NETSTREIT Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 5, 2024

There are 12 speakers on the call.

Operator

Greetings and welcome to NetStreet Corp Third Quarter 20 24 Earnings Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms.

Operator

Amy Anne, Investor Relations. Thank you, Ms. Anne. You may begin.

Speaker 1

We thank you for joining us for NetStreet's Q3 2024 Earnings Conference Call. In addition to the press release distributed yesterday after market close, we posted a supplemental package and an updated investor presentation. Both can be found in the Investor Relations section of the company's website at www.netstreet.com. On today's call, management's remarks and answers to your questions may contain forward looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ from those discussed today.

Speaker 1

For more information about these risk factors, we encourage you to review our Form 10 ks for the year ended December 31, 2023, and our other SEC filings. All forward looking statements are made as of the date hereof, and NetStreet assumes no obligation to update any forward looking statements in the future. In addition, certain financial information presented on this call includes non GAAP financial measures. Please refer to our earnings release and supplemental package for definitions of our non GAAP measures, reconciliations to the most comparable GAAP measure and an explanation of why we believe such non GAAP financial measures are useful to investors. Today's conference call is hosted by NetStreet's Chief Executive Officer, Mark Manheimer and Chief Financial Officer, Dan Donlin.

Speaker 1

They will make some prepared remarks and then we will open the call for your questions. Now, I'll turn the call over to Mark. Mark?

Speaker 2

Thank you, Amy, and thank you all for joining us this morning on our Q3 2024 earnings call. I first want to congratulate the team on an outstanding quarter as we completed $152,000,000 of gross investments, our highest quarter on record, at a blended cash yield of 7.5% or 8% on a straight line basis, which has been our average on a year to date basis. Similar to last quarter, a greater portion of our Q3 investments were sale leasebacks as we have seen more attractive risk adjusted returns emerge from our opportunity set within that marketplace. Additionally, by sourcing more volume from this channel, our quarterly acquisitions had a longer weighted average lease term at 12.5 years with more attractive rent growth profiles. While our percentage investments leased to investment grade and investment grade profile tenants was below our portfolio average this quarter, we have continued to adhere to our stringent underwriting standards which require healthy tenant credit profiles, strong unit level cash flow, generic single tenant boxes, above average foot traffic and replaceable rents among many other attributes.

Speaker 2

Included in this activity were 4 development projects totaling over $18,000,000 that commenced rent in the quarter. As of today, our development pipeline consists of 8 projects with a total estimated cost of $22,000,000 which includes estimated remaining funding of $7,000,000 Turning to the portfolio, we ended the quarter with investments in 6.71 properties that were 100% leased to 93 tenants operating in 26 industries across 45 states. From a credit perspective, over 75% of our total ABR is leased to investment grade or investment grade profile tenants. Our weighted average lease term remaining on the portfolio is 9.5 years with less than 3% of ABR expiring through 2026. In addition to a robust quarter of investments, we also saw continued progress on the asset management front, which is indicative of the strength of our industry relationships and the speed of which our team can move when asked to perform.

Speaker 2

This was evidenced by our Q3 disposition activity as we executed on various strategic asset sales that reduced select tenant concentrations while accretively recycling the proceeds into investments with longer leases and better rent escalations. All told, we completed 8 dispositions in the quarter for total proceeds of $24,000,000 at a weighted cash yield of 7.3%. Turning to our industry concentrations. While the pharmacy and dollar store industries have garnered a number of less than positive headlines the past few months, we remain eminently comfortable in the long term productivity of our assets within these industries. Due to the in-depth analysis that we complete at underwriting coupled with consistent dialogue we have with these operators, we do not currently foresee any discernible economic impacts to our earnings stream from these industries which represent just 50 basis points of total expiring ABR between now and 2028 year end.

Speaker 2

As it pertains to Walgreens, we continue to believe that their planned store closures, which are likely to focus on near term lease expirations and unprofitable locations should have minimal to no impact on our occupancy. Amongst many other factors, our conviction in this view is driven by the fact that more than 2 thirds of our stores were purchased pursuant to blend and extend transactions, which is not only indicative of Walgreens' long term commitment to our sites, but also supports our view that our rents are more replaceable versus market. However, we felt it prudent to demonstrate that we can quickly and meaningfully reduce tenant concentrations, even those that are perceived to have challenges, while simultaneously reinvesting the proceeds at an accretive level. As outlined in the supplemental, we have reduced our Walgreens concentration from 5.9% at 2nd quarter end to its current concentration of 4.8%. While we endeavor to have all tenant concentrations below 5% longer term, our Walgreens concentration should decline further in coming quarters.

