What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-04-28 compared with 2021-10-28 · 167 added, 209 removed, 155 unchanged (71% of the section changed)

8 unchanged sentences

For a further discussion of these and other factors that could impact future results, performance or transactions, see the information under the heading “Risk Factors” Part I, Item 1A.

in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the Securities and Exchange Commission (the “SEC”) on March 4, 2021 and other reports filed with the SEC from time to time.

in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission (the “SEC”) on February 24, 2022, and other reports filed with the Securities and Exchange Commission from time to time.

Forward-looking statements and such risks, uncertainties and other factors speak only as of the date of this Quarterly Report on Form 10-Q.

New risks and uncertainties may arise over time and it is not possible for us to predict those events or how they may affect us.

Many of the risks identified herein and in our periodic reports have been and will continue to be heightened as a result of the ongoing and numerous adverse effects arising from the novel coronavirus (COVID-19).

We expressly disclaim any obligation or undertaking to update or revise any forward-looking statement contained herein, to reflect any change in our expectations with regard thereto, or any other change in events, conditions or circumstances on which any such statement is based, except to the extent otherwise required by law.

We are an internally managed real estate company that acquires, owns and manages a diversified portfolio of single-tenant, retail commercial real estate subject to long-term net leases with high credit quality tenants across the United States.

Our diversified operating portfolio consists of 286 single-tenant retail net leased properties spanning 40 states, with tenants representing 60 different brands or concepts across 22 retail sectors.

Our portfolio generates annualized base rent (“ABR”) (1) of $59.8 million and is 100% occupied, with a weighted average lease term (“WALT”) of 10.0 years and consisting of approximately 71% and 15% of investment grade tenants and investment grade profile tenants, respectively, by ABR, which we believe provides us with a strong, stable source of recurring cash flow.

Our tenants operate in industries where a physical location is critical to the generation of sales and profits, with a focus on necessity goods and essential services in the retail sector, including home improvement, auto parts, drug stores and pharmacies, general retail, grocers, convenience stores, discount stores, and quick-service restaurants, which we refer to as defensive retail industries.

Our diversified portfolio consists of 361 single-tenant retail net leased properties spanning 42 states, with 71 different tenants represented across 23 retail sectors.

Our portfolio generates ABR 1 of $77.0 million and is 100% occupied, with a weighted average lease term (“WALT”) of 9.6 years and consisting of approximately 64% and 17% of investment grade tenants and investment grade profile tenants, respectively, by ABR, which we believe provides us with a strong, stable source of recurring cash flow.

We focus on tenants in industries where a physical location is critical to the generation of sales and profits, with a focus on necessity goods and essential services in the retail sector, including home improvement, auto parts, drug stores and pharmacies, general retail, grocers, convenience stores, discount stores, and quick-service restaurants, which we refer to as defensive retail industries.

We believe these characteristics make our tenants' businesses e-commerce resistant and resilient through all economic cycles.

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 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.

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.

In addition, we continue to stay in close contact with our tenants and monitor the timeliness of rental payments and any significant changes in our tenants' businesses.

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 nine months ended September 30, 2021 and 2020 were not materially impacted by COVID-19.

Recent Developments

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.

The Company’s operations and cash flows for the three months ended March 31, 2022 and 2021 were not materially impacted by COVID-19.

(1) ABR is calculated by multiplying (i) cash rental payments (a) for the month ended March 31, 2022 (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 March 31, 2022, plus (b) for properties under development, the first full month's estimated permanent cash rent contractually due after the development period by (ii) 12.

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Financing Activities

On January 13, 2022, we completed a registered public offering of 10,350,000 shares of our common stock at a public offering price of $22.25 per share.

In connection with the offering, we entered into forward sale agreements for 10,350,000 shares of our common stock.

We did not initially receive any proceeds from the sale of shares of common stock by the forward purchasers.

