Global Net Lease: Low Liquidity, Dividend Cuts, And Limited Upside Make It Unattractive

seekingalpha05-25

GNL has a diversified portfolio consisting of single-tenant retail, office, industrial, and multi-tenant retail properties.Even though its P/FFO is quite low, and the dividend yield may be tempting ...

Source Link

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Comments

We need your insight to fill this gap

Leave a comment

{"i18n":{"language":"en_US"},"isChannel":false,"data":{"share":"https://ttm.financial/m/news/2438505002?lang=en_US&edition=fundamental","thumbnail":"https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1462297269/image_1462297269.jpg","is_english":true,"pubTime":"2024-05-25 00:27","share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","id":"2438505002","market":"fut","top_or_hot":-1,"title":"Global Net Lease: Low Liquidity, Dividend Cuts, And Limited Upside Make It Unattractive","media":"seekingalpha","content":"<div>\n<p>GNL has a diversified portfolio consisting of single-tenant retail, office, industrial, and multi-tenant retail properties.Even though its P/FFO is quite low, and the dividend yield may be tempting ...</p>\n\n<a href=\"https://seekingalpha.com/article/4695527-global-net-lease-low-liquidity-dividend-cuts-limited-upside-unattractive\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Global Net Lease: Low Liquidity, Dividend Cuts, And Limited Upside Make It Unattractive</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nGlobal Net Lease: Low Liquidity, Dividend Cuts, And Limited Upside Make It Unattractive\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-05-25 00:27 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4695527-global-net-lease-low-liquidity-dividend-cuts-limited-upside-unattractive><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>GNL has a diversified portfolio consisting of single-tenant retail, office, industrial, and multi-tenant retail properties.Even though its P/FFO is quite low, and the dividend yield may be tempting ...</p>\n\n<a href=\"https://seekingalpha.com/article/4695527-global-net-lease-low-liquidity-dividend-cuts-limited-upside-unattractive\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"STAG","symbol_name":"STAG Industrial","start_time":0,"source_url":"https://seekingalpha.com/article/4695527-global-net-lease-low-liquidity-dividend-cuts-limited-upside-unattractive","article_id":"2438505002","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1462297269/image_1462297269.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2438505002","pubTimestamp":1716568034,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"GNL - Overview Portfolio According to GNL's latest Investor Presentation , the Company distinguishes four segments of its properties portfolio:  single-tenant retail-oriented properties, single-tenant office properties, industrial & distribution properties, multi-tenant retail-oriented properties.  GNL's Investor PresentationI generally prefer specialized over highly diversified REITs, however, that depends on the instance. In my recent analysis of NNN REIT , I mentioned Realty Income  faces some headwinds related to its large size that limits its selectivity and forces it to step outside its main business scope.  Specialized REITs often have unique sector expertise, which allows them not only to evaluate acquisition opportunities better, but also to keep a clear and coherent investment strategy. I don't intend to paint each diversification attempt with the same brush, however, I prefer REITs to expand their investable market to areas that share some value drivers with their primary, c","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"STAG":"STAG Industrial","WPC":"W. P. Carey Inc","BK4080":"零售业房地产投资信托","BK4588":"碎股","EPR":"EPR不动产","BK4084":"特种房地产投资信托","BK4234":"特殊用途房地产信托","EPRT":"Essential Properties Realty Trust Inc.","VICI":"Vici Properties","BK4231":"零售房地产信托","TTM":"塔塔汽车","BK4561":"索罗斯持仓","BK4171":"工业房地产投资信托","NNN":"NNN REIT INC","BK4099":"汽车制造商","ADC":"艾格里房产","GLPI":"Gaming and Leisure Properties I","BK4224":"工业房地产信托","GNL":"Global Net Lease Inc","BK4160":"多样化房地产投资信托v","CFA.SI":"NikkoAM-STC Asia REIT","BK4585":"ETF&股票定投概念","BK4523":"印度概念","O":"Realty Income Corp"},"translate_title":"全球净租赁：低流动性、股息削减和有限的上升空间使其缺乏吸引力","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"WPC":1,"VICI":1,"TTM":1,"STAG":1,"O":1,"NNN":1,"GNL":1,"GLPI":1,"EPRT":1,"EPR":1,"ADC":1,"CFA.SI":0.9},"content_text":"GNL has a diversified portfolio consisting of single-tenant retail, office, industrial, and multi-tenant retail properties.Even though its P/FFO is quite low, and the dividend yield may be tempting for some income-oriented investors, there are more than enough reasons for a negative market sentiment.I believe there are plenty of more attractive opportunities in terms of risk-to-reward ratio.As each investor's capital is limited, I would rather allocate it to healthy and proven businesses with outstanding metrics, than risk falling into a value trap.   