Speaker 2

Our weighted average lease term with Walgreens is approximately 10 years with just one lease expiring before 2,030, which we believe has virtually 0 renewal risk given its exceptionally high front end sales and its 99th percentile national ranking on Placer for foot traffic. Lastly, there is nothing to report on this front as of today, we have received a fair amount of inbound interest in our Walgreens locations, largely from large format convenience store operators who are currently willing to pay high rents for high quality locations similar to the properties that we own. We're also nearing a highly positive outcome as it relates to our Big Lots, which currently stands at 80 basis points of total ABR. As a reminder, prior to 2024, we decreased our Big Lots concentration from 11 stores to 8 stores in order to protect our cash flow in the event a financial restructuring occurred, which indeed happened this September. Of the 8 locations, one was assigned to Ali's Bargain Outlet, an existing investment grade profile tenant of ours.

Speaker 2

Another site is being marketed for lease in Bowie, Maryland, where we have received a number of attractive LOIs from major retailers and grocers. And the remaining 6 locations have all been assumed by Big Lots. As part of the negotiation, we extended the lease term to an average of 7.5 years, albeit we did agree to provide some short term rent relief during the bankruptcy process, which we expect to conclude sometime in December. Looking out to 2025, we should experience little to no loss in our rental stream from the 8 assets, while gaining longer lease terms from better credit profiles at ProvenRent. While we prefer not to have any noise around the health of our tenants' credit, we believe it is important to demonstrate that our underwriting of assets proved to be sound and resulted in minimal disruption to our cash flows.

Speaker 2

As a reminder, we view corporate credit, unit level cash flow production and the fungibility of our real estate as modes of protection around our rental streams. We are not simply buying high credit quality assets and hoping for the best. Our strong underwriting and asset management capabilities have and we believe will continue to help us generate extraordinarily consistent portfolio cash flow for our shareholders. Lastly, before I hand the call over to Dan, I'm pleased to share that effective October 1, Lori Whitman was appointed the Chair of the Board of Directors. Lori has been a valued member of our Board going back before our IPO and she has consistently demonstrated a deep understanding of our business and a commitment to our success.

Speaker 2

Her continued service will be instrumental as we execute on our strategic vision and long term growth. With that, I'll hand the call to Dan to go over our Q3 financials and then open up the call for your questions.

Operator

Thank you, Mark.

Speaker 3

Looking at our 3rd quarter earnings, we reported a net loss of $5,300,000 or $0.07 per diluted share. Core FFO for the quarter was $24,900,000 or $0.32 per diluted share and AFFO was $24,800,000 or $0.32 per diluted share, which was an over 3% increase versus last year. Turning to the expense front, total recurring G and A declined 16% year over year to 4,300,000 while recurring cash G and A declined 24% year over year to $2,900,000 In addition, with our total recurring G and A representing 10% of total revenues in the quarter versus 15% of total revenues in the prior year quarter, our G and A continues to steadily rationalize relative to our revenue base. Turning to the balance sheet. Our total adjusted net debt, which includes the impact of all forward equity as of quarter end was 569,000,000 dollars Our weighted average debt maturity was 3.3 years and our weighted average interest rate was 4.46%.

Speaker 3

Including extension options, which can be exercised at our discretion, we have no debt maturings till January 2027. At quarter end, our liquidity was $464,000,000 which consisted of $29,000,000 of cash on hand, dollars 250,000,000 available on our revolving credit facility and $185,000,000 of unsettled forward equity. Turning to leverage, our adjusted net debt to annualized adjusted EBITDAre was 4.0x@quarterend, which remains well below our targeted leverage range of 4.5x to 5.5x. Moving on to guidance, we are maintaining our 2024 April per share guidance midpoint and updating the range to $1.26 to $1.27 from our prior range of $1.25 to $1.28 Lastly, on October 18, the Board declared a quarterly cash dividend of $0.21 per share. The dividend will be payable on December 13 to shareholders of record as of December 2.

Speaker 3

Based on the dividend amount, our AFFO payout ratio for the Q3 was 66%. With that operator, we will now open the line for questions.

