NETSTREIT Corp

Previous wording

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. We also invest in property developments and mortgage loans secured by real estate. As of June 30, 2024, we owned or had investments in 649 single-tenant retail net leased properties that were diversified by tenant, industry and geography, including 90 different tenants, across 26 retail sectors in 45 states. This excludes 12 property developments where rent has yet to commence. 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, all of which we refer to as defensive retail industries. As of June 30, 2024, our investments generated ABR 1 of $148.3 million. Approximately 69% of our ABR is from investment grade 2 credit rated tenants and an additional 14% of our ABR is derived from tenants with an investment grade profile 3. Exclusive of mortgage loans receivable, our portfolio was 100% occupied with a weighted average remaining lease term (“WALT”) of 9.5 years, which we believe provides us with a strong stable source of recurring cash flow from our portfolio.

Current wording

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. We also invest in property developments and mortgage loans secured by real estate. As of September 30, 2024, we owned or had investments in 671 single-tenant retail net leased properties that were diversified by tenant, industry and geography, including 93 different tenants, across 26 retail sectors in 45 states. This excludes eight property developments where rent has yet to commence. 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, all of which we refer to as defensive retail industries. As of September 30, 2024, our investments generated ABR 1 of $157.0 million. Approximately 61% of our ABR is from investment grade 2 credit rated tenants and an additional 14% of our ABR is derived from tenants with an investment grade profile 3. Exclusive of mortgage loans receivable, our portfolio was 100% occupied with a weighted average remaining lease term (“WALT”) of 9.5 years, which we believe provides us with a strong stable source of recurring cash flow from our portfolio.

Previous wording

In January 2024, we completed a registered public offering of 11,040,000 shares of our common stock at a public offering price of $18.00 per share. In connection with the offering, we entered into forward sale agreements for 11,040,000 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 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 9, 2025. 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 counterparty in certain circumstances. No physical settlement has occurred under the January 2024 forward sale agreements through June 30, 2024.

Current wording

In January 2024, we completed a registered public offering of 11,040,000 shares of our common stock at a public offering price of $18.00 per share. In connection with the offering, we entered into forward sale agreements for 11,040,000 shares of our common stock. We did not initially receive any proceeds from the sale of shares of common stock by the forward purchasers.

Previous wording

On October 25, 2023, we entered into a $300.0 million at-the-market equity program (the “2023 ATM Program”) through which, from time to time, we may sell shares of our common stock in registered transactions. During April 2024, we entered into forward sale agreements for an aggregate of 1,635,600 shares of our common stock under the 2023 ATM Program at a weighted average price of $17.63 per share, none of which have been physically settled. As of June 30, 2024, we had $222.7 million in remaining gross proceeds available for future issuances of shares of our common stock under the 2023 ATM Program, inclusive of unsettled shares under forward confirmation.

Current wording

On October 25, 2023, we entered into a $300.0 million at-the-market equity program (the “2023 ATM Program”) through which, from time to time, we may sell shares of our common stock in registered transactions. During 2024, we entered into forward sale agreements for an aggregate of 1,743,100 shares of our common stock under the 2023 ATM Program at a weighted average price of $17.67 per share, none of which have been physically settled as of September 30, 2024. We may 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 April 12, 2025.

Previous wording

On September 1, 2021, we entered into a $250.0 million at-the-market equity program (the “2021 ATM Program”). On September 14, 2023, we entered into a forward confirmation with respect to 7,500,000 shares of our common stock under the 2021 ATM Program. On June 26, 2024, we partially physically settled 4,000,000 shares of common stock at a price of $16.43 per share under such forward confirmation for net proceeds of approximately $65.3 million, net of sales commissions and offering costs of $0.7 million. 1,983,711 shares remain unsettled under the forward confirmation as of June 30, 2024. We may physically settle this forward confirmation (by the delivery of shares of common stock) and receive proceeds from the sale of those shares on one or more forward settlement dates, which shall occur no later than September 13, 2024.

Current wording

On September 1, 2021, we entered into a $250.0 million at-the-market equity program (the “2021 ATM Program”). On September 14, 2023, we entered into a forward sale agreement with respect to 7,500,000 shares of our common stock under the 2021 ATM Program. On September 26, 2024, we physically settled 1,983,711 shares of common stock at a price of $16.41 per share under such forward sale agreement for net proceeds of approximately $32.3 million, net of sales commissions and offering costs of $0.4 million. As of September 30, 2024, we had fully settled the forward sale agreement.

Previous wording

We continued to grow our assets during the first half of 2024 through the acquisition of properties, property developments, and investment in mortgage loans receivable. This growth was financed through a $100.0 million draw on our $250.0 million sustainably-linked senior unsecured term loan (the “2029 Term Loan”), settlement of shares of common stock through our forward sale agreements in an amount of $65.3 million, the usage of cash balances as a result of borrowings on our Revolver, the usage of restricted cash balances as a result of tax-free exchanges under Section 1031 of the Internal Revenue Code of 1986, and cash flows from operations during the six months ended June 30, 2024.

Current wording

We continued to grow our assets during the nine months ended September 30, 2024 through the acquisition of properties, property developments, and investment in mortgage loans receivable. This growth was financed through a $100.0 million draw on our $250.0 million sustainably-linked senior unsecured term loan (the “2029 Term Loan”), settlement of shares of common stock through our forward sale agreements in an amount of $135.4 million, the usage of cash balances as a result of borrowings on our Revolver, the usage of restricted cash balances as a result of tax-free exchanges under Section 1031 of the Internal Revenue Code of 1986, and cash flows from operations during the nine months ended September 30, 2024.

