Global Net Lease(GNL) - 2023 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Unaudited financials show increased assets and liabilities, a $31.4 million Q2 2023 net loss, and decreased operating cash flow Consolidated Balance Sheets Total assets increased to $4.00 billion, liabilities rose to $2.65 billion, and total equity decreased to $1.36 billion Balance Sheet Highlights (In thousands) | Balance Sheet Highlights (In thousands) | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total real estate investments, net | $3,654,228 | $3,595,270 | | Cash and cash equivalents | $100,918 | $103,335 | | Total Assets | $4,001,876 | $3,961,826 | | Mortgage notes payable, net | $995,184 | $1,233,081 | | Revolving credit facility | $1,038,502 | $669,968 | | Total Liabilities | $2,646,707 | $2,507,907 | | Total Equity | $1,355,169 | $1,453,919 | Consolidated Statements of Operations Q2 2023 net loss was $31.4 million, significantly higher than prior year, driven by merger and settlement costs Operating Results (In thousands) | Operating Results (In thousands) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenue from tenants | $95,844 | $95,177 | $190,176 | $192,310 | | Total expenses | $91,356 | $80,435 | $155,316 | $144,719 | | Merger, transaction and other costs | $6,279 | $133 | $6,378 | $141 | | Settlement costs | $15,084 | $— | $15,084 | $— | | Impairment charges | $— | $16,031 | $— | $16,261 | | Net (loss) income | ($26,258) | ($716) | ($27,148) | $9,825 | | Net loss attributable to common stockholders | ($31,357) | ($5,847) | ($37,346) | ($364) | | Net loss per share — Basic and Diluted | ($0.30) | ($0.06) | ($0.36) | ($0.01) | Consolidated Statements of Cash Flows Net cash from operations decreased to $84.4 million, with increased investing activities and financing from credit facility Cash Flow Summary (In thousands) | Cash Flow Summary (In thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $84,358 | $105,893 | | Net cash used in investing activities | ($92,519) | ($35,444) | | Net cash provided by (used in) financing activities | $4,219 | ($39,667) | | Net change in cash, cash equivalents and restricted cash | ($3,942) | $30,782 | Notes to Consolidated Financial Statements Notes detail a proposed merger with RTL, management internalization, property acquisitions, and a proxy contest settlement - The company entered into a merger agreement with The Necessity Retail REIT, Inc. (RTL) and a concurrent agreement to internalize its advisory and property management functions, with transactions conditional upon one another[30] - As consideration for the internalization, the company will issue 29,614,825 shares of its Common Stock valued at $325.0 million to AR Global and pay $50.0 million in cash[44] - During the six months ended June 30, 2023, the company acquired 8 retail properties for a total of $81.4 million[87][89] - The company settled litigation with Blackwells Capital by entering into a Cooperation Agreement, which included reimbursing Blackwells for $8.8 million in expenses and issuing 495,000 shares of common stock as a settlement fee[190][193] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the 317-property portfolio, proposed RTL merger, and Q2 2023 net loss from settlement and merger costs Overview and Proposed Transactions The company, a REIT with 317 properties, proposes merging with RTL and internalizing management - As of June 30, 2023, the company owned 317 properties totaling 39.6 million rentable square feet, with a 97.7% lease rate and a weighted-average remaining lease term of 7.6 years[278] - On May 23, 2023, the company entered into an agreement to merge with The Necessity Retail REIT (RTL) and to internalize its management functions, transactions which are contingent on each other[281] - The merger consideration is a fixed exchange ratio of 0.670 shares of GNL common stock for each share of RTL Class A common stock[283] Results of Operations Q2 2023 net loss increased to $31.4 million, primarily due to $15.1 million settlement and $6.3 million merger costs - Q2 2023 net loss increased to $31.4 million from $5.8 million in Q2 2022, largely due to $15.1 million in settlement costs and $6.3 million in merger, transaction, and other costs[307][316][317] - General and administrative expenses rose to $10.7 million in Q2 2023 from $3.7 million in Q2 2022, with the increase primarily attributable to approximately $7.4 million in legal and other costs related to a proxy contest and litigation[318] - Interest expense increased to $27.7 million in Q2 2023 from $23.4 million in Q2 2022, as the weighted-average effective interest rate on total debt rose from 3.5% to 4.8%[322][323] Liquidity and Capital Resources Total debt was $2.5 billion with 58.8% leverage; increased credit facility borrowings repaid mortgage notes - Total debt outstanding was $2.5 billion as of June 30, 2023, with a debt leverage ratio of 58.8%[375][377] - In Q2 2023, the company repaid two mortgage loans totaling approximately $248.1 million, funding the repayments with borrowings under its Revolving Credit Facility[381] - The company expects to exercise the $500.0 million "accordion feature" on its Credit Facility to facilitate the repayment of RTL's credit facility upon the closing of the proposed merger[383] Non-GAAP Financial Measures AFFO attributable to common stockholders decreased to $41.4 million in Q2 2023 due to higher interest and operating costs Non-GAAP Metrics (In thousands) | Non-GAAP Metrics (In thousands) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | FFO attributable to common stockholders | $5,940 | $49,481 | $36,980 | $95,083 | | Core FFO attributable to common stockholders | $27,707 | $49,956 | $58,846 | $95,566 | | AFFO attributable to common stockholders | $41,410 | $45,019 | $81,216 | $89,350 | Item 3. Quantitative and Qualitative Disclosures About Market Risk There has been no material change in the company's exposure to market risk during the six months ended June 30, 2023 - There has been no material change in the company's exposure to market risk during the six months ended June 30, 2023[422] Item 4. Controls and Procedures Management evaluated the company's disclosure controls and procedures, concluding they were effective as of the end of the period - The company's disclosure controls and procedures were determined to be effective as of June 30, 2023[423] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[424] PART II - OTHER INFORMATION Item 1. Legal Proceedings Legal proceedings related to the proxy contest with Blackwells Capital LLC were dismissed with prejudice - All legal proceedings related to the proxy contest with Blackwells Capital LLC were dismissed with prejudice following a Cooperation Agreement entered into on June 4, 2023[190][426] Item 1A. Risk Factors New risks include merger completion, fixed exchange ratio, substantial pro forma debt, and potential lower dividend - The company is subject to risks from proxy contests and activist stockholders, which can be costly, time-consuming, and disrupt operations[428] - The fixed exchange ratio for the RTL merger will not be adjusted for changes in stock values, potentially altering the value of the consideration received by RTL stockholders[430] - Failure to complete the proposed transactions could negatively impact stock price and business results, and may require the company to pay a $40 million termination fee to RTL under certain circumstances[441][442] - Post-merger, the Combined Company will have substantial pro forma indebtedness of approximately $5.3 billion, which could limit financial flexibility and increase vulnerability to adverse economic conditions[466] - Following the transactions, the company intends to pay a lower dividend rate than it currently pays, and there is no assurance of future dividend payments[475] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales in Q2 2023; post-quarter, shares issued for settlement and advisory services under exemption - Subsequent to quarter-end, the company issued 495,000 shares of Common Stock on July 11, 2023, to the Blackwells/Related Parties as a settlement fee under the Cooperation Agreement[486] - On July 14, 2023, the company issued 45,579 shares of Common Stock to a third party as a non-refundable retainer for advisory services related to the proposed merger[488] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities Item 4. Mine Safety Disclosures This item is not applicable to the company Item 5. Other Information The company reported no other information Item 6. Exhibits This section lists exhibits filed with or incorporated by reference into the Quarterly Report on Form 10-Q