Good afternoon, and welcome to the Global Net Lease third quarter 2022 earnings call. This time, all participants are in listen only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero from your telephone keypad. I would now like to turn the conference over to Curtis Parker, Senior Vice President. Please go ahead.
Thank you. Good afternoon, everyone, and thank you for joining us for GNL's third quarter 2022 earnings call. This call is being webcast in the investor relations section of GNL's website at www.globalnetlease.com. Joining me today on the call to discuss this quarter's results are Jim Nelson, GNL's Chief Executive Officer, and Chris Masterson, GNL's Chief Financial Officer. The following information contains forward-looking statements which are subject to risks and uncertainties. Should one or more of these risks or uncertainties materialize, actual results may differ materially from those expressed or implied by the forward-looking statements. We refer all of you to our SEC filings, including the Form 10-K for the year ended December 31, 2021, filed on February 24, 2022, and all other filings with the SEC after that date for a more detailed discussion of the risk factors that could cause these differences.
Any forward-looking statements provided during this conference call are only made as of the date of this call. 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 non-GAAP financial measures, which we believe can be useful in evaluating the company's financial performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measures is available in our earnings release and supplement, which are posted to our website. Please also refer to our earnings release for more information about what we consider to be implied investment grade tenants, a term we will use throughout today's call.
I'll now turn the call over to our CEO, Jim Nelson. Jim.
Thanks, Curtis, and thank you to everyone for joining us on today's call. Our high quality mission critical net lease office and industrial portfolio continues to perform well. We are advancing our differentiated international and domestic strategy by increasing portfolio concentration in industrial and distribution assets, successfully extending and expanding leases, maintaining 99% occupancy and building a pipeline of attractive acquisitions. Since the beginning of 2020, over 82% of GNL's acquisitions have been industrial and distribution assets, increasing GNL's ownership of this asset class to 56% of the portfolio. We believe our best in class portfolio is well positioned for meaningful capital appreciation, and that our dividend provides shareholders a very compelling current yield.
In the third quarter, Core FFO grew by 9.6% year-over-year to $48.3 million, or $0.47 per share, and AFFO was $41.3 million or $0.40 per share. On a constant currency basis, when we applied the average monthly currency rates from the second quarter 2022, revenues would have been up by $1.2 million to $93.8 million. Using the same constant currency concept year-over-year, revenues would have been up by $4.9 million to $97.5 million. Our AFFO was impacted by the strengthening of the U.S. dollar relative to the euro and pound. However, our comprehensive hedging program helped reduce the impact of this strengthening, and we realized $2.4 million of gains this quarter.
We think our unique global capabilities, strong balance sheet, and best-in-class real estate assets continue to support GNL's positive performance. One of our areas of focus for 2022 is asset management, and we continue to build leasing momentum. In the third quarter, we completed two lease renewals and one tenant expansion project totaling nearly 850,000 sq ft, bringing our year-to-date activity to 3.6 million sq ft. We also signed one small new lease for a convenience store in the U.K. The year-to-date renewal and expansion leasing adds $117 million of net new straight-line rent over the new weighted average remaining lease term of nine point three years, up from three point five years.
The leases signed in the first nine months of 2022 are for properties the company owns in the U.S., U.K., France and the Netherlands, and include investment grade tenants such as the U.S. government, the state of Indiana, FedEx and Whirlpool. Thanks to our leasing efforts, our portfolio has only 1% of leasing expiring during the balance of this year, with almost 74% of our leases not expiring until 2027 or later. Building on the strong relationships we have established with our tenants over time, our asset management team has been very successful signing leases this year in North America and Europe. At the quarter end, our $4.4 billion 310-property portfolio had a weighted average remaining lease term of eight point one years.
Geographically, 236 of our properties are located in the U.S. and Canada, and 74 are in the U.K. and Western Europe, representing 66% and 34% of annualized straight line revenue, respectively. Our portfolio is well diversified with approximately 141 tenants in 51 industries, with no single industry representing more than 12% of the whole portfolio and no tenant exceeding 5% of the portfolio based on annual straight line rent. Over 94% of our leases feature annual rental increases, which increase the cash rent that is due over time from these leases. Based on straight line rent, approximately 64% of our leases feature fixed rate escalations. 25.6 have escalations that are based on the Consumer Price Index, and four point seven have escalations based on other measures.
