NTST - Earnings call transcript Q2 2022

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Operator

Greetings and welcome to the NETSTREIT Corp.

Second Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. pleasure your my Investor Cathy now Relations. is to host, introduce [indiscernible], It you, Thank Cathy.

begin. may You

Unidentified Company Representative

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

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

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

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

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

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

Mark Manheimer

second Good earnings conference morning XXXX call. quarter our everyone, welcome to and

take to and say strong investment pleased consistently a investment yields team's source at activity for attractive and dynamic creative I Before and ability quarter, how the the want our continue market. a nimble I to to I in be discuss am opportunities with moment

activity strong $XXX.X of report proven am rapidly our have we and investment completed the With that rates steady for is execute ability evolving continued with to uncertainty, net a disciplined and we opportunities demonstrates million we and that opportunities a I with In remained pleased have selective interest market performance higher to our macroeconomic and unique drive results. with and the We strategy pursue. that, quarter. and --

acquisitions this see and higher to to better the than shown changes debt priced ago, was XXX IPO market. as economic the started an pivoted doubled strategy the being resulted more $XXX,XXX in believe XXX evolving benefit higher our right nimble properties. by yield we the deal we portfolio clear in in market, in Since have acquisitions, our size we As a years costs two quality than quarter, which there quarter. in We as approximately to from was to for the less properties

million credit stable $XX.X while in space, about profile our net and XXX tenancy basis to lease investment increasing million diversification the $XX.X the quality from to ABR metrics, and Our highest XX%. and maintaining enhanced grade portfolio grade points investment

economic continue net public allow our the were collect rents. XXX% lease environment, Our are current that largely portfolio industries, and/or Despite the we of retail nature where to pandemic, to discount made us which of our portfolio service COVID up believe from we all of inflationary necessity, uncertainty in we pressures. recessionary to tenants will in well the during of only and as defensive REIT insulated is the the did outperform pre-COVID

we and liquidity goals addition, strong investment meet ample with our the year. balance flexibility sheet a to In have for

cap is second XX.X on at rate, million weighted capitalization that XX to to our second at which higher term going development strength average in were years. Now in important for quarters, lease that on quarter We quarter. weighted and XX.X average prior note X.X% high-quality cash $XXX initial credit three the of properties ability rate investment evolving turning of yield our average for a a commenced and had at with activities of investment It adapt team better acquired an acquisitions and our years. demonstrates Rent opportunities the of terms lease to X.X% projects a $X.X of with market. term source weighted average lease than total really and longer of a million a cost

During the an of a into convertible a loan term entered quarter, with we and XX-month X.X%. rate million $X interest

cash two this We with current in line ownership simple by of XXXX, converted with expect to end properties into rate. the fee interest a loan of cap the be rate

a sold parts million we auto lease a $X.X property. for with store we and Additionally, a a Kohl's sold and the retail rate, small terminated at X% cap

collect lump a period. in We result the gain future should which a in expect to sum, a remaining in lease small payments

million $X.X funding under projects. ongoing $XX.X provided projects had we we At support have date. quarter-end, we development invested Finally, to of where development to million six

we we comprised to developers portfolio given quarters expect labor environment You'll properties efforts to on including prior closing term store, ESG million, annualized challenging acquired cautious a panels quarter-end, rising from costs. more taken remains includes store. new negotiated notice properties of and or rent. portfolio ABR The roof, average grade base NCB investment which and development that rising ratings costs, tenants restaurant remaining years the tenants, a profiles with our $XX.X [ph] have At our for our represented to their perform with $XX.X quarter, MOS previously solar XXX an We XX% with Alta a in and weighted is occupied. tenants [ph] was construction due budgets augmenting a for tenants of portfolio sprouts million had of uncertainty. Subsequent a grocery by economic and of XX the an store and lease added seven construction with XXX% service its costs more down X.X contributing investment approximately activity recent as we approach quarter-end, grade within automotive completions, with four

well-positioned level over activity XX% year-to-date, a is focus our of year investment targeted the to place we is testament have acquisitions, in have $XXX recent we over which maintain and that, experienced activity. for year quality results turn are in to we investment remainder million go the and portfolio Andy quarter our We second net million With I'll the our completed With tenants. $XXX momentum to the call to grow full to team the guidance. XXXX beyond. and of financial with of our This believe over activity high net the

