Q2 2022 Global Net Lease Inc Earnings Call
Mind you. This conference is being recorded I would now like to turn the conference over to your House Louisa Quarto Executive Vice President. Thank you you may begin.
Thank you operator, and good afternoon, everyone and thank you for joining us for Gnl's second quarter 2022 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 this 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 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 the date of the call.
And so you didn't know rescue 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 always got 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.
Also prepared in accordance with GAAP reconciliation of these measures the most directly comparable GAAP measure is available in our earnings release.
Supplement which are posted to our website at www Dot global net lease dot com.
Also refer to our earnings release for more detailed information about what we consider to be implied investment grade tenants a term we will use throughout today's call.
I will turn the call over to our CEO , Jim Nelson Jim.
Thanks, Louisa and thank you to everyone for joining us on today's call.
Our high quality mission critical net lease portfolio continues to perform well with occupancy of 99% and complete cash rent collection for the seventh consecutive quarter, we are advancing our differentiated international or domestic strategy by increasing portfolio concentration.
In industrial and distribution assets successfully extending and expanding leases and building a pipeline of accretive acquisitions.
Since the beginning of 'twenty 'twenty over 82% of Gnl's acquisitions have been industrial and distribution assets, increasing gnl's ownership of this asset class to 55% of the portfolio. We believe our best in class portfolio is well positioned for meaningful capital appreciation and that our dividend provides.
There is a very compelling current yield.
Early in the second quarter, we completed a recast of our corporate credit facility with a new 1.4 of $5 billion revolving credit facility that has a four and a half year term improved pricing that is 15 basis points lower than the facility. It replaced helping to ensure we can continue executing our growth strategy.
Coming years.
Accordingly, 76% of our debt is fixed rate, providing meaningful certainty in a period of rising rates.
In the second quarter, a F F O grew by 5% year over year, and one 6% quarter over quarter to $45 million with a F. F O per share a 43 cents.
We paid dividends to common stockholders of 40 cents per share in the second quarter.
The second quarter also continued to illustrate the value of our comprehensive hedging program, which minimize the impact of ongoing turbulence in the euro and the pound on Gnl's result, and permitted us to focus creating value for shareholders in our portfolio.
With this protection in place we were insulated from currency fluctuations.
Would've decreased our a F I fell by nearly 1.5 million our unique global capabilities strong balance sheet and best in class real estate assets continue to support Gnl's positive performance.
In the second quarter, our leasing momentum continued year to date, we have completed eight lease renewals and two tenant expansion projects totaling $2 6 million square feet.
The leasing at $102 million of net new straight line rent over the new weighted average remaining lease term include.
Included in this leasing activity was a 10 year lease renewal with the GSA for 28000 square foot facility in rapid city, South Dakota, and two lease renewals with Fedex for properties in New York and Texas. The total over 325000 square feet and they paid 29 million in annualized straight line rent.
Thanks to our leasing efforts our portfolio only has 1% of leases expiring this year and almost 74% of our leases do not expire until 2027 or later, we continue to engage with our tenants building on the relations that shifts we have established over the years in order to extend leases well.
In advance of the explorations whenever possible as of quarter end, our $4 5 billion 311 property portfolio has a weighted average remaining lease term of eight three years geographically 237 of our properties are in the U S and Canada and 74 are in the U K and Western Europe .
Presenting 62% and 38% of annualized straight line rent revenue, respectively. Our portfolio is well diversified with approximately 140 tenants in 50 industries with no single industry, representing more than 12% of our whole portfolio based on annual straight line rent almost 90.
5% of our leases feature annual rental increases, which increase the cash rent and they just do overtime from these leases based on straight line rent approximately 69% of lease escalators are fixed rate 26, 2% are based on the consumer price index and 7.5% or based on other.
Measures.
As we mentioned we continue to expand the concentration of industrial properties in our portfolio.
We ended the second quarter, our assets were composed of 55% industrial and distribution, 42% August down, 3% retail compared to 52% industrial and distribution, 43% office and 5% retail at the end of the second quarter 2021.
Contributing to our success is our focus on tenant credit industrial acquisitions in noncore retail dispositions over the last several years across the portfolio over 62% of annual straight line rent comes from investment grade or implied investment grade tenants.
In the second quarter, we completed the acquisition of two industrial and one office properties for total purchase price of $33 3 million. The industrial properties are located in the U S and the office property is a strategically located building that is leased to the Scottish ministers, and then double a three credit these properties were.
Wired at a weighted average cap rate of seven 7% and that 13.6 years of lease term remaining.
Our acquisition pipeline is comprised of approximately 71 million of Triple net industrial property combined with the properties. We have already acquired these properties totaled over 104 million purchase price and they have a weighted average cap rate of 8% with 18.5 years of lease term remaining.
