NETSTREIT Corp. [NTST] Filings

10-Q 1 ntst-20230930.htm 10-Q ntst-20230930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



Form 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission File Number 001-39443



NETSTREIT Corp.

(Exact name of registrant as specified in its charter)

Maryland

84-3356606

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

2021 McKinney Avenue

Suite 1150

Dallas, Texas

75201

(Address of principal executive offices)

(Zip Code)

(972) 200-7100

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

Common stock, par value $0.01 per share

NTST

The New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of the issuer’s common stock, par value $0.01, outstanding as of October 23, 2023 was 68,701,223.

NETSTREIT CORP. AND SUBSIDIARIES

TABLE OF CONTENTS


		Page
	PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022	3
	Condensed Consolidated Statements of Operations and Comprehensive Income for the Three and Nine Months Ended September 30, 2023 and 2022	4
	Condensed Consolidated Statements of Changes in Equity for the Three and Nine Months Ended September 30, 2023 and 2022	5
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022	7
	Notes to the Condensed Consolidated Financial Statements	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41
Item 4.	Controls and Procedures	41
	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	42
Item 1A.	Risk Factors	42
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 3.	Defaults Upon Senior Securities	42
Item 4.	Mine Safety Disclosures	42
Item 5.	Other Information	42
Item 6.	Exhibits	43
	Signatures	44

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

NETSTREIT CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)


	September 30,		December 31,
	2023		2022
Assets
Real estate, at cost:
Land	$	449,718	$	401,146
Buildings and improvements	1,081,427		907,084
Total real estate, at cost	1,531,145		1,308,230
Less accumulated depreciation	(90,890)		(62,526)
Property under development	33,497		16,796
Real estate held for investment, net	1,473,752		1,262,500
Assets held for sale	38,839		23,208
Mortgage loans receivable, net	109,091		46,378
Cash, cash equivalents and restricted cash	7,934		70,543
Lease intangible assets, net	163,824		151,006
Other assets, net	69,403		52,057
Total assets	$	1,862,843	$	1,605,692
Liabilities and equity
Liabilities:
Term loans, net	$	521,613	$	373,296
Revolving credit facility	42,000		113,000
Mortgage note payable, net	7,890		7,896
Lease intangible liabilities, net	26,699		30,131
Liabilities related to assets held for sale	1,024		406
Accounts payable, accrued expenses and other liabilities	33,727		22,540
Total liabilities	632,953		547,269
Commitments and contingencies
Equity:
Stockholders’ equity
Common stock, $0.01 par value, 400,000,000 shares authorized; 68,701,223 and 58,031,879 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively	687		580
Additional paid-in capital	1,289,810		1,091,514
Distributions in excess of retained earnings	(100,006)		(66,937)
Accumulated other comprehensive income	30,494		23,673
Total stockholders’ equity	1,220,985		1,048,830
Noncontrolling interests	8,905		9,593
Total equity	1,229,890		1,058,423
Total liabilities and equity	$	1,862,843	$	1,605,692

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

NETSTREIT CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(In thousands, except share and per share data)

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Revenues
Rental revenue (including reimbursable)	$	31,167	$	24,339	$	89,347	$	67,309
Interest income on loans receivable	2,244		674		5,145		1,671
Other revenue	550		—		550		—
Total revenues	33,961		25,013		95,042		68,980
Operating expenses
Property	3,883		2,539		11,350		8,156
General and administrative	5,133		4,552		15,299		13,608
Depreciation and amortization	15,804		13,407		46,599		36,137
Provisions for impairment	1,538		—		4,374		1,114
Transaction costs	143		51		267		704
Total operating expenses	26,501		20,549		77,889		59,719
Other income (expense)
Interest expense, net	(3,946)		(3,017)		(13,412)		(5,708)
Gain on sales of real estate, net	373		143		669		2,162
Loss on debt extinguishment	—		—		(128)		—
Other income, net	367		—		586		36
Total other income (expense), net	(3,206)		(2,874)		(12,285)		(3,510)
Net income before income taxes	4,254		1,590		4,868		5,751
Income tax (expense) benefit	(15)		(171)		60		(356)
Net income	4,239		1,419		4,928		5,395
Net income attributable to noncontrolling interests	24		16		32		63
Net income attributable to common stockholders	$	4,215	$	1,403	$	4,896	$	5,332
Amounts available to common stockholders per common share:
Basic	$	0.06	$	0.03	$	0.08	$	0.11
Diluted	$	0.06	$	0.03	$	0.08	$	0.11
Weighted average common shares:
Basic	67,112,587		50,449,735		62,123,334		47,679,870
Diluted	68,048,369		51,384,758		62,897,957		48,657,049
Other comprehensive income:
Net income	$	4,239	$	1,419	$	4,928	$	5,395
Change in value on derivatives, net	6,466		13,887		6,875		21,436
Total comprehensive income	$	10,705	$	15,306	$	11,803	$	26,831
Comprehensive income attributable to noncontrolling interests	78		149		86		287
Comprehensive income attributable to common stockholders	$	10,627	$	15,157	$	11,717	$	26,544

