Ladies and gentlemen, greetings, and welcome to the NETSTREIT Corp. Fourth Quarter 2022 Earnings Conference Call. At this time, all participant lines are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce you to Randy Haugh, Capital Markets. Please go ahead.

We thank you for joining us for NETSTREIT's fourth quarter and full year 2022 earnings conference call. In addition to the press release distributed yesterday after market close, we posted a supplemental package and an updated investor presentation, both of which can be found in the Investor Relations section of the company's website at www.netstreit.com. On today's call, management's remarks and answers to your questions may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ from those discussed today. For more information about these risk factors, we encourage you to review our Form 10-K for the year ended December 31, 2022, and our other SEC filings. All forward-looking statements are made as of the date hereof, and NETSTREIT assumes no obligation to update any forward-looking statements in the future. In addition, certain financial information presented on this call includes non-GAAP financial measures. Please refer to our earnings release and supplemental package for definitions, GAAP reconciliations, and an explanation of why we believe such non-GAAP financial measures are useful to investors. Today's conference call is hosted by NETSTREIT's Chief Executive Officer, Mark Manheimer; and Interim Chief Financial Officer, Lori Wittman. They will make some prepared remarks, and then we will open the call for your questions. Now, I will turn the call over to Mark.

Good morning, everyone, and welcome to our year-end 2022 earnings conference call. We are pleased to share with you strong results NETSTREIT achieved in 2022 despite an increasingly difficult macroeconomic backdrop. High inflation, rising interest rates, and prevailing recession concerns did not prevent us from executing our growth strategy. Before I go any further, I would like to say how proud I am of our team's commitment, determination, and ability to be nimble and creative during such macroeconomic volatility. Despite this backdrop, we have had a very active year, locking in significant portions of our capital structure by accessing the capital markets in a prudent manner when markets were supportive. In 2022, we raised over $1 billion of capital, providing the means for us to continue to grow through acquisitions and developments that meet our quality and return thresholds, which gives us confidence as we look ahead to 2023. Lori will discuss our capital-raising activity in more detail later on the call. During the quarter, we completed approximately $104.1 million of gross investments, bringing the year-end total to $507 million. Investments in the quarter, including one completed development, had an average yield of 6.9%. Excluding development, acquisitions completed in the quarter had an initial cash cap rate of 7% and had a weighted average remaining lease term of 11.2 years. Notably, over 97% of these acquisitions were with investment grade and investment grade profile tenants. Importantly, our growth supported our ability to deliver best-in-class AFFO per share growth of 23.4% during 2022. As we previously indicated, investment activity was lighter in the fourth quarter than earlier in the year as we took a more prudent approach to capital deployment due to the disconnect between capital markets and property markets created by the rapid rise in interest rates in 2022. We have and will continue to be disciplined on asset pricing and capital raising as our team continues to demonstrate its exceptional ability to find acquisitions from a variety of sources at cap rates above those found in the broader market without compromising on credit and real estate quality. It is important to highlight that we have proven that we can be very nimble and creative in sourcing opportunities through non-traditional channels. For example, we are looking at providing capital to tenants, developers, and other landlords in ways that take advantage of market dislocations, resulting in outsized risk-adjusted returns. While the overall number of transactions industrywide is likely to be significantly lower in 2023 similar to the back half of 2022, we are also seeing less competition and see a vacuum where other types of typically low-yielding capital providers have historically operated. While our main focus remains on well-priced, high-quality acquisitions, we will also, on occasion, step in as a senior secured lender. Loans will be backed by high-quality investment grade properties at safe LTVs and that yields considerably higher than the cap rates required to acquire the assets. This multi-pronged approach has led to a very strong pipeline of opportunities at very attractive risk-adjusted returns. Our disciplined creativity and excellence in execution make us confident that we can continue to create meaningful shareholder value for the foreseeable future. Further, we feel extremely confident in the stability of our portfolio. We have maintained proper risk management guardrails, including a stringent underwriting process and continuous credit monitoring. This has enabled us to curate a base of high-quality properties leased to strong credit tenants in a stable industry, best positioned to perform through any cycle. We demonstrated the success of this strategy and diligent execution through COVID when our portfolio outperformed all publicly traded net lease companies, resulting in 100% rent collections from the time that we went public at the height of the pandemic. This rate of collection still continues today. At year-end 2022, our portfolio is comprised of 427 leases, with 80 tenants contributing approximately $99 million of annualized base rent. The portfolio had a weighted average lease term remaining of 9.5 years, with approximately 80% of ABR represented by tenants with investment grade ratings or investment grade profiles. The portfolio is 100% occupied. A key part of our execution is selling assets where the risk-adjusted value no longer meets our criteria, and in 2022, we accretively sold seven properties for over $25 million. Turning to our lease expiration schedule, we have no lease expirations in 2023 and only 0.3% of total ABR expires in 2024. As we looked at 2023 and beyond, I want to reaffirm our commitment to our growth strategy as we continue to focus on execution and scaling our high-quality, best-in-class portfolio. We are seeing no shortages of opportunities and believe we will continue to prove our team's ability to source the best risk-adjusted pricing of net lease assets in any market environment as we have over the past three years. Before closing my remarks, I wanted to provide a brief update on our CFO search. We have continued to progress in our search for a permanent CFO. We have a number of strong candidates and are focused on finding the right person. With that, I'll turn the call over to Lori to go over our fourth quarter financial results and 2023 guidance.

