Global Net Lease(GNL) - 2019 Q4 - Annual Report

PART I Business Global Net Lease, Inc. is a REIT investing in diversified, single-tenant net-leased commercial properties across the U.S., Canada, and Europe - The company's investment strategy focuses on acquiring a diversified portfolio of commercial properties, primarily through sale-leaseback transactions involving single-tenant, net-leased assets[21][27] - In 2019, the company acquired 39 properties for a total of $562.7 million, with a strategic focus on industrial/distribution (65%) and office (35%) properties[28] Portfolio Overview as of December 31, 2019 | Metric | Value | | :--- | :--- | | Properties Owned | 278 | | Rentable Square Feet | 31.6 million | | Occupancy | 99.6% leased | | Weighted Average Remaining Lease Term | 8.3 years | | Geographic Split (by annualized rental income) | 63.2% U.S. & Canada, 37% Europe | 2019 Equity Offering Summary | Offering Type | Gross Proceeds | | :--- | :--- | | Common Stock ATM Program | $262.6 million | | Series A Preferred Stock ATM Program | $35.3 million | | Series B Preferred Stock Underwritten Offering | $86.2 million | - As of December 31, 2019, the company's aggregate gross borrowings were 49.3% of the purchase price of its real estate investments, or 51.1% of total assets[34] Risk Factors The company faces significant operational, property-related, financial, and REIT compliance risks, including external advisor dependence and geographic concentrations - The company is highly dependent on its external Advisor and Property Manager for all key operations, and its executive officers face conflicts of interest due to their roles in affiliated entities[54][62][98] - A significant portion of the company's portfolio is concentrated geographically, with 37% from Europe and 15% from Michigan, magnifying the effects of regional economic downturns[69][76] - The company is exposed to risks from its international investments, including adverse changes in foreign laws, currency exchange rate fluctuations (particularly from Brexit), and political or economic instability in Europe[72][76][80] - The company's credit facilities contain restrictive covenants that may limit its ability to pay dividends, which cannot exceed 100% of its Adjusted FFO (as defined in the credit facility) over four consecutive quarters, with limited exceptions[58][167] - Failure to maintain REIT qualification would subject the company to U.S. federal income tax at corporate rates, significantly reducing net earnings available for distribution to stockholders[176][177] - As of December 31, 2019, 31.8% of tenants are not rated or are ranked below investment grade, posing a higher risk of default compared to investment-grade tenants[139] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None[201] Properties The company's portfolio comprises 278 properties totaling 31.6 million square feet, diversified geographically and by tenant industry, with future lease payments detailed Portfolio Geographic Distribution by Square Feet (as of Dec 31, 2019) | Country/Location | Number of Properties | Square Feet (in thousands) | % of Total Square Feet | | :--- | :--- | :--- | :--- | | United States | 195 | 21,823 | 69.0% | | United Kingdom | 42 | 4,031 | 12.7% | | France | 7 | 1,632 | 5.2% | | Germany | 5 | 1,584 | 5.0% | | Finland | 5 | 1,457 | 4.6% | | Other | 27 | 1,090 | 3.5% | | Total | 278 | 31,617 | 100.0% | Top 5 Tenant Industries by Annualized Straight-Line Rent (as of Dec 31, 2019) | Industry | % of Total Annualized Rent | | :--- | :--- | | Financial Services | 9% | | Healthcare | 8% | | Technology | 7% | | Aerospace | 6% | | Freight | 5% | Future Minimum Base Rent Payments (Cash Basis) | Year | Amount (in thousands) | | :--- | :--- | | 2020 | $294,087 | | 2021 | $295,428 | | 2022 | $286,725 | | 2023 | $264,583 | | 2024 | $225,344 | | Thereafter | $281,375 | - No single tenant or property accounted for more than 10% or 5%, respectively, of the total portfolio's annualized rental income as of December 31, 2019[219][220] Legal Proceedings The company reports no material pending legal proceedings - None[222] Mine Safety Disclosures This section is not applicable to the company's operations - Not applicable[223] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities GNL common stock trades on NYSE, with quarterly dividends for common and preferred shares, and equity compensation plans tied to advisor