NetSTREIT Corp.

Greetings and welcome to the NetStreetCorp second quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. A brief 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. It is now my pleasure to introduce your host, Kathy Korbulik, Investor Relations. Thank you, Kathy. You may begin.

We thank you for joining us for NetStreet's second quarter 2022 earnings conference call. In addition to the press release distributed yesterday after market closed, we posted a supplemental package and an updated investor presentation. Both can be found in the investor relations 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 Form 10-K for the year ended December 31st, 2021 and our other SEC filings. All forward-looking statements are made as of the day hereof and NetStreet assumes no obligation to update any forward-looking statements in the future. In addition, certain financial information presenting 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 Mannheimer, and Chief Financial Officer Andy Blocker. They will make some prepared remarks, and then we will open the call for your questions. Now, I'll turn the call over to Mark. Mark?

Good morning, everyone, and welcome to our second quarter 2022 earnings conference call. Before I discuss our investment activity for the quarter, I want to take a moment and say how pleased I am with the team's ability to consistently source attractive investment opportunities at strong yields and continue to be nimble and creative in a dynamic market. We have a unique and proven strategy, and our performance demonstrates our continued ability to execute and drive strong and steady results. With that, I am pleased to report that we completed $122.7 million of net investment activity for the quarter. In a market that is evolving rapidly with higher interest rates and macroeconomic uncertainty, we have remained disciplined and selective with the opportunities we pursue. As we started to see changes in the acquisitions market, we pivoted to higher quality and better priced acquisitions as shown by the higher yield for the quarter, which resulted in approximately $375,000 in debt deal cost in the quarter. We believe this was the right strategy as there was a clear economic benefit to being nimble in an evolving market. Since our IPO less than two years ago, we have more than doubled our portfolio size from 163 properties to 381 properties. our ABR from $34.5 million to $84.2 million, and enhanced our diversification metrics, while maintaining the highest credit quality and stable portfolio in the net lease space, increasing investment grade and investment grade profile tenancy about 900 basis points to 81%. Our portfolio is largely made up of tenants in the necessity, discount, and service industries, all of which are well insulated from recessionary and or inflationary pressures. Despite uncertainty in the current economic environment, we believe that the defensive nature of our portfolio will allow us to continue to outperform as we did during the COVID pandemic, where we were the only public net lease retail REIT to collect 100% of our pre-COVID rents. In addition, we have a strong balance sheet with ample flexibility and liquidity to meet our investment goals for the year. Now turning to our investment activities for the second quarter, we acquired 22 properties for $117 million at a weighted average initial cash capitalization rate of 6.7% with a weighted average lease term of 10.9 years. It is important to note that our second quarter acquisitions were on average at a higher going-in cap rate, better credit, and with a longer lease term than prior quarters, which really demonstrates the strength of our team and ability to adapt and source high-quality opportunities in an evolving market. Rent commenced on three development projects that had total cost of $9.8 million at a weighted average investment yield of 6.5% and a lease term of 10.3 years. During the quarter, we entered into a $6 million convertible loan with a 12-month term and an interest rate of 6.5%. We expect this loan to be converted into fee-simple ownership of two properties by the end of 2022 with a cash cap rate in line with the current interest rate. Additionally, we sold a Kohl's for $9.9 million at a 6% cap rate. And we terminated the lease with a small auto parts retail store and sold the property. We expect to collect the remaining lease payments in a lump sum, which should result in a small gain in a future period. Finally, we provided $4.6 million of funding to support ongoing development projects. At quarter end, we had six projects under development where we have invested $12.8 million to date. You'll notice our development activity is down from prior quarters due to recent completions, and we have taken a more cautious approach as we expect a more challenging environment for developers to perform within their previously negotiated construction budgets with tenants, given rising construction costs, rising labor costs, and economic uncertainty. At quarter end, our portfolio is comprised of 381 properties with 75 tenants, contributing approximately $84.2 million of annualized base rent. The portfolio had a weighted average lease term remaining of 9.5 years, with 81% of ABR represented by tenants with investment grade ratings or investment grade profiles, and the portfolio remains 100% occupied. We added four new tenants in the quarter, which includes a Sprouts grocery store with solar panels on its roof, augmenting our ESG efforts, an Ulta store, a Moe's restaurant, and an NTB automotive service store. Subsequent to quarter end, we acquired seven properties for $45.4 million, including closing costs. With the recent acquisitions, we've completed $304 million in net investment activity year-to-date, which is over 60% of our full-year $500 million targeted net investment activity. This level of activity is a testament to the experienced team we have in place and our focus to grow the portfolio with high-quality tenants. We believe we are well-positioned to maintain our momentum for the remainder of the year and beyond. With that, I'll turn the call over to Andy to go over our second quarter financial results and 2022 guidance.