NetSTREIT Corp. (NTST) Q3 2021 Earnings Call Transcript

NetSTREIT Corp. (NTST 3.08%)
Q3 2021 Earnings Call
Oct 29, 2021, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings. Welcome to NETSTREIT Corp. third quarter 2021 earnings call. [Operator instructions] I will now turn the conference over to Amy An, investor relations.

Thank you. You may begin.

Amy An -- Investor Relations

We thank you for joining us for NETSTREIT's third quarter 2021 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.netstreit.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. For more information about these risk factors, we encourage you to review our Form 10-K for the year ended December 31, 2020 and 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's 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. But before I turn the call over to Mark, I want to take a moment to make an ESG announcement.

As many of you are aware, there has been more push for companies to provide disclosures related to environmental, social and governance in recent years. We are putting together a webpage to showcase our company's commitment to environmental stewardship, social responsibility as well as good governance. We expect to put out a press release announcing the launch of our ESG webpage in the coming weeks and we welcome you all to visit our website. Now, I will turn the call over to Mark to discuss our third quarter activity.

Mark?

Mark Manheimer -- Chief Executive Officer

Good morning, everyone and welcome to NETSTREIT's third quarter 2021 earnings conference call. I will begin with a review of our investment activity and portfolio metrics for the quarter. And Andy will then provide further detail on our results and balance sheet. For the third quarter, we were consistent with our publicly stated strategic growth plans.

We believe that growing our portfolio with high-quality tenants, while further diversifying our tenant base and geographical and industry mix is critical to generating the best risk adjusted returns for our shareholders. As of quarter end, NETSTREIT has one of the highest credit quality portfolios in the net lease space and will endeavor to continue to create a best-in-class portfolio as we grow into next year and beyond. In the third quarter, we completed gross acquisition volume of $90 million and an additional $4 million of development spending. The $90 million of acquisitions for this quarter were at an initial cash capitalization rate of 6.2%, inclusive of all closing costs and had a weighted average remaining lease term of 12.4 years.

Nearly, 90% of our third quarter acquisitions were with investment grade rated tenants or tenants with investment grade profiles. Similar to the past few quarters, our financial results for the quarter were impacted by the timing of acquisitions, many of which closed near quarter end. As we grow our portfolio, we expect a quarter to quarter timing of acquisitions to have a diminished impact on our quarterly financial results. But we will not sacrifice the quality of assets that we add to our portfolio, where our due diligence and underwriting criteria, which remained paramount.

Also in the quarter, we provided approximately $4 million of development funding, which included two new development projects with total cost expected to be $5.4 million. With a total of five development projects in the pipeline, we anticipate that we will begin to collect rent from four of these projects by the end of the first half of 2022. Finally, in the quarter, we sold four assets for $19 million at a weighted average cash capitalization rate of 6.3%. With these dispositions, we have decreased our casual dining exposure to less than 1%, decreased exposure to bank branches and we no longer have exposure to RV sales.

The continued curating of our portfolio will remain an integral part of the NETSTREIT strategy, but this quarter we executed a few more dispositions than what is typical, reflecting attractive opportunities to call assets that didn't meet our long-term investment objectives at attractive pricing. As a result of our acquisition and disposition activity during the third quarter, our exposure to Walgreens was 7.5% of our total portfolio ABR, up from 2.5% in the previous quarter. Northern Tool & Equipment, which made up 1.4% of our portfolio ABR, entered our top 20 tenant list. While 711 remains our top tenant, our ABR exposure to 711 was 8.2%, down from 9.3%.

We will continue to see the 711 exposure decrease over time as we continue to grow our portfolio. Moving on to our quarter end portfolio metrics, our portfolio contained 290 properties comprised of 5.5 million square feet in 40 states, with a diversified tenant roster of 60 tenants in 22 industries. Total ABR, our primary earnings driver, increased to $59.8 million, with a weighted average lease term of 10 years. At quarter end, we were 100% occupied with no lease expirations until 2023 and a less than 1% of ABR expiring before 2025.