performance Annualized Dividend Rates | Security | Annual Dividend per Share | | :--- | :--- | | Common Stock | $2.13 | | Series A Preferred Stock | $1.8125 (7.25% of liquidation preference) | | Series B Preferred Stock | $1.71875 (6.875% of liquidation preference) | - For the year ended December 31, 2019, the tax characterization of the common stock dividend was 69.1% return of capital and 30.9% ordinary dividends[230] - As of December 31, 2019, there were 2,554,930 securities to be issued upon exercise of outstanding rights, primarily representing LTIP Units awarded to the Advisor under the 2018 Outperformance Plan[235] Selected Financial Data The company's selected financial data for 2019 shows total assets of $3.70 billion, tenant revenue of $306.2 million, and net income of $34.5 million Selected Financial Data (in thousands) | Metric | 2019 | 2018 | | :--- | :--- | :--- | | Balance Sheet Data | | | | Total assets | $3,701,605 | $3,309,478 | | Total liabilities | $1,991,647 | $1,880,732 | | Total equity | $1,709,958 | $1,428,746 | | Operating Data | | | | Revenue from tenants | $306,214 | $282,207 | | Operating income | $114,895 | $68,020 | | Net income attributable to common stockholders | $34,535 | $1,082 | | Cash Flow Data | | | | Cash flows provided by operations | $145,999 | $144,597 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes 2019 revenue growth to acquisitions, with net income significantly increasing due to property dispositions and strong liquidity Results of Operations Comparison (in millions) | Line Item | 2019 | 2018 | Change | | :--- | :--- | :--- | :--- | | Revenue from tenants | $306.2 | $282.2 | +8.5% | | Operating Fees to Related Parties | $33.3 | $28.2 | +18.1% | | Gain (Loss) on Dispositions | $23.6 | ($5.8) | N/A | | Interest Expense | $64.2 | $58.0 | +10.7% | | Net Income Attributable to Common Stockholders | $34.5 | $1.1 | +3036% | - The increase in revenue was primarily driven by property acquisitions. The increase in operating fees was due to a $4.3 million rise in the Variable Base Management Fee linked to equity offerings[282][285] Non-GAAP Performance Measures (in millions) | Metric | 2019 | 2018 | Change | | :--- | :--- | :--- | :--- | | FFO attributable to common stockholders | $143.3 | $131.4 | +9.1% | | Core FFO attributable to common stockholders | $145.6 | $149.1 | -2.3% | | AFFO attributable to common stockholders | $159.7 | $147.3 | +8.4% | - In 2019, the company acquired 39 properties for $562.7 million and sold 97 properties for a total price of $311.3 million, generating a gain of $23.6 million[314][315] - Total debt increased from $1.8 billion to $1.9 billion year-over-year. In August 2019, the company amended its credit facility, increasing total commitments to $1.235 billion and lowering the interest rate margin[298][322][324] - For the year ended December 31, 2019, 90.1% of dividends were funded from cash flows from operations, with the remaining 9.9% funded from available cash on hand from borrowings[368] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are interest rate and foreign currency exchange fluctuations, managed through hedging and matching debt currency to rental income - The company's main market risks are interest rate and foreign currency exchange rate fluctuations[379] - As of December 31, 2019, 88.2% of the company's $1.9 billion in total debt was either fixed-rate or swapped to a fixed rate, with a weighted average interest rate of 3.1% per annum on this portion[327][383] - A 1% increase in interest rates would increase annual interest expense on the unhedged variable-rate portion of debt by $18.2 million[388] - Foreign currency risk is managed by matching debt and rental obligations in the same currency and using hedging instruments. The company benefits from a weaker USD relative to the EUR, GBP, and CAD[389] Financial Statements and Supplementary Data This section incorporates by reference the company's consolidated financial statements and supplementary data, which begin on page F-1 - The required information is incorporated by reference to the consolidated financial statements beginning on page F-1 of the Form 10-K[399] Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[400] Controls and Procedures Management and independent auditors confirmed the effectiveness of disclosure controls and internal control over financial reporting as of December 31, 2019 