PM ImagesInvestment Thesis Investors may be tempted by Global Net Lease's (NYSE:GNL) high dividend yield amounting to ~12.5% and a low P/FFO multiple of ~8.0x, however... With weak business metrics, low liquidity, and recent dividend cuts, I don't see GNL fitting into my portfolio (at least yet). The management has a plan, but there is still some time to pass until investors can see its effects. Therefore, I believe there are plenty of more attractive opportunities in terms of risk-to-reward ratio (e.g. with EPR Properties (EPR) offering the best ratio in the entire sector). As each investor's capital is limited, I would rather allocate it to healthy and proven businesses with outstanding metrics, than risk falling into a value trap. Therefore, I have a bearish view of GNL. Introduction GNL is a triple net lease REIT that operates within the US, Canada, and Europe across four property types. Within this analysis, I've:  discussed key business metrics of GNL compared to a certain reference group, provided a valuation outlook, and explained what could cause a shift in my bearish view.  Enjoy the read! GNL - Overview Portfolio According to GNL's latest Investor Presentation (as of March 2024), the Company distinguishes four segments of its properties portfolio:  single-tenant retail-oriented properties, single-tenant office properties, industrial & distribution properties, multi-tenant retail-oriented properties.  GNL's Investor PresentationI generally prefer specialized over highly diversified REITs, however, that depends on the instance. In my recent analysis of NNN REIT (NNN), I mentioned Realty Income (O) faces some headwinds related to its large size that limits its selectivity and forces it to step outside its main business scope.  Specialized REITs often have unique sector expertise, which allows them not only to evaluate acquisition opportunities better, but also to keep a clear and coherent investment strategy. I don't intend to paint each diversification attempt with the same brush, however, I prefer REITs to expand their investable market to areas that share some value drivers with their primary, core assets (eg. VICI Properties (VICI) expansion to non-gaming experiential properties or EPR's ongoing portfolio reorganization process, which I covered in my recent analysis).  Otherwise, property-type diversification may lead to a reduction of overall portfolio quality, which (upon reviewing GNL's key business metrics) can be observed in the Company's case. There is some positive angle for investors that value geographical diversity and would like to include some exposition into the European markets, as ~19.8% of GNL's straight-line rent is generated in Europe. GNL's Investor PresentationKey business metrics Before we dive into some key business metrics and valuation outlook for GNL, let's assemble a reference group consisting of healthy, comparable (to some degree), triple net lease REITs. For this purpose, I've selected:  Realty Income, Agree Realty Corporation (ADC), Essential Properties Realty Trust (EPRT), NNN, W.P. Carey (WPC), STAG Industrial (STAG).  Further references to the above entities are supported by their latest SEC filings (linked above) and their Investor Presentations (linked in the table). Please review the table below with the reference rationale provided for each entity.       Entity Reference rationale   GNL -   O Triple net lease REIT. It generally targets retail and service-oriented properties, however, has some activity within gaming sector.   ADC Triple net lease REIT targeting retail/service-oriented properties.   EPRT Triple net lease REIT targeting retail/service-oriented properties.   NNN Triple net lease REIT targeting retail/service-oriented properties.   WPC Triple net lease REIT with 63% ABR derived from industrial/warehouse properties and 22% from retail-oriented properties.   STAG Triple net lease industrial REIT.   Click to enlarge Also, please find GNL's key metrics below. GNL's Investor Presentation- Occupancy rate As of March 2024, GNL's occupancy rate amounted to 93% which can be further divided into the:  94% for industrial & distribution properties, 88% for multi-tenant retail properties, 96% for single-tenant retail properties, 93% for office properties.  