Global Net Lease Inc (GNL) 2017 Q2 法說會逐字稿

Good afternoon and welcome to the Global Net Lease second-quarter 2017 earnings call. (Operator Instructions). Please note, this event is being recorded.

I would now like to turn the conference to Brad Cohen. Please go ahead.

Thank you, operator. Good afternoon, everyone, and thank you for joining us for Global Net Lease's second-quarter 2017 earnings call. This afternoon's call is being webcast in the Investor Relations section of GNL's website at www.globalnetlease.com. Let me take care of the formal part of the call before turning the call over to GNL's Chief Financial Officer, Mr. Nick Radesca, for a discussion of the quarterly results. In addition, Nick is joined by Mr. Jim Nelson, who has been appointed GNL's Chief Executive Officer and President, effective later this month.

The discussion today will include certain statements and assumptions which are not historical facts -- will be forward-looking, and are being made pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to certain assumptions and numerous risk factors that could cause GNL's actual results to differ materially from those forward-looking statements. We refer all of you to the Company's SEC filings for a more detailed discussion of the risk factors that could cause these differences. Any forward-looking statements provided during this call are only made as of the date of this call. And as stated in the SEC filings, GNL disclaims any intent or obligation to update or revise these forward-looking statements, except as expressly required by law.

Also during today's call, the Company's will discuss non-GAAP financial measures, which we believe can be useful in evaluating the Company's financial performance. These measures should not be considered in isolation, or as a substitute for financial results prepared in accordance with GAAP. A reconciliation of these measures to the most comparable GAAP measures is available in the earnings release.

I will now turn the call over to Mr. Nick Radesca, GNL's Chief Financial Officer, Secretary, and Treasurer. Nick?

Thank you, Brad. Our globally diversified business model performed well this quarter. We reported adjusted FFO of $36.2 million, up 11.6% year-over-year. The 11.6% growth in AFFO accelerated sequentially, up from the 6.7% year-over-year increase we reported during the March quarter. This quarter represents our first full quarter of results after the completion of the Global II merger and the completion of our 2016 asset recycling program. The sequential quarterly increase in AFFO was primarily due to free rent burnoff, which we discussed last quarter, and the impact of first-quarter acquisitions.

At quarter-end, our highly diversified portfolio consisted of 312 net leased properties or $3 billion in real estate investments. Our properties are located in seven countries, leased to 94 tenants across 40 industries, and comprise over 22 million total square feet. The portfolio remains 100% leased, and based on annualized rent, is about 50% in the United States and 50% in Western Europe. The property mix is consistent with last quarter at approximately 59% office, 31% industrial and distribution, and 10% retail. The tenant base remains financially stable, with over 78% of our tenants rated investment grade or implied investment grade. Our weighted average remaining lease term is 9.3 years. And we have no lease expirations before 2020, and less than 4% expirations before 2022.

As we evaluate opportunities to grow the portfolio, the environment remains stable with varying levels of economic growth in our target markets and asset classes. We remain committed to our strategy, with our current primary focus on acquiring assets in the United States. We continue to actively assess acquisition prospects that will provide value; and expect to lower the mix of office properties from the current 59%, which resulted from the merger with Global II, back to historic levels. We expect to accomplish this primarily through the acquisition of new industrial and distribution assets.

Turning to our balance sheet, as of the end of the second quarter, net debt was $1.4 billion, comprised of $722 million on our credit facility and $770 million of outstanding gross mortgage debt. Our net debt to annualized adjusted EBITDA improved to 7.2 times, with a strong interest rate coverage ratio of 4.7 times. The change in net debt to adjusted EBITDA represents a full turn reduction since that close of the Global II merger, reflecting our ability to execute on our plans of growing the portfolio and effectively managing our leverage profile. As of June 30, the Company's total debt had a weighted average interest rate of 2.7%, with about three-quarters of it fixed or swapped to fixed.