We expect to physically settle the forward sale agreements (by the delivery of shares of common stock) and receive proceeds from the sale of those shares upon one or more forward settlement dates, which shall occur no later than January 10, 2023.

We may also elect to cash settle or net share settle all or a portion of our obligations under a forward sale agreement if we conclude it is in our best interest to do so.

If we elect to cash settle a forward sale agreement, we may not receive any proceeds and we may owe cash to the relevant forward counterparty in certain circumstances.

On March 30, 2022, we settled 3,440,962 shares of common stock at a price of $22.25 per share in connection with the forward sale agreements.

We received net proceeds from the offering of $72.0 million, net of underwriting discounts and offering costs of $4.6 million.

On September 1, 2021, we entered into a $250.0 million ATM Program through which, from time to time, we may sell shares of our common stock in registered transactions.

During the first quarter of 2022, we issued 163,774 shares of common stock at a weighted average price of $22.08 per share in connection with the ATM Program for net proceeds of approximately $3.5 million, net of sales commissions and offering costs of less than $0.1 million.

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 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 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 Company continued to grow its assets held for investment during the first quarter of 2022 by increasing its property portfolio from 328 properties as of December 31, 2021 to 363 properties as of the end of March 31, 2022.

This includes nine real estate development projects owned by the Company, one property under development with a non-binding option to purchase, and one property fully collateralized by an investment in loan receivable.

This growth was financed through the settlement of shares of common stock through our forward sale agreements in an amount of $72.0 million, the issuance of common stock under the ATM Program in an amount of $3.5 million, and net borrowings of $56.0 million on our Revolver during the three months ended March 31, 2022.

During the three months ended March 31, 2022, we acquired 34 properties for a total purchase price of $90.0 million, including $1.2 million of capitalized acquisition costs.

The acquisitions were all accounted for as asset acquisitions.

These properties are located in 17 states with a WALT of approximately 8.2 years.

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 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 underwritten weighted-average capitalization rate on first quarter acquisitions was approximately 6.3%.

During the three months ended March 31, 2022, we invested $5.0 million in our property developments, including the acquisition of one new build-to-suit project with an initial purchase price of $1.0 million.

During the three months ended March 31, 2022, we completed development on one project under development and reclassified approximately $4.7 million from property under development to land, building, and improvements in the accompanying condensed consolidated balance sheets.

The remaining nine developments are expected to be substantially completed with rent commencing at various points throughout 2022.

The purchase price, including acquisitions costs, and subsequent development are included in property under development in the accompanying condensed consolidated balance sheets of March 31, 2022.

During the three months ended March 31, 2022, we sold one property for a total sales price, net of disposal costs of $2.3 million, recognizing a net gain of $0.2 million on the sale.

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Investment in Mortgage Loan Receivable

On January 26, 2022, we executed a fully collateralized $40.3 million loan receivable with a stated interest rate of 6.0%.

The scheduled maturity date is July 26, 2023, however we have the right, subject to certain terms and conditions, to purchase a portion of the underlying, collateralized property.

The loan receivable is collateralized by real estate that is leased by three separate investment-grade tenants.

The funds provided under the loan, in addition to loan origination costs of $0.1 million, are included in loan receivable, net in the accompanying condensed consolidated balance sheets as of March 31, 2022.

Three Months Ended March 31, 2022 Compared with Three Months Ended March 31, 2021

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

Three Months Ended

September 30,

Rental revenue (including reimbursable) $ 20,921 $ 11,932

Interest income on mortgage loan receivable 411 —

Total revenues 21,332 11,932

Operating expenses

9 unchanged sentences

Total other income (expense), net (1,008) (905)

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 $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 $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.

The largest increases resulted from reimbursable property taxes of $0.6 million and reimbursable maintenance expense of $0.3 million.

