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 (NYSE:NTST)
Q3 2020 Earnings Call
Oct 30, 2020, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the NetSTREIT Corp. third-quarter 2020 earnings call. [Operator instructions] I would now like to turn the conference over to your host Mr. Randy Houck, senior vice president of finance.

Please proceed.

Randy Houck -- Senior Vice President of Finance

We thank you for joining us for NetSTREIT's third-quarter 2020 earnings conference call. In addition to the press release distributed yesterday after market closed, we posted a supplemental package and an updated investor presentation in the investors events and presentation section of the company's website at www.netstreit.com. On today's call management 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.

For more information about these risk factors, we encourage you to review our prospectus dated August 13, 2020, and our other SEC filings. All forward-looking statements are made as of the date hereof, and NetSTREIT 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 GAAP reconciliations and an explanation of why we believe such non-GAAP financial measures are useful to investors.

Today's conference call is hosted by NetSTREIT chief executive officer, Mark Manheimer ;and chief financial officer, Andy Blocher. They will make some prepared remarks, and then we will open the call for your questions. Now, I will turn the call over to Mark.

Mark Manheimer -- Chief Executive Officer

Good morning, everyone, and thank you for joining us today for NetSTREIT’s inaugural quarterly earnings call. We hope this all finds you and your families well. And we are pleased to be here with you today. While we met with many investors during our IPO marketing efforts over the past several months, let me begin with a brief overview of NetSTREIT.

Then I will discuss our acquisition and external growth activity, and close with a word on our commitment to you, our shareholders. Andy will provide more detail on our quarterly results, balance sheet, and fourth-quarter outlook. We will then open the call for questions. Leading up to our former formation transactions in December 2019, and every day since then, we have been focused on creating a high-quality diversified and defensive net lease retail portfolio with a conservatively capitalized balance sheet and scalable platform to support a creative and consistent long-term cash-flow growth.

While this is NetSTREIT’s first conference call as a publicly traded company, Andy and I have a lengthy track records within the net lease business and that publicly traded REITs and have surrounded ourselves with a seasoned leadership team to support our future growth and our commitment to success as a public company. I couldn't be more proud of the success of our 19 team members that got us to where we are today. Let me take a moment to briefly discuss our history. Our predecessor was a private real estate fund, which owned a net lease portfolio valued at approximately $350 million by asset value, consisting of approximately 50% investment-grade-rated tenants.

Prior to our formation transactions, that portfolio was then called down to reduce exposure to certain tenants in the sectors that we did not feel were desirable long term. In December 2019, and into January 2020, we raised $220 million of capital from institutional investors via a private Rule 144-A offering and internalized our management team and other formation transactions, forming NetSTREIT. We also concurrently closed on a new term loan and revolver to refinance our outstanding debt and fund future growth. We then completed our IPO, raising an additional $227 million in August and September of 2020.

Today, our portfolio contains a 189 single-tenant properties, comprising 3.4 million square feet in 37 states with a diversified tenant roster of 53 tenants in 24 industries. Our weighted average lease term is 11.1 years, and we are 100% occupied with no lease expirations until 2022, and only 1.4% of leases expiring before 2025. Based on our AVR, our tenancy of 68 investment-grade with an additional 6.4% classified as high-quality underrated, and 90% of our industry exposure is what we refer to as defensive. These tenants operate in industries where their physical location is critical to the generation of sales and profits, where they focus on necessity goods and essential services, including discount stores, grocers, drugstores, pharmacies, home Improvement, automotive service, and quick-service restaurants.

This high-quality tenancy creates bond-like leases with high-quality rent collections and times of disruption, including what we have most recently seen in 2020. While we certainly cannot take credit for having predicted the COVID-19 pandemic, we designed our portfolio and balance sheet strategy for long-term stability and strength. Before the pandemic was even contemplated. We have long believed that retail will continue to evolve, both in ways that we can predict and in ways that we cannot.

With that backdrop, we have been and continue to be focused on retailers and industries that are well-protected from the threats that we can anticipate, such as e-commerce pressures, but also have balance sheet strength and access to capital to be able to reinvest in their businesses and adapt with the changing retail landscape. We are also focused on acquiring real estate that is fundable and attractive to other retail users and at a basis that we can continue to replicate cash flows in a downside scenario. Additionally, given our portfolio was recently constructed, NetSTREIT has not had to work through legacy tenants and/or struggling categories that may have felt an outsized impact from the from the pandemic. Proof of this is in our cash rent collections, which have been strong and consistent, with 100% cash rent collections in both September and October.

Andy will provide further details momentarily. With respect to external growth, we are committed to disciplined acquisitions and focus on underwriting underlying tenant credit, locations with fundable real estate with strong market fundamentals, and locations that provide strong cash flows to the parent tenant. The single-tenant retail net lease sector is large and highly liquid, and we believe we can bring our deep industry relationships to bear as we seek to execute on our pipeline of acquisition opportunities. We were able to continue to execute through market disruption during covered with $327 million dollars of acquisitions completed in 2020 through the end of the third quarter.

