Global Net Lease, Inc. (NYSE: GNL) ("GNL" or the "Company"), an
internally managed real estate investment trust that focuses on
acquiring and managing a globally diversified portfolio of
strategically-located commercial real estate properties, announced
today its financial and operating results for the quarter ended
September 30, 2023.
Third Quarter 2023
Highlights
Third quarter financial results reflect
73 days of stand-alone pre-merger GNL and only 19 days of
post-merger, internalized GNL and RTL results. As a result,
comparisons of the period to period financial information of the
Company as set forth herein may not be meaningful. The historical
financial information included herein as of any date, or for any
periods, prior to September 12, 2023, represents the pre-Merger
financial information of GNL on a stand-alone basis.
- Completed merger with The Necessity
Retail REIT, Inc. (the "Merger") and internalization of advisory
and property management functions (the "Internalization"), creating
the third largest publicly listed net lease REIT with a global
presence
- As a direct result of the
Internalization, based on 19 days of lower than expected G&A
expenses, GNL captured $56 million of annualized synergies for the
19 days of combined results, which was higher than the $54 million
that was originally estimated as part of the Internalization
- Additional Merger and
Internalization synergies are on track and expect to reach $75
million of annual savings by Q3 2024; on track to achieve 6%
G&A operating expense target by Q3 2024
- Revenue was $118.2 million compared
to $92.6 million in third quarter 2022
- Net loss attributable to common
stockholders was $142.5 million, compared to net income of $9.7
million, third quarter 2022. Results for the quarter include $68.82
million of one-time or non-cash expenses associated with the Merger
and Internalization
- Net operating income (NOI) was
$104.5 million compared to $84.8 million in third quarter 2022
- Core Funds from Operations ("Core
FFO") was $31.5 million, compared to $48.3 million in third quarter
2022
- Adjusted Funds from Operations
("AFFO") was $46.9 million compared to $41.3 million in the third
quarter 2022
- AFFO per diluted share was $0.36
compared to $0.40 in third quarter 20223
- Leased over 1.8 million square feet
across the portfolio, resulting in nearly $17 million of net new
straight-line rent
- Renewal leasing spread of 5% across
the entire portfolio, including a 7% renewal spread for the
single-tenant portfolio and a 4.1% renewal spread for the
multi-tenant suburban portfolio
- Over 96% leased with minimal
near-term lease maturities and a weighted average remaining lease
term 6.9 years4
- Weighted average annual rent
increase of 1.3% provides organic rental growth
- Sector-leading 58% of annualized
straight-line rent comes from Investment Grade or implied
Investment Grade tenants5
- Weighted-average debt maturity at
the end of the third quarter 2023 was 3.4 years with minimal debt
maturity in 2024, and 82% fixed debt across the portfolio
- Revised post Merger quarterly
dividend of $0.354 per share of common stock starting in Q4 2023
reducing the amount of cash needed to fund dividends on an
annualized per share basis
- Continued to focus on strategic
dispositions in 2023, totaling $383 million6 year-to-date, with the
proceeds to be used to reduce outstanding debt and general
corporate purposes
"We are excited to mark this significant merger
milestone, which has propelled us to become the third largest
publicly traded net lease REIT with a global presence. With only 19
days of combined RTL and GNL operating results, GNL has already
seen the benefits of the Merger by exceeding the projected cost
synergies by $2 million as a result of lower than expected G&A
expenses for the 19 days of combined operations, resulting in $56
million of annualized synergies and expects to capture the stated
$75 million worth of total synergies by Q3 2024. These results only
reflect 19 days of transaction results and is a testament to the
great accomplishment our team has achieved in this seamless
transition of creating one of the leading net lease REITs," stated
Michael Weil, Co-CEO of GNL. "Now that GNL is an internally managed
REIT, we expect our share price to trade more in line with our
internalized net lease peers on an AFFO multiple basis given the
diversification, quality of income and superior investment
grade-worthy tenants in our portfolio."
|
|
Three Months Ended September 30, |
(In thousands, except per share data) |
|
|
2023 |
|
|
|
2022 |
Revenue from tenants |
|
$ |
118,168 |
|
|
$ |
92,599 |
|
|
|
|
|
Net (loss) income attributable
to common stockholders |
|
$ |
(142,488 |
) |
|
$ |
9,739 |
Net (loss) income per diluted
common share |
|
$ |
(1.11 |
) |
|
$ |
0.09 |
|
|
|
|
|
NAREIT defined FFO
attributable to common stockholders |
|
$ |
(26,866 |
) |
|
$ |
48,183 |
NAREIT defined FFO per diluted
common share |
|
$ |
(0.21 |
) |
|
$ |
0.46 |
|
|
|
|
|
Core FFO attributable to
common stockholders |
|
$ |
31,542 |
|
|
$ |
48,327 |
Core FFO per diluted common
share |
|
$ |
0.24 |
|
|
$ |
0.47 |
|
|
|
|
|
AFFO attributable to common
stockholders |
|
$ |
46,929 |
|
|
$ |
41,312 |
AFFO per diluted common
share |
|
$ |
0.36 |
|
|
$ |
0.40 |
|
|
|
|
|
|
|
|
Property Portfolio
As of September 30, 2023, the Company's
portfolio of 1,304 net lease properties is located in eleven
countries and territories, and is comprised of 66.8 million
rentable square feet. The Company has concluded that, as of
September 30, 2023, it operates in four reportable segments
consistent with its current management internal financial reporting
purposes: (1) Industrial & Distribution, (2) Multi-Tenant
Retail, (3) Single-Tenant Retail and (4) Office.
