NTST - Earnings call 3 2023

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Greetings, and welcome to NETSTREIT Corp Third Quarter 2023 Earnings Call. [Operator Instructions].

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Amy An, Director of Investor Relations. Thank you.

begin. may You

Amy An

We third welcome. for us joining Greetings, XXXX thank earnings NETSTREIT's quarter conference for and you call.

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

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

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

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

make some we will questions. open and will prepared We then your remarks, the call for

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

Mark Manheimer

you and joining today third us thank everyone, for Good conference morning, call. for our quarter

extension the markets changes an by what and as begin markets, capital we the certain and for for retailers. in how consumer challenging want recent positioned with the landscape increasingly With is the to subsequently I NETSTREIT property foresee

spend discretionary for income we to especially the we operate same that past, type lower see We The this have retailers by consumer unlikely around to they level will plan on a occur to center challenges to consumers purchases years is in we that it more also opportunities in and when at environment. comes where how expect items. many discuss,

discretionary may While that of under retailers, that built pressure, items merchants some a tenants product necessity exposure our handful is small have diversified come around mix value off-price portfolio a to resilient includes some defensive our cash balance to industry our access this long and strong to with portfolio over tenants' sheets and position the flow ready deliver We providers. focus, capital, term. generation the service believe coupled predictable

While there meet these pressures performance see and risk for line tenants, with of investment-grade be may obligations, ability their our some headline their gross rent. threatening paying top margin some we to do including financial associated not pressures

actively and yields. risk, cash be we in to where capital generally at seen continue monitoring we vigilant challenged have redeployed portfolio into going-in our We higher have recycled less assets and

to Turning credit.

Our just X.X% one watch represents quarter. list ABR of last now Big X.X% Lots, versus of tenant consists which

retailers, coming most to over this excellent now have we income the further look for people foot exposure highlight an looking While infill density $XX,XXX, average to solid locations decrease average household XXX,XXX -- population expansion we remaining of over market may for below want markets. approximately which when is have that specifically, and the that the own and rents X-mile of traffic. More demographics, we X do our quarters, an assets attractive

per average square of Additionally, well $X.XX foot market. below rent our is we believe

is real long-term state, assets risk which fundamentals there we do a of the the how these average. Again, track our to percentile of not given to Lastly, since when Lots, Lots believe decreasing we entire closure continue we XX using rank have the positive inception. our to Big Placer testament traffic, while in top AI Big on the store-level foot that underlying underwritten economic portfolio is may our chain to

that is rate we see a floating high debt in cost resides tenants soon. exposure that space across area other maturing developing risk debt retail to The of have that and/or the low

the our transparency we exposure from quantify to the financial to are aforementioned. our attendance each Given we quarter, tenants able received

on by to coming discretionary as our expiring reliant having capital. With our X% next and or X.X% than majority tenancy has limited X.X%, consumers, retailers has ABR, less risk that to access tenant Walgreens, from the debt our this who spend based low-income our are few base years due exceptional year-end. is between year-end of with exposure XXXX in through only that ABR of refinance to the little Specifically, no on concentration, of measured over mind, XXXX, now and and

We expect flow as consistent generate choppy we environment. a to our cash continue macro portfolio navigate to potentially

portfolio. the to Turning

operate were which investments is leased September that profiles. that had retail with for million, rent leased of ratings our XX, portfolio industries states. The annualized $XXX.X of tenants to tenants XX investment-grade to base or XX As investment-grade within XX.X% we XXX was XX across

Our XXX%, lease and occupancy remaining average weighted years. remains was X.X at our term

term investments Moving of million on We and remaining XX years investments to these weighted external quarter these were investment-grade profile The of X%. investments on growth. XX.X% this or lease tenants. leased blended $XXX.X cash closed on of average a to was yield at investment-grade