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2019[401] - Management's assessment concluded that internal control over financial reporting was effective as of December 31, 2019, an opinion which was also audited and confirmed by PricewaterhouseCoopers LLP[403][404] Other Information The company reports no other information in this section - None[406] PART III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2020 proxy statement - Information is incorporated by reference from the registrant's definitive proxy statement for the 2020 Annual Meeting of Stockholders[409] Executive Compensation Executive compensation details are incorporated by reference from the company's 2020 definitive proxy statement - Information is incorporated by reference from the registrant's definitive proxy statement for the 2020 Annual Meeting of Stockholders[410] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information for beneficial owners and management is incorporated by reference from the 2020 proxy statement - Information is incorporated by reference from the registrant's definitive proxy statement for the 2020 Annual Meeting of Stockholders[411] Certain Relationships and Related Transactions, and Director Independence Details on related party transactions and director independence are incorporated by reference from the 2020 proxy statement - Information is incorporated by reference from the registrant's definitive proxy statement for the 2020 Annual Meeting of Stockholders[412] Principal Accounting Fees and Services Information on principal accounting fees and services is incorporated by reference from the 2020 proxy statement - Information is incorporated by reference from the registrant's definitive proxy statement for the 2020 Annual Meeting of Stockholders[413] PART IV Exhibits and Financial Statement Schedules This section lists all financial statement schedules and exhibits filed as part of the Annual Report on Form 10-K - This section provides an index of all financial statement schedules and exhibits filed with the Form 10-K[416][417] Form 10-K Summary The company did not provide a summary for its Form 10-K - None[427] Financial Statements Consolidated Balance Sheets As of December 31, 2019, total assets increased to $3.70 billion, driven by real estate investments, with total equity reaching $1.71 billion Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Total real estate investments, net | $3,246,141 | $2,982,925 | | Cash and cash equivalents | $270,302 | $100,324 | | Total Assets | $3,701,605 | $3,309,478 | | Mortgage notes payable, net | $1,272,154 | $1,129,807 | | Revolving credit facility | $199,071 | $363,894 | | Term loan, net | $397,893 | $278,727 | | Total Liabilities | $1,991,647 | $1,880,732 | | Total Equity | $1,709,958 | $1,428,746 | Consolidated Statements of Operations For 2019, tenant revenue rose to $306.2 million, and net income attributable to common stockholders significantly increased to $34.5 million Consolidated Statement of Operations Highlights (in thousands, except per share data) | Account | 2019 | 2018 | | :--- | :--- | :--- | | Revenue from tenants | $306,214 | $282,207 | | Total expenses | $214,935 | $208,436 | | Gain (loss) on dispositions | $23,616 | ($5,751) | | Operating income | $114,895 | $68,020 | | Net income | $46,476 | $10,897 | | Net income attributable to common stockholders | $34,535 | $1,082 | | Basic net income per share | $0.40 | $0.01 | Consolidated Statements of Cash Flows In 2019, operating cash flow remained stable at $146.0 million, with financing activities providing $300.0 million, leading to a $170.0 million cash increase Consolidated Statement of Cash Flows Highlights (in thousands) | Category | 2019 | 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $145,999 | $144,597 | | Net cash used in investing activities | ($294,476) | ($457,946) | | Net cash provided by financing activities | $300,003 | $312,192 | | Net change in cash, cash equivalents and restricted cash | $151,526 | ($1,157) | - Key investing activities in 2019 included $562.7 million for real estate investments, offset by $288.4 million in proceeds from dispositions[461] - Major financing activities in 2019 included $258.4 million in net proceeds from common stock, $117.7 million from preferred stock, and a net increase in mortgage and term loan debt, offset by $161.5 million in dividend payments and net repayments on the revolving credit facility[462]