Previous wording

During the three months ended June 30, 2024, we acquired 18 properties for a total purchase price of $95.6 million, inclusive of $0.6 million of capitalized acquisition costs. The acquisitions were all accounted for as asset acquisitions. These properties are located in 16 states with a WALT of approximately 17.1 years. The underwritten weighted-average capitalization rate on our second quarter acquisitions was approximately 7.3%.

Current wording

During the three months ended September 30, 2024, we acquired 22 properties for a total purchase price of $111.5 million, inclusive of $1.1 million of capitalized acquisition costs. The acquisitions were all accounted for as asset acquisitions. These properties are located in 10 states with a WALT of approximately 12.1 years. The underwritten weighted-average capitalization rate on our second quarter acquisitions was approximately 7.3%.

Previous wording

During the six months ended June 30, 2024, we acquired 46 properties for a total purchase price of $190.8 million, inclusive of $1.8 million of capitalized acquisition costs. The acquisitions were all accounted for as asset acquisitions. These properties are located in 22 states with a WALT of approximately 13.9 years. The underwritten weighted-average capitalization rate on our year to date acquisitions was approximately 7.3%.

Current wording

During the nine months ended September 30, 2024, we acquired 68 properties for a total purchase price of $302.3 million, inclusive of $2.8 million of capitalized acquisition costs. The acquisitions were all accounted for as asset acquisitions. These properties are located in 24 states with a WALT of approximately 13.2 years. The underwritten weighted-average capitalization rate on our year to date acquisitions was approximately 7.3%.

Previous wording

As of June 30, 2024, we had eight property developments under construction. During the three months ended June 30, 2024, we invested $12.0 million in property developments, including the land acquisition of two new developments with a combined initial purchase price of $1.2 million. During the six months ended June 30, 2024, we invested $23.0 million in property developments, including the land acquisition of four new developments with a combined initial purchase price of $2.0 million. During the six months ended June 30, 2024, we completed development on 14 projects and reclassified approximately $35.3 million from property under development to land, buildings and improvements, and other assets (leasing commissions) in the accompanying condensed consolidated balance sheets. Rent commenced for 10 of the completed developments during the six months ended June 30, 2024, while rent is expected to commence for the other four completed developments in the third quarter of 2024. The remaining eight developments are expected to be substantially completed with rent commencing at various points throughout 2024. The purchase price, including acquisition costs, and subsequent development are included in property under development in the accompanying condensed consolidated balance sheets as of June 30, 2024.

Current wording

As of September 30, 2024, we had six property developments under construction. During the three months ended September 30, 2024, we invested $5.0 million in property developments. During the nine months ended September 30, 2024, we invested $27.9 million in property developments, including the land acquisition of four new developments with a combined initial purchase price of $2.0 million. During the nine months ended September 30, 2024, we completed development on 16 projects and reclassified approximately $47.8 million from property under development to land, buildings and improvements, and other assets (leasing commissions) in the accompanying condensed consolidated balance sheets. Rent commenced for 14 of the completed developments during the nine months ended September 30, 2024, while rent is expected to commence for the other two completed developments in the fourth quarter of 2024. The remaining six developments are expected to be substantially completed with rent commencing at various points throughout the fourth quarter of 2024 and the first quarter of 2025. The purchase price, including acquisition costs, and subsequent development are included in property under development in the accompanying condensed consolidated balance sheets as of September 30, 2024.

Previous wording

During the three months ended June 30, 2024, we sold six properties for a total sales price, net of disposal costs of $12.1 million, recognizing a net gain of less than $0.1 million on the sales. During the six months ended June 30, 2024, we sold 18 properties for a total sales price, net of disposal costs of $32.5 million, recognizing a net gain of $1.0 million on the sales.

Current wording

During the three months ended September 30, 2024, we sold eight properties for a total sales price, net of disposal costs, of $23.0 million, recognizing a net loss of $0.1 million. During the nine months ended September 30, 2024, we sold 26 properties for a total sales price, net of disposal costs, of $55.6 million, recognizing a net gain of $0.9 million.

Previous wording

During the three and six months ended June 30, 2024, we invested an additional $7.8 million and $18.0 million, respectively, in fully collateralized mortgage loans receivable with stated interest rates of 10.25%. In addition, during the three and six months ended June 30, 2024, we collected $2.3 million in principal on our mortgage loans receivable. The mortgage loans receivable are collateralized by real estate, primarily leased by investment grade credit rated tenants. The funds provided under the loans, in addition to discount and loan origination costs, net of loan origination fees of less than $0.2 million, are included in mortgage loans receivable, net in the accompanying condensed consolidated balance sheets as of June 30, 2024. See “Note 4 - Real Estate Investments” in “Item 1 - Financial Statements (unaudited)” for further discussion on our mortgage loans receivable portfolio.

