Q3 2020 Global Net Lease Inc Earnings Call

Good afternoon, and welcome to the global net lease.

Third quarter 2020 earnings calls.

All participants will be in the recent only mode.

Do you need assistance, please signal coffers, especially split breastfeed they start key followed by zero.

After todays presentation, there will be an opportunity to ask questions.

Just a question you May press.

And then one on your telephone keypad.

To answer your question. Please press Star then too.

Please note this event is being recorded.

I'd now like to turn the conference over to music portal Executive Vice President.

Please go ahead.

Thank you operator, good afternoon, everyone and thank you for joining us for <unk> third quarter 2020 earnings call. This call is being webcast in the Investor Relations section of Deanna website at Www Dot problem at least dotcom joint.

Joining me today on the call and stuff. The quarter's results are Jim Nelson do you know Chief Executive Officer, and Chris Paterson, Gino Chief Financial Officer.

Oh information contains forward looking statements, which are subject to risks and uncertainties should.

Should one or more of these restaurants certainties materialize actual results may differ materially and has expressed or implied by the forward looking statements.

For all of you to our SBC filings, including form 10-K for the year ended December 31st 2019.

Okay, I'm, sorry, 20, 2020, and all other filings with the FTC after that date, well detailed discussion of the factors that could cause these differences.

Any forward looking statements provided during this conference call are only made up of the date of this call as stated in our FCC filing yeah disclaims any intent or obligation to update or revise these forward looking statements except as required by law.

Also during todays call well 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 the substitute for cardiac drill results prepared in accordance with GAAP EPS.

A reconciliation of these measures to the most directly comparable GAAP measure is available in our earnings release and supplement which are posted on website at www dot on that needs Dot com.

Please also refer to our earnings release for more information about what we consider to be acquired investment grade tenants.

I will use throughout todays call.

I'll now turn the call over to watch CEO, Jim now Jim.

Thank you Luisa and thanks again to everyone for joining us on today's call in the third quarter, our high quality global portfolio of industrial and office net lease properties continued to demonstrate strength.

Remaining largely unaffected by the ongoing pandemic.

For the quarter, we collected over 97% of the original cash rent that was payable, including 99% of the cash rent payable from our top 20 tenants.

Which represents almost half of our total annual cash rent.

Our historic emphasis on credit quality underwriting asset selection and due diligence have all helped shape a portfolio that continues to perform well on.

On a geographic basis, G.N.L. collected 99% of the rents of the cash rent payable from our UK based assets, 99% from our other European tenant a 96% from our U.S. based assets too.

To be clear when we give red collection statistics, we are comparing to the total rent payable and not reducing the expected rent in the denominator by any negotiated deferrals or making any other adjustments as our portfolio continues to perform well I'm also excited about the progress we made on other fronts this quarter.

We closed on 88 million of loans and interest rate of 3.45% collateralized by our Whirlpool Corporation assets located in the U.S.

We also completed a three property sale leaseback with Johnson controls an investment grade diversified technology and multi industrial leader that specializes in products technologies software and services for buildings.

Johnson controls is ranked number 399 on fortune Global 500 list in 2019.

The office and industrial properties are located in the United Kingdom in Spain and were acquired for 23.4 million at a 7.98 weighted average cap rate at closing Johnson controls sign new 12 year leases that include annual rent escalators of 1.5%.

Our total year to date acquisitions, now exceed 168 million at a weighted average going in cap rate of 7.1%.

A weighted average cap rate of 8.5% and a weighted average remaining lease term of 18.5 years.

Thanks to the direct relationships, we've built with developers landlords and tenants we have amassed a forward acquisitions pipeline of over 158 million.

The pipeline consists of primarily industrial acquisitions that we expect to close before the end of the year at a weighted average going in cap rate of 6.5% a weighted average cap rate of 7% and a weighted average remaining lease term of more than nine years. These potential acquisitions are emblematic of the future growth and focus of the G.

No portfolio.

Our closed and pipeline acquisitions currently total over 325 million for 2020 at a weighted average going in cap rate of 6.9% a weighted average cap rate of 8.1% and with a weighted average lease term of 15.8 years, 89% of these acquisitions by purchase price fall under industry.

