NETSTREIT (NTST) 30 Jul 242024 Q2 Earnings call transcript

Greetings, and welcome to the NETSTREIT Corp.

Second Quarter 2024 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Amy An. Thank you.

You may begin.

us second joining conference XXXX for call. you for quarter NETSTREIT's earnings Thank

Act the Securities yesterday call, contain investor defined release we addition website questions Investor press In to may the of distributed Litigation and be in supplemental the of company's in answers and Relations your section can www.netstreit.com. On XXXX. posted package as after remarks an forward-looking Both updated today's Reform statements presentation. at found Private the management's a close, market to

Forward-looking differ subject that statements to risks may cause matters that address are discussed and actual from uncertainties results today. to those

All For our statements of as date risk Form future. these December forward-looking are factors, hereof, review the the assumes no the in and for any you filings. year update ended to our more obligation forward-looking information XX-K statements and to XX, made we about XXXX, NETSTREIT encourage SEC other

measures certain financial hosted NETSTREIT's refer and measure, to we then Executive non-GAAP non-GAAP call your investors. Today's are to conference on the for by will explanation financial of our most Manheimer; this measures, In earnings Dan call presented why we package of definitions an questions. includes supplemental Chief prepared GAAP Officer, comparable is Mark Donlan. Officer, our and and to remarks, useful Chief Financial They non-GAAP the some call information such for addition, make Please and reconciliations will measures. believe financial open release

to the Now over call Mark. Mark? I'll turn

completing of sourcing gross X.X%. cash from at at lease growth had a this of our A blended an all over sale-leaseback Thank quarter average you, in opportunity XX.X our this remaining set call. We acquisitions area. lease quarter us as with the have second yield returns larger and risk-adjusted longer XXXX for our this term. joining terms second we profile had of a earnings portion quarter investment attractive seen that million transactions rent $XXX Due difference channels on our you thank attractive activity Amy, steady to quarter, in more were acquisitions morning years

the quarter provider in have top Life club to have We new X proven whose health Time tenant property current with operations a Fitness, after economic points. to climate of customer. premier resilient XX additions more select the due a this focus larger changed on affluent at direct assets This group was the best from X allowed which attractive sale-leaseback the price us the highly part package, a

has northern upgraded Time is past former States Atlanta, of assets which expanded the suburbs in of a been by United and the few One Association Life years. Tennis locations the over

is X asset of which location the other X Life most Time Texas, locations as in performs The consistently profitable Austin, in top the infill chain. another

few over past While attractive years, accretive seen pricing Life cap rates sale-leaseback was of that assets add reasonable a basis. to with tenant We at top-performing if a basis. may estate concentration can first at some acquire appropriate we have us Time we this gave continue to opportunities the opportunity with their favorable in access real an most selectively to this the number of

on front, $XX million. we X rent On the development commenced projects, totaling

Our of cost includes of XX estimated which a estimated current pipeline million, million. remaining $XX with development of projects $XX.X total funding consists

Moving on to dispositions.

quarter-end, sales certain in our quarter $XXX asset capital escalations, and tenants. consisted total our dispositions strategic X of the We X.X%. At with better investments, an with leases XXX on execute million longer a $XX to blended rent investments and million. cash to proceeds ABR continue portfolio of for of We to decreasing recycle yield completed of at into exposure

to of investment tenants. portfolio investment across leased industries states, XX% our tenants XX grade XX Our XX or operate grade in with profile

X% of on average than XXXX. years, with remaining term expiring less the is Our X.X lease portfolio through weighted leases

improve that diversity can further us returns, very explore get to sale-leaseback we the cash best flows the access the all opportunities where channels our risk-adjusted look we including continue rent a give of high estate at portfolio, coverage. acquisition we significant generates will to sourcing to As real tenant where well-located

a portfolio of number publicly-traded While to companies long the large generation believe recently, us has having most for headline negligible economic over created our the in term. impact cash flow our we be noise should

quality a corporate on collateral. The real most estate level only but Lots. As of assets in unit our and and rely been reminder, the news not the also X tenants tenants we Big topical the credit of of our do have Walgreens performance our

is lease just expiring relates X it we asset it to with renewal risk. and before high-performing XXXX, As a Walgreens, have minimis de

the As to our XX% proactively the performing of than closure Walgreens, we their to stores. us said, real maintain in we allows some an we past, mentioned and asset-manage with limit downside of ongoing continue which believe more better recently That dialogue should they announced in stores, stores Big own regard of time. Lots, the which to our constructive risk. With

