GNL - NYSE

Good day, and welcome to Global Net Lease, Inc. Second Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Jordyn Schoenfeld, Assistant Vice President at Global Net Lease. Please go ahead.

Thank you. Good morning, everyone, and thank you for joining us for GNL's Second Quarter 2025 Earnings Call. Joining me today on the call is Michael Weil, GNL's Chief Executive Officer; and Chris Masterson, GNL's Chief Financial Officer. The following information contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Please review the forward-looking and cautionary statements section at the end of our second quarter 2025 earnings release for various factors that could cause actual results to differ materially from forward-looking statements made during our call today. As stated in our SEC filings, GNL disclaims any intent or obligation to update or revise these forward-looking statements, except as required by law. Also during today's call, we will discuss certain non-GAAP financial measures, which we believe can be useful in evaluating the company's financial performance. Descriptions of those non-GAAP financial measures that we use, such as AFFO and adjusted EBITDA and reconciliations of these measures to our results as reported in accordance with GAAP are detailed in our earnings release and supplemental materials. I'll now turn the call over to our Chief Executive Officer, Michael Weil. Mike?

Thanks, Jordyn. Good morning, and thank you all for joining us today. As you know, we've been steadfast in our commitment to drive durable, sustainable, long-term growth and value creation by optimizing our portfolio, reducing leverage and lowering our cost of capital. In the second quarter of 2025, we once again delivered tangible progress towards these commitments, demonstrating the strength of our strategy and the discipline of our execution. During the second quarter of 2025, we completed the $1.8 billion sale of our multi-tenant retail portfolio to RCG Ventures. further positioning us as a pure-play single-tenant net lease company with streamlined operations and a higher quality portfolio. The sale of these assets is expected to reduce annual recurring G&A by approximately $6.5 million and generate $30 million in annual capital expenditure savings. The sale also eliminates the added complexity of managing multi-tenant retail assets. In addition, it delivered measurable improvements across key metrics, increasing occupancy to 98% from 97% as of year-end 2024, expanding annualized NOI margin by 800 basis points. raising the percentage of leases with rent escalators to 88% from 81% and enhancing liquidity to $1 billion from $492 million, reflecting the terms of the recently refinanced revolving credit facility. In line with our long- term debt reduction strategy, we used the net proceeds from the sale to materially reduce leverage, including a $1.1 billion paydown on GNL's revolving credit facility in addition to the disposition of $466 million in secured mortgage debt that was assumed by RCG Ventures. The sale of our multi-tenant retail portfolio has already benefited GNL in multiple ways. Most notably, S&P Global upgraded our corporate credit rating to BB+ from BB and raised our issuer level rating on our unsecured notes to investment-grade BBB- from BB+. These upgrades reflect the meaningful progress we've made in reducing leverage, enhancing liquidity and strengthening our overall credit profile. The upgrades have also had an immediate impact on our cost of capital, lowering borrowing costs and expanding opportunities to access the unsecured bond market. Building on that momentum, subsequent to the second quarter 2025, we refinanced our revolving credit facility, securing improved pricing, enhanced liquidity and extension of our weighted average debt maturity to 3.7 years from 2.9 years as of June 30, 2025, and increased balance sheet flexibility. The facility was met with strong demand, including heightened interest from both existing and new institutional lenders, relationships we look forward to growing over the long term. Since the third quarter of 2024, we've meaningfully lowered GNL's cost of borrowing on our revolving credit facility by 70 basis points, a direct result of the strategy we put in place to lower our cost of capital through disciplined deleveraging and favorable refinancing activity. We continue to make meaningful progress on a robust pipeline of noncore asset dispositions beyond the multi-tenant retail portfolio sale. In particular, we continue to strategically and opportunistically reduce our exposure to office assets that while high quality and mission-critical, we believe have not been fully valued by the market. It's important to note that our office portfolio continues to perform well with 100% rent collection from all tenants and the highest percentage of investment-grade tenancy across our portfolio