Global Net Lease, Inc. Q4 FY2024 Earnings Call

Greetings, and welcome to the Global Net Lease Fourth Quarter and Full Year 2024 Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the call over to Jordyn Schoenfeld, Associate at Global Net Lease. Please go ahead.

Thank you. Morning, everyone, and thank you for joining us for GNL's fourth quarter and full year 2024 earnings call. Joining me today on the call is Michael Weil, GNL's Chief Executive Officer, and Chris Masterson, GNL'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 fourth quarter 2024 earnings release for various factors that could cause actual results to differ materially from forward-looking statements made during our call today. As stated in our SEC filings, GNL this including except as required by law. Also, during today's call, we will discuss certain non-GAAP financial measures which we believe can be useful in evaluating the company's financial performance. Descriptions of those non-GAAP financial measures that we use such as AFFO and adjusted EBITDA and reconciliation of these measures to our results as reported in accordance with GAAP are detailed in our earnings release and in our annual report on Form 10-Ks for the year ended December 31, 2024, which was filed on February 27, 2025. I'll now turn the call over to our Chief Executive Officer, Michael Weil.

Thanks, Jordyn. Good morning, and thank you all for joining us today. 2024 was a remarkable year for GNL, marked by the achievement of all of the financial objectives we outlined at the time of the merger and internalization. One of the most exciting highlights was meeting and exceeding full-year guidance, completing $835 million in dispositions during the year at a cash cap rate of 7.1% on occupied assets, with a weighted average remaining lease term of only 4.9 years. This total surpassed the high end of our revised guidance range of $650 million to $800 million and exceeded the original high-end projection by $235 million. The proceeds from these transactions were used to reduce outstanding net debt by $734 million, lowering our net debt to adjusted EBITDA ratio from 8.4 times at the start of the year to 7.6 times at the end of the year. We believe these strategic sales enhance the overall quality of our portfolio and position GNL for long-term growth, reinforcing our commitment to delivering value to our shareholders. Despite the significant volume of dispositions, including selling $63 million in annual base rent, our 2024 AFFO per share totaled $1.32, remaining within our original guidance range of $1.30 to $1.40, highlighting the strength of our strategy and disciplined execution. An additional highlight was delivering $85 million in annual recurring savings as of the third quarter of 2024 as a result of the merger and internalization with the Necessity Retail REIT, exceeding our initial target of $75 million of cost synergies. This accomplishment underscores the strength of our integration efforts and our ability to unlock value from strategic initiatives. Another area of focus in 2024 was increasing portfolio occupancy, particularly through new leasing activity and attractive renewals. We raised occupancy rates from 93% as of the end of the first quarter of 2024 to 97% as of the end of the fourth quarter of 2024, reflecting the strength and efficiency of our in-house asset management team. 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. On the leasing front, we achieved positive leasing spreads encompassing nearly 1.2 million square feet with attractive renewal spreads that were 6.8% higher than the expiring rents. New leases that were completed in the fourth quarter of 2024 have a weighted average lease term of 9.7 years while renewals that were completed during this period have a weighted average lease term of 6.5 years. Notably, the single-tenant segment completed four new leases and renewals, highlighted by a 6.5% renewal spread. The multi-tenant segment completed 58 new leases and renewals, resulting in a 7.1% renewal spread. Last, our 2024 financial strategy emphasized de-risking our balance sheet by proactively managing near-term debt maturities. We successfully paid off all of the debt that was scheduled to mature in 2024 through dispositions or refinancing on our revolving credit facility. We have no debt maturities until August 2025 and have proactively reduced our 2025 debt maturity balance from the $715 million at original issuance to $465 million. We believe we'll have several strategic options to address that balance, including refinancing through the revolving credit facility, an ABS transaction, or an unsecured bond offering. We're excited about our recently announced transaction that we believe is in the best long-term interest of GNL shareholders and continues the momentum we achieved in 2024. We have entered into a binding agreement to sell 100 non-core multi-tenant properties to RCG Ventures Holdings for approximately $1.8 billion at a cash cap rate of 8.4%, this cap rate is based on the trailing twelve months of cash NOI as of Q3 2024. The RCG transaction would represent the most significant step in our strategic disposition initiative and it's expected to deliver a wide range of benefits with a clear focus on long-term value. We believe the transaction is a disciplined and prudent approach to accelerating our debt reduction efforts and would result in a substantial decrease in net debt to adjusted EBITDA, which post-transaction we expect to be in the range of 6.5 times to 7.1 times. This meaningful improvement would enhance our ability to secure an investment-grade credit rating which we expect will lower our cost of capital and provide financial flexibility to fuel long-term growth. The buyer agreed to assume the two multi-tenant mortgage loans and we expect to use the net proceeds to repay most of the outstanding balance on our revolving credit facility, leaving it largely undrawn and enhancing financial flexibility. The resulting lower leverage is expected to increase the potential multiple expansion, close the valuation gap with our net lease peers, and generate additional interest from institutional investors. The RCG transaction would transform GNL into a pure-play single-tenant net lease company without the operational complexities, G&A expenses, and capital expenditures associated with multi-tenant retail properties. We expect that it will enhance key portfolio and financial metrics by reducing G&A by $6.5 million annually, boosting occupancy to 98%, and extending Walt to 6.4 years. Please refer to our investor presentation we recently filed for additional information. As mentioned, we're taking this important step because we believe its long-term benefits far exceed some of the near-term effects. Given that the transaction would impact earnings, the board plans to reduce our quarterly dividend per share of common stock from 27.5 cents to 19 cents per share beginning with the dividend expected to be declared in April of 2025. We believe the dividend reset aligns well with our long-term strategy of reducing leverage and increasing liquidity, as it will generate $78 million in incremental cash flow. We're also pleased to announce that in addition to the RCG transaction, the board has also approved a share repurchase program authorizing the company to opportunistically repurchase up to $300 million of its outstanding common stock. As I mentioned, this transaction has enabled us to deleverage at an accelerated pace creating the flexibility to consider share repurchases, an option that while possible without a sale would be impractical given our previous leverage levels. Our board of directors believes the stock buyback presents a more compelling and accretive opportunity for GNL compared to the real estate assets currently available in the market. In addition to the RCG transaction, during 2025, we expect to sell several non-core properties in our single-tenant portfolio. To February 25, 2025, this pipeline which includes transactions that are closed under PSA and under LOI, totals $2.1 billion at a cash cap rate of 8.5% on occupied assets and a weighted average remaining lease term of 5.6 years. Including both 2024 dispositions and the 2025 pipeline, we anticipate completing nearly $3 billion in dispositions by the end of the year while still retaining appropriate scale to operate efficiently with approximately $6 billion of real estate assets. Turning to our portfolio, at the end of the fourth quarter, we owned over 1,100 properties spanning over 60 million rentable square feet and a weighted average remaining lease term of 6.2 years. Our continued ability to limit exposure to high-risk geography, asset types, tenants, and industries is a testament to our portfolio's impressive diversification and credit underwriting. No single tenant accounts for more than 3.5% of total straight-line rent and our top ten tenants collectively contribute only 21% of total straight-line rent. We carefully monitor all tenants in our portfolio and their business operations on a regular basis. Geographically, 80% of our straight-line rent is earned in North America, and 20% in Europe. Which we expect to shift to 72% and 28% respectively, upon completing the multi-tenant portfolio sale. 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. The portfolio features an average annual contractual rental increase of 1.3%, which excludes the impact of 14.8% of the portfolio with CPI-linked leases that have historically experienced significantly higher rental increases. I encourage everyone to look at the details of each segment of our portfolio which can be found in our Q4 2024 investor presentation on our website. We're pleased to have delivered on all the financial objectives we set for 2024, reflecting a year of strong performance and disciplined execution. Looking ahead, we're excited about GNL's future and the opportunities that lie ahead. In particular, the sale of our multi-tenant portfolio would represent a pivotal step forward unlocking key levers to drive long-term growth while enabling us to sharpen our focus as a pure-play net lease company. I'll turn the call over to Chris to walk through the financial results and balance sheet matters in more detail.

