As the table shows, the REIT has significantly underperformed the S&P 500 over the last five years.
That lackluster performance comes even though the REIT has steadily expanded its portfolio and FFO in recent years. Overall, it has grown its global real estate portfolio at a 7.4% compound annual growth rate from the end of 2017 through 2021's first quarter. That's enabled the REIT to expand its core Funds From Operations (FFO) and Adjusted Funds From Operations (AFFO) at compound annual rates of 3.5% and 3.4%, respectively.
However, while FFO and AFFO have grown overall, they've declined on a per-share basis. Core FFO has fallen from $2.01 per share in 2017 to $1.51 per share in 2020, and AFFO has dropped from $2.10 to $1.79 per share during that same time frame. That's due entirely to a significant increase in outstanding shares -- from 66.9 million to roughly 89.5 million -- as the company issued new shares to finance growth. Due to its desire to improve its financial profile, the REIT has had to sell stock to fund its expansion. It succeeded in enhancing its balance sheet, evidenced by its ability to begin issuing lower-cost investment-grade debt at the end of 2020.
The steady decline in Global Net Lease's FFO has weighed on its ability to pay dividends in recent years. The REIT switched from a monthly to a quarterly payout schedule in 2019. Then, in early 2020, the company reduced its payout from an annualized rate of $2.13 per share to $1.60 per share. It made that move to preserve its liquidity during the pandemic, enabling it to take greater advantage of acquisition opportunities.
Even with that reduction, Global Net Lease pays a high-yielding dividend. It has been over 8% for much of the past year -- well above the REIT sector's average of slightly more than 3%. Two factors contribute to that high yield. First, Global Net Lease has a high dividend payout ratio of around 90% of its AFFO. Meanwhile, with its stock price falling in recent years, the REIT trades at a low valuation of around 10 times its AFFO.
The bottom line on Global Net Lease
Global Net Lease is steadily building a diversified portfolio of mission-critical properties net leased to high-quality tenants. While its strategy hasn't paid dividends in recent years, its improving financial profile will put the company in a better position to grow its AFFO per share in the future. Add that to the company's high dividend yield and cheap valuation, and it has compelling upside potential as it continues to enhance its balance sheet and portfolio in the future.