NETSTREIT Corp. (NYSE:NTST) Q4 2024 Earnings Conference Call February 25, 2025 11:00 AM ET Company Participants Amy An - Director of Investor Relations Mark Manheimer - President and Chief Executive Officer Daniel Donlan - Chief Financial Officer Conference Call Participants Elmer Chang - Scotiabank Michael Goldsmith - UBS Group AG Ravi Vaidya - Mizuho Securities Co., Ltd. Michael Gorman - BTIG, LLC Linda Tsai - Jefferies Group LLC Dan Guglielmo - Capital One Securities, Inc. Jay Kornreich - Wedbush Securit ...

Investor Presentation February 2025 1 Disclaimer This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements include, without limitation, statements concerning our business and growth strategies, investment, financing and leasing activities, including estimated development costs, and trends in our business, including trends in the market f ...

Core Insights - NETSTREIT (NTST) reported $44.1 million in revenue for Q4 2024, a year-over-year increase of 19.6% [1] - The company's EPS for the same period was $0.32, compared to $0.03 a year ago, indicating significant growth [1] - Revenue exceeded the Zacks Consensus Estimate of $43.32 million by 1.81%, and EPS also surpassed the consensus estimate of $0.31 by 3.23% [1] Revenue Breakdown - Interest income on loans receivable was reported at $3.10 million, slightly below the two-analyst average estimate of $3.28 million, reflecting a year-over-year increase of 38.3% [4] - Rental revenue, including reimbursable, was $40.60 million, exceeding the two-analyst average estimate of $39.53 million, with a year-over-year change of 17.3% [4] Stock Performance - NETSTREIT shares have returned -0.5% over the past month, matching the Zacks S&P 500 composite's -0.5% change [3] - The stock currently holds a Zacks Rank 4 (Sell), suggesting potential underperformance relative to the broader market in the near term [3]

NETSTREIT (NTST) came out with quarterly funds from operations (FFO) of $0.32 per share, beating the Zacks Consensus Estimate of $0.31 per share. This compares to FFO of $0.31 per share a year ago. These figures are adjusted for non-recurring items.This quarterly report represents an FFO surprise of 3.23%. A quarter ago, it was expected that this company would post FFO of $0.32 per share when it actually produced FFO of $0.32, delivering no surprise.Over the last four quarters, the company has surpassed con ...

Portfolio Overview - As of December 31, 2024, the company owned or had investments in 687 properties, generating an annualized base rent (ABR) of $165.1 million, with a portfolio occupancy rate of 99.9%[16] - Approximately 56% of the ABR is derived from investment grade credit rated tenants, and an additional 15% from tenants with an investment grade profile[16] - The average purchase price of properties in the portfolio was $3.6 million, with an ABR per property of approximately $251,000[24] - The weighted average remaining lease term (WALT) for the portfolio is 9.8 years, providing a stable source of recurring cash flow[16] - The company's weighted average lease term (WALT) was 9.8 years as of December 31, 2024, contributing to stable cash flows[33] - The portfolio includes substantial geographic concentrations, with 12.3% in Texas, 10.1% in Illinois, and 7.4% in New York, making the company susceptible to adverse developments in these markets[67] Financial Performance and Strategy - The company aims to maximize stockholder value by generating attractive risk-adjusted returns through a diversified portfolio of commercially desirable properties[22] - In 2024, the company disposed of 56 properties for a total sales price of $110.9 million, enhancing portfolio performance through diversification and improved tenant credit quality[31] - The company targets properties with a purchase price between $1 million and $10 million, focusing on e-commerce resistant and recession-resilient industries[24][25] - The company plans to leverage developer relationships for build-to-suit opportunities, which are expected to provide higher yields than traditional acquisitions[29] - The company aims for a target dividend payout ratio that allows for free cash flow reinvestment, supporting strong dividend growth without relying solely on common stock issuances[33] Debt and Capital Structure - As of December 31, 2024, the company had $239.0 million in borrowings outstanding under its $400.0 million Revolver, with a target net debt to EBITDAre leverage ratio of 4.5x to 5.5x[32] - The company is committed to maintaining a capital structure that allows for targeted acquisitions while servicing debt requirements[32] - The company amended its PNC Credit Agreement to include a new $175.0 million 2030 Term Loan B and an upsized $500.0 million Revolver, with the 2030 Term Loan B fully funded at a fixed interest rate of 5.12% through January 2030[92] - As of December 31, 2024, the company had outstanding borrowings of $200.0 million under a 2028 Term Loan, $175.0 million under a 2027 Term Loan, $250.0 million under a 2029 Term Loan, and $239.0 million under a $400.0 million Revolver[92] - The company's debt agreements contain covenants that may limit its operational flexibility and ability to make distributions to common stockholders[95] Tenant and Market Risks - The company focuses on tenants in necessity goods and essential services, which are considered e-commerce resistant and resilient through economic cycles[34] - The company faces risks related to tenant defaults, particularly as it primarily invests in single-tenant properties, where the financial failure of a tenant could lead to significant revenue loss[62] - Current macro-economic conditions, including fluctuating inflation and interest rates, have increased costs associated with property acquisitions and reduced financing availability[57] - The assessment that certain businesses are e-commerce resistant may prove incorrect, as competition from online vendors could impact tenant performance[64] - Tenant bankruptcies could lead to lease terminations and significant income losses, with potential statutory limitations on claims for unpaid rent[72] Compliance and Regulatory Risks - The company operates as a REIT and must distribute at least 90% of its taxable income to stockholders to maintain its tax status[35] - If the company fails to qualify as a REIT, it would face serious tax consequences, including being subject to U.S. federal income tax at the corporate rate, which would reduce funds available for distribution[97] - The company must ensure that less than 50% of its stock is owned by non-qualifying U.S. persons to maintain its status as a domestically-controlled REIT[123] - New legislation or regulatory changes could impact the company's ability to qualify as a REIT, potentially with retroactive effects[119] Operational and Management Risks - The company employs 22 full-time employees, primarily in roles essential to origination, underwriting, and portfolio management[51] - Key management personnel are crucial for business performance, and their loss could adversely affect investment opportunities and relationships[77] - The company may face significant remediation costs if environmental contamination is discovered on its properties, which could adversely affect its financial condition[127] - The company is subject to various environmental laws that may impose fines or liabilities for non-compliance, potentially impacting its operations[128] Cybersecurity and Fraud Risks - The company experienced a loss of $2.8 million due to a fraudulent scheme involving business email compromise, despite insurance recoveries totaling $3.3 million[145] - The company has strengthened its internal controls and processes related to fund transfers and vendor information updates following the fraudulent incident[145] - Cybersecurity risks from third-party vendors could lead to operational disruptions and financial losses[80] Market Conditions and Stock Performance - The market price of the company's common stock may be highly volatile, influenced by various macroeconomic and market conditions[139] - The company relies on distributions from its operating partnership to meet obligations and pay dividends, making it structurally subordinated to its operating partnership's liabilities[136] - The company may issue units of its operating partnership to third parties, which could dilute existing ownership and voting rights of stockholders[138]

