Q1 2021 Global Net Lease Inc Earnings Call
Good afternoon, and welcome to the global net lease first quarter 2021 earnings call.
All participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero. After today's presentation, there will be and opportunity to ask questions. Please note. This event is being recorded I would now like to turn the conference over to Louisa Quarto. Please go ahead.
Thank you operator, good afternoon, everyone and thank you for joining us for Gnl's first quarter 2021 and earnings call. This call is being webcast and the Investor Relations section of Gnl's website at Www Dot global net lease dot com joining.
Joining me today on the call to discuss the quarter's results are Jim Nelson Gnl's, Chief Executive Officer, and Chris Masterson, Gnl's Chief Financial Officer.
All of the information contains forward looking statements, which are subject to risks and uncertainties Jaguar and more of these risks or uncertainties materialize actual results may differ materially from those expressed or implied by the forward looking statements.
Therefore, all of you to our SEC filings, including the form 10-K for the year ended December 31st 2020 filed on February 26, 2021, and all other filings with the FTC. After that date for a more detailed discussion of the risk factors that could cause these differences.
Any forward looking statements provided during this conference call are only made as of the date of this call and.
And they did and our SEC filings GNL disclaims any intent or obligation to update or revise these forward looking statements except as required by law.
Also during today's call and we'll discuss non-GAAP financial measures, which we believe can be useful in evaluating the company's financial performance.
These measures should not be considered and isolation or the substitute for our financial results prepared in accordance with GAAP.
Conciliation of these measures to the most directly comparable GAAP measure is available and our earnings release and supplement which are posted to our website at www Dot global net lease dot com.
Please also refer to our earnings release for more detailed information about what we consider to be implied investment grade tenants of term we will use throughout today's call.
I'll now turn the call over to our CEO, Jim Nelson Jim.
Thank you Louisa and thanks again to everyone for joining us on today's call and I'm pleased to report the GNL had an excellent quarter highlighted by ASF all of <unk> 44 per share cash NOI growth of 14, 6%, the 89 million and the ongoing construction of our road.
Thus forward acquisition pipeline.
And the acquisition of the Mclaren group's headquarters that we announced a few weeks ago, and which closed on April 28 2021.
For the quarter, we collected substantially all of the original cash rent that was payable including 100% of the cash rent payable from our top 20 tenants, which represents almost half of our total annual cash rent underscoring the quality and resilience of our existing portfolio.
Our historic emphasis on credit quality underwriting asset selection and due diligence of all help shape our portfolio the continues to perform well.
On the geographic basis, GNL collected 100 per cent of the cash rent payable from our UK European and North American assets.
Our year to date closed and forward pipeline acquisitions exceed $250 million of contract purchase price and a going in cap rate of nine 3% and the <unk>.
Weighted average remaining lease term of 19.4 years the.
The acquisitions consists of six properties half of which are located and the U S and half and England.
And total of almost 900000 square feet.
The pipeline acquisitions are primarily industrial assets with some office and R&D components.
The largest of these acquisitions is the Mclaren group Global headquarters, which closed on the April 'twenty eight 2021 and.
The contract purchase price of 170 million pounds per $236 million. The three property sale and leaseback is an excellent addition to gnl's portfolio and illustrates our ability to source of large scale global opportunities and what we believe to be well below replacement cost.
We are very pleased to have been able to collaborate and work with the management team opened the player and group to affect the transaction.
The campus is being acquired out of going in cap rate of nine 5% and then.
Average cap rate of 10, 8%.
The annual base rent is subject to a one time contingent adjustment, which only occurs upon a Mclaren and holdings limited corporate credit rating enhancements of B minus or equivalent from one of S&P and Moody's or Fitch by May 2023, and if the company refinanced the debt incurred to occur.
Buyer of the property by December 2024.
If these conditions are not met the adjustment will not occur.
Anthony is under no obligation to complete a refinancing of this loan and we do not expect to do so during the first year of the lease additional.
Information regarding this transaction will be available and our 10-Q when it's filed.
The new 20 year Triple net lease includes annual rent escalations with a floor of 1.25 per cent and a ceiling of 4%.
Just on CPI, which has average one 9% annually over the last decade.
The state of the art buildings were designed by renowned architect Norman Foster have won numerous awards and obtain carbon standard recognition from the carbon trust for the environmentally conscious features.
The acquisition exemplifies the strength of Gnl's global presence and our ability to execute accretive sale lease back opportunities and the.
The competitive marketplace.
We believe our global presence as a leading net lease REIT will continue to provide attractive acquisition opportunities the complement our best in class portfolio.
