Global Net Lease, Inc. Q1 FY2025 Earnings Call

Ladies and gentlemen, greetings and welcome to Global Net Lease Inc. First Quarter 2025 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jordyn Schoenfeld, Senior Vice President of Investor Relations. Please go ahead. Thank you. Good morning, everyone, and thank you for joining us for GNL's first quarter 2025 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 statement section at the end of our first quarter 2025 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 filing, 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 certain non-GAAP financial measures which we believe can be useful in evaluating a company's financial performance. Descriptions of those non-GAAP financial measures that we use, such as AFFO and adjusted EBITDA, and reconciliations of these measures to our results as reported in accordance with GAAP are detailed in our earnings release and supplemental materials. I'll now turn the call over to our Chief Executive Officer, Michael Weil. Mike?

Thanks, Jordyn. Good morning and thank you all for joining us today. Since completing our merger and internalization in September of 2023, we've made significant strides to elevate GNL across multiple industry benchmarks. On the governance front, we've strengthened oversight by broadening and diversifying our board, enhancing transparency, and putting in place practices that reflect our overall commitment to corporate governance. Operationally and financially, we launched an ambitious and disciplined initiative to materially reduce leverage, driven by our belief that a stronger balance sheet is essential to lowering our cost of capital, positioning the company for sustained growth, and ensuring we have the agility to navigate periods of heightened uncertainty and market volatility. We believe these actions reflected clear strategic vision and a deep commitment to building a more resilient and well-positioned company. We've been closely monitoring the tariffs that have introduced heightened uncertainty and volatility into the market. Our strategy has always revolved around building a net lease portfolio anchored by high credit quality tenants that are generally more resilient in uncertain economic environments, and we've been successful in this regard with 60% of our portfolio comprised of investment-grade tenants. We believe our leases, with a weighted average lease term of 6.3 years and 1.5% average annual rent increases, tend to be less impacted by macroeconomic events relative to other asset classes. We also have a disciplined hedging strategy that addresses both interest rate and foreign currency volatility in order to mitigate risk and maintain consistent cash flows. Turning to the first quarter of 2025, we achieved a key milestone in GNL's strategic transformation with the signing of a definitive agreement for the sale of our multi-tenant portfolio to RCG Ventures, the first phase of which has now been completed. This phase included 59 unencumbered properties generating $1.1 billion in gross proceeds and was completed on schedule, reinforcing our ability to deliver on stated objectives within our long-term strategy. Net proceeds were used to materially reduce leverage through a paydown of $850 million on GNL's revolving credit facility, further strengthening our balance sheet and enhancing financial flexibility for future initiatives. We remain on schedule to complete the sale of the 41 encumbered properties by the end of the second quarter of 2025, which is expected to generate another $700 million of gross proceeds. We believe one of the major benefits of this transaction is that it moves us closer to our goal of securing an investment grade credit rating, a central objective of our strategy to reduce our cost of capital and increase financial stability. We're encouraged by the growing recognition of our progress from the rating agencies with both Fitch and S&P placing GNL on credit watch positive. These upgrades reflect the tangible steps we've taken to reduce leverage, enhance liquidity and improve overall credit quality. We view this as another critical step in reinforcing financial strength and advancing GNL's strategic objectives. We're also making continued progress on a robust pipeline of non-core dispositions beyond the multi-tenant portfolio sale, which will also contribute to our deleveraging and further reduce net debt to adjusted EBITDA. As of May 1st, we have a closed plus disposition pipeline totaling $2.1 billion. Combined with the full multi-tenant portfolio sale and our 2024 dispositions of non-core and vacant properties, we expect total asset sales to reach nearly $3 billion by the end of 2025. Assuming the successful completion of all pipeline dispositions on the expected terms, of which there can be no assurance, the streamlined portfolio would simplify and strengthen GNL with notable improvements in key metrics such as investment tenancy, weighted average remaining lease term and occupancy. Following these sales, GNL would own a high-quality portfolio of net lease properties valued at approximately $5.5 billion, providing meaningful scale and operating efficiency with a sharp and pure-play focus before the end of the second quarter of 2025. At the same time, we continue to take other deliberate steps to further strengthen our capital structure and mitigate risk. We've reduced our 2025 debt maturity balance from approximately $715 million at original issuance to $459 million as of the end of the first quarter 2025. We