Global Net Lease(GNL) - 2020 Q4 - Annual Report

Part I Business Global Net Lease, Inc. is an externally managed REIT specializing in a globally diversified portfolio of single-tenant, net-leased commercial properties, primarily industrial/distribution and office assets Portfolio Overview as of December 31, 2020 | Metric | Value | | :--- | :--- | | Properties Owned | 306 | | Rentable Square Feet | 37.2 million | | Occupancy | 99.7% leased | | Weighted-Average Remaining Lease Term | 8.5 years | | Geographic Split (by rental income) | 64% U.S. & Canada, 36% Europe | | Property Type Split (by rental income) | 49% Industrial/Distribution, 46% Office, 5% Retail | - The company's investment strategy focuses on acquiring a diversified portfolio of commercial properties with long-term leases that include contractual rent escalations to generate stable cash flows[15][17][19] - A significant portion of rental income (67.0%) is derived from tenants with actual or implied investment-grade ratings, enhancing the stability of the company's revenue stream[18] - During the fiscal year 2020, the company acquired 28 properties for a total of $464.1 million, including capitalized acquisition costs, demonstrating continued portfolio expansion[20] - In response to the COVID-19 pandemic, the company maintained strong rent collections, receiving approximately 99% of the original cash rent due for the fourth quarter of 2020[22] - The company completed a private placement of $500.0 million in 3.75% Senior Notes due 2027, diversifying its capital structure and funding sources[21] Risk Factors The company identifies numerous risks that could materially affect its business, financial condition, and results of operations, including property operations, financial risks, conflicts of interest, and corporate structure challenges Risks Related to Our Properties and Operations The company faces operational risks including pandemic impacts, tenant defaults, and geographic or industry concentrations - The COVID-19 pandemic poses significant risks, including potential tenant inability to pay rent, a sustained shift away from in-person office work, and disruptions to tenants' supply chains, which could adversely affect occupancy and rental rates[57][58][61] Geographic Concentration of Annualized Rental Income (Dec 31, 2020) | Country/Region | Percentage | | :--- | :--- | | United Kingdom | 17% | | Michigan (U.S.) | 15% | | Texas (U.S.) | 7% | | Ohio (U.S.) | 6% | | The Netherlands | 5% | | California (U.S.) | 5% | Industry Concentration of Annualized Rental Income (Dec 31, 2020) | Industry | Percentage | | :--- | :--- | | Financial Services | 13% | | Healthcare | 7% | | Technology | 6% | | Auto Manufacturing | 6% | | Consumer Goods | 5% | | Aerospace | 5% | - The company is subject to risks from its international investments, which comprise 36% of its properties by rental income, including foreign currency fluctuations, compliance with foreign laws, and political or economic instability such as Brexit[50][69] - The company depends on its external Advisor and Property Manager for all essential services and key personnel, and any adverse changes in their financial health or reputation could hinder effective operations[105][107] Risks Related to our Indebtedness The company's substantial indebtedness, interest rate fluctuations, and restrictive debt covenants pose significant financial risks - As of December 31, 2020, the company had substantial indebtedness of $2.3 billion, which could require dedicating a significant portion of cash flow to debt service, reducing financial flexibility and increasing vulnerability to adverse economic conditions[118] - The company faces uncertainty related to the planned discontinuation of LIBOR after 2021, which is the benchmark for some of its variable-rate debt, and this transition could increase the cost of borrowings[125][126] - Debt agreements contain restrictive covenants that limit the company's ability to incur additional debt, make certain investments, sell assets, and pay dividends, which could prevent it from taking advantage of business opportunities[127][128] Risks Related to Conflicts of Interest Conflicts of interest arise from the Advisor's allocation of investment opportunities and the dual roles of executive officers and directors - The Advisor faces conflicts of interest in allocating investment opportunities, as suitable properties may also be appropriate for other entities advised by affiliates of AR Global, such as American Finance Trust (AFIN)[133] - Executive officers and directors hold positions with the Advisor, Property Manager, and other related REITs, creating conflicting duties regarding the allocation of management time and new investments[137][138] - The Advisor's compensation structure, which includes fees that increase with equity issuance and incentive compensation, may encourage riskier investments than if the Advisor had a more significant equity interest in the company[140] Risks Related to Our Corporate Structure, Common Stock and Preferred Stock The company's corporate structure, including ownership restrictions and anti-takeover provisions, may deter changes in control - The company's charter restricts any person from owning more than 9.8% of its outstanding stock, which may delay, defer, or prevent a change in control that could offer a premium to stockholders[150] - A stockholder rights plan adopted in April 2020 and extended to 2024 could make it more difficult for a third party to acquire the company without board approval, potentially discouraging offers that might result in a premium price for stockholders[153] - Provisions of Maryland law, a classified board of directors, and change of control features in the preferred stock may discourage or prevent a third party from acquiring the company[151][152][155] U.S. Federal Income Tax