Selling distribution property categories.

The work Weve done to grow the portfolio and collect rent during the pandemic contributed to recording a quarter over quarter increase in total and per share a AFFO for the third quarter AFFO per share was up 4.5% to 46 cents per share from 44 cents per share last quarter. The company distributed 30.

5.8 million in common dividends to shareholders in the quarter or 40 cents per share. Our 4 billion 299 property portfolio is nearly fully occupied at 99.6% leased with a weighted average remaining lease term of 8.7 years. After eight years a year ago. Thanks to our recent acquisitions, where we have a quite a track.

Yep long dated and industrial and distribution assets, we have no 2020 lease expirations and contractual rent growth is embedded in over 93% of our leases 231 of our properties are in the U.S. and Canada and 68 are in the UK and Western Europe, representing 63 and 37%.

The annualized rent revenue respective.

Our portfolio is well diversified with a 127 tenants in 47 industries with no single industry, representing more than 10% of the whole portfolio based on straight line rent.

Our property mix continues to evolve and is currently 48% office, 47% industrial and distribution and 5% retail compared to 52% office, 43% industrial and distribution and 5% retail at year ago contributing to our success is our focus on tenant credit industrial acquisitions and reach.

Tell dispositions over the last several years.

Across the portfolio over 65% of straight line rent comes from investment grade or implied investment grade tenants.

Industrial and distribution assets have been an increasingly significant segment of our portfolio growing to 47% of our current assets when measured by straight line rent alright.

Our industrial acquisitions have included the sale leaseback transactions, we completed with Whirlpool Corporation in the U.S. in Italy, as well as other industrial acquisitions totaling over $100 million year to date.

These properties are leased to tenants such as C. STK metal technologies Klausner engine industrial and NSC other significant tenants. In this segment include Finnair, Oh, Sean and Grupo Antolin Weird.

We're always seeking accretive acquisitions that meet our investment criteria.

While our primary focus has been and will continue to be on industrial and distribution assets. We will continue to evaluate adding single tenant mission critical office properties leased to investment grade tenants similar to those that currently populate our portfolio.

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.

For the third quarter 2020, we recorded adjusted EBITDA of 63.6 million up from 58.3 million in third quarter of 2019.

We also reported a 6.1% increase in revenue to 82.7 million from 77.9 million net loss attributable to common stock holders of 0.5 million.

I FFO and AFFO for the third quarter were 34.5 million and $40.9 million, respectively, or 39 cents and 46 cents per share compared to 44 cents and 47 cents per share in the third quarter of 2019.

The company paid common stock dividend of 35.8 million or 40 cents per share for the quarter.

As always a reconciliation of GAAP net income to non-GAAP measures can be found in our earnings release.

On the balance sheet, we ended third quarter with net debt of 1.8 billion at a weighted average interest rate of 3.1%.

Our net debt to adjusted EBITDA ratio was 7.2 times at the end of the core.

The weighted average debt maturity at the end of the third quarter 2020 was 5.1 years.

The components of our that included 264 million on the Multicurrency revolving credit facility.

421.6 million on the term.

I'm 1.4 billion of outstanding gross mortgage that.

Yes that was approximately 91% fixed rate, which is inclusive of floating rate that was in place interest rate swaps.

The company has a well cushions interest coverage ratio of 3.8 times.

As of September Thirtyth, 2020 liquidity was approximately 392 million.

Our net debt to enterprise value was 51.8% with an enterprise value of 3.5 billion based on September Thirtyth 2020 closing share price of $15 or 90 cents per common shares $25 and 70 sites for series, a preferred shares and $25.19 for series B preferred shares.

This ratio continues to be impacted by the market disruption that took place across the industry, starting the last half half of <unk>.

With that I'll turn the call back to Jim for some closing remarks.

Thank you Chris.

I'm very encouraged by all that we've accomplished in the third quarter. We believe that our portfolio has been intentionally constructed to continue to perform brilliantly through this short term economic disruption as evidenced by collecting 97% of the cash rent payable in the third quarter.

We believe that we are specifically position for long term growth and future success building upon our strong foundation of nearly 100% occupancy long weighted average remaining lease terms high percentage of investment grade tenancy and focus on resilient property types, we resumed our accretive acquisition program.