Current wording

During the three and nine months ended September 30, 2024, we invested an additional $21.0 million and $39.0 million, respectively, in fully collateralized mortgage loans receivable with stated interest rates ranging from 6.9% to 13.1%, inclusive of $12.7 million provided through seller financing transactions for both periods presented. In addition, during the three and nine months ended September 30, 2024, we collected $8.9 million and $11.3 million, respectively, in principal on our mortgage loans receivable. The mortgage loans receivable are collateralized by real estate, primarily leased by investment grade credit rated tenants. The funds provided under the loans, in addition to discount and loan origination costs, net of loan origination fees of less than $0.2 million, are included in mortgage loans receivable, net in the accompanying condensed consolidated balance sheets as of September 30, 2024. See “Note 4 - Real Estate Investments” in “Item 1 - Financial Statements (unaudited)” for further discussion on our mortgage loans receivable portfolio.

Previous wording

The annual inflation rate for both the the six months ended June 30, 2024 and 2023 was 3.0%. While the Federal Reserve had been raising interest rates in an effort to lower inflation throughout 2022 and the first half of 2023, rates have remained unchanged for nearly a year and there continues to be uncertainty in 2024 as to whether rates will be maintained or potentially cut, and the timing of potential cuts, leading to uncertainties in the financing market and broader economy.

Current wording

The annual inflation rate for the nine months ended September 30, 2024 and 2023 was 2.4% and 3.7%, respectively. While the Federal Reserve raised interest rates in an effort to lower inflation throughout 2022 and the first half of 2023, rates had remained unchanged for nearly a year until the first rate cut occurred in September 2024. There continues to be uncertainty in 2024 as to whether rates will be maintained or further cut, and the timing of potential cuts, leading to uncertainties in the financing market and broader economy.

Previous wording

Revenue. Revenue for the three months ended June 30, 2024 increased by $8.0 million to $39.6 million from $31.6 million for the three months ended June 30, 2023, which is attributed to an increase in the number of our operating leases and properties securing our mortgage loans. The increase includes additional cash rental receipts of $6.6 million, an increase of $0.8 million related to interest income on mortgage loans receivable, combined with net increases of property expense reimbursements of $0.1 million, and an increase of $0.4 million in straight-line rental revenue.

Current wording

Revenue. Revenue for the three months ended September 30, 2024 increased by $7.4 million to $41.4 million from $34.0 million for the three months ended September 30, 2023, which is attributed to an increase in the number of our operating leases and properties securing our mortgage loans. The increase includes additional cash rental receipts of $6.8 million, an increase of $1.0 million related to interest income on mortgage loans receivable, and an increase of $0.5 million in straight-line rental revenue. The increase in revenue is offset by $0.6 million in other revenue recognized in the prior year related to the receipt of legal settlement proceeds associated with a lease termination, combined with net decreases of property expense reimbursements of $0.4 million.

Previous wording

Total operating expenses. Total expenses increased by $4.2 million to $31.7 million for the three months ended June 30, 2024 as compared to $27.5 million for the three months ended June 30, 2023. The increase is primarily attributed to an increase in the number of operating properties, with the most significant increases being depreciation and amortization expense, provisions for impairment, property-specific reimbursable expenses, and payroll related costs. Total operating expenses include the following:

Current wording

Total operating expenses. Total expenses increased by $12.6 million to $39.1 million for the three months ended September 30, 2024 as compared to $26.5 million for the three months ended September 30, 2023. The increase is primarily attributed to an increase in the number of operating properties, with the most significant increases being depreciation and amortization expense, provisions for impairment, and property-specific reimbursable expenses. The increase is offset by a decrease in payroll related costs. Total operating expenses include the following:

Previous wording

•Property expenses. Property expenses increased $0.5 million to $4.0 million for the three months ended June 30, 2024 from $3.5 million for the three months ended June 30, 2023. The increase is primarily attributed to the increase in the number of operating properties, including combined net increases of reimbursable property expenses of $0.4 million, of which $0.2 million and $0.2 million were related to reimbursable property taxes and reimbursable common area maintenance costs, respectively.

Current wording

•Property expenses. Property expenses increased $0.6 million to $4.5 million for the three months ended September 30, 2024 from $3.9 million for the three months ended September 30, 2023. The increase is primarily attributed to the increase in the number of operating properties, including combined net increases of reimbursable property expenses of $0.6 million, of which $0.3 million, $0.1 million, and $0.2 million were related to reimbursable common area maintenance costs, reimbursable property insurance, and reimbursable property taxes, respectively.

Previous wording

•General and administrative expenses. General and administrative expenses increased $0.8 million to $11.0 million for the six months ended June 30, 2024 from $10.2 million for the six months ended June 30, 2023. The increase is primarily due to employee severance of $1.4 million, including cash severance of $0.9 million and the expense associated with the accelerated vesting of stock-based compensation of $0.5 million, and an increase of $0.5 million of stock-based compensation. These expenses were offset by decreases of $0.4 million of payroll expenses and $0.4 million of bonus expenses, decreases of $0.2 millions of corporate insurance premiums, and other combined net decreases of $0.1 million. While our general and administrative expenses will continue to rise in some measure as our portfolio grows, we expect that such expenses as a percentage of our portfolio will decrease over time due to efficiencies and economies of scale.

Current wording

•General and administrative expenses. General and administrative expenses decreased $0.8 million to $4.3 million for the three months ended September 30, 2024 from $5.1 million for the three months ended September 30, 2023. The decreases within general and administrative expense were primarily related to decreases of $0.3 million of payroll expenses and $0.7 million of bonus expenses, offset by other combined net increases of $0.2 million. While our general and administrative expenses will continue to rise in some measure as our portfolio grows, we expect that such expenses as a percentage of our portfolio will decrease over time due to efficiencies and economies of scale.

