NetSTREIT Corp.

Greetings and welcome to NetStreetCorp third quarter 2024 earnings conference 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, Ms. Amy Ann, Investor Relations. Thank you, Ms. Ann. You may begin.

We thank you for joining us for NetStreet's third quarter 2024 earnings conference call. In addition to the press release distributed yesterday after market close, 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, managers' 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 end of December 31, 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 third quarter 2024 earnings call. I first want to congratulate the team on an outstanding quarter as we completed $152 million of gross investments, our highest quarter on record. at a blended cash yield of 7.5% or 8% on a straight line basis, which has been our average on a year-to-date basis. Similar to last quarter, a greater portion of our third quarter investments were sale leasebacks, as we have seen more attractive risk-adjusted returns emerge from our opportunity set within that marketplace. Additionally, by sourcing more volume from this channel, our quarterly acquisitions had a longer weighted average lease term at 12.5 years, with more attractive rent growth profiles. While our percentage investments leased to investment grade and investment grade profile tenants was below our portfolio average this quarter, we have continued to adhere to our stringent underwriting standards, which require healthy tenant credit profiles, strong unit-level cash flow, generic single-tenant boxes, above-average foot traffic, and replaceable rents, among many other attributes. Included in this activity were four development projects totaling over $18 million that commenced rent in the quarter. As of today, our development pipeline consists of eight projects with a total estimated cost of $22 million, which includes estimated remaining funding of $7 million. Turning to the portfolio, we ended the quarter with investments in 671 properties that were 100% leased to 93 tenants operating in 26 industries across 45 states. From a credit perspective, over 75% of our total ABR is leased to investment-grade or investment-grade profile tenants. Our weighted average lease term remaining on the portfolio is nine and a half years with less than 3% of ABR expiring through 2026. In addition to a robust quarter of investments, we also saw continued progress on the asset management front, which is indicative of the strength of our industry relationships and the speed of which our team can move when asked to perform. This was evidenced by our third quarter disposition activity as we executed on various strategic asset sales that reduced select tenant concentrations while accretively recycling the proceeds into investments with longer leases and better rent escalations. All told, we completed eight dispositions in the quarter for total proceeds of $24 million at a weighted cash yield of 7.3%. Turning to our industry concentrations, while the pharmacy and dollar store industries have garnered a number of less-than-positive headlines over the past few months, we remain eminently comfortable in the long-term productivity of our assets within these industries. Due to the in-depth analysis that we complete at underwriting, coupled with consistent dialogue we have with these operators, we do not currently foresee any discernible economic impact to our earnings stream from these industries, which represent just 50 basis points of total expiring ABR between now and 2028 year-end. As it pertains to Walgreens, we continue to believe that their planned store closures, which are likely to focus on nearer-term lease expirations and unprofitable locations, should have minimal to no impact on our occupancy. Amongst many other factors, our conviction in this view is driven by the fact that more than two-thirds of our stores were purchased pursuant to blend and extend transactions, which is not only indicative of Walgreens' long-term commitment to our sites, but also supports our view that our rents are more replaceable versus market. However, we felt it prudent to demonstrate that we can quickly and meaningfully reduce tenant concentrations. even those that are perceived to have challenges, while simultaneously reinvesting the proceeds at an accretive level. As outlined in the supplemental, we have reduced our Walgreens concentration from 5.9% at second quarter end to its current concentration of 4.8%. While we endeavor to have all tenant concentrations below 5% longer term, our Walgreens concentration should decline further in coming quarters. Our weighted average lease term with Walgreens is approximately 10 years with just one lease expiring before 2030, which we believe has virtually zero renewal risk given its exceptionally high front end sales and its 99th percentile national ranking on Placer for foot traffic. Lastly, while there is nothing to report on this front as of today, we have received a fair amount of inbound interest in our Walgreens locations, largely from large format convenience store operators We're currently willing to pay high rents for high-quality locations similar to the properties that we own. We're also nearing a highly positive outcome as it relates to our Big Lots, which currently stands at 80 basis points of total ABR. As a reminder, prior to 2024, we decreased our Big Lots concentration from 11 stores to 8 stores in order to protect our cash flow in the event a financial restructuring occurred, which indeed happened this September. Of the 8 locations, one was assigned to Ali's Bargain Outlet, an existing investment-grade profile tenant of ours. Another site is being marketed for lease in Bowie, Maryland, where we have received a number of attractive LOIs from major retailers and grocers. And the remaining six locations have all been assumed by Big Lots. As part of the negotiation, we extended the lease term to an average of seven and a half years, albeit we did agree to provide some short-term rent relief during the bankruptcy process, which we expect to conclude sometime in December. Looking out to 2025, we should experience little to no loss in our rental stream from the aid assets while gaining longer lease terms from better credit profiles at proven rents. While we prefer not to have any noise around the health of our tenants' credit, we believe it is important to demonstrate that our underwriting of assets proved to be sound and resulted in minimal disruption to our cash flows. As a reminder, we view corporate credit, unit-level cash flow production, and the fungibility of our real estate as modes of protection around our rental streams. We are not simply buying high-credit quality assets and hoping for the best. Our strong underwriting and asset management capabilities have, and we believe will continue to help us generate extraordinarily consistent portfolio cash flow for our shareholders. Lastly, before I hand the call over to Dan, I'm pleased to share that effective October 1st, Lori Whitman was appointed the Chair of the Board of Directors. Lori has been a valued member of our board going back before our IPO, and she has consistently demonstrated a deep understanding of our business and a commitment to our success. Her continued service will be instrumental as we execute on our strategic vision and long-term growth. With that, I'll hand the call to Dan to go over our third quarter financials and then open up the call for your questions.