Global Net Lease, Inc. quarterly report, Q2 FY2015

Global Net Lease, Inc. — 2Q 2015 Form 10-Q Summary

Business context and reporting period

Quarterly report for the three and six months ended June 30, 2015. Global Net Lease is an externally managed REIT focused primarily on single-tenant, net-leased commercial properties in the United States and Europe. On June 2, 2015, the company listed its common stock on the NYSE under “GNL,” transitioning from a non-traded REIT.

Portfolio at June 30: 311 properties, 16.5 million rentable square feet, 100% leased, with an 11.4-year weighted-average remaining lease term.
Geographic mix: 61.7% U.S. and 38.3% Europe, based on original purchase price.
Shares outstanding at July 15: 169.1 million.

Financial performance and key metrics

Metric	Three months ended June 30, 2015	Three months ended June 30, 2014	Six months ended June 30, 2015	Six months ended June 30, 2014
Total revenue	$49.1 million	$13.6 million	$99.0 million	$21.2 million
Operating income (loss)	$(21.8) million	$(4.7) million	$(2.7) million	$(19.3) million
Net loss attributable to stockholders	$(45.7) million	$(7.5) million	$(19.8) million	$(23.8) million
Net loss per share	$(0.25)	$(0.07)	$(0.11)	$(0.32)
Cash flow from operations	Not separately provided	Not separately provided	$44.4 million	$(3.2) million
AFFO	$29.4 million	Not provided in the filing table	$60.6 million	Not provided in the filing table

Quarterly operating margin was approximately negative 44.4%; six-month operating margin was approximately negative 2.7%.
Quarterly net loss margin was approximately negative 93.3%; six-month net loss margin was approximately negative 20.1%.
Rental income increased to $47.2 million in the quarter and $94.7 million year to date, primarily from 215 properties acquired since June 30, 2014.
Results included $18.5 million of listing fees, $14.5 million of expense from vesting Class B units, and a $4.4 million change in the fair value of the Listing Note.
Foreign exchange and derivative effects included a quarterly $11.8 million unrealized loss on non-functional-currency advances and a $3.7 million derivative loss.

Balance sheet, debt and liquidity

Total assets were $2.394 billion at June 30, compared with $2.429 billion at December 31, 2014. Net real estate investments were $2.272 billion.
Cash and cash equivalents were $61.6 million; restricted cash was $4.1 million.
Mortgage notes payable were $337.4 million, with a 3.6% effective rate; the revolving credit facility balance was $596.1 million, with a 2.1% weighted-average rate.
The credit facility had a $705.0 million maximum capacity and $108.9 million of unused borrowing capacity at quarter-end. Its initial maturity was July 25, 2016, with two one-year extension options subject to conditions.
Total debt was approximately $933.5 million, and management reported a 38.5% debt-to-real-estate-purchase-price leverage ratio.
Management reported compliance with credit facility and mortgage covenants.
Six-month investing cash outflows were $38.8 million, principally for four property acquisitions costing $47.2 million. Financing cash outflows were $18.8 million, including $37.8 million of cash dividends.

Material changes versus the prior comparable period

Revenue grew substantially because of the company’s much larger property base: quarterly revenue increased approximately 260% and six-month revenue approximately 368% year over year.
Quarterly net loss increased materially because of listing-related charges, Class B unit vesting, the Listing Note valuation, higher depreciation, interest expense and foreign-currency losses.
Six-month net loss improved from $23.8 million to $19.8 million, while operating loss improved from $19.3 million to $2.7 million; however, the current period included significant non-recurring and non-cash items.
Interest expense increased to $7.9 million for the quarter and $15.8 million for the six months, reflecting higher average borrowings.
Cash flow from operations improved to $44.4 million from a $3.2 million use of cash in the prior-year six-month period.
The DRIP was suspended and the share repurchase program was terminated in April 2015. The company also completed a $125.0 million tender offer for approximately 11.9 million shares, funded after quarter-end with $20.0 million of cash and $105.0 million drawn under the credit facility.

Guidance, outlook, commentary and risks

No formal earnings or acquisition guidance was provided. Management expects that, as the portfolio matures, rental income should cover operating expenses and monthly dividends, but dividends are subject to board approval and available funds and are not assured.
Monthly dividends were declared at $0.059166667 per share. Six-month dividends to common stockholders totaled $66.4 million; 56.9% was funded by operating cash flow and 43.1% through shares issued under the DRIP.
The company’s post-listing advisory agreement provides for an $18.0 million annual minimum base management fee, a variable equity-based fee and incentive compensation subject to performance hurdles and caps.
The Listing Note had a $4.4 million fair value at June 30, but its final amount may differ materially because it depends on a future share-price measurement period.
Foreign operations expose the company to currency, interest-rate, foreign-law and economic risks. The credit facility is primarily variable-rate and includes substantial foreign-currency borrowings.
Key risks include tenant concentration, reliance on external managers and related parties, conflicts of interest, refinancing needs, interest-rate increases, currency volatility, dividend coverage, REIT qualification and the ability to maintain effective public-company controls.
There were no material pending legal or regulatory proceedings, and management reported effective disclosure controls.
Subsequent to quarter-end, the company acquired four additional properties for $16.5 million, refinanced five U.K. properties for $26.9 million of net proceeds, and disclosed proposed transactions affecting the ownership of its sponsor, advisor and property manager.

Facts investors should verify

Whether recurring rental cash flow and AFFO, excluding listing and other unusual items, sustainably cover the declared dividend.
The final value and settlement terms of the Listing Note and the economic effect of the related-party advisory and incentive arrangements.
Availability, maturity and refinancing plans for the $596.1 million credit facility, particularly ahead of its July 2016 initial maturity.
Exposure to foreign-currency losses and the effectiveness of the company’s hedge designations.
Tenant credit quality, geographic concentration and lease-renewal exposure despite the reported 100% occupancy.
The effect of the $125.0 million tender offer and subsequent borrowings on leverage, liquidity and per-share performance.