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 a well-established history spanning over a decade, having been organized and commenced operations in 2013.
Business Overview Global Net Lease was initially formed in 2013 to operate as a REIT, focusing on acquiring and managing a globally diversified portfolio of mission-critical, single-tenant net-lease assets. Over the years, the company has expanded its portfolio, strategically pivoting to include a mix of single-tenant and multi-tenant retail properties, as well as industrial distribution and office assets.
In September 2023, GNL completed the transformative acquisition of The Necessity Retail REIT, Inc. (RTL), which significantly expanded the company's portfolio to over 1,200 properties consisting of 61.9 million rentable square feet across the United States and Europe. This acquisition added 989 primarily necessity-based retail single-tenant and multi-tenant properties located in the U.S. to GNL's portfolio.
Prior to this acquisition, GNL was externally managed by Global Net Lease Advisors, LLC, and its properties were managed by Global Net Lease Properties, LLC. However, the RTL acquisition was coupled with the internalization of GNL's advisory and property management functions through the Internalization Merger, which terminated the existing agreements with these related parties. This allowed the company to operate with a dedicated internal workforce.
It's worth noting that GNL faced some challenges during this transformative period. In 2023, the company incurred significant merger, transaction, and other costs related to the acquisition of RTL and the Internalization Merger. Additionally, GNL recorded impairment charges of $65.7 million in 2023 related to a decline in the fair values of certain properties. The company also dealt with a proxy contest and related litigation with Blackwells Capital LLC in 2023, which resulted in settlement costs.
Today, GNL's portfolio is well-diversified, with 33% industrial distribution, 27% multi-tenant retail, 22% single-tenant retail, and 18% office properties, based on annualized straight-line rent. Geographically, 80% of the portfolio is located in North America, while 20% is in Europe. The company's tenant base is also highly diversified, with no single tenant accounting for more than 3% of total straight-line rent, and the top 10 tenants collectively contributing only 22% of total straight-line rent.
Financial Highlights and Ratios As of the latest reporting period, GNL generated quarterly 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 $73.9 million, or $0.32 per share.
GNL's balance sheet reflects a total debt of $5.0 billion, with a weighted average interest rate of 4.8% and a debt composition that is 91% fixed-rate. The company's net debt to adjusted EBITDA ratio stood at 8.0x as of the end of the third quarter of 2024, down from 8.4x at the start of the year.
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 the most recent quarter (Q3 2024), the company generated revenue of $196.56 million, a net loss of $65.64 million, operating cash flow of $62.13 million, and free cash flow of $47.82 million.
The company's debt-to-equity ratio is 0.696986, indicating a relatively balanced capital structure. The current ratio and quick ratio both stand at 0.074, suggesting potential short-term liquidity challenges.
Liquidity In terms of liquidity, GNL had $127.25 million in cash and cash equivalents, as well as $125.40 million of availability under its $1.95 billion revolving credit facility as of September 30, 2024. The company's fixed charge coverage ratio was 2.5x, indicating a strong ability to service its debt obligations.
Operational Highlights and Strategic Initiatives A key focus for GNL in 2024 has been executing on its five-pillar strategic plan, which includes:
1. Capturing Synergies: The company exceeded its initial $75 million cost synergy target, achieving $85 million in annual recurring savings through the internalization of its management functions.
2. Reducing Leverage: GNL has reduced its net debt by $445 million year-to-date, including $162 million in the third quarter, primarily through strategic dispositions. This has resulted in an improvement in the company's net debt to adjusted EBITDA ratio to 8.0x.
3. Asset Dispositions: GNL has executed on its disposition initiative, having closed $579 million in asset sales at a 7.1% cash cap rate as of November 1, 2024. The company has an additional $371 million in dispositions under contract or in the pipeline, which will further reduce outstanding debt.
4. Portfolio Optimization: The company has focused on increasing portfolio occupancy, which improved from 94% in the second quarter to 96% in the third quarter of 2024. GNL has also achieved positive leasing spreads of 4.2% on renewals during the quarter.
5. Proactive Debt Management: GNL has successfully addressed all of its 2024 debt maturities through dispositions or refinancing onto its revolving credit facility, and has no debt maturities until July 2025.
Segment Performance GNL operates in four reportable segments:
Industrial Distribution Segment: Representing 33% of the portfolio based on annualized straight-line rent, this segment includes 207 properties with 32.04 million square feet of space that were 98% leased. Revenue from tenants in this segment was $183.08 million for the nine months ended September 30, 2024, an increase from $157.88 million in the same period of the prior year.
Multi-Tenant Retail Segment: Accounting for 27% of the portfolio, this segment includes 103 properties with 15.17 million square feet of space that were 90% leased. Revenue from tenants in this segment was $196.15 million for the nine months ended September 30, 2024, a significant increase from $13.39 million in the same period of the prior year.
Single-Tenant Retail Segment: Representing 22% of the portfolio, this segment includes 832 properties with 7.75 million square feet of space that were 98% leased. Revenue from tenants in this segment was $118.11 million for the nine months ended September 30, 2024, an increase from $20.47 million in the same period of the prior year.
Office Segment: Accounting for 18% of the portfolio, this segment includes 81 properties with 6.93 million square feet of space that were 97% leased. Revenue from tenants in this segment was $108.55 million for the nine months ended September 30, 2024, a decrease from $116.61 million in the same period of the prior year.
Outlook and Guidance For the full year 2024, GNL reaffirmed its guidance for adjusted funds from operations (AFFO) in the range of $1.30 to $1.40 per share. The company also reiterated its target for $650 million to $800 million in total asset disposition proceeds for the year, which it expects will further reduce leverage and improve its net debt to adjusted EBITDA ratio. GNL is reaffirming its net debt to adjusted EBITDA guidance range of 7.4 times to 7.8 times for 2024.
Risks and Considerations While GNL has demonstrated its ability to navigate challenging market conditions, the company faces risks inherent to the real estate industry, such as fluctuations in occupancy rates, tenant defaults, and changes in market conditions. Additionally, the company's international operations expose it to currency exchange rate risks and potential geopolitical uncertainties.
Conclusion Global Net Lease has established itself as a diversified net lease REIT with a focus on optimization and deleveraging. Through the strategic acquisition of RTL and the internalization of its management functions, the company has significantly expanded its portfolio and enhanced its operational efficiency. GNL's commitment to reducing leverage, executing on its disposition initiative, and improving portfolio occupancy and leasing spreads positions it well to navigate the current market environment and drive long-term value for shareholders. The company's ability to exceed its cost synergy targets and its proactive approach to debt management demonstrate its commitment to operational excellence and financial stability.