Jim Nelson - President and CEO Nick Radesca - CFO Chris Masterson - Chief Accounting Officer.

David Corak - B. Riley FBR.

Good day and welcome to the Global Net Lease Third Quarter 2017 Earnings Call. At this time, all participants will be in listen-only mode. A question-and-answer session will follow the formal presentation. Please note this call is being recorded.

Hosing the call today is Jim Nelson, GNL’s President and Chief Executive Officer, Nick Radesca, the Chief Financial Officer through November 15, 2017, Chris Masterson, the successor CFO and current Chief Accounting Officer, and Leland O'Connor [ph], Senior Vice President. I would now turn the call over to Nick Radesca. Please go ahead..

Thank you operator. Good afternoon everyone and thank you for joining us for the Global Net Lease third quarter 2017 Earnings Call. This afternoon’s call is being webcast in the Investor Relations section of GNL's website at www.globalnetlease.com.

Before reviewing the forward-looking statements, as retiring CFO I want to express my gratitude and appreciation for my time as CFO of GNL. I'll miss my role and everyone at the company and I wish the company tremendous success in the future.

I'll now take care of the formal part of the call and introduce Jim Nelson, GNL’s Chief Executive Officer and Chris Masterson GNL’s newly appointed Chief Financial Officer for a discussion of the quarter's results.

The discussion today will include certain statements and assumptions which are not historical facts will be forward-looking and are made pursuant to the Safe Harbor provisions 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 our SEC filings for a more detailed discussion of the risk factors that could cause these differences.

Any forward-looking statements provided during the conference 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, we 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 our financial results prepared in accordance with GAAP.

A reconciliation of these measures to the most directly comparable GAAP measure is available in our earnings release. Let me also apologize for the delay in our press release crossing the Wire this afternoon. It will be available shortly on our website in the Investor Section at www.globalnetlease.com. With that let me turn the call over to our CEO Mr.

Jim Nelson..

Thank you Nick and thanks again to everyone for joining our call today. As many of you know Nick Radesca will be stepping down as GNL’s CFO effective November 15. On behalf of the entire team at Global Net Lease we will miss the dedication and leadership he’s brought to our company and we congratulate Nick on his retirement and wish him well.

Since assuming my role as CEO of GNL in August of this year, the entire team has been working together to execute on our plans for the balance of 2017, while firming up plans to drive additional growth in 2018.

A key component of this effort was to successfully reposition our capital structure and we made meaningful progress on this initiative in the third quarter. I'd like to take a few moments to discuss our portfolio’s performance, our ongoing efforts to transform our capital structure and comment on the current investment environment.

After that Chris will speak more granularly about our operating performance for the quarter. Overall GNL had a strong third quarter and our portfolio continued to exhibit the characteristics of being one of the best portfolios in our industry.

Total rental revenue increased 1.8% to 61.3 million in the third quarter from 60.2 million in the second quarter. Additionally, rental revenue was up nearly 21% on a full-year basis.

The acquisition of ARC Global Trust II that we completed in late December 2016 is contributing to the company and we are very pleased with the quality of income being generated. Adjusted FFO for the quarter came in at 34.9 million, which is an increase of 5.4% year-over-year.

Comparing to last quarter adjusted FFO is slightly down partially due to the timing of the recognition of income tax expense which Chris will go into in more detail later. The portfolio remains well positioned with 313 net lease properties equaling 3.1 billion in real estate investments.

We have properties located in seven countries leased to 95 tenants 40 industries and comprising over 22.3 million total square feet. At the quarter end, we remained at approximately 48% US and 52% in Western Europe, while the property mix stayed constant at approximately 59% office, 31% industrial and distribution and 10% retail.

At the end of the third quarter, our percentage of investment grade or implied investment grade tenants remained at 76%, well above any of our peers in the industry. Occupancy also remained at an industry leading level at 99.4%.