Thanks, Mike. Please note that, as always, a reconciliation of GAAP net income to non-GAAP measures can be found in our earnings release which is posted on our website. For the fourth quarter 2024, we recorded revenue of $199.1 million and a net loss attributable to common stockholders of $17.5 million compared to $206.7 million and $59.5 million respectively in the fourth quarter of 2023. AFFO was $78.3 million or $0.34 per share in the fourth quarter of 2024 compared to $71.7 million or $0.31 per share in the fourth quarter of 2023. AFFO in the fourth quarter of 2024 includes funds collected from Children of America, a tenant that had not paid rent for the past years, leading to a switch to cash basis accounting in 2023. Through persistent negotiations and the unwavering dedication of our team, we successfully collected $4.5 million in past due rent positively impacting AFFO and adjusted EBITDA in the quarter. Shortly after the start of the new year, we completed the disposition of Children of America office asset as part of our strategy to reduce exposure to office properties. Looking at our balance sheet, the gross outstanding debt balance was $4.7 billion at the end of the fourth quarter of 2024, down by $256.4 million from the end of the third quarter. Our debt is comprised of $1 billion in senior notes, $1.4 billion on the multi-currency revolving credit facility, and $2.3 billion of outstanding gross mortgage debt. As of the end of the fourth quarter of 2024, 91% of our debt is fixed, up from 80% as of December 31, 2023, reflecting debt tied to fixed rates or debt that is swapped to fixed rates. Our weighted average interest rate stood at 4.8% and our interest coverage ratio was 2.5 times. At the end of the fourth quarter 2024, our net debt to adjusted EBITDA ratio was 7.6 times based on net debt of $4.6 billion. As a reminder, our net debt to adjusted EBITDA was 8.4 times at the start of 2024. As of December 31, 2024, we have liquidity of approximately $492.2 million and $460 million of capacity on our revolving credit facility. Additionally, we had approximately 231.1 million shares of common stock outstanding and approximately 230.6 million shares outstanding on a weighted average basis for the fourth quarter of 2024. We are pleased to introduce initial 2025 guidance which is contingent on the sale of our multi-tenant portfolio. We project an AFFO per share guidance range of $0.90 to $0.96 and a net debt to adjusted EBITDA range of 6.5 times to 7.1 times. Additionally, as Mike mentioned, we expect the board will reduce our quarterly dividends per share of common stock from 27.5 cents per share to 19 cents beginning with the dividend expected to be declared in April 2025.