Based on ABR, our tendency is 70.5% investment grade with an additional 14.5% classified as investment grade profile. Subsequent to quarter end through October 28, the company completed over $90 million of acquisitions, including closing costs and no additional dispositions bringing our year-to-date net acquisition volume to $354 million. As a result, we are raising our 2021 net acquisitions guidance to at least $400 million. We continue to source attractive opportunities that meet our target criteria.

We are reviewing a wide range of opportunities, including investments and stabilized properties, blend and extend opportunities, sale leaseback transactions and development projects. While quarterly acquisitions volumes may vary quarter to quarter, we will stay true to our strategic focus on high-quality tenants with great access to capital and attractive real estate fundamentals. While we continue to enhance the overall diversification of our portfolio, we continue to believe that this is the best way to produce sector leading earnings growth, with very limited tenant credit risk in the coming years. I will now turn the call over to Andy to discuss the balance sheet and our capital markets activities.

Andy?

Andy Blocher -- Chief Financial Officer

Thanks Mark. And once again, thank you all for your time with us this morning. Let me begin with our results for the third quarter 2021. Yesterday, in our press release, we reported net income of $0.07, core FFO of $0.22, and AFFO of $0.24 per diluted share for the third quarter.

As Mark noted, our third quarter results were affected by the timing of acquisition closings in the quarter, as well as the full weighted average share impact of the equity offering completed in the second quarter. Moving on to our balance sheet, as of September 30, we had $28 million in cash and total debt outstanding of $192 million, of which $175 million is from our fully hedged term loan with the remainder from a revolving line of credit. We have no debt maturities until the maturity of our revolver in December 2023, which is subject to a one year extension option, which would match the December 2024 maturity of our $175 million term loan. Our net debt to annualized adjusted EBITDA ratio was 3.5x at quarter end below our four and a half to five and a half long-term target.

Finally, with respect to the balance sheet, in early September, we filed our universal shelf-registration with the SEC, giving us broader and more efficient access to multiple capital sources. In addition, we put a $250 million ATM program in place. Based largely on the timing of gaining access to the ATM, we did not issue any shares under that program in the third quarter, but subject to market conditions expect the ATM to be a valuable tool to fund a portion of our acquisition volumes going forward. With respect to dividends, earlier this week, the board declared a $0.20 regular quarterly cash dividend to be payable on December 15 to shareholders of record as of December 1, reflecting an annualized dividend rate of $0.80 per share.

Finally, with regards to guidance, we are adjusting our full year 2021 AFFO guidance to a range of $0.93 to $0.95 per share, primarily due to higher dispositions completed in the third quarter and the timing of acquisitions as discussed. We are increasing our 2021 net acquisitions to at least $400 million, reflecting strong access to deals that meet our investment criteria. It's important to note that the increase in 2021 acquisition guidance this late in the year is expected to have a very limited impact on 2021 financial results, but should support a solid foundation for earnings growth in 2022 and beyond. We continue to expect cap rates consistent with our most recent activity.

We now expect cash G&A to be at the top end of the previously provided range of $11 million to $12 million. As previously disclosed, we are pulling forward some incremental internal control expense as a result of our upcoming large accelerated filer status and to ensure compliance from a SOX perspective. As always, our cash G&A includes recurring transaction costs, which are listed in our financial statements as a separate line item. Non-cash compensation expense is expected to be at the midpoint of the previously provided range of $3 million to $4 million.

We expect our cash interest expense, including unused line of credit facility fees to be at the lower end of the previously provided range of $3 million to $3.5 million and an additional $600,000 of non-cash deferred financing fee amortization. We expect to incur taxes near the top end of the previously provided range of $200,000 to $300,000. And lastly, we expect fully diluted weighted average shares outstanding to be in the range of 38 million to 39 million shares for the year. Also, for planning purposes, as we look to 2022, we signed a lease for our new office space, with an expected moving date sometime during the first quarter of 2022, which will result in an increase into 2022 G&A.

To wrap up, we are very pleased with our strong third quarter activity. We are well-positioned with sufficient capital and a consistent pipeline of attractive opportunities for growth. As always, we want to acknowledge our entire team for their hard work and contributions to our excellent results so far this year. This concludes our prepared remarks.

We will now open the line for questions. Operator?