Operator

Thank you. We will now be conducting a question and answer session. The first question comes from the line of Wes Colliday with Baird. Please go ahead.

Speaker 4

Hey, good morning guys. As you look into the 4th quarter and maybe the Q1 of next year as you're shedding some of your non core assets, do you still expect to maintain an accretive acquisition spread versus your dispositions?

Speaker 5

Yes, we do, Wes. I think just looking forward to the 4th quarter and maybe early in Q1 where we have some visibility, we expect cap rates to stay pretty close to where they are. Right now, maybe slightly below where we've been for the 1st 3 quarters. But the dispositions that we're looking at currently are at lower cap rates than what we achieved in the Q3.

Speaker 3

Okay. And then how do

Speaker 4

you see your Dollar General exposure progressing over the next year or so? And then can you comment on the quality of your locations? You gave a nice little analysis about your Walgreens being blended extends and high foot traffic, but can you maybe unpack the Dollar General exposure?

Speaker 5

Yes, sure. So the Dollar General portfolio that we have, I think is a little bit unique in that we were able to partner with the tenant and get most of our leases extended. And then really the ones that weren't extended, we've gone out and sold the vast majority of those. So we're left with just under 15 years weighted average lease term with an average of 1% annual increases in the leases. So a little bit unique when you compare our Dollar Store portfolio to others.

Speaker 5

But yes, I mean, there are a number of loans in there. So I think those will get paid off here in the next year or so. So that really kind of brings the concentration down below 10% just with that. And then we are looking at a handful of dispositions just to try to get that concentration down a little bit, which I think will certainly be well below 10% here in the next couple of quarters.

Speaker 4

Okay. Thank you.

Operator

Thanks, Wes. Thank you. Next question comes from the line of Haendel Stengers with Mizuho. Please go ahead.

Speaker 6

Hi, good morning. This is Ravi Gaitan in line for Haendel. Hope you guys are doing well. Saw the drugstore and pharmacy exposure decreased 100 and 60 bps sequentially. Can you offer some comments on the disposition market and maybe also the element of seller financing when addressing the Walgreens dispositions?

Speaker 6

Is this something we should be expecting going forward? Thank you.

Speaker 5

Yes. Thanks, Ravi. Yes, I mean, I'd say the dispositions market has gotten a little bit better. As I think a lot of you are aware, the tenthirty one market really did kind of dry up over the past year, but is starting to come back a bit. So seeing more interest in our assets.

Speaker 5

And as you mentioned the success that we've had in pretty quickly reducing our exposure in the pharmacy sector. We did use seller financing on a couple of the transactions in the Q3. And kind of really the thinking there was we were able to get an interest rate slightly higher than the cap rate that we sold the assets at. So it kind of maintains a healthy yield. But those were assets that we felt like the rent was a little bit above market.

Speaker 5

So reduced our exposure by more than the error that we felt like was in the rent. We do not think that we're going to be using seller financing much more in the future, but it is a tool that we reserve the right to use in the event that it gets us to a better outcome. So specifically around those Walgreens, we sold in the Q3 the average cap rate was about a 7.2% and the interest rate was slightly higher than that. So I think 7.2% and change. So certainly felt like that was a pretty good outcome.

Speaker 5

But in the Q4, we've been able to sell some assets without using seller financing and think that's likely going to be the path that we go on a forward basis.

Speaker 6

Got it. That's helpful. Helpful color there. Just one more here. What would you say is a steady acquisition run rate for the next 5, 6 quarters on a longer term basis, particularly given the fact that outstanding equity has decreased and the current WACC is a bit elevated?

Speaker 3

Yes. Look, I mean, I think if given where our cost of capital is today, we're not able to achieve sufficiently accretive spreads to acquire at the pace that we're acquiring at today. So I think it just remains to be seen what our run rate would look like. I think the team is certainly built to do anywhere from net investment activity of $100,000,000 to certainly 150,000,000 dollars Right now though, we do have plenty of capacity continuing to invest. And I think, as we see our cost of capital season over the next couple of quarters, we'll think about how that impacts, our ability to grow on a go forward basis.

Operator

Thank you. Thank you. Next question comes from the line of Smedes Rose with Citi. Please go ahead.

Speaker 7

Thanks. It's Nick Joseph here with Smedes. Sorry if I missed it, but just on the big lots, understand the additional term there, but from a cash rent perspective, what's the rent difference going forward versus what was in the previous leases?

