Global Net Lease [GNL] Conference call transcript for 2023 q1
2023-05-10 15:41:03
Fiscal: 2023 q1
Operator: Good day. And welcome to the Global Net Lease First Quarter 2023 Earnings Call. All participants will be in listen-only mode [Operator Instructions]. Please note, today's event is being recorded. I'd now like to turn the conference over to Curtis Parker, Senior Vice President. Please go ahead.
Curtis Parker: Thank you. Good morning, everyone. And thank you for joining us for GNL's first quarter 2023 earnings call. This call is being webcast in the Investor Relations section of GNL's Web site at www.globalnetlease.com. 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 Form 10-K for the year ended December 31, 2022 filed on February 23, 2023 and all other filings with the SEC after that date for a more detailed discussion of the risk factors that could cause these differences. Any forward-looking statements provided during this conference call are only made as of the date of this call. As stated in our SEC filings, GNL disclaims any intent or obligation to update or revise these forward-looking statements, except as required by law. Also, during today's call, we will discuss non-GAAP financial measures, which we believe can be useful in evaluating the company's financial performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measures is available in our earnings release and supplement, which are posted to our Web site. 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'll now turn the call over to our CEO, Jim Nelson. Jim?
Jim Nelson: Thanks, Curtis. And thank you to everyone for joining us on today's call. We had a strong start to the year concluding a large accretive acquisition and demonstrating continued strong renewal and expansion leasing activity as we continue to advance our differentiated international and domestic strategy. We've maintained occupancy of 98% across the portfolio and nearly 60% of our long term leases are with investment grade tenants based on annualized straight-line rent. Since the beginning of 2020, approximately 80% of GNL's acquisitions have been industrial or distribution assets, which comprise 55% of our portfolio at the end of the first quarter. We believe our best-in-class portfolio is well positioned for meaningful capital appreciation and that our dividend provides shareholders a very compelling current yield. In this rising interest rate environment, GNL continues to benefit from predominantly fixed rate debt, which minimizes the impact of rate increases and a sophisticated hedging program designed to minimize negative impact to our cash flow from foreign exchange instability and a stronger US dollar. In the first quarter, our AFFO was $39.8 million or $0.38 per share, a decrease from the first quarter of 2022. But on a constant currency basis when we applied the average monthly currency rates from the first quarter 2022, first quarter revenues would've been up by $3.2 million to $97.5 million. Our AFFO was negatively impacted by the strengthening of the US dollar relative to the Euro and Pound compared to the prior year. We think our unique global capabilities, strong balance sheet and best in class real estate assets continue to support GNL's positive performance. In the first quarter, we leased over 675,000 square feet through seven lease extensions at a positive 4.2% spread over the previous leases. These new leases, which were sent to expire soon, now have a weighted average remaining lease term of seven years. The year to date renewal and expansion leasing adds $39.6 million of new net straight line rent over the new lease terms. As these leases were signed during the quarter, our first quarter results do not include the full impact of these renewals. Rather, we believe that the renewed leases for properties the company owns in the US, UK and Germany and that are leased to investment grade tenants such as the US government and Cap Gemini, will have a positive long term impact on our portfolio. Thanks to our leasing efforts, our portfolio only has 2% of leases expiring during the balance of this year with 73% of our leases not expiring until 2028 or later. In January, we completed an over $75 million accretive acquisition of eight properties leased to Boots UK Limited, a subsidiary of Walgreens. As we have discussed, although, we are not focusing on retail assets, we were able to acquire these properties, which total over 323,000 square feet and have 11.5 years of lease term remaining and an extremely attractive 10.6% going in cap rate. Walgreens is rated BBB and BAA2 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 always, we will continue to evaluate the acquisitions and dispositions that we believe maximize the value of our portfolio. At quarter end, our $4.6 billion 317 property portfolio had a weighted average remaining lease term of 7.8 years. Geographically, 236 of our properties are located in the US and Canada, representing 61% of annualized straight line rent revenue. We own 81 properties in the UK and Western Europe, which generate 39% of annualized straight line rent. Our portfolio is well diversified with 140 tenants in 52 industries with no single industry representing more than 12% of the whole portfolio and no tenant exceeding 5% of the portfolio based on annual straight line rent. Approximately 95% of our leases feature annual rental increases, which increase the cash rent that is due over time from these leases. Based on straight line rent, approximately 60.5% of our leases feature fixed rate escalations, 27.1% have escalations that are based on the consumer price index and 7% have escalations based on other measures. At the end of the first quarter, our assets were composed of 55% industrial and distribution, 40% office and 5% retail with 60% of annual straight line rent coming from investment grade or implied investment grade tenants. Our differentiated investment strategy continues to deliver value and we remain focused on growing our portfolio by acquiring highly dependable single tenant industrial and distribution properties in North America and Europe. Our successful lease renewals speak to the mission critical nature of the properties that we own where the weighted average remaining lease term is nearly eight years. We are well positioned for the future and I look forward to building on our progress through 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?
Chris Masterson: Thanks, Jim. For the first quarter 2023, we recorded revenue of $94.3 million with the net loss attributable to common stockholders of $6 million. FFO and AFFO for the first quarter was $31 million and $39.8 million respectively, or $0.30 and $0.38 per share. On a constant currency basis, applying the average monthly currency rates from the first quarter 2022, revenues in the first quarter of 2023 would've been up by $3.2 million year-over-year to $97.5 million. Our AFFO was negatively impacted by the strengthening of the US dollar relative to the Euro and pound compared to the prior year. However, our comprehensive hedging program helped mitigate the negative impact of strong dollar on our revenue. As always, a reconciliation of GAAP net income to non-GAAP measures can be found on our earnings release. On the balance sheet, we ended the quarter with net debt of $2.4 billion at a weighted average interest rate of 4.4% and $119.2 million of cash and cash equivalents. Our net debt to trailing 12 month adjusted EBITDA ratio was 8.3 times at the end of the quarter. The weighted average debt maturity at the end of the first quarter 2023 was 3.7 years. The components of our debt include $500 million in senior notes, $767.9 million on the multi-currency revolving credit facility and $1.3 billion of outstanding gross mortgage debt. This debt was approximately 67% 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 2.9 times. As of March 31, 2023, liquidity was approximately $184.4 million. The company distributed $41.7 million in dividends to common shareholders in the quarter or $0.40 per share. Our net debt to enterprise value is 60.3% with an enterprise value of $4 billion based on the March 31, 2023 closing share price of $12.86 for common shares, $20.65 for Series A preferred shares and $20.92 for Series B preferred shares. With that, I'll turn the call back to Jim for some closing remarks.
Jim Nelson: Thanks, Chris. The acquisitions and leasing we completed during the first quarter are great examples of how our team continues to execute on our acquisitions and asset management strategies, which we believe create value for our shareholders. Our best-in-class portfolio features long term leases with investment grade and other high quality tenants, balanced asset classes and strong geographic and industry diversity. With primarily fixed rate debt and comprehensive hedging strategies, we believe we are positioned to minimize the impact of ongoing interest rate and foreign exchange turbulence, allowing us to focus on creating value for shareholders. We look forward to continuing to create value in our portfolio through strategic acquisitions and dispositions through the rest of this year, and working with our tenants to renew and expand their leases to meet our mutual goals. With that operator, we can open the line for questions.
Operator: [Operator Instructions] Today's first question comes from Bryan Maher with B. Riley FBR.
Operator: And our next question today comes from Michael Gorman with BTIG.
Operator: And our next question today comes from John Massocca with Ladenburg Thalmann.
Operator: And our next question today comes from Mitch Germain with JMP Group.
Operator: [Operator Instructions] Our next question today comes from Todd Thomas with KeyBanc Capital Markets.
Operator: And ladies and gentlemen, this concludes our question and answer session. I'd like to turn the conference back over to Jim Nelson for any closing remarks.
Jim Nelson: Yes. I want to thank everybody for calling in today. We really appreciate your attendance and very good questions that were asked, and we hope we answered all of the questions that anyone in the audience may have. So thank you very much. And thank you, operator. This will be the end of the call. Thank you.
Operator: Thank you, sir. Today's conference is now concluded, and we thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.