X market estate to potential the have we Lots assessment with rent. are our list. based better-than-average rents of We in of re-tenant confident location traffic that ability upside Big our believe stores generate with market, with on foot the location at or remainder attractive are in that on fundamentals. And real our below we The

strong defensive out year, portfolio look with on further enhancing we to diversification and half teams our industries. the have that tenants the operate we are management of remaining As focused in

The including and impersonating partners. third-party issue, with launching of an of the net was the X occurred to million I recoveries. When to $X.X Before the I totaling led fraud want business of The million the a that learned a the transfers Dan, company our we action, the compromised that review call criminal to during a quarter. of was compromise loss development insurance third assistance scheme incident involving account victim a fraudulent hand of took result experts. access a discuss we to immediate party one to the $X.X over of blocking employee e-mail

to or we believe poses questions. the has threat and our the isolated Dan investigation we that, call determined open go over company call quarter partners, the again. With and taken have to from this your up prevent event steps Our then for to this financials, I'll to appropriate the its no further second hand occurring

Mark. you, Thank

Looking Core or $X.XX our was per earnings, quarter a which for versus diluted increase loss share. last the second million AFFO year. per FFO over or $XX.X share. we diluted diluted reported was $X.XX million per $X.X net X% second was $X.XX of at an quarter share, And million or $XX.X

expense Turning Total $X.X X% recurring year-over-year declined while declined million. year-over-year $X.X XX% million, G&A to to to G&A recurring cash the front.

quarter total in the revenues with year of revenue the revenues total to In total G&A quarter, versus recurring our XX% relative XX% addition, representing G&A rationalize continues prior our our base. to of in steadily

balance to Turning sheet. the

the all forward impact million. was of Our total debt, adjusted includes $XXX equity quarter-end, net of as which

weighted Including is debt debt maturity have extension our at X.X Our years average maturing which January no our X.XX%. can exercised be discretion, is interest until and average options, rate weighted we XXXX.

our was hand, on million $XXX of a quarter-end, value facility, consisted net revolving $XX the equity. basis, shares, for we unsettled $XXX from cash $XXX on $XX and all program ATM quarter, equity a million, our credit our on million of million During forward X.X of At available forward liquidity which million sold of million.

leverage. to Turning

of debt was adjusted below net X.X at X.Xx. well to which quarter-end, EBITDAre leverage X.Xx to our remains annualized adjusted range Our targeted

on Moving guidance. to

share of maintaining guidance XXXX to $X.XX AFFO our $X.XX. per are We

to $XX.X cash is range and of and continue payments. onetime We G&A also expect between $XX.X to million transaction exclusive which costs million, severance

The the on questions. quarter. the payout X.X% we XX, will of shareholders AFFO of ratio will quarter Based dividend record that, was July dividend for increase prior line on X. XX%. With XX now cash the $X.XX on payable quarterly which amount, September represents the as second Lastly, for open a from Board of our to operator, September the a declared dividend per share, be

[Operator Instructions] with The Wes is question first Golladay Baird. from

assets? in Can and about acquisition talk the held-for-sale are what you pipeline categories the

Yes, sure.

types that There of it's have pretty some more up left we're big the of at. different So past. mix Tractor so handful sale-leasebacks, to developments, typical finishing looking pretty -- a Dollar you've we still of what some quick-service in transactions kind stores But of restaurants, some from close. Supply, we're seen are a

Okay. a is know upside you rent. And Lots. closed? where and Lots for And the about Big to then term comment, in when I you that asset are have overall talk looking for Big I the the rent needed? income, go rent back you the you low guess, you Can for mentioned CapEx potential was, any

Yes, sure.

that on location is rent $X.XX the So foot. a

they That is So pretty And that closure on attractive pretty They closed XXX out has estate. -- came that just a with list not list. stores close. low will rent, indicating yet. it real

et So likely start cetera. to going-out-of-business to some they sales, going are

take we look at in just time. So it then the file to still asset of they in a bit if term there's would that's lease event going some of X the there. that on And take to re-tenant years back point time. But bankruptcy little we

interest reject get to pretty talking market and some location. that the broker were get we'd some would then lease, in as a in the we to asset. well there's payment, as already out look they and termination if the to location, But would familiar a So already re-tenant we've some been we lease -- tenants with that's the

Stop your are about feel then exposure How watch Shop any on your has the & other list? Okay. And in you tenants do been And there? there news.

sure. Yes,

is than revenues. a So Shop, less yes, locations, & of X Stop which we've got little X% bit

going XX through. that, they to of think locations. closures I they're None don't ours and be our are see going we by to really announced any risk affected that

