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Edited Transcript of GNL earnings conference call or presentation 27-Feb-19 4:00pm GMT

Q4 2018 Global Net Lease Inc Earnings Call

NEW YORK Mar 1, 2019 (Thomson StreetEvents) -- Edited Transcript of Global Net Lease Inc earnings conference call or presentation Wednesday, February 27, 2019 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Christopher J. Masterson

Global Net Lease, Inc. - CFO, Treasurer & Secretary

* James L. Nelson

Global Net Lease, Inc. - President, CEO & Director

* Louisa Hall Quarto

AR Global Investments, LLC - EVP

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Conference Call Participants

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* Bryan Anthony Maher

B. Riley FBR, Inc., Research Division - Analyst

* John James Massocca

Ladenburg Thalmann & Co. Inc., Research Division - Associate

* Mitchell Bradley Germain

JMP Securities LLC, Research Division - MD and Senior Research Analyst

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Presentation

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Operator [1]

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Good day, and welcome to the Global Net Lease Fourth Quarter Earnings Conference Call and Webcast. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Louisa Quarto, Executive Vice President. Please go ahead.

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Louisa Hall Quarto, AR Global Investments, LLC - EVP [2]

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Thank you, operator. Good morning, everyone, and thank you for joining us for GNL Fourth Quarter 2018 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 discussion today will include a certain statements and assumptions, which are not historical facts. They are forward-looking in nature and are being made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. The following discussion and analysis should be read in conjunction with the accompanying financial statements. 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 filed for the year ended December 31, 2017, filed on February 28, 2018, and all other filings with the SEC after that date, for a more detailed discussion of the risk factors that could have caused these differences.

Also during the call, we will use the term investment-grade rating, which includes both actual investment-grade ratings of the tenant and implied investment-grade ratings. Implied investment grade can include ratings of a lease guarantor or the tenant parent, regardless of whether or not the parent has guaranteed the tenant's obligation under the lease. Implied investment-grade ratings can also include ratings determined to using a proprietary Moody's analytical tool, which compares the risk metrics of a non-rated company to those of a company with an actual rating. The ratings information is as of December 31, 2018.

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.

I'll now turn the call over to our CEO, Jim Nelson.

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James L. Nelson, Global Net Lease, Inc. - President, CEO & Director [3]

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Thank you, Louisa, and thanks again to everyone for joining us on today's call. It has been 1.5 years since I became GNL CEO, and I am very proud of the tremendous progress and growth we've achieved in our global real estate portfolio. It is these achievements that distinguish us in the marketplace, and we will continue to build on this positive momentum in 2019 and beyond. Our team relies on 6 key drivers which guide management in the operation of Global Net Lease. First, there is a focus on owning and operating a high-quality, mission-critical diversified portfolio. At the end of 2018, GNL's portfolio has grown to over $3.5 billion, made up of 342 properties located in the U.S. and 6 Western European countries. This portfolio includes the 23 properties that GNL purchased in 2018 for a combined contract purchase price of $478 million. These properties provide additional quality and diversification to GNL's overall portfolio.

Second, an important part of GNL's long-term strategy is to focus on leases with long durations that are backed by investment-grade and credit-worthy tenants. The company has demonstrated its ability to source and acquire these types of properties, which provide safe and durable rental income. At the end of 2018, GNL's weighted average lease duration was 8.3 years, and its investment grade and implied investment-grade tenant base represents 78.3% of the overall portfolio.

Third, GNL pursues a differentiated strategy with both U.S. and international exposure. The company maintains a good balance of U.S. and Western European properties with a 55.7% U.S. and 44.3% Western European mix.

Fourth, we utilized proactive asset management to drive long-term portfolio value. As an example, the company recently agreed to opportunistically sell 3 European assets for a gain and will generate EUR 72.5 million in proceeds available for reinvestment in the U.S. and Europe.