Our $4 3 billion 306 property portfolio is nearly fully occupied at 99, 7% leased with a weighted average remaining lease term of eight three years at the end of the quarter.
Geographically 237 of our properties are in the U S and Canada and 69 are in the U K and Western Europe, representing 65% and 35 per cent of annualized rent revenue, respectively. Our portfolio is well diversified with 130 tenants of 48 industries.
And with no single in the industry, representing more than 12% of the whole portfolio based on straight line rent.
Our property mix continues to evolve and is currently 49% of industrial and distribution, 46% office, and 5% retail compared to 47% industrial and distribution of 48% office and five per cent retail and a year ago.
Contributing to our success is our focus on tenant credit and industrial acquisitions and retail dispositions over the last several years.
Across the portfolio of over 66% of straight line rent comes from the investment grade or implied investment grade tenants.
Our portfolio is focused on long term triple net lease of single tenant properties and we have minimal 2021 lease exploration that being said, we have signed a non binding letter of intent or are under agreement of four lease renewals for 626000 square feet that would extend the.
Leases with these tenants probably over six years and.
And this group is and executed lease with shot development of be double a one tenant and Naples, Florida to extend the 12 years and of signed letter of intent for a lease et cetera, and with Ocean and air.
Implied be double a three tenant and Bordeaux, France for nine years of.
We frequently discuss our extensive acquisition success. It should be noted that our team is capable of the full scope of services need to operate and manage and grow our portfolio of this size Inc.
<unk> the less visible leasing asset management, the legal accounting and report where the keeps everything running smoothly.
Superior execution by our team and the strength of our portfolio contributed to continuing quarter over quarter growth and <unk>.
Adjusted EBITDA and cash NOI and a F F O cash.
Cash NOI increased to $80 9 million for the first quarter of 2021 up from 71 million and the first quarter of 2020.
For the quarter and <unk> per share was 44 per share equal to the 44 cents per share we reported and the first quarter of 2020.
The company distributed <unk>, $36 2 million and common dividends to shareholders in the quarter or <unk> 40 per share.
And I'll turn the call over to Chris will walk through the operating results in more detail before I follow up with some closing remarks, Chris.
Thanks, Tim.
So the first quarter 2021 we recorded adjusted EBITDA of $68 1 million up from $60 1 million and the first quarter of 2020. We also reported at 12, 8% increase and revenue to $89 4 million from $79 2 million.
Net loss attributable to common stockholders of 830000.
S F O N E F F O for the first quarter were $38 9 million and $40 4 million respectively.
42 cents and <unk> 44 cents per share compared to 43, and 44 cents per share and the first quarter of 2020 the.
The company paid common stock dividends of $36 2 million of <unk> 40 per share for the quarter.
And as always a reconciliation of GAAP net income and non-GAAP measures can be found the earnings release.
On the balance sheet, we ended the quarter with net debt of $2 billion out of a weighted average interest rate of three three per cent.
Our net debt to adjusted EBITDA ratio was seven four times at the end of the quarter.
The weighted average debt maturity at the end of the first quarter 2021 was five one years.
Components of our debt includes $500 million and senior notes.
$125 9 million on the multi currency revolving credit facility.
$289 $8 million on the term loan and $1 4 billion of outstanding gross mortgage debt.
This debt was approximately 96% fixed rate, which is inclusive of floating rate debt with in place of interest rate swaps.
Company has a well cushioned interest coverage ratio of three six times.
As of March 31, 2021 liquidity was approximately $350 million.
Our net debt to enterprise value was 49, 9% with an enterprise value of $4 billion based on the March 31, 2021 closing share price of $18.06 per common shares.
The $6.66 for series, a preferred shares and $25 55 clients of the series B preferred shares.
I'll turn the call back to Jim for some closing remarks.
Thank you Chris.
We had a very good first quarter building on the strength of our carefully constructed the best in class mission critical portfolio the <unk>.
Senior unsecured notes, we closed and the end of the fourth quarter at of 375 per cent coupon enhanced our capital structure by locking in rates and then.
And historically low interest rate environment and provided valuable experience for the construction of potential future issuances are 257 million forward pipeline of completed and pending acquisitions at a weighted average of 10 five per cent cap rate will continue gnl's growth trajectory and the long weighted average lease.
And of these assets to ensure that they will enhance our portfolio for a long period of time.
We're excited about the acquisition of the Mclaren headquarters and proud to have Mclaren and as a true partner and the state of the art facility.