at 77%. Lease rollover remains minimal with expirations representing 2.5% or less of total portfolio square footage annually through 2029. We remain focused on active tenant retention, particularly within the office portfolio. Since the start of 2024, we've addressed 14 near- term expirations. Of these, 9 were renewed, 3 were sold and 1 is in the final stages of renewal negotiations, and the last one is being finalized for sale. In total, these office renewals since the first quarter of 2024 were completed with an average lease renewal spread of approximately 7%. In addition, as discussed on last quarter's earnings call, we began proactively scaling back our exposure to the gas and convenience store sector. An industry facing structural shifts in consumer behavior, fuel demand, evolving transportation trends and inconsistent operations. As of August 1, 2025, we've sold approximately $108 million of assets in this category, reducing our portfolio exposure to 2.1% from 5.3%. Taking into account our disposition pipeline, we expect our exposure to this sector will be reduced to 1.4%. These actions reflect our disciplined portfolio management strategy and our continued focus on concentrating on higher growth sectors that are more closely aligned with our long-term vision. They also contribute to our deleveraging efforts and help reduce net debt to adjusted EBITDA. Year-to-date, our closed sales plus active disposition pipeline totals $2.2 billion. And since launching our disposition initiative in 2024, total closed sales plus our disposition pipeline has exceeded $3 billion. Importantly, we continue to take deliberate steps to further strengthen our capital structure and mitigate risk. During the second quarter of 2025, we fully paid off the remaining $459 million of secured debt that was maturing in 2025 and warehoused the amount on our revolving credit facility. This facility now offers enhanced pricing and significantly greater availability as well as flexibility following the substantial paydown and refinancing completed after the multi-tenant retail portfolio sale. Looking ahead, we have no remaining 2025 debt maturities and $95 million of debt tied to retail assets expiring in 2026. Alongside our balance sheet initiatives, we've continued to repurchase our stock. Through August 1, 2025, we've repurchased 10.2 million shares at a weighted average price of $7.52, totaling $77 million, capitalizing on the compelling opportunity to buy back shares at an AFFO yield of approximately 12%. We have remained disciplined in balancing share repurchases with leverage reduction. However, the lack of improvement in our share price despite meaningful progress in improving our balance sheet and extending our debt maturities has been, to say the least, disappointing and leads us to continue to evaluate multiple corporate initiatives. Turning to our portfolio. At the end of the second quarter of 2025, we owned over 900 properties, spanning over 44 million rentable square feet. The portfolio's occupancy grew to 98% with a weighted average remaining lease term of 6.2 years. Geographically, 70% of our straight-line rent is earned in North America and 30% in Europe. Unlike many net lease peers, we believe our exposure to Europe differentiates us by providing diversification across economic cycles and the ability to capitalize on unique market opportunities not typically available in the U.S. The portfolio features a stable tenant base and a high quality of earnings with an industry-leading 60% of tenants receiving an investment-grade or implied investment- grade rating. It has an annual contractual rental increase of 1.5%, which excludes the impact of 22.6% of the portfolio with CPI-linked leases that have historically experienced significantly higher rental increases. On the leasing front, we achieved positive spreads encompassing over 200,000 square feet with attractive renewal spreads that were 6% higher than expiring rents. New leases that were completed in the second quarter of 2025 have a weighted average lease term of 10 years, while renewals that were completed during this period have a weighted average lease term of 5.6 years. Our continued efforts to limit exposure to high-risk geography, asset types, tenants and industries is a testament to our intentional diversification strategy and credit underwriting. No single tenant accounts for more than 5% of total straight-line rent, and our top 10 tenants collectively contribute only 28% of total straight-line rent. We carefully monitor all tenants in our portfolio and their business operations on a regular basis. I encourage everyone to look at the details of each segment of our portfolio, which can be found in our Q2 2025 investor presentation on our website. With that, I'll turn the call over to Chris to walk through the financial results and balance sheet matters in more detail. Chris?

