Business Overview and History

Global Net Lease, Inc. (NYSE:GNL) is an internally managed real estate investment trust (REIT) that focuses on acquiring and managing a globally diversified portfolio of strategically located commercial real estate properties. The company has undergone a significant transformation in recent years, executing a strategic plan aimed at enhancing its financial position, streamlining its operations, and positioning the business for long-term success.

Global Net Lease was established in 2013 and has since grown its portfolio to over 1,200 properties spanning 61.9 million square feet across the United States, Canada, and Europe. The company's diverse portfolio includes industrial distribution, multi-tenant retail, single-tenant retail, and office properties, with a weighted average lease term of 6.3 years as of September 30, 2024.

Initially, GNL focused on acquiring and managing a globally diversified portfolio of strategically-located commercial real estate properties, which consisted primarily of mission-critical, single tenant net-lease assets. Prior to September 2023, GNL was externally managed by Global Net Lease Advisors, LLC (the "Advisor") and its properties were managed and leased to third parties by Global Net Lease Properties, LLC (the "Property Manager"). The Advisor and Property Manager were under common control with AR Global Investments, LLC (AR Global) and these related parties had historically received compensation and fees for various services provided to GNL.

In 2023, GNL made a transformative move by acquiring The Necessity Retail REIT, Inc. (RTL), a transaction that significantly expanded the company's asset base and geographic reach. The REIT Merger and Internalization Merger were completed on September 12, 2023, with GNL assuming RTL's advisory and property management functions and transitioning to an internally managed structure. As a result of these transactions, known as the "Mergers", GNL no longer pays fees to external managers and instead has its own dedicated workforce managing the operations of the combined company.

The Mergers significantly diversified GNL's portfolio, adding 989 properties consisting primarily of necessity-based retail single-tenant and multi-tenant properties located in the U.S. As of September 30, 2024, GNL owned 1,220 properties spanning over 61 million square feet, which were 96% leased with a weighted-average remaining lease term of 6.3 years.

Navigating Market Challenges and Executing Strategic Initiatives

Despite the challenges posed by the broader macroeconomic environment, GNL has demonstrated its ability to adapt and execute on its strategic initiatives. In the third quarter of 2024, the company reported several notable achievements:

1. Disposition Momentum: GNL closed $579 million in asset dispositions at a cash cap rate of 7.1% as of November 1, 2024, with an additional $371 million under purchase and sale agreements or non-binding letters of intent. This brings the total closed and pipeline dispositions to $950 million, exceeding the company's initial 2024 disposition target of $400 million to $600 million.

2. Debt Reduction: GNL reduced its net debt by $445 million year-to-date, including $162 million in the third quarter, improving its net debt to adjusted EBITDA ratio to 8.0x from 8.4x at the start of 2024. The company anticipates further debt reduction as it completes the dispositions currently in its pipeline.

3. Cost Synergies: The company exceeded its initial $75 million cost synergy target, achieving $85 million in annual recurring savings through the internalization of its advisory and property management functions.

4. Occupancy and Leasing: GNL increased its portfolio occupancy from 94% in the second quarter to 96% in the third quarter, highlighting the strength of its asset management and leasing efforts. The company also achieved positive leasing spreads of 4.2% higher than expiring rents.

Financials

In the third quarter of 2024, GNL reported revenue of $196.6 million and a net loss attributable to common stockholders of $76.6 million. The company's funds from operations (FFO) for the quarter was $74 million, or $0.32 per share.

For the most recent fiscal year (2023), GNL reported revenue of $515.07 million, a net loss of $211.91 million, operating cash flow of $143.74 million, and free cash flow of $96.45 million. In comparison, for the third quarter of 2024, revenue was $196.56 million, net loss was $65.64 million, operating cash flow was $62.13 million, and free cash flow was $47.82 million. The year-over-year revenue growth in Q3 2024 was 66% compared to Q3 2023, primarily driven by the acquisition of RTL in Q3 2023. However, the net income decreased due to higher impairment charges, merger/transaction costs, and interest expense.

GNL operates in four reportable business segments:

Industrial Distribution: Revenue from tenants in this segment was $59.65 million for Q3 2024, with net operating income of $54.16 million.

Multi-Tenant Retail: Revenue from tenants was $62.38 million for Q3 2024, with net operating income of $42.21 million.

Single-Tenant Retail: Revenue from tenants was $38.38 million, and net operating income was $35.51 million for Q3 2024.

Office: Revenue from tenants was $36.15 million, and net operating income was $31.17 million for Q3 2024.

The increase in revenue and net operating income across all segments, except for Office, was primarily driven by the full quarter contribution from properties acquired through the REIT Merger transaction. The Office segment saw a decrease due to property dispositions, partially offset by contributions from office assets acquired in the REIT Merger.

Geographically, 80% of straight-line rent comes from the US and Canada, with the remaining 20% from Europe.

Liquidity

As of September 30, 2024, GNL had approximately $253 million in liquidity, including $127.2 million in cash and cash equivalents and $366 million in available capacity on its revolving credit facility. The company's debt composition remained strong, with 91% fixed-rate debt and a weighted average interest rate of 4.8%.

Additional liquidity metrics as of Q3 2024 include:

- Debt/Equity Ratio: 2.093 - Available Credit Line: $125.4 million available under the $1.95 billion revolving credit facility - Current Ratio: 0.1669 - Quick Ratio: 0.1669

Looking Ahead

GNL has reaffirmed its full-year 2024 guidance, projecting adjusted funds from operations (AFFO) in the range of $1.30 to $1.40 per share and a net debt to adjusted EBITDA ratio of 7.4x to 7.8x. The company's strategic disposition initiative, which has already generated significant proceeds, is expected to continue driving down leverage and enhancing the overall quality of its portfolio.

GNL has increased its disposition initiative guidance range to $650 million to $800 million in total proceeds for 2024, up from the initial range of $400 million to $600 million. This increase reflects the company's success in executing its strategic plan and its commitment to optimizing its portfolio.

Conclusion

Global Net Lease has demonstrated its resilience and adaptability in the face of market challenges. By executing on its strategic initiatives, including aggressive asset dispositions, debt reduction, and cost synergy capture, the company has positioned itself for long-term success. As GNL continues to optimize its portfolio and strengthen its financial position, it remains well-positioned to capitalize on future growth opportunities and deliver value for its shareholders.

The net lease REIT industry is expected to see a compound annual growth rate (CAGR) of approximately 5-7% over the next 3-5 years, driven by continued demand for net lease properties from investors. GNL's strategic positioning and portfolio optimization efforts align well with these industry trends, potentially setting the stage for sustained growth in the coming years.