Risks Failure to maintain REIT status or comply with distribution requirements could significantly impact the company's financial position - Failure to maintain qualification as a REIT would subject the company to U.S. federal corporate income tax, reducing net earnings available for distribution and likely requiring the company to borrow funds or liquidate assets to pay the tax[163][164] - To qualify as a REIT, the company must distribute at least 90% of its REIT taxable income annually, which could force the company to borrow funds or sell assets at unfavorable times to meet distribution obligations[166] - The company's ability to dispose of properties may be restricted, as sales of properties held primarily for sale in the ordinary course of business could be subject to a 100% prohibited transaction tax[168] Unresolved Staff Comments The company reports that it has no unresolved staff comments from the SEC - None[192] Properties As of December 31, 2020, the company's portfolio consisted of 306 properties totaling 37.2 million square feet, diversified geographically and by industry, with a weighted-average remaining lease term of 8.5 years Portfolio Distribution by Country/Location (as of Dec 31, 2020) | Country/Location | Number of Properties | Square Feet (in thousands) | % of Total Square Feet | | :--- | :--- | :--- | :--- | | United States | 216 | 27,000 | 72.6% | | United Kingdom | 44 | 4,126 | 11.1% | | France | 8 | 1,664 | 4.5% | | Germany | 5 | 1,584 | 4.3% | | Finland | 5 | 1,457 | 3.9% | | The Netherlands | 3 | 849 | 2.3% | | Other | 15 | 595 | 1.3% | | Total | 306 | 37,175 | 100.0% | Top 5 Tenant Industries by Annualized Straight-Line Rent (as of Dec 31, 2020) | Industry | % of Total Portfolio Rent | | :--- | :--- | | Financial Services | 13% | | Healthcare | 7% | | Technology | 6% | | Auto Manufacturing | 6% | | Consumer Goods | 5% | Future Minimum Base Rent Payments (in thousands) | Year | Future Minimum Base Rent | | :--- | :--- | | 2021 | $334,858 | | 2022 | $324,706 | | 2023 | $303,737 | | 2024 | $267,943 | | 2025 | $226,047 | | Thereafter | $1,083,950 | - As of December 31, 2020, the company had no tenant or property that represented more than 10% or 5% of total portfolio annualized rental income, respectively, indicating a lack of significant concentration risk[209][210] Legal Proceedings The company reports no material legal proceedings - Not applicable[212] Mine Safety Disclosures This section is not applicable to the company's operations - Not applicable[213] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on the NYSE, with dividends reduced in March 2020 and a significant portion of 2020 distributions classified as a return of capital - In March 2020, the board of directors reduced the annual dividend for common stock from $2.13 per share to $1.60 per share[221] 2020 Common Stock Dividend Tax Characteristics | Tax Classification | Percentage | Per Share Amount | | :--- | :--- | :--- | | Return of Capital | 77.5% | $1.34 | | Ordinary Dividends | 22.5% | $0.39 | - As of February 19, 2021, the company had 90.6 million shares of common stock outstanding held by 1,490 stockholders of record[217] Selected Financial Data This section provides a five-year summary of the company's key financial data, showing growth in assets and liabilities, increased revenue, but a net loss in 2020 Selected Financial Data (2018-2020) | (In thousands) | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Total Assets | $3,967,014 | $3,701,605 | $3,309,478 | | Total Liabilities | $2,412,735 | $1,991,647 | $1,880,732 | | Total Equity | $1,554,279 | $1,709,958 | $1,428,746 | | Revenue from tenants | $330,104 | $306,214 | $282,207 | | Net (loss) income attributable to common stockholders | $(7,775) | $34,535 | $1,082 | | Cash flows provided by operations | $176,851 | $145,999 | $144,597 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition and results of operations, highlighting the impact of the COVID-19 pandemic, revenue growth from acquisitions, a net loss in 2020, and strengthened liquidity Results of Operations Revenue increased in 2020 due to acquisitions, but net income swung to a loss driven by higher expenses and a lack of disposition gains Comparison of Operating Results (Years Ended Dec 31) | (In millions) | 2020 | 2019 | | :--- | :--- | :--- | | Revenue from tenants | $330.1 | $306.2 | | Total expenses | $230.7 | $214.9 | | (Loss) Gain on dispositions | $(0.2) | $23.6 | | Operating income | $99.2 | $114.9 | | Total other expense, net | $(83.5) | $(64.1) | | Net (loss) income attributable to common stockholders | $(7.8) | $34.5 | - The increase in revenue from tenants in 2020 was primarily driven by property acquisitions and favorable foreign exchange rate impacts[278] - Operating fees paid to related parties increased to $35.8 million in 2020 from $33.3 million in 2019, mainly due to a $2.1 million increase in the Variable Base Management Fee resulting from equity offerings[280][281] - Interest expense rose to $71.8 million in 2020 from $64.2 million in 2019, driven by an increase in average borrowings as total gross debt grew from $1.9 billion to $2.3 billion[289] Liquidity and Capital Resources The company's liquidity decreased in 2020, but it diversified its capital structure by issuing senior notes and maintaining a high proportion of fixed-rate debt - As of December 31, 2020, the company had $124.2 million in cash and cash equivalents, down from $270.3 million at year-end 2019[306] - In December 2020, the company issued $500.0 million of 3.750% Senior Notes due 2027, using the proceeds to repay secured loans and borrowings under its Revolving Credit Facility and Term Loan[317] - Total debt outstanding was $2.3 billion as of December 31, 2020, with a weighted-average interest rate of 3.3%, and approximately 96% of this debt was fixed-rate or swapped to a