What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-10-28 compared with 2021-07-29 · 123 added, 105 removed, 241 unchanged (49% of the section changed)

19 unchanged sentences

We completed our initial public offering on August 17, 2020 and our common stock trades on the New York Stock Exchange under the symbol “NTST.”

(1) ABR is calculated by multiplying (i) cash rental payments (a) for the month ended June 30, 2021 (or, if applicable, the next full month's cash rent contractually due in the case of rent abatements, rent deferrals, recently acquired properties and properties with contractual rent increases, other than properties under development) for leases in place as of June 30, 2021, plus (b) for properties under development, the first full month's permanent cash rent contractually due after the development period by (ii) 12.

(1) ABR is calculated by multiplying (i) cash rental payments (a) for the month ended September 30, 2021 (or, if applicable, the next full month's cash rent contractually due in the case of rent abatements, rent deferrals, recently acquired properties and properties with contractual rent increases, other than properties under development) for leases in place as of September 30, 2021, plus (b) for properties under development, the first full month's permanent cash rent contractually due after the development period by (ii) 12.

We continue to monitor the global outbreak of COVID-19 and to take steps to mitigate the potential risks to us posed by the pandemic, including the identification and spread of variants.

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See “Note 2 - Summary of Significant Accounting Policies” to our condensed consolidated financial statements included herein.

The Company’s operations and cash flows for the three and six months ended June 30, 2021 and 2020 were not materially impacted by COVID-19.

The Company’s operations and cash flows for the three and nine months ended September 30, 2021 and 2020 were not materially impacted by COVID-19.

Recent Developments

We seek to maximize long-term earnings growth and shareholder value primarily through the acquisition of strategically positioned assets throughout the United States, specifically focusing on properties with tenants which are considered essential businesses.

We had deployed all $227.3 million of the proceeds from the Company's initial public offering to fund acquisitions through March 31, 2021 and repaid $50 million of outstanding borrowings under our Revolver (as defined in “Note 6 - Debt” to our condensed consolidated financial statements included herein) in August 2020.

On April 12, 2021, the Company completed a public offering of 10,915,688 shares of common stock, which included the full exercise of the underwriters’ option to purchase an additional 1,423,785 shares of common stock.

Upon closing, the Company issued 10,915,688 shares of common stock and received net proceeds of $194.2 million after deducting the underwriting discount and transaction costs of $9.4 million.

We used the net proceeds to repay the $13.0 million of outstanding borrowings under the Revolver and intend to use the remainder of the net proceeds for general corporate purposes, including the acquisition of properties in our pipeline.

In September 2021, the Company and its Operating Partnership entered into an Equity Distribution Agreement with the financial institutions named therein pursuant to which the Company may, at its discretion, issue and sell its common stock with an aggregate gross offering price of up to $250.0 million (the “ATM Program”).

In connection with the ATM Program, the Company may enter into forward sale agreements with certain financial institutions acting as forward purchasers whereby, at the Company's discretion, the forward purchasers may borrow and sell shares of common stock under the ATM Program.

The use of forward sale agreements allows the Company to fix a share price on the sale of shares of common stock at the time the respective forward sale agreements are executed but defer settling the forward sale agreements and receiving the proceeds from the sale of shares until a later date.

The proceeds from any sale of shares under the ATM program will be used for general general corporate purposes, including funding investment activities.

Effective September 1, 2021, the Board of Directors of the Company (the “Board”) authorized a repurchase program for up to $150.0 million of common stock.

Repurchases of common stock may be made at management’s discretion from time to time in open market transactions, privately negotiated transactions or by other means (including through Rule 10b5-1 trading plans or one or more accelerated stock repurchase programs).

The timing of share repurchases and the number of shares of common stock to be repurchased will depend upon prevailing market conditions and other factors and there can be no assurances that the Company will make any purchases under the common stock repurchase program.

Results of Operations

The Company continued to grow its assets held for investment by increasing its asset base from 203 properties as of December 31, 2020 to 267 properties as of the end of June 30, 2021, inclusive of real estate development projects.

The Company has committed to three real estate development projects with total projected capital spend of $10.4 million of which $5.3 million has been funded as of June 30, 2021.

The Company continued to grow its assets held for investment by increasing its asset base from 203 properties as of December 31, 2020 to 290 properties as of the end of September 30, 2021, inclusive of real estate development projects owned by the Company.

