Global Net Lease, Inc. Q4 FY2023 Earnings Call

Good morning, everyone, and welcome to the Global Net Lease, Inc. Q4 2023 Earnings Call. All participants will be in a listen-only mode. Please note today's event is being recorded. And at this time, I'd like to turn the floor over to Jordyn Schoenfeld of Global Net Lease. Please go ahead, sir.

Thank you. Good afternoon, everyone, and thank you for joining us for GNL's fourth quarter 2023 earnings call. Joining me today on the call are Mike Weil and Jim Nelson, GNL's Co-Chief Executive Officers; 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 and our periodic and current reports filed 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. Heading guidance or statements referring to our pipeline or the future value of an investment in GNL including any adjustments giving effect to the recently completed merger with Necessity Retail REIT, Inc., also known as RTL, and the internalization of both GNL's and RTL's advisory and property management functions as well as any projections about future success following the merger and internalization are also forward-looking statements. 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 measure is available in our earnings release and supplement, which are posted to our website. Please note that we do not provide guidance on net income. We only provide guidance on AFFO per share and our net debt to adjusted EBITDA ratio and do not provide reconciliations of this forward-looking non-GAAP guidance to net income per share or our debt to net income due to the inherent difficulty in quantifying certain items necessary to provide such reconciliations as a result of their unknown effect, timing and potential significance. Examples of such items include impairments of assets, gains and losses from sale of assets and depreciation and amortization from new acquisitions and other nonrecurring expenses. 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 Co-CEO, Mike. Mike?

