NTST - Earnings call transcript Q3 2024

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Operator

Greetings, and welcome to NETSTREIT Corp.

Third Quarter 2024 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. Amy An, Investor Relations. Thank you, Ms. begin. may you An,

Amy An

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

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

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

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

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

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

Mark Manheimer

has the record quarter our of completed I average first returns attractive blended investments, our we sale portion highest our a emerge million X.X% quarter our opportunity all team Thank or yield congratulate set you, call. a a straight-line seen our to basis. Similar quarter us third marketplace. gross more quarter quarter, and risk-adjusted within XXXX for of have this on were joining to outstanding $XXX leasebacks been earnings on on as cash as an on on at you greater thank year-to-date last we that basis, Amy, which third X% a of investments from want morning

volume this had a average profiles. XX.X more acquisitions Additionally, years attractive longer channel, from our growth rent with sourcing at term by more lease weighted quarterly

While investment-grade standards, leased and commenced portfolio tenant have average below to healthy investment-grade stringent strong over in were unit investments our tenants attributes. which our continued was require flow, underwriting percentage traffic rent replaceable quarter, profile adhere and level this that to other credit above-average activity our cash to single-tenant profiles, $XX the among this million in quarter. generic totaling projects development Included boxes, many foot rents X we

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

investments tenants. XXX% quarter XX of a states. in ended investment-grade XX% or leased with the to profile total investment-grade XX tenants ABR Turning in operating the leased From properties our credit is over to We were that to XX portfolio. XXX industries across perspective,

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

move progress the our and asset a by investments, speed evidenced of of in X tenant proceeds the accretively This cash X.X%. better which told, the our addition total a rent on that reduced select recycling third continued strength into was team management various leases for $XX while to completed when activity asset quarter can In also industry of executed dispositions robust concentrations investments quarter we proceeds weighted of escalations. at and saw with longer indicative we of the our strategic All quarter which as we sales yield million relationships is perform. front, asked of the to on disposition

industry Turning our concentrations. to

over headlines have to the garnered industries than Due we assets foresee comfortable positive the underwriting, months, industries. earnings remain we in at these and the in-depth we store While these currently that which any our productivity few stream dollar economic impact within discernible long-term number and coupled between less of the analysis pharmacy have with basis now year past a eminently complete operators, represent end. from of our XXXX to expiring with consistent we these not industries, points do just dialogue XX ABR total of

unprofitable X/X minimal Walgreens, view likely occupancy. Amongst locations no As believe to impact near-term is not than rents to factors, to conviction to that pursuant closures, in on expirations market. other are it our should this pertains store Walgreens' extend supports continue by indicative long-term of many which purchased to were more is we lease also our blend focus are driven planned but and fact that sites, have that versus only on replaceable of their our to our more our stores and our which the view transactions, commitment

even However, to that we perceived reinvesting reduce at those concentrations, accretive felt that simultaneously level. can proceeds challenges while prudent it are to meaningfully an quickly have the tenant we and demonstrate

have outlined concentration in to at we of quarter current supplemental, As the end second our X.X%. X.X% from Walgreens concentration its reduced

concentrations While longer endeavor further concentration below decline we coming in to our Walgreens should have X% term, quarters. all tenant

before percentile high lease which has XXth virtually placer given and for weighted risk on front-end average foot ranking renewal traffic. is Our national exceptionally sales with its its years approximately just Walgreens we with X expiring X XX XXXX, term lease believe

locations Lastly, own. from for a our while this nothing inbound the who there front that in high are of today, on similar currently interest is convenience fair we store largely to we to received locations, amount as operators to willing Walgreens large-format rents properties have of high-quality report pay

ABR. our at XX Lots, nearing highly to points basis of as it positive outcome which relates We total Big currently are a stands also

Ollie's to prior a to occurred, in to assigned to the indeed the our from which locations, Outlet, a one September. Of happened concentration reminder, cash profile Big an of Lots Bargain financial X As decreased protect existing we event XXXX, investment-grade ours. order stores tenant our stores in X was this XX flow restructuring

locations lease by ] we received Bowie been being remaining have grocers, all number Lots. from is have where Big major Maryland, [ attractive and and site a assumed X retailers of in LOIs marketed the Another for

part we negotiation, term to which during agree the extended some process, expect did an conclude years, sometime rent X.X the As provide we bankruptcy to albeit lease December. we relief of the short-term to average in of

little Looking loss in assets rents. out profiles X should to terms longer credit lease from better XXXX, we our to experience stream proven no the at from while rental gaining