The Company has committed to five real estate development projects with total projected capital spend of $16.9 million of which $9.5 million has been funded as of September 30, 2021.

This growth has been facilitated by successfully raising $640.5 million of net equity capital as a result of private and public offerings since December 23, 2019.

During the three months ended June 30, 2021, the Company acquired 35 retail net lease properties for a total purchase price, inclusive of capitalized acquisition costs, of $116.8 million.

During the three months ended September 30, 2021, the Company acquired 26 retail net lease properties for a total purchase price, inclusive of capitalized acquisition costs, of $86.9 million.

The acquisitions were all accounted for as asset acquisitions.

These properties are located in 13 states with a WALT of approximately 12.4 years.

The underwritten weighted-average capitalization rate on the Company’s second quarter acquisitions was approximately 6.5%.

During the six months ended June 30, 2021, the Company acquired 66 retail net lease properties for a total purchase price, inclusive of capitalized acquisition costs, of $205.2 million.

The underwritten weighted-average capitalization rate on the Company’s third quarter acquisitions was approximately 6.2%.

During the nine months ended September 30, 2021, the Company acquired 92 retail net lease properties for a total purchase price, inclusive of capitalized acquisition costs, of $292.0 million.

These properties are located in 30 states with a WALT of approximately 10.2 years.

The underwritten weighted-average capitalization rate on the Company’s year-to-date acquisitions was approximately 6.5%.

The Company commenced development of a real-estate project in Yuma, Arizona in the first quarter of 2021.

The Company has a non-binding purchase option to acquire the property upon completion with the sole tenant commencing lease payments in 2022.

During the three and six months ended June 30, 2021, the Company invested $0.6 million and $1.9 million, respectively, in the project.

The Company also acquired two properties in Fond Du Lac, Wisconsin in the second quarter of 2021.

Upon acquisition, the Company commenced development of two build-to-suit projects, which are expected to be completed in September 2021.

During the three months ended June 30, 2021, the Company invested a total of $3.4 million in the projects.

During the three and six months ended June 30, 2021, the Company sold five properties for a total sales price, net of disposal costs, of $12.3 million, recognizing a gain on sale of $0.5 million.

Three Months Ended June 30, 2021 Compared with Three Months Ended June 30, 2020

The Company acquired two properties in the third quarter of 2021, and upon acquisition commenced development of build-to-suit projects.

These properties are expected to be substantially completed with rent commencing during the fourth and first quarter of 2021 and 2022, respectively.

During the three months ended September 30, 2021, the Company invested a total of $2.5 million in the projects.

The Company acquired or invested in a total of five properties during the nine months ended September 30, 2021, and upon acquisition commenced development of build-to-suit projects.

These properties are expected to be substantially completed with rent commencing during the fourth and first quarter of 2021 and 2022, respectively.

During the nine months ended September 30, 2021, the Company invested a total of $9.5 million in the projects.

During the three and nine months ended September 30, 2021, the Company sold four and nine properties, respectively, for a total sales price, net of disposal costs, of $18.1 million and $30.4 million, respectively, recognizing a net gain on sale of $2.0 million and $2.5 million, respectively.

Three Months Ended September 30, 2021 Compared with Three Months Ended September 30, 2020

The following table sets forth our operating results for the periods indicated (in thousands):

Three Months Ended

September 30,

Rental revenue (including reimbursable) $ 15,603 $ 9,652

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Total operating expenses 13,719 11,029

Other (expense) income

Other income (expense)

Interest expense, net (895) (1,018)

Gain on sales of real estate, net 1,955 54

Total other (expense) income, net (397) (82)

Net loss $ (2,630) $ (405)

Revenue for the three months ended June 30, 2021 increased by $6.7 million to $13.8 million from $7.1 million for the three months ended June 30, 2020.

This is primarily due to an increase in the real estate portfolio from 94 properties as of January 1, 2020 to 264 properties as of June 30, 2021.

The increase includes an increase in cash rental receipts of $6.4 million, a decrease in straight-line rental revenue of $0.7 million, and $1.0 million of combined net increases in property expense reimbursement and amortization of above- and below-market lease related intangible assets.

Total other income (expense), net 1,060 (964)

Net income (loss) $ 2,944 $ (2,341)

Revenue for the three months ended September 30, 2021 increased by $5.9 million to $15.6 million from $9.7 million for the three months ended September 30, 2020.

