NetSTREIT Corp. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Investment Activity: Q4 saw a record $195 million in gross investments, with sale leaseback transactions driving improved risk-adjusted returns. The development pipeline includes 5 projects with significant estimated costs.
• Portfolio Diversification: Actively working to diversify the portfolio, aiming for no tenant above 5% of ABR by year end. Disposition activity was strong, facilitated by broad investor interest including 1031 buyers, family offices, and large institutions.
• Tenant Performance: Minimal impact from store closures of tenants like Walgreens, CVS, and Family Dollar. Average credit loss since inception is just 4 basis points. Handling of big loss concentrations with variety wholesalers led to expected assumptions of most stores.
• Debt and Balance Sheet: Closed $275 million of additional financing, extended term loan maturity to January 2030, amended credit agreements. Pro forma total adjusted net debt is $848 million, weighted average debt maturity is 4.3 years, weighted average interest rate is 4.53%, and pro forma liquidity at year end is $635 million.

Segment Performance

• Investment Activity: In Q4 2024, NETSTREIT completed over $195 million of gross investments, the highest quarter on record, with a blended cash yield of 7.4% (8.1% straight line) and 14 years of weighted average lease term. Three development projects totaling over $7 million commenced rent in the quarter. The development pipeline has 5 projects with a total estimated cost of $14.6 million, including remaining funding of $6.7 million.
• Portfolio: Ended the quarter with investments in 687 properties leased to 98 tenants across 26 industries in 45 states. Nearly 71% of total ABR is leased to investment-grade or investment-grade profile tenants. The weighted average lease term remaining for the portfolio is 9.8 years, with just 2.4% of ABR expiring through 2026. The top 10 concentration declined to 45.1% of ABR, with Walgreens at 3.8% and Dollar General at 8.6%.
• Financials: Q4 net loss was $5.4 million ($0.07 per diluted share). Core FFO for the quarter was $26.5 million ($0.32 per diluted share), and AFFO was $25.9 million ($0.32 per diluted share), a 3.2% increase from the prior year. For the full year 2024, net loss was $0.16 per diluted share, core FFO was $1.26 per diluted share, and AFFO was $1.26 per diluted share, a 3.3% growth from 2023.

Guidance

• AFFO per share: 2025 AFFO per share guidance range is $1.27 to $1.30.
• Net investment activity: Expected to range between $75 million to $125 million.
• Cash G&A: Expected to range between $14.5 million to $15.5 million.
• Rent loss: Guidance assumes roughly 100 basis points of unknown rent loss, considered conservative.
• Dividend: Quarterly cash dividend of $0.21 per share declared, payable March 31st to shareholders of record March 14th.

Risks

• Lease Expiration Risk: Very low lease expiration risk with key tenants, only 132 basis points of ABR expiring through 2030 from concentrations.
• Market Dynamics: Shift in mix of investment-grade and non-investment-grade opportunity sets, requiring continued diversification efforts.

Question and Answer Q: How should we think about the use of equity forwards this year?

A: Dan Donlan said expect to settle equity in the back half of 2025, with the agreement calling for end of year but potentially pushing it out further.

Q: Cap rates on sold Walgreens and CVS?

A: Mark Manheimer said Walgreens cap rates varied widely by asset quality and lease term; CVS cap rates are lower, with a strong market for Dollar General sales.

Q: Acquisition priorities?

A: Mark Manheimer said prioritizing convenience stores, quick service restaurants, auto service, auto collision, and grocery.

Q: Tenant credit and reserves?

A: Mark Manheimer said big lots situation is resolving with six locations assumed, and tenant credit and reserves are managed to minimize risk.

Q: Acquisition plans with forward equity?

A: Daniel Donlan said net investment activity guidance is driven by cost of equity, and Mark Manheimer noted they could push forward dispositions if an attractive acquisition opportunity arises.