As we mentioned, we continue to expand the concentration of industrial properties in our portfolio. At the end of the third quarter, our assets were composed of 56% industrial and distribution, 41% office, and 3% retail, compared to 52% industrial and distribution, 43% office and 5% retail at the end of the third quarter of 2021. Contributing to our success is our focus on tenant credit, industrial acquisitions, and non-core retail dispositions over the last several years. Across the portfolio, over 61% of annual straight-line rent comes from investment grade or implied investment grade tenants. Year to date, we have completed $33.3 million in acquisitions. After a very active year of adding properties in 2021, and in anticipation of increased market uncertainty as inflation rates continue to rise, we became increasingly selective in 2022.
The disconnect in spreads sellers were asking for relative to our disciplined acquisition criteria also made many opportunities less attractive. Our selectivity has proven to be prudent as our acquisitions pipeline as of October 31 is comprised of a $32 million office property at a much more attractive cap rate than were available at the beginning of the year. If consistent with our disciplined acquisition criteria, we decide to close on the properties in the pipeline when combined with the properties we have already acquired, our acquisitions for 2022 would be $66 million at a weighted average cap rate of 7.6% with 11.7 years of lease term remaining.
We also sold one property in the U.S. during the third quarter and have agreed to terms to sell two additional properties that would bring total dispositions closed or under agreement to over $110 million. Our differentiated investment strategy continues to deliver value, and we remain focused on growing our portfolio by acquiring highly dependable single tenant industrial and distribution properties in North America and Europe. Our successful lease renewals and expansions speak to the mission-critical nature of the properties that we own, where over 61% of rent is derived from investment grade tenants and where the weighted average remaining lease term exceeds eight years. We are well positioned for the future, and I look forward to building on our progress for the rest of the year.
With that, I'll turn the call over to Chris to walk through the financial results in more detail before I follow up with some closing remarks. Chris?
Thanks, Jim. For the third quarter of 2022, we recorded revenue of $92.6 million, with a net income attributable to common stockholders of $9.7 million. FFO and AFFO for the third quarter were $48.2 million and $41.3 million, respectively, or $0.46 and $0.40 per share. On a constant currency basis, applying the average monthly currency rates from the second quarter of 2022, revenues would have been up by $1.2 million to $93.8 million. Using the same constant currency concept year-over-year, revenues would have been up by $4.9 million to $97.5 million. Core FFO grew by 9.6% year-over-year to $48.3 million or $0.47 per share, and AFFO was $41.3 million or $0.40 per share.
Our AFFO was impacted by the strengthening of the U.S. dollar relative to the euro and pound. However, our comprehensive hedging program helped reduce the impact of the ongoing turbulence in these currencies. As always, a reconciliation of GAAP net income to the non-GAAP measures can be found in our earnings release. On the balance sheet, we ended the quarter with net debt of $2.2 billion at a weighted average interest rate of 3.5% and $128 million of cash and cash equivalents. Our net debt to trailing twelve-month adjusted EBITDA ratio was 8x at the end of the quarter. The weighted average debt maturity at the end of the third quarter of 2022 was four point two years.
The components of our debt include $500 million in senior notes, $605.1 million on the multicurrency revolving credit facility, and $1.3 billion of outstanding gross mortgage debt. This debt was approximately 75% fixed rate, which is inclusive of floating rate debt with in-place interest rate swaps. The company has a well-cushioned interest coverage ratio of 3.3x . As of September 30, 2022, liquidity was approximately $206.9 million. The company distributed $41.7 million in dividends to common shareholders in the quarter, or 40 cents per share.
Our net debt to enterprise value was 62.3% with an enterprise value of $3.6 billion based on the September 30, 2022 closing share price of $10.65 for common shares, $21.58 for Series A preferred shares, and $22.20 for Series B preferred shares. With that, I'll turn the call back to Jim for some closing remarks.
Thanks, Chris. I'm very pleased with our progress and accomplishments during the third quarter, including our ongoing successful leasing activity and the forward pipeline of accretive acquisitions we have built in the current market of expanding cap rates. Our best-in-class portfolio features long-term leases with investment grade and other high-quality tenants, balanced asset classes, and strong geographic and industry diversity. Our primarily fixed rate debt and comprehensive hedging strategies have helped to minimize the impact of recent interest rate and foreign exchange turbulence, allowing us to focus on creating value for shareholders. We believe we are well positioned to continue to enhance our portfolio and grow earnings for shareholders throughout the balance of 2022 and into next year. With that, operator, we can open the line for questions.
Thank you. At this time, we'll now be conducting a question and answer session. If you'd like to ask a question today, please press star one from your telephone keypad and a confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to move your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Thank you. Thank you. Our first question is from the line of Bryan Maher with B. Riley Securities. Please proceed with your question.