Investors have to be aware that there are plenty of REITs capable of upholding much higher occupancy rates. To provide a few examples:  NNN - 99.4%, ADC - 99.6%, EPRT - 99.9%, O - 98.6%, STAG - 97.8%, WPC - 99.1% median of S&P 500 REITs during the 31.12.2000 - 31.03.2024 period - 94.8% (according to O's Investor Presentation).  Therefore, GNL has a below-average level of occupancy rate, which reflects (to some degree) my initial concerns regarding the quality of its portfolio. - Lease terms I consider the weighted average lease term (WALT) to be an important metric indicating the negotiating position of the REIT, strength of its agreements, predictability of future cash flows, and in some cases (e.g. VICI or Gaming and Leisure Properties (GLPI) mission-critical character of their assets. As of March 2024, GNL's WALT amounted to 6.5 years. Unlike the occupancy rate, WALT doesn't look that bad, however, there is still plenty of room for improvement. Considering its single-tenant retail properties with 8.1 years of weighted average lease term, many triple net lease retail/service-oriented REITs have WALT close to or exceeding 10 years (NNN - 10.0, EPRT - 14.1, O - 9.8). Moreover, quite a diversified REIT - WPC has a WALT of 12.2 years. - Rent escalators Annual rent escalators for triple net lease REITs typically range from 1% to 2%. They can be either fixed or CPI-linked (often with floors or caps involved). Rent increases according to the indicated numbers may not seem like a lot, however, they tend to quickly add up over time and heavily impact the bottom-line due to the triple net lease structure, under which the tenant is responsible for covering a substantial amount of costs related to operating and maintaining the property. As indicated in GNL's Investor Presentation, 78% of its lease agreements include contractual rent escalators that amount to, on average, 1.3% annually. Therefore, GNL's rent increases tend to stick to the lower end of the typical 1-2% range. Liquidity stance GNL has a high forward-looking AFFO payout ratio of ~89.9% which is a concerning issue for many market participants, including myself. The Company had $405m worth of debt maturities to address in 2024 (as of year-end 2023). It has already dealt with 62% of the value mentioned above and has $155m left to deal with in 2024. GNL's Investor PresentationAnother 13.2% of its total debt is maturing in 2025. Although the Company takes measures to mitigate the effect of the high-interest rate environment (e.g. CMBS, fixed-rate swaps, and increasing the share of fixed-rate debt in total debt to 84% compared to 81% as of year-end 2023), it is still forced to refinance at a higher interest rate. GNL's Q1 2024 10-QTo provide a reference point to over $800m debt maturing until the end of 2025, as of March 2024 GNL only had ~$190m capacity within its Revolving Credit Facility and $131.9 cash and cash-equivalents. However, the management remains confident in its ability to address the upcoming debt maturities. GNL's Q1 2024 10-QI'd like to quote Michael Weil's, the Company's CEO, comments on this matter shared during Q1 2024 Earnings Call: We expect the remaining $155 million of debt maturing in 2024 will be addressed through our disposition strategy were 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. GNL's management has a plan to address upcoming debt maturities and ensure liquidity - asset disposition program. The guidance associated with the program assumes $400-$600m worth of asset dispositions in 2024. GNL proactively takes measures toward realizing this goal, as the CEO stated:  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 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.  Another purpose of this program is to improve the overall quality of GNL's portfolio targeting the least productive assets with short remaining lease terms. The above also includes vacant properties: (...) 