Liquidity remains strong, with approximately $67 million of cash on hand at quarter end. In late July, post- quarter end, we entered into a new credit facility. We are very pleased with the execution, and view the transaction as a vote of confidence by our lenders to our strategy and the portfolio. The proceeds from this new unsecured facility were used to repay our existing credit facility. As detailed in the press release, the new facility is composed of two pieces. The first is a $500 million senior, unsecured, multicurrency, revolving credit facility. The revolver has a 4-year term with one 1-year extension option. The second piece is a EUR194.6 million, 5-year, senior, unsecured term loan, which was equivalent to approximately $225 million at funding.

There's also an accordion feature where we may obtain up to $225 million in additional commitments to increase the size of either the revolver or the term facility. In our view, the implementation of the new facility is a crucial step in GNL's plan for a more efficient capital structure which will better position the Company for future growth. The interest rates under the new facility reflect the quality of the portfolio today. Rate spreads are based on our leverage levels, and range from 1.6% to 2.2% over base rate.

The revolver allows for borrowings denominated in US dollars, Euros, British pounds sterling, Canadian dollars, and Swiss francs, giving us ample flexibility in our borrowing strategy across international capital markets. We borrowed $409 million, GBP40 million, and EUR30 million in our initial draw upon the new revolver, which represented a reduction in our debt exposure to foreign currency by GBP120 million and EUR25 million. This change in concentration provides needed flexibility and reduces the day-to-day management of the credit limits.

Two large foreign exchange interest rate swaps were also affiliated with the old credit facility. Upon repayment, we novated, or transferred, euro swap to the new facility, thereby fixing the rate on euro-denominated revolver and term loan borrowings. With the reduction in the GBP borrowings, and we terminated the pounds sterling swap and entered into a new $150 million, 5-year, US dollar interest rate swap. Lastly, during the quarter, we commenced sales under our ATM program and raised net proceeds of $18.3 million at an average price per share of $22.81.

As announced in July, Scott Bowman is stepping down as CEO. We all wish Scott well. I'd now like to introduce Jim Nelson, one of our independent Board members, who will be expanding his role soon as our Chief Executive Officer. Jim has a long record of success as a leader and brings tremendous experience in real estate, international business, and capital markets. He joined our Board in March of this year and has a great understanding of the portfolio and operations. We are very pleased to welcome him onboard.

Now let me turn it over to Jim.

Thanks, Nick, for the introduction. I'm very pleased to join the management team of Global Net Lease. I have had the benefit of serving for a few months as an independent Board member, as well as being Chair of the Audit Committee for GNL. This gives me a unique perspective and insight into the operations of the Company. As I prepare to officially start as CEO in the next few days, I have been actively preparing to lead the effort to further build out the platform and enhance cash flow and results. I have also spent the last few weeks meeting with shareholders, lenders, as well as with our internal acquisitions, asset management, legal, and property due diligence teams. I look forward to visiting many of our assets across the US and Europe in the near future, working with the team to -- and working with the team to identify new investment opportunities and meeting key tenants.

That Company is at an inflection point, with a tremendous opportunity ahead of us as we move into our third year since listing. We are uniquely positioned with a strategy to take advantage of both domestic and international investing and financing opportunities. I believe this distinguishes GNL from our competitors in the net lease industry. Over the next few weeks, I, along with Nick, will continue to review the Company's plans for growth going into 2018; as well as the plans for the Company's capital structure, including ways to bring additional capital into the Company; and in creating a plan to guide the Company forward for the next several years. I am confident as we move ahead that the strength of GNL team, the quality real estate portfolio we have largely leased to high-quality tenants, and our disciplined approach will allow us to build on the current strategy to grow the business in an accretive manner and ultimately increase shareholder value for the long-term.

With that, I'll turn the call back to Nick.

Thanks, Jim. Operator, we can open the line for questions.

(Operator Instructions). David Corak, FBR.

First of all, welcome and congrats, Jim. And Nick, congrats on the credit facility. But I just want to start off: I think the question that's top of mind right now is on the management transition and the strategy going forward. Obviously we've seen a turn in the top two spots in the past six or nine months; and as well as IR, and obviously some changes to the Board. So I'm just hoping you guys could give us -- and Jim, maybe you could give us a 10,000 foot view on your vision for the Company, from property type exposure, country exposure, corporate governance, management affiliation, the balance sheet. I realize that's asking a lot, but I think that would be very helpful. And I know you touched on some of this in your prepared remarks, but anything you can give us to expand on that would be really very helpful.

