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NETSTREIT Reports First Quarter 2022 Financial and Operating Results

April 28, 2022

– Net Income of $0.04 and Adjusted Funds from Operations (“AFFO”)1 of $0.29 per diluted share2

– Completed $135.6 Million of Net Investment Activity –

– Completed Forward Common Stock Offering of 10,350,000 Shares –

– Increased AFFO Guidance and Net Investment Target for 2022 –

DALLAS--(BUSINESS WIRE)-- NETSTREIT Corp. (NYSE: NTST) or (the “Company”), today announced financial and operating results for the first quarter ended March 31, 2022.

“We're excited about our first quarter results and the outlook for the rest of 2022. We continue to find new and attractive opportunities to grow our base of investments and completed $135.6 million of net investment activity in the first quarter, including the acquisition of our first Publix grocery store, an investment grade profile tenant. In addition, we completed our first forward offering of over 10.3 million shares of our common equity early in the year, which positions us to continue our consistent growth in 2022 without a significant equity funding need to achieve our increased investment targets," said Mark Manheimer, Chief Executive Officer of NETSTREIT.

FIRST QUARTER 2022 HIGHLIGHTS2

  • Net income per share increased to $0.04, compared to $0.02 from prior year period
  • Core Funds from Operations (“Core FFO”) per share increased to $0.28, compared to $0.22 from prior year period
  • AFFO per share increased to $0.29, compared to $0.23 from prior year period

PORTFOLIO UPDATE

As of March 31, 2022, the NETSTREIT portfolio was comprised of 361 leases with 71 total tenants, contributing $77.0 million of annualized base rent3, with a weighted-average remaining lease term of 9.64 years, of which 63.9% were occupied by investment grade rated tenants and 16.7% were occupied by tenants with investment grade profiles5. The portfolio remained 100.0% occupied as of March 31, 2022.

INVESTMENT ACTIVITY

During the quarter ended March 31, 2022, the Company had total net investment activity of $135.6 million, which includes acquisitions, developments where rent commenced, and a mortgage loan receivable guaranteed by an investment grade tenant, net of dispositions.

The Company invested approximately $90.0 million in the acquisition of 34 properties at an initial cash capitalization rate of 6.3%. Acquisitions completed during the quarter had a weighted-average remaining lease term of 8.2 years.

The Company commenced rent at two development projects that had total costs of $7.6 million, and a weighted average investment yield of 7.6%. The Company also provided $5.0 million of funding to support on-going development projects, which includes one new development for an investment grade profile tenant.

During the quarter, the Company entered into an 18-month $40.4 million mortgage loan receivable with an interest rate of 6.0%. The mortgage note is secured by underlying assets including a high performing Home Depot in the Portland, Oregon, MSA. The Company will have the right to convert the loan to fee simple ownership upon the completion of certain conditions from the borrower.

The Company completed one disposition in the first quarter. The Company sold a casual dining restaurant for a contractual sales price of $2.4 million, which equated to a 5.5% cash capitalization rate.

The investment grade and investment grade profile totals for the quarter (including acquisitions, developments where rent commenced, and the mortgage loan receivable) were 56.5% and 21.0%, respectively, based on total annualized base rent and interest income6. The quarter's transaction activity enhanced the portfolio diversification, increasing the total tenant count from 67 at the end of 2021 to 71 tenants and increasing geographic diversity from 41 to 42 states.

BALANCE SHEET AND LIQUIDITY

In January, the Company entered into forward sale agreements related to 10,350,000 shares of its common stock at a public offering price of $22.25 per share. On March 30, 2022, the Company settled a portion of shares subject to forward sale agreements and issued 3,440,962 shares of common stock, receiving net proceeds of $72.0 million, after deducting fees and expenses. The Company has until January 10, 2023 to settle the remaining shares subject to the forward sales agreements.

During the quarter, the Company issued 163,774 shares of common stock at a weighted average price of $22.08 per share in connection with the ATM program for net proceeds of approximately $3.5 million, after deducting underwriting discounts and transaction costs of $0.1 million.

