Q3 2024 Global Net Lease Inc Earnings Call
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Speaker Change: Ladies and gentlemen, good morning and welcome to the Global Net Lease Inc. third quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star and zero on your telephone keypad.
As a reminder, this conference is being recorded.
Speaker Change: It is now my pleasure to introduce your host, Jordyn Schoenfeld. Please go ahead, sir.
Jordyn Schoenfeld: Thank you. Good morning, everyone, and thank you for joining us for G&L's third quarter 2024 earnings call. Joining me today on the call is Michael Weil, G&L's Chief Executive Officer, and Chris Masterson, G&L's Chief Financial Officer.
The following information contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995
Please review the forward-looking and cautionary statements section at the end of our third quarter 2024 earnings release for various factors that could cause actual results to differ materially from forward-looking statements made during our call today.
Jordyn Schoenfeld: As stated in our SEC filings, G&L disclaims any intent or obligation to update or revise these forward-looking statements except as required by law.
Jordyn Schoenfeld: Also on today's call we will discuss CERN and NONGAP financial measures which we believe can be useful in evaluating the company's financial performance.
Jordyn Schoenfeld: such as ASFO and Net Debt to Adjusted EBITDA and reconciliations of these measures to our results as reported in accordance with GAAP are detailed in our earnings release and in our quarterly report on Form 10-Q for the third quarter 2024. I'll now turn the call over to our CEO, Michael Weil. Mike?
Michael Weil: Thanks Jordyn. Good morning and thank you all for joining us today.
Michael Weil: It's been over one year since we successfully completed the merger and internalization of G&L, and throughout this time, we've remained committed to executing the strategy we originally communicated to you.
Michael Weil: capturing synergies, reducing leverage, and executing strategic dispositions while increasing occupancy and de-risking our balance sheet.
Michael Weil: Our progress has been clearly reflected through this year, with significant achievements highlighted once again in this quarter's results.
Michael Weil: The first pillar of our 2024 strategy was to capture the full $75 million in projected cost synergies by Q3 2024.
Michael Weil: I'm pleased to report that we've significantly exceeded our stated $75 million cost synergy target by reaching a total of $85 million in annual recurring savings.
Michael Weil: This accomplishment not only has a continuing positive impact on our DNA but also underscores the effectiveness of our integration efforts and our ability to execute on synergy projections.
Michael Weil: The second pillar of our strategy is reducing leverage and improving our net debt to adjusted EBITDA. In 2024, we have successfully reduced outstanding net debt by $445 million, including $162 million of net debt reduction in Q3.
primarily through completed asset dispositions.
Michael Weil: We anticipate closing an additional $371 million in dispositions, with net proceeds earmarked for further debt reduction.
Michael Weil: At the end of Q3 2024, our net debt to adjusted EBITDA ratio stands at 8.0 times, down from 8.4 times at the start of 2024. We're encouraged with our progress and remain committed to further reducing our leverage.
The third pillar of our strategy is our asset disposition initiative with an increased target of 650 million dollars to 800 million dollars in 2024 closed dispositions up from the initial range of 400 million dollars to 600 million dollars.
Michael Weil: As of November 1st, we believe we're in excellent position to reach the high end of our target, as the value of closed dispositions plus our pipeline total $950 million at a cash cap rate of 7.1% on occupied assets.
with an average weighted remaining lease term of 5.1 years.
Michael Weil: This includes $579 million from successfully closed dispositions at a cash cap rate of 7.1% on occupied assets.
Michael Weil: $241 million in dispositions currently under PSA at a cash cap rate of 7.1% on occupied assets.
Michael Weil: and $131 million in dispositions with executed LOIs at a cash cap rate of 7.2% on occupied assets.
Michael Weil: I'd like to highlight our strong execution of the disposition initiative, having sold $579 million in assets through November 1st.
Michael Weil: and our AFFO per share has remained relatively consistent over the past three quarters, with an increase compared to the end of 2023 when we implemented this strategy.
Michael Weil: We achieved this mainly through interest expense savings from debt reduction tied to closed dispositions, incremental NOI generated by lease-up initiatives, and G&A savings realized from the merger and internalization.
