Overview

Global Net Lease, Inc. (GNL) is a real estate investment trust (REIT) that focuses on acquiring and managing a global portfolio of income-producing net lease assets. In the third quarter of 2023, GNL completed the acquisition of The Necessity Retail REIT, Inc. (RTL) and internalized its advisory and property management functions.

As of September 30, 2024, GNL owned 1,223 properties consisting of 61.9 million rentable square feet, which were 96% leased, with a weighted-average remaining lease term of 6.3 years. Approximately 80% of the properties were located in the U.S. and Canada, with the remaining 20% in Europe. The portfolio was diversified across four main property types: Industrial & Distribution (33%), Multi-Tenant Retail (27%), Single-Tenant Retail (22%), and Office (18%).

GNL’s portfolio is primarily leased to “Investment Grade” rated tenants, with 60.5% of rental income derived from such tenants. This includes 31.8% from tenants with an actual investment grade rating and 28.7% from tenants with an implied investment grade rating.

Financial Performance

In the third quarter of 2024, GNL reported a net loss attributable to common stockholders of $76.6 million, compared to a net loss of $142.5 million in the same period of 2023. The improvement was primarily due to higher revenue from tenants, partially offset by increased property operating expenses, impairment charges, and interest expense.

Revenue from tenants increased significantly in the third quarter of 2024 compared to the prior year period, driven by the addition of properties acquired from RTL. Revenue from the Industrial & Distribution, Multi-Tenant Retail, and Single-Tenant Retail segments all saw substantial increases, while the Office segment experienced a decline due to property dispositions.

Property operating expenses also increased, largely due to the addition of the RTL properties. The Multi-Tenant Retail segment saw the biggest increase in operating expenses. GNL no longer pays asset management and property management fees to related parties, as these functions were internalized as part of the merger.

Impairment charges of $38.6 million were recorded in the third quarter of 2024, primarily related to 21 properties in the U.S. that were acquired in the RTL merger and had estimated fair values lower than their carrying values. In the prior year period, GNL recorded $65.7 million in impairment charges.

Interest expense increased to $77.1 million in the third quarter of 2024, up from $41.2 million in the same period of 2023. This was due to higher non-cash amortization expense related to discounts on debt acquired in the RTL merger, as well as the impact of changes in foreign exchange rates.

For the first nine months of 2024, GNL reported a net loss attributable to common stockholders of $157.9 million, compared to a net loss of $179.8 million in the same period of 2023. The improvement was driven by higher revenue, partially offset by increased expenses.

Strengths and Weaknesses

A key strength of GNL’s portfolio is the high percentage of “Investment Grade” rated tenants, which provides stability and reduces risk. The diversification across property types and geographic regions also helps mitigate concentration risk.

However, GNL continues to face challenges related to impairment charges on certain properties, particularly those acquired in the RTL merger. The increase in interest expense is also a concern, as it puts pressure on profitability.

GNL’s leverage ratio was 64.0% as of September 30, 2024, which is on the higher end of its target range. The company plans to use proceeds from strategic property dispositions to pay down debt and improve its leverage position.

Outlook

Going forward, GNL’s focus will be on integrating the RTL portfolio, optimizing its capital structure, and selectively disposing of non-core assets. The company has entered into purchase and sale agreements and non-binding letters of intent for the sale of 117 properties for a total of $371.4 million.

GNL’s management expects that cash generated from operations, supplemented by existing cash, will be sufficient to fund quarterly dividends to common and preferred stockholders, as well as anticipated capital expenditures. The company has also taken steps to reduce its common stock dividend rate, which is expected to yield benefits by increasing the amount of cash available to pay down debt.

Overall, GNL’s financial performance in the third quarter and first nine months of 2024 showed improvement compared to the prior year, but the company continues to face challenges related to impairment charges, interest expense, and leverage. Successful integration of the RTL portfolio, strategic dispositions, and debt reduction will be key to GNL’s future performance.