X have that's getting that taking well, their then term and on that York it. York some in in Beekman, of X-year their they're and New option, New top-performing Somers, We assets extended as X has one currently is

to that are with of any what's on really I we risk see paying attention then don't with course, And Big Lots, tenant. going them. associated certainly So

Rose is The question with from Smedes Citi. next

the little slowed expectations, and relative were maybe could in kind far your pace Because third kind where the wondering to of update some of be least I in sequentially. And square line at you've of first about I caused provide in quarter you it bit a activity the maybe were to activity had or quarter thus of -- dynamics surprised that slow. overall overall your just a that quarter. our kind of seen on remarks the I an of ahead, activity if just the of acquisition you would ask what or wanted wondering saw seemed of what just some you guess, kind thought just you And activity. we just pipeline during to I'm

the pace Yes, sure. pretty think I similar. has And been

and slowed I the we're into down of kind selective the willing to us But similar take on margin. terms of maybe with in to trying as think XX, a out very portfolio raised this as capital But January. days. been in next the back we've be just bit just a what would we little assets that year look that we I the we've last pace XX expect -- for to did year have prudent

could little going to of your back you I just investment brought Would assets? a total over the the Okay. that grade to about activity down. investments Time And that's more or... bit Life the talk mid-XX% then of time expect profile mean low you overall maybe obviously, move into investment your

mean at industry take that are. And we're seeing we individual Yes. event that to able that that credit, is in Big the that investment going not little that headwinds profile. be might property what or kind profitable ever in, the how back, location a locations something course, what rent. like industry, whether tailwinds of tenant you're or Lots, with and I that we're be replace grade maybe then, backfill corporate grade or investment to affecting the think investment the looking to about We're or have I of not a bit grade tenant's dogmatic only less

a going So is right go side, investment market factors investment that's we're seeing tenant. at the to typically some sale-leaseback tenant. that more buying. Right lot in There's it's looking kind an on occasionally, transaction grade investment what of some be of out an a of kind large grade different profile, the of with we're now, grade now into grade sub-investment which kind

with year, more had to grade year, last was returns more channels, really we're were of best do the X doing more And risk-adjusted where our And ago. so sourcing getting blend-and-extends years Those the I be on happened just did a it development with to last tenants. think we then side. investment lot we which

while. to be IPO, came And our which use a of But We actual said so saying little of grade, we we'll we'll for the for range. from as likely and kept out we've stay XX% that it we're think time kind guidepost to XX% of and that. investment over creeped somewhere there a I investors, XX% between kind around

question from The is next Haendel St.

with Juste Mizuho.

for that's it last debt you're What's now? right the Vaidya versus embedded bad line why an at reserve the And acquisition this from your Ravi pace raise Haendel. guide seems standpoint guide currently not in point that that is year? This the given on above

Ravi, good question.

credit of basis nothing. XXX end started the On the end guidance, basically the loss, and we points, as year, at the guidance low we were said modeling at modeling we high were we of

we've the points end, nothing now at XX As modeling basis essentially gotten X through high we're and at months, the end. low

have associated count per As a far earnings the $X.XXX, share depending million with to those, therefore, the share. forward dilution the our decision with our leaving midpoint on our shares raise year, meaningful as unsettled months comfortable at through X mainly stock in we the on with sale not and, were almost guidance, can the impact because left agreements, price, XX

So well as our trading guidance months couple more just before to of couple wanted a of activity as see of in a months we more revisiting October.

helpful. That's it. Got

and Just portfolio? that that your a strategy part estate Dollar one than you now more focus here. the Would stores currently the pharmacies rather more acquisition experiential up has make Is real say of on of large a shifted? there

say wouldn't strategy our that has shifted at really I No, all.

traded other at a a In we call traded it, years. X looked Xs. X Fitness fact, over -- in sale-leasebacks past, X.X% Time Those of number the or and at traded the X Life the

we're felt able the perform a here. the was we as just that as more aggressive like get didn't assets So well pricing to little and bit assets quite the

this just grow yes, And for tenant you corner could unique cash Atlanta. real somewhat consistently a their generates in think that Peachtree of is was entire We with convert $XXX,XXX location a mean tenant Austin that top we very it I just across high-quality it is the the with residential. north to So opportunity, to think, X a And strong chain. And a Atlanta that very an it's asset then just flows that about acre. estate. the in unique is suburb acquired zones I

ever even So asset. would money if actually back, took we make on we that that asset

just the the the unique looking past. estate, that about of within very and But the well out our somewhat the real are characteristics unit-level transaction. Life quality Time felt as We at priced several credit, as fits that transactions we always corporate like performance on last So the well were portfolio. with in

The Greg McGinniss comes next with from question Scotiabank.