For the third quarter. we completed $103 million dollars of acquisitions at an initial cash capitalization rate of 6.5% percent. These acquisitions had a weighted average remaining lease term of 10.9 years, and 100% of the properties are occupied by investment-grade-rated tenants. We would note that $15 million dollars of this activity was originally targeted closed in the fourth quarter, but we were able to accelerate these closings to September 30.

In July, we acquired a Wal-Mart Supercenter and at Sam's Club in Tupelo Mississippi at an initial cap rate of 6.6% percent and a remaining lease term of 12 years there. We provided a solution to the seller by partnering with a shopping center buyer who can currently purchase the remainder of the center and get it. And as a result, we were able to increase our exposure to what we believe is a blue-chip defensive tenant. In August, we acquired a portfolio of seven well-located and strong-performing O'Reilly's Auto Parts New England locations with more than 11 years of remaining lease term at a 6.9% initial cash cap rate.

From a transparency perspective, note that when we discuss cap rates on acquisitions, NetSTREIT will provide cash cap rates on total acquisition cost. We completed one disposition in the third quarter at a sales price of $1.9 million dollars, a casual dining restaurant that we felt could have trouble competing in the future and wanted to eliminate that exposure from our portfolio. Casual dining is not a sector that we plan on adding to in the portfolio, and we continue to reduce that small exposure in the portfolio through dispositions over time. As we look ahead, we are targeting an average of $80 million dollars or more of acquisitions per quarter, or $160 million dollars for the last two quarters of 2020.

While 100% of our third-quarter acquisitions were investment-grade, over time, we intend to target an appropriate balance for our risk tolerance and growth objectives. We expect that approximately 70% of our investment activity will be with investment-grade tenants. The balance will be what non-investment-grade tenants at a slightly higher deals, including high-quality unrated tenants and selectively targeted some investment-grade tenants where we have a high level of confidence in the tenants’ industry, the retailer’s management team, the trajectory of that retailer's business, as well as the quality of the real estate we are acquiring. Before I turn the call over to Andy, I'd like to make a few comments regarding the philosophy with which we approach our business.

When we embarked on our IPO, we met with many of you through our marketing process, and we were humbled by the strong institutional support we received when we finalized our order. But we recognize that you are entrusting us with your capital, and we want you to know that you can count on us. We are committed to providing a clear, straightforward disclosures remaining accessible to investors and analysts, and finally, to fulfill our obligations as corporate citizens by establishing a strong ESG program. Regarding ESG, we are committed to creating a strong internal culture that promotes inclusion and employee well-being and are pleased with the initial steps we have taken today.

Finally, we are proud of our shareholder-friendly corporate governance structure, including our diverse majority independent board. I'll now turn the call over to Andy. Andy?

Andy Blocher -- Chief Financial Officer

Thanks, Mark. And thank you, everyone, for joining us on our call today. I'm incredibly happy to be joining you as CFO of NetSTREIT. As Mark noted earlier, and we discussed frequently during our IPO process, we are committed to building and maintaining a conservative capital structure, providing transparency with respect to our business.

We believe that these initiatives, coupled with successfully executing our business strategy, will build shareholder confidence and, over time, support a competitive cost to capital. Let me begin with our results for the quarter. Yesterday, in our press release, we reported net loss of $0.11, [Inaudible] total of $0.15, and AFFO $0.21 per share. As of September 30, 2020, the NetSTREIT portfolio contributed $38.9 million of invites based on the AVR after giving effect to acquisitions and dispositions completed in the quarter.

From a collections perspective, we're pleased to report that, prior to giving any consideration to deferral or abatement arrangements granted as a result October 19, we collected 100% of September rent payments, bringing the total third-quarter rent collections to 98.1%. This is a slight increase from our previous disclosure as our only tenant being recognized on a cash basis paid their September rent shortly following our published booking update, bringing them current through the third quarter. On a related note, based on the payment history of our tenants, we currently have zero bad debt reserves and recognized zero bad debt in the quarter earlier today. Finally, as Mark mentioned for the month of October, we also received 100% of cash rents.

With respect to the [inaudible] in the basement, $108,000 of rent abatements granted in third quarter were generally conditions on lease extensions, which averaged approximately one-third quarte, two years of additional term for each month elevated rent. Year-to-date, we granted under $750,000 of renovations, general conditions on lease extensions, which averaged approximately 1.4 years of additional term for each month from the date of rent. With respect to deferrals, we deferred $261,000 of rent year to date, of which $75,000 has been repaid, leaving a net rent deferrals balance of $186,000 at quarter end. The remaining deferred balance will be repaid over the lifetime of the leases.

And therefore, we expect the quarterly impact on our business as we collected the pearls to be very small with $4,000 in the third quarter. As demonstrated by 100% rent collections in September and October. We provided no deferrals or abatements after all. We currently have eight assets classified as held for sale and took $360,000 in impairments in the third quarter to bring our gap net book value from two of those eight assets, including our single asset being recognized on a cash basis, in line with the anticipated net proceeds from the sales.

