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NETSTREIT Reports Second Quarter 2023 Financial and Operating Results

– Net loss of $(0.01) and Adjusted Funds from Operations ("AFFO") of $0.30 Per Diluted Share –

– Completed $119 Million of Investment Activity –

– Extended Maturity of Existing $175 Million Term Loan to 20271

– Subsequent to Quarter End, Closed on New $250 Million Term Loan Due 20291

– Increased 2023 AFFO Per Share Guidance Midpoint and Raised Net Investment Guidance to At Least $450 Million –

– Increased Quarterly Dividend by 2.5% to $0.205 Per Share –

NETSTREIT Corp. (NYSE: NTST) (the “Company”), today announced financial and operating results for the second quarter ended June 30, 2023.

“NETSTREIT had a strong second quarter completing $115 million in net investment activity at a blended cash yield of 6.8%. Our defensive net lease portfolio is benefiting from our focus on the highest credit quality U.S. retailers, which continue to provide us with ample investment opportunities via a variety of sourcing channels,” said Mark Manheimer, Chief Executive Officer of NETSTREIT. “In addition, we recently completed several debt transactions, which allowed us to substantially increase our liquidity profile, extend our nearest term debt maturity to 2027, and fix the interest rate on all our term loan facilities. With an improved balance sheet and a strong investment pipeline, we are increasing our 2023 AFFO per share guidance midpoint and our 2023 net investment activity guidance. Lastly, our board of directors has approved a 2.5% increase in our quarterly dividend to $0.205 per share.”

SECOND QUARTER 2023 HIGHLIGHTS

The following table summarizes the Company's select financial results2 for the three and six months ended June 30, 2023.

 

Three Months Ended June 30,

 

2023

 

2022

 

% Change

Net (Loss) Income per Diluted Share

$

(0.01

)

 

$

0.04

 

(125

)%

Funds from Operations per Diluted Share

$

0.28

 

 

$

0.26

 

8

%

Core Funds from Operations per Diluted Share

$

0.29

 

 

$

0.26

 

12

%

Adjusted Funds from Operations per Diluted Share

$

0.30

 

 

$

0.28

 

7

%

 

Six Months Ended June 30,

 

2023

 

2022

 

% Change

Net Income per Diluted Share

$

0.01

 

$

0.08

 

(88

)%

Funds from Operations per Diluted Share

$

0.56

 

$

0.54

 

4

%

Core Funds from Operations per Diluted Share

$

0.57

 

$

0.54

 

6

%

Adjusted Funds from Operations per Diluted Share

$

0.60

 

$

0.57

 

5

%

1.

Includes the exercise of all extension options, which are at the Company's discretion.

2.

Non-GAAP financial measure. See "Non-GAAP Financial Measures."

 

INVESTMENT ACTIVITY

The following table summarizes the Company's investment and disposition activities (dollars in thousands) for the three and six months ended June 30, 2023.

 

Three Months Ended

June 30, 2023

 

Six Months Ended

June 30, 2023

 

Number of

Investments

 

Amount

 

Number of Investments

 

Amount

Investments

45

 

$

119,017

 

 

116

 

$

247,632

 

Dispositions

2

 

 

4,060

 

 

10

 

 

19,967

 

Net Investment Activity

 

 

$

114,957

 

 

 

 

$

227,665

 

 

 

 

 

 

 

 

 

Investment Activity

 

 

 

 

 

 

 

Cash Yield

 

 

 

6.8

%

 

 

 

 

7.3

%

% of ABR derived from Investment Grade Tenants

 

 

 

77.0

%

 

 

 

 

77.7

%

% of ABR derived from Investment Grade Profile Tenants

 

 

 

4.3

%

 

 

 

 

11.0

%

Weighted Average Lease Term (years)

 

 

 

11.6

 

 

 

 

 

10.8

 

 

 

 

 

 

 

 

 

Disposition Activity

 

 

 

 

 

 

 

Cash Yield

 

 

 

6.7

%

 

 

 

 

6.8

%

Weighted Average Lease Term (years)

 

 

 

4.2

 

 

 

 

 

5.3

 

The following tables summarize the Company's on-going development projects and estimated development costs (dollars in thousands) as of June 30, 2023.

Developments

Three Months Ended

June 30, 2023

Amount Funded During the Quarter1

$

13,706

 

 

 

As of June 30, 2023

Number of Developments

 

17

Amount Funded to Date1

$

20,112

Estimated Funding Remaining on Developments1

 

20,692

Total Estimated Development Cost

$

40,804

1.

