Global Net Lease, Inc. quarterly report, Q1 FY2024

Global Net Lease, Inc. — Q1 2024 Form 10-Q Summary

Business context and reporting period

Global Net Lease, Inc. is a REIT focused on global income-producing net-lease real estate across the U.S., Canada and Europe. This unaudited Form 10-Q covers the three months ended March 31, 2024.

Following the September 2023 acquisition of The Necessity Retail REIT and internalization of advisory and property-management functions, GNL owned 1,277 properties totaling 66.9 million rentable square feet. The portfolio was 92.8% leased, with a 6.5-year weighted-average remaining lease term. Approximately 80% of annualized rental income was from the U.S. and Canada and 20% from Europe; 58.2% was attributed to actual or implied investment-grade tenants.

Key financial metrics

Metric	Q1 2024	Q1 2023
Revenue from tenants	$206.0 million	$94.3 million
Net operating income	$168.2 million	$86.2 million
Operating income	$58.8 million	$30.4 million
Net loss	$23.8 million	$0.9 million
Net loss attributable to common stockholders	$34.7 million	$6.0 million
Basic and diluted loss per share	$0.15	$0.06
FFO attributable to common stockholders	$55.8 million	$31.0 million
Core FFO attributable to common stockholders	$56.6 million	$31.1 million
AFFO attributable to common stockholders	$75.0 million	$39.8 million
Net cash provided by operating activities	$92.2 million	$63.0 million

Revenue increased 118.4% year over year, while operating income represented approximately 28.6% of revenue and consolidated NOI represented approximately 81.6% of revenue. The net loss margin was approximately 11.5%. FFO, Core FFO and AFFO are non-GAAP measures and are not substitutes for GAAP net income or operating cash flow.

Balance sheet, debt and liquidity

Total assets were $8.0 billion and net real estate investments were $7.4 billion at March 31, 2024.
Cash and cash equivalents were $131.9 million; cash, cash equivalents and restricted cash totaled $183.7 million.
Debt consisted of $2.5 billion of net mortgage notes, $1.8 billion under the revolving credit facility and $890.9 million of senior notes.
Total debt was approximately $5.4 billion, with a 64.9% debt-to-real-estate purchase-price leverage ratio and a 3.3-year weighted-average debt maturity.
Approximately 84% of debt was fixed-rate or swapped to fixed, at a weighted-average rate of 4.3%; 16% was variable-rate debt at a weighted-average rate of 7.3%.
Only approximately $43.5 million was available under the $1.95 billion revolving credit facility at March 31, 2024. The facility matures October 8, 2026, subject to extension options.
GNL reported compliance with the revolving-credit and senior-note covenants. Four property-level debt instruments had covenant-related issues that were cured through letters of credit or restricted cash arrangements.

Cash flow, dividends and capital allocation

Operating cash flow of $92.2 million covered 99.4% of $92.7 million of dividends and distributions paid during the quarter; $0.5 million came from available cash.
Investing cash flow was positive $35.2 million, reflecting $43.1 million of property-sale proceeds, partially offset by $8.0 million of capital expenditures. No properties were acquired during the quarter.
Financing cash flow was negative $107.9 million, primarily due to common and preferred dividends and mortgage principal repayments, partially offset by $27.3 million of net revolver borrowings.
The common dividend paid during the quarter was $0.354 per share. In February 2024, the Board reduced the annualized common dividend rate to $1.10 per share, or $0.275 per quarter, effective with the dividend declared in April 2024, to support deleveraging.

Material changes versus the prior comparable period

The year-over-year comparisons are substantially affected by the September 2023 RTL acquisition and internalization merger; therefore, the periods are not fully comparable.
Revenue and NOI increased primarily because the acquired RTL portfolio contributed $66.8 million of multi-tenant retail revenue and significant additional single-tenant retail revenue.
Operating fees to related parties fell to zero from $10.1 million because external advisory and property-management agreements were terminated. General and administrative expense increased to $16.2 million from $5.7 million as GNL assumed employee compensation and corporate overhead.
Interest expense increased to $82.8 million from $27.0 million, driven by debt assumed in the merger, additional revolver borrowings and higher weighted-average borrowing costs.
Depreciation and amortization increased to $92.0 million from $37.0 million, primarily because of the larger post-merger asset base.
GNL recorded $4.3 million of impairment charges on six U.S. properties and a $5.9 million gain on the sale of 19 properties. No comparable impairment or property sales were recorded in Q1 2023.

Outlook, commentary, risks and unusual items

Management expects operating cash flow and existing cash to fund near-term dividends and anticipated capital expenditures, but dividend capacity remains subject to cash flow, debt covenants, REIT requirements and Board decisions.
GNL intends to manage leverage through strategic or opportunistic dispositions. At the filing date, definitive agreements covered 42 properties totaling $481.9 million of expected proceeds, and non-binding letters of intent covered three properties totaling $8.6 million. Completion and pricing are not assured.
Subsequent to quarter-end, GNL sold seven properties for approximately $18.2 million and entered into a $237.0 million five-year, fixed-rate CMBS loan at 5.74%, secured by 20 industrial properties. Proceeds were used to repay revolver borrowings.
In April 2024, GNL repaid the $127.5 million McLaren mortgage using GBP revolver borrowings.
Interest-rate, refinancing, foreign-currency and property-value risks remain significant given leverage, limited revolver availability and the 3.3-year weighted-average debt maturity. The company uses interest-rate swaps and foreign-currency derivatives, but derivative values can affect reported earnings.
Approximately 78.2% of leases contain rent-escalation provisions, while 21.8% do not. Inflation, tenant credit, occupancy, lease renewals and operating costs may affect results.
No formal quantitative earnings or revenue guidance was provided in the filing. Management stated that the results for the quarter are not necessarily indicative of full-year results.
There were no material pending legal or regulatory proceedings reported, and management stated that disclosure controls and procedures were effective.

Important facts for investors to verify

Reconcile AFFO and dividend coverage, including the distinction between the company’s AFFO and the “Adjusted FFO” definition in the revolving-credit agreement.
Review the $490.6 million of announced or proposed dispositions, including closing conditions, sale prices and use of proceeds for debt reduction.
Monitor 2024 and 2025 debt maturities, the limited $43.5 million revolver availability and compliance with property-level covenants.
Assess the sustainability of the reduced common dividend given operating cash flow, required preferred dividends, capital expenditures and refinancing needs.
Evaluate portfolio occupancy, lease expirations, tenant credit quality and exposure to office and multi-tenant retail properties.
Consider the effect of the RTL merger on period comparability and on depreciation, amortization, interest expense and goodwill.