Previous wording

•Depreciation and amortization. Depreciation and amortization expense increased $2.7 million to $18.5 million for the three months ended June 30, 2024 from $15.8 million for the three months ended June 30, 2023. The increase in depreciation and amortization is proportionate to the increase in the size of the portfolio over the comparable period with associated increases primarily in building depreciation expense of $1.7 million, building improvements depreciation expense of $0.5 million, and in-place lease amortization expense of $0.4 million.

Current wording

•Depreciation and amortization. Depreciation and amortization expense increased $4.6 million to $20.4 million for the three months ended September 30, 2024 from $15.8 million for the three months ended September 30, 2023. The increase in depreciation and amortization is proportionate to the increase in the size of the portfolio over the comparable period with associated increases primarily in building depreciation expense of $2.5 million, building improvements depreciation expense of $0.9 million, and in-place lease amortization expense of $0.9 million.

Previous wording

•Provision for impairment. For the three months ended June 30, 2024, we recorded provisions for impairment of $3.8 million on 12 properties, the majority of which were either previously classified as held-for-sale, newly classified as held-for-sale or disposed of during three months ended June 30, 2024. Two of the properties were held for investment as of June 30, 2024. For the three months ended June 30, 2023, we recorded a provision for impairment of $2.8 million on six properties, all of which were classified as held-for-sale during the three months ended June 30, 2023. These disposals relate to management’s continuous assessment of the Company’s portfolio in an effort to improve returns and manage risk exposure.

Current wording

•Provision for impairment. For the three months ended September 30, 2024, we recorded provisions for impairment of $9.8 million on 18 properties, the majority of which were newly classified as held-for-sale or disposed of during the three months ended September 30, 2024. Three of the properties were held for investment as of September 30, 2024. For the three months ended September 30, 2023, we recorded provisions for impairment of $1.5 million on seven properties, which were either previously classified as held-for-sale, newly classified as held-for-sale, or disposed of during the three months ended September 30, 2023. These disposals relate to management’s continuous assessment of our portfolio in an effort to improve returns and manage risk exposure.

Previous wording

Interest expense, net. Interest expense increased by $2.1 million to $7.6 million for the three months ended June 30, 2024 from $5.5 million for the three months ended June 30, 2023. The increase is primarily attributed to an increase of $3.2 million of interest incurred under our $250.0 million senior unsecured term loan (the “2029 Term Loan”), an increase of $0.8 million of interest incurred under our $175.0 million senior unsecured term loan (the “2027 Term Loan”), and an increase of $0.3 million of loan fee amortization. This is offset by a decrease of $0.9 million of interest incurred under our Revolver primarily due to a decrease in average borrowings outstanding during the respective periods and $1.0 million in amortization of deferred gains on interest rate swaps.

Current wording

Interest expense, net. Interest expense increased by $4.1 million to $8.0 million for the three months ended September 30, 2024 from $3.9 million for the three months ended September 30, 2023. The increase is primarily attributed to an increase of $1.2 million of interest incurred under our $250.0 million senior unsecured term loan (the “2029 Term Loan”), an increase of $1.0 million of interest incurred under our $175.0 million senior unsecured term loan (the “2027 Term Loan”), an increase of $1.5 million of interest incurred under our Revolver primarily due to a increase in average borrowings outstanding during the respective periods, and a decrease of $0.3 million of interest capitalized on our property developments.

Previous wording

Gain on sales of real estate, net. Net gain on sales of real estate decreased by $0.6 million for the three months ended June 30, 2024 from $0.6 million for the three months ended June 30, 2023. The table below summarizes the properties sold for the periods indicated (dollars in thousands):

Current wording

(Loss) gain on sales of real estate, net. Net loss on sales of real estate increased by $0.5 million to $0.1 million for the three months ended September 30, 2024 from a $0.4 million net gain for the three months ended September 30, 2023. The table below summarizes the properties sold for the periods indicated (dollars in thousands):

Previous wording

Net loss. Net loss increased $1.5 million to a net loss of $2.3 million for the three months ended June 30, 2024 from a net loss of $0.8 million for the three months ended June 30, 2023. Net loss increased primarily due to increases in interest expense, depreciation and amortization expense, provisions for impairment, a decrease in the net gain on the sales of real estate, and net expense associated with the transfer fraud loss, as set forth above. These decreases are offset by increases in additional rental revenues primarily due to the growth in the size of our real estate investment portfolio, in addition to increased interest income associated with our mortgage loans receivable.

Current wording

Net (loss) income. Net (loss) income decreased $9.5 million to a net loss of $5.3 million for the three months ended September 30, 2024 from net income of $4.2 million for the three months ended September 30, 2023. Net (loss) income decreased primarily due to increases in interest expense, depreciation and amortization expense, and provisions for impairment, as set forth above. These decreases are offset by increases in additional rental revenues primarily due to the growth in the size of our real estate investment portfolio, in addition to increased interest income associated with our mortgage loans receivable.

Previous wording

Revenue. Revenue for the six months ended June 30, 2024 increased by $16.1 million to $77.2 million from $61.1 million for the six months ended June 30, 2023, which is attributed to an increase in the number of our operating leases and properties securing our mortgage loans. The increase includes additional cash rental receipts of $13.5 million, an increase of $2.3 million related to interest income on mortgage loans receivable, and an increase of $0.6 million in straight-line rental revenue, offset by $0.2 million of combined net decreases of property expense reimbursements.