Michael Weil: We believe the 7.1% cash cap rate to achieve occupied dispositions demonstrates the value of our primarily investment-grade and diversified portfolio, representing a significant premium compared to G&L's current implied cap rate.
Michael Weil: As discussed on last quarter's earnings call, a key component of our disposition strategy is prioritizing selling assets held on our corporate credit facility, which incur the highest interest costs and no prepayment penalties.
Michael Weil: Another financing tool that provides G&L with a significant advantage is our ABS Master Trust.
Michael Weil: To provide some context for those who aren't familiar, the Master Trust allows for a flexible collateral pool with the ability to substitute or release assets, which gives G&L more flexibility than what is traditionally found in other types of financings.
Michael Weil: As we dispose of assets that currently sit on our 3.6% interest rate ABS, we replace them with assets from our revolving credit facility, which currently carries a 7.1% floating interest rate on the U.S. dollar portion.
Michael Weil: Our strategic dispositions are focused on non-core assets and those with shorter weighted average remaining lease term compared to our portfolio average, as well as opportunistic sales.
Michael Weil: These dispositions enhance the overall quality of our portfolio, as evidenced by a 200-basis-point increase in investment grade or implied investment grade tenants since last quarter.
Michael Weil: rising from 59% to 61% while also contributing to a reduction in leverage. This reinforces the benefit of investment-grade tenants in our portfolio, further strengthening the quality and predictability of G&L earnings.
Michael Weil: Notable sales include 21 single-tenant retail properties that were leased to Truist.
Michael Weil: totaling over $51 million at a 6.4% cash cap rate, and the sale of the Plant Shopping Center in San Jose, California for $95 million.
Michael Weil: We enhanced the value of the Plant Shopping Center by strategically subdividing the property into two separate parcels, which broadened the buyer pool and allowed us to secure premium pricing for the multi-tenant shopping center portion of the property.
Michael Weil: We retained ownership of the newly created parcel, which is an attractive single-tenant net lease asset with approximately nine years remaining on the lease, featuring a 12.5% rental increase every five years.
Michael Weil: It's Lease to Home Depot, an investment grade tenant with an A2 credit rating.
Michael Weil: Our disposition initiative has also focused on reducing our office sector exposure. Last quarter, we projected our office exposure to fall below 20% of total portfolio straight-line rent.
Michael Weil: This quarter, through several notable office sales, we successfully reduced our office exposure to 18%, while also mitigating portfolio vacancy risk and increasing overall occupancy levels.
Michael Weil: Most significant among these was the sale of the 366,000 square foot vacant Foster Wheeler office property in the UK for over $27 million.
Michael Weil: We own this property for nearly 8 years and sold it vacant just as the tenants lease expired after collecting 100% of the rent throughout the lease term.
Michael Weil: Additionally, we sold three fully occupied office properties, the Acredia office property in Michigan for over $13 million, Kedrian Plasma in Texas for over $5 million, and Johnson Controls in Spain for over $4 million.
Michael Weil: We successfully sold these three office assets at a 7.7% cash cap rate, highlighting the quality of our mission-critical office portfolio and demonstrating the significant value we can create.
Michael Weil: We also have reached an agreement on a forward sale of the KPN office property in the Netherlands, which is set to close in December 2026, upon the tenant's lease expiration.
Michael Weil: We've structured this sale to collect all rent throughout the lease term and had limited visibility on the tenant's renewal intentions. This strategy exemplifies G&L commitment to reducing our office exposure further and enhancing portfolio value while extracting long-term returns.
Michael Weil: Beyond these office sales, we have over 187 million dollars in vacant property dispositions that are closed or under agreement, expected to eliminate over three million dollars of annualized operating expenses, assuming the pending transactions close.
Michael Weil: The fourth pillar of our strategy is centered on increasing portfolio occupancy with a strong focus on new leasing and attractive renewals.
Michael Weil: Throughout the first three quarters of 2024, we consistently raised occupancy rates from 93% as of Q1 to 96% in Q3, reflecting the strength and efficiency of our in-house asset management team.
Michael Weil: This achievement not only enhances our revenue base but also solidifies the resilience of our portfolio, positioning us for sustained growth as we continue to meet tenant demand.
