Q4 2022 Global Net Lease Inc Earnings Call
Hello, and welcome to the global net lease fourth quarter and full year 2022 earnings call.
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After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your have shortfall to withdraw your question. Please press Star then two please note today's event is being recorded and now I'd like to turn the conference over to Curtis Parker Senior Vice President. Please go ahead.
Thank you operator, good morning, everyone and thank you for joining us for Gnl's fourth quarter call. This call is being webcast in 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.
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. We refer all of you to our SEC filings, including the annual report on Form 10-K for the year ended December 31, 2021 filed on February 24, 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. The annual report on Form 10-K for the year ended December 31, 2022 will be filed subsequent to today's call.
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 and operating performance.
These measures should not be considered in isolation or as a substitute for our 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, which is posted on our website. Please also refer to our earnings release for more information about what we consider to be implied investment grade tenants a term we will use throughout today's call.
I will now turn the call over to our CEO , Jim Nelson Jim.
Thanks, Curtis and thanks, again to everyone for joining us today to discuss a very successful year and a strong fourth quarter. We demonstrated the resiliency of our portfolio in 2022, despite rising inflation and interest rates and a demanding year across the global economy in fact for the full year.
Gnl's common stock outperformed the S&P 500 by 11% and our peer group by 32% both on a total return basis.
We believe this performance affirms and shows continued opportunity for capital growth and dividend income as we continue to grow our best in class portfolio, which is built to perform across economic cycles.
Foundational to our strategy year in and year out is leasing and last year was no different in 2022, we significantly strengthened our portfolio with the completion of 12 lease renewals and four tenant expansion projects.
Leases and expansions totaled $3 8 million square feet or nearly 10% of our portfolio and resulted in 154 million of net new straight line rent over the new weighted average remaining lease term of nine two years up from three seven years at year end, our portfolio was 98% occupancy.
Pipe and had an eight year weighted average remaining lease term.
We finished the year with a strong fourth quarter of leasing during the quarter. We completed a lease renewal for approximately 156000 square feet and a tenant expansion project that increased annual straight line rent by over $700000. This.
This progress has carried into the early part of 2023 as subsequent to the quarter end Ryan Mittal, one of our tenants in Germany exercised a five year extension of their 320000 square foot lease with no tenant improvement expenses incurred by GNL.
Thanks to the efforts of our leasing team the portfolio only has 2% of leases expiring in 2023 with 77% of our leases not expiring until 2027 or later let.
Let me repeat that 77% of our leases will not expire until 2027 or later.
At year end, our best in class four $5 billion global portfolio consisted of 309 properties in the United States, Canada, the UK and Europe diversified across 138 tenants at 51 separate industries.
Our property mix at the end of the year was 56% industrial and distribution and 41% office with the remainder long term lease to retail tenants.
Portfolio occupancy at year end was 98% with a weighted average remaining lease term of eight years and 65% of our annual 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 compare.
It's very favorably to our investment grade rated peers.
Nearly 95% of our leases feature annual rental increases which averaged one 2%.
<unk> of which is included in our straight line rent.
These increase the cash rent due under these leases overtime, including based on straight line rent, 63% that are fixed rate and 26% that are based on the consumer price index and may include certain floors and caps.
With an ideal mix of property types limited near term explorations and embedded contractual rent increases in most of our leases. We believe we are well positioned to continue to create shareholder value.
In 2022, we completed three property acquisitions for $33 3 billion the.
The industrial and office properties, we acquired are leased to executive mailing services and Scottish ministers, both with investment grade credit in Mg.
These properties were acquired at a weighted average cap rate of seven 7% and had a weighted average remaining lease term of 13 six years at the time of closing.
We strategically limited our acquisitions during 2022 relative to previous years.
We patiently waited while seller expectations adjusted to meet market conditions, electing not to overpay for new acquisitions, and instead, focusing on lease renewals and expansions in our mission critical focus portfolio.
Our patience has paid off as subsequent to year end, we completed a $75 million acquisition of eight properties leased to boots UK limited.