It's important to note that the small change in quarter-over-quarter occupancy is not due to any hurricane or weather-related damage from storms that occurred in the quarter, rather occupancy was impacted by one vacant property in Houston with a tenant in the oil and gas industry which he had been monitoring.

In fact, all of our properties in storm affected areas such as Houston, South Florida and even Puerto Rico continue to make regular monthly lease payments.

With regards to these properties, they are all covered, by insurance side - they’re all covered by insurance for both property damage and business interruption and we believe that our exposure to losses if any will not be significant.

Turning to acquisitions, we've made significant progress on building up a pipeline of assets to close through year end. In the quarter we closed on one Bridgestone tire asset in New Jersey for just under $7 million at a 7.4% average cap rate.

In addition, we closed on an additional four properties shortly after the quarter close for roughly 18 million at a blended average cap rate of 7.66%.

Three of these properties were part of a sale leaseback with NSA Industries one of the largest metal fabrication machining and powder coating operations in the Northeast, highlighting that GNL remains a preferred buyer for direct sales leasebacks of core industrial assets throughout the US and Europe enabling us to transact at above market cap rates.

For the year, we've closed approximately 55 million in assets with another approximately 45 million under contract. We also have a large pipeline that we are evaluating.

Earlier this year, we communicated our intention to purchase 150 to 200 million of assets while selling 50 to 75 million in assets for overall net asset growth of 75 million to 150 million.

When taking into account our properties closed and under contract, partially offset by dispositions, we believe this position us well to achieve our range of net acquisitions for the year.

We attribute the late year acquisition focus to us first putting in place the optimal capital structure that we think best facilitates growth going forward and then focusing on acquisitions. Our pipeline which I'll touch on in a minute - in a moment, which remains full - remains full with a number of great opportunities.

However, our focus is also on making sure we remain disciplined in acquisition strategy by being good fiduciaries of shareholder capital and executing on the deals we believe are the right fit for the company. Looking at the general investment landscape, we have many creative acquisition opportunities as we look to grow the portfolio.

We're still able to source industrial and distribution assets at attractive average cap rates in the mid-7s, while still exhibiting a great amount of discipline with respect to credit risk.

Being able to source these types of opportunities while still maintaining GNL's high credit quality is the primary reason we believe that we have such a unique value proposition. Let me touch upon our balance sheet.

Over the past year, GNL has executed on a transformational change to our balance sheet, positioning the company for longer term sustainable growth.

Most notably, these changes have resulted in the extension of our weighted average debt maturities from 1.4 years at the end of the second quarter to 3.9 years including the recent CMBS facility we executed in October, removing concerns about upcoming debt maturities in GNL’s capital structure.

We are also able to achieve the extension of these debt maturities, while keeping our cost of interest relatively flat going from weighted average interest rate of 2.7 at the end of the second quarter to a weighted average interest rate of 2.8%, once again including the recent CMBS issuance.

We refined our credit facility during the quarter at very attractive terms, about which Chris will provide more detail. Since then we raised just over $100 million through an issue of preferred stock, which adds another essential avenue of access to capital markets in building out our new capital structure.

We're very pleased with the addition of the preferred capital to our capital structure and its reception in the marketplace closing at 24.98 [ph] at the quarter's close.

Last and subsequent to quarter end, we were able to execute on a new CMBS facility raising almost 190 million in additional capital with the proceeds being used to pay down the line of credit. These efforts together contribute to creating capacity to fund additional accretive growth through targeted acquisition.

Now I'd like to introduce Chris Masterson who will be our new CFO. Chris was formally GNL’s as Chief Accounting Officer and has served in numerous accounting leadership positions at AR Global, Goldman Sachs and KPMG. He brings a solid record of experience in real estate accounting and capital markets.

In addition, Nick Radesca will remain part of the GNL team as a consultant through June 30, 2018 to ensure a smooth transition to Chris and our Executive Team. With that let me turn it over to Chris to walk us through operating results in more detail..

Thanks Jim. Looking at our results, we reported for the third quarter 2017 rental revenues of 61.3 million, which was up 1.8% from prior quarter and we reported adjusted funds from operations of 34.8 million, which was slightly down 3.7% from prior quarter.