Financial Performance - NETSTREIT reported a net loss of $(0.07) per diluted share for Q4 2024, a decrease of 333.3% compared to a profit of $0.03 in Q4 2023[3] - For the full year 2024, Funds from Operations (FFO) per diluted share increased by 1.7% to $1.20 compared to $1.18 in 2023[3] - Net loss attributable to common stockholders for 2024 was $11.937 million, compared to a net income of $6.837 million in 2023[32] - For the three months ended December 31, 2024, the company reported a net loss of $5,424 million compared to a net income of $1,962 million in the same period of 2023[41] Revenue and Growth - Total revenues for the year ended December 31, 2024, increased to $162.784 million, up 23.3% from $131.905 million in 2023[32] - Rental revenue, including reimbursable, rose to $150.823 million in 2024, compared to $123.967 million in 2023, reflecting a growth of 21.6%[32] - Adjusted Funds from Operations (AFFO) for Q4 2024 was $0.32 per diluted share, up 3.2% from $0.31 in Q4 2023[3] - Funds from Operations (FFO) for 2024 was $92.653 million, compared to $76.177 million in 2023, indicating a growth of 21.6%[35] - Adjusted Funds from Operations (AFFO) per common share, diluted, was $1.26 for 2024, compared to $1.22 in 2023, reflecting an increase of 3.3%[35] Investment Activity - The company achieved record gross investment activity of $195.1 million at a 7.4% blended cash yield in Q4 2024[1] - The company recorded record dispositions of $59.3 million in Q4 2024, contributing to a net investment activity of $122.1 million for the quarter[5] - The company closed $275.0 million in additional financing commitments in January 2025, including a new $175.0 million senior unsecured term loan[12] Portfolio and Assets - The real estate portfolio as of December 31, 2024, consisted of 687 investments with an Annualized Base Rent (ABR) of $165.1 million and an occupancy rate of 99.9%[8] - The weighted average lease term for the portfolio was 9.8 years, with 55.8% of ABR derived from investment-grade tenants[8] - Total assets as of December 31, 2024, reached $2.259 billion, an increase from $1.946 billion in 2023, representing a growth of 16.1%[30] - Total liabilities increased to $921.214 million in 2024, up from $672.804 million in 2023, marking a rise of 36.8%[30] Cash Flow and Expenses - A quarterly cash dividend of $0.21 per share was declared for Q1 2025, representing an increase of $0.02 per share over the prior year[16] - General and administrative expenses decreased to $4,456 million from $4,876 million year-over-year[41] - Property-Level NOI increased to $36,241 million from $29,635 million, representing a growth of approximately 22%[41] - Property-Level Cash NOI for the quarter was $35,026 million, up from $29,086 million, indicating a year-over-year increase of about 20%[41] - Total Cash NOI - Estimated Run Rate reached $40,039 million[41] Debt and Financial Ratios - The company reported a net debt of $857.885 million as of December 31, 2024[38] - The leverage ratio, calculated as Net Debt to Annualized Adjusted EBITDAre, was 5.8x[38] - Interest expense increased to $8,576 million from $5,646 million, reflecting a rise of approximately 52%[41] - Provisions for impairment rose significantly to $12,633 million from $2,709 million, marking an increase of over 366%[41] Future Outlook - NETSTREIT has initiated 2025 AFFO per share guidance in the range of $1.27 to $1.30[17] - The company anticipates continued growth in rental revenue and overall performance despite macroeconomic uncertainties[27]