Fifth, an experienced and robust management team. The company's capabilities are enhanced through professionals based in London, Luxembourg, Charlotte, Newport and New York, with specialists across multiple segments, including acquisitions, finance, accounting, legal and property management. The company benefits from this group's breadth of knowledge and talent.

And sixth, as a global company, we believe GNL has the ability to capitalize on differences between the U.S. and European markets to deliver superior risk-adjusted returns. Over this past year, GNL acquired $478 million of acquisitions with an average cap rate of 7.70%, with a focus on U.S. industrial and distribution properties. The company also closed on several different debt financing in both U.S. and Europe, including the upsizing of the credit facility by $192 million and the GBP 230 million U.K. debt refinancing at an improved interest rate. These financings demonstrate the different sources of capital GNL has access to in order to optimally finance the company's global portfolio.

Now I will begin a review of the key milestones GNL achieved during 2018. Chris will then go into more detail regarding our financial performance. We anticipate settlement of the outstanding litigation with our former European service provider. In connection with this, we recorded a $7.4 million reserve, which is a one-time nonrecurring expense that affects net income and FFO but has no impact to the company's AFFO. We are extremely pleased with the anticipated resolution.

Turning to several of GNL's key metrics. It is clear that the company made significant progress in 2018 from 2017. Revenue increased to $282.2 million, an 8.8% increase. Net income attributable to common stockholders was $1.1 million, which includes the one-time $7.4 million anticipated settlement with our former European service provider. Adjusted funds from operation or AFFO increased 4.7% to $147.3 million.

Real estate portfolio increased to over $3.5 billion from less than $3.2 billion. Investment-grade or implied investment-grade tenants increased to 78.3% from 76.3%. And remaining debt maturity increased to 4.2 years from 3.7 years.

Over the course of 2018, GNL continued to execute on its disciplined long-term strategy of acquiring and managing a portfolio of high-quality assets, net leased on a long-term basis to predominantly investment-grade and credit-worthy tenants in the U.S. and in Western Europe.

During the year, GNL acquired 23 properties for a combined contract purchase price of $478 million and sold 2 properties for gross proceeds of $25.3 million. GNL's acquisitions are broken down as follows: 16 industrial properties acquired for $242.5 million with a weighted-average lease term of 12.1 years; and 6 distribution facilities acquired for $181.7 million with a weighted-average lease term of 10.1 years; and one office property acquired for $54 million with a lease term of 12 years.

In their first full year within the portfolio, these 23 assets will contribute approximately $36 million in additional annualized straight-line rental revenue based on existing in-place leases. The properties were acquired with a combination of cash on hand, equity proceeds and debt financing. Additionally, GNL already has $53 million of additional acquisitions under executed LOI or PSA plus over $200 million of LOIs currently submitted for potential acquisitions.

To execute on the company's long-term growth strategy, GNL access the equity capital markets with 2 common equity offerings and issuances through the ATM program in 2018, raising a total of $179 million in common equity capital during 2018 under average gross price of 20.46% per share. The company used these funds to close on $212 million in acquisitions made during the fourth quarter. As of 12/31/2018, GNL's total liquidity was $143 million, and subsequent to year-end, GNL raised an additional $153 million in equity capital through its ATM program at an average price of $19.69 per share. Proceeds from the equity issuances will continue to be used to fund new acquisitions and for general corporate purposes.

As part of our asset-management strategy, during 2018, GNL disposed of 2 properties for gross proceeds of $25.3 million, which is inclusive of a $3 million lease-termination fee. The company also entered into a contract to sell 3 additional properties located in Germany for a contract sale price of EUR 135 million, which is an EUR 11 million premium to the original purchase price of these assets. We expect this disposition to result in a recognized gain of approximately $40 million. Additionally, we expect the sale to generate approximately EUR 72.5 million in net proceeds after debt repayment, and the company plans to redeploy those proceeds into accretive acquisitions.