Questions & Answers:

Operator

[Operator instructions] Our first question is from Nate Crossett with Berenberg Capital Markets. Please proceed.

Unknown speaker

Hey, guys. Good morning. It's Eric on for Nate. Appreciate the color on the pipeline.

Do you mind kind of expanding on that in terms of the total deals and the total deal size? Were there any portfolios as part of the volume in the quarter or any large deals during the quarter?

Mark Manheimer -- Chief Executive Officer

Yes, sure. So during the third quarter, we did do one larger transaction that was a Walgreens transaction actually involved us helping the seller defeat their debt on that portfolio as well as getting a lease extension with Walgreens extending all those properties out to 15 years. But I think the rest of the assets that we acquired in the portfolio were more granular and look similar to what we have been buying in the past.

Unknown speaker

Perfect. Thank you. And then I know you increased your guidance in terms of acquisitions going into the end of the year, but can you kind of talk about what's the size of the pipeline right now? And then kind of – how should we think about acquisitions headed into 2022?

Mark Manheimer -- Chief Executive Officer

Yes, sure. So yes, I mean, we did increase guidance. We were able to close $91 million of acquisitions this quarter prior to this call. So obviously, a little bit better on timing than we have done in the past two quarters.

So, that's certainly encouraging. But I think the guidance pushed up to at least $400 million to give you a pretty good indication of what we have a pretty high level of confidence closing ahead for the rest of the year. And then as we look forward on acquisitions, I do think that you will see us do a little bit more of a relationship and repeat business with some tenants and sellers that we worked with them have, little bit more on the blend and extend side as well as the development side, which is where we think we can pickup a little bit more alpha for the beta that we are taking.

Unknown speaker

OK, perfect. And then maybe could you just touch on competition and pricing? Are you seeing any changes in the last couple of months? Any increase in competition? And I know that pricing kind of came down a little bit, but should that be the norm kind of going forward or how should we think about that?

Andy Blocher -- Chief Financial Officer

Yes, sure. I mean, I think there has been a lot of capital that's really come in across all asset classes. So, I wouldn't say that we are completely immune to that, but I don't think there has really been one really tangible competitor that's come in and really changed things, too much worse. I think the cap rate that we closed on this quarter, a little bit lower than when we have done in the past, but I think that's got a little bit more to do with the quality of the assets and a little bit more lease term.

Looking back to this time last year, like third quarter of last year, we are at a six and a half cap. So, now we are at a 6.2% cap rate. We have got a little bit more term and maybe a little bit higher quality assets that we closed on this quarter. Looking at what we are seeing so far for the fourth quarter, I would expect the cap rate to inch backup a little bit.

Unknown speaker

OK, perfect. And then last one for me, can you kind of give us some color on how the G&A will look for in the end of 2021 and maybe into 2022? I know you kind of already built out most of the infrastructure, you moved offices. So, can you kind of give us your thoughts on how that may ramp going forward?

Andy Blocher -- Chief Financial Officer

Yes, thanks. Yes, for the end of 2021 and we do have some seasonal expenses that we are dealing with and a couple of expenses that are one-time in nature. We think on a pure run-rate basis off of third quarter and consistent with the guidance that we provided, G&A, including taxes, right, probably going to go up, probably $600,00, $700,000, largely attributable to three items. One is, the year end audit, we are not able to kind of straight line the audit fees.

So, as the audit is closing out the year and they have got the deeper dive with respect to year end, those fees actually hit in the fourth quarter. Two as we have been talking about is SOX compliance, right. We are going to be a large accelerated filer starting with 2022. We are in really, really great shape there.

But getting the right folks in to help us with the documentation and testing of all our controls is a part of that as well. And then third to a much smaller extent is, hiring on the margin, we talk about the $100,000 per $100 million of G&A. That's really a personnel type of thing. We have got a couple of acquisition folks that we are searching for right now.

We have got NAP supervisor that we are recruiting for right now. Based on the timing, it should have a de minimis impact. Then when you start thinking about 2022, we are not in our new office, we are building out our new office and that will be an increased expense. And we will go through the details of that when we provide the details of our guidance in February for 2022.

Unknown speaker

Thanks guys. Take care.