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

NETSTREIT CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(In thousands, except share data)

(Unaudited)


	Common stock
	Shares	Par Value		Additional Paid-in Capital		Distributions in Excess of Retained Earnings		Accumulated Other Comprehensive Income		Total Stockholders’ Equity		Noncontrolling Interests		Total Equity
Balance at December 31, 2022	58,031,879	$	580	$	1,091,514	$	(66,937)	$	23,673	$	1,048,830	$	9,593	$	1,058,423
Issuance of common stock in public offering, net of issuance costs	2,759,481	28		52,875		—		—		52,903		—		52,903
OP Units converted to common stock	5,694	—		105		—		—		105		(105)		—
Dividends and distributions declared on common stock and OP Units	—	—		—		(11,650)		—		(11,650)		(101)		(11,751)
Dividends declared on restricted stock, net	—	—		—		(122)		—		(122)		—		(122)
Vesting of restricted stock units	83,428	1		(1)		—		—		—		—		—
Repurchase of common stock for tax withholding obligations	(18,016)	—		(360)		—		—		(360)		—		(360)
Stock-based compensation, net	—	—		1,027		—				1,027		—		1,027
Other comprehensive loss	—	—		—		—		(5,930)		(5,930)		(49)		(5,979)
Net income	—	—		—		1,472		—		1,472		9		1,481
Balance at March 31, 2023	60,862,466	$	609	$	1,145,160	$	(77,237)	$	17,743	$	1,086,275	$	9,347	$	1,095,622
Issuance of common stock in public offering, net of issuance costs	6,128,135	61		114,475		—		—		114,536		—		114,536

Dividends and distributions declared on common stock and OP Units	—	—		—		(12,173)		—		(12,173)		(102)		(12,275)
Dividends declared on restricted stock, net	—	—		—		(128)		—		(128)		—		(128)
Vesting of restricted stock units	1,416	—		—		—		—		—		—		—
Repurchase of common stock for tax withholding obligations	(420)	—		(8)		—		—		(8)		—		(8)
Stock-based compensation, net	—	—		1,252		—		—		1,252		—		1,252
Other comprehensive income	—	—		—		—		6,339		6,339		49		6,388
Net loss	—	—		—		(791)		—		(791)		(1)		(792)
Balance at June 30, 2023	66,991,597	$	670	$	1,260,879	$	(90,329)	$	24,082	$	1,195,302	$	9,293	$	1,204,595
Issuance of common stock in public offering, net of issuance costs	1,672,242	17		27,401		—		—		27,418		—		27,418
OP Units converted to common stock	19,932	—		362		—		—		362		(362)		—
Dividends and distributions declared on common stock and OP Units	—	—		—		(13,768)		—		(13,768)		(104)		(13,872)
Dividends declared on restricted stock, net	—	—		—		(126)		—		(126)		—		(126)
Vesting of restricted stock units	24,088	—		—		—		—		—		—		—
Repurchase of common stock for tax withholding obligations	(6,636)	—		(112)		—		—		(112)		—		(112)
Stock-based compensation, net	—	—		1,280		2		—		1,282		—		1,282
Other comprehensive income	—	—		—		—		6,412		6,412		54		6,466
Net income	—	—		—		4,215		—		4,215		24		4,239
Balance at September 30, 2023	68,701,223	$	687	$	1,289,810	$	(100,006)	$	30,494	$	1,220,985	$	8,905	$	1,229,890

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

NETSTREIT CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(In thousands, except share data)

(Unaudited)


