– Net Income of $0.03 and Adjusted Funds
from Operations (“AFFO”)1 of $0.30 per diluted share2 –
– Completed $112.7 Million of Net Investment
Activity –
– Maintains AFFO Guidance and Net Investment
Target for 2023 –
NETSTREIT Corp. (NYSE: NTST) or (the “Company”), today
announced financial and operating results for the first quarter
ended March 31, 2023.
“We are pleased to announce a solid start to 2023 and extend a
warm welcome to the newest member of our leadership team, Chief
Financial Officer Daniel Donlan. Despite a volatile market
backdrop, NETSTREIT was able to successfully navigate and
creatively source opportunities through multiple channels to
produce attractive risk adjusted returns for our shareholders. We
continue to scale our business and execute on our growth
initiatives. We have ample liquidity on our balance sheet and will
look to judiciously deploy that capital to drive attractive per
share earnings growth and long-term value accretion for our
shareholders in 2023 and beyond," said Mark Manheimer, Chief
Executive Officer of NETSTREIT.
FIRST QUARTER 2023 HIGHLIGHTS2
- Net income per share of $0.03, compared to $0.04 in prior year
period
- Core Funds from Operations (“Core FFO”)1 per share of $0.28,
compared to $0.28 in prior year period
- AFFO per share of $0.30, compared to $0.29 in prior year
period
PORTFOLIO UPDATE
As of March 31, 2023, the NETSTREIT portfolio consisted of 488
investments with 83 total tenants, contributing $108.9 million of
annualized base rent3, with a weighted-average remaining lease term
of 9.4 years4, of which 67.1% were occupied by investment grade
rated tenants5 and 14.9% were occupied by tenants with investment
grade profiles6. The portfolio remained 100.0% occupied as of March
31, 2023.
INVESTMENT ACTIVITY
During the quarter ended March 31, 2023, the Company invested
$128.6 million at a blended cash yield7 of 7.7%.
In the first quarter, the Company invested $67.7 million in the
acquisition of 20 properties at a cash yield of 6.9%. Acquisitions
completed during the quarter had a weighted-average remaining lease
term of 9.4 years.
The Company entered into two mortgage loans receivable, totaling
$46.1 million, at a weighted average cash yield of 9.3%. Both loans
have three years of term, include yield maintenance provisions, and
are secured by a first lien position on 49 properties leased by
Speedway, a subsidiary of 7-Eleven.
The Company commenced rent on two development projects that had
total costs of $14.8 million, and also provided $4.5 million of
funding to support on-going development projects.
The Company completed eight dispositions for $15.9 million in
total gross proceeds during the quarter, which equated to a 6.8%
cash yield.
Investments made during the quarter were 78.4% investment grade
and 16.6% investment grade profile, based on annualized base rent
on investments. The quarter's transaction activity increased the
total tenant count to 83 from 81 tenants and increased geographic
diversity to 45 states from 44 at the end of 2022.
BALANCE SHEET AND LIQUIDITY
At quarter end, total debt outstanding was $479.5 million, with
a weighted average term of 3.4 years and a quarter end contractual
interest rate, including the impact of the fixed rate swap, of 3.4%
(excluding the impact of deferred fee amortization). 80% of the
Company’s debt was at a fixed rate and the Company’s net debt to
annualized adjusted EBITDAre ratio was 5.1x. After giving
consideration to the remaining shares in the forward sales
agreement, the Company's net debt to annualized adjusted EBITDAre
ratio was 4.1x. Additionally, the ending cash balance was $6.6
million, and the Company had $304.0 million available on its
revolving line of credit. Including unsettled forward equity, total
liquidity at quarter end was $401.8 million.
During the first quarter, the Company issued 146,745 shares of
common stock at a weighted average price, net of transaction costs,
of $19.96 per share in connection with the ATM program for net
proceeds of approximately $2.9 million.
On March 30, 2023, the Company settled 2,612,736 shares of
common stock, receiving net proceeds from the offering of $50.0
million. As of March 31, 2023, 4,763,320 shares remained unsettled
under the August 2022 forward sale agreements. The Company will
have until August 3, 2023 to settle the forward sale
agreements.
DIVIDEND
On April 25, 2023, the Company’s Board of Directors declared a
quarterly cash dividend of $0.20 per share for the second quarter
of 2023, which will be paid on June 15, 2023 to shareholders of
record on June 1, 2023.