We sold one property in the UK during the second quarter and have agreed on terms to sell two additional properties that would bring total dispositions to over 50 million for the year.
The value in our differentiated investment strategy is clear and we remain focused on acquiring single tenant industrial and distribution properties in North America and in Europe , We will continue to grow our portfolio by focusing on the highly dependable industrial and distribution asset class.
Our successful lease renewals and expansions speak to the mission critical nature of the properties that we own where over 62% of the rent is derived from investment grade tenants and where the weighted average remaining lease term exceeds eight years, we are well positioned for the future and I look forward to building on our progress throughout the rest of the year.
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 the second quarter 2022 we recorded revenue of $95 2 million with a net loss attributable to common stockholders of $5 8 million.
F O N E S. F O for the second quarter were $49 5 million and 45 million, respectively, or 48 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 5% and $111 2 million of cash and cash equivalents.
Our net debt to trailing 12 months adjusted EBITDA ratio was seven eight times at the end of the court.
The weighted average debt maturity at the end of the second quarter 2022 it was 4.3 years.
The components of art that include 500 million in senior notes $558 9 million on the multi currency revolving credit facility and $1 4 billion of outstanding gross mortgage debt.
This debt was approximately 76% fixed rate, which is inclusive of floating rate that with in place interest rate swaps.
The company has a well cushioned interest coverage ratio of three five times.
As of June 32022 liquidity was approximately $197 million.
The company distributed $41 6 million in dividends to common shareholders in the quarter or <unk> 40 per share.
Our net debt to enterprise value was 57% with an enterprise value of $4 1 billion based on the June 32022 closing share price of $14.16 per common shares $23.51 for series, a preferred shares and $23 57 and science.
For series B preferred shares 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 second quarter, including our earnings growth acquisitions and leasing activity. The credit facility recast, we advantageously completed secures our acquisition flexibility and we are well positioned to continue to execute on our strategy and grow our.
Our best in class portfolio for years to come with that operator, we can open the line for questions.
Thank you at this time, we'll be conducting a question and answer session. If you'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. Kim You May press star two if you'd like to remove your question from the Kim for participants using speaker equipment. It may be necessary to pick up your handset.
Before pressing the star keys.
Our first question comes from the line of Bryan Maher with B Riley Securities. Please proceed with your question.
Good morning, Brian .
Good afternoon. Good good thanks for all those comments I did Miss and maybe I don't know if Christian elaborated.
On the hedging component of the European assets, I think that that's kind of where we were off in our revenues for the quarter and what is the hedging does that impact. So the total revenues in the SFO or are you hedging somewhere in between if you could explain that a little bit better that'd be great.
Sure. So I'm on the call. We had mentioned the $1 5 million of the positive hedging impact that's the actual realized gain that we had on the FX forward that settled during the quarter that comes through with that the gains on derivatives line and that does that does positively impact.
<unk> F. S out so that really helps offset some of the decrease that we saw in revenue.
Okay. So we don't see it in our revenue we do see it on yet.
Correct It does flow through as I thought.
Great. Thanks, and then on the acquisition outlook I'm sure. Jim you see every day you know the bid ask spread seems to widen a bit between the buyers and the sellers are you seeing anything in market dynamics that that changes your acquisition outlook over the next two to four quarters.
Well you know that's that's the perfect question Brian .
You remember on our last call last quarter I said, we were being extremely careful in deploying funds right now because of the rising interest rate environment and the changing in cap rates, which usually occurs during you know rising interest rates environment.
So what we've been seeing lately.
Our deal flow is really really picked up.
As you know the the bid asks are both basically what we're looking at is a much better cap rate for our benefit and we're also looking at a much better annual increase you know in those in those rents. We're looking you know, whereas before maybe we were looking at one 5% on an annual basis.
Now, we're looking at anywhere from 1.5% to 3.5%.
On a on a GAAP basis GAAP basis on the rent for the period of the lease really makes it much more accretive.
I think our caution is starting to pay off.
Thank you know, we're very optimistic about what the rest of the year will bring a based on the deals that we're seeing and we're working on so I think that should answer your question I'm extremely encouraged by the rising in.
Cap rates and you know and the number of properties that we're actually seeing right now.
Yeah. Thanks for that and then just lastly for me I just positions I think that you said on your prepared comments that you sold one property in the U K and you had two more under agreement and you mentioned a $50 million number is that for the one in the UK or is that for all three and what can I tell them that.
That's all of them together.
Correct Chris.
And what it is yes, it's properties that we're being very proactive on you know, which we've done before in the past. If you remember we sold a large property in Germany, a few years ago, because we knew a tenet was going to be moving out and we had a bunch of unsolicited offers.