Thanks, Mike. Please note that, as always, a reconciliation of GAAP net income to non-GAAP measures can be found in our earnings release, which is posted on our website. We also want to emphasize that second quarter 2025 earnings and leverage metrics reflect the full benefit of NOI from the encumbered assets sold as part of the multi-tenant retail portfolio sale, consistent with what we anticipated when establishing full year guidance. For the second quarter of 2025, we recorded revenue of $124.9 million and a net loss attributable to common stockholders of $35.1 million. AFFO was $53.1 million or $0.24 per share. Looking at our balance sheet, the gross outstanding debt balance was $3.1 billion at the end of the second quarter of 2025, a reduction of $2 billion from the end of the second quarter of 2024. Our debt is comprised of $1 billion in senior notes, $741 million on the multicurrency revolving credit facility and $1.4 billion of outstanding gross mortgage debt. As of the end of the second quarter of 2025, 85% of our debt is fixed, reflecting debt tied to fixed rates or debt that is swapped to fixed rates. Our weighted average interest rate stood at 4.3%, down from 4.7% in the second quarter of 2024, and our interest coverage ratio was 2.7x. At the end of the second quarter of 2025, our net debt to adjusted EBITDA ratio was 6.6x based on net debt of $3 billion, significantly down from 8.1x at the end of the second quarter of 2024. As of June 30, 2025, we had liquidity of approximately $1 billion and $1.1 billion of capacity on our revolving credit facility, reflecting the terms of the recently refinanced revolving credit facility. Additionally, we had approximately 221 million shares of common stock outstanding and approximately 223 million shares outstanding on a weighted average basis for the second quarter of 2025. As of August 1, 2025, we have repurchased 10.2 million shares at a weighted average price of $7.52 per share under our share repurchase program. As Mike mentioned, subsequent to quarter end, on August 5, 2025, we refinanced our revolving credit facility to $1.8 billion and extended the maturity date from October 2026 into 2030, inclusive of 2 6-month extension options. The refinanced revolving credit facility provides enhanced benefits, most notably an immediate 35 basis point reduction in interest rate spread due to improved pricing, while also increasing liquidity and extending our weighted average debt maturity to 3.7 years from 2.9 years. Turning to our outlook for the remainder of 2025. We are confident in our performance and are raising the lower end of our AFFO per share guidance to a new range of $0.92 to $0.96. We also reaffirm our stated net debt to adjusted EBITDA range of 6.5x to 7.1x. I'll now turn the call back to Mike for some closing remarks.

Thanks, Chris. Over the past year, we've made meaningful progress on our strategic priorities to streamline operations, elevate portfolio quality, reduce leverage and enhance balance sheet flexibility. We've sold approximately $1.8 billion of multi-tenant retail assets, transforming GNL into a pure-play single-tenant net lease REIT and drove total asset sales to over $3 billion. We also continued executing our share repurchase program, capitalizing on the opportunity to buy back shares at an AFFO yield of approximately 12%. Since the second quarter of 2024, we've reduced leverage by 1.5 turns, contributing to a credit rating upgrade from S&P and reflecting the tangible progress we've made in reducing our debt. This momentum supported the $1.8 billion refinancing of our revolving credit facility, which immediately lowers our interest rate spread by 35 basis points, extended our weighted average debt maturity by nearly a year and increased our liquidity to over $1 billion. Quarter-over-quarter, beginning at the start of 2024, we've consistently executed major strategic initiatives that we believe should help narrow the valuation gap between GNL and our net lease peers. We're proud of the significant progress GNL has made. And as we move forward, everything is on the table. We're by no means finished taking the steps needed, small and large, to strengthen our overall business and maximize the value of your investment. We're available to answer any questions you may have after the call. Operator, please open the line for questions.

The first question comes from the line of John Kim with BMO Capital Markets.

On the office sales, right now, it's 27% of your portfolio. Where do you want this to go to? And over what time frame? And how do you think about the dilutionary impact that may bring?

So we're going to be very strategic in how we approach the office portfolio. As we said in the comments, it's a strong performer contributing to the overall earnings of the company. We have been very active with renewals, which positions the properties for a more valuable potential disposition. So I'm not going to give you an answer of the exact percentage and timing, but it's going to be something that we will continue to bring office properties to market at the completion of what we think are valuable renewals and extensions and we'll just continue to lower that percentage. But I'd just also like to point out, as we've talked before, this sector of our portfolio has the highest percentage of investment grade or implied investment-grade tenants. So it kind of goes opposite of some of the general feelings about office in the United States. But we're going to harvest value here and then look to use those proceeds to further delever. And when the time is right, we will start looking at acquisitions in the retail and industrial and distribution arena. So that's about as specific as I'd like to be right now.

Okay. And so it sounds like you're going to have further dispositions on the positive side in terms of earnings growth, you have G&A savings, improved cost of debt, you're buying back shares. Looking at a crystal ball, when do you think earnings are going to trough and we could start to project earnings growth going forward?