intend to pay off the maturing debt in the second quarter of 2025 and warehouse the balance on our revolving credit facility, which now offers significantly greater availability and flexibility following the substantial paydown we recently completed. We believe these actions position GNL to effectively navigate upcoming maturities from a position of strength while maintaining ample liquidity for strategic initiatives. Along with our multi-tenant portfolio sale, we announced that the board approved a $300 million share repurchase program, allowing the company to accretively buyback its outstanding common stock. Through May 2nd, 2025, we've repurchased 7.9 million shares at a weighted average price of $7.50, totaling $59 million of share repurchases. Repurchasing shares at a significant discount to NAV reflects our strategic approach to capitalize on the opportunity presented by our undervalued stock price in an accretive way. We intend to continue share repurchases, taking advantage of the compelling opportunity to buy back shares at an AFFO yield of approximately 12%. At the same time, we're continuing our disciplined approach to non-core asset sales and overall leverage reduction as we further strengthen our balance sheet. Turning to our portfolio, at the end of the first quarter, we owned over 1,000 properties spanning over 51 million rentable square feet. The portfolio's occupancy currently stands at 95%, with a weighted average remaining lease term of 6.3 years. Occupancy was temporarily impacted by the vacancy of Contractor’s Steel, a privately owned and operated full-service steel supplier that occupied nearly 1.4 million square feet. Despite the sizable footprint, this tenant represented just 1% of total straight-line rent. Contractor’s Steel encountered financial difficulties and vacated in the first quarter of 2025. Following their departure and subsequent to Q1 2025, we sold all five vacant properties for a combined $60 million. Having proactively marketed the assets early upon learning of their financial distress, which helped minimize vacancy downtime. Including the sale of these properties, our pro forma first quarter of 2025 occupancy would be 98%. We view this as a favorable outcome as it immediately reduced vacancy with minimal impact on the broader portfolio. Geographically, 76% of our straight-line rent is earned in North America and 24% in Europe. Unlike many net lease peers, our exposure to Europe differentiates us by providing diversification across economic cycles and the ability to capitalize on unique market opportunities not typically available in the U.S. The portfolio features a stable tenant base and a high quality of earnings with an industry-leading 60% of tenants receiving an investment grade or implied investment grade rating. The portfolio features an average annual contractual rental increase of 1.5% which excludes the impact of 18.7% of the portfolio with CPI linked leases that have historically experienced significantly higher rental increases. On the leasing front, we achieved positive leasing spreads encompassing over 826,000 square feet with attractive renewal spreads that were 8.2% higher than expiring rents. New leases that were completed in the first quarter of 2025 have a weighted average lease term of five years while renewals that were completed during this period have a weighted average lease term of 6.6 years. We have some additional updates regarding our portfolio. In April, we received written notice from the General Services Administration revoking its previous intent to exercise termination rights related to its lease at our Class A office building in Franklin, Tennessee. As a result, the existing lease agreement with the GSA remains in full force and effect and we look forward to continuing our strong relationship with GSA for many years to come. In addition, we've taken proactive steps to reduce our exposure to the gas and convenience store sector, an industry undergoing structural shifts in consumer behavior, fuel demand, and evolving transportation trends. As part of this effort, we started to strategically scale back our concentration to certain tenants within the segment. This decision reflects our disciplined approach to portfolio management and our ongoing focus on reallocating capital toward higher growth sectors that better align with our long-term strategic vision. 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 4.3% of total straight-line rent, and our top 10 tenants collectively contribute only 26% of total straight-line rent. We carefully monitor all tenants in our portfolio and their business operations on a regular basis. I encourage everyone to look at the details of each segment of our portfolio, which can be found in our Q1 2025 investor presentation on our website. We're encouraged by the meaningful progress made on the sale of our multi-tenant portfolio, which is a pivotal step in GNL's strategic transformation. We believe this transaction unlocks key levers to support long-term growth while allowing us to sharpen our focus as a pure-play net lease REIT. We also believe the considerable uncertainty in the current market environment makes this a particularly opportune moment to bolster our liquidity position. With incremental cash on hand and enhanced capacity on our evolving credit facility, we'll remain disciplined and deliberate as we navigate the current market. I'll turn the call over to Chris to walk through the financial results and balance sheet matters in more detail. Chris?