Now I will discuss GNL's fourth quarter activity. During the quarter, GNL closed on 6 properties for approximately $212 million. These 6 properties were purchased at a weighted average going-in cap rate of 6.67%, with a weighted-average cap rate of 7.23% and a weighted-average remaining lease term of 12.3 years. All 6 of the properties served a critical function for the underlying tenants and the buildings are split evenly between industrial and distribution. GNL funded the transactions with mortgage debt and cash on hand, which includes proceeds from its November public offering. The company also entered in a new 10-year $98.5 million mortgage loan with a fixed interest rate of 4.85%, which was used to pay down the credit facility.

The quality of GNL's portfolio remained strong in several metrics. GNL's investment-grade or implied investment-grade tenants make up 78.3% of the portfolio, up from 76% at the end of 2017. Occupancy remained strong at 99.2% at the end of the quarter. The geographic mix, based on annualized straight-line rent, sits at 55.7% U.S., 44.3% Europe. While GNL's property mix was at 53% office, 39% industrial and distribution and 8% retail.

The company has continued to increase its exposure to the growing and robust industrial and distribution sector as GNL increased its concentration by 7% of its total portfolio in 2018. GNL's overall portfolio consists of 342 properties and provides predictable consistent cash flow through long-term net leases that include contractual rent growth.

Heading into 2019, we will continue to execute on our long-term strategy to grow GNL's global and diversified portfolio. Our demonstrated ability to underwrite transactions with an eye towards long-term value is what continues to set GNL apart in the net lease sector.

With that, I'll turn the call over to Chris to walk through the operating results in more detail. And then I will follow up with some closing remarks. Chris?

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Christopher J. Masterson, Global Net Lease, Inc. - CFO, Treasurer & Secretary [4]

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Thanks, Jim. GNL saw improved financial results for both Q4 2018 annual and quarterly results in comparison to the prior year. For the 2018 year, GNL's revenue increased 8.8% to $282.2 million with net income attributable to common stockholders of $1.1 million, which includes the one-time $7.4 million anticipated settlement with our former European service provider. FFO decreased 0.9% to $131.4 million. FFO also includes the $7.4 million accrual. Core FFO increased 10.8% to $149.1 million, and AFFO was up 4.7% to $147.3 million. The company paid common stock dividends to investors of $147.4 million in 2018, up from $142.7 million in 2017. Revenues increased primarily due to rental income from acquisitions and rent escalators embedded in existing leases. As always, a reconciliation of GAAP net income to the non-GAAP measures can be found in our earnings release.

In the fourth quarter, revenue increased 6.9% to $71.2 million on a year-over-year basis. FFO decreased 18% to $28.3 million, which included the one-time anticipated settlement with our European service provider, and our core FFO increased 8.3% to $36.9 million. GNL's adjusted funds from operations or AFFO increased to 5.6% to $37.1 million. And during the quarter, the company paid common stock dividends of $39.1 million. I would like to note that GNL's $212 million of acquisitions were all purchased on or after November 14, and 4 of the 6 acquisitions were purchased in the second half of December. These acquisitions were financed in conjunction with the company's $81 million equity raise in late November 2018. We expect the $2.5 million step-up in rental income in Q1 2019 or about $0.03 on a per share basis as the company will benefit from the full impact of the $212 million of acquisitions acquired in Q4 2018.

On the balance sheet, GNL ended the fourth quarter with net debt, which is debt less cash and cash equivalents of $1.7 billion at a weighted-average interest rate of 3.1%. GNL's weighted-average maturity at the end of the fourth quarter 2018 was 4.2 years, which is improvement from 3.7 years at the close of the 2017 fourth quarter. The components of GNL's debt include $363.9 million on the multicurrency revolving credit facility, $282.1 million on the term loan and $1.1 billion outstanding gross mortgage debt. This debt was approximately 79.9% fixed rate, which is inclusive of floating rate debt with in-placed interest rate swaps. The company has a robust interest-coverage ratio of 3.8x. As of December 31, 2018, liquidity was approximately $142.6 million, which comprises $100.3 million of cash on hand and $42.2 million of availability under the credit facility.

