Global Net Lease(GNL) - 2020 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION The financial information section details the company's financial statements, management's discussion, market risk disclosures, and controls and procedures for the period ended September 30, 2020 Item 1. Financial Statements The company's financial statements for the period ended September 30, 2020, reflect an increase in total assets and liabilities, revenue growth driven by acquisitions, but a significant decrease in net income attributable to common stockholders Consolidated Balance Sheets The consolidated balance sheets show an increase in total assets and liabilities as of September 30, 2020, primarily due to real estate investments and new borrowings Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | September 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total real estate investments, net | $3,326,103 | $3,246,141 | | Cash and cash equivalents | $300,000 | $270,302 | | Total Assets | $3,824,471 | $3,701,605 | | Mortgage notes payable, net | $1,417,712 | $1,272,154 | | Revolving credit facility & Term loan, net | $681,081 | $596,964 | | Total Liabilities | $2,242,572 | $1,991,647 | | Total Equity | $1,581,899 | $1,709,958 | Consolidated Statements of Operations The consolidated statements of operations indicate revenue growth for both the quarter and nine-month periods, but a notable decrease in net income attributable to common stockholders Key Operating Results (in thousands, except per share data) | Metric | Q3 2020 | Q3 2019 | 9 Months 2020 | 9 Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Revenue from tenants | $82,711 | $77,942 | $243,062 | $229,529 | | Operating income | $26,003 | $24,556 | $74,117 | $79,787 | | Net income | $4,142 | $9,941 | $19,273 | $33,545 | | Net (loss) income to common stockholders | $(502) | $6,860 | $5,502 | $25,272 | | Net (loss) income per share (Basic & Diluted) | $(0.01) | $0.08 | $0.06 | $0.30 | Consolidated Statements of Cash Flows The consolidated statements of cash flows show increased cash from operations but a significant reduction in net cash provided by financing activities compared to the prior year Cash Flow Summary for the Nine Months Ended September 30 (in thousands) | Cash Flow Category | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $136,328 | $97,849 | | Net cash used in investing activities | $(178,398) | $(182,202) | | Net cash provided by financing activities | $69,449 | $296,073 | | Net change in cash, cash equivalents and restricted cash | $27,379 | $211,720 | Notes to Consolidated Financial Statements The notes provide detailed information on the company's property portfolio, accounting policies for COVID-19 related rent deferrals, real estate activities, and a stockholder rights plan - As of September 30, 2020, the Company owned 299 properties totaling 34.7 million rentable square feet, which were 99.6% leased with a weighted-average remaining lease term of 8.7 years. 63% of properties are in the U.S. and Canada, and 37% are in Europe[30] - In response to the COVID-19 pandemic, the company elected to use FASB and SEC relief, allowing it to account for COVID-related rent deferral agreements as if no changes were made to the original lease contracts, avoiding lease modification accounting where applicable[42] Real Estate Activity for the Nine Months Ended September 30 (in thousands) | Activity | 2020 | 2019 | | :--- | :--- | :--- | | Acquisitions | | | | Number of properties purchased | 21 | 20 | | Cash paid for acquisitions | $170,810 | $309,003 | | Dispositions | | | | Number of properties sold | 0 | 98 | | Proceeds from dispositions | $0 | $145,800 | | Gain on dispositions | $0 | $14,800 | - In April 2020, the company adopted a short-term stockholder rights plan (a "poison pill") to protect against hostile takeovers amidst market volatility from the COVID-19 pandemic. The plan is triggered if a person or group acquires 4.9% or more of common stock without board approval and expires in April 2021[147][149] - Subsequent to the quarter end, on November 5, 2020, the company acquired four properties in the United States for a total purchase price of approximately $153.0 million, funded with cash on hand[214] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's portfolio, the impact of COVID-19 on rent collection, revenue drivers, liquidity, and non-GAAP financial measures for the period Overview and COVID-19 Impact This section provides an overview of the company's property portfolio and details management's response to and the impact of the COVID-19 pandemic on rent collection - As of September 30, 2020, the portfolio comprised 299 properties (47% industrial/distribution, 48% office, 5% retail) with 34.7 million rentable square feet, 99.6% leased, and a weighted-average remaining lease term of 8.7 years[222] - For the third quarter of 2020, the company collected approximately 97% of the original cash rent due across the entire portfolio[226] Q3 2020 Cash Rent Collection Status | Status | United States | United Kingdom | Europe | Total Portfolio | | :--- | :--- | :--- | :--- | :--- | | Cash rent paid | 96% | 99% | 99% | 97% | | Approved deferral agreement | 1% | 1% | 1% | 1% | | Other/In Negotiation | 3% | 0% | 0% | 2% | Results of Operations This section analyzes the drivers behind changes in revenue from tenants, interest expense, and the absence of gains from dispositions for the reporting periods - Revenue from tenants for Q3 2020 increased to $82.7 million from $77.9 million in Q3 2019, primarily driven by property acquisitions and favorable foreign exchange rate impacts[241] - Interest expense for Q3 2020 rose to $18.7 million from $16.2 million in Q3 2019, mainly due to an increase in average borrowings, with total debt outstanding increasing from $1.9 billion to $2.1 billion year-over-year[250] - For the nine months ended September 30, 2020, revenue from tenants increased to $243.1 million from $229.5 million in the prior year period, driven by acquisitions, while the gain on dispositions of real estate dropped from $14.8 million in 2019 to zero in 2020 as no properties were sold[259][267] Liquidity and Capital Resources This section details the company's cash position, total debt, leverage ratio, and the board's decision to reduce common stock dividends - As of September 30, 2020, the company had $300.0 million in cash and cash equivalents. Key demands on cash include property acquisitions, debt service, and dividend payments[283] - Total debt outstanding was $2.1 billion as of September 30, 2020, with a weighted-average interest rate of 3.1%. The company's debt leverage ratio was 57.3% (total debt as a percentage of total purchase price of real estate investments)[292][293] - In March 2020, the board of directors reduced the annualized dividend on common stock from $2.13 per share to $1.60 per share, effective in the second quarter of 2020[321] Non-GAAP Financial Measures This section presents key non-GAAP financial metrics, including FFO, Core FFO, and AFFO attributable to common stockholders for the reported periods Non-GAAP Performance Measures (in thousands) | Metric | Q3 2020 | Q3 2019 | 9 Months 2020 | 9 Months 2019 | | :--- | :--- | :--- | :--- | :--- | | FFO attributable to common stockholders | $34,547 | $37,878 | $108,221 | $110,862 | | Core FFO attributable to common stockholders | $34,622 | $38,633 | $108,918 | $113,491 | | AFFO attributable to common stockholders | $40,876 | $40,235 | $120,475 | $119,797 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes to its market risk exposure during the nine months ended September 30, 2020, referencing its prior annual report - There has been no material change in the company's exposure to market risk during the nine months ended September 30, 2020[335] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - The company's disclosure controls and procedures were determined to be effective as of the end of the period covered by the report[336] - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[337] PART II - OTHER INFORMATION This section covers legal proceedings, updated risk factors, unregistered sales of equity securities, and other miscellaneous disclosures Item 1. Legal Proceedings The company confirms the absence of any material legal proceedings pending or contemplated against it - The company reported no legal proceedings[338] Item 1A. Risk Factors The company updated its risk factors to include an expanded discussion on the COVID-19 pandemic's potential adverse impacts, alongside existing risks like tenant dependence and interest rate fluctuations - The company is subject to significant risks from the COVID-19 pandemic, which could negatively impact tenants' ability to pay rent, reduce demand for real estate, and disrupt global financial markets, potentially affecting the company's financial condition and ability to pay dividends[341][343][348] - A summary of principal risk factors was provided, including conflicts of interest with the Advisor, dependence on tenant financial health, interest rate risk, adverse foreign exchange rate changes, and risks associated with international investments and political instability[340] - The company's bylaws designate the Circuit Court for Baltimore City, Maryland, as the sole and exclusive forum for certain stockholder actions, which may limit a stockholder's ability to bring a claim in a different judicial forum[352] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds of Registered Securities The company reported no unregistered sales of equity securities or repurchases of its own equity during the reporting period - There were no sales of unregistered securities or repurchases of equity securities by the company during the reporting period[353] Other Items (Defaults, Mine Safety, Other Info, Exhibits) The company reported no defaults upon senior securities, stated that mine safety disclosures are not applicable, had no other information to report, and provided a list of exhibits filed with the report - The company reported no defaults upon senior securities (Item 3), no mine safety disclosures (Item 4), and no other material information (Item 5)[354]