Core Insights - The article does not provide specific insights or analysis regarding any companies or industries, focusing instead on disclaimers and disclosures related to the author's position and affiliations [1][2]. Group 1 - No stock, option, or similar derivative positions are held by the author in any mentioned companies, nor are there plans to initiate such positions in the near future [1]. - The article expresses the author's personal opinions and does not reflect the views of Seeking Alpha as a whole [2]. - The content does not provide any investment recommendations or advice regarding the suitability of investments for particular investors [2].

Group 1 - The article emphasizes the importance of long-term investment strategies over frequent monitoring of stock prices, suggesting that constant checking may lead to anxiety and poor decision-making [1]. - It highlights the value of in-depth research on various investment vehicles such as REITs, mREITs, Preferreds, BDCs, MLPs, and ETFs, indicating a comprehensive approach to income alternatives [1]. Group 2 - The article does not provide specific financial data or performance metrics related to any companies or sectors [2][3].

Group 1 - The performance across the net lease sector is diverging, with a systemic decline linked to movements in the ten-year treasury [1] - Recent articles have highlighted the impact of treasury movements on net lease performance, indicating a broader trend in the real estate market [1] Group 2 - The article reflects the author's insights and experiences in the real estate industry, including work with an S&P500 REIT and a Big Four consulting group [1]

Financial Data and Key Metrics Changes - The company reported a net loss of $5.3 million or $0.07 per diluted share for Q3 2024, while core FFO was $24.9 million or $0.32 per diluted share, and AFFO was $24.8 million or $0.32 per diluted share, representing over a 3% increase year-over-year [25] - Total recurring G&A expenses declined 16% year-over-year to $4.3 million, with recurring cash G&A down 24% year-over-year to $2.9 million, indicating improved efficiency [26] - Adjusted net debt at quarter-end was $569 million, with a liquidity position of $464 million, including $29 million in cash and $250 million available on the revolving credit facility [27][28] Business Line Data and Key Metrics Changes - The company completed $152 million in gross investments during the quarter, the highest on record, with a blended cash yield of 7.5% [7] - The portfolio consisted of 671 properties, 100% leased to 93 tenants across 26 industries, with over 75% of total ABR leased to investment-grade or investment-grade profile tenants [11] - The weighted-average lease term remaining on the portfolio is 9.5 years, with less than 3% of ABR expiring through 2026 [11] Market Data and Key Metrics Changes - The company has seen a reduction in its Walgreens concentration from 5.9% to 4.8% and aims to lower it further below 3% in the next six to seven quarters [17][48] - The company is actively managing its exposure to the pharmacy and dollar store sectors, which have faced negative headlines, but management remains confident in the long-term productivity of these assets [14] Company Strategy and Development Direction - The company is focusing on accretive acquisitions and has shifted towards sale-leasebacks to achieve more attractive risk-adjusted returns [8] - Management is committed to maintaining stringent underwriting standards and has successfully reduced tenant concentrations while reinvesting proceeds into longer leases with better rent escalations [13][17] - The company is also exploring opportunities in the development pipeline, with eight projects totaling an estimated cost of $22 million [10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the long-term productivity of assets in the pharmacy sector despite recent challenges, citing strong tenant relationships and rigorous underwriting processes [14][21] - The company is cautious about consumer trends, particularly among lower-income consumers, and is ensuring investments are in businesses with strong balance sheets and unit-level economics [56] - Management anticipates maintaining an accretive acquisition spread and expects cap rates to remain stable or slightly decrease in the near term [31] Other Important Information - The Board declared a quarterly cash dividend of $0.21 per share, payable on December 13, with an AFFO payout ratio of 66% for the third quarter [29] - Lori Wittman was appointed as the Chair of the Board of Directors, bringing valuable experience and commitment to the company's strategic vision [23] Q&A Session Summary Question: Expectations for maintaining an accretive acquisition spread - Management expects cap rates to remain stable or slightly decrease, allowing for an accretive acquisition spread compared to dispositions [31] Question: Progress on Dollar General exposure - The company has extended most leases and anticipates reducing Dollar General concentration below 10% in the coming quarters [32][33] Question: Disposition market and seller financing - The disposition market is improving, with some transactions utilizing seller financing to maintain healthy yields, though future use of this strategy may be limited [35][37] Question: Cash rent perspective for Big Lots - The company expects rent from Big Lots to remain equivalent or slightly higher post-bankruptcy, offsetting any temporary rent relief [41] Question: Future acquisition expectations - Management indicated that the current cost of capital may limit acquisition pace, but they have capacity for net investment activity of $100 million to $150 million [39] Question: Health of remaining Walgreens and Family Dollar stores - Management is confident in the profitability of remaining locations, supported by strong tenant relationships and ongoing monitoring of performance [74][78]