NETSTREIT Corp. 2021 Form 10-K Summary
Business context and reporting period
NETSTREIT Corp. is an internally managed REIT focused on acquiring, owning and managing single-tenant retail properties subject to long-term net leases across the United States. This filing covers the fiscal year ended December 31, 2021; it is an annual report rather than a quarterly filing.
- Portfolio at year-end: 327 operating properties in 41 states, 67 tenants and 23 retail sectors.
- Portfolio occupancy was 100%, with annualized base rent of $71.2 million and weighted average remaining lease term of 9.9 years.
- Approximately 65% of annualized base rent was from investment-grade tenants and 16% from investment-grade-profile tenants.
- Defensive retail industries represented 86.6% of annualized base rent.
Financial performance and key metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Rental revenue, including reimbursable revenue | $59.1 million | $33.7 million | +$25.4 million |
| Total operating expenses | $55.7 million | $35.2 million | +$20.5 million |
| Net income | $3.2 million | $0.2 million | +$3.0 million |
| Net income attributable to common stockholders | $3.0 million | $0.7 million | +$2.4 million |
| Diluted earnings per share | $0.08 | $0.01 | +$0.07 |
| Net cash provided by operating activities | $31.5 million | $12.7 million | +$18.8 million |
| Funds from operations | $34.2 million | $11.8 million | +$22.3 million |
| Core FFO | $33.7 million | $13.8 million | +$20.0 million |
| Adjusted FFO | $36.2 million | $14.6 million | +$21.6 million |
| Cash NOI | $51.6 million | $29.0 million | +$22.6 million |
| Adjusted EBITDAre | $39.8 million | $19.1 million | +$20.7 million |
Revenue growth primarily reflected the expansion of operating properties. Depreciation and amortization increased to $30.8 million from $15.5 million, while general and administrative expense increased to $14.8 million from $11.3 million. The company recorded $3.5 million of impairment provisions and a $3.0 million net gain on property sales.
- Investing cash flow was $(430.1) million, primarily reflecting $441.3 million of property acquisitions and $19.9 million of development and improvements, partially offset by $31.1 million of property-sale proceeds.
- Financing cash flow was $313.6 million, including $283.1 million of net public equity proceeds and $64.0 million of net Revolver borrowings.
- Cash, cash equivalents and restricted cash declined to $7.6 million from $92.6 million at year-end 2020.
- Real estate held for investment, net, increased to $913.6 million from $537.6 million; total assets increased to $1.07 billion from $725.8 million.
- Total debt was $239.0 million, consisting of a $175.0 million Term Loan and $64.0 million drawn on the $250.0 million Revolver. Total debt, net, was $237.5 million.
- The Term Loan matures December 23, 2024; the Revolver matures December 23, 2023 and may be extended by up to one year. The company was in compliance with its debt covenants at year-end.
- The Term Loan was effectively fixed at 1.36% through an interest-rate hedge; Revolver borrowings had a reported rate of 1.31% at year-end.
Material changes versus the prior comparable period
- Operating properties increased from 203 at December 31, 2020 to 327 at December 31, 2021. The filing also refers to 328 properties when including development projects and a property subject to a non-binding purchase option.
- The company acquired 124 properties for $441.3 million in 2021, compared with 124 properties for $408.6 million in 2020. The 2021 acquisitions had an underwritten weighted-average capitalization rate of approximately 6.5% and WALT of approximately 10.3 years.
- Development investment increased to $20.8 million from $5.4 million. Ten development projects were completed, under construction or otherwise in progress, with remaining projects expected to commence rent at various points in 2022.
- Equity capital raised in 2021 included $194.2 million of net proceeds from an April public offering and approximately $89.0 million of net proceeds from the ATM program.
- Debt increased by $64.0 million because of Revolver borrowings used primarily to fund acquisitions.
- Quarterly common dividends increased from $0.30 per share in 2020 to $0.80 per share in 2021. The board subsequently declared a $0.20 per-share dividend for the first quarter of 2022.
Guidance, outlook, commentary, risks and unusual items
Management did not provide formal earnings or acquisition guidance in the filing. Management expects continued portfolio growth through acquisitions, build-to-suit and other development strategies, supported by operating cash flow, future ATM issuances, forward equity settlements and available borrowing capacity.
- Management stated that available liquidity sources are expected to support operations, debt service, capital expenditures and working capital for at least the next 12 months.
- The company targets a long-term net debt to EBITDA leverage ratio of 4.5x to 5.5x at scale and intends to maintain a conservatively leveraged capital structure.
- As of year-end, $21.6 million of development commitments were expected to be funded over the following 12 months.
- COVID-19 did not materially affect 2021 operations or cash flows, and no rent abatements or deferrals had been granted since August 1, 2020. Future tenant disruption remains a stated risk.
- Key risks include single-tenant exposure, tenant defaults or bankruptcies, concentration among major tenants and geographic markets, lease-renewal and re-leasing risk, acquisition and development execution, competition, inflation and interest-rate volatility, access to capital, environmental and insurance liabilities, cybersecurity, and maintaining REIT status.
- The five largest tenants were Walgreens, 7-Eleven, Hobby Lobby, Advance Auto Parts and Dollar General, representing 7.3%, 6.9%, 6.6%, 5.5% and 5.2% of annualized base rent, respectively. The top 10 tenants represented 54.3%.
- LIBOR-based debt and hedging contracts require transition planning because USD LIBOR was scheduled to cease publication after June 30, 2023.
- Hurricane Ida caused estimated property damage of $0.5 million, substantially offset by $0.9 million of insurance proceeds. Repairs were expected to cost approximately $1.1 million, less a $0.1 million deductible.
- On January 13, 2022, the company issued 10.35 million shares at $22.25 per share and entered into forward-sale agreements for the same number of shares. It initially received no proceeds from the forward agreements.
- In January 2022, the company borrowed an additional $53.0 million under the Revolver. Since year-end, it acquired or funded seven properties for $60.6 million.
- KPMG issued unqualified opinions on the consolidated financial statements and internal control over financial reporting. The company reported no material litigation and no unresolved SEC staff comments.
Most important facts for investors to verify
- Reconcile the reported 327 operating properties with the 328-property and development-project counts used elsewhere in the filing.
- Assess recurring cash-flow coverage of the $0.80 per-share 2021 dividend using AFFO, cash NOI, required development funding and debt service.
- Review tenant concentration, particularly the 54.3% top-10 exposure, and the credit quality and lease expirations of major tenants.
- Evaluate liquidity after the year-end cash balance of $7.6 million, the $21.6 million development commitment, and the additional $53.0 million Revolver borrowing in January 2022.
- Analyze refinancing and interest-rate exposure ahead of the 2023 Revolver and 2024 Term Loan maturities, including the LIBOR-to-alternative-rate transition.
- Verify the economics, settlement timing and potential dilution from the 10.35 million-share forward-sale agreements.
- Review impairment assumptions, acquisition purchase-price allocations and the company’s ability to maintain REIT qualification and required distributions.