Q2 2021 Global Net Lease Inc Earnings Call

Good afternoon.

And welcome to global net lease second quarter 2021 earnings call at.

At this time all participants are in a listen only mode.

Question and answer session will follow the formal presentation, if anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded I would now like to turn the conference over to Louisa Quarto Executive Vice President. Please go ahead. Thank.

Thank you operator, good afternoon, everyone and thank you for joining us for GNL second quarter 2021earnings call. This call is being webcast in the Investor Relations section of Gnl's website at Www Dot global net lease dot com.

Turning to 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.

The following information contains forward looking statements, which are subject to risks and uncertainties share.

1 or more of these risks or uncertainties materialize actual results may differ materially from those expressed or implied by the forward looking statements.

We refer all of you to our SEC filings, including the form 10-K for the year ended December 31, 2020 filed on February 26, 2021, and all other filings with the SEC after that day for a more detailed discussion on the risk factors that could cause these differences.

Any forward looking statements provided during this conference call are only made as of the date on this call as stated in 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, we will discuss non-GAAP financial measures, which we believe can be useful in evaluating the company's financial performance.

No you should not be considered in isolation or as a substitute for financial results prepared in accordance with GAAP.

A reconciliation of these measures to the most directly comparable GAAP measure is available on 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 and term 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.

I am pleased to report the GNL had an excellent quarter highlighted by cash NOI growth of 21, 1% to $85.5 million.

A F F O O 44 cents per share and the ongoing construction of a robust forward acquisition pipeline, including the acquisition of the Mclaren group's headquarters in April that we discussed on last quarter's call our.

Our year to date closed end forward pipeline acquisitions exceed 380 million of contract purchase price at a weighted average cap rate of 9.7 per cent and a weighted average remaining lease term of 16.9 years. The acquisitions consists of 10 properties 6 of which are located in the U S and.

Total over 1.3 million square feet.

Since closing on the Mccarran headquarters early in the quarter Mclaren has sought and obtained a b minus credit rating from Fitch effective upon the closing of Mclarens recent senior secured notes offering.

The sale leaseback transaction that we completed was the catalysts from Mclaren to reconstitute their balance sheet and issued senior secured notes.

You may recall that the attainment of a credit rating of B minus or higher was 1 of the 2 conditions for potential rent reset with Mclaren.

The other condition was the GNL refinance the debt on the property within 3 years.

The company is under no obligation to complete a refinancing of this loan and there's no immediate plans to do so.

Our forward acquisitions pipeline includes 2 industrial properties leased to pilot point steel and the 90000 square foot learning center leased to Walmart in Bentonville, Arkansas that we anticipate closing later this year. Our team is also evaluating strategic disposition opportunities and searching for additional acquisition targets that meet our.

Stringent investment requirements.

We continue to have strong leasing success and to that list. We can add our Fedex facility in Bohemia in New York, where we have executed non binding LOI to extend the 158000 square foot lease for 5 years.

We have very minimal lease expirations on the next 2 years and then actually reduce the percentage of rent expiring through the end of 2023 by 3% since this time last year.

I'm very pleased with the stability in our portfolio and the way we have been able to reduce our exposure to potential lease expiry explorations.

Thanks to the mission critical nature of many of our properties and our strong acquisition underwriting.

The vast majority of our leases don't expire until after the end of 2025.

Our 4.6 billion 311 property portfolio is nearly fully occupied at 99, 7% leased with a weighted average remaining lease term of 8.5 years at the end of the quarter.

Geographically 239 of our properties are in the U S and Canada and 72 are in the U K and Western Europe, representing 60 per cent and 40% of annual straight line rent revenue respectively.

Our portfolio is well diversified with 135 tenants in 40 gig industries with no single industry, representing more than 12 per cent of the whole portfolio based on annualized straight line rent.

We also continue to increase the concentration of industrial properties on our portfolio at.

At the end of the second quarter, our assets were 52% industrial and distribution 43 per cent of Apis and 5 per cent retail compared to 47% industrial and distribution, 48% office on 5 per cent retail a year ago.

Contributing to our success is our focus on tenant credit industrial acquisitions in retail dispositions over the last several years.

Across the portfolio over 64 per cent of annualized straight line rent comes from investment grade or implied industrial grade tenants.

Finally, gnl's performance hasn't many measures returned to or exceeded metrics, we reported before the pent up.

Superior execution by our team and the strength of our portfolio contributed to continuing growth in adjusted EBITDA cash NOI on a F. F O portfolio occupancy has ticked up to 99, 7% as has the percentage of our lease is expiring after 2025, which is.

70%.

Exposure to industrial and distribution assets has also increased over 5%, while we collected all of the original cash rent that was payable for the third quarter in a row underscoring the quality and resilience of our existing portfolio.

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

GNL is well positioned to deliver a strong second half of 2021 and continue to grow through accretive acquisitions interest strategic dispositions, our strong balance sheet and mature capital structure helped to keep financing costs low and our hedging program protects our non dollar denominated cash flows from.

