Greetings, and welcome to the Global Net Lease third quarter 2021 earnings call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Louisa Quarto, Executive Vice President. Thank you. You may begin.
Thank you, operator. Good afternoon, everyone, and thank you for joining us for GNL's third quarter 2021 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 the 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 statement. We refer all of you to our SEC filings, including the Form 10-K for the year ended December 31st, 2020, filed on February 26th, 2021, 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 measure is available in our earnings release and supplements, which are posted to our website at www.globalnetlease.com. Please also refer to our earnings release for more detailed 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?
Thank you, Louisa, and thanks to everyone for joining us on today's call. I am pleased to report that GNL had a very strong quarter, steadily making progress on our long-term objectives. Our high quality mission critical net lease portfolio is performing as we expect with occupancy of over 99.1% and nearly 100% rent collection. We are advancing our differentiated international portfolio strategy by continuing to close on accretive acquisitions, increasing portfolio concentration in industrial and distribution assets, and successfully extending and expanding leases. We continue to drive growth as year-over-year cash NOI for the third quarter increased by more than 18% to $87.4 million. Our acquisition pipeline remains robust.
Through October 31st, we have closed on over $380 million of acquisitions in 2021 at a weighted average cap rate of 9.74% and a weighted average remaining lease term of almost 17 years. With the acquisitions we have in our pipeline, we are on pace to complete over $450 million of acquisitions for the year. Along with our embedded rent growth, we are well-positioned to drive earnings and cash flow growth going forward. We continue to strengthen our balance sheet. Quarter-over-quarter, annualized net debt to adjusted EBITDA improved to 7.4x from 7.8x, and AFFO per share remained consistent at $0.44. Dividends paid to common stockholders were $0.40 per share. Our unique global capabilities, strong balance sheet and best-in-class portfolio continue to drive GNL's excellent performance.
One of the reasons we remain confident in our strategy is our ability to source and close acquisitions on attractive terms. I want to take a few moments to provide some additional color on some of the recent transactions we have closed, including the acquisitions of Trafalgar Court during the third quarter and Walmart and Pilot Point Steel early in the fourth quarter. The Trafalgar Court property in Guernsey was acquired at a contract purchase price of $76.5 million based on the exchange rate on the day of closing. When we agreed to acquire this property with a strong tenant base that is nearly 100% implied investment grade, we negotiated an attractive 8.05% going in cap rate due to a near-term lease expiration for a significant tenant.
Prior to closing, we leveraged our strong asset management platform to secure a 15-year lease extension for the expiring tenant, representing 25% of the building space, extending the weighted average remaining lease term for the property to 9.6 years from 5.8 years. We believe this extended lease, as well as preliminary lease extension discussions with the property's other major tenant, gives us the opportunity to unlock millions of dollars of value from the property. We were invited to bid on Trafalgar Court because of our reputation in the U.K. and across Europe for our ability to come to terms and close on significant industrial and office acquisitions. We have continually demonstrated that our team is unmatched when it comes to developing deal structure, closing on time, and leveraging our expertise and relationships in local markets to appropriately finance our acquisitions.
Notable recent European acquisitions of Whirlpool, where we acquired a portfolio of properties in the U.S. and Italy, and then continuing through the Johnson Controls and McLaren acquisitions, we have shown sale-leaseback candidates time and again that GNL is the partner of choice. Early in the fourth quarter, we closed on the acquisition of the Walmart Learning Center in Bentonville, Arkansas, which serves as the primary digital and on-site training and development facility for Walmart associates worldwide. The new construction training center we acquired is part of the company's new headquarters campus. Walmart has built out the learning center with cutting-edge audio and visual capabilities. Needless to say, we are very pleased to add Walmart, the number one company on the Fortune 500 list, to our tenant roster, and are happy to play a role in their ongoing investments into their digital transformation.