Speaker 5

Yes. So we've got the one location that is being marketed for sale. We do think that there it's likely what's that? For lease. Yes, yes, for lease, sorry.

Speaker 5

Yes, likely not selling that. So, yes, up for lease, we're talking to a number of different retailers and grocers. We do think that the rent is likely to be at or even a little bit higher. So when it's all said and done, we think the rent is going to be equivalent to where we are today or where we were going into the bankruptcy.

Speaker 7

Thanks. And for the existing leases that will continue with Big Lots?

Speaker 5

Yes. There is a small amount of rent decrease there, including we're not collecting rent here during the bankruptcy period. But I think the increase in the rent that we're likely to get the booby site will likely offset that.

Speaker 7

Got it. Thank you. And then just on the acquisitions, obviously, the proportion of IG came down in the quarter, you mentioned on the sale leaseback. What are the expectations for that percentage going forward? As in are you would you expect to see more IG acquisitions kind of in the future quarters?

Speaker 7

And if so, how are you thinking about cap rates there that would make it more attractive versus what you saw this previous quarter?

Speaker 5

Yes, Nick. And that's exactly what was really kind of driving our decisions around what we were acquiring in the 2nd Q3. We just saw much more attractive risk adjusted returns on the larger operators that might not have an investment grade rating, certainly not going out and doing a lot of the small deals with 4 or 5 unit operators, but still larger operators that we're comfortable with where we're getting really strong unit level economics and replaceable rents. And so that has been an area where we've been pretty successful with. I would expect the 4th quarter to see that investment grade kick up a little bit higher

Speaker 7

than it's been in the second and third quarter. Thank you very much. Thank you.

Operator

Next question comes from the line of Ki Bin Kim with Tuohy Securities. Please go ahead.

Speaker 3

Thank you. Good morning. Just going back to the Walgreens and Family Dollar topic, can you just maybe provide a high level view on what you think the remaining asset sales, what those cap rates could be? And is your ultimate goal I guess, what is your ultimate goal? Like how much to lower the percentage ABR from those type of tenants?

Speaker 5

Yes. Thanks, Ki Bin. So, yes, I mean, as it relates to Family Dollar, as you're aware, we've been selling down that exposure over the past couple of years, really starting with the assets that we felt like were not, either not profitable or not very profitable. And so we're really currently left with a portfolio of Family Dollars that generate positive cash flow. We think they're good stores.

Speaker 5

That being said, we're likely to continue to sell that exposure down over the next year or so. And so that's down to a little bit more than 1% of ABR. And then as it relates to Walgreens, as I mentioned in the prepared remarks, we've gone from 5.9% to 4.8% pretty quickly. I would expect to see us continue to sell that down, maybe not quite as quickly as we did in the Q3. But I think kind of a target of getting that below 3% is achievable here in the next 6 or 7 quarters.

Speaker 3

And on pricing, if you can provide some parameters, please?

Speaker 5

Yes, sure. So I mean, we were able to sell the Walgreens in the 3rd quarter at a lower cap rate than our disposition cap rate. And so that is encouraging. We just know that we're going to have to take our time to find the right buyers to understand that these are stores that are unlikely to be closed. And we feel like we can continue to see pricing certainly inside an 8.

Speaker 3

Okay. Thank you.

Operator

Thanks Ki Bin. Thank you. Next question comes from the line of Catherine Graves with UBS. Please go ahead.

Speaker 8

Hi, good morning. Thank you for taking my question. So acquisitions obviously accelerated in the quarter. I was wondering if you could speak a little bit on how you're characterizing the current transaction environment, especially compared to the first half of twenty twenty four, both as far as maybe increasing opportunities, but then on the flip side maybe increased competition for deals?

Speaker 5

Yes, sure. So we've certainly seen the opportunities that pick up quite a bit from earlier in the year. But competition, we are expecting that to kick up, but really haven't been running into much competition when we're out looking for locations really. The competition for us has really been seller expectations for the past year plus and that continues to be the case. But we're seeing great opportunities on the investment grade side, sale leaseback side, loan and extend side, on the development side.

Speaker 5

So we're pretty excited about what we're seeing out there. It's just going to be a matter of where our cost of capital is.

Speaker 8

Got it. That makes sense. And then my second question, you mentioned in the prepared remarks about sort of getting ahead of big loss prior to 2024. I'm wondering if you can speak to any current consumer trends or other components of proactive portfolio management that you're monitoring right now?

