Company to Host Investor Webcast and Conference
Call Today at 1:00 PM ET
NEW
YORK, May 10, 2023 /PRNewswire/ -- Global Net
Lease, Inc. (NYSE: GNL) ("GNL" or the "Company"), a 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 March 31,
2023.
First Quarter 2023 and Subsequent Events Highlights
- Revenue was $94.3 million
compared to $97.1 million in first
quarter 2022. On a Constant Currency basis1, revenue
would have been $97.5 million.
- Net loss attributable to common stockholders was $6.0 million, or $0.06 per diluted share compared, to net income
attributable to common stockholders of $5.5
million, or $0.05 per diluted
share in first quarter 2022.
- Net operating income ("NOI") was $86.2
million compared to $89.7
million in first quarter 2022.
- Core Funds from Operations ("Core FFO") was $31.1 million or $0.30 per diluted share compared to $45.6 million or $0.44 per diluted share in first quarter
2022.
- Adjusted Funds from Operations ("AFFO") was $39.8 million compared to $44.3 million in the first quarter 2022.
- AFFO per diluted share was $0.38
compared to $0.43 per diluted share
in first quarter 2022 and $0.41 in
the previous quarter, primarily due to a swap termination gain that
was realized in the fourth quarter
- Distributed $41.7 million, or
$0.40 per diluted share, in dividends
to common shareholders
- Portfolio 98.0% leased with 7.8 years of weighted average
remaining lease term2
- Contractual annual rent increases in 95%3 of leases
with an average increase of 1.2% per year, including but not
limited to 61% that are fixed-rate increases and 27% that are based
on Consumer Price Index
- Approximately 60% of annualized straight-line rent comes from
Investment Grade or implied Investment Grade
tenants.4
- Executed 0.7 million square feet of lease renewals with a
positive spread of 4.2% over the old lease and that will generate
$6.8 million per year in net new
annualized straight-line rent over the new weighted-average
remaining lease term.
"The leasing activity we completed in the first quarter
illustrates our ongoing focus on creating value through effectively
managing our best in class portfolio of properties that are leased
on a long-term, triple-net basis to high quality tenants," said
James Nelson, CEO of GNL. "These
lease renewals will have a positive, long-term impact on our
portfolio once we receive a full quarter of increased rental
payments. Our international portfolio features balanced asset
classes and strong geographic and industry diversity, with growing
revenue of $97.5 million on a
Constant Currency basis as compared to the first quarter 2022. In
this rising interest rate environment, GNL continues to benefit
from predominately fixed rate debt as well as a sophisticated
hedging program that is designed to minimize the impact of ongoing
interest rate and foreign exchange instability and a stronger US
dollar over the long term. We will continue to pursue strategic
acquisitions and dispositions while proactively working with our
tenants to renew and expand leases as we seek to increase value for
shareholders."
|
|
Three Months Ended
March 31,
|
(In thousands,
except per share data)
|
|
2023
|
|
2022
|
Revenue from
tenants
|
|
$
94,332
|
|
$
97,133
|
|
|
|
|
|
Net (loss) income
attributable to common stockholders
|
|
$
(5,989)
|
|
$
5,483
|
Net (loss) income per
diluted common share
|
|
$
(0.06)
|
|
$
0.05
|
|
|
|
|
|
NAREIT defined FFO
attributable to common stockholders
|
|
$
31,040
|
|
$
45,602
|
NAREIT defined FFO per
diluted common share
|
|
$
0.30
|
|
$
0.44
|
|
|
|
|
|
Core FFO attributable
to common stockholders
|
|
$
31,139
|
|
$
45,610
|
Core FFO per diluted
common share
|
|
$
0.30
|
|
$
0.44
|
|
|
|
|
|
AFFO attributable to
common stockholders
|
|
$
39,806
|
|
$
44,331
|
AFFO per diluted common
share
|
|
$
0.38
|
|
$
0.43
|
Property Portfolio
The Company's portfolio of 317 net lease properties is located
in eleven countries and territories and comprised of 39.6 million
rentable square feet leased to 140 tenants across 52 industries as
of March 31, 2023. The real estate portfolio metrics
include:
- 98.0% leased with a remaining weighted-average lease term of
7.8 years
- 94.9% of the portfolio contains contractual rent increases
based on annualized straight-line rent
- 59.6% of portfolio annualized straight-line rent derived from
investment grade and implied investment grade rated tenants
- 61% U.S. and Canada, 39%
Europe (based on annualized
straight-line rent)
- 40% Office, 55% Industrial / Distribution and 5% Retail (based
on an annualized straight-line rent)
Capital Structure and Liquidity
Resources5
As of March 31, 2023, the Company had $119.2 million of cash and cash equivalents. The
Company's net debt to enterprise value was 60.3% with an enterprise
value of $4.0 billion based on the
quarter end closing share price of $12.86 for common stock, $20.65 for the Series A preferred stock and
$20.92 for the Series B preferred
stock, and net debt of $2.4
billion6, including $1.3
billion of mortgage debt.