Andrew Blocher

to employees portfolio. to $X.X of from end the XXXX outstanding and million market per $XXX,XXX And average to prior rates The June our by million principally to income reported XX, once you, in due rent In you of us to the the XX% mortgage in to million receivables of G&A increase loan year to seven second XXX developments Mark. second of we quarter, from XXXX, up yesterday support to second on base joining the $X.XX and AFFO XX net $X.XX, $X compared base second quarter close, primarily since on diluted balance quarter. number $X.XX grew call. second core acquisitions, $XX Thank again, release $X.X million quarter. quarter compared the all driven quarter our increased our XX XXXX, from share revolver second in for thank expense portfolio's an earnings increased from after growing XXXX. increased annualized of for published in Interest FFO due today's $XXX,XXX to the second higher two the and over quarter and

In do costs Mark the future level dead approximately addition, we quarters. the as had referenced, of increased in deal of deal expect quarter, $XXX,XXX in we costs this but not debt

we providing is under outstanding, June mid-August, We loan intend is leave term X.XX% already to which market offering. million five-year add which prepayable expected access our liquidity loan and of credit. and fixed X facility quarter-end, expected $XXX at the and we freely a to sales to increase million to million $XXX proceeds capital our The the sheet. a acquisitions balance our our January for be $XX We million associated which forward seek opportunities. from alternatives from on escrow or revolving we on fully million had of At net outstanding, is agreement receiving XX, optionality and expand loan at debt to $XXX attractive On million $XXX in new rate with term total from revolver refinancing July time of other committed our recast $XXX to has by our fully our recast X.X debt in balance will XXXX. of line any XX facilitate term to time, $XXX Turning on $XXX loan million The over shares, million loan, existing see remaining closed million our to to in launched of private our close million if term placement July our of is December to markets a longer with million. $XX settled matures credit hedged structure. $XXX that term to

have to million We January forward associated settle until XX, the remaining XXXX, with our agreement. sales shares X.X

not X.X the after adjusted dividend the remaining below times debt September our XX, range shareholders on declared XXth this a record of the to net earlier January was to giving target dividend, under regular to payable sales as quarter, annualized ratio forward any With from quarterly our under X.X the to of XXXX, be well to agreement sales week, did June cash ATM we During our At to program. shares our X.X our $X.XX make EBITDA consideration times. Board Xst. offering, September regard of outstanding

XX%. the ratio quarter was payout Our for

volatility are in per to expectations share to market $X.XX, maintaining of our at have but underlying assumptions. For range guidance we widened some due XXXX $X.XX the guidance, our AFFO previous

will predictable pending million as stated of These balances debt projected million for uncertainty, XX leverage of range million to range $X.X year which expense since to portfolio shares million reflect million, flow of is impact range million. as full $X Investment of which net X.X expect least debt $XXX,XXX our recently deferred in to combination to the time cash OP been to from be a credit to includes remain the $X.X we $XXX,XXX wrap where increase $XXX,XXX cash to million lastly, curve Due impact in our units, a to included now range is net our $X amortization, is a Our $X from XX increased to remain be Non-cash we're appreciate up, financing. expense including our we and the round decrease our inclusive Non-cash group XXXX. previously and in million. not remainder rent shares provided widened of receivables most to and a not the million of we And as the million, our average assumptions: to during costs. to million interest of G&A to largest has our facility expected $XXX guidance X.X in XX previously cash continue higher result the mortgage the $XX interest financing changes stated to the year, fee shares increased is stable includes bank at XXXX expectation significant weighted which economic support commenced, XX Cash million. the of transaction in remain our diluted from to is recast. the $X.X the and to debt-to-EBITDA To to the guidance, million compensation dispositions outstanding, of targeted a our between following confident to forward borrowings to of increased in expected of developments we activity ability times. of $XX.X in loan finalized to and offer expense, of

a During our our have we our and to public ability portfolio. best-in-class tenure as build demonstrated company, execute

meeting the diligent -- our we line Our and work year. forward open the Operator? team the questions. investment we for With remainder as to we that, as goals now focused remains for of look will

Operator

you. Thank

We will session. conducting be [Operator question-and-answer you. now Thank Instructions] a

Markets. Todd your Thomas Capital Please proceed with Our first question. is from question KeyBanc with

Todd Thomas

Hi, good morning.

your investment in in you shares. that funding just from $XXX half could little Andy, to I of a the the throughout look as the just about bit talk -- the net revised weighted back remaining terms and for the towards the here wondering in question, And year, discussed permanently But discuss the in you First you if balance the settle equity you million capital line thoughts the also to finance -- guidance, the year, average of equity the just you expectation maintained? of shares on January. investments was balance from have of forward guidance plans the raising

Andrew Blocher

Yeah. Yeah. Thanks Todd.