At quarter end, total debt outstanding was $295.0 million, with a weighted average term of 2.3 years and a quarter end contractual interest rate, including the impact of the fixed rate swap, of 1.5% (excluding the impact of deferred fee amortization). 59% of the Company’s debt was at a fixed rate and the Company’s net debt to annualized adjusted EBITDA ratio was 4.6x. After giving consideration to the remaining shares in the forward sales agreement, the Company's net debt to annualized adjusted EBITDA ratio was 2.3x. Additionally, the ending cash balance was $4.7 million, and the Company had $120.0 million outstanding on its revolving line of credit.

DIVIDEND

On April 26, 2022, the Company’s Board of Directors declared a quarterly cash dividend of $0.20 per share for the second quarter of 2022, which will be paid on June 15, 2022 to shareholders of record on June 1, 2022.

2022 OUTLOOK

The Company is increasing its full year 2022 AFFO per share guidance by improving the range to $1.14 to $1.17 per share and net investment guidance to at least $500.0 million in 2022. This guidance is based on the following assumptions:

  • Increased investment activity, including acquisitions, developments where rent commenced, mortgage loan receivables, and net of dispositions, of at least $500.0 million in 2022
  • The Company expects cash G&A to be in the range of $14.5 million to $15.0 million (inclusive of transaction costs), and expects non-cash compensation expense to be in the range of $5.0 million to $5.5 million
  • Due to the current rate environment, the Company is increasing the cash interest expense expectation to a range of $5.5 million to $6.5 million, with approximately $0.6 million of additional non-cash deferred financing fee amortization
  • Full year 2022 diluted weighted average shares outstanding, which includes the impact of OP units, are expected to be in the range of 52.0 million to 54.0 million shares

Certain of the forward-looking financial measures above are provided on a non-GAAP basis. The Company does not provide a reconciliation of such forward-looking measures to the most directly comparable financial measures calculated and presented in accordance with GAAP because to do so would be potentially misleading and not practical given the difficulty of projecting event driven transactional and other non-core operating items in any future period. The magnitude of these items, however, may be significant.

EARNINGS WEBCAST AND CONFERENCE CALL

A conference call will be held on Friday, April 29, 2022 at 10:00 AM ET. During the conference call the Company’s officers will review first quarter performance, discuss recent events, and conduct a question and answer period.

The webcast will be accessible on the “Investor Relations” section of the Company’s website at www.NETSTREIT.com. To listen to the live webcast, please go to the site at least fifteen minutes prior to the scheduled start time to register, as well as download and install any necessary audio software. A replay of the webcast will be available for 90 days on the Company’s website shortly after the call.

The conference call can also be accessed by dialing 1-877-451-6152 for domestic callers or 1-201-389-0879 for international callers. A dial-in replay will be available starting shortly after the call until May 6, 2022, which can be accessed by dialing 1-844-512-2921 for domestic callers or 1-412-317-6671 for international callers. The passcode for this dial-in replay is 13728527.

SUPPLEMENTAL PACKAGE

The Company’s supplemental package will be available prior to the conference call in the Investor Relations section of the Company’s website at www.investors.netstreit.com.

About NETSTREIT

NETSTREIT is an internally managed real estate investment trust (REIT) based in Dallas, Texas that specializes in acquiring single-tenant net lease retail properties nationwide. The growing portfolio consists of high-quality properties leased to e-commerce resistant tenants with healthy balance sheets. Led by a management team of seasoned commercial real estate executives, NETSTREIT’s strategy is to create the highest quality net lease retail portfolio in the country with the goal of generating consistent cash flows and dividends for its investors.

(1) Non- GAAP financial measure. See "Non-GAAP Financial Measures".

(2) All per share amounts herein include weighted average common shares of 44,415,807, weighted average operating partnership units of 550,673, weighted average unvested restricted stock units of 294,272, and weighted average unsettled shares under open forward equity contracts of 340,058 for the three-months ended March 31, 2022.