Exchange rate risk 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 second quarter 2021 we recorded adjusted EBITDA of $73.2 million up from $61 million in the second quarter of 2020, we.

We also reported a 22.8 per cent increase in revenue to $99.6 million from 81.1 million with net loss attributable to common stockholders on a $2.4 million.

F F O N E. S. S. All for the second quarter were $44 million and $42.8 million, respectively, or 46 times and 44 cents per share compared to 39 cents and 44 cents per share in the second quarter of 2020.

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

On the balance sheet, we ended the quarter with net debt of $2.3 billion at a weighted average interest rate of 3.4 per cent.

Our net debt to adjusted EBITDA ratio was 7.8 times at the end of the quarter.

The weighted average debt maturity at the end of the second quarter 2021 was 4.7 years to.

The components of our debt include 500 million in senior notes $167.9 million on the multi currency revolving credit facility $293.5 million on the term loan and 1.5 billion of outstanding gross mortgage debt.

That was approximately 92% fixed rate, which is inclusive of floating rate debt with in place interest rate swaps.

The company has a well cushioned interest coverage ratio of 3.4 times.

As of June 32021 liquidity was approximately $268.5 million.

The company distributed $38.1 million in common dividends to shareholders in the quarter or <unk> 40 per share.

Our net debt to enterprise value was 51, 4% with an enterprise value of $4.5 billion based on June 30th 2021 closing share price of $18.50 per common shares $26.79 for series, a preferred shares and $27.50 for series B preferred shares.

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

Thank you, Chris we had a very good second quarter, reflecting the impact of the acquisitions, we have made year to date.

I'm proud of the growth we reported in F. F O adjusted EBITDA and cash NOI in the second quarter and our continued collection of all the cash rent payable across the portfolio.

In the second half of the year, we will continue to evaluate opportunities to enhance our portfolio accretive acquisitions and select dispositions as well as capitalized on historically low interest rates and our extensive capital markets experience to further strengthen our balance sheet.

We've had an exciting and encouraging corridor on I look forward to keeping this momentum going with that operator, we can open the line for questions.

Thank you.

Ask a question. Please press star 1 on your telephone keypad, a confirmation tone will indicate your line is on the question queue. You May press star 2 if he would like 3 move your question from the queue and from participants using speaker equipment. It may be necessary to pick up the handset before pressing the star keys.

Our first question is from Bryan Maher with B Riley Securities. Please proceed.

Yeah, good morning, or I should say good afternoon, Karen and.

Good afternoon, Brian.

All right.

Yeah, you made a comment in your prepared comments about evaluating position without getting specific can you give us an idea of kind of the asset type and geography that we can kind of rise to the top of that list.

Well, there's only a couple that we're that we're looking at right now Chris do you have any color on that.

Yeah.

Sure. So in terms on the properties that we're looking to dispose 1 of them is the vacant property that we've had for the last few years and I'm evaluating the opportunities. There are sell at this point seems like that the best option and then in terms of just on overall level.

There are a couple office.

<unk> that that we arent looking at none of them on material and insights though.

And Brian if you remember I've I've said this several times, we are opportunistic sellers of retail. So if we do see any any good opportunities to sell our retail we will.

And you know as as you know, we look at reducing our retail exposure over the long term.

Right.

Then on the <unk> call earlier today.

Yeah, Michael Weil was talking about potentially pursuing at least a rating it's about an investment grade rating and I think you guys are you know.

Double b plus by Us and T. Do you guys give that any thought.

What would be the benefits for you on what do you think you need to do to get that if you were to pursue it.

Well, we certainly have taken a good look at that I mean as you remember the bond offering we did in last December.

Was rated by S&P, a triple B minus and you know we are working towards an investment grade rating over time.

And I don't know maybe for Chris do you did you guys already borrow it said substantially low rates do you see any you know.

Lower interest rate benefit from.

From doing that or would you guys be interested in borrowing on our completions.

Yes.

So there there definitely would be benefits of being investment grade from a borrowing percentage first the rates do come down on our credit facility. If if we are investment grade by 2 rating agencies.

And then obviously as we tap the unsecured market, which we plan to do in the future day rates will obviously be better than they are for us.

And just last from me on that topic not to beat a dead horse, but if you guys decided to go that route do you think that you would pursue that in some type of financial engineering way or would you be willing to wait to do it over time as EBITDA grows organically.

Yeah.

I think it makes more sense to do it over time.

Oh It is we've been working towards it you know a lot of the metrics have improved over time.

The rating agencies really really like our portfolio. They liked the strength of our properties on our tenants. So there are a few other things that we need to accomplish but there'll be accomplished over time.

Okay. Thank you Jim.

Okay. Thanks, Brian.

Our next question is from Craig Mailman with Keybanc capital markets. Please proceed.

Hey, guys.

Maybe for Chris just to start out the 5.2 million and the reimbursement of financing costs from Mclaren does that amortize.

