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Investing.com -- Fitch Ratings has placed Global Net Lease , Inc. (NYSE:GNL) and its operating partnership, Global Net Lease Operating Partnership, L.P., on Rating Watch Positive on March 14, 2025. The move follows GNL’s announcement of a binding agreement to sell 100 non-core properties from its multi-tenant portfolio to a subsidiary of RCG Ventures Holdings, LLC for $1.8 billion. This transaction is expected to speed up GNL’s deleveraging plan, potentially reducing its leverage below the positive sensitivity.
The sale is expected to close in three phases and should be completed by the end of the second quarter of 2025. The resolution of the Rating Watch may take longer than six months and will depend on the release of capital structure details after the transaction. This will allow Fitch to assess if GNL will achieve metrics consistent with or above its existing ’BB+’ Issuer Default Rating (IDR).
GNL’s leverage has remained high since its 2023 merger with The Necessity Retail REIT Inc. (RTL). To address this, the company implemented a business plan focused on deleveraging the balance sheet through strategic dispositions. This strategy has been successful, with the company closing $835 million of dispositions in 2024 at a cash cap rate of 7.1%, surpassing guidance. As a result, net debt was reduced by $734 million by the end of 2024 and REIT leverage was 7.5x.
The RCG transaction would further accelerate GNL’s debt reduction efforts, as net proceeds of approximately $1.3 billion would be used to repay the outstanding balance of the revolving credit facility, leaving it largely undrawn. Additional benefits include greater financial flexibility to address upcoming maturities, an improved liquidity position and less secured debt on the balance sheet. Company-reported net debt to adjusted EBITDA is estimated to be 6.5x-7.1x post-close.
The sale of the multi-tenant portfolio would position GNL as a pure-play net lease REIT, with a focus on single-tenant assets. Post-close, GNL is expected to generate recurring annual G&A savings ($6.5 million) and a reduction in annual capex ($34 million). The company also expects the sale to simplify operations by eliminating the complexities of owning multi-tenant retail properties and enhance key portfolio metrics, such as occupancy and NOI margins. However, the portfolio would be smaller and less diversified.
As of the end of 2024, GNL’s portfolio is diversified by geography, tenant and industry. The top 10 tenants represented 21% of the total, which is strong for the rating. Of its 705 tenants, 31% have an actual investment-grade (IG) rating. The company estimates an additional 29% at an implied IG rating. Following the close of the RCG transaction, the percentage of actual and implied IG-rated tenants is expected to increase to 66%, from 61%, suggesting relatively better tenant credit quality.
As of the end of 2024, multi- and single-tenant retail comprised 28% and 21%, respectively, with industrial/distribution at 34% and office at 18%. Prior to the RTL merger, GNL’s exposure to retail was 5% and office was 40%. Following the close of the RCG transaction, the portfolio would be comprised of 45% industrial/distribution, 30% retail and 25% office.
At the ’BB+’ level, the company has solid metrics in terms of its lease maturity schedule, with a weighted average remaining lease term (WALT) of 6.2 years as of the end of 2024. There should be improvement as GNL disposes of assets with shorter lease terms, as well as from new leases and renewal activity. Pro forma for the RCG transaction, the metric is expected to increase to 6.4 years. However, this is lower than the 7.6 years for GNL on a standalone basis as of the second quarter of 2023 and the net lease peer average of about 10 years.
Concurrent with the merger, GNL’s and RTL’s advisory and property management functions were internalized, which has resulted in various savings. Management also pointed to a simplified structure, enhanced corporate governance and anticipated trading multiple expansion as additional benefits. However, in Fitch’s view, the internalization of management will not ameliorate GNL’s relatively more challenged access to capital.
Prior to the closing of the transaction, GNL and RTL were externally managed by AR Global, LLC, a global real estate asset manager, which Fitch viewed as a modest credit negative. An external management structure could result in persistent equity valuation discount. Institutional investors generally favor internally managed REIT structures, given dedicated management and fewer related party transactions and potential interest conflicts.
In other news, GNL authorized a $300 million share repurchase program, which Fitch views less favorably as this seems to deviate from the company’s primary goal of reducing debt. In connection with the multi-tenant portfolio sale, the board of directors plans to reset the quarterly dividend per share to $0.190 from $0.275, starting in April 2025, which should generate incremental cash flow.
As of Dec. 31, 2024, GNL had cash and cash equivalents of $159.7 million and $332.5 million available for future borrowings under the revolver. The availability of borrowings under the revolver continues to be based on the value of a pool of eligible unencumbered real estate assets owned by the company or its subsidiaries and in compliance with various ratios related to those assets.
In connection with the merger, GNL amended the credit agreement and exercised the existing accordion feature on the revolver to increase commitments by $500 million, to $1.95 billion. There is $1.39 billion in outstanding borrowings that matures in October 2026, though there are two six-month extension options.
In addition, GNL has $500 million of 3.75% senior notes due in 2027 and $500 million of 4.50% senior notes maturing in 2028. Gross mortgage notes payable total $2.32 billion, of which $464.5 million is due in 2025 and $105.9 million in 2026.
GNL’s estimated liquidity coverage ratio is weak, primarily due to the high revolver amount that is due in 2027. However, Fitch expects its liquidity position and financial flexibility to improve as dispositions are completed. GNL’s UA/UD ratio is also below 2.0x, the threshold for investment-grade U.S. equity REITs.
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