Thank you, Mark, and thank you all for joining us on today's call. In our earnings release, published yesterday after market close, we reported net income of $0.05, core FFO of $0.28, and AFFO of $0.29 per diluted share for the fourth quarter. For the full year 2022, we reported net income of $0.16, core FFO of $1.10, and AFFO of $1.16 per diluted share. As Mark said earlier, AFFO growth was 23.4% year-over-year. The portfolio's annualized base rent grew to over $99 million in the fourth quarter, up from $71.2 million at the end of 2021, a 39% increase from the prior year. Interest expense increased to $3.5 million in the fourth quarter of 2022 and $9.2 million for the full year, up from $1 million and $3.7 million, respectively, in the prior year due to higher borrowing costs and increased debt balances. G&A increased to $5.4 million in the fourth quarter and $19.1 million for the year compared to $3.9 million and $14.8 million, respectively, in the prior year, primarily due to the impacts of fully building out the team and the platform. At year-end, our balance sheet had total debt of $496.5 million, with a weighted average term of approximately 3.7 years and a contractual interest rate, including the impact of fixed rate swaps, of 3.35%. Our net debt to annualized adjusted EBITDA after giving consideration to the settlement of shares pursuant to the forward sales agreements executed during the year was 3.4 times, well below our targeted leverage range of 4.5 times to 5.5 times. Excluding our forward shares, our net debt to annualized adjusted EBITDA was five times. Moving onto our capital markets activity, and as Mark mentioned in his opening comments, we had a very active year as we strengthened and fortified our balance sheet through a series of financing activities. In January of 2022, we entered a forward sale agreement of 10.35 million shares of common stock at a public offering price of $22.25 per share, receiving total net proceeds of $216 million. These shares were all settled in 2022. In August of 2022, we entered into another forward sale agreement of 10.35 million shares of common stock at a public offering price of $20.20 per share. In 2022, we settled 3 million shares, receiving net proceeds of $57 million. At year-end, we had 7.4 million unsettled shares remaining. Also in August, we closed on a $600 million sustainability-linked senior unsecured credit facility, which consisted of a $400 million senior unsecured revolving credit facility and a new $200 million senior unsecured term loan, with an additional $400 million accordion. The revolver will mature in August of 2026 with the option to extend for an additional year, while the term loan will mature in February of 2028. The term loan is fully hedged at an all-in rate of 3.88%. The company's existing $175 million term loan, which at year-end was fully hedged at an all-in LIBOR-based rate of 1.36%, has now been swapped to an all-in SOFR-based rate at 1.37% and matures in December of 2024. All of our term debt is now fixed at an average all-in fixed rate of 2.74%. During the year, through our ATM program, we issued approximately 0.3 million shares of common stock at a weighted average offering price of $21.02 per share for net proceeds of approximately $5.7 million. We believe this capital markets activity further demonstrates our reputation as a prudent steward of capital and sets us up with a strong liquidity and balance sheet position that will last well into 2023. Regarding our dividend, on February 21, the Board declared a $0.20 regular quarterly cash dividend to be payable on March 30 to shareholders of record as of March 15. Based on the dividend amount, our AFFO payout ratio for the fourth quarter was 69%, which is well within our previously stated guidelines of two-thirds to three-quarters of AFFO. Turning to guidance. For 2023, we expect AFFO per share will be in the range of $1.17 to $1.23 per share. This range assumes acquisition activity included completed development and net of dispositions to be at least $400 million in 2023. With the discipline and prudence exhibited in 2022, we believe we're extremely well-positioned entering 2023. At year-end, we had almost $500 million of available liquidity, a conservative level of debt, of which 77% was fixed rate, and an acquisition team that has consistently proven its ability to source and close high-quality assets that yield demonstrably better than our competition. We are in position to continue to execute our growth strategy opportunistically and accretively as we drive shareholder value into the future. With that, we will now open the line for questions.