<unk> of Walgreens, although we are not focusing on retail assets, we were able to acquire these properties, which total over 323000 square feet and have 11 years of lease term remaining at an extremely attractive 10, 6% going in cap rate Walgreens is rated triple B and.
The double H, two from S&P, and Moody's respectively, and we are happy to have their credit in our portfolio at such a favorable cap rate as.
As always we continually evaluate the portfolio to maximize value to that point last year, we strategically disposed of three properties in the U S U K and Europe for $56 million that we believe had reached maximum value for us.
We remain committed to executing on our global investment strategy by leveraging our unique capacity to acquire assets leased to high quality tenants throughout North America, and Europe , and then building relationships with those tenants to help facilitate renewals and expansions to meet our mutual goal.
We closed out 2022 with strong operational momentum, which will propel GNL to another strong year in 2023.
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 will continue to execute on our strategy in 2023 and beyond as we grow.
Gnl's global and diversified portfolio.
Now 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.
For 2022 revenue was $378 9 million with a net loss attributable to common stockholders of $8 4 million.
As a reminder, in 2021, we had revenue benefits of approximately $14 million that we did not have in 2022 due to a significant termination fee and receivable recorded for certain costs from a tenant.
For the year ended December 31, 2022, we recorded $288 1 million.
Adjusted EBITDA.
<unk> of $166 9 million or $1 61 per share and <unk> of $172 9 million or $1 67 per share.
The company paid common stock dividends of $166 8 million or $1 60 per share in 2022.
In the fourth quarter revenue was $93 9 million.
<unk> was $23 6 million or 23 per share.
<unk> was $42 2 million or <unk> 41 per share.
During the quarter the company paid common stock dividends of <unk> 40 per share.
As always a reconciliation of GAAP net income to the non-GAAP measures can be found in our earnings release and supplement.
As Jim mentioned ongoing foreign exchange volatility impacted our results as the U S dollar strengthened relative to the euro and the pound.
We gained some benefit from our comprehensive hedging program, which helped to reduce the impact of these currency moves by $5 million.
On a constant currency basis, when we applied the average monthly currency rates from the fourth quarter 2021 revenues would've been up by $4 9 million to $98 8 million in the fourth quarter 2022.
Using the constant currency concept year over year revenues would've been up by $15 4 million.
$394 2 million.
Our balance sheet ended the fourth quarter with net debt of $2 3 billion at a weighted average interest rate of 4%.
Our net debt to adjusted EBITDA ratio was eight five times at the end of the year.
The weighted average maturity at the end of the fourth quarter 2022 was three nine years.
The components of our that includes $670 million on the multi currency revolving credit facility.
$1 2 billion of outstanding gross mortgage debt.
And $500 million on our senior notes.
This debt was approximately 70% 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 two nine times.
As of December 31, 2022 liquidity was approximately $192 3 million, which comprises $103 $3 million of cash on hand, and $89 million of availability under the credit facility.
With that I'll turn the call back to Jim for some closing remarks.
Thank you, Chris I am very pleased with our leasing accomplishments last year and proving that we cannot only acquire assets, but accretively manage them as well.
Though volatile exchange rates.
Weighed on our results our comprehensive hedging strategy helped to minimize the impact of this turbulence.
While our primarily fixed rate debt insulated GNL from rising interest rates, we will continue to be selective in our acquisitions and dispositions and seek to strengthen our portfolio organically through tenant expansions and lease renewals. We have already completed a significant acquisition at a larger lease renewal this year and I'm looking forward to maintaining our momentum.
Throughout 2023.
With that operator, we can open the line for questions.
Yes. Thank you at this time, we will begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys.
Your questions. Please press Star then zero at this time, we will pause momentarily to assemble the roster.
And the first question today comes from Bryan Maher with B Riley Securities.
Good morning, Jim and Chris.
Good morning, Brian .
Occupancy with just a little bit lighter than we thought coming in at 98% not a big deal down.
Is there anything going on there that we should be aware of.
No there is nothing material going on there we have one tenant that vacated we are in the process of selling that property and it is under LOI, but nothing material going on.