	Common stock
	Shares	Par Value		Additional Paid-in Capital		Distributions in Excess of Retained Earnings		Accumulated Other Comprehensive Income		Total Stockholders’ Equity		Noncontrolling Interests		Total Equity
Balance at December 31, 2021	44,223,050	$	442	$	809,724	$	(35,119)	$	4,123	$	779,170	$	10,645	$	789,815
Issuance of common stock in public offering, net of issuance costs	3,604,736	36		75,461		—		—		75,497		—		75,497
OP Units converted to common stock	25,629	—		484		—		—		484		(484)		—
Dividends and distributions declared on common stock and OP Units	—	—		—		(8,888)		—		(8,888)		(109)		(8,997)
Dividends declared on restricted stock, net	—	—		—		(128)		—		(128)		—		(128)
Vesting of restricted stock units	85,224	1		(1)		—		—		—		—		—
Repurchase of common stock for tax withholding obligations	(16,651)	—		(362)		—		—		(362)		—		(362)
Stock-based compensation, net	—	—		1,045		—		—		1,045		—		1,045
Other comprehensive income	—	—		—		—		6,135		6,135		76		6,211
Net income	—	—		—		1,942		—		1,942		24		1,966
Balance at March 31, 2022	47,921,988	$	479	$	886,351	$	(42,193)	$	10,258	$	854,895	$	10,152	$	865,047
Issuance of common stock in public offering, net of issuance costs	2,397,035	24		49,976		—		—		50,000		—		50,000
OP Units converted to common stock	22,265	—		418		—		—		418		(418)		—
Dividends and distributions declared on common stock and OP Units	—	—		—		(9,588)		—		(9,588)		(104)		(9,692)
Dividends declared on restricted stock, net	—	—		—		(149)		—		(149)		—		(149)
Stock-based compensation, net	—	—		1,298		—		—		1,298		—		1,298
Other comprehensive income	—	—		—		—		1,323		1,323		15		1,338
Net income	—	—		—		1,987		—		1,987		23		2,010
Balance at June 30, 2022	50,341,288	$	503	$	938,043	$	(49,943)	$	11,581	$	900,184	$	9,668	$	909,852
Issuance of common stock in public offering, net of issuance costs	4,512,003	45		93,477		—		—		93,522		—		93,522

Dividends and distributions declared on common stock and OP Units	—	—		—		(10,073)		—		(10,073)		(103)		(10,176)
Dividends declared on restricted stock, net	—	—		—		(141)		—		(141)		—		(141)
Vesting of restricted stock units	31,865	1		(1)		—		—		—		—		—
Repurchase of common stock for tax withholding obligations	(8,861)	—		(187)		—		—		(187)		—		(187)
Stock-based compensation, net	—	—		1,302		7		—		1,309		—		1,309
Other comprehensive income	—	—		—		—		13,754		13,754		133		13,887
Net income	—	—		—		1,403		—		1,403		16		1,419
Balance at September 30, 2022	54,876,295	$	549	$	1,032,634	$	(58,747)	$	25,335	$	999,771	$	9,714	$	1,009,485

The accompanying notes are an integral part of these condensed consolidated financial statements.

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NETSTREIT CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Nine Months Ended September 30,
	2023		2022
Cash flows from operating activities
Net income	$	4,928	$	5,395
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	46,599		36,137
Amortization of deferred financing costs	1,165		553
Amortization of above/below-market assumed debt	86		—
Noncash revenue adjustments	(1,147)		(2,076)
Amortization of deferred gains on interest rate swaps	(1,134)		—
Stock-based compensation expense	3,559		3,646
Gain on sales of real estate, net	(669)		(2,162)
Provisions for impairment	4,374		1,114
Loss on debt extinguishment	128		—
Gain on involuntary conversion of building and improvements	(47)		—
Changes in assets and liabilities, net of assets acquired and liabilities assumed:
Other assets, net	(4,803)		(3,641)
Accounts payable, accrued expenses and other liabilities	(71)		676
Lease incentive payments	(1,456)		(936)
Net cash provided by operating activities	51,512		38,706
Cash flows from investing activities
Acquisitions of real estate	(254,745)		(328,986)
Real estate development and improvements	(47,692)		(15,492)
Investment in mortgage loans receivable	(65,513)		(46,466)

Earnest money deposits	(2,531)		(3,486)
Purchase of computer equipment and other corporate assets	(23)		(595)
Proceeds from sale of real estate	24,726		13,837
Proceeds from the settlement of property-related insurance claims	47		—
Net cash used in investing activities	(345,731)		(381,188)
Cash flows from financing activities
Issuance of common stock in public offerings, net	194,857		219,019
Payment of common stock dividends	(37,591)		(28,549)
Payment of OP unit distributions	(307)		(316)
Payment of restricted stock dividends	(148)		(154)
Principal payments on mortgages payable	(99)		(12)
Proceeds under revolving credit facilities	288,000		365,000
Repayments under revolving credit facilities	(359,000)		(399,000)
Proceeds from term loans	150,000		200,000
Proceeds under property development incentives	—		605
Repurchase of common stock for tax withholding obligations	(480)		(549)
Deferred offering costs	(351)		(1,220)
Deferred financing costs	(3,271)		(3,755)
Net cash provided by financing activities	231,610		351,069
Net change in cash, cash equivalents and restricted cash	(62,609)		8,587
Cash, cash equivalents and restricted cash at beginning of the period	70,543		7,603
Cash, cash equivalents and restricted cash at end of the period	$	7,934	$	16,190