A couple of items resulting from our successful IPO impacted our financial statements in the third quarter. We have $0.9 million of expenses in the third quarter and $2.2 million year-to-date related to 144-A and IPO-related transaction costs. These costs largely reflect consulting services as we staffed up pre-IPO to put appropriate public company processes and reporting in place. In addition, we recognized $1.8 million of non-cash compensation expense from two sources in the quarter.

The first is $1.7 million, resulting from a catchup related to $4.8 million of performance-based equity awards at the time of the 144-A, with a shelf registration performance criterion. The nature of that performance criteria didn't allow us to recognize any expense until the product [Inaudible] criteria was met. And as a result, a significant catchup was recognized in the quarter. An additional $74,000 was recognized from the $3.1 million time-based awards granted to employees and board members at the time of the IPO.

These awards will be recognized on a straight-line basis over their three- to five-year lives. The transaction expenses and the non-cash equity compensation catchup resulted in the largest non-recurring adjustments to our key financial measures in the third quarter. Turning to our capital markets activity. On August 13, 2020, we completed our IPO.

And including the overallotment option in September issued just under 14 million common shares at $18 per share, generating net proceeds of approximately $227.3 million dollars after deducting the underwriting discounted operating expenses. In connection with the IPO, we repaid the $50 million outstanding balance of the company's revolving line of credit. I retired the outstanding series A preferred shares, with the remaining proceeds utilized to fund future acquisitions and for general corporate purposes. In September, the company completed a $175 million [Inauble] swap to hedge floating rate exposure on the entire balance of the company's term loan at an effective rate of 21 basis points through the maturity of the term loan in December 2024.

As of September 30, we had $137 million of cash and remains fully undrawn on our $250 million revolving on credit. We have no debt maturities until the maturity of our revolver in December 2023, which is subject to a one-year extension option. In addition, our net debt to annualized adjusted. Even our ratio is 1.4 times, well below our 4.5 to 5.5 times the long-term target.

With respect to dividends, in August, we declared an inaugural cash dividend on our common stock of $0.10 per share for the IPO sub period in the third quarter of 2020. The dividend amount was prorated to reflect a period of time from the IPO to quarter-end. Yesterday, with our earnings release, the board declared a $0.20 regular cash dividend to be payable in December, reflecting an annualized dividend rate of $0.80 per share. Before I turn it back over to Mark, let me just take a few minutes to discuss our outlook on a couple of fourth-quarter items and provide some forward-looking perspective.

First, as Mark mentioned, consistent with our average expected post-IPO acquisition volumes of $80 million dollars per quarter, and after giving consideration to the $15 million of fourth-quarter acquisitions that we accelerated to September 30, we could -- we expect to complete at least an additional $65 million of acquisitions in the fourth quarter, bringing our total 2020 acquisition volumes to approximately $400 million. With a LIBOR hedge in place and with current cash balances exceeding our fourth-quarter acquisition expectations, we expect no incremental borrowings under our revolver and resulting fourth-quarter interest expense, including $300,000 of quarterly deferred enhancing fee amortization and undrawn fees to be approximately a million bucks. We expect our fourth-quarter cash DNA to better approximate our forward-looking run rate of $11 million to $12 million dollars annually, combined with an additional $3 million of non-cash compensation expense annually. As discussed during our IPO process, we believe this amount reflects the appropriate staffing to execute our business strategy and to effectively run as a public company.

As a result, we would expect increases in G&A over time to be marginal as we grow. Approximately 10 basis points on incremental acquisition volumes should be a pretty good estimate. Finally, consistent with the board's dividend declaration, we're targeting an 8% annualized dividend rate for the near term, with dividend growth expected, and once we stabilize at a 65% to 75% AFFO payout. Now, I'll turn the call back over to Mark.

Mark Manheimer -- Chief Executive Officer

Thanks, Andy, and thank you, all, for joining us today. As we prepared for IPO in August, we made sure that we not only had hig- quality assets and the right portfolio in place to successfully enter the public markets, but the best people and platform as well. To that end, I am very proud of our portfolio’s performance amid a pandemic, no less, as well as our team. Andy and I are very grateful to them for their hard work and dedication.

We would also like to thank our board for their valued advice and counsel. We look forward to growing this business and speaking with you all each quarter to update you on our progress. This concludes our prepared remarks. We will now open the line for questions.

Operator?

Questions & Answers:

Operator

Thank you. [Operator instructions] Your first question comes from line of Nate Crosset with Berenberg. Please proceed with your question.

Nate Crosset -- Berenberg -- Analyst

Hey. Good morning, guys.

Andy Blocher -- Chief Financial Officer

Good morning.