Okay, Great and then on the leasing activity I know that you really don't have much going on this year and as Jim highlighted 77% I think 2027 and beyond I think yes, maybe 10% in 2024 is it is it possible or do you have dialog going with any of those tenants to kind of get ahead of that.
Absolutely.
So we're really being very proactive and very focused on rent renewals and also the expansions we have been doing so you'll see quite a bit more happening. This year also.
Okay. Thanks, and we were interested in that walgreen boots.
Acquisition and picking up some retail.
And I know Jim you said on the on your prepared comments that that's not a focus but you are presented with more at such an impressive cap rate. When you go down that road.
That's a really good question Brian .
With the investment grade rating for the tenant.
And the cap rate it was a very compelling acquisition so.
As you know we are opportunistic buyers. So if something else came along like that we certainly would take a very close look at it.
Okay, great and that segways well into my last question.
As far as the opportunity goes.
When youre looking at to what you're being shown or what you think youre going to see in 2023 are there better opportunities do you think in the U S or in Europe . This year.
Again, that's a great question I think both I think in Europe , we're in a rising interest rate environment. So cap rates are getting are getting much better in our favor.
Same thing in the U S. So where.
We'll be we will be and we are very very selective in what we are and what we're bidding on and.
I think I think we will see quite a few opportunities this year for sure in both the Europe and the U S.
And one last one if I in my that was an impressive cap rate in the U K and I know that you are a patient last year, but do you think that we can see more cap rate acquisitions. This year pretty steadily between maybe the 8.5 and 10 10 five range is is that the new.
Kind of area that you are looking at and expect yet.
Well theres two answers to that one going in cap rate I'm expecting or seeing stuff.
Let's say seven 5% to eight and a half and the GAAP cap rate again.
Bit higher so I think youre pretty close and the range that you're that you're asking about and.
That's what we're seeing and that's how we're bidding.
Yeah. Thank you that's all from me.
Alright, Thanks, Brian .
Thank you and the next question comes from John Masako with Ladenburg Thalmann.
Good morning.
Hey, John Good morning.
Following up on that last question as you think about kind of cap rates in the acquisition market. How is that impacting the property type mix. I guess are some of these higher cap rates can you apply that to what's available to purchase on the industrial segment or is it more going to be in the retail and office.
Arena.
No I wouldn't say that our focus is still on industrial distribution type of properties and that's the majority of the stuff, we're looking at and that we bid on.
So I think we're going to we're going to maintain our focus going forward as we have the last five years and again, the one offs like the like the boots acquisition.
We will certainly take a look at and if it looks as good as this one did we would act on it but again, we still are really focused on industrial and distribution properties and we are finding some really good really good potential properties to buy out there.
Okay, and then in terms of the in place portfolio, sorry, if I missed it but just kind of thinking back on.
Some of the lease renewal activity.
Broad strokes, where was that new leases relative to kind of prior leases on a cash rent basis.
On a cash rent basis.
Consistent.
We didn't have anything materially different.
Okay, Perfect and then Chris what have you.
On the debt side of things just any updated thoughts on refinancing the UK and the German mortgage debt.
Is the thought profit, but that online or if you were to try to do.
Kind of a refinancing similar with similar types of debt. What you have today, what would the pricing be on a kind of a fixed interest rate basis.
Well, what I would say to start is that the thought process would be to put them on the line and give us flexibility. So that we can continue to evaluate the markets and see if there are other financing opportunities, but what I would say definitely using the credit facility in the short term.
In terms of the rates.
A little difficult to tell.
Next where they would land.
But I would say that definitely coming in higher than where the current debt is at this point.
Okay.
That's it for me thank you very much.
Thanks, Joe.
Thank you and the next question comes from Mitch Germain with JMP Securities.
Good morning.
Good morning, Mitch. Thank you for your time, just Chris furthering that comment that you just said in terms of putting the debt on your line do you have the available.
To do that.
Yes.
We have a significant amount of capacity at this point.
I think it's about almost 700 $800 billion in capacity.
Okay.