Thanks, Mike. As always, you can find a reconciliation of GAAP net income to non-GAAP measures in our earnings release on our website. We want to highlight that our first quarter 2025 earnings and leverage metrics reflect the full benefit of NOI from the unencumbered assets sold during the multi-tenant portfolio sale, as we expected when setting our full year guidance. In the first quarter of 2025, we generated revenue of $132.4 million and reported a net loss attributable to common stockholders of $200.3 million, which we anticipate will improve significantly upon the closing of the remaining multi-tenant portfolio sale. Our AFFO was $66.2 million, equivalent to $0.29 per share. Regarding our balance sheet, our outstanding debt stood at $3.9 billion at the end of the first quarter of 2025, a decrease of $1.6 billion from the end of the first quarter of 2024. Our debt consists of $1 billion in senior notes, $547 million on our multi-currency revolving credit facility, and $2.3 billion of gross mortgage debt. As of the end of the first quarter of 2025, 91% of our debt is fixed, either at fixed rates or swapped to fixed rates. Our weighted average interest rate was 4.4%, and we had an interest coverage ratio of 2.5 times. At the end of the first quarter of 2025, our net debt to adjusted EBITDA ratio was 6.7 times, based on net debt of $3.7 billion. Just as a reminder, our net debt to adjusted EBITDA was 8.4 times at the end of the first quarter of 2024. As of March 31, 2025, we held liquidity of approximately $499 million and $1.4 billion of capacity on our revolving credit facility. Additionally, we had about 229 million shares of common stock outstanding, with approximately 230 million shares on a weighted average basis for the first quarter of 2025. By May 2, 2025, we had repurchased 7.9 million shares at a weighted average price of $7.50 per share under our share repurchase program, resulting in around 223 million shares outstanding. As Mike mentioned, considering potential market turbulence, we have taken proactive measures to strengthen GNL's balance sheet and overall financial position, which we believe is the prudential course of action. Furthermore, we are implementing our hedging strategy with FX forwards to secure foreign exchange rates for the next three to four years. This strategy aims to mitigate risk and lessen cash flow uncertainty during market volatility. We remain committed to enhancing liquidity and maintaining financial flexibility, positioning us well to handle any market conditions. Looking ahead to the rest of 2025, based on our progress so far, we are reaffirming our AFFO per share guidance range of $0.90 to $0.96 and our net debt to adjusted EBITDA range of 6.5 times to 7.1 times. I'll now hand it back to Mike for his closing remarks.