This is primarily due to an increase in the real estate portfolio from 94 properties as of January 1, 2020 to 286 properties as of September 30, 2021.

The increase includes an increase in cash rental receipts of $5.1 million and an increase in property expense reimbursements of $1.0 million, offset by combined net decreases of $0.2 million in straight-line rent and amortization of above- and below-market lease related intangible assets.

Total Operating Expenses.

Total expenses increased by $8.6 million to $16.0 million for the three months ended June 30, 2021 as compared to $7.4 million for the three months ended June 30, 2020.

The increase in operating expenses is primarily attributed to increases in the number of operating properties, provisions for impairment, and stock-based compensation, offset by prior period expenses associated with the consummation of the Company’s initial public offering in August 2020.

Total expenses increased by $2.7 million to $13.7 million for the three months ended September 30, 2021 as compared to $11.0 million for the three months ended September 30, 2020.

The increase in operating expenses is primarily attributed to increases in the number of operating properties, provisions for impairment and stock-based compensation expense, offset by prior period expenses associated with the consummation of the Company’s initial public offering in August 2020.

Total operating expenses include the following:

• Property Expenses.

Property expenses increased $0.9 million to $1.3 million for the three months ended June 30, 2021 from $0.4 million for the three months ended June 30, 2020.

Property expenses increased $1.1 million to $1.7 million for the three months ended September 30, 2021 from $0.6 million for the three months ended September 30, 2020.

The increase is primarily attributed to the increase in the real estate portfolio from 94 to 290 properties.

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• General and Administrative Expenses.

General and administrative expenses increased $2.2 million to $4.0 million for the three months ended June 30, 2021 from $1.8 million for the three months ended June 30, 2020.

The increase is primarily due to payroll expense associated with increased management and staff to support the Company as a newly public company of $0.3 million, an increase in stock-based compensation expense of $1.0 million, an increase in insurance related expenses of $0.3 million, increases to professional and administrative expenses of $0.3 million, and a combined net increase of $0.3 million in other general expenses.

General and administrative expenses decreased $0.3 million to $3.8 million for the three months ended September 30, 2021 from $4.1 million for the three months ended September 30, 2020.

The decrease is primarily due to a net decrease in stock-based compensation and bonus expense of $0.7 million and $0.2 million, respectively, associated with the prior period cumulative catch-up recorded upon executing the initial public offering, offset by an increase of $0.2 million in payroll expenses and additional combined increases of $0.3 million in other general expenses.

• Depreciation and Amortization.

Depreciation and amortization expense increased $4.0 million to $7.1 million for the three months ended June 30, 2021 from $3.1 million for the three months ended June 30, 2020.

The increase in depreciation and amortization is proportionate to the increase in the size of the portfolio over the comparable period with associated increases

in building depreciation expense of $1.6 million, in-place lease amortization expense of $1.2 million, and building improvements depreciation expense of $0.9 million.

Depreciation and amortization expense increased $3.4 million to $8.1 million for the three months ended September 30, 2021 from $4.7 million for the three months ended September 30, 2020.

The increase in depreciation and amortization is proportionate to the increase in the size of the portfolio over the comparable period with associated increases in building depreciation expense of $1.4 million, in-place lease amortization expense of $1.1 million, and building and leasehold improvements depreciation expense of $0.9 million.

• Provision for Impairment.

For the three months ended June 30, 2021, we recorded a provision for impairment of $3.5 million on two properties which were classified as held-for-sale as of June 30, 2021.

For the three months ended June 30, 2020, we recorded a provision for impairment of $1.4 million on two properties which were classified as held-for-sale as of June 30, 2020 and subsequently sold.

For the three months ended September 30, 2021, no provision for impairment was recorded.

For the three months ended September 30, 2020, we recorded a provision for impairment of $0.4 million on two properties which were classified as held-for-sale as of September 30, 2020 and subsequently sold.

These impairments and subsequent disposals relate to our plan of strategically identifying properties that can be re-leased or disposed of in an effort to improve returns and manage risk exposure.

• Transaction costs.

Transaction costs decreased by $0.4 million to $0.2 million for the three months ended June 30, 2021 from $0.6 million for the three months ended June 30, 2020.

The decrease in transaction costs primarily relates to a decrease of $0.6 million of expenses incurred in 2020 to facilitate our initial public offering, offset by net increases to costs incurred for abandoned acquisitions and expenses associated with property acquisitions.