And our thoughtfully rebuilding a large acquisition pipeline currently totaling over 325 million of high quality closed and pipeline acquisitions we.

We have ample liquidity to act on accretive opportunities and no near term debt maturities, we remain committed to executing on our business plan and on the activities that are critical to our ongoing success. We look forward to continuing these efforts in the fourth quarter and delivering a strong finish to the year with that operator, we can open the lines for quick.

Sure.

We will now begin the question and answer session to ask a question you May press. The Star then one on your telephone keypad.

For 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 comes from Bryan Maher.

Sure we'd be really security.

Good afternoon, Yeah, Jim and Chris.

Bryan good afternoon.

Oh, Oh Oh.

Good question, you know with the uptick in Cove, it over in Europe, and UK locked down or locking down or maybe locking down like are you seeing any vagaries in the portfolio of assets over there or is it still kind of status quo.

[noise] Oh, we haven't really seen anything it still seems to be very much status quo from everything that we've seen and everything that we've heard.

Okay, and then just on the Johnson controls acquisition, Yeah, Howard that deal source and do you see more like that in the near term.

Oh, you know it was sourced through our normal channels and you know we're always looking for those types of acquisitions I think one thing that we've seen in the in the third quarter was we're starting to see a lot more deals in Europe than we have been saying for a while and good deals. So we're watching those very carefully and in the U.S. you know the pipeline is <unk>.

Picked up quite a bit also.

So as you can see by you know what we what we what we just.

Quoted you know the pipeline is pretty robust for this year.

And does that skew industrial or office.

[noise] it skews industrial.

Definitely skews primarily industrial.

Okay and then the these tenants that you have had rent for all of its use with an i. I know it's de Minimis, but was there a common denominator you know as far as asset type or tenant type that that cross those.

That's a really good question, Brian and we've looked at that quite a bit and there really hasn't been any specific area. That's that's outweighed any other area. So we're we're very pleased with that you know it doesn't seem like there are issues in any particular sector of the pit in the properties that we own.

Got it and just two more quick ones on the G.N.A. It came in a good bit below our estimate for this year or is there something going on there or was it just you know higher in the second quarter, because the Colgate and rent deferral illegal stuff that you had to do at least up and what's a good run rate there.

Yeah, maybe better progress.

Sure Brian So what I would say there is third quarter was little higher primarily from a legal perspective covert as you mentioned it was one of the key drivers and third quarter's a little more normalized than and definitely not the fourth quarter, not sorry second quarter alright.

All right the more like two and a half to three not three to three and a half million correct.

And then just lastly, when we look at the dividend payout ratio on a bad bases in our model for next year, how to get to that I don't know mid to high Eightys on a fad payout ratio and my suspicion is you know within 11 lots or so percent yield you're not going to race out to two rate.

That dividend.

Book, but where are you comfortable seeing that drift down to as you continue to grow at about.

You know where were really comfortable where it's at now and we're really comfortable with it drifting lower.

As it stands right now we have no plans to raise the dividend, but you know we this is something we discuss every quarter with the board.

And I think we're in really good shape with a dividend coverage and with it with the dividend payout going forward.

Great. Thank you that's all for me thanks.

Thanks, Brian.

The next question comes from Joseph <unk> with Ladenburg.

Good afternoon.

Hi, John if I'm a little bit.

Body here at home I've got my reception is [laughter] as we think about the portfolio sorry, the pipeline today and maybe even outside of the pipeline. You know you have those two stated transactions that are kind of you know.

Under our why we know a cap rate on that where are you seeing cap rates maybe for other acquisition opportunities are they kind of in that 7% range. It's the same for the stuff that's under ally or is it yeah trending lower trending higher just any color. There would be helpful. I think I think we can say you know fairly reasonable.

I believe that the range goes between six and a half a seven and a half. So I think seven would be a good number. If you were if you were looking to round it off.

But you know those those are usually the reins ranges that we trade and sometimes you know we could buy something to for an eight eight and a half cap rate you.

It really depends but you know we're we're probably will remain in the same range going forward than we've been for the last few years actually.