minimal to have proved noise of important to flows. While believe to cash our the health assets tenants of our credit, in we and sound is around not underwriting prefer demonstrate be that it we our any to disruption resulted

view flow cash estate the rental and of we reminder, corporate credit, protection a as fungibility of level unit our streams. As moats around production real our

high assets and credit the buying are We not hoping best. quality for simply

underwriting for management portfolio asset our consistent strong shareholders. extraordinarily cash and Our have we capabilities believe and generate flow us continue will help to

the deep call I'll and the our to the on open then your a demonstrated I service call will our commitment has pleased to understanding continued the that, hand was member share to X, over to before consistently hand instrumental has been the October IPO, Directors. execute up our Lastly, for a Chair success. going call over to long-term Board a I'm Her growth. With valued Lori of that of Dan and we questions. effective as Wittman of strategic be of Dan, before back business she quarter Board our financials go and appointed Lori vision our and our third

Daniel Donlan

Thank you, Mark.

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

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

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

Turning to the balance sheet.

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

$XX options, XXXX. was on X.XX%. revolving equity. January $XXX years, can our Including on extension have average exercised Our be weighted maturity our weighted our and cash discretion, X.X until consisted average maturing our forward debt At interest unsettled was million, of of quarter debt $XXX of and million which end, $XXX available no liquidity rate we million which facility credit hand, was million at

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

Moving guidance. on to

to guidance and $X.XX. our midpoint per range prior the our to updating $X.XX We to range are $X.XX $X.XX of from share XXXX maintaining AFFO

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

Operator

[Operator question of Instructions] from line first The Golladay Wes with the comes Baird.

Wesley Golladay

you next fourth and assets, into do you your still your versus an resetting the spread as maybe accretive acquisition first to look of non-core expect quarter year As quarter the some dispositions? of you're maintain

Mark Manheimer

do, We Yes. Wes.

expect we at below the achieved But currently that we than forward the been looking rates some we're quarters. just quarter. we slightly maybe looking are where to cap and lower visibility, for early rates maybe the stay dispositions in are now, first think first X quarter the where they to I close the what pretty right third have at in where to fourth we've cap quarter

Wesley Golladay

General your traffic, on Dollar blend analysis can Walgreens foot exposure? or and do can about of then the you see maybe You nice And high over Dollar quality a progressing then little the the so? gave Okay. you you locations? exposure how and And extends unpack your comment General year next but your being

Mark Manheimer

sure. Yes,

leases that partner portfolio then get unique weren't sold out of that the majority most is the the that So able we vast extended, the General with we've little I bit and in of were and extended to Dollar have, our ones gone think, tenant really those. we a and

So the an we're leases. X% left just years XX with in of average increases weighted term with lease annual average under

yes, there. a portfolio compare there little when loans are a bit I unique So of you to in number dollar mean, our store others. But

think I will paid next off those year get or so. the in So here

concentration I well really kind a handful we that of of at which just So try in that think quarters. the a be will then are here to get little that. down just concentration bit, of below couple below looking the next certainly And with XX% XX% to down dispositions brings

Operator

from Haendel Next St. the question of comes line

Mizuho. with Juste

Ravi Vaidya

This line Vaidya Haendel. the for Ravi is in

element be XXX we expecting comments and Is seller going bps something decreased this the the the you So drugstore some offer exposure disposition also market dispositions? of financing sequentially. should Walgreens the pharmacy maybe and Can addressing forward? when on

Mark Manheimer

little the Yes, say market gotten Yes. has I'd dispositions mean, I Thanks, Ravi. better. a bit

dry up but of you the back As a of bit. to come a are market past starting XXXX think year, really over kind lot the I aware, did is

So third tool that we're that was that those not future, And interest sector. in pharmacy a like interest to the the a we're reducing rate above the in a an but the sold of financing quarter. the at, of the the felt in to the able we a us in were our seller do was success slightly think event that higher mentioned, quickly exposure error more than couple assets assets on that use felt using cap market, going thinking it really to we've we by like our but gets so seeing had get in more it in We a the we of more yield, reduced financing little healthy that right rent the did is be the outcome. pretty assets. better seller rate And our we use as the transactions that you exposure rent. We much bit there maintained so were the reserve to kind kind was in than we

Walgreens, we the slightly average rate third sold about higher the a quarter, those the rate was around interest and than X.X% in specifically was So cap that.