Transaction costs decreased by $1.1 million to $0.1 million for the three months ended September 30, 2021 from $1.2 million for the three months ended September 30, 2020.

The decrease in transaction costs primarily relates to a decrease of $0.9 million of expenses incurred in 2020 to facilitate our initial public offering in addition to a decreases of $0.2 million in costs incurred for abandoned acquisitions and expenses associated with property acquisitions.

Interest Expense.

Interest expense decreased by $0.2 million to $0.9 million for the three months ended June 30, 2021 from $1.1 million for the three months ended June 30, 2020.

The decrease is primarily due to the decrease in the effective interest rate of the Term Loan (as defined in “Note 6 - Debt” to our condensed consolidated financial statements included herein).

Interest expense decreased by $0.1 million to $0.9 million for the three months ended September 30, 2021 from $1.0 million for the three months ended September 30, 2020.

The decrease is due to a lower average balance in borrowings outstanding under the Revolver (as defined in “Note 6 - Debt” to our condensed consolidated financial statements included herein).

Gain on sales of real estate, net.

Net gain on sales of real estate decreased by $0.5 million to $0.5 million for the three months ended June 30, 2021 from $1.0 million for the three months ended June 30, 2020.

Net gain on sales of real estate increase by $1.9 million to $2.0 million for the three months ended September 30, 2021 from $0.1 million for the three months ended September 30, 2020.

The table below summarizes the properties sold for the periods indicated (dollars in thousands):

Three Months Ended

September 30,

Number of properties sold 4 1

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Gain on sales of real estate, net $ 1,955 $ 54

Net loss increased $2.2 million to $2.6 million for the three months ended June 30, 2021 from a net loss of $0.4 million for the three months ended June 30, 2020.

Net loss increased primarily due to an increase in provisions for impairment, offset by the growth in the size of our real estate investment portfolio, which generated additional rental revenues, offset partially by increases in depreciation and amortization expenses, and to increases in general and administrative expenses related to both our growth and the result of becoming a public company, as set forth above.

Six Months Ended June 30, 2021 Compared with Six Months Ended June 30, 2020

Net income (loss).

Net income increased $5.2 million to $2.9 million for the three months ended September 30, 2021 from a net loss of $2.3 million for the three months ended September 30, 2020.

Net income increased primarily due to the growth in the size of our real estate investment portfolio, which generated additional rental revenues, and to an increase related to net gains on sales of real estate, offset partially by increases in depreciation and amortization expenses, and to increases in general and administrative expenses related to both our growth and incremental costs associated with becoming a public company, as set forth above.

Nine Months Ended September 30, 2021 Compared with Nine Months Ended September 30, 2020

The following table sets forth our operating results for the periods indicated (in thousands):

Six Months Ended

Nine Months Ended

September 30,

Rental revenue (including reimbursable) $ 41,333 $ 22,277

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Total operating expenses 39,987 24,080

Other (expense) income

Other income (expense)

Interest expense, net (2,693) (3,815)

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Gain on forfeited earnest money deposit — 250

Total other (expense) income, net (1,302) (1,531)

Net loss before income tax expense (1,839) (1,957)

Total other expense, net (241) (2,495)

Net income (loss) before income tax expense 1,105 (4,298)

Income tax expense (50) —

Net loss (1,889) (1,957)

Revenue for the six months ended June 30, 2021 increased by $13.1 million to $25.7 million from $12.6 million for the six months ended June 30, 2020.

This is primarily due to an increase in the real estate portfolio from 94 properties as of January 1, 2020 to 264 properties as of June 30, 2021.

Net income (loss) $ 1,055 $ (4,298)

Revenue for the nine months ended September 30, 2021 increased by $19.0 million to $41.3 million from $22.3 million for the nine months ended September 30, 2020.

This is primarily due to an increase in the real estate portfolio from 94 properties as of January 1, 2020 to 286 properties as of September 30, 2021.

The increase includes an increase in cash rental receipts of $17.1 million, combined net increases of property expense reimbursements of $2.5 million, of which $1.3 million was related to tax reimbursements, an increase in amortization of above- and below-market lease related intangible assets of $0.2 million, offset by a decrease in straight-line rental revenue of $0.7 million.

Total Operating Expenses.

Total expenses increased by $13.2 million to $26.3 million for the six months ended June 30, 2021 as compared to $13.1 million for the six months ended June 30, 2020.