Rental revenues increased as we continue to have free rent burn off in three European properties and one US property. The increase in rental revenues is offset by two main drivers. The first being an increase in the current portion of the income tax provision due to a timing difference, which we expect to decrease in subsequent quarter.

The second driver is in connection to property management fees, which had previously been weighed. As always, a reconciliation of GAAP net income to the non-GAAP measures can be found starting on page 1 of our earnings release as well as other GAAP financial information.

Turning to our balance sheet, we ended the third quarter with net debt of 1.4 billion at a weighted average maturity of 3.1 years and a weighted average interest rate of 2.8% with about three-fourths fixed or swapped fixed.

When you include the CMBS that was executed shortly after the quarter, the weighted average maturity increases to 3.9 years, while the weighted average interest rate remains relatively low at approximately 2.8%.

The components of our debt at the end of the quarter included $418 million on the credit facility, 227 million on our term loan and 799 million of outstanding gross mortgage debt. Our net debt to annualized adjusted EBITDA improved to 7 times with strong interest coverage ratio of 4.4 times.

As of September 30, liquidity is approximately 153 million, comprised of 71 million of cash on hand and 82 million of availability under the credit facility. As we mentioned on our last call, we entered into a new unsecured credit facility during the quarter from which the proceeds were used to repay our previous secured credit facility.

The facility is composed of a $500 million senior unsecured multi-currency revolving credit facility and a EUR194.6 million five-year senior unsecured term loan, which was equivalent to approximately $225 million at quarter end. The revolver has a four year term with one one-year extension option.

There is also an accordion feature where we may obtain up to $225 million in additional commitments to increase the size of both the revolver and the term loan facility. We paid down approximately $80 million during the quarter, leaving total outstanding commitments on the unsecured facility of approximately $82 million.

Also, during the quarter, we issued 4 million shares of 7.25% Series A Cumulative Redeemable Preferred Stock. The company received net proceeds of $96.3 million. In addition, on October 4, 2017, we issued an additional 259,650 shares under the Greenshoots provision, taking an additional $6.3 million in net proceeds or a total of 102.6 million.

As Jim discussed earlier, we closed on a CMBS facility, encumbering 12 US-based properties for $187 million of additional proceeds.

The CMBS facility was another step in our efforts to transform our capital structure, extending our weighted average debt maturity from 3.1 years to 3.9 years, with the proceeds being used to further pay down unsecured facility in order to create additional capacity to fund future purchases as well as for general corporate purposes.

The CMBS facility carries an interest rate of 4.37%, which brings GNL’s weighted average interest rate to approximately 2.8%. It's worth noting that the CMBS facility carries a 10-year term with interest only financing that is fixed to the life of the loan.

As a quick update to our hedging program, we have continued to use our hedging strategy as a way to consistently offset movements in interest rates and local currency for our European portfolio. Shortly after the quarter closed, we were also able to place new forward contracts to hedge our future exposure to the euro and British pound.

The euro contract hedge an additional 17 million of cash flows from the third quarter of 2018 through the fourth quarter of 2020. The British pound contracts hedge an additional 16.5 million in cash flow from the third quarter of 2018 through the fourth quarter of 2020.

These hedges are consistent with our strategy of layering hedges against the two currencies over upcoming quarters to manage our exposure to incoming cash flows in both currencies. I’ll turn the call back to Jim for some closing remarks..

We are excited about the strategic steps we took this quarter to further strengthen GNL’s foundation and to better position the company for future growth. We made good progress in these efforts to build the portfolio. As we move ahead, our focus remains to provide our shareholders with a portfolio that supports sustainable and steady long-term growth.

With that operator, we can open the lines for questions..

[Operator Instructions] Our first question comes from David Corak with B. Riley FBR..

I will start with a couple of more specific questions before getting into some high level stuff.