As of March 31, 2023, the percentage of debt that is fixed
rate (including variable rate debt fixed with swaps) was 67.0%
compared to 87.6% as of March 31, 2022. The Company's total
combined debt had a weighted average interest rate of 4.4%
resulting in an interest coverage ratio of 2.9 times7.
Weighted-average debt maturity was 3.7 years as of March 31,
2023 as compared to 4.0 years as of March 31, 2022.
As of March 31, 2023, Liquidity, including amounts
available under the Credit Facility, was $184.4 million.8
Footnotes/Definitions
|
1
|
Constant currency
results exclude any benefit or loss caused by foreign exchange
fluctuations between foreign currencies and the United States
dollar which would not have occurred if there had been a constant
exchange rate. Revenue from tenants on a Constant Currency basis is
calculated by applying the average monthly currency rates from the
prior comparable period to Revenues from tenants from the
applicable period. We believe that this measure provides investors
with information about revenue results and trends that eliminates
currency volatility while increasing the comparability of our
underlying results and trends.
|
2
|
Weighted-average
remaining lease term in years is based on square feet as of
March 31, 2023.
|
3
|
All such increases are
calculated based on straight-line rent and subject to certain
caps
|
4
|
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
March 31, 2023. Comprised of 33.2% leased to tenants with an
actual investment grade rating and 26.4% leased to tenants with an
Implied Investment Grade rating based on annualized cash rent as of
March 31, 2023.
|
5
|
During the three months
ended March 31, 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.
|
6
|
Comprised of the
principal amount of GNL's outstanding debt totaling $2.5 billion
less cash and cash equivalents totaling $119.2 million, as of
March 31, 2023.
|
7
|
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.
|
8
|
Liquidity includes $65.2
million of availability under the Company's
revolving credit facility and $119.2 million of
cash and cash equivalents.
|
Conference Call
GNL will host a conference call on May 10, 2023 at
1:00 p.m. ET to discuss its financial
and operating results.
Dial-in instructions for the conference call and the replay are
outlined below. This conference call will also be broadcast live
over the Internet and can be accessed by all interested parties
through the GNL website, www.globalnetlease.com, in the "Investor
Relations" section.
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. 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.
Conference Call Details
Live Call
Dial-In (Toll Free): 1-866-652-5200
International Dial-In: 1-412-317-6060
Conference Replay*
Domestic Dial-In (Toll Free): 1-844-512-2921
International Dial-In: 1-412-317-6671
Conference Number: 10176718
*Available from 5:00 p.m. ET on
May 10, 2023 through August 10, 2023.
Supplemental Schedules
The Company will file 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.
Important Notice
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 potential adverse effects of (i) the global COVID-19 pandemic,
including actions taken to contain or treat COVID-19, (ii) the
geopolitical instability due to the ongoing military conflict
between Russia and Ukraine, including related sanctions and other
penalties imposed by the U.S. and European Union, and the related
impact on the Company, the Company's tenants and the global economy
and financial markets, and (iii) inflationary conditions and higher
interest rate environments, 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.com
Phone: (212) 415-6510
Global Net Lease,
Inc.