Nate Crosset -- Berenberg -- Analyst

And thanks for the color on the call so far. I wanted to kind of get your commentary, just on the activities so far in October, and what it looks like for the next two months. It sounds like $65 million is at least baked in. Is that a conservative estimate? And I’m just curious if you're seeing any more deal activity because of the upcoming election and potential for tax code changes.

Mark Manheimer -- Chief Executive Officer

Yeah. Thanks, Nate. Yeah. So, I mean, so far, this quarter, you know, we've been targeting $80 million per quarter since ever the third and fourth quarter, and we did pull forward in the neighborhood of $15 million dollars of transactions to September 30 that we had initially targeted for the fourth quarter.

That being said, you know, we still have a pretty robust pipeline, and it really will come down to the timing on some of the transactions. We continue to see, you know, similar deal flow that we saw coming into the IPO that we discussed on, you know, the roadshow with our investors. And, you know, actually, very -- you know, very happy about what the pipeline looks like for the fourth quarter. We should get a couple of new names in the portfolio that, I think, people will certainly like the tenant lineup that we think should close.

If you could slip into January, we're hopeful that we can, you know, kind of get in a similar number here in the fourth quarter. And I guess, you know, another thing of note. You know, our 100% investment-grade, you know, acquisition further for the third quarter is probably the first and only time that you'll see a 100% acquisition be all investment-grade. You know, the mix of what we're looking at buying is probably more in the 70% range up of investment grade.

Of course, that can kind of shift around depending on what closes in December or January. But certainly, you know, kind of adding a little bit more to that high-quality, non-rated bucket, which is, you know, as we define it, is more than a billion dollars of revenues and less than two times that, even that's kind of a tendency that would have an investment grade rating if they were to go out and get a rating. And so really, I really felt pretty good about the pipeline today.

Nate Crosset -- Berenberg -- Analyst

OK. Thanks. That's helpful. Maybe you guys can also touch on competition and pricing.

Has there been any changes that you've seen since the IPO? Now, obviously, you guys are targeting concepts that are highly sought out there. So, I'm just curious kind of what you're seeing on the ground.

Mark Manheimer -- Chief Executive Officer

Yeah. No, not really. You know, when we think about the other institutional investors, most of them have a different, you know, credit profile that that they're really chasing. Most of our competition continues to be really kind of your mom-and-pop 1031-type investor, and we haven't really seen too much of a change.

Maybe we'll see you after Tuesday, if the results come in and that changes, you know, people and how aggressive they want to get. But even with the 1031, I would anticipate, yeah, there's certainly a lot of strong lobbyist out there. And regardless of how the election turns out, I would imagine that's going to take some time. So, I would be surprised if there is just a massive rush for, you know, people to get some temporary ones in.

But, you know, well -- we'll certainly be monitoring that.

Nate Crosset -- Berenberg -- Analyst

OK. Just last question. Quickly, if I can. The assets that are held for sale, I’m just curious what’s in that mix.

Is there any common theme in there?

Mark Manheimer -- Chief Executive Officer

Yes. I mean, I'll stop short of giving exactly what they are, just here's we're relying on, you know, third party to close on those. So, it's a little bit out of our control. But I think what you'll see is, you know, the big focus for us is going to be on monitoring risk in the portfolio.

So, you know, in most cases, it's going to be kind of getting out ahead of some potential credit risk. We are looking at decreasing our exposure, specifically to casual dining and maybe, to a lesser extent, our bank exposure over time. So, there are -- you know, I'd expect to see a little bit of that. And then, know, we do have a number one tenant that has a little bit of an outsized exposure in the portfolio.

So, there could be a little bit of that mix in there.

Nate Crosset -- Berenberg -- Analyst

OK. Thanks, guys.

Operator

Your next question comes from the line of Todd Thomas with KeyBanc. Please proceed with your question.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Hi. Thanks. Good morning. Just first question, following up on the investments and in terms of pricing, are you seeing any compression in cap rates? Or do you feel comfortable that you'll be able to continue to buy in that sort of 6.5% to 7% range? And then, Mark, you talked about, you know, striking a balance between investment-grade-rated tenants and sub-IG or non-rated tenants with higher yields.

What's the difference in yield like there? And is that added risk being compensated for in the higher yield in this environment?

Mark Manheimer -- Chief Executive Officer

Yeah, sure. So, as it relates to the mix outside of investment-grade, keep in mind we're really targeting very high-quality tenants. So, certainly not a barbell approach of buying, you know, a bunch of really high-yield assets and then trying to get some quality to kind of blend in cap rate. It's really more --there's a limited universe of tenants that we're very comfortable with that don't happen to not carry an investment-grade rating.

You know, quarter to quarter, that can certainly shift. But I would expect to see maybe, you know, at least through the first nine months of this year, and 327 million dollars that we've closed on in the first in the first nine months of the year, there's been about a 40-basis-point difference between kind of that high-quality bucket, you know, versus our investment investment-grade bucket. I think I'm [Inaudible] part of your question.

