NETSTREIT Corp. 10-K

Item 8. Financial Statements and Supplementary Data Page Report of Independent Registered Public Accounting Firm 44 Consolidated Balance Sheets as of December 31 , 2020 and 2019 45 Consolidated Statements of Operations and Comprehensive Income (Loss) for the Years Ended December 31, 2020 and 2019 46 Consolidated Statements of Changes in Equity for the Years Ended December 31, 2020 and 2019 47 Consolidated Statements of Cash Flows for the Years Ended December 31, 2020 and 2019 48 Notes to the Consolidated Financial Statements 49 43 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors NETSTREIT Corp.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of NETSTREIT Corp. and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive income (loss), changes in equity, and cash flows for the year ended December 31, 2020 (successor), for the period from December 23, 2019 to December 31, 2019 (successor), and the period from January 1, 2019 to December 22, 2019 (predecessor), and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the year ended December 31, 2020 (successor), for the period from December 23, 2019 to December 31, 2019 (successor), and the period from January 1, 2019 to December 22, 2019 (predecessor), in conformity with U.S. generally accepted accounting principles. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. (signed) KPMG LLP We have served as the Company’s auditor since 2019. Dallas, Texas March 4, 2021 44 Table of Contents NETSTREIT CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data) December 31, 2020 2019 Assets Real estate, at cost: Land $ 189,373 $ 83,996 Buildings and improvements 358,360 140,057 Total real estate, at cost 547,733 224,053 Less accumulated depreciation ( 10,111 ) ( 132 ) Real estate held for investment, net 537,622 223,921 Assets held for sale 14,802 8,532 Cash, cash equivalents and restricted cash 92,643 169,319 Acquired lease intangible assets, net 75,024 28,846 Other assets, net 5,724 3,304 Total assets $ 725,815 $ 433,922 Liabilities and equity Liabilities: Term loan, net $ 174,105 $ 173,913 Lease intangible liabilities, net 16,930 4,672 Liabilities related to assets held for sale 399 189 Accounts payable, accrued expenses and other liabilities 6,308 2,716 Total liabilities 197,742 181,490 Commitments and contingencies Equity: Stockholders’ equity Common stock, $ 0.01 par value, 400,000,000 shares authorized; 28,203,545 and 8,860,760 shares issued and outstanding as of December 31, 2020 and 2019, respectively 282 89 Additional paid-in capital 501,045 164,416 Retained (loss) earnings ( 7,464 ) 28 Accumulated other comprehensive income 235 — Total stockholders’ equity 494,098 164,533 Noncontrolling interests 33,975 87,899 Total equity 528,073 252,432 Total liabilities and equity $ 725,815 $ 433,922 The accompanying notes are an integral part of these consolidated financial statements. 45 Table of Contents NETSTREIT CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (in thousands, except share and per share data) Successor Predecessor Year Ended December 31, For the Period from December 23 to December 31, For the Period from January 1 to December 22, 2020 2019 Revenues Rental revenue (including reimbursable) $ 33,727 $ 513 $ 19,805 Operating expenses Property 2,569 52 1,113 General and administrative 11,340 49 3,555 Depreciation and amortization 15,459 195 10,422 Provisions for impairment 2,690 — 7,186 Transaction costs 3,169 2 535 Total operating expenses 35,227 298 22,811 Other income (expense) Interest expense, net ( 4,741 ) ( 173 ) ( 10,712 ) Gain on sales of real estate, net 6,213 — 5,646 Gain on forfeited earnest money deposit 250 — — Other income (expense), net ( 10 ) — — Total other income (expense), net 1,712 ( 173 ) ( 5,066 ) Net income (loss) 212 42 ( 8,072 ) Net (loss) income attributable to noncontrolling interests ( 518 ) 14 — Preferred stock dividends and redemption premium 42 — — Net income (loss) attributable to common stockholders $ 688 $ 28 $ ( 8,072 ) Amounts available to common stockholders per common share: Basic $ 0.04 $ — N/A Diluted $ 0.01 $ — N/A Weighted average common shares outstanding: Basic 17,322,182 8,860,760 N/A Diluted 21,157,996 8,860,760 N/A Other comprehensive income (loss): Net income (loss) $ 212 $ 42 $ ( 8,072 ) Change in unrealized gain on derivatives, net 253 — 55 Total comprehensive income (loss) 465 42 ( 8,017 ) Comprehensive (loss) income attributable to noncontrolling interests ( 500 ) 14 — Comprehensive income (loss) attributable to common stockholders $ 965 $ 28 $ ( 8,017 ) The accompanying notes are an integral part of these consolidated financial statements. 46 Table of Contents NETSTREIT CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (in thousands, except share data) Preferred stock Common stock Shares Par Value Shares Par Value Additional Paid-in Capital Retained (Loss) Earnings Accumulated Other Comprehensive Income Stockholders’ Equity Partners’ Capital Noncontrolling Interests Total Equity Balance at December 31, 2018 — $ — — $ — $ — $ — $ — $ — $ 82,748 $ — $ 82,748 Partners’ contribution — — — — — — — — 537 — 537 Partners’ distribution — — — — — — — — ( 5,711 ) — ( 5,711 ) Net loss — — — — — — — — ( 8,072 ) — ( 8,072 ) Other comprehensive income — — — — — — — — 55 — 55 Balance at December 22, 2019 — — — — — — — — 69,557 — 69,557 Proceeds received from Successor for assets of the Predecessor — — — — — — — — ( 69,557 ) — ( 69,557 ) Issuance of OP Units — — — — — — — — — 87,885 87,885 Issuance of common stock — — 8,860,760 89 174,911 — — 175,000 — — 175,000 Offering and related costs — — — — ( 10,495 ) — — ( 10,495 ) — — ( 10,495 ) Net income — — — — — 28 — 28 — 14 42 Balance at December 31, 2019 — — 8,860,760 89 164,416 28 — 164,533 — 87,899 252,432 Issuance of preferred stock 125 125 — — — — — 125 — — 125 Offering and related costs of preferred stock — ( 21 ) — — — — — ( 21 ) — — ( 21 ) Issuance of common stock in private offering — — 2,936,885 29 57,974 — — 58,003 — — 58,003 Offering and related costs of common stock — — — — ( 3,444 ) — — ( 3,444 ) — — ( 3,444 ) Dividends declared and paid on preferred stock — — — — — ( 8 ) — ( 8 ) — — ( 8 ) Issuance of common stock in initial public offering — — 13,681,561 136 246,132 — — 246,268 — — 246,268 Offering and related costs of common stock — — — — ( 18,967 ) — — ( 18,967 ) — — ( 18,967 ) Redemption of preferred stock upon initial public offering ( 125 ) ( 104 ) — — — ( 34 ) — ( 138 ) — — ( 138 ) Redemption of OP Units and issuance of common stock in initial public offering — — 255,268 3 5,027 — — 5,030 — ( 5,030 ) — Dividends and distributions declared on common stock and OP units — — — — — ( 8,057 ) — ( 8,057 ) — ( 777 ) ( 8,834 ) Dividends declared on restricted stock — — — — — ( 123 ) — ( 123 ) — — ( 123 ) OP Units converted to common stock — — 2,441,869 24 47,593 — — 47,617 — ( 47,617 ) — Vesting of restricted stock units — — 34,600 1 ( 1 ) — — — — — — Repurchase of common stock for tax withholding obligations — — ( 7,398 ) — ( 137 ) — — ( 137 ) — — ( 137 ) Stock-based compensation — — — — 2,452 — — 2,452 — — 2,452 Other comprehensive income — — — — — — 235 235 — 18 253 Net income (loss) — — — — — 730 — 730 — ( 518 ) 212 Balance at December 31, 2020 — $ — 28,203,545 $ 282 $ 501,045 $ ( 7,464 ) $ 235 $ 494,098 $ — $ 33,975 $ 528,073 The accompanying notes are an integral part of these consolidated financial statements. 47 Table of Contents NETSTREIT CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Successor Predecessor Year Ended December 31, For the Period from December 23 to December 31, For the Period from January 1 to December 22, 2020 2019 Cash flows from operating activities Net income (loss) $ 212 $ 42 $ ( 8,072 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 15,459 195 10,422 Amortization of deferred financing costs 621 14 1,024 Amortization of above/below-market assumed debt — — ( 13 ) Noncash revenue adjustments ( 2,192 ) ( 13 ) 1,601 Stock-based compensation expense 2,452 — — Gain on sale of real estate, net ( 6,213 ) — ( 5,646 ) Gain on forfeited earnest money deposit ( 250 ) — — Provisions for impairment 2,690 — 7,186 Changes in assets and liabilities, net of assets acquired and liabilities assumed: Other assets, net ( 1,511 ) ( 681 ) 67 Accounts payable, accrued expenses and other liabilities 3,374 532 ( 580 ) Lessee improvement obligations ( 1,893 ) — — Net cash provided by operating activities 12,749 89 5,989 Cash flows from investing activities Acquisitions of assets of the Predecessor, net of cash acquired — ( 166,732 ) — Acquisitions of real estate ( 408,584 ) ( 1,112 ) ( 1,232 ) Real estate improvements ( 2,033 ) — ( 450 ) Earnest money deposits 466 — — Purchase of computer equipment ( 51 ) — — Proceeds from sale of real estate 48,069 — 77,616 Net cash (used in) provided by investing activities ( 362,133 ) ( 167,844 ) 75,934 Cash flows from financing activities Issuance of common stock in initial public offering, net 227,301 — — Issuance of common stock in private offering, net 54,559 164,727 — Issuance of preferred stock, net 104 — — Payment of preferred stock dividends ( 8 ) — — Payment of common stock dividends ( 8,057 ) — — Payment of OP unit distributions ( 777 ) — — Payment of restricted stock dividends ( 10 ) — — Redemption of preferred stock, net ( 138 ) — — Proceeds from term loans — 175,000 708 Principal payments on term loans — — ( 62,983 ) Principal payments on mortgages payable — — ( 14,756 ) Proceeds under revolving credit facility 50,000 — — Repayments under revolving credit facility ( 50,000 ) — — Repurchase of common stock for tax withholding obligations ( 137 ) — — Deferred financing costs ( 129 ) ( 2,653 ) ( 199 ) Partners’ contributions — — 537 Partners’ distributions — — ( 5,624 ) Net cash provided by (used in) financing activities 272,708 337,074 ( 82,317 ) Net change in cash and cash equivalents ( 76,676 ) 169,319 ( 394 ) Cash, cash equivalents and restricted cash at beginning of the period 169,319 — 1,950 Cash, cash equivalents and restricted cash at end of the period $ 92,643 $ 169,319 $ 1,556 Supplemental disclosures of cash flow information: Cash paid for interest $ 4,212 $ — $ 9,460 Supplemental disclosures of non-cash investing and financing activities: OP units issued as consideration for the acquisition of the Predecessor $ — $ 87,885 $ — Redemption of OP units and issuance of common stock upon initial public offering $ 5,030 $ — $ — Reclassification of deferred offering expenses to additional paid-in capital upon initial public offering $ 4,191 $ — $ — OP units converted into common stock $ 47,617 $ — $ — Dividends declared and unpaid on restricted stock $ 113 $ — $ — Cash flow hedge change in fair value $ 253 $ — $ — Reclassification from construction in progress upon project completion $ 1,954 $ — $ — Accrued construction and development costs $ 375 $ — $ — The accompanying notes are an integral part of these consolidated financial statements. 