Consolidated Balance
Sheets
(In
thousands)
|
|
|
|
March 31,
2023
|
|
December 31,
2022
|
ASSETS
|
|
(Unaudited)
|
|
|
Real estate
investments, at cost:
|
|
|
|
|
Land
|
|
$
502,231
|
|
$
494,101
|
Buildings, fixtures
and improvements
|
|
3,331,471
|
|
3,276,656
|
Construction in
progress
|
|
34,221
|
|
26,717
|
Acquired intangible
lease assets
|
|
739,067
|
|
689,275
|
Total real estate
investments, at cost
|
|
4,606,990
|
|
4,486,749
|
Less accumulated
depreciation and amortization
|
|
(936,182)
|
|
(891,479)
|
Total real
estate investments, net
|
|
3,670,808
|
|
3,595,270
|
Cash and cash
equivalents
|
|
119,161
|
|
103,335
|
Restricted
cash
|
|
1,432
|
|
1,110
|
Derivative assets, at
fair value
|
|
30,798
|
|
37,279
|
Unbilled straight-line
rent
|
|
75,170
|
|
73,037
|
Operating lease
right-of-use asset
|
|
50,987
|
|
49,166
|
Prepaid expenses and
other assets
|
|
56,487
|
|
64,348
|
Due from related
parties
|
|
568
|
|
464
|
Deferred tax
assets
|
|
2,581
|
|
3,647
|
Goodwill and other
intangible assets, net
|
|
21,550
|
|
21,362
|
Deferred financing
costs, net
|
|
11,954
|
|
12,808
|
Total
Assets
|
|
$
4,041,496
|
|
$
3,961,826
|
|
|
|
|
|
LIABILITIES AND
EQUITY
|
|
|
|
|
Mortgage notes payable,
net
|
|
$
1,240,795
|
|
$
1,233,081
|
Revolving credit
facility
|
|
767,942
|
|
669,968
|
Senior notes,
net
|
|
493,464
|
|
493,122
|
Acquired intangible
lease liabilities, net
|
|
23,852
|
|
24,550
|
Derivative liabilities,
at fair value
|
|
1,033
|
|
328
|
Due to related
parties
|
|
444
|
|
1,183
|
Accounts payable and
accrued expenses
|
|
30,882
|
|
22,889
|
Operating lease
liability
|
|
22,029
|
|
21,877
|
Prepaid rent
|
|
37,849
|
|
28,456
|
Deferred tax
liability
|
|
6,386
|
|
7,264
|
Dividends
payable
|
|
5,208
|
|
5,189
|
Total
Liabilities
|
|
2,629,884
|
|
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
|
Common stock
|
|
2,371
|
|
2,371
|
Additional paid-in
capital
|
|
2,683,827
|
|
2,683,169
|
Accumulated other
comprehensive income
|
|
3,702
|
|
1,147
|
|
|
(1,295,547)
|
|
(1,247,781)
|
Total Stockholders'
Equity
|
|
1,394,468
|
|
1,439,021
|
Non-controlling
interest
|
|
17,144
|
|
14,898
|
Total
Equity
|
|
1,411,612
|
|
1,453,919
|
Total Liabilities
and Equity
|
|
$
4,041,496
|
|
$
3,961,826
|
Global Net Lease,
Inc.
Consolidated
Statements of Operations (Unaudited)
(In thousands,
except share and per share data)
|
|
|
|
Three Months Ended
March 31,
|
|
|
2023
|
|
2022
|
Revenue from
tenants
|
|
$
94,332
|
|
$
97,133
|
|
|
|
|
|
Expenses:
|
|
|
|
|
Property
operating
|
|
8,146
|
|
7,460
|
Operating fees to
related parties
|
|
10,101
|
|
10,076
|
Impairment
charges
|
|
—
|
|
230
|
Acquisition,
transaction and other costs
|
|
99
|
|
8
|
General and
administrative
|
|
5,660
|
|
3,894
|
Equity-based
compensation
|
|
2,925
|
|
2,727
|
Depreciation and
amortization
|
|
37,029
|
|
39,889
|
Total
expenses
|
|
63,960
|
|
64,284
|
Operating income
|
|
30,372
|
|
32,849
|
Other income
(expense):
|
|
|
|
|
Interest
expense
|
|
(26,965)
|
|
(24,123)
|
(Loss) gain on
derivative instruments
|
|
(1,656)
|
|
4,615
|
Other
income
|
|
66
|
|
295
|
Total other
expense, net
|
|
(28,555)
|
|
(19,213)
|
Net income before
income taxes
|
|
1,817
|
|
13,636
|
Income tax
expense
|
|
(2,707)
|
|
(3,095)
|
Net (loss)
income
|
|
(890)
|
|
10,541
|
Preferred stock
dividends
|
|
(5,099)
|
|
(5,058)
|
Net (loss) income
attributable to common stockholders
|
|
$
(5,989)
|
|
$
5,483
|
|
|
|
|
|
Basic and Diluted
(Loss) Income Per Share:
|
|
|
|
|
Net (loss) income per
share attributable to common stockholders — Basic and
Diluted
|
|
$
(0.06)
|
|
$
0.05
|
|
|
|
|
|
Weighted average
shares outstanding — Basic and Diluted
|
|
103,783
|
|
103,596
|
Global Net Lease,
Inc.