Michael Weil: On the leasing front, we achieved positive leasing spreads, encompassing over 1.2 million square feet, with an attractive renewal spread that were 4.2% higher than expiring rents.
Michael Weil: New leases that were completed in the third quarter of 2024 have a weighted average lease term of 6.5 years, while renewals that were completed during this period have a weighted average lease term of 5.2 years.
Michael Weil: Notably, the single-tenant segment completed six new leases and renewals, highlighted by a 10% renewal spread. The multi-tenant segment completed 73 new leases and renewals, resulting in a 1.6% renewal spread.
Michael Weil: We find that demand for retail space remains in high demand, resulting in rising rental rates as businesses compete for prime locations.
Michael Weil: I'd like to highlight that in Q3, we executed five short-term spirit Halloween leases totaling approximately 100,000 square feet, which does not have a material impact on our overall portfolio occupancy.
Michael Weil: The fifth and final pillar of our 2024 strategy emphasizes de-risking our balance sheet by proactively managing near-term debt maturities.
Michael Weil: We're pleased to have successfully addressed 100% of the debt that was scheduled to mature in 2024 through dispositions or refinancing onto our revolving credit facility. And we have no debt maturities through July of 2025.
Michael Weil: This year we've proactively reduced the 2025 maturity balance from $699 million to $521 million and anticipate further reductions by year-end as we complete dispositions currently in our pipeline.
Michael Weil: Turning to our portfolio, at the end of the third quarter, we owned over 1,200 properties, spanning over 61 million square feet, and a weighted average remaining lease term of 6.3 years.
Michael Weil: We believe G&L is well positioned to continue to navigate external macro challenges given the diverse composition of our net lease portfolio, which we believe is unmatched across geography, asset type, tenant, and industry.
Michael Weil: As you're all aware, Hurricanes Helene and Milton recently caused devastation that severely impacted several cities across the U.S. Our thoughts are with those affected by the storms.
Michael Weil: Thanks to our extensive precautionary measures implemented prior to the storms.
Michael Weil: such as clearing storm drains, maintaining retention ponds, inspecting roofs, and palm tree maintenance. We're fortunate that only one of our properties located in Asheville, North Carolina sustained any notable damage.
Michael Weil: Repair costs are expected to be covered by insurance resulting in minimal out-of-pocket expenses.
Michael Weil: With over 1,200 properties in our portfolio located across the United States and Europe, we're fortunate that our portfolio experienced no material impact.
Michael Weil: No single tenant accounts for more than 3% of total straight-line rent and our top 10 tenants collectively contribute only 22% of total straight-line rent We carefully monitor all tenants in our portfolio and their business operations on a regular basis
Michael Weil: Geographically, 80% of our straight-line rent is earned in North America and 20% in Europe.
Michael Weil: The portfolio features a stable tenant base and a high quality of earnings, with an industry leading 61% of tenants receiving an investment grade or implied investment grade rating.
Michael Weil: I encourage everyone to look at the details of each segment of our portfolio, which can be found in our Q3 2024 investor presentation on our website.
Michael Weil: We remain committed to executing on our disciplined and strategic approach to achieve our financial objectives.
Michael Weil: particularly by reducing leverage without negatively impacting AFFO per share and organically increasing NOI through lease up initiatives and contractual rent growth.
Michael Weil: We're proud of our achievements in Q3 2024 and look forward to building on this momentum to close out 2024
Speaker Change: I'll turn the call over to Chris to walk through the financial results and balance sheet matters in more detail.
Chris Masterson: Thanks, Mike. Please note that, as always, a reconciliation of gap net income to non-gap measures can be found in our earnings release, which is posted on our website.
Chris Masterson: For the third quarter of 2024, we recorded revenue of $197 million and a net loss attributable to common stockholders of $77 million, compared to $203 million and $47 million respectively in Q2 2024.
Michael Weil: IFFO was 74 million or 32 cents per share in the third quarter of 2024 compared to 77 million or 33 cents per share in Q2 2024
Michael Weil: Looking at our balance sheet, the outstanding debt balance was $5 billion at the end of Q3.
down by $157 million from the end of Q2.