Current wording

Revenue. Revenue for the nine months ended September 30, 2024 increased by $23.7 million to $118.7 million from $95.0 million for the nine months ended September 30, 2023, which is attributed to an increase in the number of our operating leases and properties securing our mortgage loans. The increase includes additional cash rental receipts of $20.2 million, an increase of $3.3 million related to interest income on mortgage loans receivable, and an increase of $1.0 million in straight-line rental revenue, offset by $0.6 million of combined net decreases of property expense reimbursements.

Previous wording

Total operating expenses. Total expenses increased by $11.4 million to $62.8 million for the six months ended June 30, 2024 as compared to $51.4 million for the six months ended June 30, 2023. The increase is primarily attributed to an increase in the number of operating properties, with the most significant increases being depreciation and amortization expense, provisions for impairment, property-specific reimbursable expenses, and payroll related costs. Total operating expenses include the following:

Current wording

Total operating expenses. Total expenses increased by $24.0 million to $101.9 million for the nine months ended September 30, 2024 as compared to $77.9 million for the nine months ended September 30, 2023. The increase is primarily attributed to an increase in the number of operating properties, with the most significant increases being depreciation and amortization expense, provisions for impairment, and property-specific reimbursable expenses. Total operating expenses include the following:

Previous wording

•Property expenses. Property expenses increased $0.6 million to $8.1 million for the six months ended June 30, 2024 from $7.5 million for the six months ended June 30, 2023. The increase is primarily attributed to the increase in the number of operating properties, including combined net increases of reimbursable property expenses of $0.5 million, of which $0.6 million was related to reimbursable property taxes, offset by a $0.2 million decrease in reimbursable common area maintenance costs, respectively.

Current wording

•Property expenses. Property expenses increased $1.2 million to $12.6 million for the nine months ended September 30, 2024 from $11.4 million for the nine months ended September 30, 2023. The increase is primarily attributed to the increase in the number of operating properties, including combined net increases of reimbursable property expenses of $0.8 million, of which $0.7 million was related to reimbursable property taxes, and combined net increases of non-reimbursable property expenses of $0.4 million, of which $0.2 million, $0.1 million, and $0.1 million were related to common area maintenance costs, property insurance, and property taxes, respectively.

Previous wording

•General and administrative expenses. General and administrative expenses were $5.3 million for both the three months ended June 30, 2024 and 2023. The increases within general and administrative expense were primarily related to employee severance of $0.6 million, including cash severance of $0.4 million and the expense associated with the accelerated vesting of stock-based compensation of $0.2 million, and an increase of $0.1 million of stock-based compensation. These expenses were offset by decreases of $0.3 million of payroll expenses and $0.5 million of bonus expenses, and other combined net decreases of $0.1 million. While our general and administrative expenses will continue to rise in some measure as our portfolio grows, we expect that such expenses as a percentage of our portfolio will decrease over time due to efficiencies and economies of scale.

Current wording

•General and administrative expenses. General and administrative expenses were $15.3 million for both the nine months ended September 30, 2024 and 2023. The net changes within general and administrative expense were primarily related to decreases of $0.7 million of payroll expenses and $1.1 million of bonus expenses, and decreases of $0.3 million of corporate insurance premiums, offset by increases in employee severance of $1.5 million, including cash severance of $1.0 million and the expense associated with the accelerated vesting of stock-based compensation of $0.5 million, and an increase of $0.6 million of stock-based compensation. While our general and administrative expenses will continue to rise in some measure as our portfolio grows, we expect that such expenses as a percentage of our portfolio will decrease over time due to efficiencies and economies of scale.

Previous wording

•Depreciation and amortization. Depreciation and amortization expense increased $5.3 million to $36.1 million for the six months ended June 30, 2024 from $30.8 million for the six months ended June 30, 2023. The increase in depreciation and amortization is proportionate to the increase in the size of the portfolio over the comparable period with associated increases primarily in building depreciation expense of $3.4 million, building improvements depreciation expense of $1.0 million, and in-place lease amortization expense of $0.6 million.

Current wording

•Depreciation and amortization. Depreciation and amortization expense increased $9.9 million to $56.5 million for the nine months ended September 30, 2024 from $46.6 million for the nine months ended September 30, 2023. The increase in depreciation and amortization is proportionate to the increase in the size of the portfolio over the comparable period with associated increases primarily in building depreciation expense of $5.9 million, building improvements depreciation expense of $1.9 million, in-place lease amortization expense of $1.5 million, leasehold improvements depreciation expense of $0.3 million, and amortization of leasing commissions of $0.3 million.

Previous wording

•Provision for impairment. For the six months ended June 30, 2024, we recorded provisions for impairment of $7.5 million on 23 properties, the majority of which were either previously classified as held-for-sale, newly classified as held-for-sale or disposed of during six months ended June 30, 2024. Six of the properties were held for investment as of June 30, 2024. For the six months ended June 30, 2023, we recorded a provision for impairment of $2.8 million on six properties, all of which were classified as held-for-sale during the six months ended June 30, 2023. These disposals relate to management’s continuous assessment of the Company’s portfolio in an effort to improve returns and manage risk exposure.

