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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, good morning, and welcome to the Global Net Lease, Inc. First Quarter 2024 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jordyn Schoenfeld of GNL. Please go ahead.
Thank you. Good morning, everyone, and thank you for joining us for GNL's First Quarter 2024 Earnings Call. Joining me today on the call is Mike Weil, GNL's Chief Executive Officer; and Chris Masterson, GNL's Chief Financial Officer.
The following information contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Please review the forward-looking and cautionary statement section at the end of our first quarter 2024 earnings release for various factors that could cause actual results to differ materially from forward-looking statements made during our call today.
As stated in our SEC filings, GNL disclaims any intent or obligation to update or revise these forward-looking statements, except as required by law. Also, during today's call, we will discuss certain non-GAAP financial measures, which we believe can be useful in evaluating the company's financial performance. Descriptions of those non-GAAP financial measures that we use, such as AFFO and net debt to adjusted EBITDA and reconciliations of these measures to our results as reported in accordance with GAAP are detailed in our earnings release and in our quarterly report on Form 10-Q for the first quarter 2024.
I'll now turn the call over to our CEO, Mike Weil. Mike?
Thanks, Jordyn. Good morning, and thank you all for joining us today. We're pleased to share with you the results of the successful first quarter that included AFFO per share growth, strong leasing momentum, efficient balance sheet execution and continued synergies and internalization savings. As part of GNL's Q4 2023 earnings release, we shared our 2024 business strategy and full year guidance, which we believe will increase long-term shareholder value by delevering our balance sheet, reducing our exposure to variable rate debt, and lowering net debt to adjusted EBITDA.
At the core of this strategy is an asset disposition program, targeting $400 million to $600 million in total sale proceeds, at a cash cap rate between 7% and 8% on occupied assets. We're excited with the significant progress we've achieved to date. As of May 1, our closed dispositions plus pipeline totals $554 million at a cash cap rate of 7.2% on occupied assets and a weighted average remaining lease term of 3.9 years.
This includes $63 million of successfully closed dispositions at a cash cap rate of 6.8% on occupied assets, $482 million of dispositions currently under PSA at a cash cap rate of 7.3% on occupied assets, and $9 million of dispositions with executed LOIs at a cash cap rate of 7% on occupied assets.
We're very pleased to have built this robust pipeline in the early stages of our strategic disposition effort and expect to identify additional opportunities throughout the year. We believe the 7.2% cash cap rate on the occupied dispositions referenced above, offers proof of value of our primarily investment-grade portfolio and represents a significant premium compared to where GNL is currently trading on an implied cap rate basis.
It's important to note that these strategic dispositions primarily consist of non-core assets and opportunistic sales, including assets with near-term debt or lease maturities. They include the sale of 15 Truist properties totaling nearly $35 million for a cash cap rate of 6.6%. Additionally, we have nearly $132 million of vacant property dispositions that are closed or under agreement that we expect will eliminate $3 million of annualized operating expenses, assuming closing of the transaction is contemplated by such agreements.
In addition to the significant progress we achieved in our disposition program, we're also pleased to deliver a 6% growth in AFFO per share this quarter, compared to last quarter. We'll continue focusing on earnings growth in addition to our disposition program, which is expected to be earnings neutral. We've also achieved significant progress on the capital markets front, completing a $237 million CMBS refinancing in April, secured by 20 U.S. industrial properties, previously financed under the company's corporate credit facility.
This is a great accomplishment in the current real estate capital markets environment that we believe reflects GNL's strong and diversified portfolio. [indiscernible] at a fixed all-in interest rate of 5.74%, representing a substantial 159 basis points reduction compared to the current floating interest rate on the U.S. dollar portion of the company's corporate credit facility.
It results in a reduction of over $3.5 million in annualized interest expense, which will begin to benefit us in Q2 2024 and notably extend our weighted average debt maturity, while increasing our exposure to fixed rate debt. This attractively priced financing also addresses our near-term debt maturities by proactively increasing flexibility and capacity on our corporate credit facility.
As of May 1, we've already addressed 62% of the debt that has scheduled maturities in 2024, specifically, we refinanced 2 mortgages onto our credit facility, including our $129 million McLaren headquarters mortgage that matured in April as well as $25 million of multi-tenant mortgage debt. As mentioned on our fourth quarter 2023 earnings call, we recently completed an $80 million refinancing agreement with Nordea Bank, secured by multiple properties in Finland that extends debt maturities of these assets to 2029 at a 5.1% interest rate.
