA of 60.5 million compared to 55.7 million in 2019 as Jim mentioned, we also reported a 5% increase in revenue to 79.2 million I'm 75.5 million with net income attributable to common stockholders the 5 million.
Revenues increased primarily due to rental income from the significant acquisitions completed in 2019.
FFO increased 6.5% to 38.6 million, an NFL increased slightly to 39.8 million.
Our AFFO per share decreased year over year, primarily due to increased preferred dividends related to the series B preferred offering which was largely deployed into acquisitions in the first quarter.
The company paid common stock dividend 47.6 million for a corner.
As always a reconciliation of GAAP net income the non-GAAP measures can be found in our earnings release.
On the balance sheet, we ended the first quarter with net debt of 1.7 billion at a weighted average interest rate of 3.1%.
Our net debt to adjusted EBITDA ratio was 7.1 times at the end of quarter.
The weighted average maturity at the end of first quarter 2020. It was 5.4 years, which is an improvement from 4.2 years at the close at 2019 first quarter.
The components of our debt include 399.2 million on the Multicurrency revolving credit facility.
395.5 million on the term loan and 1.3 billion an outstanding gross mortgage that.
This that was approximately 90% fixed rate, which is inclusive floating rate that within place interest rate swaps.
Company has a wall cushion interest coverage ratio a 4.1 times.
As of March 31st 2020 look where did it was approximately 366.6 million, which comprises 343.4 million of cash on hand, and 23.2 million of availability under the credit facility.
Our net debt to enterprise value was 55% within enterprise I have 3.1 billion based on the March 31st 2020 closing share price up $13.37 per common shares $20.27 for series that preferred shares and $19.89 for series B preferred shares.
This ratio was impacted by the market disruption that took place across the industry starting in the last February.
As a quick update the hedging program. We've continued to use our hedging strategy to protect the portion of our rental income from currency fluctuations and offsets and movements in interest rates for our European portfolio.
As volatility increased at the end of first quarter, we saw the benefit of these hedges as our cash flow remained steady despite significant movements in exchange rate the euros in pounds against the dollar.
In the quarter, we had a realized gain of 1 million from our FX towards further illustrating their benefit with that I'll turn the call back to Jim for some closing remarks.
Thanks, Chris in closing I am very proud of all that we have accomplished in the first quarter and our response to the outbreak of cobot 19 to date.
I am encouraged by the success, we had an april collecting over 98% of the rent payable during the month at a time when many businesses were experiencing significant operating challenges. We have a dedicated hardworking team that is focused on making sure. The company continues to perform during the crisis and emerges from it ready to capital.
Lies on new opportunities.
We believe the consistent execution of our business plan and our focus on mission critical industrial and distribution assets will continue to benefit our shareholders well into the future as always thank you all for your continued support with that operator, we can open the line for questions.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
If you are using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then too.
At this time, we will pause momentarily to assemble our roster.
Our first question is from Ben Zucker with ages capital. Please go ahead.
Oh good morning, guys. Thanks for taking my question I know congratulations on on a strong April rent collection <unk> can you guys hear me okay.
We hear you find Ben thanks.
Great I guess I'd just wanted to get kind of about 30000 foot view of the market in general and kind of activity in the market or is there any kind of activity our assets still changing hands as their debt capital available or is this kind of on market environment, where buyers sellers lenders.
Scott everyone's kind of sitting on the sidelines and in a wait and see mode right now.
Well you know to answer both questions. Let me start with the market and there are still deals out there.
Our our underwriting team continues to review deals and look for the best possible deals with with our new underwriting or.
Directives that west we'd look at how the market is change and as far as financing. Yes. There is financing available. The banks are open for business and we continue to talk to them about you know ways to lower lower our interest rates you know both on new loans and on existing loans. So yes.
Okay. That's helpful and I guess since you led me there with interest rates, Chris maybe this is for you but.
With respect to revolving credit facility at yearend 19, I think we were seeing a rate of like 2.8% on that line and ER in your supplement I saw that that was up at 3.5% now I'm just kind of wondering what that increases related to.
So a part of that increase had to do with the fact that we drew on the line in U.S. de.