Current wording

•Provision for impairment. For the nine months ended September 30, 2024, we recorded provisions for impairment of $17.3 million on 40 properties, the majority of which were either previously classified as held-for-sale, newly classified as held-for-sale or disposed of during the nine months ended September 30, 2024. Nine of the properties were held for investment as of September 30, 2024. For the nine months ended September 30, 2023, we recorded provisions for impairment of $4.4 million on 10 properties, which were either previously classified as held-for-sale, newly classified as held-for-sale, or disposed of during the nine months ended September 30, 2023. These disposals relate to management’s continuous assessment of our portfolio in an effort to improve returns and manage risk exposure.

Previous wording

Interest expense, net. Interest expense increased by $4.3 million to $13.8 million for the six months ended June 30, 2024 from $9.5 million for the six months ended June 30, 2023. The increase is primarily attributed to an increase of $5.5 million of interest incurred under our 2029 Term Loan, an increase of $1.6 million of interest incurred under our 2027 Term Loan, and an increase of $0.5 million of loan fee amortization. This is offset by a decrease of $1.0 million of interest incurred under our Revolver primarily due to a decrease in average borrowings outstanding during the respective periods, $2.0 million in amortization of deferred gains on interest rate swaps, and an increase of $0.3 million of interest capitalized on our property developments.

Current wording

Interest expense, net. Interest expense increased by $8.3 million to $21.7 million for the nine months ended September 30, 2024 from $13.4 million for the nine months ended September 30, 2023. The increase is primarily attributed to an increase of $6.6 million of interest incurred under our 2029 Term Loan, an increase of $2.5 million of interest incurred under our 2027 Term Loan, an increase of $0.5 million of interest incurred under our Revolver primarily due to an increase in average borrowings outstanding during the respective periods, and an increase of $0.5 million of loan fee amortization. This is offset by $1.8 million in amortization of deferred gains on interest rate swaps.

Previous wording

Gain on sales of real estate, net. Net gain on sales of real estate increased by $0.7 million to $1.0 million for the six months ended June 30, 2024 from $0.3 million for the six months ended June 30, 2023. The table below summarizes the properties sold for the periods indicated (in thousands):

Current wording

Gain on sales of real estate, net. Net gain on sales of real estate increased by $0.2 million to $0.9 million for the nine months ended September 30, 2024 from $0.7 million for the nine months ended September 30, 2023. The table below summarizes the properties sold for the periods indicated (in thousands):

Previous wording

Other (expense) income, net. Other (expense) income, net increased by $3.1 million to $2.9 million for the six months ended June 30, 2024 from $0.2 million for the six months ended June 30, 2023. The net increase to expense is primarily related to a transfer fraud loss of $2.8 million, net of insurance recoveries, $0.9 million of losses associated with property damages related to flooding and foundation issues, offset by $0.5 million of proceeds received from the settlement of a lease escrow agreement. Refer to “Other Events” above for further detail on the transfer fraud loss.

Current wording

Other (expense) income, net. Other (expense) income, net increased by $3.1 million to $2.5 million for the nine months ended September 30, 2024 from $0.6 million for the nine months ended September 30, 2023. The net increase to expense is primarily related to a transfer fraud loss of $2.8 million, net of insurance recoveries, $0.9 million of losses associated with property damages related to flooding and foundation issues, offset by $0.5 million of proceeds received from the settlement of a lease escrow agreement.

Previous wording

Net (loss) income. Net (loss) income decreased $2.0 million to a net loss of $1.3 million for the six months ended June 30, 2024 from net income of $0.7 million for the six months ended June 30, 2023. Net (loss) income decreased primarily due to increases in interest expense, depreciation and amortization expense, provisions for impairment, and net expense associated with the transfer fraud loss, as set forth above. These decreases are offset by an increase in the net gain on the sales of real estate, increases in additional rental revenues primarily due to the growth in the size of our real estate investment portfolio, in addition to increased interest income associated with our mortgage loans receivable.

Current wording

Net (loss) income. Net (loss) income decreased $11.5 million to a net loss of $6.6 million for the nine months ended September 30, 2024 from net income of $4.9 million for the nine months ended September 30, 2023. Net (loss) income decreased primarily due to increases in interest expense, depreciation and amortization expense, provisions for impairment, and net expense associated with the transfer fraud loss, as set forth above. These decreases are offset by increases in additional rental revenues primarily due to the growth in the size of our real estate investment portfolio, in addition to increased interest income associated with our mortgage loans receivable.

Previous wording

Our primary capital requirements are to fund property acquisitions and developments, fund investments in mortgage loans receivable and required interest payments, and fund working capital needs, operating expenses, and capital expenditures. Our capital resources primarily consist of cash from operations, sales of equity securities and available borrowing facilities. As of June 30, 2024, we had $175.0 million outstanding principal amount under the senior unsecured term loan (the “2027 Term Loan”), $200.0 million outstanding principal amount under the senior unsecured term loan (the “2028 Term Loan”), $250.0 million outstanding principal amount under the 2029 Term Loan, and $98.0 million of borrowings outstanding under our $400.0 million senior unsecured revolving credit facility (the “Revolver”). Additionally, as of June 30, 2024, we had $32.6 million and $30.6 million of unsettled forward equity under the 2021 ATM Program and 2023 ATM Program, respectively. As of June 30, 2024, $222.7 million of remaining gross proceeds were available for future issuances of shares of our common stock under the 2023 ATM Program, inclusive of unsettled shares under forward confirmation. Lastly, we had $190.4 million of unsettled forward equity under the January 2024 forward sale agreements as of June 30, 2024.