GNL's net-debt-to-enterprise value was 53.3%, with an enterprise value of $3.2 billion based on the December 31, 2018 closing share price of $17.62 for common shares and $24.68 for series A preferred shares. The net-debt-to-enterprise value would've improved to 50.8% if the calculation was based on closing share prices from February 22 of $19.67 for common shares and $25.17 for preferred shares.

2018 was an active year for our accounting and finance teams. GNL closed our new debt facilities, refinanced in-placed debt and upsized existing facilities across 3 currencies in amounts equal to $165 million, EUR 52 million and GBP 230 million.

Financing activity included: successfully closed on an 8-property CMBS loan in the amount of $33 million; closed an upsizing of its unsecured credit facility of $132 million for the multicurrency revolving credit facility portion and EUR 51.8 million for the senior unsecured term-loan facility portion; also closed on a GBP 230 million-syndicated investment facility loan agreement, which was secured by all 43 of GNL's properties in the United Kingdom. This refinancing lowers the cost of borrowings on the U.K. assets from 3.4% to approximately 3.2%.

On February 6, 2019, GNL entered into a syndicated investment facility loan agreement in the amount of EUR 74 million. The loan is secured by all 5 finished properties owned by GNL. The maturity date of the loan is February 1, 2024, and it bears interest rate -- a 3-month EURIBOR plus 1.4%. 80% of the principal amount of the loan is fixed at 1.8% by the interest rate swap agreement. This refinancing significantly lowered the borrowing cost from 2.3% to 1.7%.

As a quick update to GNL's hedging program, we have continued to use our hedging strategy as a way to offset movements in interest rates and local currencies for our European portfolio. In regards to currency hedging, the company employs a disciplined strategy of wiring hedges against the 2 currencies over upcoming quarters to manage some exposure to both currencies.

With that, I'll turn the call back to Jim for some closing remarks.

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James L. Nelson, Global Net Lease, Inc. - President, CEO & Director [5]

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Thanks, Chris. GNL's portfolio was in great shape, with 273 properties in the U.S. and 69 in the U.K. and Western Europe, representing 55.7% and 44.3% of rental revenue, respectively. Overall, the portfolio was 99.2% leased and has a weighted average 8.3 years with no near-term expirations. There has been measurable improvement in 2018 across several segments, and our steady execution and deliberate focus on high-quality acquisitions continues to drive strong results including the following.

In 2017, GNL acquired 12 properties for $99 million, while in 2018, the company acquired 23 properties for nearly $500 million at a going-in cap rate of 7.21% and an average cap rate of 7.70%. 96% of the properties acquired in 2018 include embedded contractual with average annual rent growth of 1.6% per year based on existing in-place leases. GNL has an attractive and stable 3.1% weighted-average cost to debt at year-end 2018, along with an improved weighted -- remaining lease term of 4.2 years.

Our intentional focus on building portfolio diversification with a focus on an increased mix of industrial and distribution properties, GNL's acquisition activity of nearly $500 million in 2018 led to an increased portfolio concentration of industrial and distribution properties as this property type now represents 39% of GNL's portfolio at the end of 2018, up from 32% at year-end 2017.

The strength of GNL's portfolio is demonstrated by its high level of leases that are leased to or guaranteed by investment-grade or implied investment-grade tenants. As of December 31, 2018, that figure had increased to 78.3%, up from 72.6% at year-end 2015, the year that GNL listed on the New York Stock Exchange. GNL continues to demonstrate a proven ability to source investment opportunities by leveraging direct relationships with landlords and developers to identify off-market transactions, we believe this allows the company to achieve better-than-market cap rates at more favorable terms than are generally available. This execution generates improved results for the company and its shareholders. We will remain proactive and disciplined in our acquisition strategy to identify compelling opportunities to acquire net-leased assets with a continued near-term focus on U.S. industrial and distribution facility. We will also remain opportunistic when it comes to selectively adding to our international footprint. My last 1.5 years have been exciting and fulfilling, and as we move forward towards the future, we will continue to drive slow and steady growth to enhance long-term value for shareholders.

