Global Net Lease, Inc. 2026 Q2 Earnings Call

Good morning, everyone, and thank you for joining us for GNL's second quarter 2026 earnings call. Joining me today on the call is Michael Weil, GNL's Chief Executive Officer, and Chris Masterson, GNL's Chief Financial Officer. The following information contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Please review the forward-looking and cautionary statements section at the end of our second quarter 2026 earnings release for various factors that could cause actual results to differ materially from forward-looking statements made during our call today. As stated in our SEC filings, GNL disclaims any intent or obligation to update or revise these forward-looking statements except as required by law. During today's call, we will discuss certain non-GAAP financial measures which we believe can be useful in evaluating the company's financial performance.

Descriptions of those non-GAAP financial measures that we use, such as AFFO and adjusted EBITDA, and reconciliations of these measures to our results as reported in accordance with GAAP, are detailed in our earnings release and supplemental materials. I'll now turn the call over to our Chief Executive Officer, Michael Weil.

Mike? Thanks, Jordyn. Good morning, and thank you all for joining us today.

Over the past several years, we've been clear about the strategy we're executing and, more importantly, our commitment to delivering on it. Our second quarter results reflect another period of disciplined execution with meaningful progress across the initiatives that continue to strengthen GNL and position the company for its next stage of evolution. Perhaps the best example of that progress is the proposed acquisition of Modiv Industrial. Modiv Industrial shareholder voting is currently underway, and we anticipate closing the Modiv Industrial transaction in mid-August 2026, shortly after their special meeting and shareholder vote on August 10th, 2026. We believe the strategic rationale for the transaction remains as compelling today as when it was first announced.

Modiv's high-quality industrial portfolio features a weighted average remaining lease term of 15 years and benefits from 2.4% annual contractual rent escalations, supported by a diversified, creditworthy tenant base that aligns well with GNL's investment strategy. Upon closing, the transaction is expected to extend our portfolio weighted average lease term to 6.6 years and increase our industrial exposure to account for approximately 50% of total straight-line rent, further improving the overall quality and resilience of our real estate portfolio. We also expect the transaction to be approximately 4% accretive to AFFO per share while remaining leverage neutral, allowing us to improve earnings, strengthen the durability of our cash flows, and maintain the strength and flexibility of our balance sheet. While the proposed acquisition of Modiv has been an important focus, it has been by no means our only priority.

During the second quarter of 2026, our disciplined capital recycling strategy gained further momentum as we selectively monetized non-core assets, demonstrating the value of our office assets while continuing to reduce office exposure and strengthen the overall composition of our portfolio. Through July 31st, 2026, we have closed and pending disposition pipeline totaling $263 million, including $145 million of closed dispositions at a weighted average cash cap rate of 7.6% on occupied assets, with approximately 78% of the total disposition volume consisting of office assets. One transaction illustrates the thoughtful approach we're taking to reduce our office exposure. As previously disclosed, we remain under contract to sell our 133,000 sq ft KPN office property in the Netherlands for approximately $18 million. The property is under a signed purchase and sale agreement, with closing scheduled to coincide with the lease expiration in December of 2026.

We have received a non-refundable deposit from the proposed buyer and expect to continue collecting the full contractual rental income until closing. We also have additional office assets under advanced negotiations to sell, with transactions following a similar strategy and closing expected to occur upon lease expirations, allowing us to realize the remaining contractual rental cash flows while avoiding the leasing cost, capital expenditures, and occupancy risks associated with taking back vacant office assets. We look forward to providing updates as those transactions advance. In addition to these transactions, we've completed the sale of our 33,000 sq ft office property leased to the U.S. General Services Administration for $13 million and our 369,000 sq ft office property leased to GE Aerospace for $48 million, both at a 7.2% cash cap rate following 20-year and 10-year lease extensions, respectively.

Collectively, these transactions reflect our ability to proactively monetize office assets at attractive valuations while continuing to reduce our office exposure and improve the overall quality of our portfolio. We remain encouraged by the level of demand we're seeing and believe we're well-positioned to execute on our remaining planned office dispositions. Upon completion of these planned dispositions, we expect office to represent approximately 21% of straight-line rent, marking another meaningful step in repositioning the portfolio. Equally important, these dispositions support our long-term objective of continuing to reduce leverage while creating additional capacity to reinvest in high-quality, single-tenant industrial and retail assets. While reducing our office exposure remains a key priority, our capital recycling strategy extends beyond that.