The real estate portfolio metrics include:
- 96.3% leased with a
remaining weighted-average lease term of 6.9 years
- 77.5% of the
portfolio contains contractual rent increases based on annualized
straight-line rent
- 58.2% of portfolio
annualized straight-line rent derived from investment grade and
implied investment grade rated tenants5
- 80.8% U.S. and
Canada, 19.2% Europe (based on annualized straight-line rent)
- 32% Industrial &
Distribution, 27% Multi-Tenant Retail, 21% Single-Tenant Retail and
20% Office (based on an annualized straight-line rent)
Capital Structure and Liquidity
Resources7
As of September 30, 2023, the Company had
liquidity of $319.4 million, including $133.4 million of cash and
cash equivalents and $186.0
million of availability under the Company's
revolving credit facility. The Company had net debt of $5.2
billion8, including $2.7 billion of mortgage debt.
As of September 30, 2023, the percentage of
debt that is fixed rate (including variable rate debt fixed with
swaps) was 82% compared to 74.8% as of September 30, 2022. The
Company's total combined debt had a weighted average interest rate
of 4.7% resulting in an interest coverage ratio of 2.5 times9.
Weighted-average debt maturity was 3.4 years as of
September 30, 2023 as compared to 4.2 years as of
September 30, 2022.
Footnotes/Definitions
1 $2.2 million in additional captured synergies
reflects an incremental $114,000 of savings in GNL's General &
Administrative expenses for the 19-day period following the
completion of the Merger and Internalization compared to the
previously anticipated General & Administrative expenses for
such 19-day period, annualized for a full fiscal year. 2 Includes
$10.4 million of equity-based compensation, $43.8 million of
non-recurring merger, transaction and other costs, and $14.6
million of non-recurring settlement costs.3 While we consider AFFO
a useful indicator of our performance, we do not consider AFFO as
an alternative to net income (loss) or as a measure of liquidity.
Furthermore, other REITs may define AFFO differently than we do.
Projected AFFO per share data included in this release is for
informational purposes only and should not be relied upon as
indicative of future dividends or as a measure of future liquidity.
AFFO for the third quarter also contains a number of adjustments
for items that the Company believes were non-recurring, one time
items including adjustments for items that were settled in cash
such as merger and proxy related expenses. 4 Weighted-average
remaining lease term in years is based on square feet as of
September 30, 2023.5 As used herein, "Investment Grade Rating"
includes both actual investment grade ratings of the tenant or
guarantor, if available, or implied investment grade. Implied
Investment Grade may include actual ratings of tenant parent,
guarantor parent (regardless of whether or not the parent has
guaranteed the tenant's obligation under the lease) or by using a
proprietary Moody's analytical tool, which generates an implied
rating by measuring a company's probability of default. The term
"parent" for these purposes includes any entity, including any
governmental entity, owning more than 50% of the voting stock in a
tenant. Ratings information is as of September 30, 2023.
Comprised of 35.4% leased to tenants with an actual investment
grade rating and 22.8% leased to tenants with an Implied Investment
Grade rating based on annualized cash rent as of September 30,
2023.6 Inclusive of $185 million of closed transactions and $198
million of signed PSA and LOIs. Assumes signed PSA/LOIs lead to
definitive sales on their contemplated terms, which is not
assured.7 During the three months ended September 30, 2023,
the Company did not sell any shares of Common Stock or Series B
Preferred Stock through its Common Stock or Series B Preferred
Stock "at-the-market" programs. However, the Company did issue
7,933,711 shares of newly created Series D Preferred Stock,
4,595,175 shares of newly created Series E Preferred Stock and
123,257,658 shares of common stock in connection with the Merger
and Internalization.8 Comprised of the principal amount of GNL's
outstanding debt totaling $5.3 billion less cash and cash
equivalents totaling $133.4 million, as of September 30,
2023.9 The interest coverage ratio is calculated by dividing
adjusted EBITDA for the applicable quarter by cash paid for
interest (calculated based on the interest expense less non-cash
portion of interest expense and amortization of mortgage (discount)
premium, net). Management believes that Interest Coverage Ratio is
a useful supplemental measure of our ability to service our debt
obligations. Adjusted EBITDA and cash paid for interest are
Non-GAAP metrics and are reconciled below.
Conference Call
GNL will host a webcast and conference call on
November 8, 2023 at 1:00 p.m. ET to discuss its financial and
operating results. To listen to the live call, please go to
GNL's "Investor Relations" section of the website at least 15
minutes prior to the start of the call to register and download any
necessary audio software. Dial-in instructions for the conference
call and the replay are outlined below.
Conference Call Details
Live CallDial-In (Toll Free):
1-866-652-5200International Dial-In: 1-412-317-6060
Conference Replay*For those who are not able to
listen to the live broadcast, a replay will be available shortly
after the call on the GNL website at
www.globalnetlease.com
Or dial in below:Domestic Dial-In (Toll Free):
1-844-512-2921International Dial-In: 1-412-317-6671Conference
Number: 10181965 *Available from 5:00 p.m. ET on
November 8, 2023 through February 8, 2023.