Our forward acquisitions pipeline includes eight industrial properties in the U.S. and the Netherlands for over $70 million. Combined with the acquisitions we have closed year- to- date, we anticipate total 2021 acquisitions activity to exceed $450 million at a weighted average cap rate of almost 9%, and with over 16 years of lease term remaining. Our team is also evaluating strategic disposition opportunities and searching for additional acquisition targets that meet our stringent investment requirements. Lease extensions remain a focus for our asset management team. Year- to- date, we have completed nine lease extensions and one tenant expansion project and executed 1 new LOI. Leasing activity for the year, assuming the LOI leads to a definitive agreement, totals 1.5 million sq ft and $15.7 million of annualized base rent.
On average, the lease extensions have added almost five years of lease term and represent 4.0% of GNL's total portfolio. I am very pleased with the stability of our portfolio and the way we have been able to reduce our exposure to potential lease expirations, thanks to the mission-critical nature of many of our properties and our strong acquisitions underwriting. The vast majority of our leases don't expire until after the end of 2025. Our $4.6 billion, 312-property portfolio is nearly fully occupied at 99.1% leased, with a weighted average remaining lease term of 8.2 years at the end of the quarter.
Geographically, 239 of our properties are in the U.S. and Canada, and 73 are in the U.K. and Western Europe, representing 60% and 40% of annualized straight-line rent revenue respectively. Our portfolio is well diversified with 134 tenants in 48 industries, with no single industry representing more than 13% of the whole portfolio based on annual straight-line rent. We also continue to increase the concentration of industrial properties in our portfolio. At the end of the third quarter, our assets were 52% industrial and distribution, 43% office, and 5% retail, compared to 47% industrial and distribution, 38% office, and 5% retail a year ago. Contributing to our success is our focus on tenant credit, industrial acquisitions, and retail dispositions over the last several years.
Across the portfolio, over 55% of annual straight-line rent comes from investment grade or implied investment grade tenants. GNL is well positioned for a strong full- year 2021 as we close on our pipeline of high-quality acquisitions and continue to see the benefit of the significant acquisitions we've made year- to- date. 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 2021, we recorded adjusted EBITDA of $75.2 million, up from $63.6 million in the third quarter of 2020. We also reported a 15.8% increase in revenue to $95.8 million, inclusive of a $2.2 million lease termination fee, up from $82.7 million, with net income attributable to common stockholders of $2.4 million. FFO and AFFO for the third quarter were $44 million and $44.3 million respectively, or $0.43 and $0.44 per share, compared to $0.39 and $0.46 per share in the third quarter of 2020. 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 3.4%. Our net debt to adjusted EBITDA ratio was 7.4x at the end of the quarter. The weighted average debt maturity at the end of the third quarter 2021 was 4.5 years. The components of our debt include $500 million in senior notes, $118.7 million on the multi-currency revolving credit facility, $286.3 million on the term loan, and $1.5 billion of outstanding gross mortgage debt. This debt was approximately 94% fixed rate, which includes the floating rate debt with in-place interest rate swaps. The company has a well-cushioned interest coverage ratio of 3.4x.
As of September 30th, 2021, liquidity was approximately $280.4 million. The company distributed $40.3 million in dividends to common shareholders in the quarter, or $0.40 per share. Our net debt to enterprise value is 53%, with an enterprise value of $4.2 billion based on the September 30th, 2021 closing share price of $16.02 for common shares, $27 for Series A preferred shares, and $27.90 for Series B preferred shares. With that, I'll turn the call back to Jim for some closing remarks.
Thank you, Chris. I'm very pleased with how GNL has continued to grow throughout this year. Broadly, we have met and exceeded pre-pandemic performance levels across the company, including our rent collection, cash NOI, and adjusted EBITDA figures when compared to the first quarter of 2020. More importantly, GNL's reputation as a premier partner for strategic sale-leaseback transactions among U.S. and European companies has grown exponentially during the same time. We are well positioned to continue to execute on accretive, creative, and exclusive transactions that further enhance our portfolio. I look forward to closing out this year strong and carrying that momentum into 2022. With that, operator, we can open the line for questions.
Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of Craig Mailman with KeyBanc Capital Markets. Please proceed with your question.
Hey, guys. Good afternoon. Jim, I just want to go back to your commentary around Trafalgar. I'm curious, you know, you guys got a little bit over an 8% cap. How much of a premium yield do you guys think you got for the kind of uncertainty around the tenants? I'm just trying to kind of put some numbers around the, you know, you kept saying that you guys think you drove a lot of value by getting that lease done. Just trying to put some context around it.
Well, you know, from the experts we've spoken to in the local markets, my guess would be somewhere around a 10% premium. A little more or a little less, but at least somewhere around a 10% premium.
Okay. Are you guys planning on refinancing that to pull proceeds out? You know, how are you gonna? Is there a way to kind of extract that value?
Well, we took over an existing mortgage on the property, which is a short-term left on it, so we will be refinancing that sometime in the next year or two.
Okay. I wanted to go back to your commentary also, you know, evaluating strategic dispositions. As you guys go through the portfolio, you know, you had some good luck with the, I think the asset in Germany where you were able to extract some value. I mean, can you give us a sense of how many other assets in the portfolio you guys will look to get rid of and kind of timing as you look to finance 22 acquisitions?
Well, yes, thanks, Craig. That's a good question. As you know, and we've talked about this a number of times over the years, you know, we are selectively selling off the retail assets we have. You know, we're as good offers come in, you know, we're reviewing them, and we, you know, we have cut our retail exposure by half over the last few years, so we will continue doing that. You know, and there are a few properties here and there. You know, we are long-term holders of good real estate. Again, you know, we also are proactive, you know, when we see, you know, that it would work in our benefit to sell a property.
You know, we are looking at a few properties in the U.S. and Europe right now, but we haven't made any final decisions on them yet.
Okay. Just one last one for me. It sounds like the blended yield on total full -year acquisitions is coming down, you know, about 3/4 of a point. I'm assuming it's the industrial assets that are pulling it down. Just kind of get a sense of the yield on that remaining $125 million and maybe break it out between the industrial and the office assets.
Yeah. It'll bring it down a little bit. I think with the Q4 2021 pipeline, the weighted average cap rate is 7.3%, the pipeline. You know, it's gonna pull it down a little bit, I think, into the like 9.5 range. You know, I think if we look at the overall average for the year that we were really advantaged with McLaren, and I think you probably saw that their credit rating has improved, and Trafalgar Court. Between the two of those, you know, we're gonna have a very strong average weighted average cap rate going in, cap rate on all the properties for the year. We're really pleased with how the year's looking.
You had mentioned that McLaren's credit rating improved. Is there anything in motion about resetting the lease now that that's happened or any update there?
No. Not yet. We, you know, we review it periodically, but we're not looking at making a change yet right now.
Great. Thanks, guys.
All right. Thanks, Craig.
Thank you. Ladies and gentlemen, as a reminder, if you'd like to join the question queue, please press star one on your telephone keypad. Our next question comes from the line of Bryan Maher with B. Riley Securities. Please proceed with your question.
Good afternoon. Not to take anything away from your stunning 99.1% occupancy, but can you give us a little color on the 60 basis point degradation from the 99.7? Like, where did that come from?
Chris, you want to give Bryan some color on that?
Yeah, sure. I'll jump in on that. That actually was related to one of our tenants, Trinity Health. They had two properties, and they were looking to consolidate to one. They actually terminated one of the leases. As part of that transaction, they did extend the other lease by an additional 10 years. While losing one-
What would be the upside?
One lease we had.
for re-leasing that property or selling it?
At this point, we're looking to re-lease that property and are actively working on that.
Great. Maybe, Jim, you could give us a little color on your pipeline of acquisitions. You know, specifically, I don't know how to pronounce this, the Thetford Corporation four-pack.