Thanks, Chris. Looking ahead, we're encouraged by the meaningful progress we've made in executing on our strategic priorities. The first quarter of 2025 was a significant turning point as we took deliberate steps to simplify our portfolio, strengthen our balance sheet, and enhance financial flexibility. We have a clear focus on creating long-term value reflected by the successful execution of the first phase of the multi-tenant portfolio sale, combined with our additional disposition pipeline and proactive debt reduction efforts. We remain on track to close the other two tranches of the multi-tenant portfolio sale in the second quarter of 2025, marking another important milestone in our transformation. With a simplified asset base, reduced leverage, and increased liquidity, we believe GNL is better positioned to operate efficiently and pursue opportunities that align with our strategic vision. We believe the actions we've taken have significantly improved our ability to navigate today's market environment while setting the stage for durable growth. Disciplined execution and the strategic deployment of capital towards initiatives that enhance long-term value remain at the core of our approach. These are foundational decisions designed not just to improve short-term metrics but to drive long-term resilience and performance. We're excited about the future and confident in our path forward. We're available to answer any questions you may have after the call. Operator, please open the line for questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. The first question comes from the line of John Kim from BMO Capital Markets. Please go ahead.

Good morning, John.

Good morning. On the disposition pipeline of $2.1 billion, can you break down the remaining $300 million that's not part of the multi-tenant portfolio sale by either sector or geography?

In our filed materials and pipeline report, we have done that. A lot of that is disposition pipeline that has been underway since the end of ‘24 into ‘25. It's more of what you saw in 2024 of what we have identified in the portfolio as non-core. And it's just a continuing part of how we're looking at the further deleveraging.

And Michael, you alluded to the volatility in the financial markets since the tariffs were introduced. How much do you think that will impact your ability to sell or pricing that you're looking to achieve?

I think we're going to continue to see opportunity to sell the assets in market typically to either local private buyer or 1031 buyer for the most part. We've also seen opportunities and have taken advantage of certain markets where repositioning of an asset through a developer sale has continued to be strong. We're not seeing a big change from what we experienced in 2024 as it relates to the disposition strategy. Again, it's I think really enhanced by the relationships that we have with the brokers in community. We've never set out to just have one large national brokerage firm handle all dispositions. And the relationship with brokers, I'm always grateful for how well they know their markets, how hard they work. And their interests are aligned with ours. We want to sell the property. They want to earn a commission. So they do great work for us.

On the share repurchases, you mentioned you achieved a 12% AFFO yield. Is that the hurdle rate that you're looking for on future buybacks?

We are certainly very pleased with where we've been executing on the buyback. It is very opportunistic for us to be at this level. It's kind of a blessing and a curse, John. There's nothing I'd like more than to be approaching a double-digit stock price. But while this work that we're doing is taking hold, and we've talked about the improved liquidity, the lower leverage, the great leasing that we had in the quarter, the continued dispositions, it's very rewarding for us to see the opportunity to buy back shares to the long-term benefit, the accretion. There's no real estate that a company could buy right now that's equal to the value of what we're doing. Not only are we reducing the outstanding share count, as you know, but we're buying shares that we feel are materially undervalued and trading at too big of a discount to NAV. So I was very pleased when the board approved our buyback and we were able to announce it. And to buy back nearly $60 million of stock this quickly was probably faster than I had anticipated. But the opportunity being what it was, we jumped in. We'll continue to monitor the AFFO accretion, the hurdle, as you put it. We still think there's opportunity here, but again, I'd like nothing more than to see this be the combination of the results of the second quarter, what really gets this stock moving and closes that gap that we see to value. So it's a great way to add to what we're doing.

Great. Thank you.

Thanks, John.

Thank you. We take the next question from the line of Upal Rana from KeyBanc Capital Markets. Please go ahead.

Hi, Upal.

Great, thanks. Hey, good morning out there. So just on the buyback, I was wondering if you'd share your strategy on the capital allocation and this pecking order where you see buying more shares or paying down more debt or potentially buying assets again in the future.

