Release Date: November 05, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Netstreit Corp (NTST, Financial) completed $152 million of gross investments, marking their highest quarter on record.
- The company achieved a blended cash yield of 7.5% or 8% on a straight-line basis for the quarter.
- Netstreit Corp's portfolio remains 100% leased with a weighted average lease term of 9.5 years.
- Over 75% of Netstreit Corp's total ABR is leased to investment-grade or investment-grade profile tenants.
- The company successfully reduced its Walgreens concentration from 5.9% to 4.8% and plans further reductions.
Negative Points
- Netstreit Corp reported a net loss of $5.3 million or 7 cents per diluted share for the quarter.
- The percentage of investments leased to investment-grade tenants was below the portfolio average this quarter.
- The company provided short-term rent relief to Big Lots during its bankruptcy process, impacting cash flow.
- Netstreit Corp's weighted average debt maturity is relatively short at 3.3 years.
- The company faces challenges with tenant concentrations in industries like pharmacies and dollar stores, which have been under scrutiny.
Q & A Highlights
Q: As you look into the fourth quarter and maybe the first quarter of next year, do you still expect to remain in the creative acquisition spread for your disposition?
A: Yes, we do. We expect cap rates to stay close to where they are now, maybe slightly below where we've been for the first three quarters. The dispositions we're looking at currently are at lower cap rates than what we achieved in the third quarter. - Daniel Donlan, CFO
Q: Can you comment on the quality of your Dollar General locations and how you see this exposure progressing over the next year?
A: Our Dollar General portfolio is unique as we partnered with the tenant to extend most leases, leaving us with a weighted average lease term of just under 15 years and 1% annual increases. We plan to reduce concentration below 10% through loan payoffs and selective dispositions. - Daniel Donlan, CFO
Q: Can you offer comments on the disposition market and the element of seller financing when addressing Walgreens dispositions?
A: The disposition market has improved with more interest in our assets. We used seller financing for some transactions in Q3, achieving an interest rate slightly higher than the cap rate. We don't plan to use seller financing much more but reserve the right if it leads to better outcomes. - Daniel Donlan, CFO
Q: What is the expected acquisition run rate for the next 5-6 quarters, considering the current cost of capital?
A: Given our current cost of capital, we're not achieving sufficiently accretive spreads to maintain our current acquisition pace. The team is built to handle net investment activity of $100 to $150 million, but future activity will depend on cost of capital improvements. - Daniel Donlan, CFO
Q: How do you gauge the health or performance of your Walgreens compared to the entire chain?
A: We believe our Walgreens locations are profitable and will remain open. We maintain strong relationships with tenants, allowing us to stay ahead of potential closures. The profitability issues are more related to pharmacy reimbursement rates rather than front-end sales. - Daniel Donlan, CFO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