The $800 million alright.
So what you're saying and you can use all of that though right. There's no restrictions in terms of.
There are no restrictions were able to add the properties and to use that capacity.
Great.
That's super helpful.
And then I, just I'm curious back too.
Your comments on.
The Walgreens transaction I mean, you've been exiting retail. So is this just an opportunistic buy with a good credit or is this potentially maybe opening up another asset class that you can be allocated I don't think I don't think we are opening up a new asset class I think this was a one off that we just love the <unk>.
Credit of the tenant and it was a big acquisition at a great cap rate. So it was it was hard to turn it down, but we're not focusing on retail and we're not going to set up a new category right now for anything like that.
It was just an opportunity came to us through our UK office and when we took a good look at it it was extremely compelling to buy it that going in cap rate.
Gotcha, great pretty Chan with <unk> and with close to 12 years left on the leases so between those two.
It was pretty compelling.
So I'm just curious what the funding plan for that transaction you just using cash on hand, and then how should we consider funding additional growth.
In terms of Youre using liquidity and what you have available to you I mean should we be considering some additional asset sales I know you mentioned a vacant asset, which probably is just really going for land costs. So what what are your what are you considering in terms of putting our plan together for them from that perspective.
Sure well the the one asset that I mentioned earlier and Thats actually a pretty small asset.
A dollar amount, but we do have the asset that we previously discussed.
We're looking to sell in that.
We had pre.
Previously discussed about $60 million for that sale. So that's something that we're still marketing and looking to sell in 2023. So once we once that happens I mean thats a good chunk of liquidity as you mentioned, we do have cash on hand availability on the credit facility. So those are options that we will intend to use.
And then do you think that you can deploy that capital Accretively I guess is the cap rate on the sale of lower than what you think you can put it to work out is that the rationale behind that or are you getting rid of what could be a potential future problems.
Well the one property as I mentioned the larger one that has a vacant property at this point and we do think that that's something we could sell and then invest accretively.
I forgot that was vacant thank you I appreciate it.
Alright, Thanks Mitch.
Thank you and the next question comes from Michael Gorman with BTG.
Yes. Thanks, Good morning, Jim I, just wanted to go back to the Walgreens Boots acquisition and I'm, just kind of interested if you can walk us through.
Retail, obviously hasnt been a focus we've talked a lot about that how does a deal like this come across your radar screen and go through the underwriting process, considering it's not an area of focus and it's not where <unk> been talking about taking the company youre, taking the portfolio how does that work just on a mechanical level.
No. That's a really good question, but the mechanics are really very much the same on any property that we buy.
We have we've been getting a lot of exposure.
In England and in Europe .
After we did the Mclaren acquisition. So our deal flow has really increased in Europe and in the U K. So when this came across the desk and our team in Europe looked into it first we love the credit.
Of the tenant and our underwriting team in the U S put together all the details and as I said it was a very compelling acquisition with a going in cap rate of 10, six so it's accretive.
It's a high quality tenant on a long term lease so.
Our underwriting process is relatively the same on everything that we buy and as you know we have some retail and we've had retail in the portfolio. So it's not unusual but it is not a core it's not a core asset for asset class for us and we're not really focusing on retail at all right now.
Okay. So sorry, I guess I missed that at the first part the 10 six thats the going in that's not the GAAP yield on the transaction.
Well this is a CPI based escalator so for the GAAP yield we don't have any kind of increase that we can include in the calculation, but ultimately obviously CPI will increase that value.
So I'm, just saying, it's 10, 6% from from day one.
Correct correct.
Alright, that's why I said anyway. So it was so compelling.
For a good credit and investment great credit tenant.
So an amazing going in cap rate. So we certainly wanted to take advantage of them.
And again, sorry, if I missed this that it will trouble joining but why is that right like why why would a walgreens.
Package like the cell for it.
Almost 11% going in yield.
It's a really good question I think it's a combination of factors I think the seller was motivated.
We were there with an all cash offer no no financing.
Terms or anything like that so I think it was I think it was attractive to the seller.