Well, right now, having just completed the second quarter, we were able to raise the lower end of our guidance to $0.92 to $0.96, and that's where we see the year playing out from an earnings standpoint. As we get later into the year, of course, we'll provide guidance for 2026. And as of yet, we have not done that. Right now, we're focused on completing the initiatives that are underway, which include disposition, some further lease-up and most importantly, renewals. So we've got just organic opportunities in the portfolio that will really keep us in that stated guidance range of $0.92 to $0.96 per share.

Okay. And then I have to ask this because it seems to have impacted your share price. But Michael, last month, you sold 150,000 shares, which I think is about 20% of your holdings in the company. Can you just comment on the timing of that sale and the mixed messaging it may have just given you're selling that in light of GNL buying back shares?

Yes. I think you can look at my history of never having sold shares before, and there come points in a person's life where they have some obligation. I needed to sell a bit of stock to take care of something that, I don't want to stammer or say any -- it just was necessary, and I don't think it's anything to read into. And I've never sold stock before, and I am very optimistic about where the company will go and the reason we're working as hard as we are to drive it. So don't forget, the company does have a published long- term incentive plan and an annual incentive plan that does have a significant amount of stock. So as far as my personal alignment, it's unchanged. And I'm as on board as you can be, and that's all I care to say.

Next question comes from the line of Upal Rana with KeyBanc Capital Markets.

I appreciate your comments on the company reducing exposure to gas and convenience. But the top industry within the portfolio is auto manufacturing at 10% of straight-line rent. Given all the tariff announcements, I want to get your understanding of how you're looking at the industry within your portfolio and if you plan to reduce exposure there or not?

The assets that we have are critical assets. They are in primarily the Detroit market, and they are U.S. manufacturers doing final assembly and some warehousing. So it's something that we are watching, but I don't like to be reactionary. And I believe that these primarily U.S. manufactured products will continue to do fine. All industries have ups and downs, but I don't see this as anything too problematic. So we're very comfortable with what we own.

Okay. All right. Great. That was helpful. And then on the office assets...

Upal, if I can just go back also because I was thinking about just the U.S. portfolio and shame on me because the second largest tenant in the portfolio is McLaren. So that does make up a significant amount of that 10% that you referenced. And as you've probably seen in the news, McLaren is financially as strong as it's been in an incredibly long time, decades with the investment from the UAE, they paid off all of their outstanding debt. Their race team, which generates a lot of revenue and positive marketing is doing phenomenally well, and the retail sales are also very solid. So the U.S. market for McLaren is not a huge market. They are a global brand. They are big in Europe and U.K. as well as the Middle East. So I think that they will also continue to perform very well, and we're very comfortable to see them as well capitalized as they are.

Okay. Great. Just my second question on office assets. It seems like there's starting to be a little more interest from private capital there. Have you seen any increased interest on your office assets and where you may want to begin transacting at?

Yes. And as I said in the earlier question, we've got some very interesting renewals underway as well. So I think that, all markets ebb and flow. And 2 to 4 quarters ago, I would have to guess that office was probably as low as it could be. And yes, we are starting to see the opportunity. Good real estate always has value. And with single-tenant office, a big part of the definition of good real estate is the tenant and the term. So yes, I think we can drive value here, and that is the goal. And we -- as you've seen from our actions over the last 1.5 years, we don't want to be an outlier. We were a bit of an outlier with the shopping center portfolio. So we disposed of it. The market is letting us know how they feel about office. And I think continuing to lower exposure in a strategic way is valuable, and we will continue to do that. But yes, the market is getting stronger. Our tenants are back in office and their real estate is a valuable part of their operation.

Okay. Got it. And then last one for me. Obviously, you got the multi-tenant portfolio done. I guess I'm wondering what's the pace of dispositions going forward? How much is sort of left to do?

I'm looking at Ori right now because he -- I would say that it's about $300 million in the pipeline right now, and I'll confirm that in just a minute if that's not accurate. But again, we're now looking at things very strategically. I think the potential disposition of noncore assets at good cap rates is a great funding source for us to continue our stock buyback, which is very valuable to the company. You heard us talk about the 12% AFFO on shares bought back, and I think we're at about a little under $80 million so far that we have bought back. So our $3 billion of sales since we announced the disposition initiative has been at a 7.6%, 7.7% cap rate. So using those proceeds, even if we did something in the 50-50 range of 50% debt paydown, 50% stock buyback on future dispositions, that's a pretty leverage neutral or even deleveraging way to really take advantage of this opportunity to buy back stock when we see it at this price level. And frankly, I hope that we don't see the stock buyback as such a great value over the near term. But while it is, we intend to take advantage of it.