Current wording

Our primary capital requirements are to fund property acquisitions and developments, fund investments in mortgage loans receivable and required interest payments, and fund working capital needs, operating expenses, and capital expenditures. Our capital resources primarily consist of cash from operations, sales of equity securities and available borrowing facilities. As of September 30, 2024, we had $175.0 million outstanding principal amount under the senior unsecured term loan (the “2027 Term Loan”), $200.0 million outstanding principal amount under the senior unsecured term loan (the “2028 Term Loan”), $250.0 million outstanding principal amount under the 2029 Term Loan, and $150.0 million of borrowings outstanding under our $400.0 million senior unsecured revolving credit facility (the “Revolver”). Additionally, as of September 30, 2024, we had $30.6 million and $2.6 million of unsettled forward equity under the 2023 ATM Program and 2024 ATM Program, respectively. As of September 30, 2024, $300.0 million of remaining gross proceeds were available for future issuances of shares of our common stock under the 2024 ATM Program, inclusive of unsettled shares under forward sale agreements. Lastly, we had $152.3 million of unsettled forward equity under the January 2024 forward sale agreements as of September 30, 2024.

Previous wording

We believe the availability of proceeds from the settlement of unsettled outstanding forward confirmations, future issuances of shares of our common stock under the 2023 ATM Program or subsequent at-the-market sale programs, as well as our cash flows from operations and available borrowing capacity under the Revolver, will be adequate to support our ongoing operations and to fund our debt service requirements, capital expenditures and working capital requirements for at least the next 12 months. We anticipate funding our long-term capital needs through cash provided from operations, borrowings under our Revolver, and issuances of common stock.

Current wording

We believe the availability of proceeds from the settlement of unsettled outstanding forward sale agreements, future issuances of shares of our common stock under the 2024 ATM Program, or subsequent at-the-market sale programs, as well as our cash flows from operations and available borrowing capacity under the Revolver, will be adequate to support our ongoing operations and to fund our debt service requirements, capital expenditures and working capital requirements for at least the next 12 months. We anticipate funding our long-term capital needs through cash provided from operations, borrowings under our Revolver, and issuances of common stock.

Previous wording

As of June 30, 2024, our contractual debt obligations primarily include the maturity of our 2027 Term Loan with the scheduled principal payment due on January 15, 2026, the maturity of our 2028 Term Loan with the scheduled principal payment due on February 11, 2028, the maturity of our 2029 Term Loan with the scheduled principal payment due on July 3, 2026, and repayment of borrowings on our Revolver with a maturity of July 3, 2026, and repayment of borrowings on our Revolver with a maturity of August 11, 2026. During the six months ended June 30, 2024, we borrowed $190.0 million at a weighted average interest rate of 6.51% and also repaid $172.0 million on our Revolver.

Current wording

As of September 30, 2024, our contractual debt obligations primarily include the maturity of our 2027 Term Loan with the scheduled principal payment due on January 15, 2026, the maturity of our 2028 Term Loan with the scheduled principal payment due on February 11, 2028, the maturity of our 2029 Term Loan with the scheduled principal payment due on July 3, 2026, and the repayment of borrowings on our Revolver with a contractual maturity of August 11, 2026. During the nine months ended September 30, 2024, we borrowed $251.0 million at a weighted average interest rate of 6.49% and also repaid $181.0 million on our Revolver.

Previous wording

(1)We entered into five interest rate hedges to fix the base interest rate (daily SOFR) on our 2027 Term Loan. The hedged fixed rate reset effective November 27, 2023 to 1.87% and will reset again effective December 23, 2024 to 2.40%. Accordingly, the projected interest rate obligations for the variable rate 2027 Term Loan are based on the hedged fixed rate of 1.87% through December 23, 2024, and 2.40% thereafter, compared to the variable 2027 Term Loan daily SOFR rate as of June 30, 2024 of 5.31%, plus a SOFR adjustment of 0.10%, and applicable margin of 1.15% based on the $175.0 million 2027 Term Loan outstanding through the contractual maturity date of January 15, 2026.

Current wording

(1)We entered into five interest rate hedges to fix the base interest rate (daily SOFR) on our 2027 Term Loan. The hedged fixed rate reset effective November 27, 2023 to 1.87% and will reset again effective December 23, 2024 to 2.40%. Accordingly, the projected interest rate obligations for the variable rate 2027 Term Loan are based on the hedged fixed rate of 1.87% through December 23, 2024, and 2.40% thereafter, compared to the variable 2027 Term Loan daily SOFR rate as of September 30, 2024 of 4.83%, plus a SOFR adjustment of 0.10%, and applicable margin of 1.15% based on the $175.0 million 2027 Term Loan outstanding through the contractual maturity date of January 15, 2026.

Previous wording

(2)We entered into three interest rate hedges to fix the base interest rate (one-month SOFR) on our 2028 Term Loan. Accordingly, the projected interest rate obligations for the variable rate 2028 Term Loan are based on the hedged fixed rate of 2.63% compared to the variable 2028 Term Loan one-month SOFR rate as of June 30, 2024 of 5.33%, plus a SOFR adjustment of 0.10% and applicable margin of 1.15% based on the $200.0 million 2028 Term Loan outstanding through the maturity date of February 11, 2028.