Andy Blocher -- Chief Financial Officer

Hey, Todd. This is Andy. If I could just add to that. You know, just from our perspective, since it's really the first time we're disclosing it as a public company, when we talk about cap rate on acquisitions, just to make sure we're all on the same page, that's cash cap rate on fully loaded acquisition costs.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

OK. That's helpful. And in terms of the pipeline and what you're seeing out there and sort of the various, you know, channels that you source deals, you know, the existing assets, I guess, build the sale leaseback, where's the biggest opportunity today? And you know, you mentioned, you know, the Wal-Mart acquisition, you know, is that is that an area where you continue to see an increase in offerings, either from, you know, mall reeds or other retail property owners? Is that an area of focus for the company?

Mark Manheimer -- Chief Executive Officer

Yeah, absolutely. So, we’re -- you know, our acquisition targets, I think, are fairly modest in terms of volume. And so, it allows us to be very selective. I mean, we've got about $550 million dollars of acquisitions in our pipeline, most of which we will not get there in pricing.

But you know, we pride ourselves on being extremely creative, really trying to find, you know, a situation where our surety of close or whatever we bring to the table is valued, could be speedy close, could be, you know, having the cash already raised could be a relationship that we have certainly, as you mentioned, on that on the Walmart transaction, where we partnered with a Dallas-based shopping center, buyer that focuses more on kind of junior boxes, and shop space, and things that we view as a little bit riskier, but being able to kind of bring that that type of transaction to the seller that solves their entire problem rather than us just kind of pulling out the credit out of the deal and leaving them in a worse spot to sell the rest of the center. Certainly, you know, we're seeing more and more of those types of opportunities, yeah, working more and more with developers and seeing things the more opportunity there as well.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

OK.

Andy Blocher -- Chief Financial Officer

Hey, Todd. It’s Andy. Just, you know, when you think about the idea of, you know, whether it's shopping center owners, you know, spinning off some of those triple-net tenants, you know, certainly, from mark in my experience, you know, you really need to dig into the details there, whether that's contingency provisions, restricted usage, so on and so forth. So, you know, the devil's in the details on those deals.

Mark Manheimer -- Chief Executive Officer

And we're extraordinarily derivative with that with how we underwrite those. So, we're not taking on any contingency risk or restricted use if that's going to create a problem for us in the future.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

OK. Got it. And then just one last question, Andy. You know, in terms of collections you know, just a little less than 2% not collecting the quarter.

I realize you're at 100% in September and October. But is that all resolved in your view? Do you feel that, you know, those tenants, you know, and your tenant base in general is on a better footing going forward here? Or is there some risk that, you know, tenants could come back looking for relief or deferrals of some sort? Do you see any risk of that, you know, heading into further into the fourth quarter?

Mark Manheimer -- Chief Executive Officer

Andy?

Andy Blocher -- Chief Financial Officer

Yeah. I mean. Yeah, sorry, Mark. Yeah, you know, I think if you -- a lot of that's going to depend on, you know, what the future brings with respect to code, and so on and so forth.

I think that we demonstrated that our portfolio was extremely defensive, you know, during the second quarter, right? You know, based on the collections we showed there, and going into the third quarter. Certainly feel like, you know, if we're kind of in the current environment, you know, I feel very, very good about collections, you know, not just on, you know, the legacy assets, but the assets we've acquired and what it is that we see in the pipeline. So, yeah, I mean -- and as good as you can feel in the current environment, you know, we feel like it.

Mark Manheimer -- Chief Executive Officer

Yeah. And the only thing I would add there is, you know, we cut all of our deals as it relates to COVID back in April and May. And then everyone has gone along with those – you know, with those agreements and has paid a 100%, you know, starting in June. And we just haven't had conversations with tenants as it relates to go vote or not, paying rent, or rent relief, or any of those types of situations.

But yeah, I mean, I think if there's, you know, a reemergence of COVID, second wave, whatever you want to call it, I think there is the possibility that we have those conversations. But in the end reality, the deals that we did cut, we ended up getting a lot of lease extensions, and a lot more value came back to us than what we had -- than what we gave up. And so, it really showed the commitment to the locations that our tenants have in the areas that were impacted by COVID. So, pretty optimistic, you know, that we'll continue to collect 100%.

But you know, we're certainly open to working with our tenants in the event that their – you know, government shut them down or things that are outside of their control impact their ability to generate profits.

Andy Blocher -- Chief Financial Officer

Yeah. So, Todd, just to kind of quantify on what Mark said, you know, I said in my prepared remarks, you know, year-to-date, we've given just under three quarters of the million dollars of rent abatement to our tenants in exchange for that. If you were to quantify what we got with extended term, that equates to about $14.5 million dollars of additional rent payments at the end of the term.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

All right. Great. That's helpful. Thank you.

Operator

Your next question comes from the line of Linda Sai with Jefferies. Please proceed with your question.

Linda Sai -- Jefferies -- Analyst

Hi. Good morning. The disposition you made this quarter, was that in casual dining? And then where do you think cap rates might trend for risking these one-off assets going forward?