Rent collection remains at nearly 100% and we reported superior first quarter, adjusted EBITDA and cash NOI compared to last year, we will continue to pursue additional accretive acquisitions and believe with the outstanding performance of our best in class Global portfolio will continue to contribute to growth and our future quarterly results.
With that operator, we can open the line for questions.
Thank you we will now begin the question and answer session.
Ask the question you May Press Star then one on your Touchtone phone, if you're using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star and then two at this time, we will pause momentarily to assemble our roster.
Yeah.
Our first question comes from Bryan Maher from B Riley Securities. Please go ahead.
Good afternoon, and Jim and Chris and thanks for all of that color.
A couple of quick ones for me I think you had something fall out of the pipeline and maybe in the first quarter is that the case and and what was the color behind that.
I don't remember the details of off hand, but 111 potential acquisition did fall out you're right Brian.
Okay, and then on the Mclaren.
You know acquisition, which is really interesting and it was a little surprised by how high the cap rate was on that.
Like our company's specific the type of asset I realize that it's the long term lease and and everybody knows Mclaren.
But can you give us a little color as to exactly what you know is involved and that as it is at the office space at the office and I M D.
And what exactly is and the 200 and something million dollars.
Well in the facility there and there are three buildings they have R&D they have manufacturing quite a quite a big manufacturing and the race team was also in the racing business was also in the property and then Theres. Some office space. So it's it's you know it's a large property and it's what 900000 square feet. So it's.
The campus, but the campus consists of those three different types of Oh of.
Sectors and in the property itself.
And and how was the deal sourced and I ask that because.
You and I, both know there's a lot of money out of their private equity and others chasing yield looking for office looking for industrial and and you continue to ferret out these things at and attractive cap rate debt. My other companies I cover a little surprised about the so how did you source that deal and you know what does your pipeline look like.
You know kind of outside of what you've already disclosed.
Well the the you know the pipeline, we're still looking at a very robust pipeline for this year, you know and we continue to work very hard on identifying new properties to buy the Mclaren deal came to us through some members of management, who actually knew the management team and Mclaren and had relationships with them. So obviously when we heard.
That they were selling this this headquarters property.
We expressed our interest and bid on it and got it.
It was a long process you know we worked on this for quite a while the end of the you know at the end of last year beginning of this year and ultimately you know we were the successful buyer of the property.
And then just and it's the Bureau, it's Bryan it's a really beautiful property its an amazing campus.
And there there is so much potential for this campus, if we ever needed to re rent all or part of it I mean, it's just an amazing property and of great location.
I think that there will be and it's a great investor and analyst day forthcoming to that campus uptime and the yeah.
Yeah, but it would have to the analysts like to drive race cars. So we'll we'll see we'll see who wants to go and.
And then just like a you know on the the liquidity I think I heard you guys say that it was about $3 50 at the end of the quarter, but you've just spent a slug of that how do you think about capital raising over the next couple of quarters, a relative to your stock price and be relative to what you have and your back pocket that you're looking to acquire.
Sure I'll take that and I guess the start from a liquidity perspective, I would say, we're still in a comfortable position in terms of that $3 50 of the really all of the material items. After the quarter had been the dividend payment and then the equity on this Mclaren and transaction. So we still do have a strong amount of liquid.
And that being said looking forward and and capital raising I mean, really that's just going to be kind of and as appropriate basis and as we kind of buildup of the pipeline and see our needs and then really see what the market looks like and.
And make sure we do it at the right time.
And youre not seeing any changes to you know where you guys can kind of borrow at you know and at attractive level.
It's been pretty consistent from of borrowing perspective.
Great. Thanks, that's all true.
Thanks, Brian.
The next question comes from Michael Gorman from BTG. Please go ahead.
Thanks, Good afternoon.
Mr Gorman and good afternoon to you.
And if I could just stick with the kind of of the acquisitions and cap rates and I'm curious what kind of internal discussions you're having obviously, we saw a pretty aggressive trade.
And the industrial space when the past couple of days it seems like theres quite a bit of potential embedded value in some of your your tenant base, especially with your top tenants being Fedex.
Have you looked at the potential for kind of capital recycling and maybe taking some of those assets given the current market and given where you can source new acquisitions.
It seem to be like there'd be a pretty significant cap rate spread there.
If you were to do some capital recycling at this point just as a way to raise equity and is that have you guys talked about that internally well you know we we always look at all of the different opportunities that are available to us we have a very very well performing portfolio.
No.
Collecting 100% of our rents 99, 7% occupied and.
And you know we do have the ability to source capital as we need. It. So you know we do look at at the opportunities you know and you know we.