Supplemental Schedules
The Company will furnish supplemental
information packages with the Securities and Exchange Commission
(the "SEC") to provide additional disclosure and financial
information. Once posted, the supplemental package can be found
under the "Presentations" tab in the Investor Relations section of
GNL's website at www.globalnetlease.com and on the SEC website at
www.sec.gov.
About Global Net Lease, Inc.
Global Net Lease, Inc. (NYSE: GNL) is a publicly
traded real estate investment trust listed on the NYSE focused on
acquiring a diversified global portfolio of commercial properties,
with an emphasis on sale-leaseback transactions involving single
tenant, mission critical income producing net-leased assets across
the United States, Western and Northern Europe. Additional
information about GNL can be found on its website at
www.globalnetlease.com.
Forward-Looking Statements
The statements in this press release that are
not historical facts may be forward-looking statements. These
forward-looking statements involve risks and uncertainties that
could cause the actual results or events to be materially
different. The words "may," "will," "seeks," "anticipates,"
"believes," "expects," "estimates," "projects," "plans," "intends,"
"should" and similar expressions are intended to identify
forward-looking statements, although not all forward-looking
statements contain these identifying words. These forward-looking
statements are subject to a number of risks, uncertainties and
other factors, many of which are outside of the Company's control,
which could cause actual results to differ materially from the
results contemplated by the forward-looking statements. These risks
and uncertainties include the risks associated with the recently
completed merger with The Necessity Retail REIT, Inc. ("RTL") and
the internalization of our property management and advisory
functions; the geopolitical instability due to the ongoing military
conflict between Russia and Ukraine and Israel and Hamas, including
related sanctions and other penalties imposed by the U.S. and
European Union, and the related impact on us, our tenants and the
global economy and financial markets; that any potential future
acquisition by the Company is subject to market conditions and
capital availability and may not be identified or completed on
favorable terms, or at all, as well as those risks and
uncertainties set forth in the Risk Factors section of the
Company's most recent Annual Report on Form 10-K for the year ended
December 31, 2022 filed on February 23, 2023, and all other filings
with the SEC after that date, as such risks, uncertainties and
other important factors may be updated from time to time in the
Company's subsequent reports. Further, forward-looking statements
speak only as of the date they are made, and the Company undertakes
no obligation to update or revise any forward-looking statement to
reflect changed assumptions, the occurrence of unanticipated events
or changes to future operating results over time, unless required
by law.
Contacts:
Investors and Media:Email:
investorrelations@globalnetlease.comPhone: (332) 265-2020
Global Net Lease,
Inc.Consolidated Balance
Sheets(In thousands)
|
|
September 30,2023 |
|
December 31,2022 |
ASSETS |
|
(Unaudited) |
|
|
Real estate investments, at
cost: |
|
|
|
|
Land |
|
$ |
1,432,508 |
|
|
$ |
494,101 |
|
Buildings, fixtures and improvements |
|
|
5,810,267 |
|
|
|
3,276,656 |
|
Construction in progress |
|
|
27,842 |
|
|
|
26,717 |
|
Acquired intangible lease assets |
|
|
1,366,597 |
|
|
|
689,275 |
|
Total real estate investments, at cost |
|
|
8,637,214 |
|
|
|
4,486,749 |
|
Less accumulated depreciation and amortization |
|
|
(1,003,597 |
) |
|
|
(891,479 |
) |
Total real estate investments, net |
|
|
7,633,617 |
|
|
|
3,595,270 |
|
Assets held for sale |
|
|
1,299 |
|
|
|
— |
|
Cash and cash equivalents |
|
|
133,439 |
|
|
|
103,335 |
|
Restricted cash |
|
|
44,998 |
|
|
|
1,110 |
|
Derivative assets, at fair
value |
|
|
26,400 |
|
|
|
37,279 |
|
Unbilled straight-line
rent |
|
|
76,264 |
|
|
|
73,037 |
|
Operating lease right-of-use
asset |
|
|
75,669 |
|
|
|
49,166 |
|
Prepaid expenses and other
assets |
|
|
122,636 |
|
|
|
64,348 |
|
Due from related parties |
|
|
— |
|
|
|
464 |
|
Deferred tax assets |
|
|
2,559 |
|
|
|
3,647 |
|
Goodwill and other intangible
assets, net |
|
|
51,018 |
|
|
|
21,362 |
|
Deferred financing costs,
net |
|
|
16,814 |
|
|
|
12,808 |
|
Total Assets |
|
$ |
8,184,713 |
|
|
$ |
3,961,826 |
|
|
|
|
|
|
LIABILITIES AND
EQUITY |
|
|
|
|
Mortgage notes payable,
net |
|
$ |
2,571,664 |
|
|
$ |
1,233,081 |
|
Revolving credit facility |