We in at All to yield disposition activity completed X investment net our brings while continuing to of told, X.X%, third of gross blended the loan proceeds quality properties our risk demonstrate a for divested recycle Turning investment activity which of to of improving $XXX.X and cash we payoffs. quarterly and million. to profile capital ability activity the of quarter, accretively $XX.X net portfolio. $XXX.X year-to-date our million million

at significantly sell what cap quarter more than are at plenty in up ramp opportunities take advantage cap plan and in acquisitions selling trade stubbornly are rates higher for spread. buyers thus seeing to the of XXXX, the rates opportunity our low seeing have to fourth seen efforts we also to we to we assets While of

we the I call into our XXXX. XXXX additional provide hand and want to strategy Before Dan, finish to off as on I and expectations commentary head

retail strongest the in by Since exercised highest diligence in in ago, space freestanding have the with lease quality several and the the IPO creating years net our country. of inception we one partnering credit portfolios retailers

to a and experienced through no vacancies. had have pandemic global even have X date rent We interruptions

our With and we believe by consumer delinquencies headlines discussing rates being have underwriting we exercised, and during results discipline uncertainty. inception sheet the current our portfolio that, let have financial narrative With rising since go higher to recessionary concerns, heightened third I'll credit, quarter outperform for interest dominated of XXXX over looming guidance macro longer a and Dan balance positioned time the update.

Daniel Donlan

and thank you, for today. Mark, call Thank you, joining our everyone,

income earnings million release after our market $X.X closed, reported of Turning $X.XX yesterday we per or net diluted to share. third quarter the

when X% the prior G&A year $XX.X XX% share, or totaled FFO from period. for totaled quarter Core or for million -- increase the the per Total million quarter per share. diluted a AFFO $XX.X diluted as onetime $X.XX excluding $X.X $X.XX XX% compares a was last XX.X% represented of XX.X%, revenues This expense, prior million, percentage G&A favorably was to the items, respectively. which units. of and and year quarter, quarter total

rationalize base go-forward we next business operate G&A our should As as to basis. total continue relative out to asset reached to our year, effectively on the scale revenues company has and our a to look the proper

on Total interest net was the $XXX.X to balance rate average and Moving million debt sheet. end, X.XX%. at our was quarter weighted

we until solely extension January impact items, XXXX. when including discretion, our at are the no maturing have In of debt which addition,

million was completed Turning of to capital which through a primarily equity on basis. during the We forward $XXX quarter, activities. reraised our ATM markets

unsettled. As that of $XX.X million had quarter of end, we ATM remained equity

option, unsecured of loan term we has $XXX million extended on with announced draw a X, senior a maturity XXXX. July new closed which delayed previously January a As fully date

our plan to of through The X.XX% and draw fully $XXX We hand; $XXX.X closing, million the which of future of of forward loan. $XXX the drew allows loan of cash available of total to company million we available million our that credit million our fixed an quarter At liquidity $XXX XXXX. to according million, to facility; comprised term $X.X At loan quarter and million loan is available an rate includes the $XXX increase January amount XXXX in remaining principal equity; million $XXX million on the term on remaining was at hedged term the all-in $XXX $XX.X million. XXXX. revolving end, first on

forward long net the target range perspective to end our which X.Xx. equity, for X.Xx below end, a annualized of -- quarter of debt adjusted our and From at leverage remains completely rate to EBITDA X.X our leverage the was low adjusting

Moving guidance. to

updating guidance $X.XX, year-over-year are $X.XX $X.XX from impedes $X.XX of to AFFO our which to to range the midpoint. per We at share growth X%

expect we external close $XXX of investment now net growth activity. to front, the around On million

XX a as to was The open our Lastly, shareholders to on per declared December operator, third record turning our for be the dividend. October the for the quarterly XX, now amount, line Board $X.XXX of cash of X. we XX%. on questions. payout payable that, dividend AFFO ratio quarter dividend Based With December of will the will On dividend share.

Operator

Thomas Todd with from first Our Capital Instructions] question [Operator comes KeyBanc Markets.

Todd Thomas

at first as recycling acquisition attractive question, seeing? that capital that spread you cap mentioned and you're still look disposition capital. the seeing What's like look available Mark, rates you're today between you

Mark Manheimer

sure. Yes,

So really in our kind concrete we complete on I call where give from, we're transaction, think a relying just go cap with to focused buyer a of number always exchanges, that hesitant type cap find to the of we mean, we're to to term on out going the and where of dispositions real lease other the to capital a redeploy so parties on trade can assets because to we're kind anywhere trying We're XXXX that's X control. in it, situations. selling on one-off and X depending

-- So types could basis the way from But we really swing one to up for typically we're other. be anywhere XX of like-kind the XXX assets, mix could points. picking that or think

Todd Thomas

vis-a-vis improve to at. the describe what quarter? Okay. that I sort about that sort XXXX in you've on you're new yields of Can price of starting X% the guess, in see And a it little achieved sort and sounds just trends, then you you're of terms bit of more yields cash like the there little seeing you're third a investment looking deals bit

Mark Manheimer

cap we are up. Yes, sure. No, rates move seeing absolutely,

up the acquiring at year year, We -- to X quarter. recent fourth year even and looking end this certainly in be most high-Xs trended And transact and to we're anything not the than the would assets the higher now that so low-Xs, quarter we Xs. one We're expect of kind and of in cap that. of really point, mid-Xs in into kind early at last up to the

quarter. basis So points I would XX-plus expect fourth see the in to

be to developments going Some just had down funding. of in we dragged that past we're really the already by up that signed that's some

pick to more we in think are to new beyond XX, are likely quarter, the XX on that first I close that. transactions up points even another likely basis

Todd Thomas

I And around as you're how Okay. conditions thinking provide last sort was question, fluid here, a dispositions maybe can I just of investments you but about wondering are just insight I maybe realize if guess. bit then of little well. and

environment current the So net given today? really into investments heading XXXX, just

Mark Manheimer

mean there, I see hand the think consider and opportunities redeploying see need sure. and assets seeing think stock deploy while it's really see enough disposition acquiring getting then in where capital, equity to but recycling equity. we spread into like or it's through material Xs and spigot acquisition attractive rates on we'd mentioned raise where it to the we some we're improvement I move our Yes, really and really market, price in us see turning pretty on better, getting I -- capital We go of with a the raising see today. cap do for opportunities don't the a we're out to

Operator

comes America. next of Bank Josh question from Dennerlein with Our

Farrell Granath

behalf Josh. Farrell Granath is on This of

I the mentioned, credit Just was you're had quality the like you the current higher a -- seeing competition of quick kind about headlines change assets? specifically. for curious in of about you a going with question that assets are after, your pharmacy acquisitions, as

Mark Manheimer

seen or the most my Yes. challenge. career. I cost That really never I really in kind being the is today, so where less better probably gone. opportunity the year said, buyer standpoint in even is of been mean more of this capital The of more a think we've also has entire private

of that. certainly we kind need to to opportunity grow, leasebacks a seeing balance So sale lot really developers trying But there. of even and tenants

and bids seller private buyer, gone from full-blown on which occasional a XXXX in really it's the market. to disposition market. With buyer trying really to full-blown the a It's advantage market of the other take than no market we're

is likely XX%, And really so it's but market XX%, really overall competition XX%. is looking at transaction XX%, down down the

Operator

with Our from Wolff Eric next question comes Citi.

Nicholas Joseph

with here Joseph Eric. Nick

of sourcing Just back to investments.

and equity curious NAVs issuing Just kind mid-XXs, kind talked the the about thoughts NAV transaction the rates in 'XXs your and spreads -- given kind of cap of of on [indiscernible] rationale you've of historically. in where investment

So just there the trying process the to calculation. of and understand value thought kind creation

Daniel Donlan

flow, and include spread you a we basically term cash XXX you up shaping of the price impact of and Yes think got Nick, where you net to basis think quarter. that fourth it's into price and recent Dan about pipeline Donlan. saw free raised the the about, that deminimis we relative to we When then our loan, where point the

kind probably marginally that's on basis focus earnings growth. rate really at was so. dilutive And implied XX We obviously implied points So cap or it rate by as cap we of look well. to

So certainly accretive looked was per that's to AFFO it. the we share. And way it at our

Nicholas Joseph

guess advantages the one you is that so off of you're of smaller I you base. of can grow have that that kind Yes. and

spread and about for And versus pencils putting some of how off think a investment so opportunity? of that kind do advantage taking basis and better you away down of XXX point a that waiting