Thank you. Ladies and gentlemen, at this time, we will be conducting a question-and-answer session. Our first question comes from the line of Nick Joseph from Citi. Please go ahead.

Thanks. Maybe just starting on the transaction marketing, your assumptions embedded in guidance. You had mentioned the lighter activity in the fourth quarter. So, as you enter 2023, maybe you can talk on the pipeline that you have today? And then, what guidance is assuming in terms of timing and cap rates?

Yes. It's interesting. I mean, I'd say we're still in a world of pretty bifurcated sellers. The larger group really doesn't have a need to sell at this point, which we kind of started to really see at the back half of last year. They're really kind of waiting to maybe see the Fed pivot or cap rates come back down to 2021, which we don't really think is a likely scenario in the short term. And then, the second bucket really being a smaller group of sellers that have some pressure to transact. So, we took a more opportunistic approach back in October. And I'd say that the bid-ask spread is still there but has condensed a bit. We've started to see some slow movement of some sellers moving from that first bucket into the second. It's allowed us to really assess the needs of the different types of property owners and use our team's creativity to source acquisitions. So, pretty quickly after our earnings call back last October, we did start to see that shift, which is why I think we probably acquired a little bit more than what we thought we were going to at that point in time. We're really seeing that in 2023 as well, which gives us a lot of confidence that we're going to be able to find some very attractive opportunities here in the first and second quarter.

Thanks. And so, for guidance, is it kind of just across the board that at least $400 million or is it more back-half loaded?

Yes. I mean, we're kind of thinking about it spread evenly throughout the year, but we're feeling very strong about what we're seeing currently that we should be able to close. It's hard to say what will close in March and what will close in April, so the first and second quarter look pretty strong.

Thanks. And then, you'd mentioned maybe stepping into some loans. What's the opportunity set there? How are you thinking about maybe the different risk profile? And how do you underwrite that relative to acquisitions?

Yes. So, it's really interesting. I mean, when you think about the different types of capital that have exited the marketplace, whether they be lenders or even some buyers out in the marketplace. And so, we've been able to work with our network and find some opportunities where there could be like a developer that has the view that the 1031 market is going to come back and they really want to take advantage of that. So, we've taken the approach of, we'll loan you less than 100% LTV, so call it 60%, 70%, 80% loan to value, but then sweep all of the rent, so that we're coming in at a safer position because we're under 100% LTV, but then getting an outsized yield in the short term while they wait and see if the market comes back. If the market comes back, then we may have these loans outstanding a little bit shorter. If it doesn't come back as quickly as they think, then we might have these loans outstanding for a little bit longer or potentially take those properties at much more attractive cap rates.

Thank you very much.

Thanks, Nick.

Thank you. Our next question comes from the line of Josh Dennerlein from Bank of America. Please go ahead.

Yes. Hey, thanks for the time, guys. I just wanted to follow-up on the opening remarks on the CFO search. I guess, how far along are you in the process? And is there any kind of color you can provide on maybe the timing of announcement for permanent CFO?

Yes, I won't provide a specific timeline for when the announcement will happen since we haven't made an offer yet. However, we quickly engaged a headhunter in November and spent considerable time identifying our needs and the desired profile for a candidate. We started actively working on this in January. I've spoken to many potential candidates and have significantly narrowed down the list, making considerable progress. We are very optimistic about the candidates we have remaining. Lori, do you have anything to add?

No, I think the good news is it's a very desirable job, and we have some great folks who are interested in the job and moving here and being in Dallas. So, we're excited about what the future holds for the new CFO.