Excludes interest earning developments.

 

PORTFOLIO UPDATE

The following table summarizes the Company's real estate portfolio (weighted by ABR, dollars in thousands) as of June 30, 2023.

 

As of June 30, 2023

Number of Investments

 

531

 

ABR

$

116,898

 

States

 

45

 

Square Feet

 

9,509,179

 

Tenants

 

87

 

Industries

 

25

 

Occupancy

 

100.0

%

Weighted Average Lease Term (years)

 

9.4

 

Investment Grade %

 

67.7

%

Investment Grade Profile %

 

14.1

%

CAPITAL MARKETS AND BALANCE SHEET

The following table summarizes the Company's leverage, balance sheet, liquidity, ATM issuances, and settlement of our forward equity offerings (dollars in thousands, except per share data) as of and for June 30, 2023.

Leverage

As of June 30, 2023

Net Debt / Annualized Adjusted EBITDAre

4.6x

 

 

Liquidity

 

Unused Unsecured Revolver Capacity

$

294,000

Cash, Cash Equivalents and Restricted Cash

 

13,140

Total Liquidity

$

307,140

Plus: Maximum Available Principal of 2029 Term Loan

 

250,000

Total Proforma Liquidity

$

557,140

 

 

Forward Equity

 

Shares Outstanding as of June 30, 2023

 

Shares Settled During Quarter

 

4,763,320

Weighted Average Price Per Share

$

20.20

Net Proceeds Received

$

91,116

 

 

ATM Program

 

Shares Issued During Quarter

 

1,364,815

Weighted Average Price Per Share

$

17.53

Net Proceeds

$

23,420

 

 

ATM Capacity

$

250,000

Aggregate Gross ATM Sales through June 30, 2023

$

122,697

ATM Capacity Remaining as of June 30, 2023

$

127,303

DEBT ACTIVITY

On June 15, 2023, the Company closed on the amendment and restatement of its existing $175.0 million senior unsecured term loan to extend the maturity to January 2026 from December 2024, with a one-year extension option to further extend the maturity to January 2027, at the Company's discretion.

SUBSEQUENT DEBT ACTIVITY

Subsequent to quarter end, the Company closed a new three-year $250.0 million sustainability-linked senior unsecured term loan facility with a delayed draw option (the "Term Loan"). The Term Loan initially matures in July 2026 and includes two one-year options and one six-month option to extend the maturity to January 2029 (5.5-year term) at the Company's discretion, and an accordion feature that allow the Company to increase the aggregate availability under the Term Loan to $400.0 million. At close on July 3, 2023, the initial amount drawn on the Term Loan was $150.0 million.

The following table summarizes the terms of the Term Loan (dollars in thousands).

 

2029 Term Loan

Fully Extended Maturity Date

January 2029

Initial Principal Drawn

$

150,000

Maximum Available Principal

$

250,000

Full Capacity if Accordion Exercised

$

400,000

All-In Fixed Interest Rate1

 

4.99%

1.

All-in fixed rate consists of the fixed rate SOFR swap of 3.64%, plus a credit spread adjustment of 0.10% and a borrowing spread of 1.15%.

 

DIVIDEND

On July 24, 2023, the Company’s Board of Directors declared a quarterly cash dividend of $0.205 per share for the third quarter of 2023. On an annualized basis, the dividend of $0.82 per share of common stock represents an increase of $0.02 per share over the previous annualized dividend. The dividend will be paid on September 15, 2023 to shareholders of record on September 1, 2023.

2023 GUIDANCE

The Company is updating its full year 2023 AFFO per share guidance range to $1.20 to $1.23 from the prior range of $1.17 to $1.23. The Company is also increasing its 2023 net investment activity guidance to at least $450.0 million, from $400.0 million as previously announced.

Certain of the forward-looking financial measures above are provided on a non-GAAP basis. The Company does not provide a reconciliation of such forward-looking measures to the most directly comparable financial measures calculated and presented in accordance with GAAP because to do so would be potentially misleading and not practical given the difficulty of projecting event driven transactional and other non-core operating items in any future period. The magnitude of these items, however, may be significant.

EARNINGS CONFERENCE CALL

A conference call will be held on Thursday, July 27, 2023 at 11:00 AM ET. During the conference call the Company’s officers will review second quarter performance, discuss recent events, and conduct a question and answer period.

