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Operator: Ladies and gentlemen, good morning and welcome to the NETSTREIT Corp. First Quarter 2024 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. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Amy An, Investor Relations. Please go ahead.

Amy An: We thank you for joining us for NETSTREIT’s first 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.netstreit.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 31, 2023 and our other SEC filings.

All forward-looking statements are made as of the date hereof, and NETSTREIT 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 NETSTREIT’s Chief Executive Officer, Mark Manheimer; and Chief Financial Officer, Dan Donlan. 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?

Mark Manheimer: Thank you, Amy. And thank you all for taking the time to join us this morning on our first quarter 2024 earnings call. First, I want to extend my thanks to the necessary team. Our strong start to the year would not have been possible without their fantastic work. We kicked off the year as one of only two rigs to raise follow-on equity in January, while also remaining active on our ATM program. We have raised nearly $230 million of equity year to date, which gives the team ample dry powder to transact at our current investment pace through year end. Due to a drastic decrease in competition we are continuing to pursue investment opportunities at attractive prices. The team remains diligently focused on investing in properties with the strongest tenants in defensive retail sectors that heavily rely on their physical locations to make profit.

We continue to see great opportunities with not only investment grade tenants, which now make up eight a sector leading 71.1% of our portfolio, but also with investment grade profile tenants and low risk sub-investment grade and unrated tenants. And while the buyer pool has been, we also continue to execute on strategic dispositions to lower our concentration in certain tenants and or recycle that capital into investments with longer leases and better rent escalations. In the first quarter, we completed over $129 million of gross investment activity at a blended cash yield of 7.5%, a 30 basis points sequential quarter over quarter increase. Acquisitions closed in the quarter with strong nationally recognized tenants such as Tractor Supply, Dollar General and Bridgestone, Firestone to name a few.

From a tenant perspective, 84.8% of our investments completed in the quarter were with investment-grade tenants, which includes the completion of 10 new developed. Moving to our disposition activity. We sold 12 properties for $21.6 million at a 6.8% cash yield in the quarter. These properties were leased to tenants in the dollar store, drugstore pharmacy, discount retail and convenience store industries. At quarter end, our portfolio consisted of 628 investments with an ABR of $140.3 million. Our 88 tenants operate in 26 industries across 45 states with 84.4% of our portfolio leased to investment-grade or investment-grade profile tenants. Our focus on long-term leases and high-quality tenants has provided us with a favorable lease expiration schedule.

For example, subsequent to quarter end, we renewed the one lease that was expiring in 2024 for a 12.5% increase in rent. Looking out to 2025, we have 1.8% of ABR expiring, which our team is actively addressing. We currently expect these expirations to have a positive impact on our cash flow and our portfolio weighted average lease term. We believe our high credit quality and minimal lease expiration risk in the near term provides stability of our cash flows. Turning to recent tenant headlines, I wanted to provide some commentary as it relates to Dollar Tree and their concentration within our portfolio. In March of this year, Dollar Tree who acquired Family Dollar in 2015, announced that they intend to close several stores across the country, the bulk of which will be Family Dollar branded stores.

This was not a surprise to us, as we have been addressing our Family Dollar locations via asset sales and proactive seek lease extensions, over the past few years. With that in mind, we currently own 19 Family Dollar branded stores, which comprised 1.4% of our ABR. Two of those stores or 13 basis points of our ABR, have a lease that expires within five years. We would also note that in the last 12 months, we extended the initial lease terms of 10 stores, with the seven remaining stores having leases that were already long term in nature. As such, we are confident in the productivity of our stores and we were pleased to see none of our locations among the 103 Family Dollar stores on the initial closure list. Our relationship with Dollar Tree is strong, and we plan to continue working with them to minimize risk and maximize cash flows for our investors.

Before I turn the call over to Dan, I wanted to reiterate a couple of points as it pertains to our balance sheet, portfolio and tenancy While there are multiple reported cross-currency as it pertains to the health of the economy and the US consumer, we believe our portfolio and tenant focus are well-positioned to weather a prolonged negative impact in consumer spending, as well as provide a robust opportunity set from which to grow, should the exit economic growth remains stable. Similarly, our low leverage and well-capitalized balance sheet provides us with sufficient capacity to grow externally, should the capital markets remain volatile, while also allowing us to remain highly competitive and opportunistic on the investment front, should the environment for spread investing improve from current levels.