Thanks for that. And then, on the acquisition side, just kind of curious if you've seen any changes in the competition for assets that you're going after? Is it more or less new players, less players, just kind of curious on the backdrop?

Yes, it's a great question. I mean, I think what we discovered with sellers kind of holding out, that being the larger group. I think you've seen a pretty large drop in the number of transactions in the back half of last year, and I expect that to continue into 2023. Now what gives us comfort is exactly what you're hitting on, which is there's a pretty big drop-off in competition and whether that be kind of leveraged private equity buyers. The 1031 market is significantly smaller than it was, which has allowed us to be a little bit more constructive working with various groups that we've tried to build relationships with over the past several years, and has resulted in actually a larger opportunity set for us.

Great. Thanks for the time.

Thank you. Our next question comes from the line of Ki Bin Kim from Truist Securities. Please go ahead.

Thanks. Just to follow-up on that previous line of questioning, can you just comment further on the types of tenants and real estate that was acquired? Curious if the similar basket of assets that historically you've been acquiring at, if those cap rates are rising or if you're kind of slightly targeting a different basket of assets? I ask this because even within IG or IG-like assets, I'm guessing there's a spectrum of quality and risk. So, just trying to better understand where your sweet spot is? And if there's been any kind of incremental shifts?

Yes. Nothing really to speak of as it relates to any real shift. I mean, we've got pretty clear criteria that we look for on the real estate side as well as the credit side. I know the credit side kind of gets a little bit more of the focus. But when you look at what we acquired, clearly, the credit quality and lease term of what we bought during the quarter is near the top of what we've acquired in the past. At some point, we're going to drill down a little bit more on our investment grade profile bucket, just to kind of share a little bit more information because I think when you compare the metrics of that bucket, that actually compares quite favorably to our investment grade bucket. That could give a little bit more clarity as to the types of credits within the portfolio. As it relates to what we acquired in the quarter, I mean, I'll give you a few examples. We bought our first Dick's Sporting Goods just outside of Pittsburgh, Pennsylvania. Dick's agreed to extend that property out beyond 10 years. We added our first REI, another investment grade profile tenant in Tysons, Virginia; another Ross Dress for Less; added another Kroger. We did a sale leaseback with an investment grade profile grocer that was already in the portfolio and they agreed to add that to a master lease that we have with that tenant. There's a little bit of a pickup with the Dollar Generals, which I think you'll probably see in several other REITs as the merchant developers are really starting to look more to the REITs rather than the 1031 market, because the 1031 market is much shallower than it's been in the past.

And in terms of your comments about making loans possibly, can you just provide some more color around that? And if you have make-whole provisions? And what that kind of total scope or basket of the investment universe looks like for you?

Yes, that's a good point. We do have make-whole provisions in the loans, so that we don't just get completely financed out. In the event that we are providing capital to a developer that thinks the 1031 market is going to come back more quickly than we do, we do allow them to sell the properties without a penalty. But if we get refinanced out, then there is kind of that make-whole yield maintenance provision within the loans. That being said, I don't foresee that being a giant portion of what we're doing, but it is something that we think is pretty attractive right now, where we can come in at a lower than 100% LTV, which is essentially what you're doing when you're buying a property and getting an enhanced yield.

Okay. Thank you.

Thanks, Ki Bin.

Thank you. Our next question comes from the line of Greg McGinniss from Scotiabank. Please go ahead.

Hey, good morning. Could you just talk a bit more about the relationships that you're building with these merchant developers now that the 1031 market has cooled a bit? And does the pullback in net acquisitions versus 2022 reflect just fewer opportunities, more complicated fundraising these days or any details you can provide there will be appreciated.

Yes, sure. I mean, I think back in October, we just weren't really seeing a lot of great opportunities at pricing that made a lot of sense. Still acquiring kind of $90 million or so in the fourth quarter and getting above the $480 million, which was the guidance that we pulled during that call shows that it did come back enough for us to be able to deploy that capital, and we're seeing a better backdrop now, and more sellers that are willing to kind of adjust their pricing to current market conditions. As it relates to merchant developers, we've, I think, done a lot of the legwork over the past few years trying to build those relationships with all those different developers. They've just chosen to focus on the 1031 market where the pricing has been significantly more aggressive. Now that that's gone, I think all of that legwork has really paid off where we've got a really good line of communication with all of the major developers and even a lot of the smaller regional developers that focus on the tenants that we're trying to grow with.