Total expenses increased by $15.9 million to $40.0 million for the nine months ended September 30, 2021 as compared to $24.1 million for the nine months ended September 30, 2020.

Total operating expenses include the following:

• Property Expenses.

Property expenses increased $1.6 million to $2.3 million for the six months ended June 30, 2021 from $0.7 million for the six months ended June 30, 2020.

Property expenses increased $2.7 million to $4.0 million for the nine months ended September 30, 2021 from $1.3 million for the nine months ended September 30, 2020.

The increase is primarily attributed to the increase in the real estate portfolio from 94 to 286 properties.

The largest increases are from reimbursable property taxes of $0.7 million and reimbursable maintenance expense of $0.6 million.

The largest increases are from reimbursable property taxes of $1.3 million, reimbursable maintenance expense of $1.0 million, and reimbursable insurance expenses of $0.3 million.

• General and Administrative Expenses.

General and administrative expenses increased $3.4 million to $7.1 million for the six months ended June 30, 2021 from $3.7 million for the six months ended June 30, 2020.

The increase is primarily due to payroll expense associated with increased management and staff to support the Company as a newly public company of $0.7 million, an increase in stock-based compensation expense of $1.6 million, an increase in insurance related expenses of $0.5 million, and net increases to professional and administrative expenses of $0.3 million.

General and administrative expenses increased $3.1 million to $10.9 million for the nine months ended September 30, 2021 from $7.8 million for the nine months ended September 30, 2020.

The increase is primarily due to payroll expense associated with increased management and staff to support the Company as a newly public company of $0.8 million, an increase in stock-based compensation expense of $0.9 million, an increase in insurance related expenses of $0.5 million, an increase in professional and consulting services of $0.5 million, with remaining additional combined net increases in other general expenses.

• Depreciation and Amortization.

Depreciation and amortization expense increased $7.5 million to $13.0 million for the six months ended June 30, 2021 from $5.5 million for the six months ended June 30, 2020.

The increase in depreciation and amortization is proportionate to the increase in the size of the portfolio over the comparable period with associated increases in building depreciation expense of $3.3 million, in-place lease amortization expense of $2.4 million, and building improvements depreciation expense of $1.7 million.

Depreciation and amortization expense increased $10.9 million to $21.1 million for the nine months ended September 30, 2021 from $10.2 million for the nine months ended September 30, 2020.

The increase in depreciation and amortization is proportionate to the increase in the size of the portfolio over the comparable period with associated increases in building depreciation expense of $4.7 million, in-place lease amortization expense of $3.4 million, and building and leasehold improvements depreciation expense of $2.8 million.

• Provision for Impairment.

For the six months ended June 30, 2021, we recorded a provision for impairment of $3.5 million on three properties, one of which was classified as held-for-sale as of December 31, 2020 and sold during the period and two of which were classified as held-for-sale during the period.

For the six months ended June 30, 2020, we recorded a provision

for impairment of $1.4 million on two properties, which were classified as held-for-sale as of June 30, 2020 and subsequently sold.

For the nine months ended September 30, 2021, we recorded a provision for impairment of $3.5 million on three properties, one of which was classified as held-for-sale as of December 31, 2020 and sold during the

period and two of which were classified as held-for-sale and sold during the period.

For the nine months ended September 30, 2020, we recorded a provision for impairment of $1.8 million on four properties, which were classified as held-for-sale as of September 30, 2020 and subsequently sold.

These impairments and subsequent disposals relate to our plan of strategically identifying properties that can be re-leased or disposed of in an effort to improve returns and manage risk exposure.

• Transaction costs.

Transaction costs decreased by $1.4 million to $0.3 million for the six months ended June 30, 2021 from $1.7 million for the six months ended June 30, 2020.

Transaction costs decreased by $2.5 million to $0.5 million for the nine months ended September 30, 2021 from $3.0 million for the nine months ended September 30, 2020.

The decrease in transaction costs includes a decrease of $2.2 million of expenses incurred in 2020 to facilitate our initial public offering and a decrease of $0.3 million of expenses incurred for abandoned acquisitions and expenses associated with property acquisitions.

Interest Expense.

Interest expense decreased by $1.0 million to $1.8 million for the six months ended June 30, 2021 from $2.8 million for the six months ended June 30, 2020.

The decrease is primarily due to the decrease in the effective interest rate of the Term Loan.