Michael Weil: Our debt is comprised of 1 billion in senior notes, 1.6 billion on the multi-currency revolving credit facilities.
and $2.4 billion of outstanding gross mortgage debt.
with no maturity for the remainder of the year.
Michael Weil: As of Q3 2024, 91% of our debt is fixed, up from 90% in Q2 2024, reflecting floating rate debt with in-place interest rate swaps.
Michael Weil: We intend to further reduce our outstanding debt balance as we close on the dispositions currently in our pipeline.
Michael Weil: At the end of the third quarter, our net debt to adjusted EBITDA ratio was eight times based on net debt of $4.8 billion, a decrease of $162 million from the prior quarter.
Michael Weil: At quarter end, FX movements led to a temporary $49 million increase in total debt due to the sharp strengthening of the pound and euro.
Michael Weil: Following quarter close, both currencies have weakened rapidly, reversing part of the negative FX impact on our Q3 debt levels.
Michael Weil: As of September 30th, we have liquidity of approximately $253 million and $366 million of capacity on a revolving credit facility.
Michael Weil: Additionally, we had approximately 230.8 million common shares outstanding and approximately 230.5 million shares outstanding on a weighted average basis.
Michael Weil: Turning to our outlook for the remainder of 2024, based on progress to date, we are reaffirming our AFSO per share guidance range of $1.30 to $1.40 and a net debt to adjusted EBITDA range of 7.4 times to 7.8 times.
Speaker Change: As Mike mentioned, we are also reaffirming our disposition initiative range of $650 million to $800 million in total proceeds.
Speaker Change: I'll now turn the call back to Mike for some closing remarks.
Thanks, Chris.
Michael Weil: The third quarter was a successful period for G&L as we continued to effectively execute our five key objectives, achieving the high end of our disposition initiative with $950 million of closed dispositions plus pipeline.
Michael Weil: Further reducing net debt by $162 million and surpassing our $75 million cost energy target by $10 million, totaling $85 million.
Michael Weil: Underscoring the strength of our portfolio, we also maintain strong leasing momentum reflected in increased occupancy from 94% in Q2 2024 to 96% this quarter, along with a positive renewal spread of 4.2% across the portfolio.
Michael Weil: Additionally, we continue to proactively manage our near-term debt maturities, resulting in no maturities until July 2025, while successfully reducing the 2025 debt maturity balance by $178 million.
Michael Weil: The primary focus of our disposition efforts is to lower our cost of capital and improve net debt to adjusted EBITDA, enabling G&L to pursue a sustainable, growth-oriented strategy in the future.
Michael Weil: We're proud of our accomplishments during the third quarter of 2024, all of which helped meet our commitment to generate long-term shareholder value. We look forward to closing out the year strong and continuing our positive momentum.
I'd also like to highlight a subsequent development.
Michael Weil: CYVN Holdings, owned by the government of Abu Dhabi, recently announced it has entered into a non-binding agreement to acquire 100% of McLaren's automotive business from Metallicat.
Michael Weil: With the government of Abu Dhabi holding a double-A investment-grade rating from S&P Global and managing approximately 1.7 trillion dollars in assets, this transaction would potentially bring significant credit enhancement to McLaren, one of G&L's largest tenants.
Michael Weil: McLaren's lease, which has 16 years remaining, includes annual rental escalations tied to CPI with a collar of one and a quarter percent and a cap of four percent.
Speaker Change: As always, we're available to answer any questions you may have on this quarter after the call. Operator, please open the line for questions.
Speaker Change: Thank you. Ladies and gentlemen, we will now be conducting a question and answer session.
Speaker Change: If you would like to ask a question, please press star and 1 on your telephone keypad.
Speaker Change: A confirmation tone will indicate your line is in the question queue.
Speaker Change: You may press star and 2 if you'd like to remove your question from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: Ladies and gentlemen, we will wait for a moment while we poll for questions.
Speaker Change: The first question comes from the line of John Kim from BMO Capital Markets. Please go ahead.
Speaker Change: Good morning, John. Hey, Michael. I wanted to ask about the letter that you have about office assets in the Netherlands with the tenants vacating.
Speaker Change: Yeah, so and your line is a little bit garbled, but I think I got everything. If I miss anything, I apologize. So the
Property is currently occupied as an office use.