With that, I’m going to turn the call over to Dan to discuss our key financial highlights for the quarter.

Dan Donlan: Thanks, Mark. Looking at our first quarter earnings results, we reported net income of $1 million or $0.01 per diluted share. Core FFO for the first quarter was $22.5 million or $0.3 per diluted share and AFFO was $22.9 million or $0.31 per diluted share, which was a 3.3% increase over last year. Turning to the expense front, we saw total G&A ex- onetime severance payments declined 1% year over year to $4.85 million while our cash G&A ex one-time severance payments declined 11% year-over-year to $13.4 million. In addition, with our total quarterly G&A ex onetime severance payments representing 13% of total revenues in the quarter versus 17% of total revenues in the prior year quarter. Our G&A continues to steadily rationalize relative to our revenue base.

Turning to the balance sheet, our total adjusted net debt, which includes the impact of all forward equity as of quarter end was $395.1 million. Our weighted average debt maturity is 3.9 years and our weighted average interest rate is 4.36% including, extension options which can be exercised at our discretion. We have no debt maturing until January 2027, during the quarter. Please note, that we drew the remaining $100 million on our 2029 term loan. As Mark mentioned, we were active on the capital markets front this quarter. Utilizing the constructive macro backdrop that exists in early January, we sold over $198 million of forward equity at $18 per share and a follow-on offering. Additionally, we remain opportunistic with our ATM program, with year-to-date forward sales of $31 million through the end of April including $2 million sold in March.

At quarter end, our liquidity was $638.1 million, which consisted of $22.3 million of cash on hand, $324.9 million available on our revolving credit facility and $290.9 million of unsettled forward equity including the $28.7 million of unfunded equity from our April ATM activity. Our pro forma liquidity at quarter end, was $666.8 million. Turning to leverage, our adjusted net debt to annualized adjusted EBITDAre was 3.1 times at quarter end, which remains well below our targeted leverage range of 4.5 times to 5.5 times. Furthermore, adjusting for our April ATM activity, our pro forma leverage declined to $2.9 million. Given this forward equity cushion, we can modestly exceed our 2023 net investment activity level and still end the year below the low end of our targeted leverage range, with no additional equity required this year.

Moving on to guidance, we are increasing the low end of our 2024 AFFO per share guidance, to a new range of $1.25 to $1.28. In addition, we continue to expect cash G&A to range between $13.5 million and $14.5 million, which is exclusive of transaction costs and one-time severance payments. Lastly on April 23, the Board declared a quarterly cash dividend of $0.205 per share. The dividend will be payable on June 14 to shareholders of record as of June 3. Based on the dividend amount, our AFFO payout ratio for the first quarter was 66%. With that operator, we will now open the line for questions.

Operator: Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. [Operator Instructions] Our first question is from the line of Haendel St. Juste with Mizuho Securities. Please go ahead.

Haendel St. Juste: Hey. Good morning to you guys.

Mark Manheimer: Good morning.

Haendel St. Juste: So my first question I guess is on, how should we interpret or what should we extrapolate from the first quarter activity and what it means to your capital deployment of the near term? You’ve mentioned a few times that you can continue to buy a sustainable pace without getting above your leverage metrics. But I’m curious how we should be thinking about cap rates and spreads here. Are they indicative of where your cost of capital as you buy high-grade in the current market? Thanks.

Mark Manheimer: Yes, sure. I mean I think with our current cost of capital and the opportunities that we’re seeing I think you can expect us to continue to deploy at a pretty similar pace. As far as you know what to interpolate out of what we’ve acquired so far this year, I think it looks a lot like what we’ve acquired over the past several quarters. Investment-grade spreads and non-investment grade spreads have certainly gotten a lot more attractive than it than what they were historically with. On the non-investment grade side, we’re really focused on the very healthy non-investment grade tenants and industries that are facing a lot of headwinds with real estate that we think is fungible and rents that we think are replaceable whether they be non-investment grade or just more investment grade profile.

I think you may see some more opportunities on the sale-leaseback side for the remainder of the year. Certainly in the second quarter, we see a few of those that we think are pretty attractive. We’ll see if we get there in pricing. But I think you could see up to as much as half of what we do in the second quarter, kind of fit some of that bucket. But we’re really seeing a lot more attractive opportunities on the investment grade side and the — what I call, kind of the healthy non-investment grade side.

