The Necessity Retail REIT, Inc.

Second-quarter revenue was $106.7 million versus $116.9 million in Q2 2022. Net loss was $53.5 million versus a net loss of $56.3 million in Q2 2022. AFFO was $27.9 million, or $0.21 per share, versus $0.29 per share in the prior-year quarter, with the decline attributed to the absence of a $5.7 million lease termination payment received last year and to rejected leases tied to the bankruptcies of former tenants TOMS King and American Car Centers. For the balance sheet, net debt decreased by $74 million sequentially to $2.6 billion, with a weighted average interest rate of 4.7%. Net debt to gross asset value was 51%, and liquidity was $101.5 million. Management said executed leases plus the leasing pipeline as of August 1 would raise occupancy to 94.4%, and that this would increase straight-line rent by $6.5 million assuming leases and LOIs close on their contemplated terms. On the merger, RTL said stockholders are expected to receive 0.67 shares of GNL for each RTL share, a 12% increase to the quarterly dividend, and that the combination is expected to be 9% accretive to GNL's annualized AFFO per share in the first full quarter after closing.

Michael Weil framed the quarter as a mix of portfolio cleanup and strategic progress ahead of the GNL merger. He emphasized strong asset management, active leasing, and selective dispositions, saying the company reduced casual dining exposure and worked through tenant issues in a way that should leave the portfolio in better shape going forward. His tone was upbeat and confident, especially around the merger, which he said would create scale, lower leverage, better governance, and long-term growth opportunities.

Jason Doyle focused on the drivers of the quarter’s financial results and the balance sheet. He cited revenue of $106.7 million, AFFO of $27.9 million, net debt of $2.6 billion, a 4.7% weighted average interest rate, and liquidity of $101.5 million. He also explained that the net debt-to-EBITDA ratio of 9.9x was inflated by nonrecurring GAAP write-offs tied to tenant bankruptcies, and would have been 9.3x excluding those items. On G&A, he pointed investors to $7.2 million of proxy contest and related litigation costs in Q2 and said normalizing back the first-half run rate puts G&A around $8.5 million.

Analysts focused on problem tenants, the Bob Evans disposition, and elevated G&A. Management said 28 of 41 Burger King locations were assumed by a combination of a franchise operator and Burger King Corporate, while the remaining 13 were in various stages of lease or disposition activity; for Mountain Express, RTL said all 71 locations were forced into rejection and then transitioned to Imperial under pre-negotiated leases as the stores came back. On Bob Evans, management said the stores were performing and the sale was intentional because casual dining carries a higher risk profile, especially in inflationary or slowing conditions. On G&A, Jason said $7.2 million of Q2 G&A was tied to proxy contest and litigation costs, with a normal run rate around $8.5 million.