Mark Manheimer -- Chief Executive Officer

Thanks.

Operator

Our next question is from Ki Bin Kim with Truist Securities. Please proceed.

Ki Bin Kim -- Truist Securities -- Analyst

Thanks. Just to follow-up on that last question, you mentioned G&A should be $600,000 to $700,000 higher in 4Q, how much of that is one-time versus recurring?

Andy Blocher -- Chief Financial Officer

Yes. Well, I mean, I would say, on a – when you – it depends on what you referred to as one-time, right. When you think about the audit fees, it's – that's more of a seasonal nature, right. Probably on the SOX compliance, you are probably looking at $100,000, $200,000 just to kind of gear everything up and then hiring on the margin, maybe, call it $100,000 on the high-end.

So, we are like we said we just signed a lease for new office space that we will be moving into next year. What that's really all about, we are in a very, what I would consider a suburban location currently. And with the bulk of our hiring occurring during COVID, if all of our employees wanted to come to the office on the same day, we would not have enough space for them. So, we are moving to the uptown market.

We think that, that's the type of space that our employees deserve. I think it's going to be very helpful for attracting and retaining our employees and it's going to be space that we will be able to accommodate our growth for the next 10 years, right. Obviously, the issue there is our cash rents will be small as we kind of grow into that space, but all that stuff is straight lined over time. So, that's kind of it with respect to the G&A.

And Ki Bin, with respect to I read your note, I thought it was very detailed. When you kind of look at the pieces in the roll forward, I think that, that was the biggest piece that may have been missing was the G&A. The other part is kind of the funding of the acquisitions, right, the interest expense in order to get that NOI online. And while we didn't utilize the ATM in the third quarter, potential increases in share count as a result of utilizing the ATM.

Ki Bin Kim -- Truist Securities -- Analyst

Thank you for answering my second question. So, yes, quick question on your balance sheet going forward, how should we think about on the – how should be think about your debt funding strategy?

Andy Blocher -- Chief Financial Officer

Yes, great question. So, as we kind of roll through, we kind of think of our assets generally if we are going to maintain our four and a half to five and a half times net debt to adjusted EBITDA. We are really talking about funding our assets just round numbers two-thirds equity, one-third debt. So over time, we think that we are going to be able to get to a size where we are going to be able to go and go to the rating agencies and get a rating.

That's probably $2 billion, right. So, we are probably looking at least a couple of years away from now. WE could potentially look to either accordion or existing credit facility, but what's more likely to happen as we start thinking about 2022 is likely our ability to go to the private placement market. And if we do that, obviously, smart for the company, because we are doing a better job of matching the duration over liabilities with the duration of our assets, but that comes at a cost.

So, to the extent that we did that, I would think that would probably be a second half 2022 type of deal. But you are talking about a marginal borrowing rate currently on the line of credit of a 1.5 points to probably something that looks like the mid to – call it the mid threes currently. So, that – well, a smart decision, there is a cost that comes along with that.

Ki Bin Kim -- Truist Securities -- Analyst

OK, thank you.

Operator

Our next question is from Todd Thomas with KeyBanc Capital Markets. Please proceed.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Hi, thanks. Good morning. Mark, you mentioned for acquisitions going forward maybe more existing relationships and some blend and extend. Can you just expand on that a little bit and talk about the strategy to source deals?

Mark Manheimer -- Chief Executive Officer

Yes, sure. So, I mean, I think, 60% to 70% of our transactions in the most recent quarter were blend and extend. I think I have always kind of said the more of those we can do, the better. The second time you extend a lease with a tenant kind of secure a short-term lease get it under LOI and then get it extended with a tenant, the second and third time you do that, it gets a lot easier.

And we are doing that with more and more tenants now. So, I think that is going to be a bigger chunk of what we do over time. And then the second big piece of that is really going to be more on the development side, which will involve, of course, having a development agreement with a developer and that kind of takes some time to hash out first, building those relationships and then second, yes, working on a deal. And then when you already kind of have your form in place, it's much easier to expand on those relationships with developers.