|
|
1,609,931 |
|
|
|
669,968 |
|
Senior notes, net |
|
|
881,320 |
|
|
|
493,122 |
|
Acquired intangible lease
liabilities, net |
|
|
98,323 |
|
|
|
24,550 |
|
Derivative liabilities, at
fair value |
|
|
269 |
|
|
|
328 |
|
Due to related parties |
|
|
— |
|
|
|
1,183 |
|
Accounts payable and accrued
expenses |
|
|
117,993 |
|
|
|
22,889 |
|
Operating lease liability |
|
|
47,893 |
|
|
|
21,877 |
|
Prepaid rent |
|
|
47,070 |
|
|
|
28,456 |
|
Deferred tax liability |
|
|
6,029 |
|
|
|
7,264 |
|
Dividends payable |
|
|
10,995 |
|
|
|
5,189 |
|
Total Liabilities |
|
|
5,391,487 |
|
|
|
2,507,907 |
|
Commitments and
contingencies |
|
|
— |
|
|
|
— |
|
Stockholders'
Equity: |
|
|
|
|
7.25% Series A cumulative
redeemable preferred stock |
|
|
68 |
|
|
|
68 |
|
6.875% Series B cumulative
redeemable perpetual preferred stock |
|
|
47 |
|
|
|
47 |
|
7.50% Series D cumulative
redeemable perpetual preferred stock |
|
|
79 |
|
|
|
— |
|
7.375% Series E cumulative
redeemable perpetual preferred stock |
|
|
46 |
|
|
|
— |
|
Common stock |
|
|
3,638 |
|
|
|
2,371 |
|
Additional paid-in
capital |
|
|
4,349,401 |
|
|
|
2,683,169 |
|
Accumulated other
comprehensive income |
|
|
(602 |
) |
|
|
1,147 |
|
|
|
|
(1,560,738 |
) |
|
|
(1,247,781 |
) |
Total Stockholders' Equity |
|
|
2,791,939 |
|
|
|
1,439,021 |
|
Non-controlling interest |
|
|
1,287 |
|
|
|
14,898 |
|
Total Equity |
|
|
2,793,226 |
|
|
|
1,453,919 |
|
Total Liabilities and Equity |
|
$ |
8,184,713 |
|
|
$ |
3,961,826 |
|
Global Net Lease,
Inc.Consolidated Statements of Operations
(Unaudited)(In thousands, except share and per
share data)
|
|
Three Months Ended September 30, |
|
|
|
2023 |
|
|
|
2022 |
|
Revenue from
tenants |
|
$ |
118,168 |
|
|
$ |
92,599 |
|
|
|
|
|
|
Expenses: |
|
|
|
|
Property operating |
|
|
13,623 |
|
|
|
7,765 |
|
Operating fees to related parties |
|
|
8,652 |
|
|
|
10,088 |
|
Impairment charges |
|
|
65,706 |
|
|
|
796 |
|
Merger, transaction and other costs |
|
|
43,765 |
|
|
|
103 |
|
Settlement costs |
|
|
14,643 |
|
|
|
— |
|
General and administrative |
|
|
6,977 |
|
|
|
4,060 |
|
Equity-based compensation |
|
|
10,444 |
|
|
|
3,132 |
|
Depreciation and amortization |
|
|
49,232 |
|
|
|
37,791 |
|
Total expenses |
|
|
213,042 |
|
|
|
63,735 |
|
Operating income before loss on dispositions of real estate
investments |
|
|
(94,874 |
) |
|
|
28,864 |
|
Gain on dispositions of real estate investments |
|
|
(684 |
) |
|
|
143 |
|
Operating income |
|
|
(95,558 |
) |
|
|
29,007 |
|
Other income
(expense): |
|
|
|
|
Interest expense |
|
|
(41,161 |
) |
|
|
(24,207 |
) |
Loss on extinguishment of debt |
|
|
— |
|
|
|
(41 |
) |
Gain on derivative instruments |
|
|
3,217 |
|
|
|
13,121 |
|
Other income |
|
|
119 |
|
|
|
10 |
|
Total other expense, net |
|
|
(37,825 |
) |
|
|
(11,117 |
) |
Net (loss) income before
income taxes |
|
|
(133,383 |
) |
|
|
17,890 |
|
Income tax expense |
|
|
(2,801 |
) |
|
|
(3,052 |
) |
Net loss |
|
|
(136,184 |
) |
|
|
14,838 |
|
Preferred stock dividends |
|
|
(6,304 |
) |
|
|
(5,099 |
) |
Net loss attributable
to common stockholders |
|
$ |
(142,488 |
) |
|
$ |
9,739 |
|
|
|
|
|
|
Basic and Diluted Loss
Per Share: |
|
|
|
|
Net loss per share attributable to common stockholders — Basic and
Diluted |
|
$ |
(1.11 |
) |
|
$ |
0.09 |
|
|
|
|
|
|
Weighted average shares outstanding — Basic and Diluted |
|
|
130,825 |
|
|
|
103,715 |
|
Global Net Lease,
Inc.Quarterly Reconciliation of Non-GAAP Measures
(Unaudited)(In thousands)
|
|
Three Months Ended September 30, |
|
|
|
2023 |
|
|
|
2022 |
|
Adjusted
EBITDA |
|
|
|
|
Net (loss) income |
|
$ |
(136,184 |
) |
|
$ |
14,838 |
|
Depreciation and amortization |
|
|
49,232 |
|
|
|
37,791 |
|
Interest expense |
|
|
41,161 |
|
|
|
24,207 |
|
Income tax expense |
|
|
2,801 |
|
|
|
3,052 |
|
Impairment charges |
|
|
65,706 |
|
|
|
796 |
|
Equity-based compensation |
|
|
10,444 |
|
|
|
3,132 |
|
Merger, transaction and other costs |
|
|
43,765 |
|
|
|
103 |
|
Settlement costs |
|
|
14,643 |
|
|
|
— |
|
Loss (gain) on dispositions of real estate investments |
|
|
684 |
|
|
|
(143 |
) |
Gain on derivative instruments |
|
|
(3,217 |
) |
|
|
(13,121 |
) |
Loss on extinguishment of debt |
|
|
— |
|
|
|
41 |
|
Other income |
|
|
(119 |
) |
|
|
(10 |
) |
Expenses attributable to 2023 proxy contest and related
litigation[1] |
|
|
14 |
|
|
|
— |
|
Adjusted EBITDA |
|
|
88,930 |
|
|
|
70,686 |
|
|
|
|
|
|
Net operating income
(NOI) |
|
|
|
|
Operating fees to related parties |
|
|
8,652 |
|
|
|
10,088 |
|
General and administrative |
|
|
6,977 |
|
|
|
4,060 |
|
Expenses attributable to 2023 proxy contest and related
litigation[1] |
|
|