The webcast will be accessible on the “Investor Relations” section of the Company’s website at www.NETSTREIT.com. To listen to the live webcast, please go to the site at least fifteen minutes prior to the scheduled start time to register, as well as download and install any necessary audio software. A replay of the webcast will be available for 90 days on the Company’s website shortly after the call.

The conference call can also be accessed by dialing 1-877-451-6152 for domestic callers or 1-201-389-0879 for international callers. A dial-in replay will be available starting shortly after the call until August 3, 2023, which can be accessed by dialing 1-844-512-2921 for domestic callers or 1-412-317-6671 for international callers. The passcode for this dial-in replay is 13739741.

SUPPLEMENTAL PACKAGE

The Company’s supplemental package will be available prior to the conference call in the Investor Relations section of the Company’s website at www.investors.netstreit.com.

About NETSTREIT Corp.

NETSTREIT Corp. is an internally managed real estate investment trust (REIT) based in Dallas, Texas that specializes in acquiring single-tenant net lease retail properties nationwide. The growing portfolio consists of high-quality properties leased to e-commerce resistant tenants with healthy balance sheets. Led by a management team of seasoned commercial real estate executives, NETSTREIT’s strategy is to create the highest quality net lease retail portfolio in the country with the goal of generating consistent cash flows and dividends for its investors.

NON-GAAP FINANCIAL MEASURES

This press release contains non-GAAP financial measures, including FFO, Core FFO, AFFO, EBITDA, EBITDAre, Adjusted EBITDAre, Annualized Adjusted EBITDAre, Property-Level NOI, Property-Level Cash NOI, Property-Level Cash NOI Estimated Run Rate, Total Property-Level Cash NOI Estimated Run Rate and Net Debt. A reconciliation of each non-GAAP financial measure to the most comparable GAAP measure, and definitions of each non-GAAP measure, are included below.

FORWARD LOOKING STATEMENTS

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements include, without limitation, statements concerning our business and growth strategies, investment, financing and leasing activities, including estimated development costs, and trends in our business, including trends in the market for single-tenant, retail commercial real estate. Words such as “expects,” “anticipates,” “intends,” “plans,” “likely,” “will,” “believes,” “seeks,” “estimates,” and variations of such words and similar expressions are intended to identify such forward-looking statements. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from the results of operations or plans expressed or implied by such forward-looking statements. Although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore such statements included in this press release may not prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that the results or conditions described in such statements or our objectives and plans will be achieved. For a further discussion of these and other factors that could impact future results, performance or transactions, see the information under the heading “Risk Factors” in our Form 10-K for the year ended December 31, 2022 filed with the Securities and Exchange Commission (the “SEC”) on February 23, 2023 and other reports filed with the SEC from time to time. Forward-looking statements and such risks, uncertainties and other factors speak only as of the date of this press release. New risks and uncertainties may arise over time and it is not possible for us to predict those events or how they may affect us. Many of the risks identified herein and in our periodic reports have been and will continue to be heightened as a result of the ongoing and numerous adverse effects arising from macroeconomic conditions, including inflation, interest rates and instability in the banking system. We expressly disclaim any obligation or undertaking to update or revise any forward-looking statement contained herein, to reflect any change in our expectations with regard thereto, or any other change in events, conditions or circumstances on which any such statement is based, except to the extent otherwise required by law.

NETSTREIT CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)

 

 

June 30,

 

December 31,

 

2023

 

2022

Assets

 

 

 

Real estate, at cost:

 

 

 

Land

$

424,821

 

 

$

401,146

 

Buildings and improvements

 

1,005,884

 

 

 

907,084

 

Total real estate, at cost

 

1,430,705

 

 

 

1,308,230

 

Less accumulated depreciation

 

(80,527

)

 

 

(62,526

)

Property under development

 

24,192

 

 

 

16,796

 

Real estate held for investment, net

 

1,374,370

 

 

 

1,262,500

 

Assets held for sale

 

37,915

 

 

 

23,208

 

Mortgage loans receivables, net

 

107,758

 

 

 

46,378

 

Cash, cash equivalents and restricted cash

 

13,140

 

 

 

70,543

 

Lease intangible assets, net

 

158,067

 

 

 

151,006

 

Other assets, net

 

56,508

 

 

 