has pricing at assets other the equivalent an we the investment might or so to to changed you're Time Life on see do looking historical think are pursue, side that bias And demand you? non-IG shift? What grade you at basis or for if those boxes the towards start there operators now for acquisitions are now attractive

was there's I has is rates the Yes. in has Most a I write there. lot XXXX equity, changed there years would where Time entire Obviously, mean big we are could with what interest of an ago there But the say impact private Life sidelined. where offices completely some out really large market. just of family buyers, changed little X really just that checks. X, competition versus market what across those such have were was

public So competition a you are think but with of that the handful kind side. have buyers side is many active, has as demand that fallen on not REITs still really off I the of

And that coverage, a situation mean, to tenants with think tenants basis new through. it to opportunities. Life the with real always that more the blue acquire estate really I at sale-leaseback very that looking that really skies now, for growing of we're channel driving we different So I with open channel does ahead have getting very where we right open that's think think what's rent Time. Yes, every We're bit I sale-leaseback low assets is them. be to high are attractive, seem high-quality little a we're or

investment that transactions acquire seen looking in grade But and the certainly of store we're at So types of you've other a a past. those tenants us at opportunities. grocery of lot looking type number then also

are on And on those Times, you coverage? And getting the disclose Okay. those? rent Life you P&Ls can

are say high. they just unit-level very get that do coverage. We I'll

just balance And Okay. more one sheet. on the

So million you about increasing loan debt the see, are how plan to down are that? versus we'll given rate coming a $XXX just swapping loan? new accordion on remaining the issuing with were the hopefully, thinking that tap And term the costs cuts, expectations, you accordion, you do if on

XXX The Yes. Greg, points. both. bank demand rate just we is. around would depends today X-year look is It at doing where kind on of basis swap

Our spread rate about over swap that XXX basis is points.

until looking front to So at don't out low XXXX. you're get doing that looking on at X%. I all in, we think though anything we're very

Our of to start at typically, term to credit the facility look that time. you at and debt loan the look your and in recast of August comes same due XXXX, rest

probably So XXXX an that's event. early

early little too continue to or course our to say years. may a the maturities do. preference may not it's what next the certainly So we to debt our few But of throughout push out is

next comes The with KeyBanc Markets. Antara from Capital question

you've pipeline. to are largely rates cap get indication where rates far. completed of volumes of are your so XQ and assuming could out XQ trending I your And you pipeline? seeing cap investment the for I'm wanted And shake where sense early

out. us project likely quarter, But -- rates mean, to think for see Yes. they've far I I cap Always too think I third yes, really out. flattened difficult to

term, So change a quarter. first they're as think us pretty but in things rate quickly. certainly these you here don't saw going up cap short necessarily post second We can similar did quarter we the

properties? those XX at in-place then on And you on is And current think do where the the that have? Got color Okay. could rents you it. some market for the you Walgreens provide

Yes.

think little slightly $XX different, market. we're bit we're about above all I but think And probably a a average. So foot I they're on

Bank Joshua of the The next America. question from of is with Dennerlein line

Josh. if guess, that just to on of comment shift you're I of IG on and between all if cap I spread could the terms non-IG, Granath Farrell at pricing. and behalf of ask, wanted in is curious in This and you're terms that rates you I was any seeing seeing

a good it's really question. No, Yes.

grade between what historically, So XX a we've difference investment seen been only non-investment versus basis XX or really in we've the points. in grade, it's what acquired,

course, seeing, what cap lot wider grade that little but than tight. But just of a saw X not what whether investment past over it's that rates, currently there's or years. not, seeing of pretty and influence factors we're we we're So bit a the

guess being under picture, thinking the And you that are impact just consumer financials pressure, bigger this your you've monitoring? certain given been Great. in also you kind And a the stores receiving your of for portfolio I percentage of seeing specifically are portfolio?

great a question. that's No, Yes.

So any distress, consumer that's you're really level discretionary. anything that's the of with lower-income where seeing is combined

to have lower-income are squeezed they they're obviously, monthly make at kind kind you I'm you is Lots. discretionary getting the discretionary. to" need. And their the going where and mid- I budget consumer on Big to "To have -- this consumer. what sell items, is Their lot So that's people A work, of spend looking with what of buy of really to money can't saying, inflation,

they're saying, need have seen consumer really Walgreens, struggle their and them And is on need around have pricing. really of don't here," the driver in. that's the you "I store with pushing -- back So lot is "I to since don't started looking you a and buy really big to" kicking what inflation really that

it a for seen which that's to period the as inflation down lower-income you've to from relates driven long steady time, shrink the consumer. was of XX%. so And pretty Walgreens And heavily with margins XX%,