Interest expense decreased by $1.1 million to $2.7 million for the nine months ended September 30, 2021 from $3.8 million for the nine months ended September 30, 2020.

The decrease is primarily due to the decrease in the effective interest rate of the Term Loan in addition to a decrease in interest expense due to a lower average balance in borrowings outstanding under the Revolver (as defined in “Note 6 - Debt” to our condensed consolidated financial statements included herein).

Gain on sales of real estate, net.

Net gain on sales of real estate decreased by $0.5 million to $0.5 million for the six months ended June 30, 2021 from $1.0 million for the six months ended June 30, 2020.

Net gain on sales of real estate increased by $1.4 million to $2.5 million for the nine months ended September 30, 2021 from $1.1 million for the nine months ended September 30, 2020.

The table below summarizes the properties sold for the periods indicated (in thousands):

Six Months Ended

Nine Months Ended

September 30,

Number of properties sold 9 3

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Gain on sales of real estate, net $ 2,452 $ 1,070

Net loss decreased $0.1 million to $1.9 million for the six months ended June 30, 2021 from a net loss of $2.0 million for the six months ended June 30, 2020.

Net loss decreased primarily due to growth in the size of our real estate investment portfolio, which generated additional rental revenues, offset partially by an increase in depreciation and amortization expenses, decreases in interest expense and transaction costs, an increase in provisions for impairment, and increases in general and administrative expenses related to both our growth and the result of becoming a public company, as set forth above.

Net income (loss).

Net income increased $5.4 million to $1.1 million for the nine months ended September 30, 2021 from a net loss of $4.3 million for the nine months ended September 30, 2020.

Net income increased primarily due to growth in the size of our real estate investment portfolio, which generated additional rental revenues, offset partially by an increase in depreciation and amortization expenses, to decreases in interest expense and transaction costs, and to an increase related to net gains on sales of real estate, offset by an increase in provisions for impairment and to increases in general and administrative expenses related to both our growth and incremental costs associated with becoming a public company, as set forth above.

Liquidity and Capital Resources

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Our capital resources primarily consist of cash from operations, sales of equity securities (including private and public offerings) and borrowings under our Credit Facility.

As of June 30, 2021, we had a $175.0 million Term Loan and no borrowings outstanding under our $250.0 million Revolver.

As of September 30, 2021, we had a $175.0 million Term Loan and $17.0 million of borrowings outstanding under our $250.0 million Revolver.

We believe that the net proceeds of $194.2 million from our April 2021 public offering of common stock, coupled with our cash flows from operations and available borrowing capacity, will be adequate to support our ongoing operations and to fund our debt service requirements, capital expenditures and working capital for at least the next 12 months.

Contractual Obligations

As of June 30, 2021, our contractual obligations include the maturity of our $175.0 million Term Loan with the scheduled principal payment due on December 23, 2024.

During 2021, the Company borrowed and repaid $13.0 million on our $250.0 million Revolver at a weighted average interest rate, exclusive of deferred financing costs, of 1.24% to fund specifically identified property acquisitions.

The following table provides information with respect to our commitments as of June 30, 2021 (in thousands):

As of September 30, 2021, our contractual obligations include the maturity of our $175.0 million Term Loan with the scheduled principal payment due on December 23, 2024 and repayment of borrowings on our $250.0 million Revolver.

During the three months ended September 30, 2021, we borrowed $17.0 million on our Revolver at a weighted-average interest rate of 1.26% to fund specifically identified property acquisitions.

Additionally, we previously borrowed and repaid $13.0 million on our Revolver at a weighted average interest rate of 1.24% to fund specifically identified property acquisitions.

A portion of the net proceeds from our April 12, 2021 public offering were used to repay the borrowing in full.

The following table provides information with respect to our commitments as of September 30, 2021 (in thousands):

Payment Due by Period

Total From July 1, 2021 to December 31, 2021 1 – 3 Years 3 – 5 Years

Total From October 1, 2021 to December 31, 2021 1 – 3 Years 3 – 5 Years

Contractual Obligations

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7,670 594 4,752 2,324

Revolver - Borrowings 17,000 — 17,000 —

Revolver - Variable interest 487 55 432 —

Unutilized borrowing fees on Revolver (2)

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(1) Effective September 28, 2020, we entered into an interest rate hedge to fix the interest rate on our Term Loan.