48 Table of Contents NETSTREIT CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 – Organization and Description of Business NETSTREIT Corp. (“Successor” or 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 upon the filing of its U.S. federal income tax return for such taxable year. 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. As of December 31, 2020, the Company owned 203 properties, located in 38 states. Private Offering and Formation Transactions On December 23, 2019, the Company completed a series of transactions (collectively the “Private Offering”) pursuant to which the Company sold 8,860,760 shares of common stock at $ 19.75 per share in a private placement under Rule 144A and Regulation D under the Securities Act of 1933, as amended (the “Securities Act”). In connection with the Private Offering, the Company completed the formation transactions described below. On January 30, 2020, the initial purchaser in the Private Offering exercised its over-allotment option to purchase 2,936,885 shares of the Company’s common stock, which were delivered on February 6, 2020. The Company contributed the net proceeds of $ 219.0 million from the Private Offering to the Operating Partnership in exchange for 11,797,645 Class A units of limited partnership of the Operating Partnership (“Class A OP Units”). Upon completion of the Private Offering and the over-allotment option, noncontrolling interest holders owned approximately 27.4 % of the Operating Partnership (the Operating Partnership issued total Class A and Class B OP Units of 15,449,794 and 796,870 , respectively). Concurrently with the closing of the Private Offering, EverSTAR Income and Value Fund V, LP, a Delaware limited partnership (the “Predecessor”), was merged with and into the Operating Partnership, with the Operating Partnership surviving, and the continuing investors in the Operating Partnership receiving an aggregate of 3,652,149 Class A OP Units, other than the Chief Executive Officer of the Company, who received 8,884 Class B units of limited partnership of the Operating Partnership (“Class B OP Units”, and collectively with Class A OP Units, “OP Units”), and an affiliate of the Predecessor’s general partner, which received 287,234 Class B OP Units. The Operating Partnership entered into a contribution agreement with EBA EverSTAR LLC, a Texas limited liability company, to internalize the Company’s management infrastructure, whereby EBA EverSTAR LLC contributed 100 % of the membership interests in EBA EverSTAR Management, LLC, a Texas limited liability company and the manager of the Predecessor, to the Operating Partnership in exchange for 500,752 Class B OP Units. In connection with the internalization, EBA EverSTAR Management, LLC was re-domiciled in Delaware and its name was changed to NETSTREIT Management, LLC. A 0.01 % interest in NETSTREIT Management, LLC was issued to NETSTREIT TRS. Concurrently with the consummation of the Private Offering, the Company entered into a $ 175.0 million term loan and $ 250.0 million revolving credit facility. On December 23, 2019, in connection with the acquisition of the Predecessor, the Company fully drew down on its term loan and used the proceeds to acquire the Predecessor, which concurrently settled its outstanding debt facilities. As part of the acquisition, the Company did not assume any obligations under the Predecessor’s then outstanding debt facilities. Series A Preferred Stock To maintain the Company’s status as a REIT, on January 27, 2020, the Company issued and sold 125 shares of 12.0 % Series A Cumulative Non-Voting Preferred Stock, par value $ 0.01 per share (“Series A Preferred Stock”), for $ 1,000 per share to accredited investors pursuant to Regulation D under the Securities Act. The shares of Series A Preferred Stock may be redeemed 49 Table of Contents solely at the Company’s option for consideration equal to $ 1,000 per share, plus accrued and unpaid dividends thereon to and including the date fixed for redemption, plus a redemption premium as follows (i) until December 31, 2021, $ 100 and (ii) thereafter, no redemption premium. The Company redeemed all 125 outstanding shares of Series A Preferred Stock upon the completion of the initial public offering. See “Note 9 - Stockholders’ Equity, Partners’ Capital and Preferred Equity.” Initial Public Offering On August 17, 2020, the Company completed the initial public offering of its common stock. The Company sold 12,244,732 shares of common stock and selling stockholders sold 255,268 shares of common stock at a price of $ 18.00 per share. The Company's common stock began trading on the New York Stock Exchange under the symbol “NTST” on August 13, 2020. On September 16, 2020, the Company issued an additional 1,436,829 shares of its common stock pursuant to the underwriters' over-allotment option in connection with the Company's initial public offering. The net proceeds to the Company from the initial public offering was $ 227.3 million, which is net of transaction costs and underwriter fees of $ 18.9 million. The Company contributed the net proceeds of the initial public offering and related over-allotment option to the Operating Partnership in exchange for 13,681,561 Class A OP Units. In addition, an equivalent number of Class A OP Units were issued for the 255,268 shares sold by selling stockholders. Note 2 – Summary of Significant Accounting Policies Basis of Presentation The 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 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 (loss) is reduced by the portion of net income (loss) attributable to noncontrolling interests. For the periods prior to December 23, 2019, the accompanying consolidated financial statements represent the historical financial information of the Predecessor. For the periods after December 23, 2019, the accompanying consolidated financial statements represent the historical financial information of the Successor. As a result of the Company’s formation transactions, the consolidated financial statements after December 23, 2019 are presented on a new basis of accounting pursuant to Accounting Standards Codification 805, Business Combinations. Noncontrolling Interests The Company presents noncontrolling interests, which represents OP Units, and classifies such interests as a component of permanent equity, separate from the Company's stockholders’ equity. Noncontrolling interests were created as part of an asset acquisition and recognized at fair value as of the date of the transaction. Effective with the Company’s initial public offering, each limited partner of the Operating Partnership has the right to require the Operating Partnership to redeem part or all of its OP Units for cash, based upon the value of an equivalent number of shares of the Company’s common stock at the time of the redemption, or, at the Company’s election, shares of the Company’s common stock on a one-for-one basis, subject to certain adjustments and the restrictions on ownership and transfer of the Company’s common stock. The election to pay cash or issue common stock is solely within the control of the Company to satisfy a noncontrolling interest holder's redemption request. Net income or loss of the Operating Partnership is allocated to its noncontrolling interests based on the noncontrolling interests' ownership percentages in the Operating Partnership. Ownership percentage is calculated by dividing the number of OP Units held by the noncontrolling interests by the total OP Units outstanding at the balance sheet date. Use of Estimates The preparation of the 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 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 50 Table of Contents disclosures as experience develops or new information becomes known. Further, the uncertainty over the ultimate impact COVID-19 will have on the global economy and the Company’s business makes any estimates and assumptions as of December 31, 2020 inherently less certain than they would be absent the current and potential impacts of COVID-19. Actual results could differ from those estimates. Reclassifications Certain reclassifications have been made to conform with current period presentation. Transactions costs within the consolidated financial statements were previously included within the caption “general and administrative” and real estate improvements within the consolidated statements of cash flows were previously included within the caption “acquisitions of real estate.” Risk and Uncertainties COVID-19 On March 11, 2020, the World Health Organization announced a new strain of coronavirus (“COVID-19”) was reported worldwide, resulting in COVID-19 being declared a pandemic, and on March 13, 2020 the U.S. President announced a National Emergency relating to the disease. COVID-19 and the measures taken to limit its spread are negatively impacting the economy across many industries, including industries in which our tenants operate. The impacts may continue and increase in severity as the duration of the pandemic lengthens. As a result, the Company is not yet able to determine the full impact of COVID-19 on its operations and therefore whether any such impact will be material. During 2020, we provided rent deferral and rent abatement to 12 and 15 of our properties, respectively, representing 0.5 %, and 1.7 % of annualized base rent as of December 31, 2020, respectively. All tenants with rent relief agreements in place paid in accordance with the terms of their new lease agreements, and as of year end, the Company had collected 100.0 % of all 2020 contractual rent payments. The Company has not provided for any abatements or deferrals after August 1, 2020. Accordingly, the Company’s operations and cash flows for the year ended December 31, 2020 were not materially impacted by COVID-19. The Company also adopted an optional remote-work policy and other physical distancing policies for its corporate office. The Company does not anticipate these policies to have any adverse impact on its ability to continue to operate its business. Transitioning to a remote-work environment has not had a material adverse impact on the Company's general ledger system, internal controls or controls and procedures related to its financial reporting process. Real Estate Held for Investment Real estate is recorded and stated at cost less any provision for impairment. Assets are recognized at fair value at acquisition date. For properties developed by the Company, all direct and indirect costs related to planning, development and construction, including interest, real estate taxes and other miscellaneous costs incurred during the construction period, are capitalized for financial reporting purposes and recorded as property under development until construction has been completed. The Company evaluates each acquisition transaction to determine whether the acquired asset meets the definition of a business and therefore accounted for as a business combination or if the acquisition transaction should be accounted for as an asset acquisition. Under Accounting Standards Update (“ASU”) 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business” (“ASU 2017-01”), an acquisition does