Good afternoon, Jim and Chris, and thanks for all those prepared comments. Couple of quick questions on the foreign currency front. I know that you guys gave, you know, the impact on revenues, but maybe a two-part question. I don't know, Chris, if you have it, but, you know, what was the impact on AFFO per share? And I realize that you guys had some gains from the hedging activity, so that's kind of part one. Part two is, have you considered or would you consider doing more hedges, and how costly is that?
Sure. I guess the first part to start with, in terms of the impact on AFFO, we did quarter-over-quarter have about $2.6 or 7 million of decrease related to primarily FX. There was about half a million related to some OpEx on a vacant tenant, but that was mostly driven by the FX. In terms of the actual hedges, the realized gains that we recorded for the quarter were $2.4 million. Last quarter, we actually had $1.5 million in realized gains. We're up almost a million quarter-over-quarter in the realized gains. In terms of the increasing in the hedging going forward, I mean, we've had a pretty consistent strategy for hedging.
What we do is we focus on hedging the net cash flows, because that is actual foreign currency that we will be bringing in the door and need to convert. We won't necessarily go beyond our cash flows because that's moving us out of our strategy of trying to minimize risk. We have been consistently evaluating if we did want to increase some of the percentage that we do hedge compared to the exposure. In terms of cost, there is really very little cost to these hedges. We don't have to put any cash out the door day one. Effectively, in terms of the forward contracts, we are locking in spot rates in the future that will be converting the cash back into USD.
Like I said, no additional cash going out the door for us.
Okay, thanks. Then on the disposition front, I know you gave us some metrics on that, but maybe a little bit more color. Again, kind of two parts. Is the goal to kind of divest of non-core assets and recycle that into, you know, better performing assets and/or is it to deleverage or maybe both? I think you said you're at 8x net debt to EBITDA. You know, what is the goal?
Well, good afternoon, Bryan. Good to hear your voice. First of all, you know, we will divest ourselves of properties when, you know, we deem it's appropriate. As you know, we divested a big property in Germany a few years ago where we knew the tenant was moving out, and we had three unsolicited offers on the property, and we made a good profit on it. We are divesting ourselves of a few other things. We will continue to divest non-core assets, which is primarily the retail assets, which over time, we are definitely sellers of retail. As far as the rest of the portfolio goes, and in general, all the portfolio is performing extremely well. We don't sell properties because they're not performing. You know, we may sell a property if there are other reasons behind it.
For example, you know, if a tenant is moving out and we think it's better to sell the property and repurpose the funds into buying new assets. There are a lot of different factors for us to decide what to divest of. You know, we will continue to follow that sort of program as we move ahead. What was the other part of your question, Bryan? Say it again.
Oh, the leverage level. I think you're at 8 x now. Is there a goal to be meaningfully lower than that, or are you fine at 8 x?
Ultimately, we would like to be down into the low to the mid sixes. You know, with the stock price where it is, I mean, the easiest way to delever, you know, would be if the stock price was at a decent level, would be to sell some stock on the ATM and use that to delever. You know, we always have a goal of getting down into the low sixes. Right now, with where the economy is with inflation, potential recession, you know, we're just sticking to our guns here and being very cautious about how we deploy capital and, you know, where we're going forward. We do have, you know, a strong balance sheet.
You know, we do have some attractive acquisitions, potential acquisitions in the pipeline, but we're being very cautious.
Great. Just last for me. On the lease renewals, you know, renewals or new leases, you know, how is that dialogue progressing these days? I mean, has the tone changed at all? Is there any pushback from the rate increases that you're looking to get? And is there any thought to increasing rent escalators, you know, given the current state of inflation? And that's all for me. Thank you.
Well, thanks. Thanks, Bryan. In our new leases, we're looking at anywhere up from a floor to 2%-4%, you know, in a much higher upside. On all new leases we're building in much larger escalators. When we renew leases, we're doing the same thing. We have not had any pushback from our tenants on any of this so far. I think we're very fortunate because of the high quality of our portfolio and the locations of our properties that really give us an advantage in dealing with our tenants on renewals and looking forward as far as getting them to stay for long periods of time. Thank you, Bryan, appreciate the call.
Thank you. Our next question is from the line of James Allen-Villard with Ladenburg Thalmann. Please proceed with your question.
Good afternoon, guys.
Good afternoon, James.
Good afternoon.