Accordingly, the projected interest rate obligations for the variable rate Term Loan is based on the hedged fixed rate (one-month) of 0.21% compared to the variable Term Loan one-month LIBOR rate as of June 30, 2021 of 0.10%, plus a margin of 1.15% based on the $175.0 million Term Loan outstanding through the maturity date of December 23, 2024.

Accordingly, the projected interest rate obligations for the variable rate Term Loan is based on the hedged fixed rate (one-month) of 0.21% compared to the variable Term Loan one-month LIBOR rate as of September 30, 2021 of 0.09%, plus a margin of 1.15% based on the $175.0 million Term Loan outstanding through the maturity date of December 23, 2024.

(2) We are subject to a variable unutilized borrowing fee on our $250.0 million Revolver.

This reflects our projected unutilized borrowing fee at 0.25% assuming no additional borrowing through the maturity date of December 23, 2023.

In August 2021, the Company entered into a lease agreement on a new corporate office space, which will be classified as an operating lease.

The space is currently undergoing construction with an anticipated move-in date occurring in the first quarter of 2022.

The Company expects to incur approximately $2.2 million in leasehold improvement costs, of which $1.0 million will be refunded by the landlord through tenant allowances.

The lease has an initial term that expires on July 31, 2032 and is renewable at the Company’s option for two additional periods of five years each after the initial term.

Annual rent expense, excluding operating expenses, is expected to be approximately $0.5 million during the initial term.

Additionally, in the normal course of business, the Company enters into various types of commitments to purchase real estate properties or fund development projects.

These commitments are generally subject to the Company’s customary due diligence process and, accordingly, a number of specific conditions must be met before the Company is obligated or receives an option to purchase the properties.

As of June 30, 2021, the Company had commitments to fund properties under development totaling $10.4 million, of which $5.3 million has been funded to date and the remaining is expected to be funded over the next eight months.

As of September 30, 2021, the Company had commitments to fund properties under development totaling $16.9 million, of which $9.5 million million has been funded to date and the remaining is expected to be funded over the next five months.

Credit Facility

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Interest is payable monthly or at the end of the applicable interest period in arrears on any outstanding borrowings.

The stated interest rate as of June 30, 2021 was 1.25%.

The stated interest rate as of September 30, 2021 was 1.25%.

The Company uses interest rate derivative contracts to manage its exposure to changes in interest rates on its variable rate debt.

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Historical Cash Flow Information

Six Months Ended June 30, 2021 Compared with Six Months Ended June 30, 2020

Six Months Ended

Nine Months Ended September 30, 2021 Compared with Nine Months Ended September 30, 2020

Nine Months Ended

September 30,

(in thousands) (Unaudited)

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Cash Flows Provided By Operating Activities.

Net cash provided by operating activities increased by $12.0 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020.

The increase was largely attributed to the increase in the size of the Company’s real estate investment portfolio with an increase in rental receipts of $12.0 million, offset primarily by increases in operating and general and administrative expenses associated with our larger portfolio.

Net cash provided by operating activities increased by $13.5 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

The increase was largely attributed to the increase in the size of the Company’s real estate investment portfolio with an increase in rental receipts of $17.1 million, offset primarily by $4.0 million of lease incentives paid during the period and other increases in operating and general and administrative expenses associated with our larger portfolio.

Cash Flows Used In Investing Activities.

Net cash used in investing activities decreased by $18.0 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020.

Net cash used in investing activities decreased by $44.9 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

The decrease is primarily due to acquisition, development and disposal activity.

1 unchanged sentence

Cash Flows Provided By Financing Activities.

Net cash provided by financing activities increased by $126.8 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020.

The increase is primarily attributed to $141.1 million of additional net proceeds received from the April 2021 public offering as compared to the exercise of the over-allotment option in the Private Offering in February 2020, including deferred offering costs.

Additionally, the Company paid $14.2 million of dividends and distributions during the six months ended June 30, 2021 and none in the prior period.

The Company also borrowed $13.0 million in the first quarter of 2021 which was repaid in the second quarter of 2021.

Net cash provided by financing activities decreased by $91.1 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

The decrease is primarily attributed to receiving $87.7 million less net proceeds from the April 2021 public offering as compared to the exercise of the over-allotment option in the Private Offering in February 2020 and the initial public offering in August 2020.

Additionally, the Company paid $19.6 million more of dividends and distributions during the nine months ended September 30, 2021 than the prior period.