52,057

 

Total assets

$

1,747,758

 

 

$

1,605,692

 

Liabilities and equity

 

 

��

Liabilities:

 

 

 

Term loans, net

$

372,686

 

 

$

373,296

 

Revolving credit facility

 

106,000

 

 

 

113,000

 

Mortgage note payable, net

 

7,896

 

 

 

7,896

 

Lease intangible liabilities, net

 

27,434

 

 

 

30,131

 

Liabilities related to assets held for sale

 

83

 

 

 

406

 

Accounts payable, accrued expenses and other liabilities

 

29,064

 

 

 

22,540

 

Total liabilities

 

543,163

 

 

 

547,269

 

Commitments and contingencies

 

 

 

Equity:

 

 

 

Stockholders’ equity

 

 

 

Common stock, $0.01 par value, 400,000,000 shares authorized; 66,991,597 and 58,031,879 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively

 

670

 

 

 

580

 

Additional paid-in capital

 

1,260,879

 

 

 

1,091,514

 

Distributions in excess of retained earnings

 

(90,329

)

 

 

(66,937

)

Accumulated other comprehensive income

 

24,082

 

 

 

23,673

 

Total stockholders’ equity

 

1,195,302

 

 

 

1,048,830

 

Noncontrolling interests

 

9,293

 

 

 

9,593

 

Total equity

 

1,204,595

 

 

 

1,058,423

 

Total liabilities and equity

$

1,747,758

 

 

$

1,605,692

 

NETSTREIT CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share data)

(Unaudited)

 

 

Three Months Ended

June 30,

 

Six Months Ended

June 30,

 

2023

 

2022

 

2023

 

2022

Revenues

 

 

 

 

 

 

 

Rental revenue (including reimbursable)

$

29,707

 

 

$

22,048

 

 

$

58,180

 

 

$

42,970

 

Interest income on loans receivable

 

1,923

 

 

 

586

 

 

 

2,901

 

 

 

997

 

Total revenues

 

31,630

 

 

 

22,634

 

 

 

61,081

 

 

 

43,967

 

Operating expenses

 

 

 

 

 

 

 

Property

 

3,530

 

 

 

2,685

 

 

 

7,467

 

 

 

5,617

 

General and administrative

 

5,260

 

 

 

4,865

 

 

 

10,168

 

 

 

9,057

 

Depreciation and amortization

 

15,847

 

 

 

11,751

 

 

 

30,795

 

 

 

22,730

 

Provisions for impairment

 

2,836

 

 

 

1,114

 

 

 

2,836

 

 

 

1,114

 

Transaction costs

 

15

 

 

 

488

 

 

 

124

 

 

 

653

 

Total operating expenses

 

27,488

 

 

 

20,903

 

 

 

51,390

 

 

 

39,171

 

Other income (expense)

 

 

 

 

 

 

 

Interest expense, net

 

(5,521

)

 

 

(1,522

)

 

 

(9,465

)

 

 

(2,691

)

Gain on sales of real estate, net

 

615

 

 

 

1,858

 

 

 

296

 

 

 

2,019

 

Loss on debt extinguishment

 

(128

)

 

 

 

 

 

(128

)

 

 

 

Other income

 

68

 

 

 

36

 

 

 

220

 

 

 

36

 

Total other (expense) income, net

 

(4,966

)

 

 

372

 

 

 

(9,077

)

 

 

(636

)

Net (loss) income before income taxes

 

(824

)

 

 

2,103

 

 

 

614

 

 

 

4,160

 

Income tax benefit (expense)

 

32

 

 

 

(93

)

 

 

75

 

 

 

(184

)

Net (loss) income

 

(792

)

 

 

2,010

 

 

 

689

 

 

 

3,976

 

Net (loss) income attributable to noncontrolling interests

 

(1

)

 

 

23

 

 

 

8

 

 

 

47

 

Net (loss) income attributable to common stockholders

$

(791

)

 

$

1,987

 

 

$

681

 

 

$

3,929

 

Amounts available to common stockholders per common share:

 

 

 

 

 

 

 

Basic

$

(0.01

)

 

$

0.04

 

 

$

0.01

 

 

$

0.08

 

Diluted

$

(0.01

)

 

$

0.04

 

 

$

0.01

 

 

$

0.08

 

Weighted average common shares:

 

 

 

 

 

 

 

Basic

 

61,043,531

 