Dan Donlan: Yes. And Haendel, it’s Dan. As we think about kind of future equity raising or debt raising. Look, we’ve raised what we want to do for the year, and frankly through the first quarter. So we have we can be we can afford to be fairly patient and see if the market comes to us on whether it’s on the capital side or with the opportunity set gets more attractive in terms of higher yields. So, that’s why we are where we are with the capital position is we want to be able to be opportunistic if something comes available and we’ve got plenty of time to ride out whatever this capital market environment maybe over the next you know three to four quarters.

Haendel St. Juste: Got it. Appreciate that. Maybe the follow-up, just a bit more how you think about your ability to do achieve your target of 75 basis points or 100 basis points of spread here, should we, I guess, expect you to continue using maybe more term loan versus kind of given where the spot cost of a 10-year unsecured debt here?

Dan Donlan: Yes. I mean, look, right now at just north of $2 billion and gross assets, looking to the 10-year market is not nearly as efficient as doing as looking to the bank term loan market. That being said, where we are today with all the forward equity that we have $320 million, you think about the pace that we’re on. Our near term capital needs, so we’ll easily be able to be covered by the forward equity as well as our credit facility. We really don’t — look, we’re really not looking to do anything longer-term in nature until we get out to kind of early to mid-2025. And we’ll just have to see whether market is for term loans for 7-year private placements, 10-year private placements, whatever it may be. Thankfully, we have the capital right now, not to have we concern ourselves with that right now.

Haendel St. Juste: Okay. Got it. My second question’s on Big Lots. Just wanted to check in there that your top 10 tenant list anymore. I’m curious if you’re selling what the market is and just generally where you’d like that exposure to get to? Thanks.

Mark Manheimer: Yes, sure. Thanks, Endo. Yeah, I like I mean again, we continue to monitor what’s going on with Big Lots. They closed 48 stores last year, none of which are ours. They also opened another 15. It looks like they’ve finally rightsize inventories starting to now finally see improvement in margins. The cost cutting appears to be helping. But at the end of the day, we really need to kind of see that sales bottom out and hopefully start to increase for that. You have full confidence in their turnaround. So we’re really relying on the strong real estate that we’ve got left, after selling off a handful of those locations. And now we’ve got locations with below-market rents in attractive infill retail corridors. And so that’s really our ultimate backstop, but we’re open to potentially selling some more.

We just don’t feel like we have to be price takers with how attractive the real estate is that we’re left with. There continues to be a market for those assets. I think you know we’d really like to see the cap rate be a little bit more aggressive for us to pull the trigger. But we’ve got a couple of feelers out the market. So I would not be shocked to see us move a couple of more.

Haendel St. Juste: Great. Appreciate the color guys. Thank you.

Operator: Thank you. Our next question is from Smedes Rose with Citi. Please go ahead.

Smedes Rose: Hi, thank you. I think since your last call with investors you know there’s sort of this narrative that’s kind of just higher for longer has taken hold. And I’m just wondering if you could talk about what you’re seeing in terms of seller pricing, do you think there’s more people just retreating at this point, given what I assume there’s an upward bias in cap rates or maybe just talk a little bit about the landscape of what you’re seeing?

Mark Manheimer: Yeah. Smedes, I’d say yes certainly an interesting market, does feel like the expectations have been muted on a lot of a lot of cuts coming. We started the year with the expectation that at least from the market that we’d see call it six or seven cuts during the year, which is now largely why we raised some equity because we kind of didn’t see the macro quite the same way. But the seller market at that point in time was still really kind of banking on those rate cuts coming now? Obviously, I think the consensus is that we might get one in December or nothing at all. And so, I think there’s been a little bit more of an acceptance that we could be in a higher for longer market. We’ve seen a lot more actually opportunities than I would have expected.

And that really keeps a lot of our competition on the sideline. So it allows us to be very selective, allows us to really negotiate terms and the way we like to see them where we’re not really competing against other people that are in that are trying to buy the assets that we think that we are. So yeah, I mean cap rates have continued to move up. I know what we’re seeing in the second quarter I think will likely look a lot like the first quarter on. But yeah, I think there has been a little bit more of an acceptance that the Fed’s not going to turn around and just start cutting rates and bring it back to 2021.

Smedes Rose: I’m sorry, if it’s second quarter cap rates should be kind of in line with what you saw in the first quarter or you think it will be or your unit the sequential increase will be similar?