Can you just talk about the 60 basis point reduction in occupancy, again add some color there? I think you said it was one tenant, it was oil and gas and how many stores is it, what was the rent you’re getting off of that and what are the plans to kind of fill the vacancy there?.

Hey, David. This is Leland O'Connor. It was one property just as you said, it is an oil and gas tenant in Houston that we've been monitoring for a little while, don't have the exact number right in front of me. We can definitely get that to you, but it was just a very small part of the portfolio.

We've been monitoring it for a while and don't expect any similar kinds going on..

The monthly rent was actually about $66,000. So it was relatively small..

Okay.

And that would fall under which industry type in your sub?.

Industrial, David..

It might be other. You can get back to me on that if you need to. No worries..

Well, I’m sorry. I guess I said industrial..

Oh, I’m sorry. I didn’t hear it..

Sorry about that..

No worries. All right.

So moving on, I might have missed the exact thing here, but can you talk again about what’s bought during the quarter that’s the property type, sector type and quality?.

Sure. During the quarter, we bought one Bridgestone tire asset in New Jersey. As we said, the average cap rate was 7.45, a good amount of rental growth throughout the term.

So we felt pretty good about that and then after the quarter, one of the big acquisitions we did was, and it’ a industry, as Jim mentioned a little while ago, they’re a very prominent machining and powder coating company in the Midwest region.

So I think that acquisition was somewhere around, it was $12.9 million and three different properties spread on that Midwest region and those are all industrial assets as well..

Okay.

And you said you had 45 million under contract as well or is that including that?.

That is no. What we have closed during the year is about 55. We've got another 45 under contract right now..

And then a little bit bigger picture, do you have a particular goal in mind Jim for kind of the office, industrial, retail exposure? I guess I was under the impression that the goal would be to kind of reduce office, increase industrial, but just kind of an update on your thoughts there would be helpful..

You're absolutely right and that's what we're doing with the new acquisitions. We're primarily focusing on industrial. So as we execute on these acquisitions, you'll see the percentages in the other sectors coming down..

Okay.

And then just turning to kind of the retail property you have now, do you have any plans to kind of change or update your sector exposures there with some portfolio churning going forward?.

We're taking a very close look at that right now. We do have a very good portfolio with performing assets, but we are taking a very close look at that right now. .

Are there any other, I think in the press release, you said that everyone is paying rent in the retail portfolio, but within the whole portfolio, are there any dark assets or anyone not paying rent at this point?.

No. Well, other than the one Axon property..

The one property that we’ve discussed..

And then last one for me, just turning to the balance sheet, the new preferred and the CMBS that certainly help extend maturity schedule, which is very helpful, but also makes your dividend coverage a little bit tighter now, so close to one times, how do you guys view the dividend level on coverage from here? I realize that the typical rate escalators expand and the spreads should improve coverage going forward, but even 1.1 is kind of considered tight.

So how are you guys thinking about that going forward?.

Well, as you know, we have a very high quality portfolio. And as we expand the portfolio and place and continue the acquisitions and close on these acquisitions, that will bring it down. So I think even though it may be a little bit tight, going forward, I'm sure it's going to ease.

And if I could add one quick thing David just, as Jim kind of alluded to earlier, we really took time in the third quarter to build out the optimal capital structure, refinancing the credit facility, doing the preferred, doing the CMBS that we announced a little bit after the quarter, we feel like we're in a really good position right now with the right capital structure to really get aggressive about growth and we -- that's reflected in the pipeline for the fourth quarter which -- and where we're expecting to come in on our acquisition guidance for the year.

So as we push out and do get really aggressive in acquisitions for the fourth quarter, as Jim mentioned early in the call, that sets us up for 2018 as well to really build up the portfolio, buy some more assets and really drive that growth to expand on the dividend coverage..

[Operator Instructions] This concludes our question-and-answer session. I’d like to turn the conference back over to Jim Nelson for any closing remarks..

Thank you all for joining us today. We look forward to providing an update at NAREIT coming up as well as our fourth quarter results in the winter. Thank you, everybody..

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