Well, we would love to have the market come to us in a way that makes buying assets accretive and interesting, but we're not there right now and we don't see the market being very interesting as well. What is coming to market, I don't really see as interesting or long-term valuable. We're very focused, as you know, on reduction of leverage and opportunistic buyback of shares. It is something that we talk about internally, look at with the board. And as we confirmed in our earlier comments, we are reaffirming guidance. And in our 2025 guidance, we gave our leverage metrics of 6.5 to 7.1 times. They're just the ongoing execution of the business model, which includes dispositions, it includes leasing. So leverage and buyback are not the only two levers that will have a direct impact on our overall net debt to EBITDA. So we're mindful, we're very mindful of leverage because we think the continued lowering of leverage is going to have a meaningful impact on our cost of capital. And it's going to open some doors for the company. We've talked about our one of our mid to, we'll call it a midterm goal, is achieving investment grade rating. We know that that's going to occur through the continued execution of our plan to lower leverage. So I'm actually really proud of the work we're doing because we're addressing a number of important things. It's a lot of focus. It's a lot of great execution between the asset management teams and the dispositions, the overall capital desk and how we're handling the stock buyback. A lot of great work, Chris and his team managing the credit facility, and just the increased liquidity that the company has at the end of the first quarter is really meaningful. So, a lot of really good things to focus on for GNL. And I think that we're starting to get some recognition for the direction that we're taking the company. And I always like to talk about sticking to your knitting. I feel like we're really sticking to our knitting and we're not getting distracted. And we're just doing the things that are going to create long-term value. You know, it's funny, in one quarter, it's almost like the announcement of the sale of the multi-tenant portfolio was a huge announcement because of what it does long-term for GNL. Simplifying the story. We closed that big first tranche. We're on track to execute in the second quarter the remaining pieces of that transaction. So, the word transformative gets used too often, I feel, but I think the first half of 2025 has really been transformative for us. And we're looking forward to second quarter results and moving on from here.

Okay, great. That was helpful. And then just on the credit rating upgrade, maybe you can share some of the conversations you've had with some of the credit agencies and potential timing there. And maybe you can share, if you were to get an upgrade, what the potential savings could look like.

Yeah, I'm going to be a little close to the chest on that one because the conversations, of course, are confidential between the agencies and the company. But you saw from their announcement that we were credit watch positive, that they are following the company and they see the value in lowering leverage and what it does for us. I think from our longer-term view, eventually being able to access what I'll just call investment-grade debt opportunities, you know the value of that for the company. And right now, we've given 2025 guidance. We've got AFFO guidance of $0.90 to $0.96 per share. That takes into account how we're thinking of everything inclusive of debt costs in 2025. So, I think that that would probably be something that we're more looking at from a guidance standpoint for 2026.

Okay. All right. Thank you. And then just last one for me, just on the strategy of the kinds of disposition you're targeting moving forward. With the multi-tenant portfolio, obviously, it's a big announcement, but just, given that's mostly out of the way and you have mentioned in the past, the office portfolio will likely be sort of one-off. What else is there to do in your portfolio to recycle?

Well, we're looking at some of the retail opportunities in the portfolio from a disposition standpoint. We are, as you mentioned, there are opportunities for dispositions in the office as well. We're a large portfolio. After the multi-tenant disposition, we'll be just over 1,000 properties. So, we can really take a very granular review of the portfolio and kind of look at our long-term goals. And I spoke about that last quarter. Obviously, we see continued value in single-tenant industrial and retail for long-term growth. We've got good value and a lot of investment-grade tenants in our office portfolio, but it's not something that I'd like to see grow. So, we will opportunistically sell at value from that portfolio. But as I said earlier, we're pleased to see the level of buyers. We've been able to continue our velocity of dispositions and it'll help us achieve the goals that we've already stated.

Okay, great. Thank you.

Thanks.

Thank you. The next question comes from the line of Mitch Germain from Citizens JMP. Please go ahead.

Hi, Mitch.

Hey, good morning. Congrats on the quarter.

Thank you.

When I look at the amount, I see that it has remained fairly stable from last quarter to this quarter. I don't have all the details of your disposition pipeline, but I am aware that some assets may have fluctuated. I'm interested in your plans for the upcoming quarter, as it seems you have significant sales anticipated. Will you continue to pursue aggressive asset sales as long as there are opportunities to use the proceeds?