it now. million perspective, a So, in-place on we're stand million We've $XXX the balance million that, about. look, from got that another it's by recast of recap comes of anticipate big that end new funding loans term of it's -- We're committed. a a long along weeks, in $XXX is taking to our with we maturity couple goes that That’s the long about XXXX. a just next term five-year existing current more. the said, we but with step right the where talked commitments. fully waiting would five-year, That's close line a I like We'd $XXX loan that at

feel we perspective, we're on a pretty of said up, remarks, we're So, we're -- debt million and like locked adding another $XXX from I debt as sheet. liquidity worth in adding the balance my

the The side, market the think of we is key equity on of That's that financing set you real very, We -- access on placement at at million very and move wanted funding I $XXX started still the out the ATM, equity -- opportunity the roughly and to expectation. team talking leverage for feel looking off we through it's forward private And about debt as closed from the roughly his remains decided the we're to year look the equity where the there be thankful -- that efficient debt we million have we we've $XX before really recall, with undrawn the and we very support a just have. when the market. placement, right? asset we worth get confident is certainty under count on side. yeah, more got we we to the On quickly. Mark if stand were just private share mix, to So, lowering that greater the on

Todd Thomas

forma It would be the times like a sort so. on additional current or Okay. pro Does debt-to-EBITDA of equity net the looks raised budget capital million $XXX have the year? of throughout remaining high any in basis, being you the range of balance the acquisitions five

many where by would the may X.X wide expect a it the leverage little X.X But in I around bounce be above margin to target quarters, that mentioned at a realize that you've for You times level. been below near-term. and you year-end? bit to

Andrew Blocher

at have never probably mean, a a go I would available we that we not said, we that But specifically more probably I to efficient Yeah. on talk a as we our advantage methods been disposal would to we're going have like and the size. I that -- a us. take around And have be think basis. to do leverage, specific active the on tool ATM, forward about

Todd Thomas

was Okay. seeing pricing widen are and begin about asset And interest then, today. if sellers you're rate and just in talk terms in rates of seeing of and bit the to curious pricing buyers could whether environment higher what you acquisition cap as sort the rates, cap trends I pipeline you adjust a

Mark Manheimer

Absolutely. Yeah.

in costs, in avoid, was market. -- pricing a of saw of us a the falling pivot from dead So, lot increase of yeah, always I you bit in buyers typical pretty the the mean, try out deal which early quarter, resulted big on the to to the but which little a like we just

of I a be those not XXXX still close -- larger XXXX amount we using the locked out that as the are buyers any firms the but of through market, decent more really less And them equity -- transactions. with being kind then of certainly, market. really ones once active. needed that are a or in leverage were less of anticipate to leverage the lot those are of think an that going that leverage a of use don't lot completely flowed to private But exchange there, the They're buyers. on we've seen activity use

why quarter, be a we of think a which quality opportunities the did lease it shouldn't from the during And we that credit weighted during only everybody get what on pivoted. is cash But we acquired at lost we average not really pivoted quarter look the so, about on And acquisitions. are X.X% during rate cetera, that saw you quarter. cap term, standpoint, et we then excited I we when the the

in highest quality certainly, the my quarter. portfolio so, And during acquisitions view, our

certainly, looking case. areas basis for. continues average to I the the of on that we be in seen increase So, in XX But hope the points neighborhood we're think, we've that

Todd Thomas

one fixed last recast to and term variable? the the could And do Okay. term the go one. if And back put or loan. Is Great. Andy, I to plan place? just loan in you hedges

Andrew Blocher

Yeah. literally recently of Board just expense so forward mean, place, surfer to market been over inside talk that. shown I expectations, We our our -- is right? we that's the has interest rate when and the well -- the like about all so the the curve current had guidance

So, we're going evaluate. to

the thought with is with the about delayed seen two market would at point? week a a think fed closing. has think that draw in you certainly drawn how fully is feature, it But that bit right? at time. points you've part forward-curve our of be going that's fixing in full that the read, aware not, evaluation in think, then either little that like to rates in time. And on an a XX based we'll question in make what we while increase ago, that at conditions point do look better and I likely recently that like than I in forward-curve basis point or we'll down at or make have is by this we that it but And seen So, at yesterday, GDP point we

Todd Thomas

Thank you. All Great. right. Okay.