Supplemental disclosures of cash flow information:
Cash paid for interest, net	$	12,779	$	4,345
Cash paid for income taxes	$	575	$	45
Supplemental disclosures of non-cash investing and financing activities:
Dividends declared and unpaid on restricted stock	$	375	$	411
Deferred offering costs included in accounts payable, accrued expenses and other liabilities	$	34	$	—
Cash flow hedge change in fair value	$	8,009	$	21,436

Mortgage loan receivable settled in exchange for acquisition of real estate	$	4,673	$	—
Increase in mortgage loan receivable in exchange for disposition of real estate	$	1,837	$	—
Refinancing of mortgage loan receivable	$	1,327	$	—
Mortgage note assumed at fair value	$	—	$	7,913
Accrued capital expenditures and real estate development and improvement costs	$	9,834	$	952
Accrued lease incentives	$	23	$	1,690

The accompanying notes are an integral part of these condensed consolidated financial statements.

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NETSTREIT CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1 – Organization and Description of Business

NETSTREIT Corp. (the “Company”) was incorporated on October 11, 2019 as a Maryland corporation and commenced operations on December 23, 2019. The Company conducts its operations through NETSTREIT, L.P., a Delaware limited partnership (the “Operating Partnership”). NETSTREIT GP, LLC, a Delaware limited liability company and a wholly owned subsidiary of the Company, is the sole general partner of the Operating Partnership.

The Company elected to be treated and to qualify as a real estate investment trust (“REIT”) for U.S. federal income tax purposes beginning with its short taxable year ended December 31, 2019. Additionally, the Operating Partnership formed NETSTREIT Management TRS, LLC (“NETSTREIT TRS”), which together with the Company jointly elected to be treated as a taxable REIT subsidiary under Section 856(a) of the Internal Revenue Code of 1986, as amended, (the “Code”) for U.S. federal income tax purposes.

The Company is structured as an umbrella partnership real estate investment trust (commonly referred to as an “UPREIT”) and is an internally managed real estate company that acquires, owns and manages a diversified portfolio of single-tenant, retail commercial real estate leased on a long-term basis to high credit quality tenants across the United States. The Company also invests in property developments and mortgage loans secured by real estate. As of September 30, 2023, the Company owned or had investments in 547 properties, located in 45 states, excluding 32 property developments where rent has yet to commence.

Note 2 – Summary of Significant Accounting Policies

Basis of Presentation

The accompanying interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). The accompanying condensed consolidated financial statements include the accounts of the Company and subsidiaries in which the Company has a controlling financial interest. All intercompany accounts and transactions have been eliminated in consolidation and the Company’s net income is reduced by the portion of net income attributable to noncontrolling interests.

Interim Unaudited Financial Information

The accompanying unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC. These unaudited interim condensed consolidated financial statements do not include all of the information and notes required by GAAP for complete financial statements, and should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto on the Annual Report on Form 10-K as of and for the year ended December 31, 2022, which provide a more complete understanding of the Company’s accounting policies, financial position, operating results, business properties, and other matters. In the opinion of management, all adjustments of a normal recurring nature necessary for a fair presentation have been included. The results of operations for the three and nine months ended September 30, 2023 and 2022 are not necessarily indicative of the results for the full year.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company’s most significant assumptions and estimates relate to the useful lives of real estate assets, lease accounting, real estate impairment assessments, and allocation of fair value of purchase consideration. These estimates are based on historical experience and other assumptions which management believes are reasonable under the circumstances. The Company evaluates its estimates on an ongoing basis and makes revisions to these estimates and related disclosures as experience develops or new information becomes known. Actual results could differ from those estimates.