(14 |
) |
|
|
— |
|
NOI |
|
|
104,545 |
|
|
|
84,834 |
|
Amortization related to above- and below- market lease intangibles
and right-of-use assets, net |
|
|
1,444 |
|
|
|
351 |
|
Straight-line rent |
|
|
(2 |
) |
|
|
(2,314 |
) |
Cash NOI |
|
$ |
105,987 |
|
|
$ |
82,871 |
|
|
|
|
|
|
Cash Paid for
Interest: |
|
|
|
|
Interest Expense |
|
$ |
41,161 |
|
|
$ |
24,207 |
|
Non-cash portion of interest expense |
|
|
(2,046 |
) |
|
|
(2,322 |
) |
Amortization of mortgage discounts |
|
|
(3,374 |
) |
|
|
(225 |
) |
Total cash paid for interest |
|
$ |
35,741 |
|
|
$ |
21,660 |
|
|
Footnote:
[1] Amount relates to general and administrative
expenses incurred for the Company's 2023 proxy contest and related
litigation involving Blackwells Capital LLC, an affiliate of
Blackwells Onshore I LLC, and certain others involved with the
proxy solicitation (collectively, the "Blackwells/Related
Parties"). The Company does not consider these expenses to be part
of its normal operating performance. Due to the increase in these
expenses as a portion of its general and administrative expenses in
the first quarter of 2023, the Company began including this
adjustment to arrive at Adjusted EBITDA in order to better reflect
its operating performance. The third quarter of 2022 did not have
any of these expenses.
Global Net Lease,
Inc.Quarterly Reconciliation of Non-GAAP Measures
(Unaudited)(In thousands
|
|
Three Months EndedSeptember 30, |
|
|
|
2023 |
|
|
|
2022 |
|
Net loss attributable
to stockholders (in accordance with GAAP) |
|
$ |
(142,488 |
) |
|
$ |
9,739 |
|
Impairment charges |
|
|
65,706 |
|
|
|
796 |
|
Depreciation and amortization |
|
|
49,232 |
|
|
|
37,791 |
|
Gain on dispositions of real estate investments |
|
|
684 |
|
|
|
(143 |
) |
FFO (defined by
NAREIT) |
|
|
(26,866 |
) |
|
|
48,183 |
|
Merger, transaction and other costs[1] |
|
|
43,765 |
|
|
|
103 |
|
Settlement costs[2] |
|
|
14,643 |
|
|
|
— |
|
Loss on extinguishment of debt |
|
|
— |
|
|
|
41 |
|
Core FFO attributable
to common stockholders |
|
|
31,542 |
|
|
|
48,327 |
|
Non-cash equity-based compensation |
|
|
10,444 |
|
|
|
3,132 |
|
Non-cash portion of interest expense |
|
|
2,046 |
|
|
|
2,322 |
|
Amortization related to above- and below-market lease intangibles
and right-of-use assets, net |
|
|
1,444 |
|
|
|
351 |
|
Straight-line rent |
|
|
(2 |
) |
|
|
(2,314 |
) |
Unrealized income on undesignated foreign currency advances and
other hedge ineffectiveness |
|
|
— |
|
|
|
1 |
|
Eliminate unrealized gains on foreign currency transactions[4] |
|
|
(1,933 |
) |
|
|
(10,732 |
) |
Amortization of mortgage discounts |
|
|
3,374 |
|
|
|
225 |
|
Expenses attributable to 2023 proxy contest and related
litigation[5] |
|
|
14 |
|
|
|
— |
|
Adjusted funds from
operations (AFFO) attributable to common stockholders |
|
$ |
46,929 |
|
|
$ |
41,312 |
|
|
Footnotes:
[1] For the three months ended September 30,
2023, these costs primarily consist of advisory, legal and other
professional costs that were directly related to the proposed
merger.[2] In the three months ended September 30, 2023, we
recognized these settlement costs which include expense for Common
Stock issued/to be issued to the Blackwells/Related Parties, as
required under the cooperation agreement with the
Blackwells/Related Parties. [3] Represents amounts related to
deferred rent pursuant to lease negotiations which qualify for FASB
relief for which rent was deferred but not reduced. These amounts
are included in the straight-line rent receivable on our balance
sheet but are considered to be earned revenue attributed to the
current period for rent that was deferred, for purposes of AFFO, as
they are expected to be collected. Accordingly, when the deferred
amounts are collected, the amounts reduce AFFO. As of March 31,
2023, the Company has collected all previously deferred rents.[4]
For AFFO purposes, we add back unrealized (gain) loss. For the
three months ended September 30, 2023, the gain on derivative
instruments was $3.2 million, which consisted of unrealized gains
of $1.9 million and realized gains of $1.3 million. For the
three months ended September 30, 2022, the gain on derivative
instruments was $13.1 million, which consisted of unrealized gains
of $10.7 million and realized gains of $2.4 million.[5] Amounts
relate to general and administrative expenses incurred for the
Company's 2023 proxy contest and related Blackwells/Related Parties
litigation. The Company does not consider these expenses to be part
of its normal operating performance and has, accordingly, increased
its AFFO for this amount. The third quarter of 2022 did not have
any of these expenses.