(3) Annualized base rent, or ABR, is calculated by multiplying (i) cash rental payments (a) for the month ended March 31, 2022 (or, if applicable, the next full month's cash rent contractually due in the case of rent abatements, rent deferrals, recently acquired properties and properties with contractual rent increases, other than properties under development) for leases in place as of March 31, 2022, plus (b) for properties under development, the first full month's estimated permanent cash rent contractually due after the development period by (ii) 12.

(4) Weighted by ABR, excluding lease extension options and mortgage loan receivables.

(5) Unrated tenants with more than $1.0 billion in annual sales and a debt to adjusted EBITDA ratio of less than 2.0x.

(6) The annual projected interest income on the $40.4 million mortgage loan receivable is treated as an investment grade tenant for purposes of the calculation.

NON-GAAP FINANCIAL MEASURES

This press release contains non-GAAP financial measures, including FFO, Core FFO, AFFO, EBITDA, EBITDAre, Adjusted EBITDAre, NOI, and Cash NOI. A reconciliation from net loss available to common shareholders to each non-GAAP financial measure, and definitions of each non-GAAP measure, are included below.

FORWARD LOOKING STATEMENTS

This press release 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 and trends in our business, including trends in the market for single-tenant, retail commercial real estate. Words such as “expects,” “anticipates,” “intends,” “plans,” “likely,” “will,” “believes,” “seeks,” “estimates,” and variations of such words and similar expressions are intended to identify such forward-looking statements. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from the results of operations or plans expressed or implied by such forward-looking statements. Although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore such statements included in this press release may not prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that the results or conditions described in such statements or our objectives and plans will be achieved. For a further discussion of these and other factors that could impact future results, performance or transactions, see the information under the heading “Risk Factors” in our Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission (the “SEC”) on February 24, 2022 and other reports filed with the SEC from time to time. Forward-looking statements and such risks, uncertainties and other factors speak only as of the date of this press release. New risks and uncertainties may arise over time and it is not possible for us to predict those events or how they may affect us. Many of the risks identified herein and in our periodic reports have been and will continue to be heightened as a result of the ongoing and numerous adverse effects arising from the novel coronavirus (COVID-19). We expressly disclaim any obligation or undertaking to update or revise any forward-looking statement contained herein, to reflect any change in our expectations with regard thereto, or any other change in events, conditions or circumstances on which any such statement is based, except to the extent otherwise required by law.

 

NETSTREIT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
(Unaudited)

 

 

March 31,
2022

 

December 31,
2021

Assets

 

 

 

Real estate, at cost:

 

 

 

Land

$

313,366

 

 

$

299,935

 

Buildings and improvements

 

693,279

 

 

 

626,457

 

Total real estate, at cost

 

1,006,645

 

 

 

926,392

 

Less accumulated depreciation

 

(37,394

)

 

 

(30,669

)

Property under development

 

18,246

 

 

 

17,896

 

Real estate held for investment, net

 

987,497

 

 

 

913,619

 

Assets held for sale

 

7,748

 

 

 

2,096

 

Mortgage loan receivable, net

 

40,413

 

 

 

 

Cash, cash equivalents and restricted cash

 

4,687

 

 

 

7,603

 

Lease intangible assets, net

 

128,856

 

 

 

124,772

 

Other assets, net

 

30,528

 

 

 

20,351

 

Total assets

$

1,199,729

 

 

$

1,068,441

 

Liabilities and equity

 

 

 

Liabilities:

 

 

 

Term loan, net

$

174,386

 

 

$

174,330

 

Revolving credit facility

 

120,000

 

 

 

64,000

 

Lease intangible liabilities, net

 

24,015

 

 

 

23,316

 

Liabilities related to assets held for sale

 

115

 

 

 

 

Accounts payable, accrued expenses and other liabilities

 

16,166

 

 

 

16,980

 

Total liabilities

 

334,682

 

 

 

278,626

 

Commitments and contingencies

 

 

 

Equity:

 

 

 

