Q4 2021 Global Net Lease Inc Earnings Call
Good day and welcome to the global net lease fourth quarter and full year 2021 earnings call. At this time all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
Anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. Please.
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 you operator, and good afternoon, everyone and thank you for joining us for Gnl's fourth quarter and year end 2021 earnings call. This call is being webcast in the Investor Relations section of Gnl's website at Www Dot global net lease Dot com joining me today on the call to discuss the quarter's results are Jim no.
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 should one or more of these risks or uncertainties materialize actual results may differ materially from those expressed or implied by the forward looking statements.
For all of you to our SEC filings, including Form 10-K for the year ended December 31, 2020 filed on February 26, 2021, and all other filings with the SEC. 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 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. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP.
Reconciliation of these measures to the most directly comparable GAAP measure is available in 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 or terminal 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.
Last year was one of the strongest we've had since I became CEO in 2017 with accretive marquee transactions that added to our industry diversity across the U S and Europe .
Leasing activity and a growing focus on net lease industrial and distribution properties.
This morning, I will briefly discuss these initiatives and Chris will provide details on our fourth quarter and full year 2021 highlights before taking your questions.
At year end, our best in class $4 $7 billion portfolio consisted of 309 properties.
States, Canada, the UK and Europe .
First supplied across 138 tenants in 51 separate industries.
Our property mix at the end of the year was 54% industrial and distribution and 42% office with 4% comprising legacy long term leased retail.
Portfolio occupancy at the year end was 99% with a weighted average remaining lease term of eight three years.
63% of our annualized straight line rent was derived from investment grade or implied investment grade tenants.
Our portfolio's occupancy rate weighted average remaining lease term and credit quality compares favorably to our investment grade rated peers.
With limited near term explorations embedded contractual rent increases and 94% of leases and strong external growth rates. We believe we are well positioned to create shareholder value.
We were quite active pursuing external growth opportunities during 2021.
We closed on almost $500 million of industrial and mission critical office acquisitions.
Among the properties, we acquired during the past year, where the Mclaren headquarters and R&D facility in England.
Algar Court leased to Northern Trust, which is a class a premier office property in the channel Islands, and Walmart's cutting edge training facility in the U S as well as properties leased to Schlumberger.
The weighted average cap rate for acquisitions closed in 2021 was eight 9% with a weighted average remaining lease term of $17 two years at closing.
Fourth quarter was particularly active as we closed almost $171 million of transactions over 116 million of these acquisitions closed in December and as a result did not meaningfully contribute to our fourth quarter, our full year results.
In fact fourth quarter acquisitions, only contributed 300000 of NOI in the fourth quarter compared to $1 9 million and expected NOI for a full quarter of ownership, we expect to see the accretive impact of these acquisitions in our first quarter 2022 results.
One of the largest acquisitions in the fourth quarter was the previously mentioned Walmart learning Center that we acquired for $40 6 million.
This 90000 square foot property is the primary digital and onsite training and development facility for Walmart Associates worldwide.
The new construction training center, we acquired as part of the company's New headquarters campus and has a remaining lease term of seven years. The lease includes one 5% annual rent Escalations and adds a world class tenant with excellent double a credit to our portfolio.
The Walmart acquisition as with the Mclaren and Trafalgar Court transactions in prior quarters came to us in part as a result of our global relationship network and our growing reputation as a dependable well funded buyer that is capable of completing sale leaseback transactions with world class tenants.
The cross border capabilities of GNL to complete transactions across multiple continents and countries in different currencies and on time is a differentiating factor that we continue to leverage to our advantage.
We also continue to evaluate the portfolio to maximize value to that point last year. We disposed of 21 properties for $49 6 million that we believe had reached maximum value for US specifically, we sold a group of retail properties in Puerto Rico for $28 million as part of our ongoing efforts.
Over the last two years to actively and thoughtfully reduce our exposure to noncore assets such as retail properties.
In addition to growing through acquisitions that are focus on industrial and distribution properties. We also had an active year on the leasing front.
In 2021, we executed 11 lease extensions and expansions that totaled one 5 million square feet or three 9% of our total portfolio.
The lease extensions increased the weighted average remaining lease term for these tenants to eight nine years from three nine years at the time of signing and resulted in total net straight line rent increases.
These tenants are approximately $96 million over the new weighted average remaining lease term.
Tenants, who signed strategic lease extensions include both U S and Europe based tenants such as Fedex and the Aztec group.
As of year end, our lease exploration schedule includes only 3% of our portfolio by square feet that will be up for renewal in 2022 and 5% in 2023.
72% of our leases by square feet don't expire until 2026 or beyond.
We believe our proactive approach to leasing renewals and the mission critical nature of many of our assets combined with our strong relationships with tenants will result in very stable NOI growth for GNL for many years to come.
Our team's hard work and dedication to building and operating a world class portfolio has yield measurable results as evidenced by the many important measures by which GNL has met or exceeded pre pandemic performance levels.
Adjusted EBITDA increased 34% to $80 5 million in the fourth quarter 2021 compared to $60 1 million in the first quarter of 2020.
Cash NOI grew 33% to $93 8 million during the same period.