Current wording

(2)We entered into three interest rate hedges to fix the base interest rate (one-month SOFR) on our 2028 Term Loan. Accordingly, the projected interest rate obligations for the variable rate 2028 Term Loan are based on the hedged fixed rate of 2.63% compared to the variable 2028 Term Loan one-month SOFR rate as of September 30, 2024 of 5.20%, plus a SOFR adjustment of 0.10% and applicable margin of 1.15% based on the $200.0 million 2028 Term Loan outstanding through the maturity date of February 11, 2028.

Previous wording

(3)We entered into four interest rate hedges to fix the base interest rate (daily SOFR) on our 2029 Term Loan. Accordingly, the projected interest rate obligations for the variable rate 2029 Term Loan are based on the hedged fixed rate of 3.74% compared to the variable 2029 Term Loan daily SOFR rate as of June 30, 2024 of 5.34%, plus a SOFR adjustment of 0.10% and applicable margin of 1.15% based on the $250.0 million of the 2029 Term Loan outstanding through the contractual maturity date of July 3, 2026.

Current wording

(3)We entered into four interest rate hedges to fix the base interest rate (daily SOFR) on our 2029 Term Loan. Accordingly, the projected interest rate obligations for the variable rate 2029 Term Loan are based on the hedged fixed rate of 3.74% compared to the variable 2029 Term Loan daily SOFR rate as of September 30, 2024 of 4.83%, plus a SOFR adjustment of 0.10% and applicable margin of 1.15% based on the $250.0 million 2029 Term Loan outstanding through the contractual maturity date of July 3, 2026.

Previous wording

In August 2021, we entered into a lease agreement on a new corporate office space, which is classified as an operating lease. We began operating out of the new office in February 2022. The lease has a remaining noncancellable term of 8.1 years that expires on July 31, 2032 and is renewable at our option for two additional periods of five years. Annual rent expense, excluding operating expenses, is approximately $0.5 million during the initial term.

Current wording

In August 2021, we entered into a lease agreement on a new corporate office space, which is classified as an operating lease. We began operating out of the new office in February 2022. The lease has a remaining noncancellable term of 7.8 years that expires on July 31, 2032 and is renewable at our option for two additional periods of five years. Annual rent expense, excluding operating expenses, is approximately $0.5 million during the initial term.

Previous wording

Additionally, in the normal course of business, we enter into various types of commitments to purchase real estate properties, fund development projects, or extend funds under mortgage notes receivable. These commitments are generally subject to our customary due diligence process and, accordingly, a number of specific conditions must be met before we are obligated to purchase or extend funding. As of June 30, 2024, we had commitments to fund properties under development and extend funds under mortgage notes receivable totaling $16.1 million and $3.7 million, respectively. Funding of properties under development is expected to occur over the next 18 months and funding of mortgage notes receivable is expected to occur throughout 2024 and the first half of 2025.

Current wording

Additionally, in the normal course of business, we enter into various types of commitments to purchase real estate properties, fund development projects, or extend funds under mortgage notes receivable. These commitments are generally subject to our customary due diligence process and, accordingly, a number of specific conditions must be met before we are obligated to purchase or extend funding. As of September 30, 2024, we had commitments to fund properties under development and extend funds under mortgage notes receivable totaling $11.2 million and $13.5 million, respectively. Funding of properties under development is expected to occur over the next 9 months and funding of mortgage notes receivable is expected to occur throughout 2024 and 2025.

Previous wording

Cash Flows Provided By Operating Activities. Net cash provided by operating activities increased by $2.6 million for the six months ended June 30, 2024 compared to the six months ended June 30, 2023. The increase was largely attributed to the increase in the size of our real estate investment portfolio with an increase in rental receipts of $13.5 million, offset primarily by increases in operating and general and administrative expenses paid associated with our larger portfolio, and further offset by changes in working capital accounts.

Current wording

Cash Flows Provided By Operating Activities. Net cash provided by operating activities increased by $10.6 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The increase was largely attributed to the increase in the size of our real estate investment portfolio with an increase in rental receipts of $20.2 million, additional interest received under our mortgage loans receivable, offset primarily by an increase in cash interest paid of $10.0 million, increases in operating and general and administrative expenses paid associated with our larger portfolio, and further offset by changes in working capital accounts.

Previous wording

Cash Flows Used In Investing Activities. Net cash used in investing activities decreased by $22.6 million for the six months ended June 30, 2024 compared to the six months ended June 30, 2023. The decrease was primarily due to a decrease in cash invested in mortgage loans receivable of $43.4 million, an increase of $13.2 million from proceeds from the sale of real estate, an increase of $2.3 million in principal collections on mortgage loans receivable, a decrease of $1.1 million of earnest money deposits, offset by an increase of $26.9 million in acquisitions of real estate and increase of $10.6 million in real estate development and improvements.

Current wording

Cash Flows Used In Investing Activities. Net cash used in investing activities decreased by $26.3 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The decrease was primarily due to a decrease in cash invested in mortgage loans receivable of $39.3 million, an increase of $18.1 million from proceeds from the sale of real estate, an increase of $11.3 million in principal collections on mortgage loans receivable, and a decrease of $10.4 million in real estate development and improvements, offset by an increase of $5.4 million of earnest money deposits and an increase of $47.6 million in acquisitions of real estate.