We expect that the remaining $155 million of debt maturing in 2024, will be addressed through our disposition strategy are placed onto our credit facility. As for 2025 maturities, no debt is maturing until the third quarter of next year, and we intend on addressing it through disposition proceeds, permanent refinancing, bonds and/or availability on the corporate credit facility in the later part of 2024 or early 2025, anticipating a slightly more favorable environment.
During the first quarter of 2024, we also showcased our strong asset management capabilities through robust leasing activity and positive leasing spreads, encompassing nearly 1.4 million square feet with attractive renewal spreads that were 6.1% higher than expiring rents. New leases that were completed in the first quarter of 2024 have a weighted average lease term of 10.2 years, while the renewals that were completed in the first quarter of 2024 have a weighted average lease term of 5.8 years.
Notably, the Single-Tenant segment completed 13 new leases and renewals, highlighted by an 11% renewal leasing spread, demonstrating the strong renewal demand for our mission-critical assets, while adding $6.9 million in straight-line rent. The Multi-Tenant segment completed 65 new leases and renewals, resulting in a 2% renewal spread, consistent with the high demand we're experiencing at our suburban shopping centers, which increased straight-line rent by $10.4 million.
Turning to our portfolio. As of the end of the first quarter, we owned 1,277 properties, spanning nearly 67 million square feet, with a gross asset value of $9 billion. We believe the diverse composition of our Net Lease portfolio is unmatched across geography, asset type, dependent and industry, and positions GNL to effectively navigate external macro challenges as we move ahead. The portfolio's occupancy stands at 93% with a weighted average remaining lease term of 6.5 years.
I want to note that our portfolio occupancy experienced a short-term impact due to the vacancy of Klaussner, a furniture manufacturing tenant that originally occupied 5 properties, at only $2.13 of rent per square foot. We were able to re-lease 2 of the properties at the same rental rate with no downtime. The 3 remaining vacant properties previously represented only 55 basis points of GNL's total straight-line rent but caused a 2.5% short-term decline in overall occupancy given that it occupied 1.7 million square feet.
Two of the properties are already under contract to sell and are expected to close in the second quarter. The last property is also on the market, and we're actively engaged with potential buyers. I want to reiterate the minimal impact this has on our straight-line rent, further illustrating our highly diversified portfolio with little concentration risk.
Additionally, given the public disclosures regarding Family Dollar's intention to close some stores in 2024, I'd like to share that GNL's exposure to Family Dollar represents only 0.09% of SLR. We have not received any indication that any of the stores they currently lease from us are part of the early store closures. This exposure is limited after GNL proactively disposed off $112 million of its Family Dollar holdings in 2019, as we anticipated potential headwinds for this tenant.
Furthermore, given the recent developments regarding Red Lobster's financial troubles, we're pleased to announce that GNL has no exposure to Red Lobster. We continue to monitor all of our tenants and their business operations on a regular basis. The minimal exposure to these retailers showcases the diversification of our portfolio and our strong underwriting, which we believe limits our credit and concentration risk.
Geographically, 80% of our straight-line rent is earned in North America and 20% from Europe. The portfolio also features a stable tenant base and a high quality of earnings with an industry-leading 58% of tenants, receiving an investment grade or implied investment grade ratings.
From a growth perspective, the portfolio includes an average annual contractual rental increase of 1.3%. I'd encourage everyone to look at our first quarter 2024 investor presentation on our website for more details on each segment of our portfolio. I'd like to take a moment to highlight the addition of 2 independent and highly distinguished board members during the first quarter. Michael J. Monahan and Rob Kauffman.
Mike currently serves as a CBRE Vice Chair and bring extensive real estate expertise. And Rob, a co-founder of Fortress Investment Group, possesses a wealth of relevant capital market knowledge. Both have already brought invaluable insight and perspective to the Board, and we look forward to their continued contributions in shaping GNL's future.
Looking ahead, we remain committed to executing on our systematic and prudent approach to achieving our financial objectives, which revolve around reducing our net debt to adjusted EBITDA ratio while organically enhancing NOI through lease-up initiatives and contractual rent growth. Our asset disposition program in which we've made significant progress is a pivotal component of this strategy and should provide us with incremental capital to deleverage our balance sheet.
I'll turn the call over to Chris to walk through the financial results and balance sheet matters in more detail. Chris?