Mark Manheimer -- Chief Executive Officer

Yes, sure, Linda. Yes, so -- yeah, that was a casual dining restaurant. That was probably the one property most impacted by lack of it. You know, in Hutchinson, Kansas, a location without a drive-thru, without much of a network to really drive burritos or in any of those types of platforms.

So, they closed and were unlikely to reopen. And so, we thought, with the term on the lease now is the time where we'd get some value. But, like, if we waited longer, you know, it would be a much uglier situation. So, it was a way for us to de-risk the portfolio.

Certainly, it was something that we did prior to the to the IPO. At least that was the we had agreed to that fail to really try to clean that up to have as clean a portfolio on a go-forward basis. You know, never say never. But you know, keep in mind, we did start out with $350 million-dollar portfolio really cold out.

You know, the things that we thought were going to be potential problems down the road of about $90 million dollars pulled out of the portfolio and then have really built up, you know, most of the portfolio, you know, since the initial capital rates back in December and January. And so, really feeling very good about the portfolio. There may be a one-off situation here or there. You know, we do have a one casual dining restaurant that -- you know, that has been, you know, typically pays about three weeks late, which is what the difference was between, you know, our business update on October 1, where we had 99.5% of rent collected in September.

And now, that's up to 100% because they paid. So that's -- you know, that's one where we may look to move at some point time. We just want to make sure that we're maximizing value and getting the best economic outcome that we possibly can in each of those situations.

Linda Sai -- Jefferies -- Analyst

Thanks. And then given increased market interest and investment-grade tenants, what's the best strategy to navigate potentially increased competition and still achieve the cap rates in your targeted range?

Mark Manheimer -- Chief Executive Officer

Yeah. Sure. No. Absolutely.

So, I mean, obviously, it's the strategy that we think makes the most sense. So, you know, as we start to head into, you know, maybe a period of uncertainty, there may be more interest there. But a very, very fragmented business, very much a relationship business. You know, you take the Wal-Mart example that we talked about earlier.

That's very difficult for, you know, a private buyer to step in and do if they're not in the in the business, you know, each and every day like we are. And you know, we've got $500 million-or so in our pipeline. But we just -- you know, we just have to call down the ones that work for us. And it's just such a large fragmented market that we really feel strongly that we'll continue to be able to execute our business plan in the future.

Linda Sai -- Jefferies -- Analyst

Thanks.

Operator

Your next question comes from line of Katy McConnell with Citi. Please proceed with your question.

Katy McConell -- Citi -- Analyst

Thanks. Can you provide some more color around the debt deals that you walked away from this quarter to get a sense for a higher underlying risk and acquisitions differentlytoday? And then on the disposition front, did you expect to see some water pricing on the house for sale assets versus the 3Q sale?

Mark Manheimer -- Chief Executive Officer

Yeah, sure. So, I'll take the first one, you know, first. So, the debt deal thought that really had to do with, you know, a deal that we had cut pretty covered. And then we're able to continue to kick the can on the contract.

And so, the seller eventually didn't allow us to keep picking again on that. And that had to do with a specific tenant where we're buying a couple of properties and had a hard deposit back during COVID. And you know, the credit really had deteriorated a bit due to COVID. And then they also were undertaking a pretty large, you know, capital markets transaction that we felt was going to add leverage to the balance sheet and, you know, could potentially add additional risk to the -- to that particular acquisition.

So, we elected to walk from that particular transaction. I think that's going to be very abnormal. It was really a COVID-type – you know, related-type deal. But we felt like it was more important for us too than not take in assets that could potentially lead to problems down the road and it would be to -- you know, to walk away from a couple hundred thousand dollars, obviously something we don't want to do in the future.

But I think, you know, COVID definitely had a lot to do with that. And then as it relates to dispositions, you know, I would think of the 10.4% cap rate on the one dark casual dining location to be, you know, very much an anomaly. You know, as we look at our dispositions in the future, you know, we think the cap rates should be significantly inside of that, depending on what that mix looks like, how much, how many of those are, you know, getting out ahead of risk. How many of those are diversification sales, like a 7-Eleven? So -- but I would imagine those would be significantly less than the 10.4% cap rate.

Andy Blocher -- Chief Financial Officer

Just to kind of follow up on that. I mean, you know, for everybody else, you know, we add $1.2 million of transaction costs in the quarter. You know, we add back the 144-A an IPO-related expenses, as I discussed in my prepared remarks, of $900,000. So, to quantify that, that's 300,00 of, you know, debt deal costs in the quarter.

And as Mark said, you know, we anticipate anticipate that to be [Inaudible]

Katy McConell -- Citi -- Analyst

OK. Thanks.

Operator

Your next question comes from the line of Todd Spender with Wells Fargo. Please proceed with your question.

Todd Spender -- Wells Fargo Securities -- Analyst

Hey, thanks. Just to go back to cap rates. We've been focusing on the cap rate compression direction really of the peer group. But when you look at this stuff you guys have been buying, it's been fairly steady with good investment-grade-rated tenants.