Thanks, Jordyn. Good morning, and thank you all for joining us today. GNL is now the third largest publicly traded net lease REIT with a global presence and features a diversified portfolio of high-quality, primarily investment-grade tenants. GNL's focus on investment-grade tenants compared to our peers highlights the stability and high quality of our rental income. The largest tenant in the portfolio only accounts for 3.1% of the total straight-line rent with the top 10 tenants totaling just 21% of the portfolio, effectively mitigating concentration risk within the portfolio. We believe our diverse portfolio provides us with the flexibility and capacity to capitalize on numerous market opportunities, maximizing shareholder value over the long term. 2023 was a transformative year for GNL that included the internalization of management and enhanced corporate governance, further aligning GNL with its net lease peers. In addition to the merger and internalization, 2023 also highlighted GNL's strong asset management platform capabilities with continued leasing momentum. As a direct result of the merger, GNL has recognized significant synergies, as outlined in our investor deck, and we're currently on track to achieve our stated $75 million of annualized cost savings by the third quarter of 2024. GNL is implementing a 2024 business plan focused on deleveraging its balance sheet, reducing its exposure to variable rate debt, and driving down its net debt to adjusted EBITDA. Our near-term strategic priority will focus on reducing leverage through select dispositions, prioritizing noncore assets and opportunistic sales. We've strategically reviewed our portfolio and identified assets where we believe there is beneficial opportunity to divest. This includes assets that are noncore or have near-term debt maturities or near-term lease expirations. We expect a total of $400 million to $600 million of strategic dispositions in 2024. This disposition program will drive long-term shareholder value by generating cash to enhance and derisk our balance sheet and create a clear path forward for us to potentially narrow the trading discount compared to our net lease peers. Selling assets at attractive cap rates will also provide proof of value to investors and demonstrate a significant premium compared to where the company is currently trading on an implied cap rate basis. Driving down leverage through measured opportunistic dispositions is the proper approach to maximize long-term shareholder value with proceeds used to lower our net debt to adjusted EBITDA. Our near-term strategic approach also involves a planned reduction of GNL's annual dividend from $1.42 to $1.10 per share, increasing the amount of annualized cash by $74 million to further reduce leverage. This reflects the company's continued commitment to strengthening its balance sheet while maintaining a disciplined dividend policy. Turning to our portfolio. At year-end 2023, we had approximately 1,300 properties, spanning nearly 67 million square feet with a gross asset value of $9.2 billion. The diverse composition of our net lease portfolio is unmatched, whether measured by geography, asset type, tenant, or industry, and positions GNL to effectively navigate external macro challenges as we move ahead. The portfolio maintained occupancy of 96%, with a weighted average remaining lease term of 6.8 years. Geographically, 80% of our straight-line rent is earned in North America, while 20% comes from Europe. The portfolio also features a stable tenant base and a high quality of earnings with an industry-leading 58% of tenants receiving an investment-grade or implied investment-grade credit rating. From a growth perspective, the portfolio includes an average annual contractual rental increase of 1.3%. I'm again highlighting the strong asset management capabilities we demonstrated as we continue our leasing and renewal efforts. In particular, our fourth quarter leasing and renewal activities included over 2.1 million square feet across the entire portfolio with attractive leasing spreads on renewals that were 6% higher than the expiring rents. New leases that were completed in the fourth quarter of 2023 have a weighted average lease term of 9.2 years, while the renewals that were completed in the fourth quarter of 2023 have a weighted average lease term of 6.1 years. The largest segment of our portfolio is industrial and distribution with 219 properties that span over 33.9 million square feet that contributed $235 million to annualized straight-line rent. 92% of the leases in this portfolio include rent escalations with an average annual rental increase of 1.5%, positioning the portfolio to benefit from annual rental income while having a 7.7-year weighted average lease term. Our single-tenant retail segment is the largest by property count, with 878 properties that span over 7.9 million square feet and contributed $154 million to annualized straight-line rent. The single-tenant retail segment comprises 66% investment-grade or implied investment-grade rated tenants and features an 8.3-year weighted average lease term. The multi-tenant suburban retail segment consists of 109 properties that span over 16.4 million square feet that contributed $200 million in annualized straight-line rent. The portfolio has a weighted average remaining lease term of 5.2 years and includes 21% of grocery-anchored centers, which are 90% leased. This segment is predominantly comprised of triple net leases with incremental lease-up potential and attractive leasing spreads. Additionally, 61% of the straight-line rent in this portfolio comes from Sunbelt markets, which continue to grow and have favorable demographic tailwinds. Our smallest segment by straight-line rent, single-tenant office includes 90 properties that span 8.6 million square feet and contributed $143 million to annualized straight-line rent and has a 5-year weighted average lease term. One of the metrics that differentiates GNL's single-tenant office portfolio is that it is comprised of 70% mission-critical facilities, which we define as headquarters, lab or R&D facilities and feature 68% investment-grade or implied investment-grade tenants, which we believe provides our portfolio with rent stability and low level of default risk. Given GNL's successful track record of lease renewals, the single-tenant office segment also includes limited near-term lease maturities, minimizing the risk of vacancy. A fundamental aspect of our comprehensive portfolio strategy involves limiting concentration risk. The combined annual straight-line rent from our top tenants amounts to only 21% of our overall portfolio, with our largest tenant contributing just 3.1%. Our approach to mitigating concentration risk also extends to every segment of our portfolio, ensuring diversity among the top 5 tenants within each segment, which we have highlighted in the investor deck. This diversified and investment-grade tenant base not only ensures stability but also offers predictability in rental income, laying a solid foundation for our future growth. The quality and reliability of our tenants underscore the resilience and longevity of our business model. Our leasing results continue to illustrate the quality of our assets, driving leasing rates higher even in the current environment. The single-tenant segment completed 16 new leases and renewals and showcased the positive 8% renewal leasing spread, demonstrating the strong renewal demand for our mission-critical assets while adding nearly $9 million to net straight-line rent. The multi-tenant segment completed 54 new leases and renewals, resulting in a 2% renewal spread, consistent with the high demand we're experiencing at our suburban shopping centers which increased net straight-line rent by over $10.5 million. New leases that were completed in the fourth quarter of 2023 have a weighted average lease term of 9.2 years, while the renewals that were completed in the fourth quarter of 2023 have a weighted average lease term of 6.1 years. Our executed leases at the end of the fourth quarter '23 combined with our leasing pipeline as of February 15, 2024, will bring occupancy in our multi-tenant portfolio from 88% to 91%. To put that in perspective, the multi-tenant portfolio represents only 27% of total straight-line rent in our portfolio, and GNL's overall portfolio occupancy stands at 96%. The fourth quarter 2023 highlighted our commitment to expanding relationships with existing tenants, including new leases and renewals with Burlington, HEB Grocery, and Dick’s Sporting Goods. Looking ahead, we remain committed to executing on our systematic and prudent approach to achieving our financial objectives, which revolve around reducing net debt to adjusted EBITDA while organically enhancing NOI through lease-up initiatives and contractual rent growth. A pivotal component of this strategy involves noncore dispositions and opportunistic sales which should provide us with capital to deleverage our balance sheet. We believe this strategy will pave the way to reducing the valuation gap with our net lease peers. I'll turn the call over to Chris to walk through the financial results in more detail. Chris?