So, we do expect that to become a bigger chunk of what we do in the future. And then we have had some success with some sellers that have that we bought some properties from in the past and they have just kind of come back to us marketing the assets and just moving a little bit more quickly on some of those sales. So, encouraged about what we think that's going to look like in 2022 and seeing a little bit more evidence of that already here in the fourth quarter.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

OK, in terms of the development side, I guess how big could that development bucket be? Could we see that ramp up more in 22? What's the potential size for that to grow to in the near-term?

Mark Manheimer -- Chief Executive Officer

Yes, sure. So, I would expect it to grow a little bit, actually thought it was going to take us a little bit more time to get that up and running as much as we are doing now. But I think with the team in place, I think we are comfortable with kind of doing $60 million to $75 million of development deals per year. And look, I mean that's kind of the way that we look at our acquisitions opportunity set is wherever the opportunity is, if it makes sense to get more aggressive than in one vertical then we are going to do that.

So, we could potentially bring on more people, if we felt like that was going to be a bigger source of what we are doing. I wouldn't anticipate that, certainly for 2022. But there is a limit to how many of those types of transactions that you can do with the current staff. But I think $60 million to $75 million is a kind of a good feeling for what we can do with it with the current team in place.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

OK. And then Andy you commented a little bit on sort of the debt strategies, your leverage ticked up a little bit, it looks like you are just under 5x on a net debt to adjusted annualized EBITDA after closing for the act of the October acquisitions. You mentioned four and a half to five and a half times as the long-term target. What's the plan to I guess permanently finance acquisitions or raise capital and de-lever a little bit as you move forward here, what's your – what are your thoughts on equity?

Andy Blocher -- Chief Financial Officer

Yes. I mean obviously, getting the universal shelf in place in September was a huge testament to our business. So, we were very pleased with that. It just provides us with a lot more flexibility, including the ATM and other sources of capital.

Needless to say, to the extent that we were doing large amounts of capital, I think the market would become very much aware of that. So, I would prefer not to comment on the specifics with the exception of generally our view is over the long-term kind of two-thirds equity, one-third debt.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

OK, alright. Thank you.

Operator

Our next question is from Linda Tsai with Jefferies. Please proceed.

Linda Tsai -- Jefferies -- Analyst

Hi, good morning. In terms of your comment that 2021 to support a solid foundation for 2022. Do you think 25% to 26% earnings growth in '22 still seems reasonable in the context of just transaction timing delays continuing?

Andy Blocher -- Chief Financial Officer

Yes. I mean Linda, so, one, I mean I don't think that we are going to get into the discussions of specifics around our AFFO per share growth for 2022, until we provide formal guidance. I do think that the foundation that Mark and the team have put together on the operational side of the business is absolutely going to support sector leading growth in a low risk fashion, which is kind of where it is that we have been positioning the company for a period of time. Look, I have been – I get it, Mark, and I and Randy and Amy and Tricia, and everybody read all the notes, right.

I totally understand the frustration associated with timing and used to say, as frustrated as you are, we are as well. But I think that the idea really is less focus, as we talked about last quarter on the inter-quarter impact of those acquisitions and more focus on building up the most solid base of ABR that we can in order to support the growth that you are referring to, right. So, look at an ideal world, we want to have our cake and eat it too. We want to get those deals and we want to get them on the balance sheet as quickly as we can.

But in a number of cases and market even provide a pretty good example that we have been dealing with. But in a number of cases, we are doing everything that we can. But these transactions have two parties and we cannot control this.

Mark Manheimer -- Chief Executive Officer

Yes. I mean, I think at the end of the day, Andy was exactly right. I mean, we are going to focus first on the quality of assets that we are adding to the portfolio. We are really proud of what else we have been able to add.

Second, we want to try to get the best possible pricing that we can, which oftentimes means that we are going to have to work through some complexities that others really prefer not to deal with. And we mentioned the Walgreens transaction, where we are helping a seller with defeasance and getting leases extended with Walgreens is not party to our purchase and sale agreement with the seller. So, we have multiple parties that you are dealing with there. We did have a chunkier transaction that we expected to close in August of this quarter, ended up closing in October was really, the seller was having trouble getting the changes made to the REA that we needed to get comfortable with to in order to move forward with a clean transaction.