Speaker 5

Yes, sure. So I mean, certainly the lower income consumers have been under pressure. That's kind of really creeped up into the middle income consumer, even job growth has slowed. So we're being pretty cautious around the consumer and making sure that not only are we investing in businesses that we think have a mode of protection around what's going on with the consumer, but then also making sure that the companies have balance sheets that can withstand some disruption and unit level economics where we've got a pretty solid cushion there. But yes, I mean, I think it continues to just be maybe slightly worse than it was a quarter ago with really kind of the same issues.

Speaker 8

Got it. Thanks so much.

Operator

Thank you. Next question comes from the line of Upl Rana with KeyBanc Capital Markets. Please go ahead.

Speaker 9

Great. Thanks for taking my question. Mark, you talked about the relative strength on your remaining Walgreens. How does that differentiate from the 2 assets you did sell in the quarter?

Speaker 5

Yes, sure. I mean the assets that we sold we think are good assets, maybe a little bit shorter in lease term. And so we know that not only will there likely be a focus on the total ABR that we have with Walgreens, but then also what does the lease expiration schedule look like. And so really kind of pushing out as we mentioned, we don't have any leases expiring until 2,030 other than one that generates phenomenal sales on the front end and has phenomenal foot traffic where we think it's extraordinarily unlikely that they would close that store. So really continue to strengthen that portfolio, push out have longer weighted average lease term.

Speaker 5

We went from 9 to 10 years during the quarter as well. So I think upgrading the quality is important. Walgreens continues to face pressures on reimbursement rates on the drugs that they provide. And so we're keeping an eye on that. There's we want to be prepared for the event that things get worse.

Speaker 5

We don't know if they're going to get worse or better, but we feel like we're pretty well positioned in the event that things get a little bit worse.

Speaker 9

Okay, great. That was helpful. And then, yes, how would you describe sellers at this point in the cycle, Given we've had a 50 basis point rate cut already and there's a likelihood of another 25 basis point cut this week. And then we've all seen the 10 year sort of climb higher by over 60 basis points. So I want to get your sense on where sellers are at this point?

Speaker 5

Yes. I think the move back up on the tenure has really calmed down some of the sellers that and really a lot of brokers that were thinking that it was last call for the cap rates that we that you could get before, they're all about to fall. And obviously, that just really isn't happening with the increase in the tenure. So if anything, I think it's become a little bit easier to find sellers willing to transact.

Speaker 3

Okay, great. Thank you.

Operator

Thank you. Next question comes from the line of Greg McGinniss with Scotiabank. Please go ahead.

Speaker 10

Hey, good afternoon. Are you able to give us maybe a few more details around the non investment grade acquisitions that you completed this quarter, whether that's the names, the tenants or some of the deal terms, just so we can better understand what you guys were doing

Speaker 7

with those?

Speaker 5

Yes. Sure. I mean, you saw that the weighted average lease term maybe a little bit longer, a little bit in the C source space, a handful of retailers that are kind of BB or BB plus. So I guess potential that they could get upgraded one day. But one of the big focuses that we've had over the past really couple of years has been to increase the internal growth of the portfolio.

Speaker 5

I think we started out the IPO at 65, 70 basis points something like that. And we're now over 1% of internal rent growth. So I think that's certainly been a focus and this past quarter's acquisitions certainly help with that.

Operator

Okay.

Speaker 10

And just a couple of clarifying points. 1 on the Big Lots rent relief. So is that the full eighty basis points just not paying for what this month, last month and then expected to start paying again in December? How should we think about that?

Speaker 5

We expect them to start paying again in January.

Speaker 3

January. Okay.

Speaker 10

Last one for me. There's already been a lot of focus on Walgreens on the call, but CVS is closing stores as well. Have you heard anything from them regarding potential store closures? Or how do you feel about those assets in the portfolio?

Speaker 5

Yes. I mean, we feel very strongly that we've got a great relationship with CVS. A lot of the CVSs that we acquired were blend and extend transactions as well. And we've got a pretty good understanding as to how they're doing within the four walls of the assets that we own and feel like we've got an exceptionally strong CVS portfolio. And I think the stores that they announced that they were closing, I think was really about 2.5 years ago where they said they're going to close 900 stores over the next 3 years.

Speaker 5

So that should really be winding down here in 2024.