Thanks, Mike. Please note that, as always, a reconciliation of GAAP net income to the non-GAAP measures can be found in our earnings release, which is posted on our website.
For the first quarter 2024, we recorded revenue of $206 million and a net loss attributable to common stockholders of $35 million, compared to $207 million and $60 million in Q4 2023, respectively. Core FFO was up 17% to $57 million or $0.25 per share in Q1 2024, compared to $48 million or $0.21 per share in Q4 2023.
AFFO increased 5% to $75 million or $0.33 per share in the first quarter of 2024, compared to $72 million or $0.31 per share in Q4 2023, representing a 6% AFFO per share increase from last quarter. As discussed last quarter, following the successful completion of the European tax restructuring, we have seen a reduction in income tax expense from $5.5 million in Q4 2023 to $2.4 million in Q1 2024.
Looking at our balance sheet, it's important to note that even though 84% of our debt is subject to fixed rates, the current sustained high interest rate environment does have a temporary effect on the portion of our debt that isn't fixed or swapped. To mitigate this, we have reduced our exposure to variable rate debt through our new $237 million CMBS refinancing, while also extending our weighted average debt maturity.
To further increase our level of fixed rate debt and lower our cost of capital, we have also taken the proactive approach of swapping $300 million of the U.S. dollar portion of our corporate credit facility at an interest rate that is 120 basis points lower than the current floating interest rate. This swap was effective as of April 1, 2024, and is expected to reduce our annualized interest expense by $3.6 million.
Additionally, we entered into $200 million of GBP swaps on March 18, 2024, that are approximately 90 basis points lower than the [indiscernible] and are expected to decrease annualized interest expense by $2.2 million. We expect to realize the full benefit of these actions beginning in Q2 2024.
At the end of the first quarter, our net debt to adjusted EBITDA ratio was 8.4x based on net debt of $5.2 billion. As expected, net debt to adjusted EBITDA remains unchanged from the prior quarter as the previous announced dividend reduction, which increases incremental cash used to lower debt only occurred in April as well as the majority of our announced dispositions will close in Q2 or Q3 of 2024.
Our weighted average interest rate was 4.8% and we have liquidity of approximately $175 million and $190 million of capacity on our credit facility. Our debt comprises $1 billion in senior notes, $1.8 billion on the multicurrency revolving corporate credit facility and $2.6 billion of outstanding gross mortgage debt. Our debt was 84% fixed rate, which includes floating rate debt with in-place interest rate swaps and our interest coverage ratio was 2.4x.
As of March 31, 2024, we had approximately 230.8 million common shares outstanding. On a weighted average basis, there were approximately 230.3 million shares outstanding during the first quarter of 2024. Turning to our outlook for the balance of 2024. Based on progress to date, we are reaffirming our AFFO per share guidance range of $1.30 to $1.40 and a net debt to adjusted EBITDA range of 7.4x to 7.8x.
I'll now turn the call back to Mike for some closing remarks.
Thanks, Chris. GNL executed well on our near-term strategic objectives in the first quarter of 2024. We made significant progress on our strategic disposition plan, building a robust $554 million closed plus disposition pipeline.
The 7.2% cash cap rate we're achieving on the announced occupied assets, represents a significant premium compared to the implied value of this portfolio based on the current trading price. We're committed to increasing shareholder value and continuing this disposition initiative until we close the gap between the value of our real estate and our stock price.
I want to reiterate that we plan on using the net proceeds received from these incremental dispositions to continue lowering our net debt to adjusted EBITDA, bringing it more in line with our peers.
In addition to our disposition program, we continue to benefit from G&A synergies, as a direct result of the merger and internalization. Through Q1 2024, we've realized over $70 million of synergies and we remain on track to achieve the full $75 million annualized cost savings by Q3 2024.
We'll also benefit from the $3 million reduction in annualized operating expenses through the sale of vacant assets, $3.5 million of annualized interest savings from our CMBS refinance, and $5.8 million of annualized interest savings from our corporate credit facility swaps. The AFFO per share growth, continued leasing momentum, strong portfolio performance and significant disposition progress we've achieved this quarter, reflects our commitment to enhancing our balance sheet, reducing leverage and positioning GNL for sustainable growth in the future, ultimately creating shareholder value over the long term.
As always, we're available to answer any questions you may have on this quarter after the call. Operator, please open the line for questions.
[Operator Instructions] Our first question is from the line of Bryan Maher with B. Riley Securities.