Spot and appropriately. So you know I don't I don't want to say, we will sell properties or we won't but you know we're very very happy with the portfolio that we have it performs well you know, we're and the best the business of owning properties and paying dividends to our shareholders and I think I think we do that very very well.
No for sure I was I was thinking more of if you could if you could monetize of Fedex set of four seven and.
And put it back into a new acquisition it over a nine that's the.
Pretty good value of it but I take your 0.2nd question is on the other side of the business office, we've seen a lot go on there as well you've got Realty income talking about spinning off of pure play net lease office REIT and you've got a couple of other competitors looking to dispose of their office portfolios.
Maybe just spend another minute on what Youre seeing and the office acquisition environment.
On a competitive front and maybe just on a product front as well.
Well you know the this is something again that we look at very carefully on a continuous basis and Fortunately we're in a very good position with the properties that we own.
With them being and secondary markets.
If you look at people moving out of the cities and some cases, you know that bodes very well for us and we do get inbound calls asking if we have office space available or or buildings available. Secondly, you know, we we feel strongly that not everybody is going to stay home people are going to go back to offices and particularly the <unk>.
Type of office the office buildings that we own.
They are in secondary markets. The people, mostly drive to work you know they don't and the cold.
The risk is really going away and we haven't really hurdle lots of our hardly anything from any of our tenants looking to reduce space. So to wrap it all up we're very comfortable with what we own and we don't have a lot of concerns going forward for our our particular office portfolio.
Great that's helpful. Jim I appreciate it.
Yeah.
Again, if you of a question. Please press Star then one.
The next question comes from John Masako from Ladenburg Thalmann. Please go ahead.
Good afternoon.
Hey, John.
Okay and.
The prepared remarks, you mentioned, some refinancing language around the Mclaren transaction and that I'm, sorry, I missed most of that you can just clarify what that was.
Sure so within the first three years of the transaction.
We refinance our current debt and Mclaren and also achieves a higher credit rating.
Then the rents that Mclaren and what will pay annually will step down.
And and I guess, what is that step down.
Hello, and so effectively the El stepped down and so we still have approximately almost 9% cash on cash return.
And if there's a step.
And you will then well they of course out.
Correct.
Okay and.
Yeah.
Yeah Okay.
Oh go ahead, sorry, if I wanted to.
Thank you.
No. No go ahead go ahead, Chris covered it well.
Okay and then.
You know broadly speaking you mentioned a little bit kind of your bigger picture view on office, but I mean, what are you seeing maybe in terms of utilization and particularly in and some of your U K asset if you're having conversations with tenants. There just in terms of that the market, where you're seeing maybe.
And maybe a quicker return of people back the kind of pre pandemic normals and me at that playing out and your office portfolio and that geography.
Well yeah.
We have a lot of different types of properties and the U K.
They have performed extremely well last year during COVID-19 and are paying 100% pretty much all year long.
And you know, we did and we did a couple of the deferrals, where they rather than paying quarterly they paid monthly which wasn't really a problem for us and you know the.
It's proof of our portfolio and the U K is performing extremely well.
Yeah.
Okay, and then you mentioned, some leasing and re leasing within the portfolio.
And the two transactions of the shot of development and and I'm, sorry, if I mispronounce this the auken and.
Lease extension expansion and that's underpinning of LOI, I mean, where are rents trending.
With some of these re leasing and these are the ones under contract or the or the two of you mentioned.
Well you know yeah, there's two things that you have to look at when we look at these lease renewals and we look at the increases over time. So if you get and if you give them a slight.
Slight bump or a couple of months free rent at the front of this and then you've got it going up anywhere of one to two per cent of year for another nine or 10 years you know it certainly makes up the difference. So you know we we look at the Big picture you know, sometimes we will have to do a little bit of a tenant improvements you know sometimes they'll ask for a couple of months free rent.
But in general you know the overall transactions have been have been very favorable favorable for us and the long term.
Okay, and and the two assets you mentioned are those industrial or office properties as a reminder.
What Chris do you know offhand, what Shaw is.
I believe Charles and industrial.
And I think our shot O'shaughnessy industrial also.
And Oh shot sorry, I did I did horribly misunderstood that [laughter] okay.
That's it for me and thank you both very much.
Alright, Thanks John.
Thanks Scott.
There are no more questions and the Q.
This concludes our question and answer session I would like to turn the conference back over to James Nelson for any closing remarks.
Thank you operator, I'd like to thank everybody again for joining us today and we.
We do appreciate your continued participation with GNL and with that operator, we can close the call. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
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