Yeah. I guess just kinda big picture, are you seeing any impact in terms of tenant credit health kinda in your European portfolio from the energy cost inflation? How are y'all thinking about that moving forward?
Well, you know, you have to remember that a large majority of our tenants are investment grade. You know, we have a committee that watches our tenants' credit, and we have no one on the watchlist right now. Our European tenants, Whirlpool, Johnson Controls, ING, you know, they're all in good shape, and they pay their rents on time, so we don't really have a concern.
Mm-hmm
As far as collecting rents. I mean, energy, it basically hurts everyone, you know, as we see this inflation. I think we're very fortunate with the high quality of the tenants on our portfolio, and we will probably be affected less than a lot of other people, so.
Yeah. I guess how is that affecting, I guess, future acquisitions in Europe?
I mean, you know, we're being very cautious. As I said earlier, you know, we're looking for higher cap rates, which we're starting to see. We are seeing a bunch of stuff that are in the pipeline right now. You know, we've been very cautious, as I said, for the whole year as far as deploying capital because, you know, there's a lot of unknowns out there in the economy today. You know, we're seeing stuff that we like at decent prices.
Yeah. That's it for me. I appreciate it.
All right. Thanks for the call.
Our next question is from the line of Mitch Germain with JMP Securities. Please proceed with your questions.
Hey, guys.
Hey. Good afternoon, Mitch.
Good afternoon to both of you. Can I get a little more detail on the asset sales? I guess one completed, right? Two additional, and I think you gave the amount was $110. Do you have like a breakdown? I might have missed it in what you provided earlier today, but do you have a breakdown of what was sold versus what's for sale?
Chris, can you handle that?
Sure. Absolutely. The property that was sold during the quarter was actually a small property that was roughly about $3 million. The property that we expect to close on the sale in the fourth quarter, that property is approximately $48 million. That's a property in France. There is one additional property which is vacant, that sale price is a little over $60 million, and that we expect to close next year.
Perfect.
Mitch, just to give you a little color.
Yes, please.
The building in France is a large office building, so that will reduce our office exposure.
That was my next question.
Yeah.
That was my next question.
That'll reduce our office exposure.
Great. You're buying office?
We're buying one small office building, a government office building in Belgium, I think.
Government lease? Okay, good.
Government lease
And then-
Long-term lease, great credit. Yeah.
Okay. Makes sense. You've got some debt coming due next year. What is the plan? $231 million. What's the plan for that?
that debt is our U.K debt. We are currently evaluating our options, but we do have the ability to refinance that using our credit facility and pull those properties onto the credit line as an option.
Mitch, that's a decision we don't have to make today because it's not coming due till the middle of next year. You know, we watch the markets pretty closely, and obviously, we will try to find the best pricing on the debt, you know, to benefit our shareholders as best we can.
Super helpful.
It's a decision we'll make a little closer to the due date. We are watching it very, very carefully.
I know you have a multicurrency credit facility, and I noticed there wasn't much of a change in the average price quarter over quarter. I suspect because of your European exposure there, the likelihood is that rate has jumped pretty dramatically at this point. Is that a good way to think about it? Or is there some hedging there that I'm not aware of?
There is hedging there.
Okay.
That's part of the reason why you're seeing some of the rates stay pretty consistent because we do have hedging.
Understood. Okay. How much-
We have extended some of the hedging out further.
I'm sure you have it somewhere, and I probably just read it, but how much of your debt is pure variable, no hedge?
I'm just pulling that up. I believe it's about 25% is the number.
Okay. That's consistent with what I saw then. Okay. That makes sense. Chris, help me out here. Just one more question. I guess I'm just not understanding some of your language around FX. Was it a headwind toward the bottom line or was it a tailwind?
A headwind. It pulled down the actual, say, revenue numbers, because obviously, as the euro and the pound weakened.
Mm-hmm
Their conversion to USD was lower than it would have previously been.
Okay. Gotcha. Okay, great. Thanks, guys. I appreciate it.
All right. Thanks, Mitch.
You all.
You too, pal.
Thank you. At this time, I'll turn the floor back to James L. Nelson for his closing remarks.
Well, I wanna thank everybody for joining us on today's call. This company has operating very solidly. We're very pleased with the gains we've made on leasing and in maintaining a strong balance sheet. You know, the company, we have a great portfolio, we have great tenants, and we're actually very proud of the portfolio we've built, you know, over the last number of years. Thank you very much for calling in today and listening in, and we will talk to you next quarter. Thanks, everybody. Bye-bye.
This will conclude today's conference. Thank you for your participation. You may now disconnect your lines.