Stockholders’ equity

 

 

 

Common stock, $0.01 par value, 400,000,000 shares authorized; 47,921,988 and 44,223,050 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively

 

479

 

 

 

442

 

Additional paid-in capital

 

886,351

 

 

 

809,724

 

Distributions in excess of retained earnings

 

(42,193

)

 

 

(35,119

)

Accumulated other comprehensive income

 

10,258

 

 

 

4,123

 

Total stockholders’ equity

 

854,895

 

 

 

779,170

 

Noncontrolling interests

 

10,152

 

 

 

10,645

 

Total equity

 

865,047

 

 

 

789,815

 

Total liabilities and equity

$

1,199,729

 

 

$

1,068,441

 

 

NETSTREIT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(in thousands, except share and per share data)
(Unaudited)

 

 

Three Months Ended
March 31,

 

2022

 

2021

Revenues

 

 

 

Rental revenue (including reimbursable)

$

20,921

 

 

$

11,932

 

Interest income on mortgage loan receivable

 

411

 

 

 

 

Total revenues

 

21,332

 

 

 

11,932

 

Operating expenses

 

 

 

Property

 

2,932

 

 

 

950

 

General and administrative

 

4,190

 

 

 

3,137

 

Depreciation and amortization

 

10,980

 

 

 

5,929

 

Provisions for impairment

 

 

 

 

69

 

Transaction costs

 

165

 

 

 

151

 

Total operating expenses

 

18,267

 

 

 

10,236

 

Other income (expense)

 

 

 

Interest expense, net

 

(1,169

)

 

 

(905

)

Gain on sales of real estate, net

 

161

 

 

 

 

Total other income (expense), net

 

(1,008

)

 

 

(905

)

Net income before income tax expense

 

2,057

 

 

 

791

 

Income tax expense

 

(91

)

 

 

(50

)

Net income

 

1,966

 

 

 

741

 

Net income attributable to noncontrolling interests

 

24

 

 

 

40

 

Net income attributable to common stockholders

$

1,942

 

 

$

701

 

Amounts available to common stockholders per common share:

 

 

 

Basic

$

0.04

 

 

$

0.02

 

Diluted

$

0.04

 

 

$

0.02

 

Weighted average common shares:

 

 

 

Basic

 

44,415,807

 

 

 

28,348,975

 

Diluted

 

45,600,810

 

 

 

30,052,940

 

Other comprehensive income:

 

 

 

Net income

$

1,966

 

 

$

741

 

Change in value on derivatives, net

 

6,211

 

 

 

2,323

 

Total comprehensive income

 

8,177

 

 

 

3,064

 

Comprehensive income attributable to noncontrolling interests

 

100

 

 

 

164

 

Comprehensive income attributable to common stockholders

$

8,077

 

 

$

2,900

 

 

NETSTREIT CORP. AND SUBSIDIARIES
RECONCILIATION OF NET INCOME TO FFO, CORE FFO AND ADJUSTED FFO
(in thousands, except share and per share data)
(Unaudited)

 

 

Three Months Ended
March 31,

 

2022

 

2021

 

(Unaudited)

Net income

$

1,966

 

 

$

741

 

Depreciation and amortization of real estate

 

10,862

 

 

 

5,852

 

Provision for impairment

 

 

 

 

69

 

Gain on sales of real estate, net

 

(161

)

 

 

 

FFO

 

12,667

 

 

 

6,662

 

Adjustments:

 

 

 

Gain on insurance proceeds

 

 

 

 

 

Core FFO

 

12,667

 

 

 

6,662

 

Adjustments:

 

 

 

Straight-line rent adjustments

 

(526

)

 

 

(240

)

Amortization of deferred financing costs

 

157

 

 

 

157

 

Amortization of loan origination costs

 

13

 

 

 

 

Amortization of above/below market lease intangibles

 

(283

)

 

 

(190

)

Amortization of lease incentives

 

118

 

 

 

 

Capitalized interest expense

 

(56

)

 

 

 