<unk> per share was consistent at 44 cents when compared to the first quarter 2020, while our portfolio grew by over 5 million square feet.
We believe that these positive results have yet to be fully valued by the investment community and that there is significant upside that has been created but not fully appreciated in our valuation.
For the full year ended December 31st we also produce meaningful year over year growth I'll, let Chris get into the details, but we grew revenue and NOI both by over 18% in the last year core <unk> grew by 26% and <unk> increased by 8% to 100.
$73 5 million or $1 77 per share.
For the fourth quarter <unk> per share was 44 consistent with the last quarter.
Fourth quarter net income F F O and <unk> were negatively impacted by an elevated income tax expense, which included one time true ups related to the prior year 2020 tax returns filed in 2021 and does not represent our expected quarterly income tax run rate going forward.
We remain committed to executing on our global investment strategy by leveraging our unique capacity to acquire assets throughout North America and Europe .
Last year was a testament to the effectiveness of our strategy. We believe that we closed out 2021 with strong operational momentum, which will propel GNL to another strong year in 2022.
We remain well positioned to take advantage of evolving real estate markets and benefit from the added diversification that comes with holding a balanced portfolio of global assets located in numerous economic regions and our focus on industrial and distribution assets. We believe our demonstrated ability to underwrite transactions with an eye toward law.
Long term value.
And our reputation as a preferred sale leaseback partner is what continues to set GNL apart in the net lease sector.
We will continue to execute on our strategy in 2022 and beyond as we grow Gnl's global and diversified portfolio.
Turn the call over to Chris to walk through the operating results in more detail and before I follow up with some closing remarks, Chris.
For 2021 revenue increased 18, 5% to $391 2 million from $330 1 million in the prior year with a net loss attributable to common stockholders of $8 7 million.
We recorded a 19, 4% increase in adjusted EBITA.
S. F O have a $170 4 million or $1 73 per share and <unk> of $173 5 million or $1 77 per share.
The company paid common stock dividends of $156 2 million or $1 60 per share in 2021.
As always a reconciliation of GAAP net income to the non-GAAP measures can be found in our earnings release and supplement.
In the fourth quarter revenue grew 22, 4% to $106 5 million on a year over year basis.
<unk> was $43 5 million or <unk> 42 per share and <unk> was 46 million or <unk> 44 per share.
During the quarter the company paid common stock dividends of $41 6 million.
Jim mentioned fourth quarter net income F. F O N E. S. F O had an increased income tax expense compared to the prior quarters. This year as it included the impact of one time true ups related to the tax filing for the prior year.
In particular, there was $1 9 million dollar true up for the U K 2020 tax return, which had an approximately <unk> <unk> per share negative impact that reduced the <unk> per share from 46 to 44 sites.
Our balance sheet ended the fourth quarter with net debt of $2 4 billion at a weighted average interest rate of three 4%.
Our net debt to adjusted EBITDA ratio was seven three times at the end of the year.
The weighted average maturity at the end of the fourth quarter 2021 that was for two years.
The components of our debt include $225 6 million on the multi currency revolving credit facility $283 million on the term loan.
$1 4 billion of outstanding gross mortgage debt and $500 million on our senior notes.
This debt was approximately 89% 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 three eight times.
As of December 31, 2021 liquidity was approximately $139 5 million, which comprises $89 7 million of cash on hand, and $49 8 million of availability under the credit facility.
Our net debt to enterprise value was 55, 6% with an enterprise value of $4 3 billion based on the December 31, 2021 closing share price of $15 28 per common shares $26.72 for series, a preferred shares and $26.80 for series deep fried.
Yes.
With that I'll turn the call back to Jim for some closing remarks.
Thank you, Chris I'm very pleased with the meaningful growth GNL achieved last year.
Through half a billion dollars of primarily mission critical industrial distribution and office acquisitions, including tenants like Walmart Schlumberger, Northern Trust and Mclaren, we have expanded our portfolio and our profile.
Leasing we executed last year added significant straight line rent and weighted average lease duration at the subject properties contributing to many performance metrics meeting and exceeding pre pandemic levels. We are well positioned to continue to execute on accretive and exclusive transactions that will further enhance our portfolio and I look.
Forward to carrying that momentum into 2022 with that operator, we can open the line for questions.
Thank you and at this time, we will be conducting a question and answer session.
I'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue you.
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One moment, please while we poll for questions.
And our first question comes from the line of Craig Mailman with Keybanc capital markets. Please proceed with your question.
Hey, everyone. This is already Cameron on for Craig. So you guys did a great job executing on the external growth strategy. This year, but looking at 2022, what does the pipeline look like beyond the $15 million deal under LOI and what are you guys targeting for volumes this year.
Well, we don't give guidance as to our target for volumes, but what I would suggest you do is take a look back over the last three years and that should give you an indication of how we've been growing.
Our pipeline is very robust we've got a lot of deals we're working on and none of them that have been published yet, but I think that I can speak about publicly but the pipeline and we're seeing new deals every day. So we're very confident that.
We're going to have a good year of acquisitions with some great properties.