So I change. and X.X% think

that's think quarter, be a forward some outcome. fourth we've using go able going in financing the without pretty certainly good But like a So to the on that felt sell likely seller been we to path that basis. assets and was

Ravi Vaidya

That's it. Got helpful.

one on [ the here. fact elevated? a ] is would Just run more has given longer-term current rate bit steady the quarters decreased acquisition basis, outstanding for What particularly equity the X, that X is WACC say a and a you next

Mark Manheimer

to mean, achieve I -- where today, spreads at given Yes. to pace Look, that able we're is our cost we're today. capital of accretive acquiring think the at not I if sufficiently acquire

like. it rate So just seen I remains think our be to what would run look

to million anywhere have to to do continue of I to built though, net $XXX think the investment do of activity $XXX million. certainly we certainly team now, from is plenty capacity Right our see the as basis. our invest. a think of on And I to we'll quarters, ability next cost about go-forward couple season how impacts think capital over grow that of we

Operator

from Next line Rose with the question Smedes Citi. comes of

Nicholas Joseph

Joseph Nick with here It's Smedes.

missed it, the a from Big I the But in I what there. if forward perspective, but Sorry on leases? what's term Lots, rent difference understand going just cash additional the previous versus the rent was

Mark Manheimer

Yes.

the that it's do sale. likely... think got location marketed is for We we've one So -- is that there being

Daniel Donlan

For lease.

Mark Manheimer

Yes, for lease, selling likely not that. sorry,

So up We be bit even to lease, is we're rent likely higher. a do for retailers the to different at grocers. think of talking that a number or and little

the into equivalent done, where we it's we we said all to the So and to when today going or where going think be were are bankruptcy. is rent

Nicholas Joseph

that existing the Lots? for And Big continue with will leases

Mark Manheimer

collecting amount I decrease rent rent in small to likely during a rent the of likely not will here period. increase offset is There that think the that. get there, the the [indiscernible] we're bankruptcy including Yes. we're But

Nicholas Joseph

And acquisitions, obviously, down on just in it. came Got the then of quarter. the proportion the IG

the you quarters? about And more leaseback. would you would -- expect saw are the it to so, in what there how thinking previous mentioned forward future that percentage sale quarter? IG versus going this that more if You expectations acquisitions are as the make What attractive for see you cap rates on

Mark Manheimer

an larger saw our Yes, the that kind not returns were of We risk-adjusted And we what Nick. around have much exactly was and on more might in the really operators getting what third quarter. unit operators, that's attractive driving just level not and second acquiring decisions we're X rents. small of deals unit out and with investment-grade operators lot X really larger the economics rating, going a that we're certainly still or with doing replaceable but strong where comfortable

see pretty been in investment the so successful kick expect been the grade fourth an second that a third it's and higher I would we've that to little where bit been up has And area quarter. with. quarter than

Operator

from Next Truist with Ki the Kim of question line Bin comes Securities.

Ki Bin Kim

maybe I Just rates Dollar tenants? ultimate type just going Walgreens ultimate guess, And the view remaining the is percentage and provide Family asset back think those ABR from what goal a you sales, you to your Like what cap goal? what high-level lower of could -- your to can be? the how much topic, on those is

Mark Manheimer

Ki Bin. Thanks, Yes.

over relates or it down with selling yes, very aware, starting Dollar, of assets I we So the years, Family either been couple were past as felt as that not the really you're mean, to we've not that exposure like profitable not profitable.

with that a continue we're said, likely being so. the We so left cash to Dollars sell stores. That down good positive or And that we're year currently exposure they're portfolio of generate over really next flow. Family to think

third to And relates ABR. And see prepared as so expect that bit quickly that's as X% from more to quite not of maybe down, we in below next kind X down think than getting we or it that in the X we've X.X% to a quarter. achievable target as gone X% us of would did I mentioned as to quickly. the then here quarters. a sell of X.X% to But I little continue is in Walgreens, pretty the remarks,

Ki Bin Kim

on can provide parameters, And you pricing, please? if some

Mark Manheimer

sure. Yes,

So I able sell mean, disposition cap our in rate cap we quarter Walgreens at were a third the than rate. lower the to

to have to time that to unlikely understand find continue certainly are inside is stores X And encouraging. we feel we're right are [ closed. to pricing buyers the and to like We an take that just that see be we going so that know And our ]. can these

Operator

with from comes of Kathryn line Next Graves UBS. question the

Kathryn Graves

bit first both accelerated could flip speak was on far you then environment, the opportunities, transaction deals? you're but for increasing current maybe obviously wondering how competition XXXX, to if the of increased the in quarter. So compared especially little half characterizing the maybe side, I a acquisitions as on as