Mark Manheimer: I think the rates will be similar in the second quarter than the first. We saw them depending on what closes and we’re still sourcing a few more opportunities in the second quarter. But kind of what we have in the pipeline today looks pretty similar, although the lease term that we’re getting a much longer lease terms with better rental increases.

Smedes Rose: Okay. Thank you.

Operator: Thank you. Our next question is from Greg McGinniss with Scotiabank. Please go ahead.

Greg McGinniss: Hey, good morning. On the acquisition side. I’m just curious we kind of expect to see more of the same in terms of what you’re looking to target from a concept and industry standpoint, or are there any kind of new concept industries out there that given your cost of capital, maybe you’re now able to address or where cap rates have changed, you’re now able to address some or I guess just any changes in terms of industries that you’re targeting?

Mark Manheimer: Yeah. I mean you’ve seen no specific mostly the Dollar General. You’ve seen that concentration move up quite a bit. A lot of that was funding developers that we committed to last year. So I think we’ve got maybe another call it four or five months left of kind of kind of funding some of that on, but that’s going to be a little bit less than what you’ve seen in the past. You will see a few new tenants come into the portfolio. We do think it’s important for us to increase the diversification, not only in the top 20 just to be just broadly across the portfolio. And we are seeing some attractive sale leasebacks and other opportunities that we had in the past. There’s a few that we’ve been active with on the development side that maybe haven’t popped into our top 20 but are kind of get close there in the collision space.

So I think you will see a few new tenants and pop into the portfolio that I think we find to be very attractive and cap rates would have been much lower call it 18 months — 24 months ago that we would not have been able to have in the portfolio.

Greg McGinniss: Okay. And then on that development side, I believe you previously mentioned that you’ve been able to negotiate escalators into some of those development deals that previously didn’t have them. Have there been any other changes on the on the leasing side in terms of being able to build in escalators or different terms as the financing market has changed?

Mark Manheimer: Yes. I mean, I think not much of a change quarter over quarter. But yes, I mean, we’re getting better rent escalators and leases that historically have been flat. So that’s driven a lot of our capital recycling program bringing in some of those tenants with now longer leases with better rent bumps that turnaround and selling some of the flat leases a little less term and out of the portfolio and being able to do that slightly accretively is has been something that we focused on but no real big change quarter-over-quarter.

Greg McGinniss: Okay thanks. And final from me. Apologies if you already addressed this but have you guys talked about bad debt expectations built into guidance for the year?

Dan Donlan: Yes, we did on the last call I think as we sit here today and we’re still — on an annualized basis we’re still modeling somewhere between 20 basis points to 25 basis points at the high end of our AFFO guidance range.

Greg McGinniss: Okay. Thank you.

Operator: Thank you. Our next question is from the line of Alec Feygin with Baird. Please go ahead.

Alec Feygin: Hi. Thank you for taking my question this morning. First one for me is can you just talk about what are the categories that are in the assets held for sale?

Mark Manheimer: It’s a pretty big mix of. Yes we’ve got some of the big lots are in there and a lot of the dollar stores that I mentioned where we’re kind of recycling through to improve the escalators but it’s a pretty broad mix of a property type.

Alec Feygin: Got it. Thank you. And second one is maybe provide some color on the current in-place rents for the 19 Family Dollar stores in the portfolio and where you think the market is at for those properties if you did the to release them?

Mark Manheimer: Yes. I mean you’re talking about $90,000 to $100,000 per property. So the annual rents are very inexpensive rents that we think are largely replaceable That being said, you know, we’ve worked very closely with the tenant there and understanding the profitability and their commitment to our sites. So we still feel good that there’s no it could always close with a couple of cleanup going to close as many stores as they’re talking about. But certainly pleased to see their first list of 103 locations that none of ours we’re on that list on. But that being said, we do think that a lot of ours are pretty infill locations and we would have a lot of interest from various different tenants to take those assets at similar rents or potentially even higher.

Alec Feygin: Got it. That’s helpful. Thank you.

Operator: Thank you. [Operator Instructions] Our next question is from the line of Joshua Dennerlein with Bank of America. Please go ahead.

Farrell Granath: Hi. This is Farrell Granath, on behalf of Josh. I wanted to know if you could touch on what you’re seeing in investment spreads relative to where you can deploy capital today.