 

 

48,140,041

 

 

 

59,600,630

 

 

 

46,279,122

 

Diluted

 

61,043,531

 

 

 

48,951,833

 

 

 

60,294,734

 

 

 

47,277,468

 

NETSTREIT CORP. AND SUBSIDIARIES

RECONCILIATION OF NET INCOME (LOSS) TO FFO, CORE FFO AND ADJUSTED FFO

(In thousands, except share and per share data)

(Unaudited)

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2023

 

2022

 

2023

 

2022

 

(Unaudited)

 

(Unaudited)

Net (loss) income

$

(792

)

 

$

2,010

 

 

$

689

 

 

$

3,976

 

Depreciation and amortization of real estate

 

15,769

 

 

 

11,598

 

 

 

30,653

 

 

 

22,460

 

Provisions for impairment

 

2,836

 

 

 

1,114

 

 

 

2,836

 

 

 

1,114

 

Gain on sales of real estate, net

 

(615

)

 

 

(1,858

)

 

 

(296

)

 

 

(2,019

)

FFO

$

17,198

 

 

$

12,864

 

 

$

33,882

 

 

$

25,531

 

Adjustments:

 

 

 

 

 

 

 

Non-recurring executive transition costs, severance and related charges

 

201

 

 

 

 

 

 

214

 

 

 

 

Loss on debt extinguishment and other related costs

 

223

 

 

 

 

 

 

223

 

 

 

 

Gain on insurance proceeds

 

(35

)

 

 

(36

)

 

 

(47

)

 

 

(36

)

Core FFO

$

17,587

 

 

$

12,828

 

 

$

34,272

 

 

$

25,495

 

Adjustments:

 

 

 

 

 

 

 

Straight-line rent adjustments

 

(151

)

 

 

(346

)

 

 

(462

)

 

(872

)

Amortization of deferred financing costs

 

336

 

 

 

157

 

 

 

615

 

 

 

314

 

Amortization of above/below-market assumed debt

 

29

 

 

 

 

 

 

57

 

 

 

 

Amortization of loan origination costs

 

28

 

 

 

13

 

 

 

56

 

 

 

31

 

Amortization of lease-related intangibles

 

(184

)

 

 

(166

)

 

 

(397

)

 

 

(331

)

Capitalized interest expense

 

(150

)

 

 

(46

)

 

 

(284

)

 

 

(103

)

Non-cash compensation expense

 

1,252

 

 

 

1,298

 

 

 

2,279

 

 

 

2,343

 

AFFO

$

18,747

 

 

$

13,738

 

 

$

36,136

 

 

$

26,877

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding, basic

 

61,043,531

 

 

 

48,140,041

 

 

 

59,600,630

 

 

 

46,279,122

 

Operating partnership units outstanding

 

507,773

 

 

 

527,539

 

 

 

509,588

 

 

 

539,054

 

Unvested restricted stock units

 

152,785

 

 

 

235,295

 

 

 

164,322

 

 

 

264,784

 

Unsettled shares under open forward equity contracts

 

 

 

 

48,958

 

 

 

20,194

 

 

 

194,508

 

Weighted average common shares outstanding, diluted

 

61,704,089

 

 

 

48,951,833

 

 

 

60,294,734

 

 

 

47,277,468

 

 

 

 

 

 

 

 

 

FFO per common share, diluted

$

0.28

 

 

$

0.26

 

 

$

0.56

 

 

$

0.54

 

Core FFO per common share, diluted

$

0.29

 

 

$

0.26

 

 

$

0.57

 

 

$

0.54

 

AFFO per common share, diluted

$

0.30

 

 

$

0.28

 

 

$

0.60

 

 

$

0.57

 

RECONCILIATION OF NET INCOME (LOSS) TO EBITDA, EBITDAre AND ADJUSTED EBITDAre

(In thousands)

(Unaudited)

 

 

Three Months Ended June 30,

 

2023

 

2022

 

(Unaudited)

Net (loss) income

$

(792

)

 

$

2,010

 

Depreciation and amortization of real estate

 

15,769

 

 

 

11,598

 

Amortization of lease-related intangibles

 

(184

)

 

 

(166

)

Non-real estate depreciation and amortization

 

78

 

 

 

153

 

Interest expense, net

 

5,521

 

 

 

1,522

 

Income tax expense (benefit)

 

(32

)

 

 

93

 