not qualify as a business when substantially all of the fair value is concentrated in a single identifiable asset or group of similar identifiable assets or the acquisition does not include a substantive process in the form of an acquired workforce or an acquired contract that cannot be replaced without significant cost, effort or delay. Transaction costs related to acquisitions that qualify as asset acquisitions are capitalized as part of the cost basis of the acquired assets, while transaction costs for acquisitions that are deemed to be acquisitions of a business are expensed as incurred. The Company allocates the purchase price of acquired properties accounted for as asset acquisitions to tangible and identifiable intangible assets or liabilities based on their relative fair values. Tangible assets may include land, buildings, site improvements and tenant improvements. Intangible assets include the value of in-place leases and above-market leases and intangible liabilities include below-market leases. The fair value of the tangible assets of an acquired property with an in-place operating lease is determined by valuing the property as if it were vacant, and the “as-if-vacant” value is then allocated to the tangible assets based on the fair value of the tangible assets. The fair value of in-place leases is determined by considering estimates of carrying costs during the expected lease-up periods, current market conditions, as well as costs to execute similar leases based on the specific characteristics of each tenant’s lease. The Company estimates the cost to execute leases with terms similar to the remaining lease terms of the in- 51 Table of Contents place leases, including leasing commissions, legal and other related expenses. The fair value of above-market or below-market leases is recorded based on the net present value (using a discount rate that reflects the risks associated with the leases acquired) of the difference between the contractual amount to be paid pursuant to the in-place lease and the Company’s estimate of the fair market lease rate for the corresponding in-place lease, measured over the remaining non-cancelable term of the lease including any below-market fixed rate renewal options for below-market leases. In making estimates of fair values for purposes of allocating purchase price, the Company utilizes a number of sources, including real estate valuations prepared by independent valuation firms. The Company also considers information and other factors including market conditions, the industry that the tenant operates in, characteristics of the real estate; e.g., location, size, demographics, value and comparative rental rates; tenant credit profile and the importance of the location of the real estate to the operations of the tenant’s business. Additionally, the Company considers information obtained about each property as a result of its pre-acquisition due diligence, marketing and leasing activities in estimating the fair value of the tangible and intangible assets and liabilities acquired. Based on these inputs for measuring and allocating the fair value of real estate acquisitions, the Company utilizes both observable market data (categorized as level 2 on the three-level valuation hierarchy of Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurement), and unobservable inputs that reflect the Company’s own internal assumptions (categorized as level 3 under ASC Topic 820). Depreciation and Amortization Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets: Buildings 13 – 35 years Building improvements 15 years Tenant improvements Shorter of the term of the related lease or useful life Acquired in-place leases Remaining terms of the respective leases Assembled workforce 3 years Computer equipment 3 years Total depreciation and amortization expense was $ 15.5 million, $ 0.2 million and $ 10.4 million for the year ended December 31, 2020 and for the periods from December 23, 2019 to December 31, 2019, and from January 1, 2019 to December 22, 2019, respectively. Depreciation expense on real estate held for investment and computer equipment was $ 10.7 million, $ 0.1 million and $ 8.4 million for the year ended December 31, 2020 and for the periods from December 23, 2019 to December 31, 2019, and from January 1, 2019 to December 22, 2019, respectively. Amortization expense on acquired in-place lease and assembled workforce intangible assets, and leasing commission costs were $ 4.8 million, $ 0.1 million and $ 2.0 million for the year ended December 31, 2020 and for the periods from December 23, 2019 to December 31, 2019, and from January 1, 2019 to December 22, 2019, respectively. Repairs and maintenance are charged to operations as incurred; major renewals and betterments that extend the useful life or improve the operating capacity of the asset are capitalized. Upon the sale or disposition of a property, the asset and the related accumulated depreciation are removed from the consolidated balance sheets with the difference between the proceeds received, net of sales costs, and the carrying value of the asset group recorded as a gain or loss on sale, subject to impairment considerations. Assets Held for Sale Properties classified as held for sale, including the related intangibles, on the consolidated balance sheets include only those properties available for immediate sale in their present condition, which are actively being marketed, and for which management believes that it is probable that a sale of the property will be completed within one year. Properties held for sale are carried at the lower of cost or fair value, less estimated selling costs. No depreciation expense or amortization expense is recognized on properties held for sale and the related intangible assets or liabilities once they have been classified as such. Only disposals representing a strategic shift in operations are presented as discontinued operations. Accordingly, we have not reclassified results of operations for properties disposed during the year or held for sale as discontinued operations, as these events are a normal part of the Company’s operations and do not represent strategic shifts in the Company’s operations. As of December 31, 2020 and 2019 , there were three and two properties, respectively, classified as held for sale. 52 Table of Contents Impairment of Long-Lived Assets Fair value measurement of an asset occurs when events or changes in circumstances related to an asset indicate that the carrying amount of the asset is no longer recoverable. 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 real estate is recoverable. When a carrying amount is not recoverable, an impairment loss is recognized to the extent that the carrying amount of the asset 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 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): Successor Predecessor Year Ended December 31, For the Period from December 23 to December 31, For the Period from January 1 to December 22, 2020 2019 Total provision for impairment $ 2,690 $ — $ 7,186 Number of properties: (1) Classified as held for sale 5 — 2 Disposed within the period 3 — 4 1 Includes the number of properties that were impaired and classified as held for sale or impaired and disposed of during the respective periods. Excludes properties that did not have impairment recorded during the year. 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. The Company had $ 14.8 million of restricted cash as of December 31, 2020, which was included in cash, cash equivalents, and restricted cash on the consolidated balance sheets. The Company did not have restricted cash as of December 31, 2019. The Company’s bank balances as of December 31, 2020 and 2019 included certain amounts over the Federal Deposit Insurance Corporation limits. Revenue Recognition and Related Matters The Company’s rental revenue is primarily related to rent received from tenants under leases accounted for as operating leases. Rent from leases that have fixed and determinable rent increases is recognized on a straight-line basis over the non-cancellable initial term of the lease and reasonably certain renewal periods, from the later of the date of the commencement of the lease or the date of acquisition of the property subject to the lease. The difference between rental revenue recognized and the cash rent due under the provisions of the lease is recorded as deferred rent receivable and included as a component of other assets in the consolidated balance sheets. Variable lease revenues include tenant reimbursements, lease termination fees, changes in the index or market-based indices after the inception of the lease or percentage rents. Variable lease revenues are not recognized until the specific events that trigger the variable payments have occurred. The Company and its Predecessor recognized variable lease revenue related to tenant reimbursements and lease termination fees for the periods presented. Capitalized above-market and below-market lease values are amortized on a straight-line basis as a reduction or increase of rental revenue as appropriate over the remaining non-cancellable terms of the respective leases. In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, “Revenue from Contracts with Customers”, which was added to the ASC under Topic 606 (“ASC 606”) (“ASU 2014-09”). ASC 606 outlines a single comprehensive model for entities to use in accounting for revenues arising from contracts with customers. As the Company’s 53 Table of Contents revenues are primarily generated through leasing arrangements, and the Company has elected the lessor practical expedient to report income on one line within its consolidated statements of operations and comprehensive income (loss) from the associated lease for all existing and new leases under ASU 2016-02, “Leases (ASC 842)”, the Company’s revenues fall outside the scope of this standard. An allowance for doubtful accounts is provided against the portion of accounts receivable, net including straight-line rents, which is estimated to be uncollectible, which includes a portfolio-based reserve and reserves for specific disputed amounts. Such allowances are reviewed each period based upon recovery experience and the specific facts of each outstanding amount. As of December 31, 2020 and 2019, there was no allowance for doubtful accounts. Stock-Based Compensation The Company has a share-based compensation award program for our employees and directors. Stock-based compensation expense associated with these awards is recognized in general and administrative expenses in our consolidated statements of operations and comprehensive income (loss). We measure stock-based compensation at the estimated fair value on the grant date and recognize the amortization of stock-based compensation expense over the requisite service or performance period. The Company recognizes forfeitures as they occur. Transaction Costs Transaction costs represent costs incurred by the Company to facilitate the private offering and formation transactions and the initial