• General and Administrative 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 $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 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 $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 $0.1 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 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

Sales price, net of disposal costs $ 18,118 $ 1,861

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

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):

Nine Months Ended

September 30,

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

Operating expenses

Property 4,002 1,344

General and administrative 10,904 7,841

Depreciation and amortization 21,078 10,153

Provisions for impairment 3,539 1,773

Transaction costs 464 2,969

Total operating expenses 39,987 24,080

Other income (expense)

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

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

Gain on forfeited earnest money deposit — 250

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

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

Net income before income tax expense 2,057 791

Income tax expense (91) (50)

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.

Net income $ 1,966 $ 741

Revenue for the three months ended March 31, 2022 increased by $9.4 million to $21.3 million from $11.9 million for the three months ended March 31, 2021.

This is primarily due to an increase in the real estate portfolio from 203 operating properties as of January 1, 2021 to 352 operating properties as of March 31, 2022.

The increase includes an increase in cash rental receipts of $6.7 million, combined with net increases of property expense reimbursements of $1.7 million, of which $0.9 million was related to tax reimbursements, an increase of $0.4 million in straight-line rental revenue, and an increase of $0.4 million related to interest income on the mortgage loan receivable.

Total Operating Expenses.

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 expenses increased by $8.1 million to $18.3 million for the three months ended March 31, 2022 as compared to $10.2 million for the three months ended March 31, 2021.

The increase in operating expenses is primarily attributed to the increase in the number of operating properties with the most significant increases being depreciation and amortization expense and property-specific expenses, in addition to an increase in stock-based compensation.

Total operating expenses include the following:

• Property Expenses.

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 $1.3 million, reimbursable maintenance expense of $1.0 million, and reimbursable insurance expenses of $0.3 million.

Property expenses increased $1.9 million to $2.9 million for the three months ended March 31, 2022.

The increase is primarily attributed to the increase in the real estate portfolio from 203 to 352 operating properties.

The largest increases are from reimbursable property taxes of $0.8 million and reimbursable maintenance expense of $0.8 million.

Remaining net increases are from non-reimbursable expenses of $0.2 million.

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• General and Administrative Expenses.

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.

General and administrative expenses increased $1.1 million to $4.2 million for the three months ended March 31, 2022.

The increase is primarily due to an increase in stock-based compensation expense of $0.5 million and due to increases in payroll and payroll-related expenses of $0.2 million associated with the Company’s continued growth.

• Depreciation and Amortization.

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.

Depreciation and amortization expense increased $5.1 million to $11.0 million for the three months ended March 31, 2022.

The increase in depreciation and amortization is proportionate to the increase in the size of the portfolio over the comparable period primarily with associated increases in building depreciation expense of $2.1 million, in-place lease amortization expense of $1.8 million, building improvements depreciation expense of $0.9 million, and leasehold improvement depreciation expense of $0.2 million.

• Provision for Impairment.

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 $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.

For the three months ended March 31, 2022, no provision for impairment was recorded, however, we recorded a provision for impairment of approximately $0.1 million for the three months ended March 31, 2021 on one property which was classified as held-for-sale as of December 31, 2020 and sold in April 2021.

This impairment and subsequent disposal 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.

Interest Expense.

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).

Interest expense increased by $0.3 million to $1.2 million for the three months ended March 31, 2022.

The increase is primarily due to the increase in the average balances outstanding under the Revolver (as defined in “Note 6 - Debt” to our condensed consolidated statements of operations and comprehensive income), offset by decreases in facilities fees incurred for unused capacity and interest expense associated with the interest rate swap.

Gain on sales of real estate, net.

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.

For the three months ended March 31, 2022, we recorded a net gain on the sales of real estate of $0.2 million.

No disposals occurred during the three months ended March 31, 2021.

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

Nine Months Ended

September 30,

Three Months Ended

Number of properties sold 1 —

1 unchanged sentence

Gain on sales of real estate, net $ 161 $ —

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.

Net income increased $1.3 million to $2.0 million for the three months ended March 31, 2022.