Loss on debt extinguishment

 

128

 

 

 

 

Amortization of loan origination costs

 

28

 

 

13

 

EBITDA

 

20,516

 

 

 

15,223

 

Adjustments:

 

 

 

Provision for impairments

 

2,836

 

 

 

1,114

 

Gain on sales of real estate, net

 

(615

)

 

 

(1,858

)

EBITDAre

 

22,737

 

 

 

14,479

 

Adjustments:

 

 

 

Straight-line rent adjustments

 

(151

)

 

 

(346

)

Loss on debt extinguishment and other related costs

 

223

 

 

 

 

Non-recurring executive transition costs, severance and related charges

 

201

 

 

 

 

Gain on insurance proceeds

 

(35

)

 

 

(36

)

Other non-recurring expenses

 

242

 

 

 

 

Non-cash compensation expense

 

1,252

 

 

 

1,298

 

Adjustment for construction in process(1)

 

334

 

 

 

189

 

Adjustment for intraquarter investment activities(2)

 

817

 

 

 

1,701

 

Adjusted EBITDAre

$

25,620

 

 

$

17,285

 

 

 

 

 

Annualized Adjusted EBITDAre(3)

$

102,480

 

 

 

Net debt / Annualized Adjusted EBITDAre

4.6 x

 

 

 

 

 

 

 

As of

June 30, 2023

 

 

Total Debt

$

489,435

 

 

 

Cash, cash equivalents and restricted cash

 

(13,140

)

 

 

Value of outstanding forward equity(4)

 

 

 

 

Net Debt

$

476,295

 

 

 

(1)

Adjustment reflects the estimated cash yield on non-interest earning construction in process balances as of period end.

(2)

Adjustment assumes all re-leasing activity, investments in and dispositions of real estate, including interest earning developments and interest earning loan activity completed during the three months ended June 30, 2023, and June 30, 2022 had occurred on April 1, 2023, and April 1, 2022, respectively.

(3)

We calculate Annualized Adjusted EBITDAre by multiplying Adjusted EBITDAre by four.

(4)

There were no unsettled shares under forward equity contracts as of June 30, 2023.

 
 

RECONCILIATION OF NET INCOME (LOSS) TO NOI AND CASH NOI

(In thousands)

(Unaudited)

 

 

Three Months Ended

June 30,

 

Six Months Ended

June 30,

 

2023

 

2022

 

2023

 

2022

 

(Unaudited)

 

(Unaudited)

Net (loss) income

$

(792

)

 

$

2,010

 

 

$

689

 

 

$

3,976

 

General and administrative

 

5,260

 

 

 

4,865

 

 

 

10,168

 

 

 

9,057

 

Depreciation and amortization

 

15,847

 

 

 

11,751

 

 

 

30,795

 

 

 

22,730

 

Provisions for impairment

 

2,836

 

 

 

1,114

 

 

 

2,836

 

 

 

1,114

 

Transaction costs

 

15

 

 

 

488

 

 

 

124

 

 

 

653

 

Interest expense, net

 

5,521

 

 

 

1,522

 

 

 

9,465

 

 

 

2,691

 

Gain on sales of real estate, net

 

(615

)

 

 

(1,858

)

 

 

(296

)

 

 

(2,019

)

Income tax expense (benefit)

 

(32

)

 

 

93

 

 

 

(75

)

 

 

184

 

Loss on debt extinguishment

 

128

 

 

 

 

 

 

128

 

 

 

 

Interest income on mortgage loans receivable

 

(1,923

)

 

 

(586

)

 

 

(2,901

)

 

 

(997

)

Other income

 

(68

)

 

 

(36

)

 

 

(220

)

 

 

(36

)

Property-Level NOI

 

26,177

 

 

 

19,363

 

 

 

50,713

 

 

 

37,353

 

Straight-line rent adjustments

 

(151

)

 

 

(346

)

 

 

(462

)

 

 

(872

)

Amortization of lease-related intangibles

 

(184

)

 

 

(166

)

 

 

(397

)

 

 

(331

)

Property-Level Cash NOI

$

25,842

 

 

$

18,851

 

 

$

49,854

 

 

$

36,150

 

Adjustment for intraquarter acquisitions, dispositions and interest earning development(1)

 

687

 

 

 

 

 

 

 

Property-Level Cash NOI Estimated Run Rate

 

26,529

 

 

 

 

 

 

 

Interest income on mortgage loans receivable

 

1,923

 

 

 

 

 

 

 

Adjustments for intraquarter mortgage loan activity(2)

 

130

 

 

 

 

 

 

 

Total Cash NOI - Estimated Run Rate

$

28,582

 

 

 

 

 

 

 

(1)

Adjustment assumes all re-leasing activity, investments in and dispositions of real estate, including interest earning developments, completed during the three months ended June 30, 2023, had occurred on April 1, 2023.