The following table provides operating financial information for
the Company's four reportable segments:
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
(In thousands) |
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
Industrial & Distribution: |
|
|
|
|
|
|
|
|
Revenue from tenants |
|
$ |
53,767 |
|
$ |
52,196 |
|
$ |
157,879 |
|
$ |
158,947 |
Property operating expense |
|
|
3,436 |
|
|
3,145 |
|
|
10,050 |
|
|
9,748 |
Segment income |
|
$ |
50,331 |
|
$ |
49,051 |
|
$ |
147,829 |
|
$ |
149,199 |
|
|
|
|
|
|
|
|
|
Multi-Tenant
Retail: |
|
|
|
|
|
|
|
|
Revenue from tenants |
|
$ |
13,387 |
|
$ |
— |
|
$ |
13,387 |
|
$ |
— |
Property operating expense |
|
|
4,457 |
|
|
— |
|
|
4,457 |
|
|
— |
Segment income |
|
$ |
8,930 |
|
$ |
— |
|
$ |
8,930 |
|
$ |
— |
|
|
|
|
|
|
|
|
|
Single-Tenant
Retail: |
|
|
|
|
|
|
|
|
Revenue from tenants |
|
$ |
12,212 |
|
$ |
3,009 |
|
$ |
20,471 |
|
$ |
9,399 |
Property operating expense |
|
|
737 |
|
|
144 |
|
|
1,053 |
|
|
588 |
Segment income |
|
$ |
11,475 |
|
$ |
2,865 |
|
$ |
19,418 |
|
$ |
8,811 |
|
|
|
|
|
|
|
|
|
Office: |
|
|
|
|
|
|
|
|
Revenue from tenants |
|
$ |
38,802 |
|
$ |
37,394 |
|
$ |
116,607 |
|
$ |
116,563 |
Property operating expense |
|
|
4,993 |
|
|
4,476 |
|
|
15,242 |
|
|
12,687 |
Segment income |
|
$ |
33,809 |
|
$ |
32,918 |
|
$ |
101,365 |
|
$ |
103,876 |
|
Caution on Use of Non-GAAP Measures
Funds from Operations ("FFO"), Core Funds from
Operations ("Core FFO"), Adjusted Funds from Operations ("AFFO"),
Adjusted Earnings before Interest, Taxes, Depreciation and
Amortization ("Adjusted EBITDA"), Net Operating Income ("NOI") and
Cash Net Operating Income ("Cash NOI") should not be construed to
be more relevant or accurate than the current GAAP methodology in
calculating net income or in its applicability in evaluating our
operating performance. The method utilized to evaluate the value
and performance of real estate under GAAP should be construed as a
more relevant measure of operational performance and considered
more prominently than the non-GAAP measures.
Other REITs may not define FFO in accordance
with the current National Association of Real Estate Investment
Trusts ("NAREIT") definition (as we do), or may interpret the
current NAREIT definition differently than we do, or may calculate
Core FFO or AFFO differently than we do. Consequently, our
presentation of FFO, Core FFO and AFFO may not be comparable to
other similarly-titled measures presented by other REITs.
We consider FFO, Core FFO and AFFO useful
indicators of our performance. Because FFO, Core FFO and AFFO
calculations exclude such factors as depreciation and amortization
of real estate assets and gain or loss from sales of operating real
estate assets (which can vary among owners of identical assets in
similar conditions based on historical cost accounting and
useful-life estimates), FFO, Core FFO and AFFO presentations
facilitate comparisons of operating performance between periods and
between other REITs.
As a result, we believe that the use of FFO,
Core FFO and AFFO, together with the required GAAP presentations,
provide a more complete understanding of our operating performance
including relative to our peers and a more informed and appropriate
basis on which to make decisions involving operating, financing,
and investing activities. However, FFO, Core FFO and AFFO are not
indicative of cash available to fund ongoing cash needs, including
the ability to make cash distributions. Investors are cautioned
that FFO, Core FFO and AFFO should only be used to assess the
sustainability of our operating performance excluding these
activities, as they exclude certain costs that have a negative
effect on our operating performance during the periods in which
these costs are incurred. Adjustments for unconsolidated
partnerships and joint ventures are calculated to exclude the
proportionate share of the non-controlling interest to arrive at
FFO, Core FFO, AFFO and NOI attributable to stockholders, as
applicable.