2023 OUTLOOK
The Company is maintaining its full year 2023 AFFO per share
guidance of $1.17 to $1.23 per share. The Company expects net
investment activity, including acquisitions, developments where
rent commenced, and mortgage loans receivable, net of dispositions,
to be at least $400.0 million in 2023.
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 Thursday, April 27, 2023 at
11:00 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
1-844-826-3035 for domestic callers or 1-412-317-5195 for
international callers. A dial-in replay will be available starting
shortly after the call until May 4, 2023, 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
10177948.
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 58,155,738, weighted average operating partnership units
of 511,402, weighted average unvested restricted stock units of
175,859, and weighted average unsettled shares under open forward
equity contracts of 40,387 for the three-months ended March 31,
2023.
(3) Annualized base rent, or ABR, is annualized contractual base
rent in place as of the most recent quarter end for all leases that
commenced as of that date, and annualized cash interest on mortgage
loans receivable in place as of that date.
(4) Weighted by ABR, excluding lease extension options and
investments associated with mortgage loans receivable.
(5) Investments, or investments that are subsidiaries of a
parent entity, with a credit rating of BBB- (S&P/Fitch), Baa3
(Moody's) or NAIC2 (National Association of Insurance
Commissioners) or higher.
(6) Unrated investments with more than $1.0 billion in annual
sales and a debt to adjusted EBITDA ratio of less than 2.0x.
(7) Cash yield is the annualized base rent contractually due
from acquired properties, completed developments, and interest
income from mortgage loans receivable, divided by the gross
investment amount, or gross proceeds in the case of
dispositions.
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, trends in
our business, including trends in the market for single-tenant,
retail commercial real estate, and macroeconomic conditions,
including inflation, rising interest rates and instability in the
banking system. 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, 2022 filed with the Securities and Exchange Commission (the
“SEC”) on February 23, 2023 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 rising
interest rates and instability in macroeconomic conditions. 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,
2023
December 31,
2022
Assets
Real estate, at cost:
Land
$
417,704
$
401,146
Buildings and improvements
966,743
907,084
Total real estate, at cost
1,384,447
1,308,230
Less accumulated depreciation
(72,682
)
(62,526
)
Property under development
6,501
16,796
Real estate held for investment, net
1,318,266
1,262,500
Assets held for sale
5,798
23,208
Mortgage loans receivable, net
92,267
46,378
Cash, cash equivalents and restricted
cash
6,596
70,543
Lease intangible assets, net
154,213
151,006
Other assets, net
50,242
52,057
Total assets
$
1,627,382
$
1,605,692
Liabilities and equity
Liabilities:
Term loans, net
$
373,415
$
373,296
Revolving credit facility
96,000
113,000
Mortgage note payable, net
7,901
7,896
Lease intangible liabilities, net
29,348
30,131
Liabilities related to assets held for
sale
34
406
Accounts payable, accrued expenses and
other liabilities
25,062
22,540
Total liabilities
531,760
547,269
Commitments and contingencies
Equity:
Stockholders’ equity
Common stock, $0.01 par value, 400,000,000
shares authorized; 60,862,466 and 58,031,879 shares issued and
outstanding as of March 31, 2023 and December 31, 2022,
respectively
609
580
Additional paid-in capital
1,145,160
1,091,514
Distributions in excess of retained
earnings
(77,237
)
(66,937
)
Accumulated other comprehensive income
17,743
23,673
Total stockholders’ equity
1,086,275
1,048,830
Noncontrolling interests
9,347
9,593
Total equity
1,095,622
1,058,423
Total liabilities and equity
$
1,627,382
$
1,605,692
NETSTREIT CORP. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(In thousands, except share and
per share data)
(Unaudited)
Three Months Ended
March 31,
2023
2022
Revenues
Rental revenue (including
reimbursable)
$
28,474
$
20,921
Interest income on loans receivable
978
411
Total revenues
29,452
21,332
Operating expenses
Property
3,936
2,932
General and administrative
4,909
4,190
Depreciation and amortization
14,949
10,980
Transaction costs
109
165
Total operating expenses
23,903
18,267