And I think theyre basis was quite a bit lower so they made they still made money on the sale and we bought it in a very good price.
Okay. Thank you.
Alright. Thanks.
Thank you and the next question comes from Todd Thomas with Keybanc capital markets.
Yes, hi, good morning, good morning.
Good morning.
Just.
Sticking with the UK acquisition sorry.
Sorry, if I missed this a lot of commentary around the retail there, but where are those all retail assets or was there something else mixed and it seems like a pretty large portfolio eight assets 325000 square feet. Just curious if you could just talk about the composition of it they're all retail.
Theyre, all retail assets Theyre, all retail locations.
Okay. So about 40, so jobs boots is like it's like Walgreens in the states. They are big stores, they sell all kinds of things from prescriptions to food.
And everything in between so they are relatively decent size locations.
Okay got it and then and then Jim can you just stepping back maybe talk a little bit about the acquisition pipeline.
Just a little bit more you had previously talked about a 65 million dollar pipeline. It sounds like youre seeing some better opportunities, maybe just a little more color on what youre seeing in terms of.
Product type and maybe geographically where these opportunities are.
And I guess you talked about.
Rising but.
Maybe just a little bit more there in terms of how prices are trending and what your expectation is.
Well.
Rising and again, they they follow interest rates rising by certain period of time, but it's definitely happening right now I mean, we're seeing we're seeing a lot of stuff.
Where where the ask is seven seven and a half where a year or two years ago. The ask would have been six six and a half so.
It is changing it's getting better.
Okay, and I know you don't really.
Provide a much.
Much guidance are forecast here, but in terms of investments right is there sort of a target or.
A way you could maybe book and what you might be looking to do in 2023 from an investment standpoint.
Well.
As you said, we don't give guidance.
We've already done the $75 million acquisition already this year. So I have hopes that it will be a good strong year for acquisitions and we will also do certain strategic dispositions as things come up.
Where it makes sense to sell a property and recycle that cash into into new new buildings. So.
I think it's going to be a decent year I can't give you a number but I think it's going to be a decent year and we're off to a good start.
Okay, and then and then Chris back.
Back to the.
That majorities can you remind us when the 23 and 24 maturities are during during this year next year and also in terms of what month I mean, and then you are talking about.
Using the line.
How should we think about managing your floating verse fixed rate that balances would you consider swapping are permanently financing some portion of that or.
Would the plan be to at this point.
Maybe like you said initially use the revolver and and go from there.
Sure so to the first point in terms of the.
Maturities in 2023 those are in the later portion of the year.
Mostly in the third.
Mid year of June two third quarter range 2024.
Spread through the year, but what I would say is as we move properties onto the line and refinancing using extra draws from the line, we're gonna keep evaluating whether to add an additional swaps.
That's something we're discussing right now we do need to look at obviously, the pricing and wind slaps come in but what I would say in terms of experts floating where we are right now, it's probably something long term, where we will look to consistently stay maybe even potentially slightly higher so swaps will definitely be something will be will be using.
And putting this stuff on the credit facilities very useful because as we all hope that towards the end of the year early next year interest rates will start coming down.
So with properties on the credit facility, then it becomes easy for us once rates come down to a place where we could take.
Take things off the facility and put them in a longer term.
That facility, but.
Basically we have to wait and see what happens as everybody else will win.
Right [noise], Okay. That's helpful and just and then just one last one on the revolver the interest rate that we see here in the disclosures in your supplement the 4.6% is that is that a weighted average during the quarter or was that the effective rate at the end of the year.
So this is the right.
Actually during the quarter.
Okay. So at the end of the year got.
Got it right during the quarter okay.
That's helpful. Thank you.
All right. Thanks.
Thank you and this concludes a question and answer session and I would like to return on from Florida, CEO , Jim Nelson for closing comments.
Yeah. Thank you everybody for joining us on today's call. It's our pleasure to give you the information on global at least we thought it was a great year and we're looking forward to this year being a great year also so thank you everybody have a good day bye bye.
Thank you the conference herself included thank you for attending today's presentation may now disconnect your lines.
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