Q1 2022 Global Net Lease Inc Earnings Call
Good afternoon, and welcome to global net lease first quarter 2022 earnings call. At this time, all participants are in a listen only mode.
Question and answer session will follow the formal piece of teaching 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 Lisa quartile exactly.
Executive Vice President. Please go ahead.
Thank you operator, and good afternoon, everyone and thank you for joining us for Gnl's first quarter 2022 earnings call.
It's being webcast in the Investor Relations section of Gnl's website at Www dot well hold that lease dotcom.
When you meet 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.
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 the Form 10-K for the year ended December 31st 2021 filed on February 24th 2022, and our 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 the call and 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 financial results prepared in accordance with GAAP.
A 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 dotcom.
Please also refer to our earnings release for more detailed information about what we consider to be implied investment grade tenants a term we only used throughout today's call.
I'll now turn the call over to our CEO , Jim Nelson Jim.
Thanks, Louisa and thank you to everyone for joining us on today's call.
I am pleased to share that GNL is well positioned for a strong 2022 based on the acquisitions and leasing pipelines. We are building and the recast of our corporate credit facility at improved pricing subsequent to quarter end.
Our high quality mission critical net lease portfolio is performing well with occupancy of 98, 7% and 100% rent collection.
We are advancing our differentiated international and domestic strategy by increasing portfolio concentration in industrial and distribution assets successfully extending and extending leases and building a pipeline of accretive acquisitions, while evaluating strategic disposition opportunities on an ongoing basis.
Since the beginning of 2020 over 81% of Gnl's acquisitions have been industrial and distribution assets, increasing gnl's ownership to this highly dependable asset class up from 46% to 55% of the portfolio.
We continue to drive growth as year over year cash NOI for the first quarter increased by more than 7% to $87 2 million.
And a S F O increased by more than 9% to $44 3 million.
<unk> per share was 43 cents and we paid dividends to common stockholders of 40 cents per share.
Our portfolio that is 87.6% fixed rate providing added certainty in a period of rising rates.
The first quarter also illustrates the value of our efficient hedging program, which minimized the impact of turbulence in the euro and the pound on Gnl's results.
Our unique global capabilities strong balance sheet and best in class portfolio continue to drive excellent performance.
Turning to leasing activity in the first quarter, we executed two lease renewals and three renewal and expansion leases totally 1.2 million square feet and 54 million of net new straight line rent over the new weighted average remaining lease term.
We signed two tenant renewal and expansion in France with Ocean for over 170000 square feet.
These leases are for 11 years in total 15 million of net new annualized straight line rent.
Closer to home, we signed a lease renewal and expansion with Lipper in South Bend, Indiana for a total of over 780000 square feet on a 16 year term and for 16 million in net new annualized straight line rent.
I am, particularly proud of our successful leasing activity over the last quarter and the growth it provides for GNL.
These renew leases contributed to a year over year increase in portfolio weighted average remaining lease term despite the passage of a full year.
On a square foot basis, 70% of our leases expired after 2026.
A $4 6 billion 309 property portfolio has a weighted average remaining lease term of 8.4 years.
Geographically 235 of our properties are in the U S and Canada and 74 are in the U K and Western Europe , representing 61% and 39% of annualized straight line rent revenue respectively.
Our portfolio was well diversified with 137 tenants in 50 industries with no single industry, representing more than 12% of the whole portfolio based on annual straight line rent.
Over 94% of our leases feature annual rental increases, including based on straight line rent, 59% that are fixed rate and 28% that are adjusted based on the consumer price index.
As we mentioned we continue to expand the concentration of industrial properties in our portfolio.
At the end of the first quarter, our assets were comprised of 55% industrial and distribution, 42% office, and 3% retail compared to 49% industrial and distribution, 46% office and 5% retail a year ago.
Contributing to our success is our focus on tenant credit industrial acquisitions and retail dispositions over the last several years.
Across the portfolio almost 62% of annual straight line rent comes from investment grade or implied investment grade tenants.
After closing on almost a half a billion dollars worth of acquisitions in 2020. One we are beginning this year with continued activity.
Our forward acquisitions pipeline totals $111 9 million and includes one industrial property in the U S. For 13 Port 4 million, which closed on April 19th 2022, and one office and three industrial properties for $98 5 billion subject to L. O I's combined these acquisitions.
Have a weighted average cap rate of seven 5% with over 14.5 years of lease term remaining.
Our team is also evaluating strategic disposition opportunities and searching for additional acquisition targets that meet our stringent investment requirements.
Management continues to diligently evaluate domestic and international sale leaseback transactions to generate superior risk adjusted returns.
Subsequent to quarter end, we recast our corporate credit facility with a new 1.45 billion revolving credit facility that has a four five year term and improved pricing that its 15 basis points lower than the facility. It replaced.
A recast facility acquisitions pipeline of successful leasing activity along with the reputation we have earned over the last few years as a premier sale leaseback partner for mission critical industrial and office properties.