Operator

Okay. Thank you. Thanks, Ray. Thank you. Next question comes from the line of Josh Denhlein with Bank of America.

Operator

Please go ahead.

Speaker 11

Hi, good afternoon. This is Kyle Granath on behalf of Josh. I was curious in terms of bad debt, kind of considering your previous levels that you've been assuming, would you ever consider maybe even next year increasing assumptions of bad debt just given headlines and current risk associated with pharmacies and retail in general?

Speaker 3

Hey, Farrell, it's Dan. The answer is no. And I would note that we didn't necessarily have credit losses this quarter or this year. We simply had a temporary rent relief. So as you think about kind of our expectations coming out of 2024 for the core portfolio, the prior model would assume that these credit that credit losses would have stayed in perpetuity when in fact they're only temporary in nature.

Speaker 3

So as we think about the core portfolio coming out of 24, it's actually in a better position than what we envisioned when we set guidance in January.

Speaker 11

Great. Thank you. And also one more about also given current headlines, I know you went through a lot of the underwriting parameters that you set. But I was curious, is there anything that you're being more scrutinous about or either requiring more P and L reports among tenants kind of just going forward in your underwriting?

Speaker 5

Yes. Thanks, Raul. So yes, I mean, I think we've had a pretty good understanding as to how the tenants are doing within the four walls of the boxes that we own. And I think we are very careful about what we put into the portfolio. I think if there is maybe a lesson learned, it would be just having some higher concentrations with publicly traded companies where there's just a lot of news and noise potential noise around their performance on a quarterly basis can then turn around and impact us.

Speaker 5

And so we certainly feel very strongly that the assets that we put in the portfolio are going to continue to pay rent and are going to be good performers for the company.

Speaker 11

Okay. Thank you very much.

Operator

Thank you. Thank you. Next question comes from the line of Ki Bin Kim with Tuohy Securities. Please go ahead.

Speaker 3

Hey, thanks. Just a quick follow-up on Walgreens. How do you gauge the health or performance of those Walgreens compared I mean, I guess you can't really compare it to the entire chain because it's different locations. But how would you describe the quality of the Walgreens or Family Dollar stores that you have remaining?

Speaker 5

Yes. I think that we've got locations that are going to stay open and continue paying rent and that are profitable locations for each of the tenants. And so we get some information from the tenant that's required on lease and then we've got a very strong relationship with both of those tenants. So we have pretty open conversations about what they're thinking about doing within the with the stores that we own. And so that's allowed us to get out ahead of some potential closures and some potential risk, which is I think really imperative.

Speaker 5

It's not only when you acquire the asset having those conversations, but an ongoing basis with our asset management department, with the tenants. And so that's really what gives us so much confidence that we've got locations that are going to continue to perform well.

Speaker 3

And I'm not sure if the front end sales is the primary driver versus pharmacy sales. I'm just curious about that. But

Speaker 6

would you do you have

Speaker 3

a view on the 4 wall profitability of those locations?

Speaker 5

Yes. I mean, we certainly are very confident that the locations that we own are profitable. When you think about the what's where the profitability is coming from, their issues really are more related to the pharmacy side of the house and the reimbursement rates that they're getting have decreased some due to Medicare Part D and some just from insurance companies. And so that's been not only timing, but also the rates that they're getting reimbursed have been more difficult on pharmacies. So not only you're seeing Rite Aid gone from what 2,400 to 1200 stores that cut in half.

Speaker 5

We mentioned earlier CVS closing 900 stores looking at where Walgreens was a few years ago to where they are now. All told, you're talking about the 3 largest chains closing 4,000 stores. And then there's also it's an even worse situation for the independent pharmacies, which are likely to see about more than a third of their stores close. So I think it's really been driven by the reimbursement rates mostly from the government, but also insurance companies. In the front end, that's only 25% of the revenue is really coming from a quarter of the revenue is coming from the front end of the store.

Speaker 5

That's under pressure, but that's not what drives the profitability of pharmacies.

Speaker 3

Okay. Thank you very much.

Operator

Thank you. Ladies and gentlemen, we have reached the end of question and answer session. I would now like to turn the floor over to Mark Mannheimer for closing comments.

Speaker 5

Thanks everybody for joining today. We certainly appreciate everybody's interest in the company and look forward to seeing many of you at the upcoming conference season.

Operator

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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Earnings Conference Call
NETSTREIT Q3 2024
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