Mark Manheimer

sure. Yes,

continues are kick been for the The grade and blend sale be opportunities seen the extend investment we're for pick been plus, to competition a when for Really, the So side, year. seeing side. the into in up, has great on that side, expectations bit that year past But but the haven't we've and case. competition, running certainly the we're side, on the quite set we really earlier competition us much really opportunity seller out looking development to from up locations. leaseback expecting

So we're pretty just our is. capital what there. about be excited we're a going matter where It's of seeing out cost to of

Kathryn Graves

sort to speak other proactive question, that now? remarks or my Big ahead then if second prepared portfolio it. of right monitoring about consumer you're can you in getting the Lots I'm of trends any Got to And mentioned prior components XXXX. current of management wondering you

Mark Manheimer

sure. Yes,

mean, I under the certainly, consumer. really pressure. have has That's growth into income the creeped So consumers been job slowed. up of lower Even kind middle-income

kind around being some that the cautious ago I got think there. the was that on of have balance consumer then a can But think mean, not I unit than pretty quarter pretty where issues. the a companies around are economics it cushion and also have slightly just in sure only we're maybe and worse consumer, solid the going be making businesses really So disruption making we protection we've investing but sheets of it we same that with with what's sure a mode yes, continues withstand that level to

Operator

KeyBanc Next question from of Upal Capital the comes Markets. line Rana with

Upal Rana

strength Walgreens. quarter? on assets you about remaining you How relative sell Mark, X did differentiate in the that the does talked your the from

Mark Manheimer

we I little bit sold, lease in assets, shorter Yes, good a we term. assets maybe that mean sure. the are think,

than does with have kind Walgreens, And so total that be schedule phenomenal And front extraordinarily really look store. generates until that where but that any have that we unlikely think only on focus mentioned, then a there they know other it's expiration lease not would we don't has likely phenomenal sales XXXX expiring foot traffic one will so end and pushing leases what as of also we we the the like? ABR we close the out, that on

continue -- as from We went portfolio, weighted X have So term. strengthen out push during really XX longer that quarter average well. lease to years to the

the think So they rates reimbursement face quality pressures I on important. continues that is on provide. Walgreens the upgrading to drugs

to better, we they're positioned we're bit for things so that on event There's worse. a that like know an we're worse to well get eye or in event the And the prepared pretty don't going -- be feel that. things get get keeping We want but worse. we if little

Upal Rana

That would how also And Great. in Okay. point there's we've the was already sort a then helpful. cycle? and a XX-year Given rate basis this we've this XX basis higher the basis XX XX over by cut describe of likelihood of another you at week, cut then and point climb point sellers points. had seen

point. this So I your are sense on sellers want kind of at to where get

Mark Manheimer

Yes.

I of it get move -- they're has back happening that of tenure. last think really really could isn't all going increase before a obviously, sellers some really And on because up that the call brokers cap tenure was the for the were just calmed that the rates in thinking the you that and the to the fall. down lot with that about

to it's bit transact. find become So a I if willing anything, sellers to easier think little

Operator

from line Scotiabank. Next the question McGinniss Greg of comes with

Greg McGinniss

terms, that's in the of Are that of better guys past? or you more able the details understand to can what give whether a the so just we quarter, acquisitions the us doing around this tenants you completed names non-investment-grade deal the were you maybe few some

Mark Manheimer

little are C-store that bit in the you weighted BB+. of handful maybe term, the sure. retailers or a a longer, BB mean kind lease saw I bit space, Yes, little a average that of

one the couple been had upgraded the guess, potential I of increase that they that really portfolio. to get of past growth But could big over has of years internal one focuses the day. we've So the

of I rent XX And started now at like growth. internal think we that. XX, over out something the of we're points, X% IPO basis

focus with certainly a that's that. this certainly I acquisitions and So past been think quarter's help

Greg McGinniss

of couple a Big clarifying One just relief. points. And rent the Lots on Okay.

for to December? paying Or the So start points month, paying last think is and in this about not month we XX basis again how then expected just what that? that full should

Mark Manheimer

expect in January. We again start them to paying

Greg McGinniss

January.

feel from Okay. on those closures? portfolio? Last one of lot how Or for but on Walgreens heard them closing Have call, is a the me. about There's CVS assets anything you the well. stores been do as in store regarding focus potential already you