Yes, David, thanks. I don't see a lot of dramatic changes. I mean, we have a great team, and the team will continue. And I think we've talked about our plans for growth in previous calls, and in this call. And we're just going to continue along that path. The strategy remains very much the same. And we are exploring various ways to bring funds into the Company, which Nick has touched upon. So I think that's about the best answer I can give you. Things will continue the same.

Okay. It looks like you guys were pretty quiet on the acquisitions and dispositions front. In the Q, it says you don't have anything held for sale at this point. How should we think about your acquisitions and dispositions guidance for the year at this point?

At this point we -- there's no change in that guidance. We have a very robust pipeline. And we're working on ways to finance those acquisitions through the rest of the year.

Okay. Well, that leads me into my next question. It looks like you sold 800,000 shares or so on the ATM. Just maybe if you could just walk through your thought process on the ATM usage this quarter, and then specifically how you think about your cost of capital relative to NAV. Is there a point above or below NAV where it just doesn't, or does, make sense to issue? And then when you're looking at acquisitions, are you strictly focused on an AFFO accretion? Maybe just some color on how you balance those two items.

There is definitely a point at which it's not accretive to raise equity capital. We believe, at the levels that we raised that capital, we can be accretive. However, as you know, this was dipping a toe into the pool. This was not a large amount of shares that were sold. And I think we discussed before that it was important for us to be able to show that we have access to equity markets. And at these levels, we're not necessarily going to raise a lot of capital through equity issuance.

It was important to the ratings agencies. Is that what you're saying?

Yes.

Okay, got it. That makes sense. Okay. And then in terms of growth capital going forward, you touched on this a little bit, but the line is still relatively full. You have the accordion feature at this point. But maybe just for modeling purposes, assuming your acquisitions and dispositions guidance, should we be assuming kind of leverage neutral mix of ATM and debt, or ATM and your [big] cash balance? Just any guidance you can give us on that would be helpful.

Yes, I think we -- as the goal has been set, we plan to be fairly leverage neutral. That said, a portfolio of this quality is one that can withstand, I think, the current leverage that we have on it. As you know, 78% investment grade or implied investment grade rated. We are not chasing riskier assets to improve our metrics. We want to stay disciplined with the type of portfolio that we currently have. But I think that your assumptions are fairly valid for modeling this out.

That's fair. And then I kind of have to ask this, in light of the retail backdrop as of late, keeping in mind that you guys are a little bit under 10% exposure on the retail side. You note in the press release that all tenants are paying rent. And I guess my question would be: are there any dark properties? And have you had any requests for rent reductions this year? And then while you're there, maybe Jim, you could just walk us through your thoughts on dollar stores, discount retail, and now that fits into the broader retail landscape at this point?

So we haven't had any request for rent reductions this year. And I believe there was a dark property, and I'll have to get you updated on which property that is.

I think there's one dark property in Europe, in the UK.

But it's paying rent?

They are paying rent, yes.

Yes, they're paying rent.

Everybody's paying rent.

Okay.

And what was your question for me, David?

Just thoughts on discount retail, dollar stores; how that fits into the broader retail landscape. And maybe it'd be helpful just to get your thoughts on the retail landscape in general today.

Well, I think as you know, most retail is challenged. I think as far as retail, we have the better side of retail. Because I think dollar stores will continue to perform much better than, as you know, the big boxes or anybody else, or a lot of other people. I'm encouraged because I see the pipeline we have. And as you know, we're focusing on industrial and distribution, which I think is certainly the way we should be going. And it's an interesting world out there. But there are still opportunities, and we've got a great team and a great pipeline to fill the need.

Okay, fair enough. I appreciate the time, guys.

(Operator Instructions). This concludes our question-and-answer session. I'd like to now turn the conference back over to management for any closing remarks.

Well, thank you, everyone, for joining us today. We look forward to providing updates on our continued progress when we speak with you during the third-quarter call in the fall. Thanks again. Bye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.