Got it and so as a as a follow up to that I mean, if volumes should be sort of consistent how should we think about financing that given your current liquidity position and your cost of equity via ATM issuance, just where the stock is at today.
Well currently we do have cash and availability on our credit facility. So we're in good shape right now I think as we look forward you know we have various options as to how to finance acquisition. So I think we'll have to cross that bridge when we get there, but we're in good shape for right now.
Okay. Thanks.
Thank you.
And our next question comes from the line of Bryan Mayer with B Riley Securities. Please proceed with your question.
Good afternoon, Jim and Chris.
Maybe following up on <unk> question on the acquisition front are you seeing any change given the change in interest rates as it relates to the motivations of sellers and their willingness to maybe sell to you at a better cap rate.
You know, Brian I think historically, what we've seen is that cap rates change three to six months after interest rates change.
So we haven't really seen much as of yet, but I certainly expect if history is any any indication of the future that you know that.
Cap rates will change as interest rates change just with a little bit of a lag.
Right and then I think that there was and correct me if I'm wrong or if you already addressed it a $6 5 million lease termination fee recorded in the fourth quarter can you give us a little color on that.
Tell us about that space and has that space subsequently hockey.
Occupied.
Chris you want to take that one sure sure I can jump in on this one so this is actually or tenants that terminated the lease obviously they paid us the termination fee.
They will be vacating or they have vacated the property at this point and we currently are in the process of selling it and that sales should likely close in <unk>.
Probably that the second quarter I'm, sorry that was the first quarter.
Okay. Thanks, Thanks for that and then last for me as it relates to the characteristics of the 19 properties you acquired in the fourth quarter aside from the Walmart Learning Center, which you've discussed in the past can you give us a little bit more color I do see on page 11 of the <unk>.
Slide deck.
Where you laid out who the tenants are but can you give us a little color on them I don't think that they're really household names for most.
Pilot point steel is.
As a.
Specialty steel manufacturer.
It's a company that we know well.
The pet parent for Pac or some industrial properties.
Same thing with the PSB, it's in APAC, It's a nice example of industrial properties.
With the FCC and Jim go ahead, Chris I'm, sorry, I can actually jump in so I promised that they do their manufacturing like video monitoring systems set for they.
They do RV port parts specifically.
More sanitation type of parts for Rvs.
P F D. They do.
Different parts that go into our buildings.
Slumber J oilfield technology, obviously, we've touched on the clarity in Trafalgar at Walmart.
Yeah.
Sorry.
And then in the more recent <unk> acquisition is there any kind of common theme other than industrial like geographically are they are they mid west.
Where in the U S or abroad are they generally located.
Sure. So the these actually are pretty spread out within the U S. I'm looking at the left in it.
It is very very spread out one thing I would notice is PFC. There are some properties in Canada sat for there there's some in the Netherlands, but the rest of the properties. The U S based ones are spread out.
Great and then just last you know it seems like you've done a fair amount of both acquisition and now some dispositions should we expect a theme in 2022 and 2023 to see more dispositions.
And the one you just talked about and the lease termination to kind of offset some of the cost of the new assets, So really kind of thematic capital recycling.
There may be some of that.
I don't have a number to give you today, but we continually review the portfolio.
If there is a.
A meaningful reason to sell to sell a property like reducing our retail exposure, which we've been doing for several years now.
That certainly would apply.
Okay. Thank you very much.
Thanks, Brian .
And as a reminder, if anyone has a question you May press star one on your telephone keypad to join the question and execute.
Our next question comes from the line of James Villard with Madden breakdown. Please proceed with your question.
Hi, good afternoon guys.
Hey, good afternoon James.
Jim.
Yeah.
Some more color just.
Rough math rough way of thinking about it on what the mark to market.
On your expiring leases in 2022 and 2023.
Chris can you pull that up sure.
Well I mean, we in 2022, we only have 3% of the leases that are set to expire in 2023 five.
5%, we haven't published any information about.
The active lease extensions that were working on which is a pretty meaningful number but what I can say there is that the extensions that were working on are pretty close to where the current leases set. So we're not really seeing much of a change in in that regard from where we stand or at least nothing.
Cereal.
Okay. That's that's helpful. I guess one more question.
Are you seeing any cap rate compression.
In the I guess the.
More energy expose industrial space.
Got a thematic.
As we look at the oil work, where it's moving today kind of want to hear your thoughts on that space.
You know, we haven't seen a lot of.
Industrial property in the oil space recently, so I don't really have an answer to you on that mhm. You know obviously, we've seen you've seen compression everywhere. So I wouldn't doubt that there is some compression there, but also because of the historical.
Cap rates on oil properties, you know oil related properties I don't think it's going to be that as bad as it possibly could be considering you know oil I mean, obviously, taking ukraine ought to be equation.
Considering oil's up and down over the past 20 or 30 years.
Okay. That's helpful. That's it for me thank you.
Alright. Thanks.
And we have reached the end of the question and answer session. I will now turn the call back over to CEO and President Jim Nelson for closing remarks.
Thank you operator, I want to thank everybody for joining us on today's call and we look forward to talking to you in the next quarter and thank you everybody Bye bye.
And this concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
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