Lease expires in 2026 as we described.
The buyer is a developer.
and the opportunity that they see is repositioning the asset.
Speaker Change: As we stated, we have a lease that runs through 2026.
Speaker Change: They, of course, have work that they can be doing with approvals, permitting, etc. So, the arrangement that we have entered into with them is we continue to collect the tenant's full rent.
Speaker Change: through the end of the lease at which time we will complete the sale and they will
Speaker Change: begin the work that they're going to do to reposition the asset. And John, I don't remember if it's being repositioned into multi-family or mixed use, but it is being changed from an office use.
Speaker Change: So as future lease expirations occur in office and in some cases the tenant doesn't renew how
Speaker Change: How replicable is this strategy with those type of assets in your portfolio?
Speaker Change: It's a case-by-case basis. We've done it before if you remember a couple of quarters ago we had a an office asset in San Jose. We did something similar. We did something this quarter where the tenant when they expired and at Foster Wheeler
Speaker Change: So, it's something that we look at strategically, we engage early with the tenant, with the potential buyer pool, and we just kind of make that a condition. It doesn't always work, you know, if we have a great buyer and they won't agree to that, we will, you know, take it on a case-by-case basis.
Speaker Change: On your occupancy that you're continuing to pick up on the multi-talents and the overall portfolio side,
and Michael Weinstein. Thank you. Thank you.
Speaker Change: John, I'm sorry to interrupt you, your audio is not coming in clear.
Okay.
Thanks.
Speaker Change: Thank you. We move on to our next question, which is from the line of Opal Rana from KeyBank Capital Markets. Please go ahead.
Hey, good to see you again there. How are you?
Great, great. Thanks for taking my question.
Speaker Change: My question is really around the waltz. Do you have a strategic plan to get your waltz a little higher here? Are there enough non-core vacant assets to move the needle?
and Jordyn Schoenfeld.
Speaker Change: I think the ongoing strategy will be to continue to focus on lease up and renewals which extend our wall organically each quarter.
Speaker Change: It is something that we look at very closely. There are some more vacant assets that are part of the disposition strategy, but ultimately we're looking forward, you know, after we complete the deleveraging.
in
Speaker Change: extending Walt through acquisitions but what we've been very focused on if you you know go back to to Q1
getting reduced.
Speaker Change: because of the strategic nature of our dispositions and the fact that what we're selling has shorter waltz than what we're keeping. So we're in what I would think of as a pretty secure hold pattern. In the meantime, allowing us to focus on the
Successful reduction of debt.
Okay, got it. And then, um...
Speaker Change: On the full-year AFO guidance, it kind of remains somewhat wide with less than two months to go. Anything driving your decision there to not narrow? And what kind of gets us to the low end or the high end of the range?
and the fact that last quarter we raised it.
So, that did as you would expect.
increase
Speaker Change: I want to be, I'm just thinking how to explain it.
Speaker Change: We're more focused on reduction of debt. Of course, AFFO is very important to us. Our ability to expedite dispositions and increase the speed at which we can delever
Speaker Change: We wanted that window and that's why we maintained the AFFO range that we did. But I think as you look at your consensus, you know, we're...
Speaker Change: so that everybody has a clearer view for next year as well.
Speaker Change: Okay, good. Got it. That was helpful. And then just last one for me, you know, when looking at your 25 debt maturities, you know, that's associated to about 320 encumbered properties. How much of the current disposition pipeline that hasn't closed yet is associated to those properties, which would help reduce your debt maturities next year?
Speaker Change: Yeah, so, you know, that's not a detail that we disclose ahead of time. It's not helpful as we approach dispositions and the general market, so we've never...
Speaker Change: assets that are performing. They are primarily retail and as we continue to talk about the importance of our ABS Master Trust
Speaker Change: We believe that in 2025 we will have a number of very attractive refinancing opportunities with that portfolio and we will continue to update.
You and and other investors
Speaker Change: as it comes closer, but we are very confident in our ability to execute on that. And as you pointed out, we've already lowered it by nearly $200 million from the beginning of the year, and we anticipate that the pipeline will further lower that, getting us an even better position.
I would say early summer of 2025.
Okay, great. That was helpful. Thank you. Yeah.
