Investing.com -- Global Net Lease Inc. (NYSE: GNL ) is set to sell its multi-tenant portfolio to a subsidiary of RCG Ventures Holdings LLC. This move is expected to transform GNL into a significant single-tenant-focused net lease company, despite reducing its scale. The majority of the sale proceeds are expected to be used to decrease the company’s debt.

S&P Global Ratings placed all ratings on GNL, including the ’BB’ issuer credit rating, on CreditWatch with positive implications, indicating the potential for an upgrade. This decision is based on the anticipation that the transaction will substantially reduce GNL’s leverage, with a significant part of the proceeds projected to be used for debt repayment after the transaction concludes. The completion of the transaction is expected by the end of the second quarter of 2025.

As of September 30, 2024, GNL’s debt to EBITDA, as adjusted by S&P Global Ratings, stood at 8.9x. In 2024, GNL announced a plan to reduce leverage through strategic dispositions, with an initial target of $400 million-$600 million for the year. The company exceeded this target, with dispositions totaling $835 million at a cash cap rate of 7.1%. GNL’s recent agreement to sell its multi-tenant portfolio for approximately $1.8 billion further emphasizes its commitment to reducing leverage and enhancing financial flexibility.

Upon the transaction’s closure, GNL anticipates its net debt to adjusted EBITDA to range between 6.5x-7.1x, following the repayment of a portion of its revolving credit facility’s outstanding balance. S&P Global Ratings expects the company’s debt to EBITDA ratio to decline to the low- to mid-7x area pro forma for the transaction.

The transaction is seen as relatively neutral to GNL’s business risk profile. While the sale of the multi-tenant portfolio will result in a less diversified portfolio, the simplification of the business is viewed positively. The transaction will allow GNL to become a pure-play, single-tenant net lease company, leading to cash savings from reduced annual capital expenditure, fewer general and administrative expenses, and the elimination of the complexities associated with owning multi-tenant retail properties.

Furthermore, the sale is expected to improve operating statistics by increasing occupancy to 98% (from 96% pre-transaction), extending the average remaining lease term to 6.4 years (from 6.3 years), increasing the proportion of investment-grade tenants to 66% (from 60.5%), and enhancing annual rent escalations to 89% (from 80%). GNL’s future investments are anticipated to be focused on single-tenant net lease properties.

The CreditWatch placement on GNL is expected to be resolved when the entire transaction concludes, likely by the end of the second quarter of 2025. If the transaction is completed as expected, it could lead to a one-notch increase in the ratings. If the transaction fails to close, S&P Global Ratings would reassess the company and likely affirm the current ratings.

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