Yeah. It's an industrial four-pack. Nice, good company, good properties. We're expecting to close that in Q4. It's an industrial four-pack. You know, if you look at the things in the deck that we put out, you know, pretty much everything left in the pipeline is industrial. It, you know, except the Walmart Learning Center which closed in Q4 wasn't. The rest of them are industrial, which is really nice, you know. 'Cause as you know, we've also talked about this quite a lot, our focus really is on industrial and distribution properties.
Even though when we find a building like the Trafalgar Court property in Guernsey, and it's just a fantastic deal on a great building with super high quality tenants, you know, we will execute on that, but our focus still remains on industrial and distribution.
Great. Assuming that you close on what's expected, and you get to $450 million for 2021, you know, that's gonna be another kind of stunning year of acquisitions at really respectable cap rates. You know, not looking for guidance per se or a number or a cap rate for 2022, but how do you feel about the prospects for maybe continuing strong momentum as we enter 2022 relative to what, you know, you're seeing now that, you know, clearly we don't get to see till later?
Well, when I look at the stuff that our acquisition team shows me, you know, I mean, it's a wide variety of properties in multiple locations. You know, we're still looking at a lot of stuff in Europe and a lot of stuff in the U.S. So we get to see, fortunately, we get to see a lot of properties. Remember, we've talked about, you know, a lot of our acquisitions are relationship based. You know, I feel very strongly about the future. I think we can continue doing what we've been doing for the last four years.
You know, since Chris and I started, you know, running this company, you know, we've added over $2 billion worth of very high quality assets. I think we can continue doing that into the future. I'm very positive about what the future has to hold for GNL.
Not to take anything away from the McLaren acquisition, which is a phenomenal asset, but I think most people would certainly characterize it as a little unusual. Should we expect to see some more unusual stuff in GNL's future in the next year or two?
Yeah. I don't know if unusual is the term that I would use, Bryan, but you know, it certainly was a little bit different than most of the transactions we've done. It shows that we have the flexibility to buy quality properties at good prices, you know, in the right situations. I would never say no to anything because, you know, who knows? You know, I would never say we're not gonna do something like that again. If another opportunity arises that's similar to McLaren, we certainly have the ability to execute on it.
Okay. Thanks, Jim.
Sure, Bryan. Take care.
Thank you. Our next question comes from the line of Barry Oxford with Colliers Securities. Please proceed with your question.
Great. Thanks. Could you guys talk a little bit about the cap rate environment over in Europe compared to the U.S.? Or are they still experiencing the kind of cap rate compression that we have experienced over here in the U.S., or not quite as much, or maybe more?
I don't think honestly, I don't think it's quite as much. You know, their economy's opened a little bit slower than ours, so I don't think they've had that sort of rapid return like we've had here in the U.S. But there is some cap rate compression in Europe. It's undeniable, but there's still value there. As you know, it's really changed in Europe over the last four or five years. I mean, for a long time, cap rates compressed very quickly, then they sort of leveled off. They're in that leveling off period. With interest rates quite low, you know, in Europe, it opens up a lot of opportunities for us.
With that in mind, and you have some assets that you've kind of you know tagged, for lack of a better word, for sale here in the U.S., why not accelerate that and get some earnings off the cap rate differential? Or-
Well, you know,
It's not quite that simple, Barry.
Well, Barry, I didn't say that.
Yeah
All of our potential dispositions were in the U.S. I said we're looking. You know, there are potential dispositions in Europe that we're looking at, but nothing that's held for sale right now.
Okay.
You know,
Right
We do look for opportunities. You know, what will be the best thing we can do for our shareholders. If there are some properties in the portfolio that the best option would be to sell, then we certainly are looking at that.
Perfect. Perfect. Thanks, guys.
All right. Take care, Barry.
Yeah.
Thank you. Ladies and gentlemen, this concludes our question and answer session. I'll turn the floor back to Mr. Nelson for any final comments.
Thank you, operator. I wanna thank everybody for joining us on today's call. As you can probably tell, Chris and I are very proud of the success and the growth that we've had at GNL, and we certainly intend to continue in the track that we're on. Thank you all again for calling in. Take care. Bye-bye.
Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.