question. a have We follow-up

with Truist Ki next comes Bin Securities. Kim The Sorry. from question

just the On those age the about can you Life of talk average assets? assets, Time

redone. new. Tennis The States kind Association they're be getting used the Yes. one fairly Atlanta is It to I in United location. mean of

new so pretty So a big essentially building. years pretty And old. few it's then that's gotten only a a Austin is makeover,

round efficiently of we know about and think you But Okay. capital, continue this position. have price cost of think obviously, about deals? to How Great. forward? have But And runway next your I do you thereafter, going mean, you guys funding isn't to great how excellent priced. on should balance your sheet your quite I equity some buy. a in

at for year our X.X Yes. can and end range the rest leverage Ki X.Xx, or to Bin, of on plan below our our we low at X.Xx. year with of of the the the still execute end targeted

north capital. of around rate, to plenty achieve points, earnings grow So we you we we very execute for do of peer equity, start group X% our that means just can cash basis to given manage our we in continue probably the very, now, will XXX now, confident our we're relative equity have plan, somewhere improve, but with strength particularly of I year-over-year don't and which as as that being how rush of know. But the to we're right run think flows embedded portfolio. But we're cost spreads have the we that, to to slightly our we judicious X%. raise a can equity

a The Golladay Wes follow-up next question with is from question Baird.

much If risk we you then were you just at to Walgreens and have And have is what, of value exposure, guess, of look Walgreens will the ABR, think leases? at those be? dark I do how at those do net much of would how being of on estimate you an And X.X% risk pain? term your closing,

taking of to turn They going a look around. going large swath I always try they're at they're tough definitely to mean have their mentioned to Yes. and them do. they're a what predict to properties

it's for prudent do portfolio them I reviews. think to

opportunities, pretty blend-and-extend think, honestly, to term. A before as short-term if that we a go did where locations good to it you we're buy number recall, out yes, I overdue. But thinking positive if large flow, transactions mean, they're long a they're that bit Walgreens. and it's as Walgreens, lease and they're conversations insight it their committed I us of they would the quite we little get relates cash they're to so And with generating if close. we in were gave with and -- what extended constant stores,

them, worse margins. gotten as discussed a their committed locations are term. Obviously, they bit the So for we things showing little have to that just long

and term a pretty of list in in that average portion weighted the location coming and with that's is well. So not is something new we chain that said, know looking XXXX being CEO, considering. probably and generally And larger years locations think and that source, better I which grown, at their lease think, the fair. But X the got that performers do I I of up think they're has one the we've

So where yes, to I mean, be a -- meaningful or over take I X X ratable X it's a time, could the think we over or next years, but could it the over store past earnings. going on have just impact not

this is just Okay. one then be last controls? going event Or onetime in one the Is we just last quarter, it on on hear to and the just will Is And third there get the to a issue. the everything rearview? fraud anything internal when the we're it? changing

the Yes, existing immediately situation, deviate preset following from procedures. the reiterated exactly that's correct. how the importance rectified not We our of processes and to

vigilant skeptical to company-wide, lastly, was the stressed adding workplace. potential our by enhanced this and process. And the procedures redundancies certain of we the we of remaining Secondly, importance procure-to-pay in fraud

So we in XXX% onetime view. you this occurring believe our in done we event can to everything a we've it is the would future and that tell would prevent from we

from question [Operator comes Greg Instructions] McGinniss The Scotiabank. with next

volume Were we've million, forward assets going pushed in volume were historically, X overall these the by absent And pursuing? Or are with Times confidence out? $XX somewhat transaction what that deals? guess, or quarter. seen fell this Life will through I what around larger line deals gives you you're be Given acquisition there higher-ticket other at surprised the there we

than portfolios lot we for clear, larger Yes. to where have did yes, quarters to we sale-leasebacks wasn't onesie-twosies, bit small in that. mean, million. $XX it $XX with we've -- And million; do that than us up past, of little to it the where But portfolios. pretty we X-Eleven some was I And had be normal a less then than a it's more

priced and the an of looking try times And what's at all least just sit off assets we returns in what the close we the our get of chop to can the of where So efficiently quarter. we best have then during at we're can. opportunity kind we set, And we quarter. kind idea risk-adjusted

we comfortable very continue for So that the years. we're that pace same have we past the X can

turn are I questions you. Thank time. back like comments. There over would further the Mark to to for floor at this closing no Manheimer

forward for joining rest you look future. And to speaking great again I today. us in everybody, Thanks, the your hope a of summer. we have

today's concludes teleconference. This you. Thank

this for You disconnect your your you now lines Thank may at time. participation.