Speaker Change: Thank you. The next question is from the line of Brian Maher from B Riley Securities. Please go ahead.
Speaker Change: Hi Brian. Thank you. Good morning. Just a few for me today. The synergies went from 75 million I think to 85 million. Can you maybe give us a little color on how that happened and what to any extent do you think there's more to do?
Speaker Change: I'll answer the beginning and then I'm going to ask Chris if you'll jump in and give Brian some detail. But we felt that the opportunity to achieve and exceed the Synergy number was something that was very important to us. We've been...
Speaker Change: focused on the execution of the plan from the first quarter post-merger, which was in late 2023 through 2024. So the...
Chris Masterson: The fact that there's an annual recurring $85 million savings in the operation, I think is just another testament to the benefit and value of.
Speaker Change: What we did last year. So as far as the details, Chris, do you want to jump in and help Brian with that?
Chris Masterson: Sure, so I guess what I would say is there's probably two parts to this answer. The first part is
is this quarter.
Chris Masterson: We did have most of what we call transition services expenses rolling off.
and those who are...
whether it's some of the...
Chris Masterson: the previous contracts we had in place or some of the duplicative costs.
Speaker Change: are effectively gone by 3Q and obviously will not be recurring going forward. And then the second part is over the past year, we put extensive work into improving the quality
Speaker Change: doing and constantly evaluating, so we're going to keep trying to push that as much as we can.
Speaker Change: Okay, and then as it relates to the asset sales, I think, you know, we're kind of at 900 million ish or so closed or in the pipeline. At what point, Michael, do you stop, pause, reassess, you know, how are you thinking about that or is this going to be another, you know, on-occurring thing, higher number for the next couple few quarters?
Speaker Change: The most important thing that we believe we need to achieve is the continued lowering of net debt to EBITDA.
Michael Weil: and the ability to sell these assets that we still categorize as non-core. We have insisted on keeping the assets that we want to own long-term.
Speaker Change: It creates a better portfolio, a stronger portfolio. I do think it's worth talking about. We were able to lower the disposition cap rate between the second quarter and the third quarter.
despite
Speaker Change: You know, I'm always cautious to sound like I'm patting ourselves on the back.
Speaker Change: but this disposition team, the asset management team, the way the properties are maintained, our relationships with the brokerage community.
Trading value is mismatched to the value of the portfolio.
Speaker Change: the value, the trading value of the company in line with the portfolio. So, yeah, we will continue. I think that, you know, I don't wanna get ahead of 2025 guidance, but.
I would anticipate similar for 2025, with the benefit of
Speaker Change: In 2024, we were starting from zero. We'll have a pipeline that will carry over into 2025. So, you know, we're pleased with the direction.
Speaker Change: of where we're taking leverage in the portfolio while we're still maintaining the earnings because those two things are obviously very important.
Speaker Change: Right. So you kind of read my mind, you know, segwaying into my next question on, you know, where do you start to get credit, right? So you delivered a great quarter, you're doing, you know, everything that you told the market that you would do a year ago.
Speaker Change: leverages down to eight times I think the groups at kind of high fives 5.7, 5.8 and yet your FFO multiple is half the peers and your EBITDA multiple is 11.8 and the groups at 16.2. At what point do you think that the market starts to give you credit for what you've been delivering for the past year?
So, I'm very confident that we're doing the right things.
Speaker Change: and I'm very pleased at the pace that we're achieving the goals.
I am NOT
ever going to be in a position
to determine...
when
If it were up to me, we'd already be there.
Speaker Change: because I would look at the quality of the portfolio, the investment grade, the occupancy, etc. And I would say, okay, they're not where they need to be, but directionally, they're going, they've proven to us that they can get there. I'm willing to buy now when the stock is such a value, get the benefit of the dividend, and ride up with these guys because they look like they're executing.
Speaker Change: and you and I have talked about it quite a bit.
It's about
executing every quarter and we've done that.
Speaker Change: and put these numbers up and, you know, we'll get us there. I'm confident.
Thank you. Thanks, Brian.
Speaker Change: Thank you. The next question comes from the line of Mitch Jaman from Citizens JMP. Please go ahead.