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 transactions contemplated by such agreements. Nevertheless, prolonging the high-interest rate environment will hurt GNL's performance by forcing it to bear higher interest expenses, thus further endangering its ability to uphold dividend payments. Risk factors summary Considering GNL's current liquidity and its debt maturities upcoming until 2025 there may be a risk of further dividend cuts. Moreover, refinancing a substantial amount of debt (assuming a prolonged high-interest rate environment) will lead to higher interest expenses, and thus, worse financial performance. Should the above scenario materialize in another dividend cut, it would further decrease the market sentiment toward GNL, leading to higher price volatility. GNL conducts an ambitious asset disposition program. Future business metrics (e.g. occupancy rate, WALT, etc.) should reflect its effectiveness. In case of a lack of results, I believe that many bullish investors would shift their views, leading to GNL's stock price going south. Valuation outlook Being an M&A advisor, I usually rely on a multiple valuation method that is a leading tool in transaction processes, as it allows for accessible and market-driven benchmarking within a specific peer group. That said, please review the reference group presented in the table below.        Entity Reference rationale P/FFO (TTM)   GNL - 8.0x   O Triple net lease REIT. It generally targets retail and service-oriented properties, however, has some activity within gaming sector. 13.5x   ADC Triple net lease REIT targeting retail/service-oriented properties. 15.0x   EPRT Triple net lease REIT targeting retail/service-oriented properties. 15.1x   NNN Triple net lease REIT targeting retail/service-oriented properties. 12.7x   WPC Triple net lease REIT with 63% ABR derived from industrial/warehouse properties and 22% from retail-oriented properties. 12.3x   STAG Triple net lease industrial REIT. 15.4x   Click to enlarge Numerous metrics are available for a company valuation, with EV/EBITDA being a rule of thumb for most sectors. However, in REIT analysis, FFO and AFFO indicators are more appropriate - depending on the instance. I chose P/FFO as this metric is standardized, meaning that different companies will use a standard formula (making them easier to compare), unlike P/AFFO which is more suited for financial performance assessment. The multiple valuation method doesn't just come down to replacing the current multiple with a market median. The most important aspect is understanding the differences in levels of valuation multiples of companies included in a reference group. Sometimes the market tends to overestimate or underestimate the value proposition of certain entities. However, I don't consider GNL to be undervalued. Such a difference between multiples is a result of a difference in financial and business performance. The companies included within the reference group are far more healthy, both business and financial-wise. Moreover, a further materialization of risks surrounding GNL's business could result in a deeper decline of its P/FFO - multiple depreciation. I consider it to be a more likely scenario, especially taking into account that the previously mentioned EPR has a similar P/FFO of ~8.2x. However, I haven't included EPR in a reference group due to the experiential character of its portfolio and the lack of representativeness of its P/FFO multiple, which I discussed in a separate analysis. The above comment was just meant to bring some perspective. Nevertheless, I don't see much upside potential until GNL realizes (with noticeable success) the asset disposition program. Until then, (assuming no material adverse changes), I consider P/FFO multiple to remain within the ~7.2-8.2x range. What would change my view? Long story short - the success of the asset disposition program. The above should lead to improvement in terms of key business metrics, and thus GNL's ability to generate cash flow and uphold liquidity. Going further, I'd like to see the dividend sustained and preferably increased after a positive shift in the business fundamentals. Upon seeing such changes, my view would shift to toward neutral, possibly even bullish, depending on the instance. Key takeaways With weak business metrics, low liquidity, recent dividend cuts, and having to wait until the effects of the asset disposition plan, I don't see GNL fitting into my portfolio (at least yet). There are plenty of more attractive opportunities in terms of risk-to-reward ratio. As each investor's capital is limited, I would rather allocate it to healthy and proven businesses with outstanding metrics, than risk falling into a value trap.  Even though its P/FFO is quite low, and the dividend yield may be tempting for some income-oriented investors, I believe there are more than enough reasons for a negative market sentiment surrounding GNL.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.24.0","shortVersion":"4.24.0","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2438505002"}