We plan to continue to opportunistically monetize non-core assets where pricing is attractive and thoughtfully allocate that capital between reducing leverage and investing in opportunities that further enhance the quality of our portfolio and the long-term durability of our earnings. Consistent with that approach, we completed the acquisition of an approximately 100,000 sq ft, single-tenant industrial property in Mississippi, leased to Federal Express for approximately $14 million at an 8.2% going-in cash cap rate. The property is leased through 2031, and we're already engaged in discussions with FedEx regarding a long-term lease extension. The attractive spread between the cap rates we're achieving on dispositions and those available on acquisitions, such as FedEx, highlights the value creation potential of our capital recycling strategy. Going forward, we intend to remain focused on selectively investing in high-quality, single-tenant industrial and retail assets that further strengthen our portfolio.

We also believe the investment backdrop for publicly traded REITs continues to improve. Recent research and commentary from firms including Morgan Stanley, UBS, JP Morgan, BlackRock, PIMCO, and Heitman point to a common set of themes. Improving capital markets liquidity, recovering transaction activity, attractive relative valuations, and growing opportunities for well-capitalized REITs with disciplined capital allocation. We believe the progress we've made strengthening our portfolio, improving our credit profile, establishing an investment-grade balance sheet, and actively recycling capital into higher-quality assets positions GNL well to take advantage of this environment. In addition to our capital recycling strategy, we continue to evaluate the most effective uses of our disposition proceeds, including opportunistic share repurchases. Since the beginning of our share repurchase program through July 31, 2026, we've repurchased 20.9 million shares at a weighted average price of $8.11, totaling $169.7 million.

While the pending Modiv Industrial transaction has limited our ability to repurchase shares this quarter, our view on the value of opportunistic buybacks has not changed, and we remain disciplined in balancing share repurchases with our priorities of reducing leverage and reinvesting in higher-quality assets. Turning to our portfolio, at the end of the second quarter of 2026, we owned 798 properties totaling 40 million rentable sq ft. Our portfolio occupancy remains steady at 97%, with a weighted average remaining lease term of 5.7 years. Specifically, our office occupancy increased to 99% from 95% in the second quarter of 2025, primarily driven by the disposition of a $45 million vacant office property during the first quarter of 2026, which also eliminated over $1 million of annualized negative NOI drag. Our office portfolio continues to perform well, supported by 100% rent collection and the highest proportion of investment-grade tenants within our portfolio.

GNL's portfolio features a stable tenant base and high quality of earnings, with an industry-leading 63% of tenants carrying an investment-grade or implied investment-grade rating, up from 60% in the second quarter of 2025. Our average annual contractual rental increase is 1.4%, excluding the impact of 20.3% of the portfolio, with CPI-linked leases that have historically experienced significantly higher rental increases. On the leasing front, we once again delivered strong leasing results across the portfolio, reflecting the quality of our asset management capabilities and tenant relationships. We achieved renewal spreads of approximately 5.6% above expiring rents on more than 357,000 sq ft, with a weighted average lease term of 8.4 years. Highlights from this quarter included nearly 76,000 sq ft of renewals with Dollar General at a 7.4% renewal spread.

Over 147,000 sq ft with FedEx Freight at a 4.6% renewal spread, and over 100,000 sq ft with FedEx at a 9.1% renewal spread. These results reflect our disciplined, proactive approach to lease management. By engaging with tenants well in advance of lease expirations, we continue to drive strong retention, preserve high occupancy levels, and capture rental growth, all while maintaining our long-term focus on portfolio stability and cash flow durability. Our continued efforts to limit exposure to high-risk geographies, asset types, tenants, and industries reflect our intentional diversification strategy and disciplined credit underwriting. No single tenant accounts for more than 6% of total straight line rent, and our top 10 tenants collectively contribute only 29% of total straight line rent, with 80% being investment grade.