Thanks, Chris. Fiscal year 2024 was a highly productive period for GNL. As we successfully executed our key financial objectives laid out at the start of the year. We exceeded the high end of our disposition target with $835 million in closed sales. Further reduced net debt by $734 million and surpassed our $75 million cost synergy goal by achieving $85 million, $10 million above our original estimate. Demonstrating the resilience and quality of our portfolio, we maintained strong leasing momentum throughout the year, increasing occupancy from 93% as of the end of the first quarter of 2024 to 97% by year-end, complemented by a positive renewal spread of 6.8% across the portfolio. Lastly, we proactively manage near-term debt maturities, successfully reducing the 2025 maturity balance by $250 million since the original issuance, strengthening our flexibility with multiple refinancing options. The sale of the multi-tenant portfolio would mark a transformative step for GNL, allowing us to accelerate our deleveraging plan and clear a path for sustained growth. By reducing leverage and strengthening our financial foundation, we believe we will position ourselves to potentially secure an investment-grade credit rating, a milestone that would significantly lower our cost of capital and borrowing costs while enhancing financial flexibility. Beyond the financial benefits, this proposed transaction would simplify and refine our portfolio, aligning it with our strategic vision of becoming a pure-play net lease owner and operator. The transaction is not merely a tactical move, but a strategic one, and we expect it would reset the company to thrive over the long term. It would strengthen portfolio metrics, bolster our balance sheet, and increase GNL's overall financial stability and flexibility. We view this transaction as a deliberate, forward-looking decision that prioritizes what is best for GNL over the long term. This comprehensive perspective is integral to our strategy and underscores our commitment to delivering sustainable growth and value for shareholders. We're available to answer any questions you may have after the call. Operator, please open the line for questions.

Well, now we can obtain a question and answer session. Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment. There's a lot of qualified questions. Thank you. Our first question is from Upal Rana with KeyBanc Capital Markets. Please proceed with your question.

Alright. Thank you for taking my question. Good morning. Congrats on the deal. I'm just curious about the pricing of the portfolio. Is this what you expected, or is there any other detail that would be helpful?

Sure. I think that the way we thought about it was this is a hundred property portfolio. There's a great portfolio of shopping centers. We engaged with Bank of America and really looked for the best buyer. RCG brought a lot to the table, but they were not the only important factor. We felt that their ability to execute, the way they approached the asset underwriting, and what it accomplished for us—remember, we really had talked about a multi-year deleveraging strategy, and I'm not saying we're finished deleveraging, but I am saying this accelerates the deleveraging in a way that has so many benefits, not only from the G&A side of things, but just importantly, this singular focus on single-tenant assets. We feel that it's a good price. You know, there aren't a lot of $1.8 billion transactions in the market to evaluate against, so we were very satisfied and appreciated their timing, speed, and ability to underwrite. This is going to be a great transaction long-term for our shareholders, so we made the decision to go ahead.

Great, that was helpful. And then just on RCG, you talked a little about them already, but you have no reservations about them potentially making it to the finish line and closing the deal, correct?

We have no reservations coupled with the fact that we have a $25 million non-refundable deposit, and I know how motivated they are. We are making great progress for the first closing.

Okay, great. And just one last one for me— you've adjusted the dividend again, which certainly makes sense, but are you eyeing further disposition? Should we assume there could be more adjustments to the dividend once the office portfolio is addressed?

We never want to speculate far into the future, but we took a very thorough approach to how we were going to issue guidance for 2025. We looked at everything—we looked at where we were, our pipeline, and our goals for further leverage reduction—and we feel that this is an appropriate and prudent reduction in dividend, one that gives us the safety of a strong payout ratio. So we're very comfortable and confident where we are today. If you consider between 2024 and when we close this deal with RCG, the company will have sold about $3 billion of assets during that period, which is over $200 million of NOI. Nobody likes a dividend cut, and we certainly didn't discuss it with the board lightly, but this is an appropriate reset of the dividend based on the fact that we're now a single-focused single-tenant portfolio.

Okay, great. That was helpful. That's it for me, thank you. Also, just to note, that this is about $80 million of recurring free cash flow, which is another important and strong aspect for the company.

As a reminder, if you'd like to ask a question, please press. Our next question is from Eric Borton with BMO Capital Markets.

Good morning, Eric.

Hey, good morning. I just have a question about the portfolio sale. Was there a write-down associated with that sale? If I'm not mistaken, it was valued around $2.7 billion versus the $1.7 billion of proceeds expected today. Could you provide any color on that?

To address that, the $2.7 billion relates to gross asset values that were previously on the RTL book. As of now, we did not take a write-down. We actually expect to realize a gain when the transaction fully closes.

That's helpful. And then on the annual CapEx side, the reduction from $44 to $10 is definitely beneficial for the bottom line. However, I would have thought it would have been a bit lower given your net lease business model. Any thoughts on this?

Like just about every net lease REIT, there's a mix of triple net and double net, and maintenance needs that we budget for.

Okay. And then how should we think about the use of proceeds in terms of a pecking order? What is your number one priority today in terms of potential share repurchase, continuing to delever, or acquisitions?

Without hesitation, I can tell you acquisitions is number three in priority. I can't definitively prioritize leverage reduction over stock buyback because we have a $300 million stock buyback approved, and we will use it opportunistically and strategically. However, the majority of the proceeds will be used for leverage reduction. Chris, Ori, and I are excited about eliminating our credit facility balance and changing our leverage and liquidity profile.

Well, thank you very much. I will leave it there.

Thanks, Eric.

Thank you. Our final question will come from Mitch Germain with Citizens JMP.

Good morning. Thank you. Michael, please don't share the word acquisitions again. I'm just kidding. You did so much right, $3 billion or so give or take. While you probably want to at least rest a little, you have to get to ask the question, what's next? You've mentioned an office exit is certainly something you are potentially going to pursue. Are there any barriers, because you have some debt outside the US, that prevent you from doing a similar transaction in the office sector?

We've known each other a long time, Mitch. There’s no time for rest. We're ready to go. We worked hard to get the RCG deal to a point we felt should be announced and had the deposit non-refundable. We turned right to today. I want to point out that the RCG transaction is closing in three tranches—first at the end of the first quarter, and the next two towards the end of June. We're going to be very busy ensuring everything is moving along with loan assumptions, transfers, etc. Post-closing of the RCG transaction, 75% of our straight-line rent will come from single-tenant net lease, retail, industrial, and distribution. We will be predominantly retail, industrial, and distribution, which is a valuable mix. We will continue to look to strategically dispose of non-core assets. We've provided full-year guidance for 2025 and accounted for additional non-core asset dispositions, so I think 2025 is clearly designated to look forward to the execution.

Is there anything else beyond the $2.1 billion noted in your investor presentation that assumes dispositions on top of that, given the bulk could be done by the end of the second quarter?

You should rely on the guidance we provided for 2025. The AFFO per share and net debt to EBITDA take into account what we are observing for full-year 2025 concerning additional opportunistic dispositions.

Can you discuss the bidding process? I know you want to be careful about what you share, but I'm curious about how it played out?

I'm going to be careful because I'll only talk about what we've disclosed publicly. We did engage Bank of America to run the process. It was a multi-party process. There were several bidders for the full portfolio and others looking to break it up. RCG's interest in the full portfolio, their timing, and ability to execute were key factors in our evaluation, making them the best buyer for this portfolio.

Last one for me. Circling back to that $4.5 million, that’s just a one-time gain and should be removed from the run rate, correct?

Correct.

Thank you. There are no further questions at this time. I'd like to hand the floor over to management for any closing remarks.

Great. Well, thanks, everybody. As always, we appreciate you giving us some time to discuss what we think is really important news for Global Net Lease. We continue to be available and look forward to talking with anybody who has questions. We will continue to update you on the progress and success. This is a great way for us to finish up 2024 and kick off 2025.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.