Quarterly
Reconciliation of Non-GAAP Measures (Unaudited)
(In
thousands)
|
|
|
|
Three Months Ended
March 31,
|
|
|
2023
|
|
2022
|
Adjusted
EBITDA
|
|
|
|
|
Net (loss)
income
|
|
$
(890)
|
|
$
10,541
|
Depreciation and
amortization
|
|
37,029
|
|
39,889
|
Interest
expense
|
|
26,965
|
|
24,123
|
Income tax
expense
|
|
2,707
|
|
3,095
|
Impairment
charges
|
|
—
|
|
230
|
Equity-based
compensation
|
|
2,925
|
|
2,727
|
Acquisition and
transaction related
|
|
99
|
|
8
|
Loss (gain) on
derivative instruments
|
|
1,656
|
|
(4,615)
|
Other
income
|
|
(66)
|
|
(295)
|
Expenses attributable
to 2023 proxy contest and related litigation
[2]
|
|
1,716
|
|
—
|
Adjusted EBITDA
[1]
|
|
72,141
|
|
75,703
|
|
|
|
|
|
Net operating income
(NOI)
|
|
|
|
|
Operating fees to
related parties
|
|
10,101
|
|
10,076
|
General and
administrative
|
|
5,660
|
|
3,894
|
Expenses attributable
to 2023 proxy contest and related litigation
[2]
|
|
(1,716)
|
|
—
|
NOI
[1]
|
|
86,186
|
|
89,673
|
Amortization related
to above- and below- market lease intangibles and right-of-use
assets, net
|
|
955
|
|
330
|
Straight-line
rent
|
|
(1,888)
|
|
(2,853)
|
Cash
NOI [1]
|
|
$
85,253
|
|
$
87,150
|
|
|
|
|
|
Cash Paid for
Interest:
|
|
|
|
|
Interest
Expense
|
|
$
26,965
|
|
$
24,123
|
Non-cash
portion of interest expense
|
|
(2,085)
|
|
(2,596)
|
Amortization of mortgage discounts
|
|
(227)
|
|
(251)
|
Total
cash paid for interest
|
|
$
24,653
|
|
$
21,276
|
Footnote:
|
|
|
[1]
|
For the three months
ended March 31, 2022, includes income from a lease termination fee
of $0.3 million, which is recorded in revenue from tenants in the
consolidated statement of operations.