Late in March so as a result, we ended up having a heavier weight towards the U.S.D. Ray on the line at the ended the period.
Which is guided and in Europe.
Okay that that make sense that's helpful.
I guess, turning now to kind of the dividend and the and stuff like that and board decisions. Do you guys have any kind of repurchase program in place. If so could you speak about your appetite for for allocating capital there right now and if not could you maybe talk about what are the board's discussion.
Ones might have been around this topic if any.
We don't have a buyback plan in place right now.
We believe that the best place for us to put our money is going to high quality.
Revenue generating properties and as you know since Chris and I.
Started work for the company almost three years ago, we focus on very high quality, industrial and and industrial and distribution type of properties, which have performed very very well up until now and continue to perform well.
Okay that is that's also helpful I.
I guess, just maybe and maybe this is getting ahead of ourselves. So if it as you can let me know, but your your incentive fee I guess that's in place as of now had a component that was tied to earnings and I'm. Just wondering if we should be thinking about that differently I'm now that like a reduction to that hurdle.
I need to earn incentive fee and I guess since the dividend was lowered I wasn't sure if I should be thinking that that there was hurdles might be lowered as well.
Yeah go ahead, Chris.
Sure why does that mean at this point, there's no there's been no change to that and tendency hurdle rate.
So in terms of your modeling I Didnt change anything now.
Okay, Great and then you know I guess all last good. It's okay. You guys don't have any comments and recognizing we're only a few days into the month, but do you have any kind of indication or early look into how the may collections are progressing thus far you know specifically what the tenants that have an already entered into some kind of lease modification.
For that like 30% deferral of current a pay.
Well, it's a little early to tell yeah, [laughter] take up if you take a look at our portfolio you know they I mean, we've collected 98% of the Red for April So we expect a that to be as good or better going forward.
If you look at some of our tenants like if you look at the top 20 tenant list, we have Fedex G.S.A. Penske, which has a huge cold storage facility, serving the food industry to the supermarket industry Quest diagnostic Trinity health encompass Hell.
And those 80 and T. I mean, you know we've got we've got the right mix of tenants to you know and as I said on previous calls you know, we're uniquely positioned to weather. The storm. So I think that's a good way to look at it also if you look at 67% of our tenants are investment grade or implied investment grade I mean, you know that that it again.
He speaks for itself and again, you know the 90% of rents that we've collected I think if you look at it our peers you know it it's a significant it's a significant number that we've collected and I think we've done as good or better than most or all of our peers.
Yeah, I mean, I would I would certainly agree with dot com and and I think it's a testament to your focus on kind of these these mission critical assets and also the industrial distribution assets that are Paul, but doing quite well right now and I guess, the last one and you kind of.
You talked about it with <unk> with a new leases and discussions on now what's been there.
I was just wondering is there an opportunity to really go in place some off bench with like with respect to sale leasebacks with some of these airline operators on European operators now that I'm. The airlines balance sheets are maybe getting a little bit strapped and and I've been seeing some some deals and sale leasebacks for like engine parts Dawn on like Air.
France and other European character. So I'm, just wondering if there might be opportunity for you guys to take advantage of this dislocation and play some good orphans, maybe with like the airlines and struggled industries that could use a a cash injection from a sale lease back.
That's a really good question I think finnair, you know what is a very unique situation because it's 60% owned by the finished government.
Their survival is very important to the finished government.
You know, we don't normally do high risk investments you know we are a very stable you know very high quality. We look for you know companies with very strong balance sheets, you know that where the where the facilities are critical to their operation. So you know I wouldn't say, we wouldn't look at something like that but you know we look at a little more I don't know.
Boring is the right word, but you know we look at much more secure type with investments in the properties that we buy you know really high quality companies, you know with great great investment grade credit ratings for the most part.
You know Jim in this environment, a boring means they occupied their space and pay their rent on time, I think though [laughter] absolutely Loring all day long [laughter] alright, guys well that's it from me I'll I'll follow up with you a little bit more off line, but thanks for taking my questions and again, congrats on all but looks like a pretty good quarter permit.
Thanks, Ben Thanks.
The next question is from Barry, Oxford with D.A. Davidson. Please go ahead.