Table of Contents

Impairment of Long-Lived Assets

Fair value measurement of an asset group occurs when events or changes in circumstances related to an asset indicate that the carrying amount of the asset is no longer recoverable. An example of an event or changed circumstance is a reduction in the expected holding period of a property. If indicators are present, the Company will prepare a projection of the undiscounted future cash flows of the property, excluding interest charges, and determine if the carrying amount of the asset group is recoverable. When a carrying amount is not recoverable, an impairment loss is recognized to the extent that the carrying amount of the asset group exceeds its fair market value. The Company estimates fair value using data such as operating income, estimated capitalization rates or multiples, leasing prospects, local market information, and with regard to assets held for sale, based on the estimated or negotiated selling price, less estimated costs of disposal. Based on these unobservable inputs, the Company determined that its valuations of impaired real estate and intangible assets fall within Level 2 and Level 3 of the fair value hierarchy under ASC Topic 820.

The following table summarizes the provision for impairment during the periods indicated below (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Total provision for impairment	$	1,538	$	—	$	4,374	$	1,114
Number of properties: (1)
Classified as held for sale	—		—		6		—
Disposed within the period	2		—		2		1

(1) Includes the number of properties that were either (i) impaired during the period on the held for sale classification date and remained as held for sale as of period-end or (ii) impaired and disposed of during the respective period. Excludes properties that did not have impairment recorded during the year. Of the total provision for impairment during the three and nine months ended September 30, 2023, the Company recorded $0.7 million of additional impairment expense on properties that were classified as held for sale in prior periods.

Cash, Cash Equivalents and Restricted Cash

The Company considers all cash balances, money market accounts and highly liquid investments with original maturities of three months or less to be cash and cash equivalents. Restricted cash includes cash restricted for property tenant improvements and cash proceeds from the sale of assets held by qualified intermediaries in anticipation of the acquisition of replacement properties in tax-free exchanges under Section 1031 of the Code. Restricted cash is included in cash, cash equivalents, and restricted cash in the condensed consolidated balance sheets. The Company had less than $0.1 million of restricted cash as of September 30, 2023, and $4.7 million of restricted cash as of December 31, 2022.

The Company’s bank balances as of September 30, 2023 and December 31, 2022 included certain amounts over the Federal Deposit Insurance Corporation limits.

Fair Value Measurement

Companies are required to disclose the estimated fair values of all financial instruments, even if they are not carried at their fair value. The fair values of the Company’s financial instruments are estimates based on market conditions and perceived risks as of September 30, 2023 and December 31, 2022. These estimates require management’s judgement and may not be indicative of the future fair values of the assets and liabilities.

The fair value of the Company’s cash, cash equivalents and restricted cash (including money market accounts), other assets and accounts payable, accrued expenses and other liabilities approximate their carrying value because of the short-term nature of these instruments. Additionally, the Company believes the following financial instruments have carrying values that approximate their fair values as of September 30, 2023:

•Borrowings under the Company’s Revolver (as defined in “Note 6 - Debt”) approximate fair value based on their nature, terms and variable interest rates.

•Carrying values of the Company’s mortgage loans receivable approximate fair values based on a number of factors, including either their short-term nature, the availability of market quotes for comparable instruments, and a discounted cash flow analysis using estimates of the amount and timing of future cash flows, market rates, and credit spreads.

•Carrying value of the Company’s mortgage note payable approximates fair value based on a discounted cash flow analysis using estimates of the amount and timing of future cash flows, market rates, and credit spreads.

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The following table discloses fair value information for the Company’s 2024 Term Loan, 2027 Term Loan, 2028 Term Loan, and 2029 Term Loan (each as defined in “Note 6 - Debt”) (in thousands):


	September 30, 2023				December 31, 2022
	Carrying Value (1)		Estimated Fair Value		Carrying Value (1)		Estimated Fair Value
2024 Term Loan (2)	$	—	$	—	$	174,532	$	175,382
2027 Term Loan	173,919		175,713		—		—
2028 Term Loan	198,945		201,465		198,764		201,108
2029 Term Loan	148,749		150,727		—		—

(1) The carrying value of the debt instruments are net of unamortized debt issuance and discount costs.

(2) On June 15, 2023, the Company amended and restated its 2024 Term Loan, providing for a $175.0 million senior unsecured term loan (the “2027 Term Loan”).

Concentrations of Credit Risk

Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash and cash equivalents. The Company is exposed to credit risk with respect to cash held at various financial institutions, access to its credit facilities, amounts due under mortgage loans receivable, and amounts due or payable under derivative contracts. The credit risk exposure with regard to the Company’s cash, credit facilities, and derivative instruments is spread among a diversified group of investment grade financial institutions.