Just a couple from me this morning. Sticking with the retail landscape for a minute, is there any timing that you can share on the closing of those 2 properties? And do you guys have any exposure to the [indiscernible] situation?
Bryan, the closing of the 2 properties, I believe, and I will confirm this is the beginning of the third quarter, but it is an executed contract and we're moving forward. So we feel very good about that. [indiscernible] is a very small tenant in our multi-tenant portfolio, and represent [indiscernible] of straight-line rent. So we will anticipate backfilling those moderately sized stores without any problem.
And as we were very pleased with the leasing in the quarter, 1.4 million square feet of leasing in the portfolio this quarter, so we have no reason to believe that, that small tenant is even going to show up in any kind of material way.
Okay. And then when we think about your disposition pipeline, kind of 2 questions here. How long do you think until you complete that in its entirety? And are there any industrial or office assets in the sales mix?
Yes, there -- it was a wholesome fulsome review of the portfolio, and we looked for what we deem to be non-core assets and one of those definitions, first of all, we are very much looking forward to lowering our exposure to single-tenant office. So there are office properties in the pipeline. And then there are just a few industrial properties where 2 conversations with tenants and different information that we had, the remaining lease term was rather short, and we saw great opportunistic dispositions there. More details will be provided as we close on those assets. And I think that you and others are going to be very impressed with the decisions to dispose and the value that we receive for these assets.
And I just want to touch again on the average cap rate of dispositions is 7.2%. And I do think that when we're looking at assets that have remaining lease term on average, less than 4 years and we can still get those types of cap rates, it just highlights this 1,300 property portfolio really is consisting of valuable real estate.
And the disparity between these values and where we're trading, we're really focused on closing that gap because this company should be trading at a much higher multiple. There's no doubt.
Okay. And just lastly, is it safe to say that given where you're trying to get to on the leverage front, that acquisitions really aren't top of mind anytime soon?
That is accurate. As I've said in my prepared comments, the velocity that we're executing on our 2024 guidance metrics is very encouraging. The results will prove to be very valuable in what you see in the second quarter and the third quarter. I'm comfortable anticipating that.
And real estate, this portfolio is a little bit like a big aircraft carrier. We've put in all of the appropriate steps and we're executing. And what we expect to see through the balance of 2024 is really exciting. I was happy to see the AFFO growth of 6% per share in the quarter, and that's before a lot of the impact of the things that we achieved because, obviously, this is a first quarter earnings call, and we'll talk about the second quarter in, I don't know, 6 or 8 weeks. So very strong progress, and I anticipate results that you and others are going to be pleased with.
Our next question is from the line of Todd Thomas with KeyBanc Capital Markets.
This is [indiscernible] on for Todd Thomas. I was just wondering if you could talk about your plans to continue recycling capital in 2025. So as you execute on this year, this is just disposition plans and looking to reduce leverage further beyond your current leverage range, should we assume another year of $400 million to $600 million of dispositions?
It's a little bit early to put a number on it like that because we have not put out 2025 guidance yet, as you know. I think it's fair to say that being at approximately $550 million of dispositions either closed or under contract, when we put out full year disposition guidance of $400 million to $600 million, leads one to draw the conclusion that we very well may dispose off more in 2024.
And I think I alluded in my closing comments that -- as we see the value, when we can sell these assets at an average in the low 7% cap rate on a cash basis, the value in continuing to lower net debt to EBITDA to generate the proceeds from these dispositions and close the gap between the implied value of where we're trading versus the actual value of these assets, I'm very comfortable in telling you that we will continue to have conversations with our Board.
And as appropriate, we will look forward to either revising 2024 disposition guidance or putting out 2025. But having just completed the first quarter, I don't want to get too far ahead. This is a very slow and steady business. We will execute. I think that you can take away from what we've done in the first quarter, the commitment and focus that we have and the ability to execute on what we set into the market. So please take the first quarter as a sign of what's to come, and we will continue to really look to drive value in this company.
Got it. And so you mentioned that the cap rate range on dispositions was 7% to 8% that you're targeting, and you're doing better than that so far. But has there been any change in cap rates as you continue having conversations with potential buyers and work through additional dispose given the recent increase in interest rates?
So as I said earlier, our guidance for 2024 is $400 million to $600 million of dispositions, and you're correct that we targeted 7% to 8%. We're at 7.2% through $550 million. And again, we think that the value of the real estate, the value of the tenants that occupy the real estate, the type of real estate will continue to see these types of disposition results.