fixed rate[315] - During 2020, the company acquired 28 properties for $464.1 million, funded primarily with cash on hand, proceeds from a 2019 preferred stock offering, and borrowings under the Revolving Credit Facility[309] Non-GAAP Financial Measures This section provides a reconciliation of net income to FFO and AFFO, key non-GAAP metrics for REIT performance Reconciliation of Net (Loss) Income to FFO and AFFO (in thousands) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Net (loss) income attributable to common stockholders | $(7,775) | $34,535 | | Depreciation and amortization | 138,543 | 125,996 | | Loss (gain) on dispositions | 153 | (23,616) | | FFO attributable to common stockholders | $130,921 | $143,290 | | Acquisition, transaction and other costs | 663 | 1,320 | | Loss on extinguishment of debt | 3,601 | 949 | | Core FFO attributable to common stockholders | $135,185 | $145,559 | | Non-cash adjustments (equity comp, interest, rent, etc.) | 14,518 | 14,144 | | Unrealized losses (gains) | 12,791 | 2,843 | | AFFO attributable to common stockholders | $160,525 | $159,703 | Dividends For 2020, all dividends were funded by operating cash flows, though the company utilized a one-time exception to its credit facility's distribution restrictions - For the year ended December 31, 2020, 100% of the $172.9 million in total dividends and distributions were funded from cash flows provided by operations[356] - The Credit Facility restricts distributions to 100% of Adjusted FFO over a four-quarter period, with a one-time exception per year up to 105%, which the company utilized for the quarter ended June 30, 2020[354] Quantitative and Qualitative Disclosures About Market Risk The company manages interest rate risk by maintaining a high proportion of fixed-rate debt and mitigates foreign currency risk through matching obligations and derivative instruments - As of December 31, 2020, approximately 96% of the company's $2.3 billion in total debt was either fixed-rate or swapped to a fixed rate, mitigating exposure to interest rate volatility[368] - A hypothetical 1% increase or decrease in interest rates would change the estimated fair value of the company's fixed-rate debt by a decrease of $92.7 million or an increase of $110.0 million, respectively[372] - The company manages foreign currency risk by matching debt service and rental obligations in the same currency and using derivative instruments, benefiting from a weaker USD as a net receiver of Euros, British Pounds, and Canadian Dollars[374] - The company's portfolio has geographic concentrations, with 64% of annualized rental income from the U.S. and Canada and 17% from the United Kingdom, and asset type concentrations of 49% in industrial/distribution and 46% in office properties[383] 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 of the Annual Report on Form 10-K - The information required by this item is incorporated by reference to the consolidated financial statements beginning on page F-1 of the report[384] 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[385] Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2020 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2020[386] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2020, based on the COSO framework[388] - No material changes were made to the company's internal control over financial reporting during the fourth quarter of 2020[390] Other Information On February 26, 2021, the company amended its stockholder rights agreement to extend the expiration date from April 8, 2021, to April 8, 2024 - The company amended its stockholder rights plan on February 26, 2021, extending its expiration date to April 8, 2024[392] Part III Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's definitive proxy statement for its 2021 Annual Meeting of Stockholders - The information required by this item will be set forth in the registrant's 2021 proxy statement and is incorporated by reference[395] Executive Compensation Information regarding executive compensation is incorporated by reference from the company's definitive proxy statement for its 2021 Annual Meeting of Stockholders - The information required by this item will be set forth in the registrant's 2021 proxy statement and is incorporated by reference[396] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership is incorporated by reference from the company's definitive proxy statement for its 2021 Annual Meeting of Stockholders - The information required by this item will be set forth in the registrant's 2021 proxy statement and is incorporated by reference[397] Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the company's definitive proxy statement for its 2021 Annual Meeting of Stockholders - The information required by this item will be set forth in the registrant's 2021 proxy statement and is incorporated by reference[398] Principal Accounting Fees and Services Information regarding principal accounting fees and services is incorporated by reference from the company's definitive proxy statement for its 2021 Annual Meeting of Stockholders - The information required by this item will be set forth in the registrant's 2021 proxy statement and is incorporated by reference[399] Part IV Exhibits and Financial Statement Schedules This section lists the financial statement schedules and exhibits filed as part of the Form 10-K, including an index to the audited consolidated financial statements and Schedule III - This section provides an index to the audited consolidated financial statements (page F-1) and includes Schedule III – Real Estate and Accumulated Depreciation (page F-52)[402] - A detailed index of all exhibits filed with the report is provided, including key corporate and financing documents[403][405] Form 10-K Summary The company indicates that no Form 10-K summary is provided - None[412]