NetSTREIT Corp.

Greetings and welcome to the NetStreetCorp second quarter 2024 earnings call. At this time, all participants are in the 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, Amy and thank you. You may begin.

Thank you for joining us for NetStreet's second quarter 2024 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 31st, 2023, 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 of our non-GAAP measures, reconciliations 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 Donlan. 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?

Thank you, Amy, and thank you all for joining us this morning on our second quarter 2024 earnings call. We had a steady second quarter completing over $116 million of gross investment activity at a blended cash yield of 7.5%. A larger portion of our acquisitions this quarter were sale-leaseback transactions, as we have seen more attractive risk-adjusted returns from our opportunity set in that area. Due to the difference in sourcing channels this quarter, our acquisitions had an attractive rent growth profile with longer lease terms at 16.7 years, average remaining lease term. We have a new top 10 tenant this quarter after two property additions with Lifetime Fitness, a premier health club provider whose operations have proven resilient in the current economic climate due to the chain's focus on the more affluent customer. This direct sale lease pack was part of a larger package which allowed us to select the two best assets from the group, at highly attractive price points. One of the assets is a former United States Tennis Association location in the northern suburbs of Atlanta, which has been expanded and upgraded by Lifetime over the past few years. The other asset is another infill location in Austin, Texas, which consistently performs as one of the top five most profitable locations in the Lifetime chain. While we have seen a number of sale leaseback opportunities with Lifetime over the past few years, This was the first opportunity that gave us access to some of their most attractive real estate at accretive cap rates and an appropriate basis. We may selectively add to this tenant concentration if we can continue to acquire top performing assets at favorable pricing with a reasonable basis. On the development front, we commenced rent on six projects totaling $12 million. Our current development pipeline consists of 12 projects with a total estimated cost of $39.6 million which includes estimated remaining funding of $12 million. Moving on to dispositions, we continue to execute on strategic asset sales to recycle capital into investments with longer leases and better rent escalations, and decreasing our exposure to certain tenants. We completed six dispositions in the quarter for total proceeds of $13 million at a blended cash yield of 6.8%. At quarter end, our portfolio consisted of 649 investments with an ABR of $148 million. Our 90 tenants operate in 26 industries across 45 states, with 83% of our portfolio leased to investment-grade or investment-grade profile tenants. Our weighted average lease term remaining on the portfolio is 9.5 years, with less than 4% of leases expiring through 2026. As we look to further improve the diversity of our portfolio, we will continue to explore all acquisition sourcing channels where we can get the best risk-adjusted returns, including sale-ease-back opportunities, that give us access to well-located real estate where the tenant generates significant cash flows at a very high rent coverage. While having a large number of publicly traded companies in our portfolio has created headline noise for us most recently, we believe the economic impact to our cash flow generation should be negligible over the long term. As a reminder, we do not only rely on corporate credit of our tenants, but also the unit-level performance of our assets and the quality of our real estate collateral. The two most topical tenants in the news have been Walgreens and Big Lots. As it relates to Walgreens, we have just one lease expiring before 2029, and it is a high performing asset with de minimis renewal risk. As mentioned in the past, we maintain an ongoing and constructive dialogue with Walgreens, which allows us to proactively asset manage our stores in real time. That said, we continue to believe we own some of the better performing stores, which should limit our downside risk. With regard to Big Lots, they recently announced the closure of more than 10% of their stores, We have one location on that list, and based on our assessment of the market, we are confident in our ability to re-tenant the location with potential upside in rent. The remainder of our Big Lot stores generate better than average foot traffic with rents that we believe are at or below market with attractive real estate fundamentals. As we look out to the remaining half of the year, we are focused on further enhancing our portfolio's diversification with tenants that have strong management teams and operate in defensive industries. Before I hand the call over to Dan, I want to discuss the fraud incident that occurred during the quarter. The company was the victim of a criminal scheme involving a business email compromise of an employee that led to two fraudulent transfers totaling $3.3 million to a third party impersonating one of our development partners. The result was a $2.8 million loss net of insurance recoveries. When we learned of the issue, we took immediate action, including blocking access to the compromised account and launching a review with the assistance of third party experts. Our investigation has determined this isolated event poses no further threat to the company or its partners, and we believe we have taken the appropriate steps to prevent this from occurring again. With that, I'll hand the call to Dan to go over a second quarter financials and then open up the call for your questions.