Right. Thanks, guys.
Looking at it or hearing some of your comments about risk adjusted.
I will return parameters could you kind of expound on on that and just kind of give a sense where those have changed.
And then give us a sense, where you're seeing the opportunities.
Oh.
A U.S. versus Oh, you know Europe, and you know maybe Italy.
You're talking about the underwriting.
Correct.
I'm, sorry, I got out on me.
You are asking about or underwriting process, yes, exactly and then you know a and then wait and then where our cap rates going.
Or where do you see the additional opportunities via via cap rate.
If you if you look at what we bought in the first quarter. The 10 properties for an aggregate contract purchase price of about 114 million.
You look at I mean, the remaining lease term was 18.9 years on an average.
I was at a weighted average cap rate of 8.5%. So I think that gives you an indication of you know the type of properties that that what we're looking at I mean, you know we always look at all the important elements of any property, we want to buy balance sheet.
Finances are the company. The if they are investment grade you know the lease the property you know the area the properties and I think what happens now is you know you take a better look at cap rates, because I think they're being adjusted because of what's going on in the world right now.
And I think we're just being very very careful in putting capital to work you know we want to do it in a very conservative very careful manner and what was the other half your question wasn't location.
Yeah, I mean are there any particular country said you know are sticking out to you like look very you know you know as a country like Italy standing out to you.
On a risk adjusted basis or not necessarily.
Not necessarily I mean, you know the the proper if we bought in Italy, where part of the Whirlpool transaction. We have discussed earlier and earlier earnings call. So that was in the process for quite a while with a fortune 150 company.
But I think we're still primarily focused on the U.S. right now.
Okay.
Great. Thanks, so much for the color guys.
Sure very good to talk to you Yep Yep.
The next question is from John Misaka with Ladenburg Thalmann. Please go ahead.
Good morning.
Good morning Gena.
So the cash collection and 98% mean was there any and deferral requests kind of outside of that 2% that didnt pay cash rent or have you had any deferral requests and it may be indicated they may not pay in may.
Currently we have had six tenants ask for deferrals.
It represented about 1.2% of April ramped a and the weighted average months deferred was three months and they'll begin paying it back in 2021 over six to seven months. So there have been a very small number of deferrals requested.
But it sounds like the deferrals are gonna be kind of a year.
Yes, essentially the year gap between the actual.
Right, that's not getting paid you have correct.
We haven't seen that we have not saying that.
No I just I just meant that the payback you said 2021, so well beginning 21, okay. Yeah. So it isn't for all the deferral is till the beginning at 21.
And then it'll be six or seven months paid paid pay period for the deferral amount.
Okay.
And then with the Finnair transaction, specifically was that it was that a show what were maybe kind of the terms of that transaction can you maybe give some color or was there any kind of t. guys I'm never associated with that or any any kind of changed the in the previous rental agreement.
Chris you want to talk about that.
Sure. So upfront we provide them with 4 million about 4 million euros and then we also had a slight reduction to the.
The annual rent.
Payments.
Okay, and then kind of lastly, I know, we kind of talked about the acquisition front a lot.
It gets kind of clarify I mean, you have a couple of transactions that are kind of in the pipeline today.
It would say the markets in the kind of macro environment stayed unchanged in in your cost of capital stayed unchanged would you kind of think that maybe it that would result in a it'd be a pause to acquisition activity. It until things changed or do you think essentially as long as an investment opportunity needs.
These new parameters, you've laid out that you can be kind of adding to that pipeline today.
Well as we've stated we have we have a very strong balance sheet right now and we continue to look at properties and if if we do find things that meet our criteria. You know we have the ability to execute and you know we will so I think I think looking ahead hopefully the economy is.
Getting back to normal or a new normal and as things progress and hopefully get better I think we can continue being very selective and continue acquiring you know very good property.
Understood appreciate the color it gets very much for the time that's it for me.
John stay well.
This concludes our question and answer session I would like to turn the conference back over to Jim Nelson for any closing remarks.
Thank you operator, I want to thank everybody for joining us on today's call. We appreciate it and we hope you all stay safe and stay well. Thank you operator.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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