But with a 10-year treasury, it's been fairly range-bound, you know, below 1%. Would you say there's a natural floor in cap rates? You know, you just got to account for some level of risk on top of that risk-free rate, maybe that accounts for some of the reason why cap rates seem to be pretty steady for you guys.

Mark Manheimer -- Chief Executive Officer

Yeah. I think that's right. I think there is generally going to be a floor. I mean, you look at cap rates over time over the past 20 years, people tend to think that there is a, you know, massive correlation to interest rates that there really isn't.

I think it certainly had a -- you know, there's been some gravity to brick to bring those down over time due to a prolonged low-interest rate environment that we've been in. But I think the only situations where it really, you know, has an impact is, you know, sometimes, you'll see a very large sale effect that could be a structured financing-type execution where, you know, some of that, you know, secured debt can, you know, can come into play where someone could get pretty aggressive. But really, in kind of the 1031 mom-and-pops smaller transaction market, you know, there's really just not -- we don't expect to see massive moves in cap rate, which we really haven't seen over the past 20 years. It's been, you know, extraordinarily stable.

So, I think that's a fair assessment.

Todd Spender -- Wells Fargo Securities -- Analyst

Thanks, Mark. Maybe just for Andy, obviously. With your proceeds from the IPO still sitting there, you're plenty liquid debt to you, but sub two times . And we probably see you guys tap the capital markets.

Would debt come next? Look, certainly it's a little premature probably have until the second quarter of next year to deploy the IPO proceeds. But maybe how you're thinking about the capital structure.

Andy Blocher -- Chief Financial Officer

Yeah. Sure, Todd. Thank you. Yeah, plenty liquids.

I like that expression. I mean, where we stand right now, you know, we're sitting on $137 million cash. You know, we've got roughly $30 million worth of assets that are currently held for sale, $250 million dollars undrawn on the credit facility. So, you know, as you said, plenty liquid for the near term.

You know, our belief, you know, was through the 144-A, and into the IPO, and to today is that, you know, continued execution of the business plan is going to result in improvements to our overall cost to capital over time. You know, Mark and I are constantly talking about, you know, just keep executing, just keep executing, kind of like Dory in finding Nemo, right? Just keep swimming. You know, we're in no rush to raise additional equity at this point. But you know, obviously, we're constantly evaluating, you know, funding alternatives on a go-forward basis, just from where we sit right now.

You know, I don't think it's in anybody's best interest to start speculating on what type of capital size, timing, you know, or price. But just know that you know, we're really focused on executing the business. Got our eyes wide open. And you know, hopefully, the -- you know, the markets trust us to make the appropriate decisions at the appropriate time.

Todd Spender -- Wells Fargo Securities -- Analyst

That's helpful. Thank you.

Operator

[Operator instructions] The next question comes from line of Alexander Knox with Bank of America. Please proceed with your question.

Alexander Knox -- Bank of America Merrill Lynch -- Analyst

Hey. Good morning, guys. And congrats on your first quarter as a public company. Just one question.

What are your thoughts on providing official guidance with four key results for 2021?

Mark Manheimer -- Chief Executive Officer

Yeah, Alex. You know, look, I mean, it's something that we're -- you know, we're regularly thinking about. You know, what we tried to do this quarter was, youknow, really to give you guys, you know -- you know, whether it's, you know, on the AVR line, you know, some guidance with respect to acquisitions, you know, interest expense pretty locked in with our what's now fixed rate debt on our term loan, you know, with respect to, you know, the dividends in G&A ,which are really the biggest drivers there. You know, we will continue to, you know, evaluate and try to adhere to best practices as best as we can, you know, as we continue to gain greater clarity around the business.

But you know, if you're asking for, are we going to commit to providing, you know, AFFO per share guidance, you know, for 2021, you know, at this point, I think it's too soon. So to the extent that people feel like, you know, we're not giving you the basic building blocks which, you know, I think that you -- we went through great lengths to do this quarter. You know, please feel free to reach out on a one-off basis, and we're happy to discuss.

Alexander Knox -- Bank of America Merrill Lynch -- Analyst

Got it. Thank you. That’s it for me.

Operator

Your next question comes from line of Ki Bin Kim with Truist Security. Please proceed with your question.

Ki Bin Kim -- Truist Securities -- Analyst

Thanks. Good morning, and congratulations on your IPO. Could you discuss your investment philosophy? I'm sure it has a host of variables that you consider when you buy an asset. What's your pecking order? And if you could just provide some details around that yeah.

Mark Manheimer -- Chief Executive Officer

Yeah. Absolutely. Yes, I mean, our first and primary focus is going to be on the corporate credit and making sure that we're going to get rent during that -- during the lease term. You know, we think in a world where retail continues to evolve, we think it's extraordinarily important to have a, you know, strong management team that has access to capital and access to cash that will allow them to continue to reinvest in their business and allow them to adapt to the change that will continue to come.

