The word “global” is in the name of net lease REIT Global Net Lease Inc., so it comes as no surprise that the REIT owns global assets. Lately, though, the New York City-based company has been steering more toward U.S. properties and less toward foreign markets.
Global Net Lease owns more than 300 net lease properties in the U.S. and six European countries, with about 50 percent of the asset value parked in the U.S. and about 50 percent in Europe. New York City-based AR Global Investments LLC manages Global Net Lease’s assets. Roughly 60 percent of the REIT’s global portfolio is made up of office assets, 30 percent is industrial and distribution centers and 10 percent is retail.
In all, the REIT has close to 100 tenants, including Family Dollar, FedEx and the U.S. General Services Administration.
Since the summer of 2017, the REIT has almost exclusively been buying industrial and distribution assets in a bid to capitalize on demand driven by e-commerce. Most of the acquisitions are in the U.S., as the the company is finding properties are more affordable stateside than overseas. The REIT envisions the geographic balance of assets eventually tilting more toward the U.S. and less toward Europe.
In a Q&A with NREI, Jim Nelson—who became president and CEO of Global Net Lease last August after serving as an independent director—expounds on the reasoning behind the REIT’s heightened interest in industrial and distribution properties in the U.S., and explains why the company is fond of secondary markets.
The Q&A has been edited for length, style and clarity.
NREI: Where do you see growth opportunities for your REIT?
Jim Nelson: We see a lot of growth opportunities in the secondary markets as people expand distribution-wise. With the rise of online purchasing, we see a lot of companies opening more secondary markets for distribution centers—FedEx in particular, plus a number of other companies. Our pipeline is extremely robust because adviser (AR Global) has purchased over $40 billion worth of properties in the last 10 or 11 years, and they provide us with an incredible number of opportunities for acquisitions.
A lot of the larger REITs like to buy the trophy properties in the major markets, but the cap rates have been coming down on that, so the yield to investors is a little bit lower. We find great properties at 7.0 to 7.5 cap rates in the secondary markets where we’re buying, so it allows us to provide a pretty good return for our investors.
NREI: Which secondary markets are you targeting in the U.S.?
Jim Nelson: If we bought $100 million worth of properties, we’ll look at over $1 billion worth of properties for sale. We look at the credit quality of the tenant. We want long-term leases in good properties with very good tenants, and that can be in a lot of different locales. So we’re pretty much location-agnostic. We look more to the credit quality of the tenant, and the building and the lease.
NREI: To what do you attribute your nearly 95 percent occupancy rate?
Jim Nelson: Amongst our peers, we probably have the highest level of investment-grade tenants, at over 70 percent, so I think the quality of our tenants is reflected in that occupancy rate.
NREI: What’s the strategy behind having only 10 percent exposure to retail?
Jim Nelson: Retail has had its challenges. Amazon and others have really hurt retail exposure. The retail that we own right now primarily consists of dollar stores. Big-box retail has become very challenging, shopping malls have become very challenging, and we feel that to protect our shareholders’ interest, this amount of exposure is appropriate.
NREI: Where are you at now with your acquisition and disposition strategy?
Jim Nelson: We’re right on target. We’re not looking at disposing of anything. We’re really happy with our portfolio and our tenants and the duration of our leases. We’re out in the market buying—we’re buying industrial and distribution assets right now. We plan on continuing that in 2018 and beyond. We’re buying primarily in the U.S.
NREI: Why are you buying primarily in the U.S.?
Jim Nelson: Right now, we’re about 50-50 in Europe versus the U.S. At some point in the future, we’re looking to be at 60-40 in the U.S. versus Europe. In Europe, prices have gone way up in the last couple of years, whereas in the U.S. we can still buy properties within our target acquisition range. In Europe, it’s getting a little more difficult to buy at the kind of cap rates we’re finding in the U.S. We still will buy in Europe if we find a great opportunity.