The Company also borrowed $17.0 million in the third quarter of 2021 which had not been repaid as of September 30, 2021.

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.

federal income tax purposes beginning with its short taxable year ended December 31, 2019.

To qualify as a REIT, the Company must meet certain organizational, income, asset and distribution tests.

2 unchanged sentences

The Company intends to make sufficient distributions during 2021 to receive a full dividends paid deduction.

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.

NETSTREIT TRS is 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.

During the three and six months ended June 30, 2021, the Company recognized franchise and other state and local tax expenses which are included in general and administrative and recognized state and federal income tax expense which is included in income tax expense in the accompanying condensed consolidated statements of operations and comprehensive (loss) income.

During the three and nine months ended September 30, 2021, the Company recognized franchise and other state and local tax expenses in general and administrative and recognized state and federal income tax expense in income tax expense in the accompanying condensed consolidated statements of operations and comprehensive income (loss).

Recent Accounting Pronouncements

36 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

(Unaudited) (Unaudited)

Net loss $ (2,630) $ (405) $ (1,889) $ (1,957)

Net income (loss) $ 2,944 $ (2,341) $ 1,055 $ (4,298)

Depreciation and amortization of real estate 7,994 4,614 20,843 9,926

Provision for impairment 3,469 1,410 3,539 1,410

Gain on sale of real estate, net (497) (1,016) (497) (1,016)

Provisions for impairment — 363 3,539 1,773

Gain on sales of real estate, net (1,955) (54) (2,452) (1,070)

FFO 8,983 2,582 22,985 6,331

10 unchanged sentences

AFFO $ 9,738 $ 4,777 $ 24,751 $ 8,711

(1) These expenses represent a subset of transaction costs as presented on the condensed consolidated statements of operations and comprehensive (loss) income.

(1) These expenses represent a subset of transaction costs as presented on the condensed consolidated statements of operations and comprehensive income (loss).

EBITDA, EBITDAre and Adjusted EBITDAre

9 unchanged sentences

accordingly, they should not be considered alternatives to net income as a performance measure or cash flows from operations as a liquidity measure and should be considered in addition to, and not in lieu of, GAAP financial measures.

Additionally, our computation of EBITDA, EBITDA re and Adjusted EBITDA re may differ from the methodology for

calculating these metrics used by other equity REITs and, therefore, may not be comparable to similarly titled measures reported by other equity REITs.

Additionally, our computation of EBITDA, EBITDA re and Adjusted EBITDA re may differ from the methodology for calculating these metrics used by other equity REITs and, therefore, may not be comparable to similarly titled measures reported by other equity REITs.

The following table sets forth a reconciliation of EBITDA, EBITDA re and Adjusted EBITDA re for the periods presented to net income (loss) before allocation to noncontrolling interests, as computed in accordance with GAAP (in thousands):

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

(Unaudited) (Unaudited)

Net loss $ (2,630) $ (405) $ (1,889) $ (1,957)

Net income (loss) $ 2,944 $ (2,341) $ 1,055 $ (4,298)

Depreciation and amortization of real estate 7,994 4,614 20,843 9,926

5 unchanged sentences

EBITDA 11,753 3,149 24,292 9,331

Provision for impairments 3,469 1,410 3,539 1,410

Gain on sale of real estate, net (497) (1,016) (497) (1,016)

Provisions for impairment — 363 3,539 1,773

Gain on sales of real estate, net (1,955) (54) (2,452) (1,070)

9,798 3,458 25,379 10,034

6 unchanged sentences

$ 10,579 $ 5,715 $ 27,295 $ 12,290

(1) These expenses represent a subset of transaction costs as presented on the condensed consolidated statements of operations and comprehensive (loss) income.

(1) These expenses represent a subset of transaction costs as presented on the condensed consolidated statements of operations and comprehensive income (loss).

NOI and Cash NOI

7 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

(Unaudited) (Unaudited)

Net loss $ (2,630) $ (405) $ (1,889) $ (1,957)

Net income (loss) $ 2,944 $ (2,341) $ 1,055 $ (4,298)

General and administrative 3,776 4,109 10,904 7,841

4 unchanged sentences

Gain on sales of real estate, net (1,955) (54) (2,452) (1,070)

Income tax expense — — 50 —

Gain on forfeited earnest money deposit — — — (250)

Income tax expense — — 50 —

NOI 13,866 9,028 37,331 20,933

4 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis