GNL - NYSE

Good afternoon, and welcome to Global Net Lease, Inc.'s Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call 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 Third 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 third 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. It has now been approximately 2 years since GNL's internalization, and we're very proud of what we've accomplished thus far and enthusiastic about what lies ahead. Since the internalization, we have set ambitious and transformative strategic goals to streamline our portfolio, reduce leverage and lower our cost of capital. We have consistently exceeded these objectives and are already yielding measurable benefits reflected in the stable operations and improved credit profile and enhanced financial flexibility, culminating in our recent achievement of earning an investment-grade corporate credit rating from Fitch Ratings. The main driver of our strategic agenda has been a prudent disposition program focused on selling noncore assets with proceeds directed toward reducing leverage and improving portfolio quality. The highlight of our successful implementation of this effort was the approximately $1.8 billion sale of our multi-tenant retail portfolio completed in June of 2025, which accelerated our debt reduction initiatives and firmly positioned GNL as a pure-play single-tenant net lease REIT while maintaining our industry-leading proportion of investment-grade tenants. Since the implementation of this disposition program, we have sold approximately $3 billion of dispositions, including the sale of noncore short duration single-tenant assets at a 7.7% cash cap rate, while reducing our net debt by approximately $2 billion since the third quarter of 2024. These results, particularly the 7.7% cash cap rate achieved on our noncore single-tenant asset sales, provides tangible proof of the quality and value of our primarily investment-grade portfolio, while underscoring the meaningful discount in our implied cap rate relative to our pure-play single-tenant portfolio of assets. Building on the progress we've made on our disposition program, which has meaningfully reduced our leverage, we capitalized on an attractive opportunity to further lower our cost of capital by refinancing our revolving credit facility, including new institutional lenders attracted by GNL's strengthened balance sheet. In August of 2025, we completed that refinancing, extending the maturity from October of 2026 to August of 2030, inclusive of 2 additional 6-month extension options. This refinancing delivered an immediate 35 basis point reduction in our interest rate spread, reflecting improved pricing and enhanced liquidity while also reducing near-term debt as there are no significant maturities until 2027. These strategic actions significantly contributed to Fitch Ratings' recent upgrade of GNL's corporate credit rating to investment-grade BBB- from BB+. We believe this milestone is a direct result of the decisive steps we've taken to strengthen our balance sheet, enhance our credit profile, improve portfolio quality and demonstrate our ability to deliver on our strategic objectives. Our ongoing disposition program has generated significant liquidity, giving us incremental flexibility to accretively repurchase shares, which we believe enhances long-term shareholder value. Through October 31, 2025, we have repurchased 12.1 million shares at a weighted average price of $7.59 totaling $91.7 million, capitalizing on the opportunity to buy back shares at an AFFO yield of approximately 12%. We believe buying back shares at this AFFO yield offers a more compelling use of capital than alternatives such as acquisitions, which we have not found attractive in this current environment. We've been disciplined in managing share repurchase alongside debt reduction, ensuring that capital is deployed in a way that we believe maximizes long-term value. Looking ahead, we plan to continue to evaluate additional initiatives, including acquisitions that we expect to strategically enhance shareholder returns while maintaining the financial strength and flexibility that underpins GNL's growth. In addition to our specific achievements, we believe broader market developments are creating additional opportunities to strengthen our financial position. Last week, the Federal Reserve announced a second 25 basis point reduction in the target range for federal fund rates, and we'll monitor the newly constituted Federal Reserve in the spring of 2026 as we anticipate a dovish stance towards the economy, which should further lower our cost of capital. These rate reductions have a direct impact on GNL's bottom line as they lower the floating rate on the U.S. dollar portion of our revolving credit facility, reducing our cost of capital and supporting our ongoing efforts to strengthen the balance sheet. Additionally, dividend income from REIT tends to become increasingly attractive in a rate-cutting environment as they can offer a more attractive return relative to U.S. treasury securities, creating a potential pathway for favorable market performance by the net lease REIT industry. Turning to our portfolio. At the end of the third quarter of 2025, we owned over 850 properties, spanning nearly 43 million rentable square feet. Our portfolio's occupancy stands at 97% with a weighted average remaining lease term of 6.2 years. 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 average annual contractual rental increase of 1.4% which excludes the impact of 23.1% of the portfolio with CPI-linked leases that have historically experienced significantly higher rental increases. On the leasing front, during the third quarter of 2025, we leased over 1 million square feet, achieving renewal spreads that were 26% higher than expiring rents, largely driven by lease renewals with GE Aviation and GXO Logistics. New leases that were completed in the third quarter of 2025 have a weighted average lease term of 5 years, while renewals that were completed during this period have a weighted average lease term of 7.3 years. I'd like to highlight the strength and resilience of our office portfolio, which continues to deliver strong performance. In July, we completed a 10-year lease renewal with GE Aviation for a 369,000 square foot high-quality office asset with a strong credit tenant at an implied A3 rating, achieving an attractive 37% renewal spread. In addition, we secured a 20-year lease renewal with the United States General Services Administration at its Lakewood, Colorado location, reinforcing the mission-critical nature of our portfolio that we believe continues to be undervalued by the market. Since the start of 2024, we've executed 10 office lease renewals at an average renewal spread of 6.7%, reflecting both the quality of our tenants and the strategic execution of our asset management team. Our office portfolio continues to perform strongly with 100% rent collection across all tenants, the highest proportion of investment-grade tenancy at 77% and minimal lease rollover. Annual expirations represent 2.5% or less of total square footage through 2029. Our continued efforts and results in limiting 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 29% of total straight-line rent with 73% being investment grade. 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 Q3 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. For the third quarter of 2025, we recorded revenue of $121 million and a net loss attributable to common stockholders of $71.1 million. AFFO was $53.2 million or $0.24 per share. Looking at our balance sheet, the gross outstanding debt balance was $3 billion at the end of the third quarter of 2025, a reduction of $2 billion from the end of the third quarter of 2024. Our debt is comprised of $1 billion in senior notes, $664 million on the multicurrency revolving credit facility and $1.4 billion of outstanding gross mortgage debt. As of the end of the third quarter of 2025, 87% 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 4.2%, down from 4.8% in the third quarter of 2024, and our interest coverage ratio was 2.9x. At the end of the third quarter of 2025, our net debt to adjusted EBITDA ratio was 7.2x based on net debt of $2.9 billion, significantly down from 8x at the end of the third quarter of 2024. While the ratio was slightly higher this quarter due to timing of certain dispositions, our robust disposition pipeline gives us confidence that we will remain within our stated net debt to adjusted EBITDA 2025 guidance range of 6.5x to 7.1x. As of September 30, 2025, we had liquidity of approximately $1.1 billion and $1.2 billion of capacity on our revolving credit facility compared to $253 million and $366 million, respectively, as of the end of the third quarter of 2024. Additionally, we had approximately 220 million shares of common stock outstanding, and approximately 221 million shares outstanding on a weighted average basis for the third quarter of 2025. Through October 31, 2025, we have repurchased 12.1 million shares at a weighted average price of $7.59 per share under our share repurchase program. Turning to our outlook for the remainder of 2025. We are confident in our performance and are raising our AFFO per share guidance for 2025 to a new range of $0.95 to $0.97. 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.

Thank you, Chris. Achieving an investment-grade rating from Fitch Ratings is a major milestone for GNL and validates the strategic plan we set in motion following the internalization in September 2023. We've executed on our initiatives with discipline, reducing leverage, strengthening our balance sheet, refinancing maturing debt and optimizing our portfolio through targeted dispositions. Specifically, since Q3 2024, total outstanding debt has declined to $3 billion from $5 billion. Liquidity has increased to $1.1 billion from $253 million. Capacity on our revolving credit facility has grown to $1.2 billion from $366 million, and annualized G&A has decreased to $47 million from $50 million. We believe these actions have positioned GNL as a pure-play single-tenant net lease REIT with enhanced financial flexibility built for sustainable growth. Looking forward, we believe these achievements position GNL to capitalize on a variety of market opportunities and continue creating meaningful shareholder value. We believe our strong balance sheet, disciplined capital allocation and proven track record of execution position GNL exceptionally well to deliver consistent performance and execute additional strategic initiatives. As we look to deploy incremental proceeds from dispositions, we continue to evaluate the trade-offs between acquisitions and share repurchases, recognizing the significant value opportunity for shareholders in buying back shares at current levels while remaining flexible to pursue real estate acquisitions in the future. We continue to monitor the real estate market closely, but being a buyer in the current environment isn't particularly compelling to us given higher seller expectations, elevated borrowing costs and cap rates that remain tight, making it difficult to justify many acquisition opportunities as compared to the immediate benefit of continuing with the announced share repurchase program. We plan to continue to execute on our near-term strategic objectives to position GNL to continue delivering consistent results and long-term value for our shareholders. We're available to answer any questions you may have after the call. Operator, please open the line for questions.

[Operator Instructions] Our first question comes from the line of Upal Rana with KeyBanc Capital Markets.

On the quarter. Michael, you mentioned acquisitions don't look attractive to you in today's environment. I'm just trying to understand what needs to happen for you to become an active buyer again? And if so, what would be sort of your funding plans for that?

So we would look to finish our disposition program, which we are, I would say, in the late innings of. And as a part of that strategy, of course, we've continued to actively monitor the acquisition environment. And we just keep seeing cap rate expectations from sellers that don't match up to cost of capital and in many cases, aren't supported by the underlying credit of the tenant. So I think there are a number of things that just the discipline of our acquisition strategy, the reason so much of our portfolio is investment grade is that we're not necessarily looking to see a higher cap rate on an acquisition at the sacrifice of the underlying credit of the tenant or the quality of the real estate. So I think a big part of what we're monitoring is the state of cost of debt, the pricing generated off of the 10-year treasuries, et cetera. And I just don't think we're there right now. I continue to see the acquisition pace in the industry is slower than what we've seen over the last decade. But again, when we think about it in terms of our #1 goal is to continue the completion of the debt reduction program. So we've been identifying or allocating proceeds from dispositions to continue to do that, and we will. We're not finished. But as you've seen over the last couple of quarters, the immediate accretion of stock buyback is so significant that, frankly, for us, it's just a very easy decision. That 12% accretion yield from stock buyback is very impactful. And of course, we want to grow. We want to be active. But first and foremost, we want to drive the greatest possible benefit for shareholders. And we think that's the combination of finishing our debt reduction program and the opportunistic share repurchase program.

Okay. Great. That was helpful. And then with leverage, it ticked up in the quarter, and it looks like it was timing related from your multi-ten sale. But it currently stands at the high end of your guidance range. And so -- and you have some more disposition to close by year-end as well. So just trying to understand how you get to the midpoint of your leverage guidance by year-end.

Upal, you're right that some of it is driven by just timing. And so we're very confident that by completing what is already scheduled in our pipeline activity, some things that we anticipate occurring in the fourth quarter that we haven't had an opportunity to disclose yet that we are going to be comfortably within our range on net debt. And coupled that with the fact that we were able to raise our AFFO per share guidance. I think that we're -- we come to work every day like you would expect us. Sometimes we joke about we just carry rocks uphill every day because there's not a lot of glory here in what we're doing, but it is just consistent dedication and hard work. So we've been able to really execute on the plan, which at the end of the year will show material reduction of net debt to EBITDA. But just as important, we've been able to grow AFFO per share. And I think you realize that's not necessarily easy. And we've used all the levers available to us. Our real estate team has done a really commendable job on dispositions and maximizing value of noncore assets. The fact that our single-tenant portfolio sale of noncore assets, assets with about 5 years or less remaining, we've been able to generate a 7.7% cap rate. It just really indicates the underlying value of the tenants in the portfolio and the real estate. we'll continue to maximize that. We'll use those proceeds as we talked about on the call, to continue to lower net debt to EBITDA. The hard work of Chris and Ori and the team with recasting the credit facility, which had an immediate and impactful savings on cost of debt as well as extending our maturities. These are all things that continue and what we think is important is to show the market that we're hitting on all of the important aspects. We're maximizing value. And frankly, we're starting -- we're just starting to prepare for the next phase of GNL, which is one where we can really maximize value through growth.

Okay. Great. That was helpful. And then just one last one for me would be, based on your revised AFFO per share guidance, 4Q implies $0.19 at the midpoint. And could you walk us through how you get from $0.24 in 3Q to $0.19 in 4Q? I know dispositions will have some kind of impact, but anything else that we should be looking out for our model?

Yes. Chris, do you want to walk Upal through some of that?

Sure. What I would say there, really, it comes down to get into the midpoint in the range for the AFFO guidance is the timing of the dispositions. Obviously, in third quarter, we had the plan in place. So we did have some properties that the dispositions closed later in the quarter, and the same thing will happen during the fourth quarter, and we are confident that we will land in the range that we provided.

Our next question comes from Mitch Germain with Citizens Bank.

Just a little bit of occupancy decline quarter-over-quarter. Anything specific there that you want to reference that might have driven that? Was it opportunistic? Was it part of the asset recycling? Anything specific?

So it is opportunistic in that we had a tenant expiration that we've been very engaged on in the U.K. portfolio. And it's a timing piece for us because we are actively engaged with several tenants on new leasing at that location. It's going to be a nice pickup on straight-line rent. It's going to be a nice pickup on occupancy. And I would suggest that we will finish the year much closer to fully occupied than the 97% that we reported at the end of the quarter.

Great. That's super helpful. Last one for me. You've mentioned the word growth a couple of times in this call, which obviously is a little bit of a departure first versus kind of the, call it, kind of shrinking of the portfolio and the deleveraging that's been a key theme. I'm curious, though, kind of how you view the playbook without giving guidance, but how you view the strategy and the playbook going into 2026. It seems like you may be a little bit more open to acquisitions. How much will dispositions remain a theme? Maybe just kind of walk me into how we should be thinking about the forward outlook for you guys.

Thanks, Mitch. The way we're thinking about it is really going to be reflected in how we see the stock price perform. If we continue to see a material disconnect between the underlying value of the portfolio and the -- any number of multiple or metrics that you might look at to evaluate the stock price, that's going to determine our course of action. I talk about potential or restarting of growth because it's important. It's something that we want to do. But by no means do we want to acquire real estate for the sake of acquiring real estate to say that we're growing for the sake of growth. We have the impactful opportunity to execute on our stock buyback program, which is easy to see more accretive than acquisitions that I've been seeing in the market. So again, I don't want to give guidance right now, and I appreciate you pointing that out. It is something that we will talk about. But we still feel that we have some work to do on reduction of net debt to EBITDA. By no means are we saying that we're finished there. But we are seeing opportunities. We had an incredible quarter of pickup on renewal spreads, which, of course, helps our EBITDA, which, of course, helps our net debt to EBITDA. So as you know, there are certain -- there are many different ways to lower net debt to EBITDA. Of course, we can continue to lower our balance sheet debt, which we intend to do, but we can also grow EBITDA. So we're fully engaged. I'm not going to say that we will absolutely be finished the disposition program because if we continue to see value in disposition that allows us to execute on different parts, we feel that the job here is to realize value for shareholders, and we're going to continue to do that and drive this price.

[Operator Instructions] Our next question comes from John Kim from BMO Capital Markets.

This quarter, you had a good renewal leasing spread of 26.4%. Just wondering how achievable this is going forward, especially on your industrial lease expirations? And also, if you could disclose that figure, including new leases, that would be appreciated.

So for Q3, we were 26% on renewal spreads. Over the year-to-date, it's been 18.5%. So I would say 26% is a terrific quarter. Every opportunity that we have to see spreads like that, we're very pleased. But spreads have continued to be strong in the renewal activity. I think it's a good quarter when you're 5% or 6% on renewal spreads. So the fact that we can continue to do that shows the tenants want to be in these buildings, in their real estate that whether it's industrial, retail or office, it's a critical piece of their operating business, and they don't want to give that up even as the lease expires. Our asset management team engages, as we've said many times, typically 2 years out before a lease expiration so that we can begin the conversations, and it's what really helps us drive these types of results. So we're very pleased with where we are year-to-date and exceptionally pleased where we came in this quarter.

Do you typically get a higher spread on renewals than new leases? I'm just wondering why that renewal is being taken out.

Well, if you think about the kind of the way a renewal works, a tenant has been in a property for 10 or 15 years. And in many net lease structures, there's a 1% or 1.5% annual escalator. Occasionally, you'll get a 2%. So there are many situations where after 5 -- I'm sorry, after 10 or 15 years, they're under market and the renewal includes a catch-up to get them back to where they should be to stay in that property. So it's one of those things. Market dictates spreads on new leases versus renewals and both can add a lot of value to the overall portfolio.

Okay. Kind of an odd question, but if you look on your balance sheet from last quarter.

From you?

Yes.

Okay, go ahead.

You had $524 million of multi-tenant mortgage loans, 5 different tranches. That was as of second quarter, your 10-Q hasn't come out yet. But I was wondering if that was related to your multi-tenant portfolio that you sold and if you still have that on balance sheet today because your debt didn't move that much this quarter.

Chris, do you want to take that?

Yes. So yes, what we had from discontinued operations, that would have been related to the mortgage payables that were assumed by RCG as part of the transaction. If you look just strictly at our mortgage payables line on the balance sheet in 2Q, we would not have had any of those assumed mortgages in there. They would have been reclassified out. So it's comparable quarter-over-quarter.

So you don't have that on balance sheet today?

Correct. We do not have that on the balance sheet today.

As there are no further questions, I would now like to hand the conference over to Mike Weil for closing comments.

Great. Well, as always, we appreciate you taking time to listen to the update on Global Net Lease. We're excited about what we've accomplished in the third quarter. But by no means do we feel that this is the place we want to be. We still see great opportunity here, great value, and the team is as committed as it's ever been to executing on the things that are necessary to unlock this value. So thank you for your involvement, and thank you for your feedback. We look forward to catching up with everybody over the next couple of days, and we'll talk soon. Thank you.