With that, operator, we can open the line for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question today comes from Mitch Germain with JMP Securities.

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Mitchell Bradley Germain, JMP Securities LLC, Research Division - MD and Senior Research Analyst [2]

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Chris, if I was to look at -- I think I saw a leverage based on 4Q annualized was 7.9x, but does that include if I looked at the acquisitions as of day 1 of the quarter? And if that's not, what would that leverage look like if I assume the full quarter or full year of those acquisitions?

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Christopher J. Masterson, Global Net Lease, Inc. - CFO, Treasurer & Secretary [3]

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Right, so that leverage does not include the acquisition as if they were on the books as of day 1. The actual rental income that is reflected in that number is actually less than 1/3 of what the total would be. So it's actually $2.5 million more rental income, which would be flowing through if they were in place as of the first day of the quarter. So it would definitely drop the number from 7.9 to much lower in the 7s.

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Mitchell Bradley Germain, JMP Securities LLC, Research Division - MD and Senior Research Analyst [4]

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Got you, got you. And I apologize, I missed some of your prepared comments. Where do we stand on liquidity now with regards to your ability to execute on further acquisitions?

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Christopher J. Masterson, Global Net Lease, Inc. - CFO, Treasurer & Secretary [5]

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Sure. So we're actually in a very strong position. As of year-end, we had $100 million in cash, a $42 million [new] availability on the credit facility. Then in January, we actually raised $153 million on our ATM, so with that, we then paid down $130 million on the revolver, which we can draw as needed, we also added some additional properties to our revolver borrowing base, which increased our capacity by about $50 million.

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Mitchell Bradley Germain, JMP Securities LLC, Research Division - MD and Senior Research Analyst [6]

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So what's the total capacity of the revolver today? In terms -- what's the total size and then what's the availability? Is that a better way to say it?

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Christopher J. Masterson, Global Net Lease, Inc. - CFO, Treasurer & Secretary [7]

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Okay. So the total size is up to about roughly $917 million, which fluctuate with the FX. In terms of where we are with capacity side, obviously, [back on the envelope math]. We have over $250 million.

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Mitchell Bradley Germain, JMP Securities LLC, Research Division - MD and Senior Research Analyst [8]

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Great. That's very helpful. Jim, you guys had some real good success in the fourth quarter but -- even the whole year, what changed? I mean, I think you're probably almost more than 4x what you guys did in acquisition volumes and the year before that, how -- what sort of directive -- what sort of change created the increased activity?

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James L. Nelson, Global Net Lease, Inc. - President, CEO & Director [9]

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Well, we -- as a strategy for the company, we are looking at growing the business, doing accretive acquisitions and building a stronger, better, bigger company. So we just started executing on all 8 cylinders, and the acquisition guys found a lot of great stuff, we were able to raise money. So all things considered, everything worked well. And we are still moving ahead the way we did last year.

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Mitchell Bradley Germain, JMP Securities LLC, Research Division - MD and Senior Research Analyst [10]

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Great. Last one for me. And again, I apologize if I missed it. The sale of the asset that was planned for 2019, I believe it was an office building in Germany, is that still on target? What created the delay there, and where does that stand?

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James L. Nelson, Global Net Lease, Inc. - President, CEO & Director [11]

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We -- the way we structured the sale was to give us time to have acquisitions in our hand to replace the capital. So we look at closing that towards the middle of the year, and that'll give us time to have a number of acquisitions to put the money back to work very quickly.

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Mitchell Bradley Germain, JMP Securities LLC, Research Division - MD and Senior Research Analyst [12]

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Great. And just a follow-up on that. What -- had you guys ever disclosed the cap rate or the IRR on that investment for you guys?

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James L. Nelson, Global Net Lease, Inc. - President, CEO & Director [13]

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We haven't yet.