Daniel Donlan

XXX feel kind some before like we point their we'd to scaling is in to get the back G&A into spreads, to XXX we spread. yes, mean, is I said more XXX like is and view normalized I and points growth basis the adequate also sure. provide basis which is something But helpful. we've think that of Yes,

Nicholas Joseph

just put XXXX? maybe finally, what imply And in did would growth no beyond pipeline that of if going deals or the that forward you in today, pencils what's down kind for did

Mark Manheimer

is Reinvestment of Nick, X%. basis cash single-digit blocks of about call losses cash building Yes. points. AFFO XX free that year-over-year The free around dividends. it, let's of of our growth. after low of imply basically million rent would flow kind Credit dividends, growth $XX after flow of it internal

we June a and and I'd of is of the out to XXXX, prudent, given million loan push and it had if term be leverage XXXX environment term fixed impact year that, looking fixed say but we it more push thought probably around at and midpoint would to we AFFO What May year-over-year, be the full done the it was were in, mid-single-digit range. $XXX we investments growth our swap to loan not our that rate. out Obviously, XXXX's to in we in

So we're -- we're glad we did it.

Operator

from question McGinniss comes next Our Scotiabank. with Greg

Greg McGinniss

So for for it to nice and time takes increase. obviously, direct sellers reality a rates cap

you in math, move rates investment are points income yield? quarters some higher. tends deploying cap back, run at really rates collecting and holding another appreciate weighing XX IRR low-X versus cash a today XX how our Based So to few of interest cap capital once these long X, to potentially investing basis on

Mark Manheimer

We on good looking a with tweak done Yes, selling fourth slight really, I we're really no, to sure. -- think, We're buyers properties largely guidance, got to the for -- that's relates at there the the And question. come relying quarter, some the through. other acquisitions. we've we're that and

today. might if come a But less. come some than of bit go? dry we the How a Little and bit do So then million. reserve feel number are they $XXX it want XXXX to early our and we next early but But powder from don't where control. be they they the be higher certainly higher through, all cap deploy most much somewhat little that might equity to to say, are difficult we be raise, like bit that's some higher for through, If year. yes, out rates to than little likely recent time capital they then have

Greg McGinniss

to AFFO. then turn a AFFO Fair interest near $XXX,XXX through $XXX,XXX enough. been earned or interest, year-to-date, current tailwind expense into of for you've of headwind which offset into possible capitalized that it And the by Is XXXX? positive development had has

Daniel Donlan

continue we it developers their we're mean should I really Yes. the development. That's funding to from as received interest grow.

of to you interest. I it to over the eclipse it's see don't should time. going up ever start think So tick capitalized

Greg McGinniss

capital you headwinds increased is on that perhaps of of to much? cost -- this deals those before the that agreed some part maybe of Were

Daniel Donlan

annual first has the Yes. historically we well that much I low-Xs, achieved developments of historically recognized note been as retailers some what second quarter. in high-Xs. entered as than also of the into well. kind on that as the were mean and are Look, they those And yields been lease which terms longer those had has with would not bumps, I

Greg McGinniss

haven't appreciate the those in have investments? in on you been to a going forward, which Yes. that those. of here guys yields lease positive for seen retailers definitely open we thinking change past, able to those how terms about some increasing those I But were can further potential same to is

Mark Manheimer

of past retailers developer count, through mean like network. I to store their can't I grow are to had Yes. rely XXXX they pressed think need the that the some on the institutional capital in. in They they really market their really come

in all increases us, like have where say go negotiations they're capital, need think as institutions to most to ongoing, hard you leases. the annual exactly, like So but those institutional I if

continue to that expect the would on I So margin.

Operator

from question next comes Our Haendel St.

with Juste Mizuho.