(2)

Adjustment assumes all loan activity completed during the three months ended June 30, 2023, had occurred on April 1, 2023.

 

NON-GAAP FINANCIAL MEASURES

FFO, Core FFO and AFFO

The National Association of Real Estate Investment Trusts ("NAREIT"), an industry trade group, has promulgated a widely accepted non-GAAP financial measure of operating performance known as FFO. Our FFO is net income in accordance with GAAP, excluding gains (or losses) resulting from dispositions of properties, plus depreciation and amortization and impairment charges on depreciable real property.

Core FFO is a non-GAAP financial measure defined as FFO adjusted to remove the effect of unusual and non-recurring items that are not expected to impact our operating performance or operations on an ongoing basis. These have included non-recurring executive transition costs, severance and related charges, gain on insurance proceeds, and loss on debt extinguishments and other related costs.

AFFO is a non-GAAP financial measure defined as Core FFO adjusted for GAAP net income related to non-cash revenues and expenses, such as straight-line rent, amortization of above- and below-market lease-related intangibles, amortization of lease incentives, capitalized interest expense, non-cash compensation expense, amortization of deferred financing costs, amortization of above/below-market assumed debt, and amortization of loan origination costs.

Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. In fact, real estate values historically have risen or fallen with market conditions. FFO is intended to be a standard supplemental measure of operating performance that excludes historical cost depreciation and valuation adjustments from net income. We consider FFO to be useful in evaluating potential property acquisitions and measuring operating performance.

We further consider FFO, Core FFO and AFFO to be useful in determining funds available for payment of distributions. FFO, Core FFO and AFFO do not represent net income or cash flows from operations as defined by GAAP. You should not consider FFO, Core FFO and AFFO to be alternatives to net income as a reliable measure of our operating performance nor should you consider FFO, Core FFO and AFFO to be alternatives to cash flows from operating, investing or financing activities (as defined by GAAP) as measures of liquidity.

FFO, Core FFO and AFFO do not measure whether cash flow is sufficient to fund our cash needs, including principal amortization, capital improvements and distributions to stockholders. FFO, Core FFO and AFFO do not represent cash flows from operating, investing or financing activities as defined by GAAP. Further, FFO, Core FFO and AFFO as disclosed by other REITs might not be comparable to our calculations of FFO, Core FFO and AFFO.

EBITDA, EBITDAre, Adjusted EBITDAre, and Annualized Adjusted EBITDAre

We compute EBITDA as earnings before interest expense, income tax expense, and depreciation and amortization. In 2017, NAREIT issued a white paper recommending that companies that report EBITDA also report EBITDAre. We compute EBITDAre in accordance with the definition adopted by NAREIT. NAREIT defines EBITDAre as EBITDA (as defined above) excluding gains (or losses) from the sales of depreciable property and impairment charges on depreciable real property.

Adjusted EBITDAre is a non-GAAP financial measure defined as EBITDAre further adjusted to exclude straight-line rent, non-cash compensation expense, non-recurring executive transition costs, severance and related charges, loss on debt extinguishment and other related costs, gain on insurance proceeds, other non-recurring expenses, adjustment for construction in process, and adjustment for intraquarter activities. Beginning in the quarter ended June 30, 2023, we modified our definition of Adjusted EBITDAre to include adjustments for construction in process and intraquarter investment activities. Prior periods have been recast to reflect this new definition.

Annualized Adjusted EBITDAre is Adjusted EBITDAre multiplied by four.

We present EBITDA, EBITDAre, Adjusted EBITDAre, and Annualized Adjusted EBITDAre as they are measures commonly used in our industry. We believe that these measures are useful to investors and analysts because they provide supplemental information concerning our operating performance, exclusive of certain non-cash items and other costs. We use EBITDA, EBITDAre, Adjusted EBITDAre, and Annualized Adjusted EBITDAre as measures of our operating performance and not as measures of liquidity.