Operator

you. Thank

with question Citi. question. Our your Please Nicholas Joseph is next from with proceed

Chris Wetherbee

seeing you quality buyer And has spectrum assets? any than out Are on It's across certain different follow Chris for Hey, market. the so differences you been -- more different other in appetite the across Nick I seeing qualities there -- just buyers up to markets back want any Are of with markets? Joseph. Wetherbee transaction guys. on pull

Mark Manheimer

a question. It's Yeah. good

I buyers rates. of really lower more it leverage we cap out, had see more really where at to started think with pull to buyers the do

So, to the of get a transactions calls on below transactions, leverage cases, start lot types those the range deals quickly of you transactions cap acquiring started at. getting lot quality we those started more well transactions. those higher that that on rates to in people types the assets of more were, A we're many relying lot cap four debt, of lower on as a kind -- rate

cap creep the rate moving to as rates start interest you more to as up scale, more rise. continue started that and So, in

it's been more that's leverage. buyer on think I the much really So, relying

You we're saw active which it really had in industrial, at all, really which rates. not lower there cap

like fours, Distribution centers we're kind seen You've at kind the is that trading higher up five trading cap. kind of Amazon. of to a the in three, of

So, that just really displacement up debt lower buyers. pretty of leverage in as creeping doesn't then, the start rate for big cap and And the higher retail you deals, some market. into the pencil

impact. biggest So really we've the where that's seen

certainly quality, this massive be so, And to a And in us selective on set, just significantly we've third our we're as into allowed particular quarter. seeing seen as increase well the on quarter. pricing more that which opportunity the

third what the pretty seeing as well. about we're excited quarter we're So, in

Chris Wetherbee

eye is Got thinking any it. And tenants then, closer today, there that you're watchlist the with guys a keeping tougher evolved? a watchlist? watchlist are you on? Are Or macro maybe how how the the about on backdrop

Mark Manheimer

savings lower consumer, They're And pretty were and back quarter it's to starting especially more Sure. to or see get pre-pandemic relates Yeah. what the really for consumer as under to starting the to end. the it to similar Yeah. on pressure, levels. we last more

and credit they're is to illustrate discretionary Walmart see I results, more not. Target starting And rely on and think, selling necessity You're products consumers cards.

took good Feel deep what's portfolio. about in our dive the a defensive nature our into we pretty portfolio. really So, about

assets the And have in be really shifted, a confident resilience of rough just we sales one poor in but I seen tenant think the recently, has health would and year, had results They've consumer and their pretty very think above that the own. pre-pandemic the I levels. preferences the have we is a tenant's bit are of Best that Buy. we're particular that most if

pretty But on So, I anything risk do only -- that tenant cyclicality job do or we appropriate the then, like applying to predictability And particular health but acquired like tenant. that. pretty we good not be a different a asset we feel we pretty good think a there's have the tenant we the an of health, need And in think pretty But the I cautious economic I we and environments. after assets. volatile of market certainly of also any do don't there. management job to various think, underwriting out rent in plan we

RV at doing cyclicality recall, the If year, of kind that which well -- an you peak was last extraordinarily sold asset, we last of year. was its

so You're the to in positive news was, and starting not news. Winnebago see Keystone

of So, happy moved we that last we're out really that year. asset

we do to well how like out can I So, to we about on that in are trying move opportunistically really assets think speaks very that assets going thinking we're of focus and when to feel environment. certain economic any

Chris Wetherbee

Thank color. you. Good

Operator

Please you. Thank Instructions] Berenberg. Connor with with next [Operator from Siversky question your comes Our proceed question.

Connor Siversky

there. out the having call. me for Thanks on Hey,

might I noticed for the quarter of the possibly any these the spend on And year rate and look quickly some in your pipeline. pulling again, from seeing and maybe development back end that around factors heightened developers what was million. through of into activities. provide like $X of risk run the expectation spend you context Can of Just kind XXXX? this the

Mark Manheimer

going pretty costs, dependent I costs, mean, to with Sure. on labor what's et going it's be cetera. construction on Yeah.

kind that contract at. what and for their land locks then, they be where the cut a be developer, the get deal a to their So, yield a they going and typical with signed is construction partnering should whatever tenant they -- can or and paid with up a with the what us what of flip whatever in land got to the for negotiate development got is they've they've budget under and rent for they've they asset we're deal

with. active And we very been they're we've so, squeezed. having that really getting And conversations work developers in with just the

more getting as labor higher, -- well the cost So, as labor. difficulty really being cost being construction even higher

to that be is the and knowing seeing to want the in not put the tenants are us to renegotiate developer pain. the don't back agreed they've the to, under willing that typically to where that situation pressure coming us are asking we rents and take So, they a

just kind lot back in opportunity opportunities. where a to right So, for take environment us and we're really in that step out we a areas prudent of especially and we see see of that -- a like and where ample think acquisitions have now plays -- cautious take we other where how approach an it's

Connor Siversky

Understood. XX completed? modeling of And it. Can Got XX then, were waiting question quarter. when completed when the give maybe any as just as on a a during you bit to of us -- those time included the investments sense -- to

Andrew Blocher

bringing Connor, XX days. think -- our about I portfolio, had think them to from an Yeah. average that the on we I -- of

Connor Siversky

more one time. that say Sorry,

Mark Manheimer

we diligence, on that that saw seeing transactions, some somewhat quarter by where anything early we other the rates pushed on in to and back cap was started aggressively to pushed we start days, where pretty better some in XX we influenced see the of move and back opportunities sellers.