During the three and nine months ended September 30, 2023 and 2022, there were no tenants or borrowers with rental revenue or interest income on loans receivable, respectively, that exceeded 10% of total rental revenue.

Segment Reporting

ASC Topic 280, Segment Reporting, establishes standards for the manner in which companies report information about operating segments. Substantially all of the Company’s investments, at acquisition, are comprised of real estate owned that is leased to tenants on a long-term basis or real estate that secures the Company's investment in mortgage loans receivable. The Company allocates resources and assesses operating performance based on individual investment and property needs. Therefore, the Company aggregates these investments for reporting purposes and operates in one reportable segment.

Note 3 – Leases

Tenant Leases

The Company acquires, owns and manages commercial single-tenant lease properties, with the majority being long-term triple-net leases where the tenant is generally responsible for all improvements and contractually obligated to pay all operating costs (such as real estate taxes, utilities and repairs and maintenance costs). As of September 30, 2023, the Company’s weighted average remaining lease term was 9.3 years.

The Company’s property leases have been classified as operating leases and some have scheduled rent increases throughout the lease term. The Company’s leases typically provide the tenant one or more multi-year renewal options to extend their leases, subject to generally the same terms and conditions, including rent increases, consistent with the initial lease term.

All lease-related income is reported as a single line item, rental revenue (including reimbursable), in the condensed consolidated statements of operations and comprehensive income and is presented net of any reserves for uncollectible amounts. There were no material reserves for uncollectible amounts during the three and nine months ended September 30, 2023 and 2022.

Fixed lease income includes stated amounts per the lease contract, which include base rent, fixed common area maintenance charges, and straight-line lease adjustments.

Variable lease income primarily includes recoveries from tenants, which represent amounts that tenants are contractually obligated to reimburse the Company for specific to their portion of actual recoverable costs incurred. Variable lease income also includes percentage rent, which represents amounts billable to tenants based on their actual sales volume in excess of levels specified in the lease contract.

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The following table provides a disaggregation of lease income recognized under ASC 842 (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Rental revenue
Fixed lease income (1)	$	27,999	$	21,940	$	79,530	$	59,661
Variable lease income (2)	3,047		2,086		9,299		7,004
Other rental revenue:
Above/below market lease amortization, net	319		444		1,108		1,021
Lease incentives	(198)		(131)		(590)		(377)
Rental revenue (including reimbursable)	$	31,167	$	24,339	$	89,347	$	67,309

(1) Fixed lease income includes contractual rents under lease agreements with tenants recognized on a straight-line basis over the lease term.

(2) Variable lease income primarily includes tenant reimbursements for real estate taxes, insurance, common area maintenance, and lease termination fees, and the write-off of uncollectible amounts. There were immaterial write-offs of uncollectible amounts during the three and nine months ended September 30, 2023 and 2022.

Scheduled future minimum base rental payments (excluding base rental payments from properties classified as held for sale and straight-line rent adjustments for all properties) due to be received under the remaining non-cancelable term of the operating leases in place as of September 30, 2023 are as follows (in thousands):


	Future Minimum Base Rental Receipts
Remainder of 2023	$	28,258
2024	113,546
2025	113,399
2026	110,786
2027	106,751
Thereafter	611,894
Total	$	1,084,634

Future minimum rentals exclude amounts that may be received from tenants for reimbursements of operating costs and property taxes. In addition, the future minimum rents do not include any contingent rents based on a percentage of the lessees' gross sales or lease escalations based on future changes in the Consumer Price Index (“CPI”) or other stipulated reference rate.

Corporate Office Lease

In August 2021, the Company entered into a lease agreement on a new corporate office space, which commenced in October 2021 and is classified as an operating lease. The lease has a remaining noncancellable lease term of 8.8 years that expires on July 31, 2032, with a one-time option to terminate in 2029 exercisable by the Company.

The following table presents the lease expense components for the three and nine months ended September 30, 2023 and 2022 (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Operating lease cost	$	135	$	135	$	406	$	406
Variable lease cost	$	83	$	33	$	217	$	42

The Company recorded a right-of-use asset and operating lease liability of approximately $4.5 million at lease commencement. As of September 30, 2023, the right-of-use asset and operating lease liability was $4.0 million and $5.2 million, respectively. The right-of-use asset is included in other assets, net and the operating lease liability is included in accounts payable, accrued expenses and other liabilities in the accompanying condensed consolidated balance sheets.