Back into F O over any certain period of time or how should we think of it that because it seemed like a bit of a wash from an F O perspective this quarter.

So that will not amortize back into <unk> in the future. The this is it.

Just a case, where the accounting for the revenue is just different than then your expense portion. So they don't naturally net out so what you'll see is just here. There's a the onetime back out of that amount and you won't see that backed out or any reference to it in future periods.

But it'll still be the benefit will still be a top line going forward.

It will still some 1 time revenue for the remainder of this year 1 time, okay. Okay.

Okay.

And then just Jim looking at what you guys have under contract for kind of the balance of the year, It's skewing a little bit more office is that just the nature of kind of what.

You guys are seeing on the opportunity set in the pricing that's going on in industrial that office may look a little bit better here for the near term.

Well I think again I think it's a matter of opportunities more than anything else. You know our focus is primarily on industrial and distribution, but when we see like this Walmart learning Center I mean being on Walmart is a fantastic tenant you know it it's an excellent property that we got in a very good price. So it makes sense to buy it you know.

And the same thing with Trafalgar cart, which is in Guernsey The island regarding Z and it's it's a fantastic building you know it has northern trust and Aztec group, which is a huge financial services company as tenants and it was just you know it was compelling to buy it you know it was a very very good price, so and adding a great property with with good.

Leases in place. So you know it made a lot of sense to do that but you know we are still focused on on industrial distribution and we will maintain that focus going forward.

Okay, and you guys hit the ATM, a little bit in the quarter I think $51 million raised.

Do you guys feel like you have enough capital here or how much runway do you feel like the capital you have on liquidity have gives you and would you kind of take a step back here and maybe wait until some of the benefit of those acquisitions roll through and maybe you know positively impact the share price before coming back.

Well you know, we we lease the ATM has been really effective for us as you know I mean, it's it's a it's a great way to raise capital at low cost compared to some other way to do it and it's very efficient because you know you can revenue.

Capital sort of when you need it assuming the Atms are are in demand at any given time. So we continue to look at our gross what we need to grow what we need to buy these properties and we will probably use the ATM as necessary going forward.

Okay, great. Thank you.

Yeah.

Thanks, Craig.

As a reminder, this star 1 on your telephone keypad, if he would like to ask a question.

And our final question is going to come from James Villard with Ladenburg Thalmann. Please proceed.

Good afternoon guys.

Hey, how are you Tim.

Doing well I guess most of my questions have been answered, but can you give us some more color on the opportunities you're seeing in the investment grade office space and kind of how that how cap rates have kind of trended as there's kind of this.

Delay of.

Return to work.

Well you know that's a really interesting question you know, we we've seen on the industrial distribution side, a little bit of compression in cap rates, but remember a lot of a lot of our acquisitions are relationship driven.

So we have a very strong pipeline of relationship driven properties that we look at to buy so you know we're not really chasing after deals we're not really chasing after low cap rate deals I mean, you know we do have a very very very serious underwriting.

Ah metrics that we use so we we don't deviate from that very much unless there's something compelling about the property, but you know as you can see there's a couple of office properties in.

In the pipeline right now that will close in the next in the next in the next quarter either this quarter or early early Q4, and they were very compelling properties as I said earlier, you know the Walmart learning Center was a great property.

Trafalgar Court, our asset manager in London went to see the building says its a nice just building on Guernsey and we got it at a very good very very good terms price and terms. So you know where we're going to continue doing what we've been doing for the last 4 years. You know we do have a focus on industrial distribution you will see a lot more of that then.

You'll see office, but you know when we see something compelling and in the office sector. We you know and its price right we will close on.

Uh huh.

Are you seeing I guess better still somewhat scared to bid I guess bid down the cap rate kind of where we are on the pandemic.

You're talking about office still yeah, so on all of us.

You know I.

I've said this on on previous calls we're in a very unique position with the office properties that we own.

We don't have office properties in the major metropolitan areas. So a lot of our tenants they they're not they're not using public transportation to commute to work you know and they are in suburbs or our second tier cities. So it's a very different situations on the major major metropolitan areas. So we're in a much.

And and if you look back at rent collection.

We've collected.

Even during the you know the early year of the pandemic, we collected roughly 99% of all our all our cash rents. So you know we're in a very good position with the office properties that we have and our tenants you know they pay their rent their happy and Theyre going back to work it at different points of time.

But you know, they're usually headquarter building or something that's very important on the tenant. So you know we're in a very comfortable position with the office properties that we own and what we're looking at to buy.

Sure.

Good color.

Thanks, that's all from me.

Alright, thank you for calling in.

We have reached the end of our question answer session I would like to begin.

To.

Transfer the conference back over to Dan for closing remarks.

Yeah, I just wanted to thank everybody for listening in today.

Global net lease continues on its path of of accretive growth and.

We're very happy with our results and we look forward to talking to you next quarter. Thank you all very much bye bye.

Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.

Okay.

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Yes.

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