public offering in addition to costs associated with abandoned acquisitions and other acquisition related activity. Offering costs were $ 2.2 million and $ 0.5 million for the year ended December 31, 2020 and for the period from January 1, 2019 to December 22, 2019, respectively. There were no such costs incurred for the period from December 23, 2019 to December 31, 2019. Acquisition related expenses were $ 1.0 million and less than $ 0.1 million for the year ended December 31, 2020 and for the periods from December 23, 2019 to December 31, 2019, and from January 1, 2019 to December 22, 2019, respectively. Income Taxes The Company elected to be treated and qualify as a REIT for U.S. federal income tax purposes beginning with its short taxable year ended December 31, 2019 upon the filing of its U.S. federal income tax return for such taxable year. To qualify as a REIT, the Company must meet certain organizational, income, asset and distribution tests. Accordingly, the Company will generally not be subject to corporate U.S. federal or state income tax to the extent that it makes qualifying distributions of all of its taxable income to its stockholders and provided it satisfies on a continuing basis, through actual investment and operating results, the REIT requirements, including certain asset, income, distribution and share ownership tests. To maintain the status of a REIT, the Company is required to declare and pay a dividend of $ 0.2 million relating to its 2019 fiscal period by December 31, 2020. Accordingly, the Company declared and paid dividends in the second half of 2020 which were inclusive of the $ 0.2 million obligation for 2019. See “Note 9 – Stockholders’ Equity, Partners’ Capital and Preferred Equity.” The Company made a joint election with NETSTREIT TRS for it to be treated as a taxable REIT subsidiary which may be subject to U.S. federal, state, and local income taxes on its taxable income. In general, NETSTREIT TRS may perform services for tenants of the Company, hold assets that the Company cannot hold directly and may engage in any real estate or non-real estate-related business. As of December 31, 2020 and 2019, the Company had no provision for state, local or federal income taxes in its consolidated financial statements. Earnings Per Share Earnings per common share has been computed pursuant to the guidance in FASB ASC Topic 260, Earnings per Share. Basic earnings per share (“EPS”) is computed by dividing net income (loss) allocated to common stockholders by the weighted-average number of common shares outstanding for the reporting period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. No effect is shown for any securities that are anti-dilutive. Net income (loss) allocated to common stockholders represents net income (loss) less income allocated to participating securities and noncontrolling interests. None of the Company’s equity awards are participating securities. 54 Table of Contents Fair Value Measurement Fair value measurements are utilized in the accounting of the Company’s assets acquired and liabilities acquired in an asset acquisition and also affect the Company’s accounting for certain of its financial assets and liabilities. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The hierarchy described below prioritizes inputs to the valuation techniques used in measuring the fair value of assets and liabilities. This hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring the most observable inputs to be used when available. The hierarchy is broken down into three levels based on the reliability of inputs as follows: Level 1 inputs, such as quoted prices in an active market; Level 2 inputs, which are observable inputs for similar assets; or Level 3 inputs, which are unobservable inputs. The Company uses the following inputs in its fair value measurements: – Level 2 inputs for its debt and derivative financial instrument fair value disclosures. See “Note 6 - Debt” and “Note 7 - Derivative Financial Instruments,” respectively; and – Level 2 and Level 3 inputs when assessing the fair value of assets and liabilities in connection with real estate acquisitions and impairment. See “Note 4 - Acquisition and Disposition of Real Estate.” 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. Provisions for impairments recognized during the year ended December 31, 2020 and 2019 related to assets held for sale and the impairment was determined based on the estimated or negotiated selling price, less costs of disposal, compared to the carrying value of the property. 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 Facility, 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 2020, the Company’s rental revenues were derived from 63 separate tenants leasing 219 total properties. During this period there were no tenants with rental revenue that exceeded 10% of rental revenue. During 2019, the Company and the Predecessor’s rental revenues were derived from 48 separate tenants leasing 123 total properties. During this period, one tenant, CVS, accounted for 12.6 % of rental revenue. Segment Reporting The Company considers each one of its properties to be an operating segment, none of which meets the threshold for a reportable segment. The Company allocates resources and assesses operating performance based on individual property needs. All of the Company’s operating segments meet the aggregation criteria, and thus, the Company reports one segment, rental operations. There were no intersegment sales during the periods presented. Recent Accounting Pronouncements Adopted In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (ASC 606)" ("ASU 2014-09") ("Topic 606"), that outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. Topic 606 is based on the principle that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. As amended by ASU 2015-14, "Revenue from Contracts with Customers: Deferral of the Effective Date" ("ASU 2015-14"), Topic 606 is effective for fiscal years beginning after December 15, 2018. The Predecessor adopted Topic 606 on January 1, 2019, but as the primary revenue stream stems from leasing arrangements and tenant reimbursements, these fall outside the scope of ASC 606. The Company and its Predecessor did not have non-rental related revenue that would need to be considered for ASC 606 assessment. In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)" ("ASU 2016-02"), which replaces the existing guidance in Topic 840, "Leases" ("ASC 842"). ASC 842 is effective for fiscal years, and interim periods within those years, beginning 55 Table of Contents after December 15, 2018. The Predecessor adopted ASC 842 on January 1, 2019 utilizing the modified retrospective transition method. The Predecessor elected to recast prior-period comparative information to aggregate prior period tenant reimbursement revenue within rental revenue to conform with the current period presentation within the consolidated statements of operations and comprehensive income (loss). The Predecessor elected the package of practical expedients available under ASC 842, but did not elect the hindsight practical expedient, thereby not requiring the Predecessor to reassess the lease classification for existing contracts. Accordingly, the Predecessor's leases continue to be classified as operating leases as of January 1, 2019. The Predecessor did not make any adjustments to the opening balance of retained earnings upon adoption of the new standard given the nature of the impacts and other transition practical expedients elected by the Predecessor. In April 2020, the FASB issued a question and answer document, “Topic 842 and Topic 840: Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic” focused on the application of lease accounting guidance to lease concessions provided as a result of the COVID-19 global pandemic. Under existing lease guidance, the entity would have to determine, on a lease by lease basis, if a lease concession was the result of a new arrangement reached with the tenant, which would be accounted for under the lease modification framework, or if a lease concession was under the enforceable rights and obligations that existed in the original lease, which would be accounted for outside the lease modification framework. Entities can elect to not evaluate whether certain concessions provided by lessors to mitigate the effects of COVID-19 on lessees are lease modifications. Entities that make this election can then elect to apply the lease modification guidance in ASC 842 or account for the concession as if it were contemplated as part of the existing contract. On April 1, 2020, the Company adopted this guidance and determined that it has not materially impacted the Company's consolidated financial statements. For all leases when the Company is a lessor, the Company elected to not evaluate whether certain concessions that do not result in a substantial increase in the Company’s rights as the lessor or the obligations of the lessee provided to mitigate the effects of COVID-19 on tenants are lease modifications, further electing to account for the concession as if it were contemplated as part of the existing contract. In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”) which changes the model for the measurement of credit losses on financial instruments. Specifically, the amendments in the ASU replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. In November 2018, the FASB issued ASU 2018-19 “Codification Improvements to Topic 326, Financial Instruments - Credit Losses”, which clarifies that receivables arising from operating leases are not within the scope of this new guidance. On January 1, 2020, the Company adopted ASU 2016-13. The adoption of this standard has not materially impacted the Company's consolidated financial statements. In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”). This new guidance modified the disclosure requirements on fair value measurements. Public entities are required to disclose the following: (i) the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and (ii) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. In addition, public entities will no longer be required to disclose the following: (i) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, (ii) the policy for timing of transfers between levels and (iii) the valuation processes for Level 3 fair value measurements. The new pronouncement also clarifies and modifies certain existing provisions, including eliminating “at a minimum” from the phrase “an entity shall disclose at a minimum” to promote the appropriate exercise of discretion by entities when considering fair value measurement disclosures and clarifying that materiality is an appropriate consideration when evaluating disclosure requirements. On January 1, 2020, the Company adopted ASU 2018-13. The adoption of this standard has not materially impacted the Company's consolidated financial statements. In October 2018, the FASB issued ASU 2018-17, “Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities” (“ASU 2018-17”). ASU 2018-17 is intended to improve the accounting when considering indirect interests held through related parties under common control for determining whether fees paid to decision makers and service providers are variable interests. On January 1, 2020, the Company adopted ASU 2018-17. The adoption of this standard has not materially impacted the Company’s consolidated financial statements. In March 2020, the FASB issued ASU 2020-04 “Topic 848: Reference Rate Reform.” ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives, and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. On July 1, 2020, the Company has elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company determined these elections have not materially impacted the Company's consolidated financial 56 Table of Contents statements. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur. Recent Accounting Pronouncements Issued But Not Yet Adopted In August 2020, the FASB issued ASU 2020-06, “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”. ASU 2020-06 simplifies accounting for convertible instruments by removing major separation models currently required. Consequently, more convertible debt instruments will be reported as a single liability instrument and more convertible preferred stock as a single equity instrument with no separate accounting for embedded conversion features. ASU 2020-06 also removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. ASU 2020-06 also simplifies the diluted earnings per share calculation in certain areas. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption will be permitted. The adoption of this standard will not materially impact the Company's consolidated financial statements. Note 3 – 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 December 31, 2020, the Company owned 203 single-tenant retail net leased properties spanning 38 states, with tenants representing 56 different brands or concepts across 23 retail sectors. As of December 31, 2020, the remaining terms of leases range from 2 - 34 years. The Company’s property leases have been classified as operating leases and some have scheduled rent increases throughout the lease term. On January 1, 2019, the Predecessor adopted the new accounting guidance in Accounting Standards Codification ("ASC") Topic 842, Leases, including all related ASUs. The Predecessor elected to use the alternative modified retrospective transition method provided in ASU 2018-11 (the "effective date method"). Under this method, the effective date of January 1, 2019 is the date of initial application. In connection with the adoption of Topic 842, the Predecessor elected a package of practical expedients, transition options, and accounting policy elections as follows: • Package of practical expedients is applied to all leases, allowing the Predecessor not to reassess (i) whether expired or existing contracts contain leases under the new definition of a lease, (ii) lease classification for expired or existing leases, and (iii) whether previously capitalized initial direct costs would qualify for capitalization under Topic 842; • For land easements, the Predecessor elected not to assess at transition whether any expired or existing land easements are, or contain, leases if they were not previously accounted for as leases under the previous lease accounting standard (Topic 840); • Lessor separation and allocation practical expedient — The Predecessor as lessor, to aggregate non-lease components with the related lease component if certain conditions are met, and account for the combined component based on its predominant characteristic, which generally results in combining lease and non-lease components of its tenant lease contracts to a single line shown as rental revenue in the accompanying consolidated statements of operations and comprehensive income (loss); and • The Predecessor made an accounting policy election to continue to exclude, from contract consideration, sales tax (and similar taxes) collected from lessees. All lease-related income is reported as a single line item, rental revenue (including reimbursable), in the consolidated statements of operations and comprehensive income (loss). Effective January 1, 2019, with the adoption of ASC 842, rental revenues are presented net of provision for doubtful accounts. Fixed lease income includes stated amounts per the lease contract, which are primarily related to base rent and straight-line lease adjustments. Variable lease income includes the following main items in the lease contracts: 57 Table of Contents • Recoveries from tenants represents amounts which tenants are contractually obligated to reimburse the Company for the tenants' portion of actual recoverable costs incurred. • Percentage rent represents amounts billable to tenants based on the tenants' actual sales volume in excess of levels specified in the lease contract. The following table provides a disaggregation of lease income recognized under ASC 842 (in thousands): Successor Predecessor Year Ended December 31, For the Period from December 23 to December 31, For the Period from January 1 to December 22, 2020 2019 Rental revenue Fixed lease income (1) $ 31,097 $ 446 $ 19,350 Variable lease income (2) 2,126 69 1,241 Other rental revenue: Above/below market lease amortization 504 ( 2 ) ( 564 ) Uncollectible amounts in lease income — — ( 222 ) Rental revenue (including reimbursables) $ 33,727 $ 513 $ 19,805 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, lease termination fees, and the write-off of doubtful accounts. There were no write-offs of doubtful accounts during 2020. During 2019 there were $ 0.2 million of write-offs of doubtful accounts. 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 December 31, 2020 are as follows (in thousands): Future Minimum Base Rental Receipts 2021 $ 40,796 2022 40,891 2023 40,803 2024 40,806 2025 40,700 Thereafter 236,950 $ 440,946 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. Note 4 – Acquisition and Disposition of Real Estate Acquisitions During the year ended December 31, 2020, the Company acquired 124 properties for a total purchase price of $ 408.6 million, inclusive of $ 4.7 million of capitalized acquisition costs. For the period from December 23, 2019 to December 31, 2019, the Company acquired one property for a total purchase price of $ 1.1 million, inclusive of less than $ 0.1 million of capitalized acquisition costs. For the period from January 1, 2019 to December 22, 2019, the Company acquired one property for a total purchase price of $ 1.2 million, inclusive of less than $ 0.1 million of capitalized acquisition costs. 58 Table of Contents 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): Successor Predecessor Year Ended December 31, For the Period from December 23 to December 31, For the Period from January 1 to December 22, 2020 2019 Land $ 124,998 $ 252 $ 80 Buildings 205,157 745 728 Site improvements 27,571 50 192 Tenant improvements 7,066 — 78 In-place lease intangible assets 53,743 98 154 Above-market lease intangible assets 5,673 — — Construction-in-progress assets 270 — — Fuel equipment 156 — — 424,634 1,145 1,232 Liabilities assumed — Below-market lease intangible liabilities ( 14,157 ) ( 33 ) — Accounts payable, accrued expense and other liabilities ( 1,893 ) — — Purchase price (including acquisition costs) $ 408,584 $ 1,112 $ 1,232 On December 23, 2019, the Company contributed the proceeds of the Private Offering to the Operating Partnership, and the Operating Partnership acquired the Predecessor for a combination of OP Units and $ 256.3 million in cash. The Operating Partnership issued 8,860,760 Class A OP Units to the Company for its contribution and 4,449,019 OP Units ( 3,652,149 Class A and 796,870 Class B) to the Predecessor's owners for the acquisition. The acquisition was accounted for as an asset acquisition and included $ 0.5 million of acquisition fees incurred in connection with the acquisition. An allocation of the purchase price and acquisition costs paid for the completed acquisition is as follows (in thousands): December 23, 2019 Land $ 83,744 Buildings 125,140 Site improvements 8,152 Tenant improvements 5,969 In-place lease intangible assets 20,665 Above-market lease intangible assets 7,286 Properties held for sale 8,343 Other assets 3,486 262,785 Liabilities assumed Below-market lease intangible liabilities ( 4,649 ) Other liabilities ( 1,851 ) Purchase price (including acquisition costs) $ 256,285 Dispositions During the year ended December 31, 2020, the Company sold 15 properties for a total sales price, net of disposal costs, of $ 48.1 million, recognizing a gain on sale of $ 6.2 million. For the period from December 23, 2019 to December 31, 2019, the Company had no dispositions. For the period from January 1, 2019 to December 22, 2019, the Company sold 30 properties for a total sales price, net of disposal costs, of $ 77.6 million, recognizing a gain on sale of $ 5.6 million. 59 Table of Contents During 2019, the Company entered into an agreement to sell one property to a third-party and received a nonrefundable $ 0.3 million earnest money deposit which, upon the third-party’s failure to perform under the purchase and sale agreement in the first quarter of 2020, was recognized as a gain. Note 5 – Intangible Assets and Liabilities Intangible assets and liabilities consisted of the following (in thousands): December 31, 2020 December 31, 2019 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Assets: In-place leases $ 69,470 $ ( 4,146 ) $ 65,324 $ 20,763 $ ( 56 ) $ 20,707 Above-market leases 9,607 ( 481 ) 9,126 7,286 ( 13 ) 7,273 Assembled workforce 873 ( 299 ) 574 873 ( 7 ) 866 Total Intangible assets $ 79,950 $ ( 4,926 ) $ 75,024 $ 28,922 $ ( 76 ) $ 28,846 Liabilities: Below-market leases $ 17,951 $ ( 1,021 ) $ 16,930 $ 4,682 $ ( 10 ) $ 4,672 The remaining weighted average amortization period for the Company’s intangible assets and liabilities as of December 31, 2020 and 2019 by category and in total, were as follows: Years Remaining December 31, 2020 2019 In-place leases 11.1 10.5 Above-market leases 12.6 15.3 Below-market leases 13.4 13.2 Assembled workforce 2.0 3.0 The Company records amortization of in-place lease assets to amortization expense, and records net amortization of above-market and below-market lease intangibles to rental revenue. The following amounts in the accompanying consolidated statements of operations and comprehensive income (loss) related to the amortization of intangibles assets and liabilities for all property and ground leases (in thousands): Successor Predecessor Year Ended December 31, For the Period from December 23 to December 31, For the Period from January 1 to December 22, 2020 2019 Amortization: Amortization of in-place leases $ 4,437 $ 56 $ 2,032 Amortization of assembled workforce 292 7 — $ 4,729 $ 63 $ 2,032 Net adjustment to rental revenue: Above-market lease assets ( 560 ) ( 13 ) ( 966 ) Below-market lease liabilities 1,064 11 403 $ 504 $ ( 2 ) $ ( 563 ) The following table provides the projected amortization of in-place lease assets and