Funds from Operations, Core Funds from Operations and
Adjusted Funds from Operations
Funds from Operations
Due to certain unique operating characteristics
of real estate companies, as discussed below, NAREIT, an industry
trade group, has promulgated a measure known as FFO, which we
believe to be an appropriate supplemental measure to reflect the
operating performance of a REIT. FFO is not equivalent to net
income or loss as determined under GAAP.
We calculate FFO, a non-GAAP measure, consistent
with the standards established over time by the Board of Governors
of NAREIT, as restated in a White Paper approved by the Board of
Governors of NAREIT effective in December 2018 (the "White Paper").
The White Paper defines FFO as net income or loss computed in
accordance with GAAP, excluding depreciation and amortization
related to real estate, gain and loss from the sale of certain real
estate assets, gain and loss from change in control and impairment
write-downs of certain real estate assets and investments in
entities when the impairment is directly attributable to decreases
in the value of depreciable real estate held by the entity.
Adjustments for unconsolidated partnerships and joint ventures are
calculated to exclude the proportionate share of the
non-controlling interest to arrive at FFO, Core FFO, AFFO and NOI
attributable to stockholders, as applicable. Our FFO calculation
complies with NAREIT's definition.
The historical accounting convention used for
real estate assets requires straight-line depreciation of buildings
and improvements, and straight-line amortization of intangibles,
which implies that the value of a real estate asset diminishes
predictably over time. We believe that, because real estate values
historically rise and fall with market conditions, including
inflation, interest rates, unemployment and consumer spending,
presentations of operating results for a REIT using historical
accounting for depreciation and certain other items may be less
informative. Historical accounting for real estate involves the use
of GAAP. Any other method of accounting for real estate such as the
fair value method cannot be construed to be any more accurate or
relevant than the comparable methodologies of real estate valuation
found in GAAP. Nevertheless, we believe that the use of FFO, which
excludes the impact of real estate related depreciation and
amortization, among other things, provides a more complete
understanding of our performance to investors and to management,
and when compared year over year, reflects the impact on our
operations from trends in occupancy rates, rental rates, operating
costs, general and administrative expenses, and interest costs,
which may not be immediately apparent from net income.
Core Funds from Operations
In calculating Core FFO, we start with FFO, then
we exclude certain non-core items such as merger, transaction and
other costs, settlement costs related to our Blackwells/Related
Parties litigation, as well as certain other costs that are
considered to be non-core, such as debt extinguishment costs, fire
loss and other costs related to damages at our properties. The
purchase of properties, and the corresponding expenses associated
with that process, is a key operational feature of our core
business plan to generate operational income and cash flows in
order to make dividend payments to stockholders. In evaluating
investments in real estate, we differentiate the costs to acquire
the investment from the subsequent operations of the investment. We
also add back non-cash write-offs of deferred financing costs and
prepayment penalties incurred with the early extinguishment of debt
which are included in net income but are considered financing cash
flows when paid in the statement of cash flows. We consider these
write-offs and prepayment penalties to be capital transactions and
not indicative of operations. By excluding expensed acquisition,
transaction and other costs as well as non-core costs, we believe
Core FFO provides useful supplemental information that is
comparable for each type of real estate investment and is
consistent with management's analysis of the investing and
operating performance of our properties.
Adjusted Funds from Operations
In calculating AFFO, we start with Core FFO,
then we exclude certain income or expense items from AFFO that we
consider more reflective of investing activities, other non-cash
income and expense items and the income and expense effects of
other activities or items, including items that were paid in cash
that are not a fundamental attribute of our business plan or were
one time or non-recurring items. These items include, for example,
early extinguishment of debt and other items excluded in Core FFO
as well as unrealized gain and loss, which may not ultimately be
realized, such as gain or loss on derivative instruments, gain or
loss on foreign currency transactions, and gain or loss on
investments. In addition, by excluding non-cash income and expense
items such as amortization of above-market and below-market leases
intangibles, amortization of deferred financing costs,
straight-line rent and equity-based compensation from AFFO, we
believe we provide useful information regarding income and expense
items which have a direct impact on our ongoing operating
performance. We also exclude revenue attributable to the
reimbursement by third parties of financing costs that we
originally incurred because these revenues are not, in our view,
related to operating performance. We also include the realized gain
or loss on foreign currency exchange contracts for AFFO as such
items are part of our ongoing operations and affect our current
operating performance.
In calculating AFFO, we exclude certain expenses
which under GAAP are characterized as operating expenses in
determining operating net income. All paid and accrued acquisition,
transaction and other costs (including prepayment penalties for
debt extinguishments and merger related expenses) and certain other
expenses, including expenses incurred for the 2023 proxy contest
and related Blackwells/Related Parties litigation, negatively
impact our operating performance during the period in which
expenses are incurred or properties are acquired and will also have
negative effects on returns to investors, but are not reflective of
our on-going performance. Further, under GAAP, certain contemplated
non-cash fair value and other non-cash adjustments are considered
operating non-cash adjustments to net income. In addition, as
discussed above, we view gain and loss from fair value adjustments
as items which are unrealized and may not ultimately be realized
and not reflective of ongoing operations and are therefore
typically adjusted for when assessing operating performance.