Non-cash compensation expense

 

1,045

 

 

 

557

 

AFFO

$

13,135

 

 

$

6,946

 

 

 

 

 

Weighted average common shares outstanding, basic

 

44,415,807

 

 

 

28,348,975

 

Operating partnership units outstanding

 

550,673

 

 

 

1,616,005

 

Unvested restricted stock units

 

294,272

 

 

 

87,960

 

Unsettled shares under open forward equity contracts

 

340,058

 

 

 

 

Weighted average common shares outstanding, diluted

 

45,600,810

 

 

 

30,052,940

 

 

 

 

 

FFO per common share, diluted

$

0.28

 

 

$

0.22

 

Core FFO per common share, diluted

$

0.28

 

 

$

0.22

 

AFFO per common share, diluted

$

0.29

 

 

$

0.23

 

 

RECONCILIATION OF NET INCOME TO EBITDA, EBITDAre AND ADJUSTED EBITDAre
(in thousands)
(Unaudited)

 

 

Three Months Ended
March 31,

 

2022

 

2021

 

(Unaudited)

Net income

$

1,966

 

 

$

741

 

Depreciation and amortization of real estate

 

10,862

 

 

 

5,852

 

Amortization of above/below market lease intangibles

 

(283

)

 

 

(190

)

Amortization of lease incentives

 

118

 

 

 

 

Non-real estate depreciation and amortization

 

117

 

 

 

77

 

Interest expense, net

 

1,169

 

 

 

905

 

Income tax expense

 

91

 

 

 

50

 

Amortization of loan origination costs

 

13

 

 

 

 

EBITDA

 

14,053

 

 

 

7,435

 

Adjustments:

 

 

 

Provision for impairments

 

 

 

 

69

 

Gain on sales of real estate, net

 

(161

)

 

 

 

EBITDAre

 

13,892

 

 

 

7,504

 

Adjustments:

 

 

 

Straight-line rent adjustments

 

(526

)

 

 

(240

)

Non-cash compensation expense

 

1,045

 

 

 

557

 

Adjusted EBITDAre

$

14,411

 

 

$

7,821

 

 

RECONCILIATION OF NET INCOME TO NOI AND CASH NOI
(in thousands)
(Unaudited)

 

 

Three Months Ended
March 31,

 

2022

 

2021

 

(Unaudited)

Net income

$

1,966

 

 

$

741

 

General and administrative

 

4,190

 

 

 

3,137

 

Depreciation and amortization

 

10,980

 

 

 

5,929

 

Provisions for impairment

 

 

 

 

69

 

Transaction costs

 

165

 

 

 

151

 

Interest expense, net

 

1,169

 

 

 

905

 

Gain on sales of real estate, net

 

(161

)

 

 

 

Income tax expense

 

91

 

 

 

50

 

Interest income on mortgage loan receivable

 

(411

)

 

 

 

NOI

 

17,989

 

 

 

10,982

 

Straight-line rent adjustments

 

(526

)

 

 

(240

)

Amortization of above/below market lease intangibles

 

(283

)

 

 

(190

)

Amortization of lease incentives

 

118

 

 

 

 

Cash NOI

$

17,298

 

 

$

10,552

 

 

NON-GAAP FINANCIAL MEASURES

FFO, Core FFO and AFFO

The National Association of Real Estate Investment Trusts ("NAREIT"), an industry trade group, has promulgated a widely accepted non-GAAP financial measure of operating performance known as FFO. Our FFO is net income in accordance with GAAP, excluding gains (or losses) resulting from dispositions of properties, plus depreciation and amortization and impairment charges on depreciable real property.

Core FFO is a non-GAAP financial measure defined as FFO adjusted to remove the effect of unusual and non-recurring items that are not expected to impact our operating performance or operations on an ongoing basis. Historically, these have included gains from forfeited earnest money deposits, non-recurring public company costs, and gains from insurance proceeds.

AFFO is a non-GAAP financial measure defined as Core FFO adjusted for GAAP net income related to non-cash revenues and expenses, such as straight-line rent, amortization of above- and below-market lease-related intangibles, amortization of lease incentives, capitalized interest expense, non-cash compensation expense, and amortization of deferred financing and amortization of loan origination costs.

Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. In fact, real estate values historically have risen or fallen with market conditions. FFO is intended to be a standard supplemental measure of operating performance that excludes historical cost depreciation and valuation adjustments from net income. We consider FFO to be useful in evaluating potential property acquisitions and measuring operating performance.

We further consider FFO, Core FFO and AFFO to be useful in determining funds available for payment of distributions. FFO, Core FFO and AFFO do not represent net income or cash flows from operations as defined by GAAP. You should not consider FFO, Core FFO and AFFO to be alternatives to net income as a reliable measure of our operating performance nor should you consider FFO, Core FFO and AFFO to be alternatives to cash flows from operating, investing or financing activities (as defined by GAAP) as measures of liquidity.

FFO, Core FFO and AFFO do not measure whether cash flow is sufficient to fund our cash needs, including principal amortization, capital improvements and distributions to stockholders. FFO, Core FFO and AFFO do not represent cash flows from operating, investing or financing activities as defined by GAAP. Further, FFO, Core FFO and AFFO as disclosed by other REITs might not be comparable to our calculations of FFO, Core FFO and AFFO.

EBITDA, EBITDAre and Adjusted EBITDAre

We compute EBITDA as earnings before interest expense, income tax expense, and depreciation and amortization. In 2017, NAREIT issued a white paper recommending that companies that report EBITDA also report EBITDAre. We compute EBITDAre in accordance with the definition adopted by NAREIT. NAREIT defines EBITDAre as EBITDA (as defined above) excluding gains (or losses) from the sales of depreciable property and impairment charges on depreciable real property.

Adjusted EBITDAre is a non-GAAP financial measure defined as EBITDAre further adjusted to exclude straight-line rent and non-cash compensation expense.

We present EBITDA, EBITDAre and Adjusted EBITDAre as they are measures commonly used in our industry. We believe that these measures are useful to investors and analysts because they provide supplemental information concerning our operating performance, exclusive of certain non-cash items and other costs. We use EBITDA, EBITDAre and Adjusted EBITDAre as measures of our operating performance and not as measures of liquidity.

EBITDA, EBITDAre and Adjusted EBITDAre do not include all items of revenue and expense included in net income, they do not represent cash generated from operating activities and they are not necessarily indicative of cash available to fund cash requirements; accordingly, they should not be considered alternatives to net income as a performance measure or cash flows from operations as a liquidity measure and should be considered in addition to, and not in lieu of, GAAP financial measures. Additionally, our computation of EBITDA, EBITDAre and Adjusted EBITDAre may differ from the methodology for calculating these metrics used by other equity REITs and, therefore, may not be comparable to similarly titled measures reported by other equity REITs.

NOI and Cash NOI

NOI and Cash NOI are non-GAAP financial measures which we use to assess our operating results. We compute NOI as net income (computed in accordance with GAAP), excluding general and administrative expenses, interest expense (or income), income tax expense, depreciation and amortization, gains (or losses) from the sales of depreciable property, impairment charges on depreciable real property, transaction costs, and other income (or expense). We further adjust NOI for non-cash components of straight-line rent and amortization of lease intangibles and lease incentives to derive Cash NOI. We believe NOI and Cash NOI provide useful and relevant information because they reflect only those income and expense items that are incurred at the property level and present such items on an unlevered basis.

NOI and Cash NOI are not measurements of financial performance under GAAP, and our NOI and Cash NOI may not be comparable to similarly titled measures of other companies. You should not consider our NOI and Cash NOI as alternatives to net income or cash flows from operating activities determined in accordance with GAAP.

(1) These expenses represent a subset of transaction costs as presented on the condensed consolidated statements of operations and comprehensive income (loss).

Investor Relations
ir@netstreit.com
972-597-4825

Source: NETSTREIT Corp.

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