NetSTREIT(NTST) - 2024 Q2 - Quarterly Report

PART I — FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Presents NETSTREIT Corp.'s unaudited condensed consolidated financial statements for Q2 and H1 2024, including balance sheets, operations, cash flows, and notes Condensed Consolidated Balance Sheets Total assets grew to $2.10 billion by June 2024, driven by real estate investments, with liabilities and equity also increasing Condensed Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Assets | $2,097,986 | $1,946,236 | | Real estate held for investment, net | $1,659,886 | $1,538,693 | | Total Liabilities | $780,124 | $672,804 | | Term loans, net | $621,869 | $521,912 | | Revolving credit facility | $98,000 | $80,000 | | Total Equity | $1,317,862 | $1,273,432 | Condensed Consolidated Statements of Operations Net loss increased for Q2 and H1 2024, driven by higher operating expenses, depreciation, impairment, and interest costs Statement of Operations Summary (in thousands) | Metric | Q2 2024 | Q2 2023 | Six Months 2024 | Six Months 2023 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $39,567 | $31,630 | $77,240 | $61,081 | | Total Operating Expenses | $31,677 | $27,488 | $62,819 | $51,390 | | Interest Expense, net | $(7,604) | $(5,521) | $(13,784) | $(9,465) | | Net (Loss) Income | $(2,306) | $(792) | $(1,254) | $689 | Condensed Consolidated Statements of Cash Flows Operating cash flow was $37.0 million, investing used $203.9 million, and financing provided $150.7 million, leading to a net cash decrease Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $37,018 | $34,395 | | Net cash used in investing activities | $(203,923) | $(226,525) | | Net cash provided by financing activities | $150,702 | $134,727 | | Net change in cash | $(16,203) | $(57,403) | Notes to the Condensed Consolidated Financial Statements Notes detail financial position, including H1 2024 real estate acquisitions, total debt, interest rate hedges, equity offerings, and a Q3 2024 dividend - During the six months ended June 30, 2024, the Company acquired 46 properties for a total purchase price of $190.8 million[260] - As of June 30, 2024, total debt outstanding was $731.3 million, consisting of term loans, a revolving credit facility, and a mortgage note[269] - The Company uses interest rate derivative contracts, designated as cash flow hedges, to manage its exposure to interest rate changes on its variable rate debt. As of June 30, 2024, it held 12 interest rate swaps with a notional value of $650.0 million[108][285] - In January 2024, the Company completed a public offering of 11,040,000 shares at $18.00 per share, entering into forward sale agreements for the full amount[4] - On July 23, 2024, the Board of Directors declared a cash dividend of $0.21 per share for the third quarter of 2024[126] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses business overview, financial results, liquidity, and capital resources, including portfolio growth, operational analysis, and non-GAAP reconciliations Business Overview and Recent Activities The company's portfolio reached 649 properties with 100% occupancy by June 2024, driven by acquisitions, and faced a significant loss from a business email compromise - As of June 30, 2024, the portfolio was 100% occupied with a weighted average remaining lease term (WALT) of 9.5 years[365] - In the first half of 2024, acquired 46 properties for $190.8 million and sold 18 properties for $32.5 million[25][371] - The Company was a victim of a criminal scheme involving a business email compromise, resulting in a $2.8 million loss, net of insurance recoveries[41] Results of Operations H1 2024 revenues grew 26.4%, but rising operating and interest expenses led to a net loss, reversing H1 2023's net income Comparison of Six Months Ended June 30 (in thousands) | Metric | 2024 | 2023 | Change | | :--- | :--- | :--- | :--- | | Total Revenues | $77,240 | $61,081 | +26.4% | | Total Operating Expenses | $62,819 | $51,390 | +22.2% | | Interest Expense, net | $(13,784) | $(9,465) | +45.6% | | Net (Loss) Income | $(1,254) | $689 | -282.0% | - The increase in net loss was primarily due to higher interest expense, depreciation, provisions