|
[2]
|
Amount relates to
general and administrative expenses incurred for the Company's 2023
proxy contest and related Blackwells litigation. 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 first 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 Ended
March 31,
|
|
Three Months
Ended
December 31,
|
|
|
2023
|
|
2022
|
|
2022
|
Net (loss) income
attributable to stockholders (in accordance with
GAAP)
|
|
$
(5,989)
|
|
$
5,483
|
|
$
(17,738)
|
Impairment
charges
|
|
—
|
|
230
|
|
4,504
|
Depreciation and amortization
|
|
37,029
|
|
39,889
|
|
36,987
|
Gain on
dispositions of real estate investments
|
|
—
|
|
—
|
|
(120)
|
FFO (defined by
NAREIT) [1]
|
|
31,040
|
|
45,602
|
|
23,633
|
Acquisition, transaction and other costs
|
|
99
|
|
8
|
|
—
|
Loss on
extinguishment of debt
|
|
—
|
|
—
|
|
1,657
|
Core FFO
attributable to common stockholders [1]
|
|
31,139
|
|
45,610
|
|
25,290
|
Non-cash
equity-based compensation
|
|
2,925
|
|
2,727
|
|
2,855
|
Non-cash
portion of interest expense
|
|
2,085
|
|
2,596
|
|
2,240
|
Amortization related to above- and below-market lease intangibles
and right-of-use assets, net
|
|
955
|
|
330
|
|
349
|
Straight-line rent
|
|
(1,888)
|
|
(2,853)
|
|
(2,099)
|
Straight-line rent (rent deferral agreements)
[2]
|
|
—
|
|
(120)
|
|
—
|
Eliminate
unrealized gains on foreign currency transactions
[3]
|
|
2,647
|
|
(4,210)
|
|
11,897
|
Amortization of mortgage discounts
|
|
227
|
|
251
|
|
225
|
Expenses
attributable to 2023 proxy contest and related litigation
[4]
|
|
1,716
|
|
—
|
|
1,436
|
Adjusted funds from
operations (AFFO) attributable to common stockholders
[1]
|
|
$
39,806
|
|
$
44,331
|
|
$
42,193
|
|
Footnotes:
|
[1]
|
FFO, Core FFO and AFFO
for the three months ended March 31, 2022 include income from a
lease termination fee of 0.3 million, which is recorded in revenue
from tenants in the consolidated statement of operations. The
termination fee of approximately $9.0 million which was paid by the
tenant at the end of the lease term on January 4, 2022 was earned
and recorded as income evenly over the period from September 3,
2021 through January 4, 2022.
|
[2]
|
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.
|
[3]
|
For AFFO purposes, we
add back unrealized (gain) loss. For the three months ended March
31, 2023, the loss on derivative instruments was $1.7 million,
which consisted of unrealized losses of $2.6 million and realized
gains of $0.9 million. For the three months ended March 31, 2022,
the gain on derivative instruments was $4.6 million, which
consisted of unrealized gains of $4.2 million and realized gains of
$0.4 million. For the three months ended December 31, 2022, the
loss on derivative instruments was $6.9 million, which consisted of
unrealized losses of $11.9 million and realized gains of $5.0
million.
|
[4]
|
Amounts relate to
general and administrative expenses incurred for the Company's 2023
proxy contest and related Blackwells 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.
|
Global Net Lease,
Inc.
Quarterly
Reconciliation of Non-GAAP Measures (Unaudited)
(In
thousands)
|
|
First Quarter 2023
Revenue from tenants
|
|
$
94,332
|
Foreign currency
translation impact (using Q1 2023 foreign currency exchange
rates)
|
|
3,176
|
Revenue from tenants
(quarter-over-quarter constant currency adjusted)
|
|
$
97,508
|
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"), Cash Net Operating Income
("Cash NOI") and Constant Currency 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.
Constant currency results exclude any benefit or loss caused by
foreign exchange fluctuations between foreign currencies and
the United States dollar which
would not have occurred if there had been a constant exchange rate.
Revenue from tenants on a Constant Currency basis is calculated by
applying the average monthly currency rates from prior comparable
period to Revenues from tenants from the applicable period. We
believe that this measure provides investors with information about
revenue results and trends that eliminates currency volatility
while increasing the comparability of our underlying results and
trends.
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 acquisition, transaction and other
costs, 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 that are not a fundamental attribute of our business
plan. 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 certain other expenses, including general and
administrative expenses incurred for the 2023 proxy contest and
related Blackwells 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 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.
Constant currency results exclude any benefit or loss caused by
foreign exchange fluctuations between foreign currencies and
the United States dollar which
would not have occurred if there had been a constant exchange rate.
Revenue from tenants on a Constant Currency basis is calculated by
applying the average monthly currency rates from prior comparable
period to Revenues from tenants from the applicable period. We
believe that this measure provides investors with information about
revenue results and trends that eliminates currency volatility
while increasing the comparability of our underlying results and
trends.
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SOURCE Global Net Lease, Inc.