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The following table reflects the maturity analysis of payments due from the Company over the next five years and thereafter for the corporate office lease obligation as of September 30, 2023 (in thousands):


	Future Minimum Lease Payments
Remainder of 2023	$	146
2024	617
2025	636
2026	653
2027	670
Thereafter	3,311
Total lease payments	6,033
Less: amount representing interest (1)	(825)
Present value of operating lease liabilities	$	5,208

(1) Imputed interest was calculated using a discount rate of 3.25%. The discount rate is based on the estimated incremental borrowing rate, calculated as the treasury rate for the same period as the underlying lease term, plus a spread determined using factors including REIT industry performance.

Note 4 – Real Estate Investments

As of September 30, 2023, the Company owned or had investments in 547 properties, excluding 32 property developments where rent has yet to commence. The gross real estate investment portfolio, including properties under development, totaled approximately $1.8 billion and consisted of the gross acquisition cost of land, buildings, improvements, and lease intangible assets and liabilities. The investment portfolio is geographically dispersed throughout 45 states with gross real estate investments in Illinois and Texas representing 8.9% and 8.8%, respectively, of the total gross real estate investment of the Company’s investment portfolio.

Acquisitions

During the three months ended September 30, 2023, the Company acquired 21 properties for a total purchase price of $95.3 million, inclusive of $0.8 million of capitalized acquisition costs. During the nine months ended September 30, 2023, the Company acquired 69 properties for a total purchase price of $259.2 million, inclusive of $2.4 million of capitalized acquisition costs.

During the three months ended September 30, 2022, the Company acquired 26 properties for a total purchase price of $121.7 million, inclusive of $1.3 million of capitalized acquisition costs. During the nine months ended September 30, 2022, the Company acquired 82 properties for a total purchase price of $329.0 million, inclusive of $3.2 million of capitalized acquisition costs.

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The acquisitions were all accounted for as asset acquisitions. An allocation of the purchase price and acquisition costs paid for the completed acquisitions is as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Land	$	22,559	$	35,175	$	56,611	$	84,248
Buildings	59,213		76,853		159,215		204,623
Site improvements	3,857		6,207		12,826		18,059
Tenant improvements	736		870		2,295		3,046
In-place lease intangible assets	8,467		12,616		26,276		35,021
Above-market lease intangible assets	479		2,323		2,022		2,676


	95,311		134,044		259,245		347,673
Liabilities assumed
Below-market lease intangible liabilities	—		(4,418)		—		(10,734)
Mortgage note payable	—		(7,913)		—		(7,913)
Accounts payable, accrued expense and other liabilities	—		(16)		—		(40)
Purchase price (including acquisition costs)	$	95,311	$	121,697	$	259,245	$	328,986

Development

As of September 30, 2023, the Company had 27 property developments under construction. During the three months ended September 30, 2023, the Company invested $33.2 million in property developments, including the land acquisition of 14 new developments with a combined initial purchase price of $9.6 million. During the nine months ended September 30, 2023, the Company invested $55.5 million in property developments, including the land acquisition of 34 new developments with a combined initial purchase price of $21.6 million. During the nine months ended September 30, 2023, the Company completed development on 12 projects and reclassified approximately $38.8 million from property under development to land, building, and improvements in the accompanying condensed consolidated balance sheets. Rent commenced for seven of the 12 completed developments during the nine months ended September 30, 2023, while rent is expected to commence for the other five completed developments in the fourth quarter of 2023. The remaining 27 developments in progress are expected to be substantially completed with rent commencing at various points throughout the next twelve months. The purchase price, including acquisition costs, and subsequent development are included in property under development in the accompanying condensed consolidated balance sheets as of September 30, 2023.

During the three months ended September 30, 2022, the Company invested $4.7 in property developments.

During the nine months ended September 30, 2022, the Company invested $14.3 million in property developments, including the land acquisition of one new development with an initial purchase price of $1.0 million. During this period, the Company completed development on four projects and reclassified approximately $14.7 million from property under development to land, building, and improvements in the accompanying condensed consolidated balance sheets.

Additionally, during the three months ended September 30, 2023 and 2022, the Company capitalized approximately $0.4 million and $0.1 million, respectively, of interest expense associated with properties under development. During the nine months ended September 30, 2023 and 2022, the Company capitalized approximately $0.7 million and $0.2 million, respectively, of interest expense associated with properties under development.

Dispositions

During the three months ended September 30, 2023, the Company sold four properties for a total sales price, net of disposal costs, of $7.2 million, recognizing a gain of $0.4 million. During the nine months ended September 30, 2023, the Company sold fourteen properties for a total sales price, net of disposal costs, of $26.5 million, recognizing a gain of $0.7 million.

