NetSTREIT(NTST) - 2023 Q2 - Quarterly Report

PART I — FINANCIAL INFORMATION Financial Statements (Unaudited) Presents NETSTREIT Corp.'s unaudited condensed consolidated financial statements, covering balance sheets, operations, equity, cash flows, and detailed notes Condensed Consolidated Balance Sheets Total assets increased to $1.75 billion and total equity grew to $1.20 billion by June 30, 2023, driven by real estate and equity raises Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $1,747,758 | $1,605,692 | | Real estate held for investment, net | $1,374,370 | $1,262,500 | | Mortgage loans receivables, net | $107,758 | $46,378 | | Cash, cash equivalents and restricted cash | $13,140 | $70,543 | | Total Liabilities | $543,163 | $547,269 | | Term loans, net | $372,686 | $373,296 | | Revolving credit facility | $106,000 | $113,000 | | Total Equity | $1,204,595 | $1,058,423 | Condensed Consolidated Statements of Operations and Comprehensive Income Q2 2023 reported a net loss of $0.8 million despite revenue growth; H1 2023 net income fell to $0.7 million Key Operating Results (in thousands, except per share data) | Metric | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $31,630 | $22,634 | $61,081 | $43,967 | | Total Operating Expenses | $27,488 | $20,903 | $51,390 | $39,171 | | Interest Expense, net | ($5,521) | ($1,522) | ($9,465) | ($2,691) | | Net (Loss) Income | ($792) | $2,010 | $689 | $3,976 | | Diluted EPS | ($0.01) | $0.04 | $0.01 | $0.08 | Condensed Consolidated Statements of Changes in Equity Total equity increased to $1.20 billion by June 30, 2023, primarily from $167.4 million in stock issuances, offset by dividends - Total equity increased to $1,204.6 million at June 30, 2023, up from $1,058.4 million at December 31, 2022[15][16] - Key drivers of the equity increase were net proceeds from public offerings of common stock ($52.9 million in Q1 and $114.5 million in Q2)[15][16] - Dividends and distributions declared on common stock and OP Units totaled $24.0 million for the six months ended June 30, 2023[15][16] Condensed Consolidated Statements of Cash Flows Operating cash increased to $34.4 million, investing used $226.5 million, and financing provided $134.7 million, leading to a $57.4 million cash decrease Cash Flow Summary for the Six Months Ended June 30 (in thousands) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $34,395 | $22,250 | | Net cash used in investing activities | ($226,525) | ($289,253) | | Net cash provided by financing activities | $134,727 | $279,250 | | Net change in cash, cash equivalents and restricted cash | ($57,403) | $12,247 | Notes to the Condensed Consolidated Financial Statements Notes detail the company's REIT structure, accounting policies, real estate investments, debt, derivatives, equity, and commitments - The company is an internally managed REIT focused on single-tenant, retail commercial real estate. As of June 30, 2023, it owned or had investments in 525 properties in 45 states[26] - For the six months ended June 30, 2023, the company acquired 48 properties for $163.9 million and sold ten properties for $19.3 million[54][61] - Total debt outstanding was $489.4 million as of June 30, 2023, consisting primarily of term loans and a revolving credit facility. The company uses interest rate swaps to hedge its variable-rate debt[70][91] - Subsequent to the quarter end, the company entered into a new $250.0 million 2029 Term Loan and declared a Q3 2023 dividend of $0.205 per share[147][149] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses business overview, operations, liquidity, and capital resources, highlighting portfolio growth and non-GAAP reconciliations Business Overview The company is an internally managed REIT with 525 single-tenant retail properties, 100% occupancy, and $116.9 million ABR - As of June 30, 2023, the portfolio included 525 properties leased to 87 different tenants across 25 retail sectors in 45 states[154] Portfolio Statistics as of June 30, 2023 | Metric | Value | | :--- | :--- | | Annualized Base Rent (ABR) | $116.9 million | | Occupancy (excluding mortgage loans) | 100% | | Weighted Average Remaining Lease Term (WALT) | 9.4 years | | ABR from Investment Grade Tenants | ~68% | Results of Operations Q2 2023 revenues increased to $31.6 million but resulted in a $0.8 million net loss; H1 2023 revenues grew to $61.1 million, with net income falling to $0.7 million Comparison of Three Months Ended June 30 (in thousands) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Total Revenues | $31,630 | $22,634 | | Total Operating Expenses | $27,488 | $20,903 | | Interest Expense, net | ($5,521) | ($1,522) | | Net (Loss) Income | ($792) | $2,010 | Comparison of Six Months Ended June 30 (in thousands) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Total Revenues | $61,081 | $43,967 | | Total Operating Expenses | $51,390 | $39,171 | | Interest Expense, net | ($9,465) | ($2,691) | | Net Income | $689 | $3,976 | - The increase in revenues was attributed to the growth in operating leases and properties securing mortgage loans. The decrease in net income was primarily due to higher interest expense from increased borrowings and rates, as well as higher depreciation and impairment charges related to the larger portfolio[172][176][179][187] Liquidity and Capital Resources Primary capital sources include cash from operations, equity sales, and debt facilities, with $481.0 million outstanding debt and a new $250 million term loan - Primary capital resources consist of cash from operations, sales of equity securities (including a $250 million ATM Program with $127.3 million remaining), and borrowing facilities[188] - Subsequent to quarter-end, the company entered into a new $250.0 million 2029 Term Loan, enhancing liquidity[188] Contractual Obligations as of June 30, 2023 (in thousands) | Obligation Type | Total | < 1 Year | 1 – 3 Years | 3 – 5 Years | Thereafter | | :--- | :--- | :--- | :--- | :--- | :--- | | Debt (Principal & Interest) | $585,282 | $9,019 | $37,198 | $304,465 | $204,600 | | Property developments | $27,935 | $27,935 | $0 | $0 | $0 | | Corporate office lease | $6,172 | $285 | $1,253 | $1,323 | $3,311 | | Total | $600,850 | $37,439 | $48,059 | $311,150 | $204,202 | Non-GAAP Financial Measures Provides definitions and reconciliations for key non-GAAP financial measures, including FFO, Core FFO, AFFO, and EBITDAre FFO and AFFO Reconciliation (in thousands) | Metric | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :--- | :--- | :--- | :--- | :--- | | Net (Loss) Income | ($792) | $2,010 | $689 | $3,976 | | FFO | $17,198 | $12,864 | $33,882 | $25,531 | | Core FFO | $17,587 | $12,828 | $34,272 | $25,495 | | AFFO | $18,747 | $13,738 | $36,136 | $26,877 | EBITDAre Reconciliation for Q2 (in thousands) | Metric | Q2 2023 | Q2 2022 | | :--- | :--- | :--- | | Net (Loss) Income | ($792) | $2,010 | | EBITDA | $20,516 | $15,223 | | EBITDAre | $22,737 | $14,479 | | Adjusted EBITDAre | $25,620 | $17,285 | | Annualized Adjusted EBITDAre | $102,480 | N/A | - The company's Net Debt to Annualized Adjusted EBITDAre ratio was 4.6x as of June 30, 2023[221][223] Quantitative and Qualitative Disclosures About Market Risk Primary market risk is interest rate fluctuation on variable-rate debt, largely mitigated by derivatives, with a $1.2 million risk on the Revolver - The principal market risk is from interest rate fluctuations on its floating-rate debt, totaling $481.0 million as of June 30, 2023[228] - The company uses interest rate derivative contracts to hedge the market interest risk on its $175.0 million 2027 Term Loan and $200.0 million 2028 Term Loan, effectively converting them to fixed-rate debt[229] - The remaining significant exposure is on the Revolver. A sensitivity analysis indicates that a 1% adverse change in interest rates would result in an estimated market risk exposure of approximately $1.2 million[230] Controls and Procedures Management concluded disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - The company's principal executive and financial officers concluded that disclosure controls and procedures are effective[231] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[232] PART II – OTHER INFORMATION Legal Proceedings The company is not currently subject to any material lawsuits, claims, or other legal proceedings - As of the report date, the company is not a party to any material legal proceedings[234] Risk Factors No material changes have occurred to the risk factors previously disclosed in the company's 2022 Form 10-K - No material changes have been made to the risk factors disclosed in the company's 2022 Form 10-K[235] Unregistered Sales of Equity Securities and Use of Proceeds The company reports no unregistered sales of equity securities or company stock repurchases during the period - There were no unregistered sales of equity securities or company stock repurchases[236] Defaults Upon Senior Securities Not applicable Mine Safety Disclosures Not applicable Other Information Not applicable Exhibits Lists exhibits filed with Form 10-Q, including corporate governance documents, credit agreements, and CEO/CFO certifications - Key exhibits filed include an Amended and Restated Credit Agreement dated June 15, 2023, a new Term Loan Agreement dated July 3, 2023, and CEO/CFO certifications[241]