And just to add to that, Upal, the existing pipeline as of August 1 for 2025 is about $200 million.

Next question comes from the line of Michael Gorman with BTIG.

Maybe just following up on some of your comments there. Can you just talk a little bit about -- you've had a lot of success moving down the debt-to-EBITDA ladder there? And just how you think about the share repurchases and capital allocation. I know you talked about continuing to do it in kind of a leverage responsible way. But does that math shift at all as you get lower on the debt-to-EBITDA range? And if you get lower on the leverage range, it doesn't necessarily have an impact on the valuation. Can you just kind of talk about how you're thinking about that strategically?

I mean in simple terms, and as you know, Michael, every dollar that we buy back is $1 less that we can delever. We are, I think, at the point now where, as I just mentioned, it comes to play, the balance is something of importance. If we continue to use dispositions to fund -- let me say this, if we continue to use future dispositions to fund stock buyback, we can achieve both of our goals. The investment-grade rating is still a top goal of ours. But at the same time, we want to see value in the stock price. And we're going to balance both of them very smartly, very prudently. I'm not by any means saying one in lieu of the other. I'm saying approach it responsibly. And like I see asset sales, if we can continue to sell in this, call it, 7.5% cap rate range or lower, frankly, for some assets, that's an incredibly valuable tool, both to delever and buy back stock.

Got it. That's helpful. And then recognizing that you just went through the large multi-tenant portfolio sale. So I don't want to make it sound like asking what's next. But you mentioned future initiatives. How do we think about that in cadence? Like are we talking about large scale on the order of magnitude of the multi-tenant sale, like whether it's something with the European portfolio? Or is this more incremental initiatives from here going forward?

Yes. Sometimes the most exciting thing is mystery. And I think that we, as a management team, have really shown a dedication to doing important things in a timely manner to reposition the company to drive value in the company. And what we've done in the last 6 quarters, I'm extremely proud of the team. It took a lot of effort, focus, call it what you want or just call it doing our job because that's how I view it. I intentionally wanted to be vague in my comments, but I also intentionally wanted to say all things are on the table. We will evaluate different ways to close what I think of as a gap to value. This company should be trading in line with our peers. We have derisked this company. Nobody's asked, so I'll bring it up about how we think about the credit facility and the fact that we don't have any debt maturities, any material debt maturities until 2027 now. So we may not like where we are today on an equity basis, but what really can cause massive failure for companies is when they don't manage the debt side of their balance sheet, and we have. We have pushed out our debt maturity to almost 4 years. We have opportunity now to let the global or U.S. debt markets catch up and see what I think will be some rate cuts that are going to be helpful to us. At the same time, we've lowered our leverage, and we appreciate that S&P was able to re-rate us. And we've had great conversations with Fitch, and they're doing their work, and we respect that, too. But as you know, there'll be incredible value for this company when we do achieve those investment-grade goals. And in the meantime, we're positioned really well to drive value from our real estate and focus on the equity side because the debt side is very safe, very manageable and really frees us up to do some important work.

That's helpful. Last one, and I apologize if I missed it. Just a quick one. How much is remaining on the share repurchase authorization?

About $220 million.

[Operator Instructions] Next question comes from the line of Craig Kucera, Lucid Capital Markets.

I actually didn't dial in with any questions. I apologize I was on another call. So no questions here at the moment.

Okay. All right. Thanks. Talk to you later.

This concludes our question-and-answer session. I would like to turn the conference back over to Michael Weil for closing remarks.

Great. Well, thank you. As always, I want to thank everybody for making time in their schedule to join us. Chris, Ori and I look forward to the opportunity to answer any questions that you have, any follow-up, et cetera. We are, as I said, proud of the work that we've done, but by no means happy yet. We've got work to do. We're going to get it done. And directionally, there's a lot of upside in this company, and we've positioned it, I think, in a way that we can start really taking advantage of that. So thanks, everybody.