NetSTREIT Corp.

Greetings. Welcome to the NetStreetCorp's second quarter 2023 earnings call. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference today, please press star zero from your telephone keypad. Please note that this conference is being recorded. At this time, I'll turn the conference over to Amy Ahn with Investor Relations. Amy, you may now begin.

We thank you for joining us for NetStreet's second quarter 2023 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 risk 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 31, 2022, 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. Certain financial information presented on this call includes non-GAAP financial measures. Please refer to our earnings release and supplemental package for definitions of our non-GAAP measures, reconciliation to the most comparable GAAP measure, 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 Dan Donilon. We 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 thank you for joining our call today. As detailed in our quarterly disclosure, we reported another solid quarter of investment activity with continued improvement in many of our key portfolio metrics. In addition, we recently completed a number of capital markets transactions that enhanced our balance sheet and strengthened our liquidity position, which Dan will cover in his sections. All in all, our portfolio continues to perform at a high level, and our opportunities for external growth continue to increase in both size and quality, which has us highly optimistic about our ability to compound earnings and achieve attractive total returns for shareholders. Starting with the portfolio, as of quarter end, we had 531 investments that were leased to 87 tenants that operate within 25 retail industries across 45 states. With 82% of our portfolio, as measured by ABR, Being leased to tenants with investment grade ratings and investment grade profiles, 87% coming from necessity-based discount or service-oriented retailers, we have not deviated from our focus on high-quality tenants and defensive retail categories. Our occupancy remained stable at 100%, and our weighted average remaining lease term of 9.4 years was unchanged quarter over quarter. In terms of near-term lease expiration risk, based on our strong tenant relationships and the visibility we have into the performance of our properties, We are highly confident in the renewal prospects for the 2.5% of ABR that expires between now and the end of 2025. Coupled with the strong balance sheets and ample financial resources of our high-quality tenant base, we continue to believe our in-place cash flow stream should prove highly durable in any economic environment. Turning to capital deployment, we closed on $115 million of net investment activity this quarter. which was primarily funded with the attractively priced equity capital that we raised in August 2022. Tenant quality remained high as 81.3% of our second quarter investments were leased to investment grade rated and investment grade profile tenants. Our second quarter investments had an initial cash yield of 6.8% and a weighted average lease term of 11.6 years. Of note, over half of our second quarter investment activity involved tri-party negotiations, whereby the tenant agreed to extend out a large portion of their existing leases with NetStreet to 15 years, as well as add rent escalation clauses to the new and existing leases that were previously flat. These IRR accretive transactions, which modestly pressured cap rates in the quarter, not only enhanced our portfolio's internal rent growth profile, but also provided us with increased visibility into the desirability of our properties. We believe these collaborative industry relationships will drive additional opportunities for NetStreet as we look to become a greater part of the embedded solution for retailers and developers alike. From a pricing perspective, while we believe cap rates have largely leveled off for assets that we pursue, we do expect third quarter investments to have slightly higher cap rates than this quarter, despite there being no change in tenant quality. Turning to dispositions, we sold two properties with 4.6 years of remaining lease term in the second quarter for $4.1 million at a 6.7% blended cash yield. In the back half of the year, we expect to see our disposition activity increase relative to the first half as we look to manage certain tenant concentrations. Of note, most of the plan disposition activity is being done to free up investment capacity with the same tenant, albeit at higher yields with better lease terms. Looking at our investment pipeline, we are seeing increased opportunities for traditional fee-simple acquisitions due to the impact of higher interest rates a significantly less active 1031 marketplace, and limited competition from highly levered buyers. As we touched on earlier, we are seeing both retailers and developers consider our capital as an alternative financing option given the unattractive nature of the debt markets and or the limited availability of financing from both small community and regional banks. While all these market dynamics are resulting in more attractive cap rates, we're also seeing an increased willingness by retailers especially those committed to growing their store count to sign leases with longer lease terms and embedded rent escalations. In addition, while loan origination opportunities remain plentiful, we have become even more selective in the types of loans that we may originate and how we allocate capital to these investments. In short, we are only focusing on those opportunities that can lead to sustainable long-term value from a relationship perspective and or ultimately fee-simple ownership. In closing, We will continue to take advantage of our size and mine our unique sourcing channels for attractively priced opportunities to drive outsized risk-adjusted returns for shareholders. With $227.7 million of net investment activity closed in the first half of 2023, we remain ahead of pace, which gives us the confidence to increase our 2023 net investment activity guidance to at least $450 million from our prior guidance of $400 million. With that, I'll hand the call over to Dan to go over our second quarter financial results.