And more with backend the quarter. reverse so, think ended I which likely itself in third will of a weighted we quarter, up

Connor Siversky

Okay.

Andrew Blocher

we Yeah. day of $XX on in the And quarter. the quarter, third we right, closed the obviously Connor, -- first million roughly just recall,

well we're of ahead pace. So, that

Connor Siversky

Okay.

days March days or second XX just we're quarter, XX. for XX looking for So, XX June after the clarification, before at

Mark Manheimer

before. Yeah. XX days

Andrew Blocher

XX outstanding about that I days is thought it. way average the

Connor Siversky

Got it.

Okay. me. Thank all you. That's for

Operator

of with question. Bank Please Our America. proceed next question your Josh with from Dennerlein is

Unidentified analyst

hoping opportunities more you Dan I capital see on, recycling of elaborate see [indiscernible] Josh for behalf portfolio? can Dennerlein. where was if is the the within to This best on you

Mark Manheimer

Yeah. risk. a Sure. the I of where at look kind taking we're see mean, portfolio potential always we

anything, knife there took portfolio deep -- any to a public has isn't that really concern. much going of before there's Fortunately, the we such that

Now the that have where counterparties buyers find some relationships close said, XXXX and various or something relationships they on with themselves quickly. to or a we in in operators that trade even somebody need other be brokers being do may keep whether marketplace, DST

and advantage here there. and take we'll those opportunities sell of assets of So, types

other XxXX within those, and pretty some assets I oftentimes, think aggressive our the range. portfolio, offers like get sub-five we cap on

event capital some cap of in that willing the accretively, efficiently And feel and to aggressive we at always do some that, be not don't redeploy million and we market assets in like quarter, so, in the sell the million, pressure can and to we out rates, $XX but pretty can it also we able those on the selling $XX earnings. be put to because want replace that we're

Unidentified analyst

And what Thank us the as also well? on and Great. your then rent also, portfolio between inflation bumps could the within you you. fixed remind mix link bumps

Mark Manheimer

X% bumps lease of CPI, that Yeah. getting X% time rent think three of inflation assets have I rent of rather almost reality growth. inflation to isn't times CPI periods Sure. we bumps but the are rate I lease CPI people we're fixed for that that But the how retail oftentimes make where mean, space on whatever a few or have there X% times in have or in the just would X% or the that or CPI is structured, protection. the sure bumps, transaction of maximum is, the depending think as portfolio lesser the we the is, three all net

a but bumps, caps, inferior leases has maybe kind as those of we the fixed some level two-thirds CPI rate of view with of the few having portfolio of the So, portfolio rental in increases. to

Unidentified analyst

you. Thank

Operator

Thank you.

question with Siversky Our your from proceed Berenberg. Please next question. with is Connor

Connor Siversky

looking then on any for to -- at your any that and back just moved QX, to slated maybe the for here. for operating all assets Hey, was that once related me impairment at were just recognized sale mark-to-market? that was portfolio provision I'm more one in

Mark Manheimer

then we parts in Yeah. a We during we of and store advanced had that the kind kind the terminated the lease sold of the related the a property quarter situation to auto odd quarter. where sold

then in get to expecting we're lease the payments remaining sum the quarter. So -- lump third of a and

some and But would likely gain. timing that those or that what gain slight result a pieces bit unusual. then just revenue in to that is a you it be a little So, all actually led an impairment together, would if after all-in-all, put

scenario. a a just So, accounting funky little it's of bit

Connor Siversky

be at would all? Got that it. gain Can you quantify what

Mark Manheimer

I something that, mean, we're so much. about talking pretty like or $XXX,XXX

Connor Siversky

you. Thank Understood. Okay.

Operator

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

Mark Manheimer

for we the forward certainly in continuing us look everybody thanks Well, to the today, joining dialogue Take and care. future.

Operator

concludes This conference. today's

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

NETSTREIT (NTST) 29 Jul 222022 Q2 Earnings call transcript