Ravi Vaidya

Ravi for are I Haendel. well. hope line Vaidya the you is on doing This guys

when at the to a the Can quarter, During the again? this [ stock equity when you $XX.XX. issued as consider equity we watermark consider you'd issuing was ]

Mark Manheimer

upon raise Right no now, see there. our where relative spread that see. you -- is, there's cost dependent to Where equity adequate the you it's of the is highly equity we opportunities opportunities that

we're going where ultimately we raise we depend priced where trade number So It's and the capital would to capital. relative that ever going to set. upon not set opportunity not where put opportunity on a to or raise that's

Ravi Vaidya

execute with the to willing on it. what inclusive leverage Got to deployment of tick are your capital let you X.X% ended you the leverage the and forward, at in And goals? quarter order up to

Mark Manheimer

you to think mindful Obviously, So and range. we're that X.Xx stated us and over were of range to see midpoint operate should I us closer our shade expect -- the XXXX that in likely is within I beyond. think time. the you'll probably to of X.Xx, leverage range range they And if

Operator

Feygin Alec Baird. from comes [Operator Instructions] Our with next question

Alec Feygin

what's slight out you in some plan the question And uptick there? opportunities dispose guys that. the properties continuing on to saw of Do Quick a just in portfolio? dispositions, on

Mark Manheimer

extend dispositions attractive here ramp a would the not to fourth quarter. only fourth see and to quarter do I do. expect little up in we pretty Yes, We beyond the potentially opportunity bit a do the but increases terms that accretively. with longer lease potentially and capital, lease can assets with term we we those properties, better also recycle that rental and assets better accretively by placing believe

Operator

next Linda Our from Jefferies. question comes Tsai with

Linda Yu Tsai

X outstanding but didn't have you equity quarter, your you have program, any quarter, this about forward Last then shares under million?

Mark Manheimer

correct. Yes. that's Yes,

Linda Yu Tsai

Just happened the what during wondering quarter?

Mark Manheimer

their a We during through shares the quarter Yes. forward sold block.

Linda Yu Tsai

any watch Got just I happening Are on big your on -- there know them? any Okay. just lots. with then updates And view they're it. but on there list, on what's overall

Mark Manheimer

mean run over cost less they Yes, they've was of the a quarters, quarters some when flow, than obviously, row. several try a capital, really for by working their neutral efforts driven several to past that making free had was do improve great sure. but cash which but really that last quarter, are in I you their to can't

better So margin them about improvement some see improve announce their CapEx health, the to start earnings. to they of we're EBITDA to look really see their and the kind to tenant in when here month, we expecting a are feel in but operations trying after get positive to gross

be looking we'll forward to So that.

Operator

Bin comes Our from question Kim next Securities. with Truist Ki

Ki Bin Kim

bank raise the to debt today, what had go you getting markets new If in are quoted? you

Mark Manheimer

But equity. We're -- getting have we in of the unsettled quoted we've basically million be frank, mid-Xs. already to $XXX

loan. down you term have need There to that loan now We can do even debt pull we'd if any incremental million long-term existing of long-term $XXX debt. is to on really -- draw to type right debt, issuance, call any any get down term the

Ki Bin Kim

longer And impact at common overall you your that stores, overlay if any drug And plans you Or with you're broader the just terms it kind tenant is of have might that that of in that seeing? coverage? term? kind any you closure when out exposures, Okay. recently, themes come look see on

Mark Manheimer

with got any [indiscernible] both locations We to impact Walgreens. the with think Yes. We've relationship, not have. good going have any a do that very CVS and We we're we don't exposure. have

get and so talked see updates before we assets really this to up. news we And them we're call like and acquiring them as

a leases some really grown are on and and same the that ones very it over years relates us as that that of some have where presence markets, they any they those they've some They've stores like closing, the and list. feel are of markets. those yes, we in the they not stores closure with multiple already need been in don't markets. of are rolling fortunately, open mergers the in they that over telling have have and number us are those stores through And to But really that

then obviously, And flow. there are, and positive generate don't so some just -- that cash locations

So those are the ones that they've looked close. to

Operator

our to of end would Mark question-and-answer the floor to Manheimer the closing reached turn now over for have back comments. I session. We like

Mark Manheimer

to you in joining everybody, We look everybody's few Thanks, Thanks. conferences weeks at us the forward the today. seeing and for appreciate next time.

Operator

conference. today's concludes This

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

NETSTREIT (NTST) 26 Oct 232023 Q3 Earnings call transcript