NetSTREIT Corp.

Greetings and welcome to the NetStreetCorp third quarter 2020 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Randy Houck, Senior Vice President of Finance. Please proceed.

We thank you for joining us for NetStreet's third quarter 2020 earnings conference call. In addition to the press release distributed yesterday after market closed, we posted a supplemental package and an updated investor presentation in the investors, events, and presentations section of the company's website at www.netstreet.com. On today's call, management's remarks and answers to your questions may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ from those discussed today. For more information about these risk factors, we encourage you to review our prospectus dated August 13, 2020, and our other SEC filings. All forward-looking statements are made as of the date hereof, and NetStreet assumes no obligation to update any forward-looking statements in the future. In addition, certain financial information presented on this call includes non-GAAP financial measures. Please refer to our earnings release and supplemental package for definitions, GAAP reconciliations, and an explanation of why we believe such non-GAAP financial measures are useful to investors. Today's conference call is hosted by NetStreet's Chief Executive Officer, Mark Manheimer, and Chief Financial Officer, Andy Blocker. They will make some prepared remarks, and then we will open the call for your questions. Now, I will turn the call over to Mark.

Good morning, everyone, and thank you for joining us today for NetStreet's inaugural quarterly earnings call. We hope this call finds you and your families well, and we are pleased to be here with you today. While we met with many investors during our IPO marketing efforts over the past several months, let me begin with a brief overview of NetStreet. Then I will discuss our acquisition and external growth activity and and close with a word on our commitment to you, our shareholders. Andy will provide more detail on our quarterly results, balance sheet, and fourth quarter outlook. We will then open the call for questions. Leading up to our formation transactions in December 2019 and every day since then, we have been focused on creating a high-quality, diversified, and defensive net lease retail portfolio with a conservatively capitalized balance sheet and scalable platform to support accretive and consistent long-term cash flow growth. While this is NetStreet's first conference call as a publicly traded company, Andy and I have lengthy track records within the net lease business and at publicly traded REITs, and have surrounded ourselves with a seasoned leadership team to support our future growth and our commitment to success as a public company. I couldn't be more proud of the success of our 19 team members that got us to where we are today. Let me take a moment to briefly discuss our history. Our predecessor was a private real estate fund which owned a net lease portfolio valued at approximately $350 million by asset value, consisting of approximately 50% investment-grade rated tenants. Prior to our formation transactions, that portfolio was then culled down to reduce exposure to certain tenants and sectors that we did not feel were desirable long-term. In December 2019 and into January 2020, we raised $220 million of capital from institutional investors via a private rule 144A offering and internalized our management team and other formation transactions, forming NetStreet. We also concurrently closed on a new term loan and revolver to refinance our outstanding debt and fund future growth. We then completed our IPO, raising an additional $227 million in August and September of 2020. Today, our portfolio contains 189 single tenant properties comprising 3.4 million square feet in 37 states with a diversified tenant roster of 53 tenants in 24 industries. Our weighted average lease term is 11.1 years and we are 100% occupied with no lease expirations until 2022 and only 1.4% of leases expiring before 2025. Based on our ABR, Our tenancy is 68% investment grade, with an additional 6.4% classified as high-quality underrated, and 90% of our industry exposure is what we refer to as defensive. These tenants operate in industries where their physical location is critical to the generation of sales and profits, where they focus on necessity goods and essential services, including discount stores, grocers, drug stores, pharmacies, home improvement, automotive service, and quick service restaurants. This high-quality tenancy creates bond-like leases with high-quality rent collections in times of disruption, including what we have most recently seen in 2020. While we certainly cannot take credit for having predicted the COVID-19 pandemic, we designed our portfolio and balance sheet strategy for long-term stability and strength before the pandemic was even contemplated. We have long believed that retail will continue to evolve, both in ways that we can predict and in ways that we cannot. With that backdrop, we have been and continue to be focused on retailers and industries that are well protected from threats that we can anticipate, such as e-commerce pressures, but also have balance sheet strength and access to capital to be able to reinvest in their businesses and adapt with the changing retail landscape. We are also focused on acquiring real estate that is fungible and attractive to other retail uses and at a basis that we can continue to replicate cash flows in a downside scenario. Additionally, given our portfolio was recently constructed, NetStreet has not had to work through legacy tenants and or struggling categories that may have felt an outsized impact from the pandemic. Proof of this is in our cash rent collections, which have been strong and consistent with 100% cash rent collections in both September and October. Andy will provide further details momentarily. With respect to external growth, we are committed to disciplined acquisitions and focus on underwriting underlying tenant credit locations with fungible real estate with strong market fundamentals, and locations that provide strong cash flows to the parent tenant. The single tenant retail net lease sector is large and highly liquid, and we believe we can bring our deep industry relationships to bear as we seek to execute on our pipeline of acquisition opportunities. We were able to continue to execute through market disruption during COVID, with $327 million of acquisitions completed in 2020 through the end of the third quarter. For the third quarter, we completed $103 million of acquisitions at an initial cash capitalization rate of 6.5%. These acquisitions had a weighted average remaining lease term of 10.9 years, and 100% of the properties are occupied by investment-grade rated tenants. We would note that $15 million of this activity was originally targeted to close in the fourth quarter, but we were able to accelerate these closings to September 30th. In July, we acquired a Walmart Supercenter and a Sam's Club in Tupelo, Mississippi, at an initial cap rate of 6.6% and a remaining lease term of 12 years. There, we provided a solution to the seller by partnering with a shopping center buyer who concurrently purchased the remainder of the center, and as a result, we were able to increase our exposure to what we believe is a blue-chip defensive tenant. In August, we acquired a portfolio of seven well-located and strong-performing O'Reilly's Auto Parts, New England locations with more than 11 years of remaining lease term at a 6.9% initial cash cap rate. From a transparency perspective, note that when we discuss cap rates on acquisitions, NetStreet will provide cash cap rates on total acquisition costs. We completed one disposition in the third quarter at a sales price of $1.9 million, a casual dining restaurant that we felt could have trouble competing in the future and wanted to eliminate that exposure from our portfolio. Casual dining is not a sector that we plan on adding to in the portfolio, and we continue to reduce that small exposure in the portfolio through dispositions over time. As we look ahead, we are targeting an average of $80 million or more of acquisitions per quarter, or $160 million for the last two quarters of 2020. While 100% of our third quarter acquisitions were investment grade, over time we intend to target an appropriate balance for our risk tolerance and growth objectives. We expect that approximately 70% of our investment activity will be with investment-grade tenants. The balance will be with non-investment-grade tenants at a slightly higher yield, including high-quality unrated tenants and selectively targeted sub-investment-grade tenants where we have a high level of confidence in the tenants industry, the retailer's management team, the trajectory of that retailer's business, as well as the quality of the real estate we are acquiring. Before I turn the call over to Andy, I'd like to make a few comments regarding the philosophy with which we approach our business. When we embarked on our IPO, we met with many of you through our marketing process, and we were humbled by the strong institutional support we received when we finalized our order book. We recognize that you are entrusting us with your capital, and we want you to know that you can count on us. We are committed to providing clear, straightforward disclosures, remaining accessible to investors and analysts, And finally, to fulfill our obligations as corporate citizens by establishing a strong ESG program. Regarding ESG, we are committed to creating a strong internal culture that promotes inclusion and employee well-being and are pleased with the initial steps we have taken to date. Finally, we are proud of our shareholder-friendly corporate governance structure, including our diverse majority independent board. I'll now turn the call over to Andy. Andy?