Mark Manheimer: Yes, yes sure. I mean I’ll take the first piece which is you know we most recent quarter were up 7.5. I think you’re going to kind of expect that to be similar in the second quarter. We really only have visibility going out into the second quarter and not as far as getting into the third. So tough to project beyond that, but it certainly gives us a pretty healthy spread off of where we raised capital earlier this year.

Farrell Granath: Great. And I know you already touched on Big Lots and Family Dollar. Was curious if there’s any other color on tenant largely Is there a watch list?

Mark Manheimer: Yes. I mean nothing on the watch list. You have a combined video to give you a little bit more color than that. I mean we are focused on the product mix product mix of our tenants how discretionary that product mix is and who their customer is. And if they’re kind of on the lower income type consumer, that’s really where we’re seeing pressure. The consumer overall is healthy. And so you see a lot of those government numbers come out that look pretty healthy, but it’s kind of been a tale of two cities where the kind of middle and upper consumer is doing well, but the lower end consumer is certainly struggling. And you see that with some tenants having trouble passing on inflationary costs on to the consumers. I mean, Walgreens has been topical.

That’s why you’ve really seen their gross margins kind of come in from kind of 22%, 23% to 18-plus percent. So that’s really impacting their cash flow, and so we’re really making sure that we’re getting out ahead of those types of risks, and then looking at the balance sheet of our tenants. Fortunately, there’s really not much in there that is of concern. But when a lot of these tenants have to refinance their debt, it’s going to be a lot more expensive than it was if they finance themselves a few years ago. And even just the ability to access debt has been is likely to be more challenged for some of these tenants. So that’s — those are the things that we’re focused on, but yes, nothing really is popping up that rises to the level of getting on our watch list at this point.

Farrell Granath: Okay. And I was also curious, is there anything in the market that you’re waiting to see? Or what’s maybe leading to some hesitancy on providing a net investment guidance?

Mark Manheimer : Yes. I mean, I think there’s been a lot of volatility in the markets over the past couple of years, obviously. And we really wanted to see cap rates move up. Obviously, we’re making some progress there. We really wanted to — early in the year, we really didn’t think it made a lot of sense to come out with a number and then potentially change it one or two times over the year. But I think just overall, for acquisitions, which we haven’t given guidance on that, but I think a good way to think about that is if the environment persists in a similar manner, you can expect us to deploy capital at a similar quantum that we did last year.

Farrell Granath: Okay. Thank you so much.

Operator: Thank you. Our next question is from the line of Todd Thomas with KeyBanc Capital Markets. Please go ahead.

Antara Nag-Chaudhuri : Hi. Good morning. This is Antara Nag-Chaudhuri on for Todd Thomas. Apologies if you discussed this already, but could you discuss your current investment pipeline and where it stands just thinking about 2Q and 3Q volumes?

Mark Manheimer : Yes, sure. I mean, I think the volumes will probably continue to be spread fairly evenly over the year if market conditions continue to be similar. And so I don’t think you’ll see much of a change in yield or — or how much we deploy in the second quarter, third quarter, probably a little bit too far out for us to figure out, but you may see a couple of chunky deals that are in the sale leaseback category and some that we’re developing a little bit more or funding development for a little bit more than we have in the past.

Antara Nag-Chaudhuri : Okay. Got it. And on disposition pricing, are you still able to achieve a sub-7 cap rate? Or are disposition cap rates trending higher?

Mark Manheimer : They’re trending higher a little bit on the margin. And I think depending on what we sell, it’s going to drive that a little bit. But cap rates have moved up a little bit. I think really the issue has been on the disposition side and us getting kind of figuring out how we want to approach dispositions is there just aren’t as many buyers. And so that helps us on the acquisition side where we’re not really competing with anybody for acquiring the properties that we want to acquire. But then on the disposition side, it takes a little bit longer and the buyers have been a little bit flakier than they’ve been in the past. So that’s something that we’re just making sure that we’re staying on top of costs and not incurring a bunch of debt deal costs. But cap rates have moved up a little bit on dispositions. But I think what we’re looking at potentially selling in this quarter very likely could be below 7%.

Antara Nag-Chaudhuri : Okay. Got it. Thank you.

Operator: Thank you. As there are no further questions, I now hand the conference over to Mark Manheimer for his closing comments. Mark?

Mark Manheimer : Well, thank you, everyone, for joining. I really appreciate the support, and have a great day.

Operator: Thank you. The conference of NETSTREIT Corp has now concluded. Thank you for your participation. You may now disconnect your lines.