Mark Manheimer

and like assets relationship how that we the understanding the really they're feel extend XXX CVS. I feel the got think X Yes. well, great as the portfolio. within that we announced closing, about to good were years. we've a said stores stores very I X as pretty think, and mean, we they're of acquired that got A of with where CVSs walls they I blend years going we've doing they we've strongly the lot got a and transactions CVS over they own that exceptionally an strong X.X next that And to ago close were was

down should in XXXX. really winding that here So be

Operator

the Next comes from question America. Dennerlein of of Bank line Josh with

Farrell Granath

was curious, consider debt This you've associated considering you your on behalf is of year in current assuming, Josh. that and with of given assumptions ever general? risk of I terms bad increasing retail levels Farrell previous next and of pharmacies would debt, headlines bad maybe just kind in even been Granath

Daniel Donlan

that The year. simply would quarter this note a Dan. answer We didn't rent I it's is losses temporary And no. have we had or relief. Farrell, credit this necessarily

our assumed So -- perpetuity that have in losses kind in prior as these the have out portfolio, stayed temporary credit coming would XXXX they're only in core about of fact, expectations that model you nature. think of the for credit when, would

guidance set January. about the of coming core we it's out better in position as XXXX, in envisioned actually when portfolio what So a than we think we

Farrell Granath

Great. underwriting? among through there I kind you're more lot more you in going underwriting went a know is I just current tenants given curious, either or forward you about set. that scrutinous was of the reports also anything your about headlines, being P&L But of more that And also one parameters requiring

Mark Manheimer

Yes.

understanding the I we've into good had that doing very we of to X what about portfolio. the the careful are And how boxes we think are the a within mean, tenants I think pretty walls own. I as we yes, So put

maybe lesson is on just around news traded there then would a quarterly higher with a can concentrations where learned, and turn impact potential noise just noise a having companies performance -- us. if think it around lot basis be some of I publicly their there's and

And for so rent that portfolio very we we to certainly are feel the strongly that performers the going are continue in pay put company. be the to to good and assets going

Operator

question Next from the with Truist Instructions] comes [Operator line of Ki Bin Securities. Kim

Ki Bin Kim

a gauge mean, can't on describe entire health you to Dollar or Just would you stores follow-up have compare those quick of Walgreens of locations, Walgreens. the Family -- that you do compared different because remaining? guess but it's performance the quality the how or How you Walgreens I the chain I really it

Mark Manheimer

Yes.

are that rent locations going for the continue each tenants. stay to think I we've are of open that profitable got paying and and that locations

of tenants. required got and we've strong very the get from we then those lease, on information that's tenant with so a both And relationship some

own. So pretty conversations doing we about open we stores have they're the -- thinking the that about within with what

with and of And our It's us risk, so you department the management potential asset to but tenants. is, with get out only ahead an basis when I acquire ongoing having imperative. not potential think, which asset those conversations, that's allowed some really closures the some

well. so confidence that are we've gives really to And us got perform going what locations continue so that's much to that

Ki Bin Kim

the I'm would you sure that. primary do But pharmacy of about X-wall sales curious if front-end -- you just driver profitability the is have the a versus locations? those not I'm view And sales. on

Mark Manheimer

the to we from, the mean to from -- that are house insurance are reimbursement that where are the some confident the companies. the When have they're own related and we and that is due -- locations really decreased more their what's the D getting I Yes. just some think profitability profitable. certainly rates about coming Part side of very pharmacy issues you Medicare

been so rates that's but pharmacy. getting only been on not also they're more And reimbursed have difficult the that timing,

largest where about Aid talking also a than X,XXX likely they you're in to mentioned even X,XXX where seeing X/X the looking are to years We only independent for gone the their then it's ago chains XXX CVS X few you more stores stores. And closing what, Rite -- about told, was cut to are at are pharmacies, an from that of X,XXX all there's now, worse not see closing So stores earlier, which stores closed. half. situation Walgreens

the but So That's insurance under I the driven coming mostly store. of end from XX% companies. by is the pharmacies. of the end, also really not of revenue government, it's but rates, from the X/X of from reimbursement revenues the really been And the only what the coming think that's -- front front that's pressure, drives profitability

Operator

Ladies have Mark question-and-answer of the the to session. turn end like closing now reached and gentlemen, to we over comments. Manheimer for would floor I

Mark Manheimer

many at the upcoming Thanks, everybody, season. of the for joining today. seeing to We certainly appreciate everybody's interest conference in company forward and look you

Operator

teleconference. today's concludes This you. Thank

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

NETSTREIT (NTST) 5 Nov 242024 Q3 Earnings call transcript