During the three months ended September 30, 2022, the Company sold one property for a total sales price, net of disposal costs, of $1.7 million, recognizing a gain of $0.1 million. During the nine months ended September 30, 2022, the Company sold four properties for a total sales price, net of disposal costs, of $13.8 million, recognizing a gain of $2.2 million.

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Investment in Mortgage Loans Receivable

The Company’s mortgage loans receivable portfolio as of September 30, 2023 and December 31, 2022 is summarized below (in thousands):


Loan Type	Number of Secured Properties	Effective Interest Rate (4)	Stated Interest Rate	Maturity Date	September 30, 2023		December 31, 2022
Mortgage (1)	1	6.46%	7.00%	4/8/2024	$	43,612	$	40,316
Mortgage	2	6.57%	7.00%	6/30/2023	—		6,000
Mortgage	46	9.55%	9.55%	3/10/2026	41,940		—
Mortgage (2)	3	8.10%	6.89%	4/10/2026	4,132		—
Mortgage (2)	10	7.57%	7.57%	6/10/2025	15,505		—
Mortgage	1	8.50%	8.50%	3/21/2024	660		—
Mortgage (1) (3)	1	7.50%	7.50%	3/8/2024	3,246		—
Total					109,095		46,316
Unamortized loan origination costs					124		62
Unamortized discount					(128)		—
Total mortgage loans receivable, net					$	109,091	$	46,378

(1) The Company has the right, subject to certain terms and conditions, to purchase all or a portion of the underlying collateralized property.

(2) The stated interest rate is variable up to 15.0% and is calculated based on contractual rent for existing collateralized properties subject to the loan agreement.

(3) Requires monthly payments of both interest and principal.

(4) Includes amortization of discount and loan origination costs, as applicable.

All of the Company’s mortgage loans receivable, excluding the $3.2 million mortgage loan with a maturity of March 8, 2024 noted above, require monthly payments of interest only with principal payments occurring as borrower disposes of underlying properties, limited to the Company’s allocated investment by property. Any remaining principal balance will be repaid at or before the maturity date.

Assets Held for Sale

As of September 30, 2023 and December 31, 2022, there were fifteen and eleven properties, respectively, classified as held for sale.

Provisions for Impairment

The Company recorded provisions for impairment of $1.5 million on seven properties for the three months ended September 30, 2023, and provisions for impairment of $4.4 million on ten properties for the nine months ended September 30, 2023. The Company recorded no provisions for impairment for the three months ended September 30, 2022, and provisions for impairment of $1.1 million on one property for the nine months ended September 30, 2022.

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Note 5 – Intangible Assets and Liabilities

Intangible assets and liabilities consisted of the following (in thousands):


	September 30, 2023						December 31, 2022
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Assets:
In-place leases	$	178,506	$	(40,726)	$	137,780	$	154,876	$	(28,472)	$	126,404
Above-market leases	21,988		(3,999)		17,989		20,091		(2,892)		17,199
Assembled workforce	873		(873)		—		873		(873)		—
Lease incentives	9,220		(1,165)		8,055		8,021		(618)		7,403
Total intangible assets	$	210,587	$	(46,763)	$	163,824	$	183,861	$	(32,855)	$	151,006

Liabilities:
Below-market leases	$	33,959	$	(7,260)	$	26,699	$	35,596	$	(5,465)	$	30,131

The remaining weighted average amortization period for the Company’s intangible assets and liabilities as of September 30, 2023 and as of December 31, 2022 by category were as follows:


	Years Remaining
	September 30, 2023	December 31, 2022
In-place leases	9.1	9.4
Above-market leases	12.4	13.0
Below-market leases	11.2	11.6

Lease incentives	11.3	11.8

The Company records amortization of in-place lease assets and assembled workforce intangible assets to amortization expense, and records net amortization of above-market and below-market lease intangibles as well as amortization of lease incentives to rental revenue. The following amounts in the accompanying condensed consolidated statements of operations and comprehensive income related to the amortization of intangible assets and liabilities for all property and ground leases (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Amortization:
Amortization of in-place leases	$	4,641	$	4,201	$	14,120	$	11,489
Amortization of assembled workforce	—		73		—		220
	$	4,641	$	4,274	$	14,120	$	11,709

Net adjustment to rental revenue:
Above-market lease assets	(398)		(343)		(1,159)		(1,003)
Below-market lease liabilities	717		787		2,266		2,024
Lease incentives	(198)