for impairment, and a transfer fraud loss, which offset increased rental revenues from portfolio growth[51] Liquidity and Capital Resources The company's capital sources include operations, equity sales, and debt facilities, with significant net debt and unsettled forward equity, supporting operations for the next 12 months - As of June 30, 2024, the company had $98.0 million outstanding on its $400.0 million revolver and $625.0 million outstanding across its term loans[53] - The company had $222.7 million of remaining gross proceeds available under its 2023 ATM Program and $190.4 million of unsettled forward equity from its January 2024 offering[53] Contractual Obligations as of June 30, 2024 (in thousands) | Period | Amount | | :--- | :--- | | Remainder of 2024 | $32,855 | | 2025 - 2026 | $596,935 | | 2027 - 2028 | $218,185 | | Thereafter | $2,622 | | Total | $850,597 | Non-GAAP Financial Measures This section defines and reconciles key non-GAAP metrics, with H1 2024 Core FFO, AFFO, and EBITDAre showing significant growth over the prior year Reconciliation of Net (Loss) Income to FFO, Core FFO, and AFFO (in thousands) | Metric | Six Months 2024 | Six Months 2023 | | :--- | :--- | :--- | | Net (loss) income | $(1,254) | $689 | | Adjustments for FFO | $42,418 | $33,193 | | FFO | $41,164 | $33,882 | | Adjustments for Core FFO | $4,673 | $390 | | Core FFO | $45,837 | $34,272 | | Adjustments for AFFO | $840 | $1,864 | | AFFO | $46,677 | $36,136 | Reconciliation of Net (Loss) Income to EBITDAre (in thousands) | Metric | Six Months 2024 | Six Months 2023 | | :--- | :--- | :--- | | Net (loss) income | $(1,254) | $689 | | EBITDA Adjustments | $49,727 | $39,844 | | EBITDA | $48,473 | $40,533 | | EBITDAre Adjustments | $6,492 | $2,540 | | EBITDAre | $54,965 | $43,073 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate fluctuation on its floating-rate debt, mitigated by interest rate hedges, with a 1% rate change impacting revolver borrowings - As of June 30, 2024, the company had approximately $723.0 million in floating-rate debt outstanding across its term loans and revolver[101] - The company has hedged its market interest risk for the 2027, 2028, and 2029 Term Loans by using interest rate derivative contracts to convert the variable rate debt to a fixed interest rate[98] - A sensitivity analysis assuming a 1% adverse change in interest rates as of June 30, 2024, estimated a market risk exposure of approximately $0.8 million related to the revolver[102] Item 4. Controls and Procedures Disclosure controls were effective as of June 2024, despite a material weakness from a business email compromise loss, prompting strengthened fund transfer controls - Management concluded that disclosure controls and procedures were effective as of June 30, 2024[392] - During the quarter, the company was the victim of a business email compromise that led to two fraudulent transfers totaling $3.3 million, resulting in a $2.8 million loss, net of insurance recoveries[393] - Following the fraud incident, the company strengthened its processes and controls related to fund transfers and vendor information, and reinforced existing policies and procedures[393] PART II – OTHER INFORMATION Item 1. Legal Proceedings The company is not currently subject to any material lawsuits, claims, or other legal proceedings - The company is not currently subject to any lawsuits, claims, or other legal proceedings[395] Item 1A. Risk Factors No material changes to risk factors previously disclosed in the Annual Report on Form 10-K - There have been no material changes to the risk factors previously disclosed in the Annual Report on Form 10-K[396] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered equity sales reported; employees surrendered 71,000 RSUs valued at $1.2 million for tax withholding in H1 2024 - During the six months ended June 30, 2024, employees surrendered approximately 71,000 RSUs valued at $1.2 million to pay for statutory tax withholding obligations[348] Item 6. Exhibits Lists exhibits filed with the report, including CEO and CFO certifications and XBRL data files - Exhibits filed include CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[400]