I mean, I think that's the one thing that's -- that we're sure of, that there will be change. And so, you know, being prepared with -- for that and not having, you know, tenants that are continually, you know, taking cash out of the business, but rather reinvesting in their business, we think, is very important, which happen to be a lot of investment-grade credits and tenants that we focus on that have, you know, strong access to capital with lower leverage. You know, the next piece that is, you know, very important to us is making sure that we're buying the real estate right. And so, you know, there will be disruption.

We hope to get everything right. But you know, probably foolish to think we'll get everything right. And so, really, our backstop is, effectively, what are we actually buying? And that's, of course, the real estate. What can we do with that real estate? How attractive is that going to be to other uses? You know, looking at, you know, demographics and, you know, traffic counts, and ingress, egress, signage, and what the other traffic drivers are in the area we think is very important.

And really trying to analyze what happens if we do get it back. What can we do with it? How much money is that going to -- we're going to put in that building, if any? And, you know, what type of rent should we be able to get, replacing the rent that we're getting at the time that we initially do an acquisition. And so, we also think it's important to you know to focus on, you know, locations that generate positive cash flow for their tenants. Certainly, we've seen that be important as it relates to renewals, but that's probably third in the pecking order behind corporate credit and real estate.

Ki Bin Kim -- Truist Securities -- Analyst

OK. And Mark, you and both Andy have had a lot of experience and forethought that public companies in the past this creates at NetSTREIT. What kind of corporate culture you're trying to create?

Mark Manheimer -- Chief Executive Officer

Yeah, absolutely. So, you know, we think corporate culture is often overlooked, and it's something that we focus on every day, making sure that we've got people that are, you know, excited to come to work, like what they're doing, are valued. And you know, we --you know, we think that will continue to drive them to do the best that they can do. Really built, I think, right now, we've got a lot of momentum behind the culture where people are really excited about what we've accomplished.

But, you know, I think it's going to get harder and harder, as we continue to scale the business to make sure that we've got the right people in the right seats that kind of have that team mentality, that aren't looking to point fingers, but are trying to find solutions to issues as they come up. And you know, so far, so good. You know, we feel, obviously, what's been accomplished by our 19 team members to date, and you think about -- we were a smaller private entity less than a year ago, and really what we've been able to accomplish on the acquisitions front, asset management front, you know, very heavy lift on the accounting side, and what we've been able to accomplish, I don't think could have been done in a bad culture. And you throw it in the mix, you know.

It really would've been difficult. But people have held them themselves accountable through this whole process from what -- you know, a lot of working from home. And you know, we think that is a -- certainly a testament to the to the culture that we've built to date.

Andy Blocher -- Chief Financial Officer

And keep in -- I would also say, you know, look to the board, right? I mean, as Mark and I were looking to build out the board, you know, basically there's, you know, we kind of broke it down to its simplest forms, right? You know there's the three things that we believe you can make or read successful are, you know, not in this order, but the real estate, the balance sheet, and the people. Right? And I think that what happens is, a lot of times, you get a lot of folks on board who are super focused on the first two. Not a lot on the last. I mean, we have -- I keep calling her, you know, our secret weapon, Heidi Everett, who is one of our new board members came on as part of the IPO, you know, who is really, really engaged in, you know, culture, morale, employee maximization.

And you know. Mark and I very much look forward to working with her, you know, in order to make sure that we are getting everything that we can, you know, out of our people and that we are, you know, being as responsive as we can, you know, to our employees’ needs, right? You know, we're 19 employees at this point. You know, the idea that, you know, I joke, you know, Mark and I had our first conversation, like, just over a year ago. We've raised two rounds of capital.

You know, we got our books and records, you know, in place. We were able to report, you know, pretty early in the cycle, you know, and feel like, you know, we're setting ourselves up for success. You can't do that without, you know, the best quality people. And we just couldn't be prouder of the team that we have.

So hopefully, that answers your question.

Ki Bin Kim -- Truist Securities -- Analyst

Yup. Thank you.

Operator

Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the call back to Mr. Mark Manheim for closing remarks.

Mark Manheimer -- Chief Executive Officer

Well, thank you, everybody, for joining us today. You know, certainly an exciting day for us. You were there with our first call as a public company. Also, we do plan on attending maybe even a few weeks, and hope we can find some time to discuss our progress.

Thanks, again, and have a great day.

Operator

[Operator signoff]

Duration: 49 minutes

Call participants:

Randy Houck -- Senior Vice President of Finance

Mark Manheimer -- Chief Executive Officer

Andy Blocher -- Chief Financial Officer

Nate Crosset -- Berenberg -- Analyst

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Linda Sai -- Jefferies -- Analyst

Katy McConell -- Citi -- Analyst

Todd Spender -- Wells Fargo Securities -- Analyst

Alexander Knox -- Bank of America Merrill Lynch -- Analyst

Ki Bin Kim -- Truist Securities -- Analyst

All earnings call transcripts

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