assembled workforce intangible assets to amortization expense, and the net amortization of above-market and below-market lease intangibles to rental revenue as of December 31, 2020, for the next five years and thereafter (in thousands): 60 Table of Contents 2021 2022 2023 2024 2025 Thereafter Total In-place leases $ 6,839 $ 6,839 $ 6,808 $ 6,719 $ 6,572 $ 31,547 $ 65,324 Assembled workforce 291 283 — — — — 574 Amortization expense $ 7,130 $ 7,122 $ 6,808 $ 6,719 $ 6,572 $ 31,547 $ 65,898 Above-market lease assets $ ( 774 ) $ ( 774 ) $ ( 774 ) $ ( 769 ) $ ( 768 ) $ ( 5,267 ) $ ( 9,126 ) Below-market lease liabilities 1,472 1,472 1,464 1,450 1,439 9,633 16,930 Net adjustment to rental revenue $ 698 $ 698 $ 690 $ 681 $ 671 $ 4,366 $ 7,804 Note 6 – Debt Debt consists of the following (in thousands): December 31, 2020 2019 Term loan: Term Loan (due December 23, 2024) $ 175,000 $ 175,000 Less: Unamortized discount and debt issuance costs ( 895 ) ( 1,087 ) $ 174,105 $ 173,913 Successor Credit Facility In December 2019, the Company entered into a senior credit facility consisting of (i) a $ 175.0 million senior secured term loan (“Term Loan”) and (ii) a $ 250.0 million senior secured revolving credit facility (“Revolver”, and collectively with the Term Loan, the “Credit Facility”). Wells Fargo Securities, LLC is lead arranger and bookrunner and Wells Fargo Bank, National Association is administrative agent under the Credit Facility (the “Administrative Agent”). The Term Loan matures on December 23, 2024 and the Revolver matures on December 23, 2023, subject to extension up to one year . The Administrative Agent released the collateral in connection with the Company’s satisfaction of the Collateral Release Requirements in the fourth quarter of 2020, therefore interest rates under the Credit Facility are based on the Company’s consolidated total leverage ratio, and are determined by (A) in the case of the Term Loan either (i) LIBOR, plus a margin ranging from 1.15 % to 1.60 %, based on the Company’s consolidated total leverage ratio, or (ii) a Base Rate (as defined in the Credit Facility), plus a margin ranging from 0.15 % to 0.60 %, based on the Company’s consolidated total leverage ratio and (B) in the case of the Revolver either (i) LIBOR, plus a margin ranging from 1.20 % to 1.80 %, based on the Company’s consolidated total leverage ratio, or (ii) a Base Rate (as defined in the Credit Facility), plus a margin ranging from 0.20 % to 0.80 %, based on the Company’s consolidated total leverage ratio. Interest is payable monthly or at the end of the applicable interest period in arrears on any outstanding borrowings. Prior to the collateral release, the Credit Facility was secured by a first priority perfected security interest in and lien on all existing and future equity interests of the Company’s direct and indirect subsidiaries of any Eligible Property (as defined in the Credit Facility) owned by the Company or any of the Company’s subsidiaries. The Credit Facility also provided that the Administrative Agent has the option to release the collateral securing the Credit Facility upon delivery of satisfactory evidence from the Company that Collateral Release Requirements (as defined in the Credit Facility) have been met, which requirements include, among others, conditions related to the unencumbered asset value and asset diversification of the Company. For so long as the Credit Facility was secured, which was through the period ended September 30, 2020, the interest rates under the Credit Facility were based on the Company’s consolidated total leverage ratio, and were determined by (A) in the case of Term Loan either (i) LIBOR, plus a margin ranging from 1.25 % to 2.25 %, based on the Company’s consolidated total leverage ratio, or (ii) a Base Rate (as defined in the Credit Facility), plus a margin ranging from 0.25 % to 1.25 %, based on the Company’s consolidated total leverage ratio and (B) in the case of Revolving Loans either (i) LIBOR, plus a margin ranging from 1.35 % to 2.30 %, based on the Company’s consolidated total leverage ratio, or (ii) a Base Rate (as defined in the Credit Facility), plus a margin ranging from 0.35 % to 1.30 %, based on the Company’s consolidated total leverage ratio. The Company is required to pay a Revolver facility fee at an annual rate of 0.15 % of the unused capacity if usage exceeds 50% of the total available facility, or 0.25 % of the unused facility if usage does not exceed 50%. Loans from the Revolver are generally restricted if, among other things, the proposed usage of the proceeds from the loan do not meet certain criteria as outlined in the Credit Facility Agreement, if an event of default exists, or if the requested loan will create an event of default. Loans from the Revolver may not exceed the total revolving commitments. 61 Table of Contents During the second quarter of 2020, the Company entered into an amendment to the Credit Facility to amend and redefine its debt covenant calculations. The Company incurred and capitalized less than $ 0.1 million of financing costs relating to this amendment, which has been pro-rated to the Term Loan and Revolver based on their respective borrowing capacities. On December 23, 2019, in connection with the acquisition of the Predecessor, the Company fully drew down on its Term Loan and used the proceeds to acquire the Predecessor who then concurrently settled its outstanding debt facilities of $ 168.3 million, including incremental legal and tax costs of $ 0.4 million, excluding unamortized deferred financing costs of $ 0.5 million. As part of the acquisition, the Company did not assume any obligation under the Predecessor's then outstanding debt facilities. Settlement of the Predecessor's debt was contingent upon the consummation of the Private Offering. In the Successor's consolidated statement of cash flows the consideration paid to settle the Predecessor's debt is included in acquisitions of assets of the Predecessor. The residual amount of $ 4.3 million was held in cash, cash equivalents and restricted cash on December 31, 2019 on the Successor's consolidated balance sheet. Deferred financing costs are being amortized over the remaining terms of each respective loan. Term Loan deferred financing costs of $ 1.1 million, of which $ 0.9 million and $ 1.1 million is unamortized as of December 31, 2020 and 2019, respectively, is included within term loan, net on the consolidated balance sheets. Revolver deferred financing costs of $ 1.6 million, of which $ 1.2 million and $ 1.6 million is unamortized as of December 31, 2020 and 2019, respectively, is included within other assets, net on the consolidated balance sheets. Total deferred financing costs amortized on the Term Loan and Revolver were $ 0.6 million and less than $ 0.1 million for the year ended December 31, 2020 and for the period from December 23, 2019 to December 31, 2019, respectively. This is included in interest expense on the Company’s consolidated statements of operations and comprehensive income (loss). As of December 31, 2020, and 2019, the Term Loan had a weighted average interest rate, exclusive of amortization of deferred financing costs, of 1.97 % and 3.28 %, respectively, which as of September 28, 2020, is inclusive of the interest rate hedge as described in “Note 7 - Derivative Financial Instruments.” The Company incurred interest expense in connection with the Term Loan for the year ended December 31, 2020 and for the period from December 23, 2019 to December 31, 2019 of $ 3.5 million and $ 0.2 million, respectively. The estimated fair value of the Company’s Term Loan has been derived based on market observable inputs such as interest rates and discounted cash flow analysis using estimates of the amount and timing of future cash flows. These measurements are classified as Level 2 within the fair value hierarchy. The Company assessed that the carrying value materially approximated the estimated fair value of the Term Loan as of December 31, 2020 and 2019. During 2020, the Company incurred interest expense, exclusive of facility fees for unused capacity, on borrowings under the Revolver of $ 0.1 million, with a weighted average interest rate, exclusive of amortization of deferred financing costs, of 1.54 %. As of December 31, 2020 and 2019, the Company had no borrowings under the Revolver. The Company also incurred interest expense in connection with unused capacity for the year ended December 31, 2020 and for the period from December 23, 2019 to December 31, 2019 of $ 0.6 million and less than $ 0.1 million, respectively. The Company was in compliance with all of its debt covenants as of December 31, 2020 and expects to be in compliance for the following twelve-month period. Debt Maturity Payments on the Term Loan are interest only through maturity. All outstanding amounts on the Term Loan are due on December 23, 2024. Predecessor Credit Facility and Mortgages Payable The Predecessor had a syndicated credit facility (the "Predecessor Credit Facility") with Bank of America, N.A., acting as the administrative agent, wherein the Predecessor borrowed funds to acquire its properties. The Predecessor Credit Facility was secured by a first lien on the Predecessor's portfolio of properties. As amended, the Predecessor Credit Facility consisted of legacy term loans and a $ 30 million accordion available on or before November 22, 2019. The Predecessor Credit Facility provided for total borrowings of up to $ 289.8 million subject to the approval of the lenders. The Predecessor Credit Facility provided for interest only payments through June 4, 2019 and amortized over 30 -years thereafter (with interest rates based on LIBOR plus 2.4 % to 2.5 %). The Predecessor Credit Facility was repaid in full on December 23, 2019. 62 Table of Contents The Predecessor refinanced three properties in 2017 with a $ 3.3 million term loan with LegacyTexas Bank, secured by a first lien on the properties. The loan was interest only and interest was based on LIBOR plus 3.75 %. The loan was repaid in full on December 23, 2019. The Predecessor assumed five term loans in an acquisition of five properties during 2018 with a principal amount of $ 14.1 million with Wells Fargo. The loans were fully amortized, and interest was fixed at 5.773 %. The loans were repaid in full on December 23, 2019. In accordance with the terms of the Predecessor's credit facilities, the Predecessor was required to meet certain restrictive financial covenants which, among other things, required the Predecessor to maintain certain (i) leverage, (ii) debt service coverage and (iii) liquidity ratios. Total deferred financing costs amortized on the Predecessor’s credit facilities was $ 1.0 million for the period from January 1, 2019 to December 22, 2019. This is included in interest expense on the consolidated statement of operations and comprehensive income (loss). The Predecessor incurred interest expense of $ 9.3 million in connection with its borrowings for the period from January 1, 2019 to December 22, 2019. 