Net income increased primarily due to the growth in the size of our real estate investment portfolio, which generated additional rental revenues, offset by the impact of increases in depreciation and amortization expenses and to increases in general and administrative expenses, as set forth above.

Liquidity and Capital Resources

Our primary capital requirements are to fund property acquisitions and required interest payments, as well as working capital needs, operating expenses, and capital expenditures.

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 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 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):

Our capital resources primarily consist of cash from operations, sales of equity securities and borrowings under our senior credit facility.

As of March 31, 2022, we had a $175.0 million senior secured term loan (“Term Loan”) and $120.0 million of borrowings outstanding under our $250.0 million senior secured revolving credit facility (“Revolver”, and collectively with the Term Loan, the “Credit Facility”).

Additionally, as of March 31, 2022, we had 6,909,038 shares that were unsettled under open forward equity contracts.

We believe that the availability of proceeds from future issuances of shares of our common stock under the ATM Program and the physical settlement of forward sales of our 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.

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Contractual Obligations and Commitments

As of March 31, 2022, 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 with a maturity of December 23, 2023.

During the three months ended March 31, 2022, we borrowed $128.0 million and repaid $72.0 million on our Revolver at a weighted-average interest rate of 1.39% to fund specifically identified property acquisitions.

The following table provides information with respect to our commitments as of March 31, 2022 (in thousands):

Payment Due by Period

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

Total From April 1, 2022 to December 31, 2022 1 – 3 Years 3 – 5 Years

Contractual Obligations

6 unchanged sentences

562 244 318 —

Property development under contract 20,902 20,902 —

Corporate office lease obligations 6,570 150 1,150 5,270

Total $ 332,926 $ 24,558 $ 303,098 $ 5,270

(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 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.

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

Accordingly, the projected interest rate obligations for the variable rate Term Loan are based on the hedged fixed rate of 0.21% compared to the variable Term Loan one-month LIBOR rate as of March 31, 2022 of 0.23%, 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 the unused portion of 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.

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

The Company began operating out of the new office in February 2022.

The lease has an initial noncancellable term of 10.3 years that expires on July 31, 2032, with a one-time option to terminate in 2029 exercisable by the Company.

The lease is also renewable at the Company’s option for two additional periods of five years.

Future minimum base rental payments under the lease are outlined in “Note - 3 - Leases”.

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

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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 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.

As of March 31, 2022, the Company had commitments to fund properties under development totaling $20.9 million, all of which is expected to be funded over the next 12 months.

Credit Facility

In December 2019, we entered into a Credit Facility consisting of (i) a $175.0 million senior secured Term Loan and (ii) a $250.0 million senior secured Revolver.

Wells Fargo Securities, LLC is lead arranger and bookrunner and Wells Fargo Bank, National Association is the Administrative Agent.

In December 2019, the Company entered into the Credit Facility which consisted of (i) the $175.0 million Term Loan and (ii) the $250.0 million Revolver.

Wells Fargo Securities, LLC is lead arranger and bookrunner and Wells Fargo Bank, National Association is the 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 Credit Facility is unsecured as 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 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 Revolving Loans 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.

The Credit Facility, effective during the fourth quarter of 2020, is unsecured as the Administrative Agent released the collateral in connection with the Company’s satisfaction of the collateral release requirements.

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

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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.

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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Effective September 28, 2020, such derivatives were used to hedge the variable cash flows associated with the Term Loan.

The interest rate hedge is further described in “Note 7 - Derivative Financial Instruments.”

Historical Cash Flow Information

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

Nine Months Ended

September 30,

Three Months Ended March 31, 2022 Compared with Three Months Ended March 31, 2021

Three Months Ended

(In thousands) (Unaudited)

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Cash Flows Provided By Operating Activities.

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.

Net cash provided by operating activities increased by $4.7 million for the three months ended March 31, 2022 compared to the three months ended March 31, 2021.