Other income (expense)
Interest expense, net
(3,944
)
(1,169
)
Gain (loss) on sales of real estate,
net
(319
)
161
Other income
152
—
Total other expense, net
(4,111
)
(1,008
)
Net income before income taxes
1,438
2,057
Income tax benefit (expense)
43
(91
)
Net income
1,481
1,966
Net income attributable to noncontrolling
interests
9
24
Net income attributable to common
stockholders
$
1,472
$
1,942
Amounts available to common stockholders
per common share:
Basic
$
0.03
$
0.04
Diluted
$
0.03
$
0.04
Weighted average common shares:
Basic
58,155,738
44,415,807
Diluted
58,883,386
45,600,810
Other comprehensive income:
Net income
$
1,481
$
1,966
Change in value on derivatives, net
(5,979
)
6,211
Total comprehensive income (loss)
(4,498
)
8,177
Comprehensive income (loss) attributable
to noncontrolling interests
(40
)
100
Comprehensive income (loss)
attributable to common stockholders
$
(4,458
)
$
8,077
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,
2023
2022
(Unaudited)
Net income
$
1,481
$
1,966
Depreciation and amortization of real
estate
14,884
10,862
Loss (gain) on sales of real estate,
net
319
(161
)
FFO
16,684
12,667
Adjustments:
Non-recurring severance and related
charges
13
—
Other non-recurring expenses (income)
(12
)
—
Core FFO
16,685
12,667
Adjustments:
Straight-line rent adjustments
(311
)
(526
)
Amortization of deferred financing
costs
308
157
Amortization of above/below-market assumed
debt
29
—
Amortization of loan origination costs
28
13
Amortization of lease-related
intangibles
(213
)
(165
)
Capitalized interest expense
(134
)
(56
)
Non-cash compensation expense
1,027
1,045
AFFO
$
17,419
$
13,135
Weighted average common shares
outstanding, basic
58,155,738
44,415,807
Operating partnership units
outstanding
511,402
550,673
Unvested restricted stock units
175,859
294,272
Unsettled shares under open forward equity
contracts
40,387
340,058
Weighted average common shares
outstanding, diluted
58,883,386
45,600,810
FFO per common share, diluted
$
0.28
$
0.28
Core FFO per common share, diluted
$
0.28
$
0.28
AFFO per common share, diluted
$
0.30
$
0.29
RECONCILIATION OF NET INCOME
TO EBITDA, EBITDAre AND ADJUSTED EBITDAre
(In thousands)
(Unaudited)
Three Months Ended
March 31,
2023
2022
(Unaudited)
Net income
$
1,481
$
1,966
Depreciation and amortization of real
estate
14,884
10,862
Amortization of lease-related
intangibles
(213
)
(165
)
Non-real estate depreciation and
amortization
65
117
Interest expense, net
3,944
1,169
Income tax (benefit) expense
(43
)
91
Amortization of loan origination costs
28
13
EBITDA
20,146
14,053
Adjustments:
Loss (gain) on sales of real estate,
net
319
(161
)
EBITDAre
20,465
13,892
Adjustments:
Straight-line rent adjustments
(311
)
(526
)
Non-recurring severance and related
charges
13
—
Other non-recurring expenses (income)
(12
)
—
Non-cash compensation expense
1,027
1,045
Adjusted EBITDAre
$
21,182
$
14,411
RECONCILIATION OF NET INCOME
TO NOI AND CASH NOI
(In thousands)
(Unaudited)
Three Months Ended
March 31,
2023
2022
(Unaudited)
Net income
$
1,481
$
1,966
General and administrative
4,909
4,190
Depreciation and amortization
14,949
10,980
Transaction costs
109
165
Interest expense, net
3,944
1,169
Loss (gain) on sales of real estate,
net
319
(161
)
Income tax (benefit) expense
(43
)
91
Interest income on mortgage loans
receivable
(978
)
(411
)
Other income
(152
)
—
NOI
24,538
17,989
Straight-line rent adjustments
(311
)
(526
)
Amortization of lease-related
intangibles
(213
)
(165
)
Cash NOI
$
24,014
$
17,298
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. These have included non-recurring severance and
related charges and gains on 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 lease-related
intangibles, capitalized interest expense, non-cash compensation
expense, amortization of deferred financing costs, amortization of
above/below-market assumed debt, 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, non-cash
compensation expense, non-recurring severance and related charges,
and gain on insurance proceeds.
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, interest income on mortgage loans
receivable, and other income (or expense). We further adjust NOI
for non-cash components of straight-line rent and amortization of
lease-related intangibles 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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230426005958/en/
Investor Relations ir@netstreit.com 972-597-4825
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