Excluding income and expense items detailed above from our
calculation of AFFO provides information consistent with
management's analysis of our operating performance. Additionally,
fair value adjustments, which are based on the impact of current
market fluctuations and underlying assessments of general market
conditions, but can also result from operational factors such as
rental and occupancy rates, may not be directly related or
attributable to our current operating performance. By excluding
such changes that may reflect anticipated and unrealized gain or
loss, we believe AFFO provides useful supplemental information. By
providing AFFO, we believe we are presenting useful information
that can be used to, among other things, assess our performance
without the impact of transactions or other items that are not
related to our portfolio of properties. AFFO presented by us may
not be comparable to AFFO reported by other REITs that define AFFO
differently. Furthermore, we believe that in order to facilitate a
clear understanding of our operating results, AFFO should be
examined in conjunction with net income (loss) calculated in
accordance with GAAP and presented in our consolidated financial
statements. AFFO should not be considered as an alternative to net
income (loss) as an indication of our performance or to cash flows
as a measure of our liquidity or ability to make distributions.
Adjusted Earnings before Interest,
Taxes, Depreciation and Amortization, Net Operating Income and
Constant Currency
We believe that Adjusted EBITDA, which is
defined as earnings before interest, taxes, depreciation and
amortization adjusted for acquisition, transaction and other costs,
other non-cash items and including our pro-rata share from
unconsolidated joint ventures, is an appropriate measure of our
ability to incur and service debt. We also exclude revenue
attributable to the reimbursement by third parties of financing
costs that we originally incurred because these revenues are not,
in our view, related to operating performance. All paid and accrued
acquisition, transaction and other costs (including prepayment
penalties for debt extinguishments) and certain other expenses,
including general and administrative expenses incurred for the 2023
proxy contest and related Blackwells/Related Parties litigation,
negatively impact our operating performance during the period in
which expenses are incurred or properties are acquired and will
also have negative effects on returns to investors, but are not
reflective of on-going performance. Due to the increase in general
and administrative expenses as a result of the 2023 proxy contest
and related litigation as a portion of our total general and
administrative expenses in the first quarter of 2023, we began
including this adjustment to arrive at Adjusted EBITDA in order to
better reflect our operating performance. Adjusted EBITDA should
not be considered as an alternative to cash flows from operating
activities, as a measure of our liquidity or as an alternative to
net income as an indicator of our operating activities. Other REITs
may calculate Adjusted EBITDA differently and our calculation
should not be compared to that of other REITs.
NOI is a non-GAAP financial measure equal to net
income (loss), the most directly comparable GAAP financial measure,
less discontinued operations, interest, other income and income
from preferred equity investments and investment securities, plus
corporate general and administrative expense, acquisition,
transaction and other costs, depreciation and amortization, other
non-cash expenses and interest expense. We use NOI internally as a
performance measure and believe NOI provides useful information to
investors regarding our financial condition and results of
operations because it reflects only those income and expense items
that are incurred at the property level. Therefore, we believe NOI
is a useful measure for evaluating the operating performance of our
real estate assets and to make decisions about resource
allocations. Further, we believe NOI is useful to investors as a
performance measure because, when compared across periods, NOI
reflects the impact on operations from trends in occupancy rates,
rental rates, operating costs and acquisition activity on an
unlevered basis, providing perspective not immediately apparent
from net income. NOI excludes certain components from net income in
order to provide results that are more closely related to a
property's results of operations. For example, interest expense is
not necessarily linked to the operating performance of a real
estate asset and is often incurred at the corporate level as
opposed to the property level. In addition, depreciation and
amortization, because of historical cost accounting and useful life
estimates, may distort operating performance at the property level.
NOI presented by us may not be comparable to NOI reported by other
REITs that define NOI differently. We believe that in order to
facilitate a clear understanding of our operating results, NOI
should be examined in conjunction with net income (loss) as
presented in our consolidated financial statements. NOI should not
be considered as an alternative to net income (loss) as an
indication of our performance or to cash flows as a measure of our
liquidity.
Cash NOI is a non-GAAP financial measure that is
intended to reflect the performance of our properties. We define
Cash NOI as net operating income (which is separately defined
herein) excluding amortization of above/below market lease
intangibles and straight-line rent adjustments that are included in
GAAP lease revenues. We believe that Cash NOI is a helpful measure
that both investors and management can use to evaluate the current
financial performance of our properties and it allows for
comparison of our operating performance between periods and to
other REITs. Cash NOI should not be considered as an alternative to
net income, as an indication of our financial performance, or to
cash flows as a measure of liquidity or our ability to fund all
needs. The method by which we calculate and present Cash NOI may
not be directly comparable to the way other REITs calculate and
present Cash NOI.
Cash Paid for Interest is calculated based on
the interest expense less non-cash portion of interest expense and
amortization of mortgage (discount) premium, net. Management
believes that Cash Paid for Interest provides useful information to
investors to assess our overall solvency and financial flexibility.
Cash Paid for Interest should not be considered as an alternative
to interest expense as determined in accordance with GAAP or any
other GAAP financial measures and should only be considered
together with and as a supplement to our financial information
prepared in accordance with GAAP.
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