It's pretty much the same thing here you know we've had a number of offers on a property where we know the tenant is leaving in 2024. So it seemed like the appropriate time to sell it.
We're doing and we will redeploy that capital into our continued focus on industrial and distribution properties.
Perfect. Thank you very much.
Thank you Brian .
Thank you. Our next question comes from the line of James Allen Dillard with Lundberg Thalmann. Please proceed with your question.
Yeah, just just one there's a few follow ups on your comments are you seeing any difference in the bid and the ask.
Yes.
Versus U S.
Versus European assets.
You know I well I mean, obviously as I said you know the U S. A you know the cap.
GAAP rates are rising nicely in our opinion mhm so.
They are better they are much better deals out there.
Current time in looking ahead I think we will continue to see that I think we may see distressed sellers not necessarily distressed properties did we don't buy distressed properties, but there may be distressed sellers because of the rising interest rate environment. So we're prepared to take advantage of that in Europe , I haven't seen much change yet.
But again for the last year year and a half we've been seeing you know very good cap rates on the stuff we've been purchasing in Europe .
Oh, you know, we believe that that will continue and we will opportunistically buy in Europe as we find the right properties.
Yeah, and just one more on that I mean.
I guess is the vault is the volatility in currency as well as.
And interest rates, having any impact on your ability to close just in this year on any acquisitions.
Well it hasn't as of yet.
No we havent bought anything in Europe . So far this year, while we did buy one property in the U K the Scottish ministers property, but that wasn't a large property, but it hasn't affected us at all negatively and we don't expect it to you know rates in Europe are still extremely low and you know it makes certain acquisitions very attractive so we will.
You too.
To.
Follow up on potential European deals and closed the best ones.
Yeah, that's that's great color and I guess, just as we look at it or finishing the year you gave some deep.
Dated pipeline acquisition information is there any other deals that you have in front of you I mean do you think it's a rational expectation that you could close more than you asked on the under LOI. This year.
Well as you know, we don't give guidance, but I can say that you know that our deal flow is extremely robust right now and.
You can look historically and I think you'll get a better answer but you know we historically have closed a lot of properties in the fourth quarter.
We as I said earlier, you know we have a very very strong deal flow right. Now so we're very optimistic about this year okay.
That's helpful. I appreciate it. Thank you sure sure. Thank you.
Yeah.
Thank you, ladies and gentlemen, as a reminder, if you'd like to join the question queue. Please press star one on your telephone keypad. Our next question comes from the line of Mitch Germain with JMP Securities. Please proceed with your question.
Good afternoon, Mitch good afternoon.
[laughter] dull blur, yeah. Your CPI linked leases do any of them have caps or are they pure C. P. I.
Chris do you want to respond to that.
Sure some of them do have caps typically if they do have a cap it would be about 4%.
But they do vary from lease to lease.
Great any pushback on lease structure.
For any of the acquisitions youre doing with regards to or even lease renewals that you're doing with regards to U C. P. I.
Lease term anything that is evolving or changing these days.
You know Mitch I think I think it's important to note that I mean, everybody is aware of the current rate of inflation. So what that does it makes us a lot easier to negotiate you know a higher annual increase because everybody realizes we're gonna probably live with higher inflation at least for a few years. So it has actually as far as.
She ate them to buy things, that's actually been a positive for us.
Gotcha.
Last question for me.
Is.
What's the.
Yeah.
What's the.
Planning for the debt maturities.
Yeah.
Sure. So I guess, it's tough to start we only have about $40 million maturing in that for next year, sorry about that yeah.
Right. So so we're currently evaluating that next year I think the big item that that's coming up is that the U K bulk loan.
And we've been looking into a lot of different options for that.
Hum.
I've seen it a answer right now, but that's something we'll keep you updated on as we move closer to making a final decision.
The likelihood is it'll you'll continue to keep that debt.
In Europe or do you are you still evaluating exactly how you want to well the the pound the pound that will remain in pounds right. Chris in the euro that will remain in euros, but that's the natural hedge.
But as we looked at as we as we get closer to these maturities. We're looking at all the different options. We have be it bond you know mortgage debt or credit facility. I mean, we have a lot of optionality. So where we're currently exploring you know what will be the best way to refinance that debt at the point, where we know where we're ready to do.
It.
Great Fantastic. Thank you.
Sure. Thank you.
Thank you, ladies and gentlemen that concludes our question answer session I'll turn the floor back to Mr. Nelson for any final comments.
Yeah. Thank you operator, I want to thank everybody for joining us on today's calls we had some really good questions, which I hope answered some of the questions that those of you listening have.
And thank you again for your support of global net lease we get up every day and we work hard to continue to make this a great company that it is so with that operator, we can close the call. Thank you everybody.
Okay.
I can openly.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.