EBITDA, EBITDAre, Adjusted EBITDAre and Annualized Adjusted EBITDAre do not include all items of revenue and expense included in net income, they do not represent cash generated from operating activities and they are not necessarily indicative of cash available to fund cash requirements; accordingly, they should not be considered alternatives to net income as a performance measure or cash flows from operations as a liquidity measure and should be considered in addition to, and not in lieu of, GAAP financial measures. Additionally, our computation of EBITDA, EBITDAre, Adjusted EBITDAre and Annualized Adjusted EBITDAre may differ from the methodology for calculating these metrics used by other equity REITs and, therefore, may not be comparable to similarly titled measures reported by other equity REITs.

Net Debt

We calculate our Net Debt as our principal amount of total debt outstanding excluding deferred financing costs, net discounts and debt issuance costs less cash, cash equivalents and restricted cash available for future investment. We believe excluding cash, cash equivalents and restricted cash available for future investment from our principal amount, all of which could be used to repay debt, provides an estimate of the net contractual amount of borrowed capital to be repaid, which we believe is a beneficial disclosure to investors and analysts. We further adjust Net Debt by the value of outstanding forward equity as of period end. We believe these adjustments are additional beneficial disclosures to investors and analysis.

Property-Level NOI, Property-Level Cash NOI, Property-Level Cash NOI - Estimated Run Rate, and Total Cash NOI - Estimated Run Rate

Property-Level NOI, Property-Level Cash NOI, Property-Level Cash NOI - Estimated Run Rate, and Total Cash NOI - Estimated Run Rate are non-GAAP financial measures which we use to assess our operating results. We compute Property-Level NOI as net income (computed in accordance with GAAP), excluding general and administrative expenses, interest expense (or income), income tax expense, transaction costs, depreciation and amortization, gains (or losses) on sales of depreciable property, real estate impairment losses, interest income on mortgage loans receivable, loss on debt extinguishment, and other income (or expense). We further adjust Property-Level NOI for non-cash revenue components of straight-line rent and amortization of lease-intangibles to derive Property-Level Cash NOI. We further adjust Property-Level Cash NOI for intraquarter acquisitions, dispositions and interest earning developments to derive Property-Level Cash NOI - Estimated Run Rate. We further adjust Property-Level Cash NOI - Estimated Run Rate for interest income on mortgage loans receivable and intraquarter mortgage loan activity to derive Total Cash NOI - Estimated Run Rate. We believe Property-Level NOI, Property-Level Cash NOI, Property-Level Cash NOI - Estimated Run Rate, and Total Cash NOI - Estimated Run Rate provide useful and relevant information because they reflect only those income and expense items that are incurred at the property level and present such items on an unlevered basis.

Property-Level NOI, Property-Level Cash NOI, Property-Level Cash NOI - Estimated Run Rate, and Total Cash NOI - Estimated Run Rate are not measurements of financial performance under GAAP, and may not be comparable to similarly titled measures of other companies. You should not consider our measures as alternatives to net income or cash flows from operating activities determined in accordance with GAAP.

OTHER DEFINITIONS

ABR is annualized base rent as of the most recent quarter end for all leases that commenced, annualized cash interest on mortgage loans receivable, and the cash yield on amounts funded to date on interest earning construction in process.

Cash Yield is the annualized base rent contractually due from acquired properties, interest income from mortgage loans receivable, completed developments, and interest earned from construction in process, divided by the gross investment amount, or gross proceeds in the case of dispositions.

Investments are lease agreements in place at owned properties, properties that have leases associated with mortgage loans receivable, developments where rent commenced, interest earning developments, or in the case of master lease arrangements each property under the master lease is counted as a separate lease.

Investment Grade are investments, or investments that are subsidiaries of a parent entity, with a credit rating of BBB- (S&P/Fitch), Baa3 (Moody's) or NAIC2 (National Association or Insurance Commissioners) or higher.

Investment Grade Profile are investments with investment grade credit metrics (more than $1.0 billion in annual sales and a debt to adjusted EBITDA ratio of less than 2.0x), but do not carry a published rating from S&P, Fitch, Moody's, or NAIC.

Occupancy is expressed as a percentage, and is the number of economically occupied properties divided by the total number of properties owned, excluding mortgage loans receivable and properties under development.

Weighted Average Lease Term is weighted by the annualized base rent, excluding lease extension options and investments associated with mortgage loans receivable.

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