I think that we've seen in the last couple of weeks, a very slight release of pressure on the 10-year. It's actually been coming down. And now I see it at about 4.5%, which is relief to many. We started to get close to that 5%. But we were executing at 7.2% in that range. So not being able to tell what the Fed steps are in 2024. I'd like to believe that we still have 1 to 3 rate cuts ahead for 2024, which will further strengthen our ability to execute on what we've laid out.
So I think that we've got wind at our back, and we're pushing forward. And we will continue to execute and deliver results that meet or exceed the market's expectations.
Ladies and gentlemen, we take our last question from the line of Mitch Germain with Citizens JMP.
I'm trying to understand the situation with Klaussner, I think I'm saying that right? Okay, great. So it seems like some of the issues that they were experiencing began middle part of last year. Were they on your watch list? Or is this something that -- is this kind of aligned with what you expected? Or did the situation get worse than you anticipated?
No. This was -- we were very aware this was something that we were monitoring. We were in talks with them. It was a manufacturing industrial type facility. So I think that it's -- when you take into account the situation, I think that we've managed to have a good outcome. They're taking, as we said in the call, 2 of the buildings, they released back at the exact same rate. 2 of the properties are already under contract to sell.
And most importantly, Mitch, as you know, being an industrial tenant, their rent per square foot was very low. So although it had a kind of a headline impact on occupancy, it really had very de minimis impact on earnings, and we're going to see both recover in the second quarter, so I'm very pleased.
And again, I do think that the strength of our asset management platform and team being able to re-lease the 2 properties, sell 2 properties that quickly, I think, is validation that we were not caught flat-footed. Nobody ever likes to see bankruptcy. But if I can switch the page on a little bit, I do want to highlight, back in 2019, again, looking at our asset management performance, we saw the Family Dollar Tree merger and frankly, didn't think that it made a whole lot of sense.
We own Family Dollar stores, and we sold them in 2019 at a very attractive 720 cap rate, so avoiding essentially this repositioning that they're going to be undertaking in 2024 and 2025, so the focus on the portfolio on a daily basis is really important. And we never want to be caught flat-footed. I don't want to say we're perfect, but being able to proactively manage this 1,300 property portfolio is really beneficial in the short term and long term.
Great. That's super helpful. And I know that [indiscernible] and you mentioned Family Dollar. And I guess, is there any other clouds there or other situations that exist in the portfolio that kind of we need to be aware of, i.e. your -- is there something on your watch list that might be more actionable versus something that you're just kind of looking for potentially?
Yes. So the short answer is no. And the longer answer is we have a very close hold on this portfolio. And we've taken all that into consideration when we gave guidance for 2024 that we're very confident in achieving, both on an earnings per share basis and a lowering of net debt to EBITDA.
So there can be things that happen in the portfolio, but I don't anticipate anything material. And I think that we're -- as I said earlier, I'm really excited. I don't remember being this excited talking about first quarter results and thinking about the remainder of the year for how we're positioned and what's to come. And I'm very pleased with our execution. Maybe I shouldn't say it that way.
I hope you all are pleased with our execution in the first quarter because I think it shows the path and these results in the first quarter don't take into account the things that we finished in the first quarter that are going to have a positive impact on not only the second quarter but the remainder of 2024. So this is really a momentum that I feel is positive, velocity that I think is incredibly valuable, and a business plan that we're going to be able to execute on because of how well we know our portfolio and all of the aspects of it, including refinancing debt, lowering interest rates, lowering net debt to EBITDA. So we're just going to keep pushing forward in this consistent way.
Great. Last one from me, and thanks for everyone's time. Chris, just confirming that hedge, the rate hedge, that goes right to the bottom line. Is that the way to model it? Or is there some sort of accounting intricacies that we need to be aware of?
It goes right to the bottom line.
Ladies and gentlemen, this concludes our question-and-answer session. I would now hand the conference over to the management for closing comments.
Great. Thank you, operator. Well, I think I've said a lot in the Q&A and in my prepared comments. So I appreciate everybody taking the time. We're very excited about directionally where GNL is headed. And we think that we're -- we've done the work, we're showing the results, and we look forward to seeing you at conferences, taking any calls that you may have and continuing the conversation. We believe that this is a terrific company and portfolio, and we look forward to seeing the response of this work. So thank you all very much.
Thank you. The conference of Global Net Lease has now concluded. Thank you for your participation. You may now disconnect your lines.