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 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 –
Dallas, TX – July 26, 2023 – 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 | % | |||
2
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%.
3
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.
Investor Relations
ir@netstreit.com
972-597-4825
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.
4
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.
5
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 | |||||||
6
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 | |||||||||||||||||||
7
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 | |||||||||||||||
8
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.
9
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.
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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
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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.
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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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