Okay. Thanks. Appreciate that. And then, just the second one for me is kind of following up on the last question that was just asked in terms of the investment grade exposure, which has been kind of lowering quarter-over-quarter as you go towards more investment grade like acquisitions. How much of that is diversifying the types of tenants that you can be acquiring versus yields that you couldn't achieve that made sense with purely investment grade tenants?

Yes, we have made a concerted effort to identify more investment-grade profile tenants, who are somewhat overlooked by many other REITs and institutional investors. In many instances, we are taking on less risk with these tenants and, in some cases, achieving slightly higher yields. Some of them are more willing to pursue sale-leaseback financing, and I anticipate that we will see an increase in sale-leasebacks across the sector, including from some groups, like us, that have not engaged in it as frequently. Our focus is not deliberately aimed at increasing or decreasing our investment-grade concentrations; it is simply a result of our pursuit of the best risk-adjusted returns. This concentration may fluctuate, but I believe it will likely remain within the 60% to 70% range, consistent with our performance since going public.

Thanks for the color.

Thank you. Our next question comes from the line of Wes Golladay from Baird. Please go ahead.

Hey, good morning, everyone. Just a question on the merchant builder deal flow that you're seeing. Is this going to be like a one-time thing where you clear out there, or are they going to continue building, and it's going to be more programmatic with you? I'm just trying to get a sense of how sustainable this is.

Yes. At least if we have the current dynamics of the 1031 market not being there, I would expect it to be programmatic with not only us, I would expect other REITs to have a similar answer to that because they continue to build. You've seen the growth plans of various different retailers that you see in our top 20; they're continually looking for ways to continue growing. They're just going to have to have their developers focus on institutional buyers a little bit more than the 1031 market like they have in the past.

Okay. And then, do you have a watchlist at this point? And do you embed any bad debt in your guidance? And then, can you also clarify what is the cash G&A assumption for this year?

So, we do assume some small net bad debt. I think the way to think about it is that we look at what our reimbursable and non-recoverable expenses as well as bad debt. That has historically been and continues to be what we project to be less than 2%. For G&A, the way I would think about that is that we're pretty much fully staffed now. So, our cash G&A is going to rise more consistently with what you think about in terms of salary increases and benefits. This year, we have the difference of the full year of a fully built-out team versus last year where we were averaging into that full build-out. So that's how I think about it – a little bit higher than inflation.

Okay. Thanks.

Thank you.

Thank you. Our next question comes from the line of Linda Tsai from Jefferies. Please go ahead.

Hi, good morning. So, the Dollar General stores purchased, were any purchased on the secondary market versus being purchased from the distressed merchant builders? And then, how would you determine which offer the greater value?

Yes. There were a few that we acquired really in the third-party market. Those were some shorter-term leases that we got extended by working with the tenant. There were probably four or five of those more on the Family Dollar side. The ones that we acquired from merchant developers that was Dollar Generals. That was probably 75%, 80% of the Dollar Stores that we acquired in the quarter.

And then, on the merchant developers, I think you said that there are like four or five that do a lot of the construction for Dollar General. Are they the same four or five that would do building across for other major retailers too? Just trying to get a sense of how fragmented the market is for this pipeline.

Yes. I mean, there are a few kind of the smaller ones that are a little bit smaller than the bigger four or five that focus exclusively on Dollar General. But most of the larger developers will develop Tractor Supply and some of the other tenants that we're trying to grow with. So, it's a little bit of a mixed bag.

Thanks. And then just one last one. Does the $400 million in acquisitions tie to the low end of earnings guidance?

I think you can think about it more as being in the midpoint, Linda, is how I think about it.

Okay. Thank you.

Sure. Thank you.

Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session. And now, I would like to turn the conference over to Mark Manheimer, Chief Executive Officer, for closing comments.

Thank you, operator, and thanks everybody for joining us today. Look forward to seeing you all in the coming weeks at the upcoming conferences. Thanks a lot.

The conference of NETSTREIT Corp. has now concluded. Thank you for your participation. You may now disconnect your lines.