Speaker Change: assets that you originally identified for sale. Has that evolved as you've gone through the iteration of seeing where there is demand in the market?
Dispositions, Mitch, are a great opportunity for us.
Speaker Change: to trim the portfolio in ways that we think are long-term beneficial.
Speaker Change: So, as you've seen, we lowered our office exposure down to 18% of straight-line rent of the entire portfolio. Very intentional. You know, in the quarter, we were pleased to see the assets, those three assets that I mentioned in the...
Speaker Change: earlier portion, and we sold those at a 7.8 cap rate.
Speaker Change: We have over 1,200 properties. We know them all very well. We will continue to find what we deem to be non-core, because as I said earlier,
Speaker Change: We don't want to sell the things that we want Because we're going to be operating this portfolio for a long time we hope And we want good assets, good tenants, good markets
Speaker Change: So, we do look at the portfolio on a regular basis. We do engage with tenants on a regular basis. You know, the asset that we talked about earlier, where we're selling it at the end of the lease.
That takes
Speaker Change: engagement you know that that we're talking to those tenants well in advance of lease maturities we're not being surprised at the last minute and having to scramble to make tough or hard or bad decisions
So.
You know as I think about it
Speaker Change: I see a pretty significant delta between the implied value of where we're trading versus the value that we're selling assets.
Speaker Change: And frankly, until that gap closes, I will continue to look at the entire company, the entire portfolio, and we will find value one way or the other.
Speaker Change: Great. Last one for me, you mentioned office obviously exposure going down and I'm curious about you know kind of the bid for assets
Speaker Change: your U.S. office versus your European office, or is it less location and more, you know, credit, tenant, lease term? Like, what are the decisions that are— where is the demand for those assets?
A lot of it is primarily being driven by market.
Speaker Change: and opportunity in that market. If we have an office tenant that has a long lease and is an investment-grade tenant, I'm frankly not in a real rush to dispose of that asset because it's a great part of the revenue stream.
Speaker Change: If it's an asset with a shorter lease term, with a tenant that has expressed uncertainty about likelihood of renewal, if it's a market where multi-family or mixed use is
in more demand, we will opportunistically sell the office.
So...
Speaker Change: You know, we're it's really kind of a little bit of an art and a little bit of a science and you know, I I'm fortunate to have a great team around me that are Tuned in to to the corporate goals and and can identify opportunities in the portfolio and then we can discuss How we want to proceed
Thank you.
Thanks, Mitch.
Thank you.
Speaker Change: The next question is from the line of Michael Gorman from BTG Factual, please go ahead.
Hi, Michael.
Speaker Change: Hi, good morning. Michael, I just wanted to go back just one more time on the guidance. Just wanted to understand, totally get that there's a lot of moving pieces and you've done a good job of accelerating the pipeline over the course of the year. I'm just curious that, you know, we sit here less than 60 days from the end of 24. I guess, what would get you...
Speaker Change: kind of to the high end of the AFFO range of 130 to 140 versus Put you put you down towards the lower end of the range. I guess what what moving pieces remain over these next two months?
Michael Weil: You know, Michael, I'm going to take a little bit of an unusual approach, maybe, to answering that. I don't know that we're going to be at the high end of the range.
Speaker Change: and I don't think you think we're going to be at the high end of the range.
lead to some reduction in AFFO.
I think that's very important.
Speaker Change: So we're in a good range to continue to operate, to continue to meet our investors' expectations of us.
So, I'm not, I'm very comfortable saying that...
Speaker Change: We anticipate being in the range of guidance that we provided at the beginning of the year. We'll take another look as we prepare 2025 guidance to see
Speaker Change: If we want to be in a tighter range for next year or however we want to think about it. But I think right now the most important things that we're successfully accomplishing is
Speaker Change: Understood yep totally understand just wanted to make sure I wasn't missing something there that's that's fair and then just as we think on the go forward basis
Speaker Change: Obviously not looking for 25 guidance yet, too early on that. But as we think about the cadence of 24, about somewhere between 900 million and a billion, if you hit the midpoint of your leverage target, that's kind of like a point.
Speaker Change: So I always make sure I get a good night's sleep.
Speaker Change: before the earnings call, Michael, because you guys always ask these tricky questions.
Speaker Change: to try to get me to overshare a little bit. I don't think that there's a direct correlation. Each asset, depending on how it's financed, where it sits, if it's on the line, if it's...
Speaker Change: there's just a lot of different case-by-case scenarios. So I wish I could give you some kind of road map to.
Speaker Change: Figure that out, but it's just something that we have to take into account
Speaker Change: You know, there's a numerator and a denominator, as you know, in net debt to EBITDA, so, you know, throughout the course of the quarter, a lot of moving pieces, Chris and his team do an awful lot of work, and, you know, we publish it as soon as we have it.
Speaker Change: Okay, great. And then just one last clarifying one, and I'm sorry if I misunderstood it. For the KPN asset,
Speaker Change: Is that counted in the disposition pipeline? Because I did notice the footnote in the presentation. Is that in the pipeline or not in the pipeline? No, it's not yet in the pipeline.
Okay, perfect. Thank you so much.
Thanks, Michael.
Thank you.
Speaker Change: The next question is from the line of Barry Oxford from Coilers. Please go ahead.
Barry Oxford: And I've got to imagine you've got to be getting closer to the end of non-core than, you know, I've got to believe we're sort of past the halfway point, so to speak.
Speaker Change: When becomes the point, because you have driven leverage down, the stuff that you have getting ready to sell,
Speaker Change: should put you with kind of within your range. At what point do you kind of start to think about acquisitions?
Speaker Change: I think about acquisitions every day longingly wishing that we were active but that's not what we need to be doing right now so it is
Speaker Change: We stay in touch with the markets. We stay in touch with the brokers, but that that's not where we're going to create value for this company right now So I'm not even going to give you a timeline. I'm going to drive it based on Us continuing to lower leverage improving the net debt the EBITDA multiple
Speaker Change: And, you know, we'll know when it's time to look at acquisitions when we start to trade at a multiple where the equity makes sense.
Okay, okay, that makes sense.
Appreciate the time guys
All right, Barry. Thank you.
Thank you.
Speaker Change: The next question comes to the line of Michael Gorman from BTG Bank. Please go ahead.
Hey, Michael.
Speaker Change: Just one more quick one, maybe taking a little bit of an approach from Barry's question there. As we think about the next stages,
Speaker Change: I'm sure you've had conversations, had approach, so not detail-specific, but could we see, like, JV structures come into play here if you look to maybe monetize some assets that you still like that are on the balance sheet or like on a go-forward basis? Is that something that would be kind of in the quiver of strategic options for the company going into 2025 and 2026?
Speaker Change: Yeah, I don't think it's a good practice for me to say definitively yes or no to something that's...
not on the table, not something that's being contemplated.
I will tell you, I have my own feelings about...
Speaker Change: JVs, I think they can complicate things unnecessarily. We have enough to do. We, you know, we have work to do. We're executing on it and, you know, kind of combining your question and Barry's question, you know, when we start trading.
Speaker Change: more in line with where I believe we should be trading. It's time to get back to the acquisition work. In the meantime, I think our better path.
Speaker Change: Look at the 1200 plus assets in the portfolio, see where we're selling them. You know, again, it's easy for us to say at this point with nearly a billion dollars of sold and under contract that this portfolio is easily worth a 7 cap.
Pap
And I again, I
Speaker Change: I would never say blanket no I won't do a JV but I can't tell you that I see that as a great opportunity or something that I'm super focused on.
Great. That's very helpful. Thanks for the time.
Speaker Change: Thank you. Ladies and gentlemen, this concludes our question and answer session. I would now hand the conference over to Michael for his closing comments.
Bye.
Michael Weil: Well, thank you all very much. I always appreciate spending the time with you and the work that you all do following Global Net Lease.
Speaker Change: We will continue to execute, we will continue to update you and
Speaker Change: We look forward to continuing the conversation, the question and answer. And, you know, to the earlier question, we do look forward to seeing the stock trade at levels that we think it...
Speaker Change: It is justified to trade at and is appropriate to but we're going to continue to do our work. So thank you all very much
Speaker Change: Thank you. The conference of Global Net Lease has now concluded. Thank you for your participation. You may now disconnect your lines.
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