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Operator [14]

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The next question comes from Bryan Maher with B. Riley FBR.

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Bryan Anthony Maher, B. Riley FBR, Inc., Research Division - Analyst [15]

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I think you answered partially one of my questions in your closing remarks as to where you're seeing the best opportunities. And correct me if I'm wrong, but it continues to seem to be U.S. industrial. Is that really where the focus will be in 2019?

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James L. Nelson, Global Net Lease, Inc. - President, CEO & Director [16]

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That will be where quite a bit of the focus is, yes. I mean, we are still looking in Europe, and we underwrite a lot of different types of properties, but that is one of our primary focus, is to grow that part of our portfolio.

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Bryan Anthony Maher, B. Riley FBR, Inc., Research Division - Analyst [17]

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And I'm sorry if I missed it, but did you give any estimate as to what the acquisition size would be for 2019 in dollar terms?

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James L. Nelson, Global Net Lease, Inc. - President, CEO & Director [18]

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We don't usually give guidance, but I think you can take a look back at what we did in 2018, which was a very robust year, and we intend to continue in that same vein.

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Bryan Anthony Maher, B. Riley FBR, Inc., Research Division - Analyst [19]

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And then just lastly for me. And I'm really interested in hearing how you think about this. When we look at your multiple on EBITDA and kind of just under the midteens, and we look at office REITs in the U.S. trading in the high teens, and U.S. industrial REITs trading in the low- to mid-20x and European office trading in the high 20s times EBITDA, is it frustrating to you with where your stock trade -- is, I guess, partially my question, but then you continue to issue equity in a kind of low $20s range. And so I'm trying to figure out how you kind of rationalize that when I think a case could be made for a mid- to high-$20s valuation on the stock, but you issue stock in the low $20s?

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James L. Nelson, Global Net Lease, Inc. - President, CEO & Director [20]

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Well, that's where we issue it now because that's where the stock was trading, but certainly by having great new analysts like you covering the stock, we intend to get the story out to more people, and the more people that are aware of the company, I think, the stock should trade better, more people will hear the story. So I want to thank you for following the company, and we do agree with you.

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Operator [21]

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(Operator Instructions) The next question comes from John Massocca with Ladenburg Thalmann.

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John James Massocca, Ladenburg Thalmann & Co. Inc., Research Division - Associate [22]

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Just trying to kind of -- and I think you touched on it a little bit, but given all of the equity issuance that happened in January and in 4Q and potentially, also the proceeds you're going to get from the sale of the German asset, I mean, your leverage is coming down fairly significantly versus where it was even a couple of quarters ago, I mean, is this kind of statement of intent to maybe run the company at a lower leverage? Or is this just really creating -- kind of, essentially, prefunding your potential acquisition pipeline for 2019? And that leverage should creep up as maybe some of the things that you've submitted otherwise on potentially, successfully close on?

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James L. Nelson, Global Net Lease, Inc. - President, CEO & Director [23]

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Well, as you know, we're always looking to balance the capital structure, so we raise common when we could. The market was surprisingly robust last month for the ATM. So we took advantage of that. But we do have a very strong pipeline, and we think we can put that money to work fairly quickly.

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John James Massocca, Ladenburg Thalmann & Co. Inc., Research Division - Associate [24]

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And kind of with regards to that $200 million -- it's the $53 million, we kind of know what it is, but that $200 million, I mean, what maybe is the industrial office mix? I mean, is it 90:10 or something closer to 70:30? I know the primary focus has been industrial, but is there some office slipping in that $200 million number?

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James L. Nelson, Global Net Lease, Inc. - President, CEO & Director [25]

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Well, as you know, last year, we bought our office building for $53 million, so that indicates we still -- if we see a great deal, a great tenant, long-term lease, investment-grade quality, we can execute on it. But as we've stated, our main focus is on industrial distribution. We continue to execute on those. And I think that -- you'll see a lot of that going forward.

