RNP - Global Net Lease: Declining Dividends And AFFO Per Share Impact Common Shares

2024-04-17 22:39:24 ET

Summary

• A long-term decline in the ten-year treasury yield precipitated long-term declines in capitalization rates across property types.
• Global Net Lease has failed to deliver despite systemic tailwinds. As the real estate market continues to deteriorate, there are no signs of improvement.
• GNL's AFFO per share has declined by over 30% over the past two years, resulting in cuts to the dividend.
• Investors may find similar yields and better performance in alternative options such as the Cohen & Steers REIT & Preferred Income Fund.

REIT investing has been reshaped over the past five years. Looking at the era following the Great Recession, rock bottom interest rates precipitated a long-term decline in capitalization rates, which mirrored the long-term decline in treasury rates. As the ten-year treasury yield fell consistently over a period of four decades, real estate investors were supported by an extraordinary tailwind.

The era was essentially “easy street” for most REITs. However, as we know well, not all REITs are created equal. REITs come in a variety of shapes and sizes. Some REITs such as apartment REITs are considered “shorter duration” as their tenant base rolls over more consistently, causing net operating income to fluctuate. In contrast, net lease REITs are considered “longer duration” REITs as their weighted average lease terms typically extend out to a decade or more....

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