63 Table of Contents Note 7 – Derivative Financial Instruments The Company uses interest rate derivative contracts to manage its exposure to changes in interest rates on its variable rate debt. These derivatives are considered cash flow hedges and are recorded on a gross basis at fair value. Assessments of hedge effectiveness are performed quarterly using either a qualitative or quantitative approach. The Company recognizes the entire change in the fair value in Accumulated Other Comprehensive Income (“AOCI”) and the change is reflected as cash flow hedge changes in fair value in the supplemental disclosures of non-cash investing and financing activities in the consolidated statement of cash flows. Effective September 28, 2020, such derivatives were initiated to hedge the variable cash flows associated with Term Loan. Amounts will subsequently be reclassified to earnings when the hedged item affects earnings. The Company does not enter into derivative contracts for speculative or trading purposes and does not have derivative netting arrangements. The Company is exposed to credit risk in the event of non-performance by its derivative counterparties. The Company evaluates counterparty credit risk through monitoring the creditworthiness of counterparties, which includes review of debt ratings and financial performance. To mitigate credit risk, the Company enters into agreements with counterparties it considers credit-worthy, such as large financial institutions with favorable credit ratings. The Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk (in thousands, except number of instruments): Number of Instruments Notional Interest Rate Derivatives December 31, 2020 December 31, 2019 December 31, 2020 December 31, 2019 Interest rate swaps 4 — $ 175,000 $ — The following table presents the fair value of the Company's derivative financial instruments as well as their classification on the consolidated balance sheets as of December 31, 2020 and December 31, 2019 (in thousands): Derivative Assets Derivative Liabilities Fair Value as of December 31, Fair Value as of December 31, Derivatives Designated as Hedging Instruments: Balance Sheet Location 2020 2019 Balance Sheet Location 2020 2019 Interest rate swaps Other assets, net $ 253 $ — Accounts payable, accrued expenses and other liabilities $ — $ — The following table presents the effect of the Company's interest rate swaps on the consolidated statements of operations and comprehensive income (loss) for the year ended December 31, 2020 and 2019 (in thousands): Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion) Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) Derivatives in Cash Flow Hedging Relationships 2020 2019 2020 2019 Interest Rate Products $ 227 $ 55 Interest expense, net $ ( 26 ) $ 55 The Company did not exclude any amounts from the assessment of hedge effectiveness for the year ended December 31, 2020 and 2019. During the next twelve months, the Company estimates that an additional $ 0.1 million will be reclassified as an increase to interest expense. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves. 64 Table of Contents To comply with the provisions of ASC 820, the Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees. Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of December 31, 2020, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. The table below presents the Company’s derivative assets measured at fair value on a recurring basis as of December 31, 2020, aggregated by the level in the fair value hierarchy within which those measurements fall (in thousands): Fair Value Hierarchy Level Description Level 1 Level 2 Level 3 Total Fair Value December 31, 2020 Derivative assets $ — $ 253 $ — $ 253 There were no derivative assets or liabilities as of December 31, 2019. 65 Table of Contents Note 8 – Supplemental Detail for Certain Components of the Consolidated Balance Sheets Other assets, net consist of the following (in thousands): December 31, 2020 2019 Earnest money deposits $ 634 $ 1,100 Deferred financing costs, net 1,198 1,552 Accounts receivable, net 1,489 625 Deferred rent receivable 1,407 15 Other assets 996 12 $ 5,724 $ 3,304 Accounts payable, accrued expenses and other liabilities consists of the following (in thousands): December 31, 2020 2019 Accrued expenses $ 2,035 $ 438 Accrued bonus 1,561 — Prepaid rent 1,551 607 Accounts payable 916 1,165 Other liabilities 245 506 $ 6,308 $ 2,716 Note 9 – Stockholders’ Equity, Partners’ Capital and Preferred Equity Common Stock Total net proceeds to the Company from the Company's initial public offering in August 2020 were $ 227.3 million which is net of underwriting discounts and offering costs of $ 18.9 million. The initial public offering resulted in the issuance of 13,681,561 shares of common stock. The Company's initial public offering also resulted in the noncontrolling interest conversion of 255,268 of operating partnership units into common stock. During the year ended December 31, 2020, portions of restricted stock unit awards granted to certain of the Company’s officers and directors vested. The vesting of these awards, granted pursuant to the Omnibus Incentive Plan, resulted in federal and state income tax liabilities for the recipients. As permitted by the terms of the Omnibus Incentive Plan and the award grants, certain executive officers elected to surrender approximately seven thousand shares of common stock valued at $ 0.1 million, solely to pay the associated statutory tax withholding during the year ended December 31, 2020. The surrendered shares are included in repurchase of shares of common stock on the consolidated statements of cash flows. Total net proceeds to the Company from the Company's Private Offering in December 2019 and January 2020 were $ 219.0 million which is net of initial purchaser’s discount and placement fees of $ 13.9 million. The Private Offering resulted in the issuance of 11,797,645 shares of common stock. Preferred Equity To maintain the Company’s status as a REIT, on January 27, 2020, the Company issued and sold 125 shares of 12.0 % Series A Cumulative Non-Voting Preferred Stock, par value $ 0.01 per share, for $ 1,000 per share to accredited investors pursuant to Regulation D under the Securities Act. The shares of Series A Preferred Stock may be redeemed solely at the Company’s option for consideration equal to $ 1,000 per share, plus accrued and unpaid dividends thereon to and including the date fixed for redemption, plus a redemption premium as follows (i) until December 31, 2021, $ 100 and (ii) thereafter, no redemption premium. In May 2020, the Company declared a preferred dividend of $ 51.33 per share of Series A Preferred Stock to holders of record as of June 15, 2020. The preferred dividend was settled in cash on June 30, 2020. 66 Table of Contents The Company redeemed all 125 outstanding shares of Series A Preferred Stock upon the completion of the initial public offering in August 2020 for approximately $ 0.1 million, which included the payment of accrued dividends for the period from July 1, 2020 to August 18, 2020 and a redemption premium of $ 100 per share. As of December 31, 2020, there are no shares of preferred stock outstanding. Dividends During the year ended December 31, 2020, the Company declared and paid the following common stock dividends (in thousands, except per share data): Declaration Date Dividend Per Share Record Date Total Amount Payment Date August 18, 2020 $ 0.10 September 15, 2020 $ 2,430 September 25, 2020 October 27, 2020 0.20 December 1, 2020 5,627 December 15, 2020 $ 0.30 $ 8,057 The holders of OP Units are entitled to an equal distribution per Class A and B OP Unit held as of each record date. Accordingly, the Operating Partnership paid distributions of $ 0.4 million and $ 0.4 million to holders of OP Units as of September 25, 2020 and December 15, 2020, respectively. For federal income tax purposes, distributions to stockholders are characterized as ordinary dividends, capital gain distributions, or nondividend distributions. Nondividend distributions will reduce U.S. stockholders’ basis (but not below zero) in their shares. The following table shows the character of the Company’s common stock distributions paid on a percentage basis for the year ended December 31, 2020. Successor Year Ended December 31, 2020 Ordinary dividends 2.6 % Nondividend distributions 97.4 % Total 100.0 % Inclusive of the $ 2.4 million common stock dividend paid on September 25, 2020, was $ 0.2 million of dividends paid relating to the Company’s 2019 fiscal period. Noncontrolling Interests Noncontrolling interests represent noncontrolling holders of OP Units in the Operating Partnership. OP Units are convertible into common stock as the OP Units may be redeemed for cash or, at the Company’s election, exchanged for shares of the Company’s common stock on a one-for-one basis. As of December 31, 2020 and 2019, noncontrolling interest represented 5.8 % and 33.4 %, respectively. During the year ended December 31, 2020, OP Unit holders converted 2,441,869 OP Units into shares of common stock on a one-for-one basis. Effective with the Company's initial public offering, 13,681,561 OP Units were issued to the Company in exchange for $ 227.3 million and 255,268 of OP Unit holders converted their units into common stock of the Company. Effective with the Company’s Private Offering, the Company contributed $ 219.0 million of the Private Offering proceeds to the Operating Partnership, and the Operating Partnership acquired the Predecessor for a combination of OP Units and cash. The Operating Partnership issued 11,797,645 Class A OP Units to the Company for its contribution and 4,449,019 OP Units ( 3,652,149 Class A and 796,870 Class B) to the Predecessor's owners for the acquisition. Class A OP Units and Class B OP Units have identical rights and preferences, except that the Class A OP Units will, and the Class B OP Units will not, be entitled to receive the special stock dividend, if applicable. Note 10 – Stock Based Compensation Under the NETSTREIT Corp. 2019 Omnibus Incentive Compensation Plan (the “Omnibus Incentive Plan”), which became effective on December 23, 2019, 2,094,976 shares of common stock are reserved for issuance. The Omnibus Incentive Plan 67 Table of Contents provides for the grant of stock options, stock appreciation rights, restricted shares, restricted stock units, long-term incentive plan units, dividend equivalent rights, and other share-based, share-related or cash-based awards, including performance-based awards, to employees, directors and consultants, with each grant evidenced by an award agreement providing the terms of the award. The Omnibus Incentive Plan is administered by the Compensation Committee of the Board of Directors. As of December 31, 2020, the only stock-based compensation granted by the Company were restricted stock units. The total amount of stock-based compensation costs recognized in general and administrative expense on our consolidated statements of operations and comprehensive income (loss) was $ 2.5 million for the year ended December 