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John James Massocca, Ladenburg Thalmann & Co. Inc., Research Division - Associate [26]

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And then within the existing portfolio. Obviously, a lot still up in the air, but with a lot of different indicators on Brexit, I mean, have any of your existing U.K. tenants indicate any concerns about their operations or a need for the assets they lease from you, if there is maybe a hard Brexit, or Brexit is more impactful and kind of a -- as they look at the risk curve?

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James L. Nelson, Global Net Lease, Inc. - President, CEO & Director [27]

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It's a great question. If you talk to 10 different people, you'll get 10 different responses on Brexit. We talked to a lot of the people that we work with, and I think everybody has a wait-and-see attitude. Our assets are performing well. We're happy with the assets that we have, so I think we'll just wait and see what happens with Brexit. There may be opportunities that open up for us. If there's a hard Brexit or -- but I think we'll wait and see, we'll wait and see what happens.

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John James Massocca, Ladenburg Thalmann & Co. Inc., Research Division - Associate [28]

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And then one last one. As you maybe look to kind of refinance some of the other European mortgages you have. Is the potential kind of benefiting you on rate that you got with the Finland's refinancing? Is that something that you would expect -- on a kind of a general basis, is that something you would expect with additional refinancings you do in Europe?

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James L. Nelson, Global Net Lease, Inc. - President, CEO & Director [29]

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In looking at the various rates in the different countries, some are lower, and some are about the same. I think, overall, we'll benefit. If you put all of the European financings together, we'll see a benefit over the previous loans as we sign the U.K.

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John James Massocca, Ladenburg Thalmann & Co. Inc., Research Division - Associate [30]

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In Finland too, I mean, is Finland maybe typical, or is Finland kind of an outlier, or is it just too hard to tell because it's so -- varies so much based from country to country?

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James L. Nelson, Global Net Lease, Inc. - President, CEO & Director [31]

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Finland was a great rate. But remember, we're going from individual mortgages to, let's say, country specific -- roughly country-specific mortgages, so we are getting better rates combining all the properties together in dealing with the banks that way.

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Operator [32]

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The next question is a follow-up from Bryan Maher with B. Riley.

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Bryan Anthony Maher, B. Riley FBR, Inc., Research Division - Analyst [33]

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Jim and Chris, just 2 quick follow-ups. We look at your leverage, and it's kind of been hanging out in the low 50s, getting a little bit better. What is the goal? Are you comfortable with it hanging out around 50%? Or do you want to see it get into the mid-to-high 40s, what is your thought process there?

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James L. Nelson, Global Net Lease, Inc. - President, CEO & Director [34]

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Well, we've -- and I think we may have even talked about this before, but we look at the quality of our tenants, the long-term leases, the investment grade -- the high-investment-grade percentages of our tenants, and we're very comfortable with roughly 50% of leverage. I think that sort of rule of thumb when we look at our portfolio, we're very, very comfortable with where we are, and we'll see what happens in the future.

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Bryan Anthony Maher, B. Riley FBR, Inc., Research Division - Analyst [35]

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And then my other quick question is, when we look at the dividend coverage on a CAD-payout ratio, it's elevated relative to a number of the other REITs that we cover, not alarmingly so because it's triple-net-lease situation, but where would you like to see that gravitate to as a payout ratio on CAD?

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James L. Nelson, Global Net Lease, Inc. - President, CEO & Director [36]

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Well, I think over time, it will naturally come down as we add these new accretive properties to the income stream. So I think you'll probably see it come down over time.

Thank you, everybody.

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Operator [37]

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This concludes our question-and-answer session. I would now like to turn the conference back over to James Nelson for any closing remarks.

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James L. Nelson, Global Net Lease, Inc. - President, CEO & Director [38]

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Yes, I just want to thank you all for joining us on today's call. There were some great questions, and we look forward to this next year with GNL and reporting to you in the next quarter. So thank you all for dialing in.

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Operator [39]

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This conference is now concluded. Thank you for attending today's presentation. You may now disconnect.