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 $6.7 million, offset primarily by increases in operating and general and administrative expenses paid associated with our larger portfolio.

Cash Flows Used In Investing Activities.

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.

The Company spent $35.3 million less on the acquisition of real estate and received $18.6 million more as a result of disposals, offset by $8.2 million more spent on the development of real estate.

Net cash used in investing activities increased by $43.7 million for the three months ended March 31, 2022 compared to the three months ended March 31, 2021.

The increase was primarily due to acquisitions, including an investment in a mortgage loan receivable of $40.4 million.

The remaining increase is related primarily to acquisition and development activity, which increased $4.9 million compared to the prior period, offset by $2.3 million more of proceeds received from the sale of assets.

Cash Flows Provided By Financing Activities.

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.

Net cash provided by financing activities increased by $115.0 million for the three months ended March 31, 2022 compared to the three months ended March 31, 2021.

The increase was primarily attributed to issuances of common stock in connection with our ATM Program and physical settlement of our common stock under the forward sale agreements, for combined net proceeds of $75.5 million.

Additionally, we paid $3.0 million more of dividends and distributions during the three months ended March 31, 2022.

Lastly, we net borrowed $43.0 million more under the Revolver during the three months ended March 31, 2022 than the prior period.

The Company elected to be treated and qualify as a REIT for U.S.

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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 shareholders 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.

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.

The Company intends to make sufficient distributions during 2022 to receive a full dividends paid deduction.

NETSTREIT TRS is treated as a taxable REIT subsidiary which may be subject to U.S.

We maintain a taxable REIT subsidiary (“TRS”) 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 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).

In general, our 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.

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During three months ended March 31, 2022 and 2021, the Company recognized franchise and other state and local tax expenses in general and administrative expense and recognized state and federal income tax expense in income tax expense in the accompanying condensed consolidated statements of operations and comprehensive income.

Recent Accounting Pronouncements

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There have been no material changes to these policies during the periods covered by this quarterly report.

Purchase Price Allocation of Acquired Properties

We evaluate 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.

We allocate 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.

We estimate the cost to execute leases with terms similar to the remaining lease terms of the in-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 our 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, we utilize a number of sources, including real estate valuations prepared by an independent valuation firm.

We also consider information and other factors including market conditions, the industry that the tenant operates in, characteristics of the real

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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, we consider 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.

Impairment of Long-Lived Assets

Fair value measurement of an asset group occurs when events or changes in circumstances related to an asset indicate that the carrying amount of the asset group is no longer recoverable.

An example of an event or changed circumstance is a reduction in the expected holding period of a property.

If indicators are present, we will prepare a projection of the undiscounted future cash flows of the property, excluding interest charges, and determine if the carrying amount of the asset group is recoverable.

When a carrying amount is not recoverable, an impairment loss is recognized to the extent that the carrying amount of the asset group exceeds its fair market value.

We estimate 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.

Non-GAAP Financial Measures

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We also disclose the following non-GAAP financial measures:

Funds from operations (“FFO”), Core FFO, Adjusted FFO (“AFFO”), earnings before interest, taxes, depreciation and amortization (“EBITDA”), EBITDA adjusted to exclude gains (or losses) on sales of depreciable property and real estate impairment losses (“EBITDA re ”), EBITDA re further adjusted to exclude straight-line rent, gains from forfeited earnest money deposits, non-recurring public company costs, representing consulting fees that we have incurred in preparing to become a public company, and non-cash compensation expense (“Adjusted EBITDA re ”), net operating income (“NOI”) and cash net operating income (“Cash NOI”).

Funds From Operations (“FFO”), Core FFO, Adjusted FFO (“AFFO”), earnings before interest expense, income tax expense, and depreciation and amortization (“EBITDA”), EBITDA adjusted to exclude gains (or losses) from the sales of depreciable property and real estate impairment losses (“EBITDAre”), EBITDAre further adjusted to exclude straight-line rent and non-cash compensation expense (“Adjusted EBITDAre”), net operating income (“NOI”) and cash net operating income (“Cash NOI”).