31, 2020. No stock-based compensation expense was recognized in 2019. Performance-Based Restricted Stock Units Pursuant to the Omnibus Incentive Plan, the Company made performance-based restricted stock unit grants to certain employees and non-employee directors. The performance condition required the Company to effectively file a shelf registration statement. Up until the point of filing the registration statement, performance was not deemed probable and accordingly, no restricted stock units had the capability of vesting and no stock-based compensation expense was recorded. As a result of the Company's initial public offering in August 2020, the performance condition was satisfied and the Company recorded a stock-based compensation expense catch-up adjustment of $ 1.4 million. The vesting terms of these grants are specific to the individual grant and vest in equal annual installments over the next three to five years . The following table summarizes performance and service based restricted stock unit activity for the period ended December 31, 2020 and 2019: 2020 2019 Shares Weighted Average Grant Date Fair Value per Share Shares Weighted Average Grant Date Fair Value per Share Unvested restricted stock grants outstanding, beginning of year 168,353 $ 19.75 — $ — Granted during the period 85,441 19.75 168,353 19.75 Forfeited during the period ( 11,391 ) 19.75 — — Vested during the period ( 34,600 ) 19.75 — — Unvested restricted stock grants outstanding, end of year 207,803 $ 19.75 168,353 $ 19.75 For the year ended December 31, 2020, the Company recognized $ 2.2 million in stock-based compensation expense associated with performance-based restricted stock units. No stock-based compensation expense was recognized in 2019. As of December 31, 2020, the remaining unamortized stock-based compensation expense totaled $ 2.6 million which is expected to be recognized over a weighted average period of 2.6 years. These units are subject to graded vesting and amortization is recognized ratably over the requisite service period for each vesting tranche in the award. The weighted average grant date fair value of unvested restricted units is calculated as the per share price determined in the Private Offering. Service-Based Restricted Stock Units Pursuant to the Omnibus Incentive Plan, the Company made service-based restricted stock unit grants to certain employees and non-employee directors in August 2020. The vesting terms of these grants are specific to the individual grant and vest in equal annual installments over the next three to five years . The following table summarizes service based restricted stock unit activity for the period ended December 31, 2020: 68 Table of Contents 2020 Shares Weighted Average Grant Date Fair Value per Share Unvested restricted stock grants outstanding, beginning of year — $ — Granted during the period 169,793 18.00 Forfeited during the period — — Vested during the period — — Unvested restricted stock grants outstanding, end of year 169,793 $ 18.00 For the year ended December 31, 2020, the Company recognized $ 0.2 million in stock-based compensation expense associated with service-based restricted stock units. No stock-based compensation expense was recognized in 2019. As of December 31, 2020, the remaining unamortized stock-based compensation expense totaled $ 2.8 million which is expected to be recognized over a weighted average period of 4.6 years. Amortization is recognized on a straight-line basis over the total requisite service period for the entire award. The weighted average grant date fair value of service based unvested restricted units is calculated as the per share price determined in the initial public offering. Note 11 – Earnings Per Share Net income per common share has been computed pursuant to the guidance in the FASB ASC Topic 260, Earnings per Share. Basic earnings per share is computed by dividing net income attributable to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share is similarly calculated except that the denominator is increased by using the treasury stock method to determine the potential dilutive effect of the Company’s outstanding unvested restricted stock units and using the if-converted method to determine the potential dilutive effect of the Company’s Class A and B OP Units. The Company has noncontrolling interests in the form of OP Units which are convertible into common stock and represent potentially dilutive securities, as the OP Units may be redeemed for cash or, at the Company’s election, exchanged for shares of the Company’s common stock on a one-for-one basis. The following table is a reconciliation of the numerator and denominator used in the computation of basic and diluted net income per common share for the year ended December 31, 2020 and for the period from December 23, 2019 to December 31, 2019. Net income per share information is not applicable for the reporting periods prior to December 23, 2019. Successor Year Ended December 31, For the Period from December 23 to December 31, (in thousands, except share and per share data) 2020 2019 Numerator: Net income $ 212 $ 42 Net loss (income) attributable to noncontrolling interest 518 ( 14 ) Cumulative preferred stock dividends and redemption premium ( 42 ) — Net income attributable to common shares, basic 688 28 Net loss (income) attributable to noncontrolling interest 518 ( 14 ) Net income attributable to common shares, diluted $ 170 $ 42 Denominator: Weighted average common shares outstanding, basic 17,322,182 8,860,760 Effect of dilutive shares for diluted net income per common share: OP Units 3,807,022 — Unvested RSUs 28,792 — Weighted average common shares outstanding, diluted 21,157,996 8,860,760 Net income available to common stockholders per common share, basic $ 0.04 $ — Net income available to common stockholders per common share, diluted $ 0.01 $ — 69 Table of Contents As of December 31, 2020 and 2019, there were 1,751,882 and 4,449,019 of OP Units outstanding, respectively. Subsequent to December 31, 2020, 182,418 of OP Units converted into shares of common stock on a one-for-one basis. Note 12 – Commitments and Contingencies Litigation and Regulatory Matters In the ordinary course of business, from time to time, the Company may be subject to litigation, claims and regulatory matters, none of which are currently outstanding, which the Company believes could have, individually or in the aggregate, a material adverse effect on its business, financial condition or results of operations, liquidity or cash flows. Environmental Matters The Company is subject to environmental regulations related to the ownership of real estate. The cost of complying with the environmental regulations was not material to the Company or Predecessor’s results of operations for any of the periods presented. The Company is not aware of any environmental condition on any of its properties that is likely to have a material adverse effect on the consolidated financial statements when the fair value of such liability can be reasonably estimated and is required to be recognized. Commitments As of December 31, 2020, the Company did not have any commitments for re-leasing costs, recurring capital expenditures, non-recurring building improvements, or similar types of costs. Note 13 – Related-Party Transactions Successor Transactions Effective with the Private Offering and commencement of the Company’s operations on December 23, 2019, the Company executed a facilities agreement with a subsidiary of EB Arrow. Under the facilities agreement, the Company shares in office rent and office related expenses primarily based on employee headcount. For the year ended December 31, 2020 and 2019, the Company incurred $ 0.2 million and less than $ 0.1 million, respectively, in related expenses. Predecessor transactions The Predecessor’s fees paid and accrued to the benefit of related parties for the for the period from January 1, 2019 to December 22, 2019 are as follows (amounts in thousands): Predecessor Entity Transaction Type For the Period from January 1 to December 22, EverSTAR IVF V GP, LLC Asset management fees $ 2,767 EBA EverSTAR, LLC Disposition fees 909 EBA EverSTAR, LLC Acquisition fees 18 Note 14 – Subsequent Events The Company has evaluated all events that occurred subsequent to December 31, 2020 through the date on which these consolidated financial statements were issued to determine whether any of these events required disclosure in the financial statements. Real Estate Investment Activity The Company acquired eight properties for a total purchase price, including transaction costs, of $ 17.4 million. Additionally, on February 8, 2021, the Company invested $ 1.3 million in a development project in Yuma, Arizona. The Company’s total investment is expected to be $ 4.4 million with the sole tenant in the property commencing lease payments in 2022. 70 Table of Contents OP Unit Conversions to Common Stock There were 182,418 OP Units that converted into shares of common stock on a one-for-one basis subsequent to December 31, 2020. Common Stock Dividend On March 3, 2021, the Company's Board of Directors declared a cash dividend of $ 0.20 per share for the first quarter of 2021. The dividend will be paid on March 30, 2021 to stockholders of record on March 15, 2021. Alignment of Interest Program On March 3, 2021, pursuant to the Omnibus Incentive Plan, the Compensation Committee of the Company’s Board of Directors adopted the Alignment of Interest Program (the “Program”). The Program allows individuals who are eligible to receive awards under the Omnibus Incentive Plan, as selected by the Committee from time to time, to elect to receive restricted stock units (“RSUs”) under the Omnibus Plan in lieu of a specified percentage of cash compensation. For 2020, eligible participants elected to receive an aggregate of $ 0.7 million in the form of RSUs in lieu of cash compensation. The number of RSUs will be determined on March 8, 2021, the second business day following the release of the Company’s fourth quarter earnings. Awarded RSUs will vest over three years , in substantially equal annual installments, generally subject to continued provision of services. 2021 Restricted Stock Unit Grants On March 3, 2021, pursuant to the Omnibus Incentive Plan, the Company made performance and service-based restricted stock unit grants to certain employees. The Company issued an aggregate of $ 4.0 million of RSUs of which 60 % will be earned over a service period of three years and be based on the Company’s total shareholder return (“TSR”) as compared to the TSR of 33 peer companies and total absolute TSR over the cumulative three year period. The remaining 40 % of the award will vest over a period of three years from the date of grant, subject to the individual recipient’s continued provision of service to the Company through the vesting date. The number of RSUs will be determined on March 8, 2021, the second business day following the release of the Company’s fourth quarter earnings. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures None.