NetSTREIT(NTST) - 2021 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For Q3 2021, the company reported net income of $0.07, core FFO of $0.22, and AFFO of $0.24 per diluted share, affected by acquisition timing and equity offering impacts [15][19] - Total ABR increased to $59.8 million, with a weighted average lease term of 10 years, and the portfolio was 100% occupied [12][19] Business Line Data and Key Metrics Changes - The company completed gross acquisition volume of $90 million at an initial cash capitalization rate of 6.2%, with nearly 90% of acquisitions involving investment-grade tenants [9][11] - Four assets were sold for $19 million at a weighted average cash capitalization rate of 6.3%, reducing exposure to casual dining to less than 1% [10][11] Market Data and Key Metrics Changes - The portfolio consisted of 290 properties across 40 states, with a diversified tenant roster of 60 tenants in 22 industries [12] - The company’s exposure to Walgreens increased to 7.5% of total portfolio ABR, while exposure to 711 decreased to 8.2% [11] Company Strategy and Development Direction - The company aims to grow its portfolio with high-quality tenants while diversifying its tenant base and geographical mix to generate optimal risk-adjusted returns [7][14] - The company is focusing on blend and extend strategies and development projects, expecting to handle $60 million to $75 million in development deals per year [35][36] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the impact of acquisition timing on quarterly results but emphasized a focus on building a solid foundation for future growth [41][42] - The company is adjusting its full-year 2021 AFFO guidance to a range of $0.93 to $0.95 per share, reflecting strong access to deals [19] Other Important Information - The company is launching an ESG webpage to showcase its commitment to environmental stewardship and governance [5] - A $0.20 regular quarterly cash dividend was declared, payable on December 15 [18] Q&A Session Summary Question: Can you expand on the pipeline in terms of total deals and deal size? - The company completed one larger Walgreens transaction and other acquisitions were more granular, similar to past purchases [22] Question: What is the size of the current acquisition pipeline and outlook for 2022? - The company increased acquisition guidance to at least $400 million, indicating confidence in closing deals by year-end [24] Question: Are there changes in competition and pricing? - There has been increased capital across asset classes, but no significant new competitors have emerged; cap rates have slightly decreased due to asset quality [25] Question: How will G&A look for the end of 2021 and into 2022? - G&A is expected to increase by $600,000 to $700,000 due to seasonal expenses and SOX compliance preparations [26][30] Question: What is the debt funding strategy going forward? - The company aims for a long-term target of 4.5x to 5.5x net debt to adjusted EBITDA, with a preference for two-thirds equity and one-third debt [31] Question: Can you discuss the development strategy and potential size? - The company expects to handle $60 million to $75 million in development deals per year, with a focus on building relationships with developers [36] Question: How are labor challenges affecting tenants? - Labor challenges are being monitored, particularly in the restaurant sector, but margin expansion has been observed [53]