We believe these non-GAAP financial measures are industry measures used by analysts and investors to compare the operating performance of REITs.

FFO, Core FFO and AFFO

FFO is a non-GAAP financial measure defined by NAREIT as net income (computed in accordance with GAAP), excluding real estate-related expenses including, but not limited to, gains (losses) from sales, impairment adjustments, and depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures.

Our calculation of FFO is consistent with FFO as defined by NAREIT.

Core FFO is a non-GAAP financial measure defined as FFO adjusted for gains from forfeited earnest money deposits and non-recurring public company costs.

We believe the presentation of Core FFO provides investors with a metric to assist in their evaluation of our operating performance across multiple periods because it removes the effect of unusual and non-recurring items that are not expected to impact our operating performance on an ongoing basis.

AFFO is a non-GAAP financial measure defined as Core FFO adjusted for GAAP net income related to non-cash revenues and expenses, such as straight-line rent, amortization of above- and below-market lease-related intangibles, amortization of lease incentives, capitalized interest expense, non-cash compensation expense, and amortization of deferred financing costs.

The National Association of Real Estate Investment Trusts ("NAREIT"), an industry trade group, has promulgated a widely accepted non-GAAP financial measure of operating performance known as FFO.

Our FFO is net income in accordance with GAAP, excluding gains (or losses) resulting from dispositions of properties, plus depreciation and amortization and impairment charges on depreciable real property.

Core FFO is a non-GAAP financial measure defined as FFO adjusted to remove the effect of unusual and non-recurring items that are not expected to impact our operating performance or operations on an ongoing basis.

Historically, these have included gains from forfeited earnest money deposits, non-recurring public company costs, and gains from insurance proceeds.

Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time.

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We consider FFO to be useful in evaluating potential property acquisitions and measuring operating performance.

We further consider Core FFO and AFFO to be useful in determining funds available for payment of distributions.

We further consider FFO, Core FFO and AFFO to be useful in determining funds available for payment of distributions.

FFO, Core FFO and AFFO do not represent net income or cash flows from operations as defined by GAAP.

You should not consider FFO, Core FFO and AFFO to be alternatives to net income as a reliable measure of our operating performance;

nor should you consider FFO, Core FFO and AFFO to be alternatives to cash flows from operating, investing or financing activities (as defined by GAAP) as measures of liquidity.

FFO, Core FFO and AFFO do not measure whether cash flow is sufficient to fund all of our cash needs, including principal amortization, capital improvements and distributions to stockholders.

FFO, Core FFO and AFFO do not represent cash flows from operating, investing or financing activities as defined by GAAP.

You should not consider FFO, Core FFO and AFFO to be alternatives to net income as a reliable measure of our operating performance nor should you consider FFO, Core FFO and AFFO to be alternatives to cash flows from operating, investing or financing activities (as defined by GAAP) as measures of liquidity.

FFO, Core FFO and AFFO do not measure whether cash flow is sufficient to fund our cash needs, including principal amortization, capital improvements and distributions to stockholders.

FFO, Core FFO and AFFO do not represent cash flows

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from operating, investing or financing activities as defined by GAAP.

Further, FFO, Core FFO and AFFO as disclosed by other REITs might not be comparable to our calculations of FFO, Core FFO and AFFO.