Mitch, you consistently ask insightful questions that can be challenging to answer directly because there is a balance in how we approach dispositions. We aim to see dispositions and utilize the proceeds related to leverage, which we have done and will continue to do. At the same time, it’s crucial for us to monitor and understand our net operating income and earnings within the business as well. Thus, it isn't simply a matter of opening the door and selling everything, as we believe our strategy is intentional and will generate the kind of value we desire. We think this approach will help close the gap between our share price and net asset value. Additionally, we have the advantage of our buyback program. Therefore, we are continuously assessing our position, evaluating leverage, and considering the market opportunities for dispositions. Between calendar years 2024 and 2025, we plan to sell a significant number of assets at favorable prices. I am confident that our guidance for 2025 will be met and will help us achieve the goals we have set.

Okay. 3 billion, by the way, is what you're selling, which is pretty impressive.

Yeah. Yeah.

How should I think about some of your commentary regarding C-stores? I mean, are some of those properties in your disposition slide in your presentation, or is that something that could be considered going forward as potential sale candidates, as you mentioned retail, in addition to office?

Well, it was one of our larger sectors in the portfolio. So, yes, we did think, as we've looked at different things, the macro view on fuel prices are, well, the refiners are under some pressure. The convenience store with labor rates going up are under pressure. So, we try to take a longer, earlier view of what is changing or sometimes it's changing for good, sometimes it gives us concern. So, we have been lightening our exposure to gas and convenience, and that, I expect you'll see, will continue.

Got you. Last for me, I guess you had that, you talked about a situation with a tenant, Contractor’s Steel, sorry.

Yes.

I hate asking about watchlists, but, you talked about C-store and trying to get ahead of potential headwinds there. Rather than say what's happening with your watchlist, is there anything that you're looking in your sector that might be a candidate for sale, just because looking out how the trends or your view on a sector trends are materializing may create an opportunity to get ahead of headwinds? Is that kind of anything that comes to mind, other than C-stores?

Yeah, I'm going to be a little bit coy because sometimes as we're looking to dispose of things, that's not the type of commentary we'd like out in the market. But yes, it is absolutely part of the strategic review that Ori and his team do on a regular basis. Sometimes it's easier to talk about it after the sale, and I can explain our logic of how we're looking at a certain sector, et cetera. But first of all, the real estate is really good real estate. It's well located. Whether it's going to continue its existing tenant and operation, or whether because it's located at a main and main location somewhere in a market in America where people live and work, there's a lot that can be done with these types of properties. It's always what we've liked about single tenant net lease. So, I think the important thing to really focus on is the watchlist is important, but the asset management review that we're constantly doing, we know the opportunities. Sometimes it's because a developer reaches out to us and all of a sudden is very interested in a property. We're able to get out to that market, see what's going on, figure out what the highest and best use is. Sometimes a great offer isn't great enough, and other times you kind of start to see that, okay, things are long-term, a little bit different than when we bought the property five or six years ago. So, we want to get ahead of it. But it all goes hand in hand, great real estate, understanding the financials, understanding the sector, and then making decisions, hopefully, while there's still great value in the property.

Thank you.

Thanks, Mitch.

Thank you. Ladies and gentlemen, as there are no further questions, I will now hand the conference over to Mike Weil for his closing remarks. Mike?

Great. Well, thank you, everybody. We always appreciate you taking the time to catch up with us and to see the progress that GNL is making. As I said a little bit earlier, really proud of this work that we're doing. We're all very focused and starting to see the benefits of these conclusions. So thanks again. If you have any questions, we look forward to following up. We'll talk to everybody soon, and I guess we'll see most of you at NAREIT in a couple of weeks. So talk to everybody then. Thank you.

Thank you. Ladies and gentlemen, the conference of Global Net Lease has now concluded. Thank you for your participation. You may now disconnect your lines.