Okay, and then maybe touching on some of the European Lockdowns again, but more from the perspective of investment opportunities and is that potentially a gating factor on investments either just kind of structurally because it is harder to close deals do all the due diligence or even maybe because it creates a little.

More uncertainty in tenants or or potential tenants or a little less willing to transact I mean, you could that impact.

Kind of volumes going forward.

I think it might just slow down the process a bit.

Because you know having inspections done and everything is slowing down again, so it may it and this is in Europe, we're talking about it may slow things down a bit but I don't think I don't think it'll impact the volume because I think people.

Have a mindset of getting back to work you know and getting deals done. So I think the mindset certainly has changed you know.

Over the last nine months to where people really want to get back to work you know the the inconvenience of being of being shut down you know is it something that people work with but you.

You know I I think we'll still see you'll see deals close I think it just may take a little longer to get them closed.

Okay. All my other questions have been addressed so that was it for me. Thank.

Thank you very much hi, thanks, John take care.

Once again, if you have a question. Please press Star then one.

The next question comes from.

Michael Berman with BT I G.

Thanks, Good afternoon.

Hi, good afternoon Michael.

Jim I was just wondering if you could give a little bit more color you were talking about very select office acquisitions have the way you've looked at underwriting office for the conversations that you're having with potential tenants.

Changed as a result of the pandemic or has your definition of what is actually mission critical as you've had conversations with either existing tenants or potential kind of has that changed as a result of the impact of work from home during the pandemic.

It's a really great question, you know and then certainly very very good for this particular time [laughter] with Covidien everything you know we've been we've been very very careful for the last three years and everything that we bought regarding office you know we we the type of office that we own is primarily what we consider mission critical.

All which are like headquarter buildings or buildings that are extremely important to the tenant.

And our rent collections certainly demonstrated that our philosophy has worked pretty well and that the properties are really are a critical you know to the tenant a very important which I know a lot of people say that but our rent collection certainly demonstrate that ours are.

Looking forward I think you know we we you know we we set a target three years ago to buy a lot more industrial and distribution properties, which we've done and it's it's been very very effective you know and good for the portfolio and I think as we move forward you know we have a very strong criteria on anything we buy.

And any office properties that we may buy we'll certainly have to fit into that essential.

To the tenant and certainly you know investment grade credit quality tenants and you know remember most of our offices are in secondary markets are office buildings are in secondary markets. So what we find is you don't have people going to work on public transportation, which is a big risk you have people driving themselves to work you have.

Headquarter buildings, where you know these are these are important buildings to the tenant and I think and this is from feedback that Weve received I think a lot of the way the tenants look at it at least our tenants is even up to 15% of the people want to work from home. It just gives them the opportunity to spread people out a little bit more in the facilities that they have so.

I think looking ahead you know we do have a very resilient type of of office portfolio and I think it will continue to perform well and I think anything that we add to that you certainly can put in the same category.

So long winded answer, but I hope I answered your question.

And that definitely that's helpful. And then maybe both for you and for Chris because it kind of touches on the funding side of thing you have some exposure in the retail side, which is clearly not a focus for for the company going forward that I think would you know just based on commentary we're hearing from other companies you know would be.

Pretty attractive in the disposition market right now in terms of the Qs ours and in terms of some of the discount retail assets I'm, just wondering how you're thinking about potential dispositions out of that retail bucket or maybe not because of any type of underperformance, but just because it's an attractive source of capital and maybe a good time.

To rotate out of those funds into longer term more core type holdings for the company, how how do you think about that well.

Well as you know you know we've been reducing our retail holdings for the last few years.

I I would look at us as an opportunistic seller and I think of the reasons. You put out are are good reasons and also you know we're really not our retail focus street. So we will continue to be an opportunistic seller going forward.

Okay, great. Thanks, very much thanks.

Thank you.

This concludes our question and answer session.

I'd like to turn the conference back over to James Nelson for any closing remarks.

Thank you operator, I want to thank everybody for joining us on today's call. It's always a pleasure to present to you. You know we think this was an excellent quarter for DNL. It demonstrated the resilience of our portfolio and a you know we're we're very proud of what we've accomplished so I'd like to thank you again for joining us and with that operator, you can close the call.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect have a nice day.

[noise].

[music].