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

(Unaudited) (Unaudited)

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

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

Three Months Ended March 31,

Net income $ 1,966 $ 741

Depreciation and amortization of real estate 10,862 5,852

Provisions for impairment — 363 3,539 1,773

Provision for impairment — 69

Gain on sales of real estate, net (161) —

FFO 12,667 6,662

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

144A and IPO transaction costs (1)

— 891 — 2,170

Gain on insurance proceeds — —

Core FFO 12,667 6,662

Straight-line rental revenue (244) (387) (707) (1,417)

Straight-line rent adjustments (526) (240)

Amortization of deferred financing costs 157 157

Amortization of loan origination costs 13 —

Amortization of above/below market lease intangibles (283) (190)

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AFFO $ 13,135 $ 6,946

(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

We compute EBITDA as earnings before interest, income taxes and depreciation and amortization.

We compute EBITDA as earnings before interest expense, income tax expense, and depreciation and amortization.

In 2017, NAREIT issued a white paper recommending that companies that report EBITDA also report EBITDA re .

We compute EBITDA re in accordance with the definition adopted by NAREIT.

NAREIT defines EBITDA re as EBITDA (as defined above) excluding gains (or losses) from the sales of depreciable property and real estate impairment losses.

Adjusted EBITDA re is a non-GAAP financial measure defined as EBITDA re further adjusted to exclude straight-line rent, gains from forfeited earnest money deposits, non-recurring public company costs, representing consulting fees that we have incurred in preparing to become a public company and non-cash compensation expense.

NAREIT defines EBITDA re as EBITDA (as defined above) excluding gains (or losses) from the sales of depreciable property and impairment charges on depreciable real property.

Adjusted EBITDA re is a non-GAAP financial measure defined as EBITDA re further adjusted to exclude straight-line rent and non-cash compensation expense.

We present EBITDA, EBITDA re and Adjusted EBITDA re as they are measures commonly used in our industry.

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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

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

(Unaudited) (Unaudited)

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

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

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Three Months Ended March 31,

Net income $ 1,966 $ 741

Depreciation and amortization of real estate 10,862 5,852

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Income tax expense 91 50

Amortization of loan origination costs 13 —

EBITDA 14,053 7,435

Provisions for impairment — 363 3,539 1,773

Provision for impairments — 69

Gain on sales of real estate, net (161) —

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

Straight-line rental revenue (244) (387) (707) (1,417)

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

144A and IPO transaction costs (1)

— 891 — 2,170

Straight-line rent adjustments (526) (240)

Non-cash compensation expense 1,045 557

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$ 14,411 $ 7,821

(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

NOI and Cash NOI are non-GAAP financial measures which we use to assess our operating results.

We compute NOI as net income (loss) (computed in accordance with GAAP), excluding general and administrative expenses, interest expense (or income), income tax expense, depreciation and amortization, gains (or losses) on sales of depreciable property, gain from forfeited earnest money deposits and real estate impairment losses.

We further adjust NOI for non-cash revenue components of straight-line rent and amortization of lease intangibles and lease incentives to derive Cash NOI.

We compute NOI as net income (computed in accordance with GAAP), excluding general and administrative expenses, interest expense (or income), income tax expense, depreciation and amortization, gains (or losses) from the sales of depreciable property, impairment charges on depreciable real property, transaction costs, and other income (or expense).

We further adjust NOI for non-cash components of straight-line rent and amortization of lease intangibles and lease incentives to derive Cash NOI.

We believe NOI and Cash NOI provide useful and relevant information because they reflect only those income and expense items that are incurred at the property level and present such items on an unlevered basis.

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You should not consider our NOI and Cash NOI as alternatives to net income or cash flows from operating activities determined in accordance with GAAP.

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The following table sets forth a reconciliation of NOI and Cash NOI for the periods presented (in thousands):

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

(Unaudited) (Unaudited)

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

Three Months Ended March 31,

Net income $ 1,966 $ 741

General and administrative 4,190 3,137

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Gain on sales of real estate, net (161) —

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

Income tax expense 91 50

Interest income on mortgage loan receivable (411) —

NOI 17,989 10,982

Straight-line rental revenue (244) (387) (707) (1,417)

Straight-line rent adjustments (526) (240)

Amortization of above/below market lease intangibles (283) (190)

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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