Thanks, Mike. Typically, we would provide year-over-year financial comparisons. However, that would not be meaningful at this time given the recent merger and internalization. Going forward, we'll begin comparing to prior quarters until Q4 2024 when we have a full year of a merged and internalized GNL. For the fourth quarter 2023, we recorded revenue of $206.7 million and a net loss attributable to common stockholders of $59.5 million. Core FFO was $48.3 million or $0.21 per share and AFFO was $71.7 million or $0.31 per share. In Q4 2023, we incurred an elevated $5.5 million European income tax expense in the quarter and $2.3 million one-time write-offs primarily related to reimbursement. We have completed a European tax restructure that we expect will reduce the company's income tax expense beginning in Q1 2024. As always, a reconciliation of GAAP net income to the non-GAAP measures can be found in our earnings release, which is posted on our website. Looking at our balance sheet, it's worth noting that while only 20% of our debt is subject to variable rates, the current sustained high interest rate environment does have a temporary effect on the portion of our debt that isn't fixed or swapped. To mitigate this, we seek to reduce our exposure to variable rate debt as we move through the year. As part of our strategy to address 2024 debt maturities and subsequent to the fourth quarter, we completed an $80 million refinancing agreement with Nordea Bank secured by multiple properties in Finland that extended the maturities of these assets to 2029 at a 4.6% interest rate. GNL has a plan to address the remaining 2024 debt maturities through dispositions, refinancing, and availability on the credit facility. We will continue to address the 2025 maturities and anticipate that the second half of 2024 will present a more favorable environment for debt maturities beyond 2024, but we remain confident in our ability to refinance these assets. Our net debt to adjusted EBITDA ratio was 8.4 times. We ended the quarter with net debt of $5.3 billion at a weighted average interest rate of 4.8% and have liquidity of approximately $135.7 million and $206 million of capacity on the credit facility. The weighted average maturity at the end of the fourth quarter 2023 was 3.2 years with minimal debt maturity due in 2024. Our debt comprises $1 billion in senior notes, $1.7 billion on the multicurrency revolving credit facility, and $2.7 billion of outstanding gross mortgage debt. Our debt was 80% fixed rate, which includes floating rate in-place interest rate swaps, and our interest coverage ratio was 2.4 times. As of December 31, 2023, we had approximately 230.9 million common shares outstanding. On a weighted average basis, there are approximately 230.3 million shares outstanding during the fourth quarter of 2023. Lastly, here's our objective to provide investors with enhanced transparency regarding our financial goals and projections and therefore, we would like to introduce initial 2024 guidance today with an AFFO 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. The initial guidance reflects our assumption mentioned earlier that our projected 2024 dispositions will be in the range of $400 million to $600 million. The majority of these dispositions will come from occupied opportunistic sales where we anticipate achieving a cash cap rate between 7% and 8%. I'll now turn the call back to Mike for some closing remarks.

Thanks, Chris. Before I conclude, I'd like to express my gratitude to Jim Nelson, the President and Co-CEO of GNL for all of his hard work and contributions during his time at the company. He's a great friend and partner. And on behalf of the entire company, we extend our best wishes for a well-deserved and enjoyable retirement. We take great pride in our achievements at GNL throughout 2023. With the merger and internalization behind us, we remain focused on positioning ourselves as an industry leader with a global diversified and investment-grade portfolio. We want to reiterate that we strongly believe that the best path forward for GNL is reducing leverage through noncore and strategic dispositions to enhance our balance sheet as we aim to lower our cost of capital to position the company for future growth. Our planned dividend reduction is expected to increase the amount of annualized cash by $74 million to further reduce leverage. Additionally, disposing of assets at a premium to our current assumed implied cap rate will provide investors with proof of value of our leading investment-grade-worthy portfolio. As we've taken a conservative approach, our strategy for deleveraging is designed to be earnings neutral with the expectation that our net debt to adjusted EBITDA will decrease by approximately 1 full turn. By applying a reasonable and achievable 10 times AFFO multiple to our per share guidance, the implied stock price exceeds $13 per share, in the $20 per share range if we trade at the high end of the sector at a 15 times AFFO multiple. This outlook aligns with our goal of narrowing the trading discount and we believe these strategic initiatives will position GNL for future success that maximizes shareholder value. 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.

Please proceed with your question.

I wanted to ask about AFFO guidance for this year. I realize there's a lot of moving parts and dispositions as well as some one-time items. But I thought it would have been higher if you included some of the G&A synergies that you expect to realize this year, high occupancy from your multi-tenant retail portfolio, and potentially lower interest rates. So I just wanted to see what other parts are offsetting that potential growth?

Yes. Well, thanks, John. The $1.30 to $1.40 is the guidance range based on what we know today, considering the dispositions that we talked about, the occupancy, etc. We've taken a common view, but a conservative view regarding interest rate reduction. I think at the end of year '23, there was a lot of anticipation of deeper cuts, and I'm not sure when they will be coming, or the size and frequency of them. We didn't want to build an expectation around the unknown. This guidance is what we are very clear on being able to execute. If the environment or economic conditions change positively regarding interest rates, and if we need to revise our guidance, we can. But we're a first-time issuer of guidance, and we think that it's important we're not overly conservative, but we believe we're very accurate, and this is where we will execute in '24.

And then maybe specifically on the dispositions, how much mortgage debt is associated with those assets? And could you provide a blended cap rate on this position, including the non-income-producing assets?

The non-income-producing assets, this portfolio has always had a small portion of assets that we look to dispose of, whether it's due to a nonrenewal or whatever the case may be. It's hard to put a cap rate on those as they don't generate NOI. Again, that's a small part of what we're looking at regarding dispositions. The $400 million to $600 million, our typical leverage in the portfolio on these assets is in the kind of 50% to 60% range. So that will be the leverage pay down as we achieve these dispositions.

And my final question is on your use of proceeds. I realize you want to most likely reduce debt in the near term, get your leverage down. But you do have a share repurchase program. Your stock is trading north of a 10% implied cap rate. Where does buying back shares sit as far as potential use of proceeds?

As we've released 2024 initial guidance, we have not included a stock buyback announcement in that guidance. It is something that is available to us and something that the Board can take into consideration. However, our 2024 initial guidance, as we've discussed, is that based on dispositions and cap rates, it is a great opportunity for the company to bring down net debt to EBITDA and hit these AFFO per share guidance range.

Our next question comes from Bryan Maher from B. Riley. Please proceed with your question.

Just a couple for me this morning. On the guidance for leverage, getting down to 7.4 times to 7.8 times, is that just the year-end 2024 initial goal? Or is that where you're going to be comfortable staying longer term? And if not, where do you ultimately want to get to?

Thanks, Bryan. Yes, that is a year-end target, 7.4 times to 7.8 times in the 2024 guidance as you point out. That is not ultimately where we intend to drive net debt to adjusted EBITDA. As I've said before, it's a little bit of a longer process. But we wanted to make it very clear that the initial path of doing that through dispositions. I've spoken in the past about thinking that ultimate net debt-to-EBITDA should be in the 6 times to 6.5 times range.

And then when we look at the payout ratio on the new dividend, I think you're at $1.10 let's take the midpoint of your guidance, 135. So it's about an 81% payout ratio. Is that where the Board wants to hang out? Or is that just an initial salvo and you want to go a little bit lower than that? Or should we just think about it 80%, give or take 5%?

I don't think there is any reason to expect another announcement in 2024. Today's announcement of the $1.10 is where we believe this portfolio will trade at this level. And that 80% to 85% payout ratio is especially if you remember, this portfolio is 58% investment-grade. So our quality of earnings is quite high and higher than others in the sector. We are very comfortable. We are at nearly 100% rent collection; the portfolio is really performing well. So the 80% to 85% range does feel like where we intend to be.

And just last for me. GNL is a bit unique with its exposure to Europe. And I know that has dropped meaningfully with the merger down to about or so. But given its uniqueness, and given that most of us on this call don't really track European real estate day in, day out. Can you give us any type of broad strokes on what's going on over there? Have cap rates increased over the past 2 to 3 quarters, outlook for dispositions in that market? Just a little bit more color on what's going on in Europe.

Yes. So obviously, Europe can't be painted with a single brush. The part of Europe that we have always focused on has been a stable European market, typically Western Europe, and tends to have similar traits to the U.S. market, especially when you think about the tenant names that consist of the 20% European exposure. Some of our disposition targets are in Europe, and we are very active in getting strong indications. It's a little too early to discuss in detail. However, the buying market in Europe remains strong. The cost of debt in parts of Europe is actually a little more attractive still than in the U.S. And our focus for '24, I just want to reiterate, is on the dispositions, not on the acquisitions. We have engaged local brokers that we have long relationships with on a few assets that we think meet the disclosed criteria as noncore dispositions. Our $400 million to $600 million focuses on retail and office. Some of these assets are in Europe, and the market is active.

Our next question comes from Todd Thomas from KeyBanc Capital Markets. Please go ahead with your question.

I wanted to circle back to the AFFO guidance of $1.30 to $1.40. It's about $0.05 to $0.06 per quarter lower than it seemed like you were anticipating when the merger was initially announced. Can you provide a bridge and just help us understand some of the moving pieces to help us understand the current quarterly AFFO run rate just relative to what was loosely discussed a couple of quarters ago?

Yes. Thank you, Todd. The biggest change from when the merger was announced to now is interest expense, and it's up about $6 million per quarter. We have calculated that in, figured it in. One of the goals of the guidance and disposition strategy is that we will be able to pay down some of that debt and drive that benefit into earnings. Additionally, there was some movement in the European tax structure as far as the year-end charge, and Chris and team have addressed that with a European tax restructuring that was completed in the fourth quarter, and it will have an immediate benefit in the first quarter. Those are 2 of the biggest items affecting the quarterly AFFO run rate. Additionally, the completion of some merger activity caused what I call cleanup. But the 2024 full year guidance should now reflect these dynamics much more accurately.

I guess maybe for Chris, just to further discuss the guidance a little bit. I mean you seem to be on track for G&A with the synergies that you've previously discussed, but it sounds like interest expense is up. Are you able to provide any additional ranges around either straight-line rent or sort of cash NOI at year-end or the cash interest expense that's embedded in the guidance?

I'm sure, I guess just first to start in terms of the synergies. As you mentioned, we're fully on target to reach the $75 million and even exceed that in terms of the overall synergies. For cash NOI, I do want to mention in the fourth quarter, as Mike said, there was about $2 million of cleanup-type items coming in, which were negatively impacted in the fourth quarter and will not be in the first quarter. Just in terms of the overall go-forward, we expect to continue leasing up the multi-tenant properties, which will help push the NOI.

And then just curious with the focus here on dispositions, but I'm curious if investments are at all a consideration. In the past, you've found deals at high single-digit, low double-digit going-in yield. Is there any consideration to either recycling proceeds from dispositions at all or some of the additional retained earnings from the dividend reduction in the new investments at all in 2024?

Todd, I think the most important thing that we will do in 2024 is lower net debt to EBITDA, and that is the focus of the company. As we drive our cost of capital to a more reasonable place, we could look at potential acquisitions, but 2024 is really focused on dispositions and lowering net debt to EBITDA, the cost of capital, and improving our trading multiple so that we have that ability to take advantage of those types of acquisitions that we've always been able to generate. We look forward to that future and our current commitment to this plan and its results.

And just lastly, if I could, on the dividend reduction. Can you just talk a little bit about the Board's decision to reset the payout to that sort of 80% range and talk about the decision to reset at $1.10. I'm just curious whether there was any consideration to reduce it further, retain even more capital, which could help further reduce leverage and improve your cost of capital? Was that at all a consideration?

Well, I can't really disclose too much about Board discussions, as I know you can understand. Dividend policy is a top priority. We recognize the importance and the tough decision around making an announcement of a dividend cut. I think this low 80% payout ratio, based on the quality of the portfolio, the investment-grade percentage, etc., is justified. It's an important aspect, as you know, of running a REIT. We appreciate the deep conversation and analysis that we undertook with the Board, and we think this is a good place to come out. For 2024, this gives us the ability to pay down debt, which translates to about $75 million of additional retained earnings, which is meaningful. We believe it is something that existing shareholders can appreciate. Again, nobody looks for a dividend cut, and I understand that, but it's also a great entry point for new shareholders as they look at this 2024 plan.

If you have further questions, feel free to reach out. Ladies and gentlemen, our final question today comes from Michael Gorman from BTIG. Please go ahead with your question.

If I could revisit Todd's initial question, could you elaborate on the expectations for the baseline portfolio in the 2024 guidance and the net operating income run rate? Based on the presentations, it appears there was a decrease of about 240 basis points in occupancy in the multi-tenant portfolio from the previous quarter. What contributed to that change? Additionally, how do you anticipate the net operating income will trend throughout 2024, and what factors are included in that projection?

Yes. So first of all, Michael, thanks for the question. The biggest driver of that multi-tenant was just timing. In the third quarter, we had an uptick of short-term leasing, as we do every year from seasonal short-term leasing. Some of the backfill leasing that we are involved in is influenced by timing, whether it's fourth quarter or first quarter. So I don't see it as any trend indication. The pipeline activity has been strong. Our relationships with our national anchor tenants are expanding. The occupancy at the centers is very stable and increasing, which drives the regional backfill or in-line tenants in the portfolio. So things are indeed very positive on the multi-tenant front, and we expect to see that fill and grow. Keep in mind that the multi-tenant represents only about 22% of the overall portfolio. The overall portfolio at 96% is very stable. You saw the renewal spreads averaged at 6%, which is a very positive sign, and we will continue to expect to see those results as well.

So you're seeing positive momentum above and beyond the lease plus pipeline number that’s in the presentation for the multi-tenant?

Yes. As the multi-tenant portfolio is structured, we have 4 regional asset managers that are engaged completely. There are about 110 properties in the multi-tenant portfolio. They manage roughly 30 properties each. They’re talking about renewals, typically 18 to 24 months early. They're in the market and are expanding their national relationships with great companies like Burlington, T.J. Maxx, Dick's Sporting Goods, etc. What we've published in our pipeline includes deals that are far along but not yet executed, so there’s a fully negotiated term sheet, and it's moving to NOI. We're very comfortable putting it in our pipeline numbers. There are additional leases behind that, and we will continue to drive that 22% slice of the portfolio and the overall 96% higher.

And then obviously, a lot of focus on the asset sales. Can you give a little more color on some of the noncore that you've analyzed and how that breaks down among the different property types, and how the management team thought about it? Obviously, it makes sense with the shorter lease terms or some debt maturities. Was there consideration for certain asset types in the portfolio where you think there’s a significant disconnect between how the public is valuing it and where you think you could sell those assets? And then that $400 million to $600 million, is that all of the noncore? Or could there be potential additional proceeds above and beyond?

First, Michael, I want to respect that this is the first time we've given full-year guidance. In that full-year guidance, we've identified $400 million to $600 million of dispositions. I don’t want to start discussing potential additional disposals at this time. We are committed to executing our plan and achieving what we've stated. This is a large company, and there is life beyond 2024, and we will continue to evaluate the portfolio to take advantage of buy-sell arbitrage when it is beneficial. We've already successfully sold $35 million of Truist bank branches from the portfolio at an average 6.5% cash cap rate. These types of sales highlight our willingness to engage local buyers for these kinds of assets, and we will use this to our advantage. We are primarily focused on disposing of retail and office sectors while recognizing that the industrial sector has been very stable. However, we have examined some assets based on tenants' long-term plans and have made decisions to dispose of certain assets accordingly.

And then maybe last one, Chris. Just a mechanical one, I guess. So you sold about $75 million in assets in the fourth quarter. But when I look through the subs, it looks like net debt went up by about $80 million in aggregate. I'm just curious what the puts and takes are there with the asset sales, but ultimately, why did the debt move higher?

So in the fourth quarter with the sales, we did pay down a portion of outstanding CMBS debt. There was also a draw early in the period for some funding purposes. I believe that explains the overall increase in net debt during the quarter.

Ladies and gentlemen, our final question today comes from Mitch Germain from Citizens JMP.

Michael, it seems like some really good progress that you're planning to make on deleveraging this year. But you're still well off your goals. So do we consider this the start of what will be like a multiyear plan? Is that kind of the way we should think about this?

I think that's fair.

As you go through the portfolio and identify assets to sell, is this going to be something you'll consider next year? Or are there methods to do some organic deleveraging that you're considering as you approach 2025?

Mitch, it’s a great question, and I appreciate it. At the end of February of 2024, I’m not quite ready to discuss our thoughts on 2025. We have substantial work ahead with our guidance and planned dispositions to reduce net debt to EBITDA. As you know, several levers can drive down net debt to EBITDA, and we expect that more than just dispositions will be available to us before the end of 2024 based on our execution. Organic is great, and dispositions are great. We will keep an eye on performance and proceed with our disclosed guidance.

On the credit facility, are there any swaps or hedges that could prevent you from redeeming some of that debt? Chris, is there anything there that can't be touched right now or is it too expensive to redeem? Is that just a small portion of it? Is it a large portion of it? How should we think about that?

There is no portion of it that's restricted from us at this point.

And then I guess last question for me. I'm just curious in terms of your... I appreciate the color that you guys have been giving on the sector by sector. And in multi-tenant, I'm curious about the conversion percentage that you've got on your leasing pipeline. I know you've got a good portion of that that's still under consideration or in some state of discussion. What have you been seeing in terms of the ability to convert that over the last couple of quarters?

To clarify, you're asking when this is in our pipeline, what is our conversion percentage of?

Yes. If I'm looking at your slide on the multi-tenant, some of that has already been completed. Some of that you're calling expected. And then some of that is your pipeline. I'm trying to understand your tracking over the last couple of quarters in terms of the conversion of that.

For many quarters, we’ve been at or near 100% when we publicly disclose the pipeline. As I said earlier, those are lease negotiations that are very far along, meaning they may not yet be in a negotiated lease form, but there is a tenant that is fully engaged and moving forward. These numbers are very confident.

And ladies and gentlemen, with that, we'll be concluding today's question-and-answer session. I'd like to turn the floor back over to management for any closing remarks.

Great. Jim, before I end with a couple of closing remarks, is there anything that you'd like to add?

Yes. I just want to thank everybody for joining us on this call. It's been my pleasure interfacing with you all for the last almost 7 years. We want to thank you for your continued support of the company. It's been a great 7 years, and I'm pleased to be leaving the firm in very capable hands with Mike, Chris, and the rest of the team. It's a great team, and I think there are a lot of great things to come. So thank you.

Thank you, Jim. Speaking on behalf of everybody here, we appreciate you. I want to wrap this up. I hope everybody had a chance to see the press release that came out this morning. The Global Net Lease board has been expanded by one very qualified director. The Board has been doing its work, and we were pleased to be able to get this announcement out today. Michael Monahan, Vice Chairman at CB Richard Ellis joins the Board with a very successful and long career in commercial real estate, and it's just a great enhancement to an already very strong and capable board. Thank you all for your time, and we look forward to hearing any follow-up questions that you may have; please reach out, and we are always happy to discuss further. So thank you all very much.

Ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lines.