<unk> GNL for a strong 2022 and beyond.
With that I'll turn the call over to Chris to walk through the financial results in more detail before I follow up with some closing remarks, Chris.
Thanks, Jim for.
For the first quarter 2022 we recorded adjusted EBITDA of $75 7 million.
Up from $68 1 million in the first quarter of 2021.
We also reported an eight 7% increase in revenue to $97 1 million up from $89 4 million with.
With net income attributable to common stockholders of $5 5 million.
F F O N E S. F O for the first quarter were $45 6 million and $44 3 million, respectively, or <unk> 44 cents and 43 cents per share.
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 three 4%.
Our net debt to adjusted EBITDA ratio was seven seven times at the end of the quarter.
The weighted average debt maturity at the end of the first quarter 2022 was four years.
The components of our debt includes $500 million in senior notes $260 3 million on the multi currency revolving credit facility $274 $6 million on the term loan and $1 4 billion of outstanding gross mortgage debt.
This debt was approximately 88% fixed rate, which is inclusive of floating rate debt with in place interest rate swaps to.
The company has a well cushioned interest coverage ratio of three six times.
As of March 31, 2022 liquidity was approximately $225 9 million.
The company distributed $41.6 million in dividends to common shareholders in the quarter or <unk> 40 per share.
Let me share some of the details on the credit facility. Jim mentioned earlier the facility will be administered by Keybanc N E and includes two six month extension options.
Interest rate on the credit facility, just based on the leverage ratio with a minimum rate of one 3% over the currency specific benchmark rate and a maximum of one 9% over the currency specific benchmark rate.
We proactively replace the prior facility more than a year early to take advantage of an active corporate syndication market and lock in certainty on terms and pricing.
With favorable pricing and an expansion feature that can increase the facility size to nearly $2 billion. We believe the transaction strengthens our balance sheet and provides flexibility for continuing our strategy of acquiring high quality industrial distribution and office properties.
Our net debt to enterprise value was 54.8% with an enterprise value of $4 $3 billion based on the March 31st 2022 closing share price of $15.73 per common shares $25.54 for series, a preferred shares and $25.05 for series.
B preferred share.
With that I'll turn the call back to Jim for some closing remarks.
Thank you, Chris I'm very pleased with our progress and accomplishments during the first quarter, including the lease renewals and expansions that added $54 million of net new straight line rent on 1.2 million square feet of our portfolio. The credit facility recast we advantageously completed after quarter end.
Secures acquisition flexibility for years to come we are well positioned to continue to execute on accretive and exclusive transactions that will further enhance our portfolio with that operator, we can open the line for questions.
Thank you if he would 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 May press star two if he would like to remove your question from the queue and for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star.
He is our first question is from.
Bryan Mayer with B Riley. Please proceed.
Oh, Thank you good afternoon, Jim and Chris Thanks for those comments Ryan.
A couple of questions for me you know with what we're seeing in the capital market and interest rate.
Where your share trading and impacting your appetite for acquisitions for 2022 at all.
Well I wouldn't say it affects our appetite I think we're being cautiously optimistic and really focusing on buying high quality product.
Properties at accretive prices and we continue to do that year over year as you guys Hussein.
Yeah.
And you mentioned evaluating disposition can you give us a little bit of color on what the criteria would be for somebody to do it.
In that bucket you know maybe the size of dispositions youre thinking about geographies, whether it's you know North America or Europe .
Well you know we constantly review the portfolio and stay in very close contact with our tenants. So we haven't really put anything up for sale. We haven't publicly stated something but you know I think Brian if you look back a few years and you look at the property, we sold in Germany, where we knew the tenant was moving out in a few years.
It was going to be very difficult to turn it into a multi tenant property from a from a single tenant property and we had three offers just without even without even lifting the property for sale. So you know we try to be proactive and really.
Keep the keep the portfolio in the best shape that we possibly can.
Great and.
Two more for me are you seeing any impact on any of your western European tenants on the geopolitical issues going on in eastern Europe .
Absolutely not we've had no ill effects from what's going on.
And the war zone with.
You know in any of our properties in Europe , our tenants are still paying a 100% of their rent you know, we're still talking to them about about our rent renewals and expanding properties. So I think we're in really good shape in Europe . Unfortunately, the situation you know in in and Eastern Europe is not great, but we don't own any properties in eastern Europe .
These are all in western Europe with in countries with very good sovereign credit ratings.
Thanks, and then last for me you know, we're seeing on some of the office REIT that we track.
And in office has been the subject of great debate right or people are going to renew or are they going to renew the same amount of space or what have you, but we've actually seen a greater pick up in leasing activity from tenants seeking out early.
Renewals to try and lock in you know kind of rates before they fear that when their leases come due in a couple of years the rates will be even higher I know you have 11% or so coming due in 2024 are you hearing many of those tenants looking to do something early.
Well you know as I'm sure. You know you know we were very proactive on on lease renewal. So you know we will reach out to tenants well in advance of exploration.
So and you know as you've seen by what we've publicly stated we've had been pretty successful on lease renewals and we expect that to continue.
Okay. Thank you Jim.
Okay. Thanks, Brian .
Our next question is from Todd Thomas with Keybanc capital markets. Please proceed.
Hi, Thanks, good afternoon.
I just wanted to go back to our investments a little bit and I was wondering if you could discuss price trends that you're seeing in the market for properties that you're targeting and also can you comment on the composition.
You know sort of between industrial office, you know as.
As you look ahead, where where you're seeing the most opportunity today.
Well to answer the second part of your question first you know.
As we stated since the beginning of 'twenty 'twenty over 80% of our acquisitions have been in the industrial and distribution space.
Fortunately, it's a huge market and we're very well positioned with the.
Leaseback market you know a number of our tenants have asked us to do sale and leasebacks on other properties in our portfolios. So we yeah were very very comfortable with where we're going and we're going to continue focusing on industrial and distribution now remind me again the first part of your question I'm sorry.
Just priced price trends are you know how cap rates are trending if you're seeing any change at all in and the acquisition yields.
Well I think people are starting to respond to the rising interest rates with where cap rates are as you know we've seen you know quite a bit of compression over the past couple of years, but you know, we're starting to see those markets firm up and prices and cap rates beginning to beginning to arrive. So you know I think normally historically.
Likely at the cap rates follow interest rates rising by about six months, but we're actually starting to see a bit of that right now.
Yeah.
Okay and then.
In terms of funding investment.
Throughout the balance of the year or can you just discuss a little bit.
More about how you're how you're thinking about the various sources of capital that you have dispositions cashiers, you're sitting on a little bit of cash today, our availability on the line can you just maybe talk a little bit more about funding investments. How we should think about that and also can you share where you see leverage.
Hum.
Sort of shaking out at the end of the year.
Yeah.
Well I'll take that I can jump in sure. So I guess the first place to start is at the end of the quarter. We had about 225 million in liquidity between cash and availability. So that right. There is obviously a great source for us for funding acquisitions, we also have about $56 million in.
And which we expect to close on over the remainder of this quarter. So between those two sources I mean, I think that's a lot of capital for us to work with them in terms of leverage we are comfortable with where our leverage is now obviously because of the strength of the portfolio all the investment grade tenants the cash rent collection.
That being said we're.
We're not going to be looking to really push that higher in general historically, we've been running in the low sevens in the net debt to adjusted EBITDA and it really kind of that's the range that I would say, we expect to be operating in.
Okay Alright.
Alright, great. Thank you.
Thank you.
Our next question is from Mitch Germain with Jay.
A M P Securities. Please proceed.
Hi, Chris.
Chris maybe since you were talking about you know debt and leverage.
Obviously, you know the mark the debt markets here or had been a little volatile what about the ability to issue debt or even refinance the debt that you've got in Europe right now talk to me maybe about the condition of the lending environment there.
Yeah.
Sure well so that that is something that we're constantly evaluating the upcoming maturities that we do have them, especially in the U K, which is next year it matures.
In Europe , our mature in the following year. So I mean, we've been reaching out and looking at our alternatives and I mean, we still have some some favorable options and we're going to keep monitoring and making sure that when the time is right that we can make take advantage I would tell you in the short term.
We do have the ability to draw on our credit facility in many different currencies and that that is also something that we've consistently taken advantage of so <unk>. So we have a lot we have a lot of option that would that we are evaluating outside.
Gotcha.
That last comment you talked about net debt to EBITDA in the low Sevens I, obviously, given where you are right now would that imply that dispositions will be higher than acquisitions for the remainder of the year.
No I wouldn't say too to imply that right now all we have is $56 million in dispositions and nothing else that we.
Have reported or or have under agreement.
Thank you.
Thank you Mitch.
Our next question is from James Villard with Ladenburg Thalmann. Please proceed.
Good afternoon.
Hey, good afternoon, James Good afternoon, Yeah, Yeah, just most of my questions have been answered just one follow up can you give us some more color on your acquisition pipeline kind of some of the names and kind of your thoughts on them.
Well the ones that you can see in our in our Investor presentation. You know, there's a building in Glasgow, Scotland, Scottish Ministers, which is a government tenant and it's one of their big call centers and it's a very long lease we bought it at very attractive terms and then the.
Other is a three three property package from a sense fragrances.
Actually Scottish ministers closed when.
When did it close yesterday and the other one theres a signed LOI on which we are waiting to close.
Yeah. That's that's helpful. Thank you guys.
Sure sure.
Yeah, I had never a question and answer session I would like to turn the conference back over to Jim for closing comments.
Thank you operator, and I want to thank everybody for joining us on today's call.
We've worked very hard to have a good solid consistent company.
And we're very happy that you all joined US today. So thank you very much and have a good weekend bye bye.
Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
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