And so that particular deal cost us a penny a share in the third quarter. So, when we are small, this one transaction can kind of have a larger impact on one individual quarter. But we are really building this platform for the long-term. We are certainly – we understand the – what happens quarter to quarter, but really the focus is much more on the on the long-term portfolio that we are building.

Linda Tsai -- Jefferies -- Analyst

Thanks for that additional color. And then on your lease expiration schedule, you have nothing due until 2023. And it's only four leases and then you have only got one in 2024. Is it possible that you could continue to push out all of these through blend and extends?

Mark Manheimer -- Chief Executive Officer

Yes. I think each one of those leases is kind of a case-by-case basis. If we feel like we have got a very high level of confidence that either the tenant is going to renew when the expiration comes due, or in the event that they don't renew that we can replace the rent, where we have a little bit less incentive to try to get that extended early. But yes, I mean I think we really just have such a little coming due here in the next couple of years.

Probably won't be a big focus. But if we get approached by the tenant wanting to do something early, we are always happy to have those conversations.

Linda Tsai -- Jefferies -- Analyst

Thanks.

Operator

Our next question is from Katy McConnell with Citi. Please proceed.

Katy McConnell -- Citi -- Analyst

Great. Thank you. So, you mentioned that the lower acquisition cap rates were largely driven by the quality of assets you are buying. But can you just expand on that a bit more in terms of what you are targeting? And to what extent are you seeing cap rate compression for the sector as well?

Mark Manheimer -- Chief Executive Officer

Yes. Sure. So and I think we had a little bit more lease term in this quarter than what we have had. Over the past several quarters, we really kind of been bouncing around in the mid to high-6% cap rate range over the past several quarters.

And this one, we would set a little bit more term, maybe a little bit more credit quality than previous quarters. I think it was really just had a lot more to do with the mix that was that we were acquiring. And looking at what we have closed so far in the fourth quarter and what we think we are going to close in the fourth quarter, I would expect our cap rates to move up closer to what they have been in the past.

Katy McConnell -- Citi -- Analyst

Thank you very much. And then on distribution side, would you say, the third quarter represented the bulk of dispositions, or are you assuming additional asset sales within the revised net acquisition guidance?

Mark Manheimer -- Chief Executive Officer

Yes. Good question. So, dispositions, we are always looking at potentially looking at selling assets if there is a strategic or opportunistic reason. In the third quarter, we have reduced our casual dining exposure.

I think we said on previous calls that we wanted to get that exposure below 1% by the end of the year. So, we have accomplished that now down to just inside 0.9% of our ABR. We have reduced exposure to banks, that's another area that we have really had highlighted of an area that we would like to reduce exposure over time, sold off at 7.11%, which is our number one tenant, so a little bit more diversification. And then we had one, Camping World asset that we sold during the quarter.

That was really I think – we think of that as a fairly cyclical business. With COVID, that's really been an area where they have been one of the winners with COVID. A lot of people have really kind of turned RV, buying RVs and renting RV. So, they have done really well during COVID.

And we had a view that is a good opportunity to sell a big box asset at a pretty aggressive cap rate. So, we acquired that asset and kind of the high-7% cap rate range a few years ago and now we are able to sell it at 6.75%.

Andy Blocher -- Chief Financial Officer

And Katy it's important to note, that's one of the reasons why we provide our acquisition guidance in the form of net acquisitions, right is such that to the extent that we dispose of assets, it's on us to go and replace them.

Katy McConnell -- Citi -- Analyst

OK. Thank you.

Operator

And our final question is from Lizzy Doikin with Bank of America. Please proceed.

Unknown speaker

Hi, good morning. Thank you. This is Libby on for Josh Dennerlein. I just wanted to expand on that around dispositions.

It just – I would like to get more color around the four that closed this quarter, particularly because they closed at a higher cap rate. Was it really that big box asset in Camping that drove the higher cap rate, just curious to hear more comments around that?

Mark Manheimer -- Chief Executive Officer

Sure. And I believe they blended to a 6.3% cap rate. So generally, that's inside of where we are acquiring assets. And certainly we will be inside of the cap rates that we will be acquiring assets for the year.

But, yes, so – yes, so I mean, I kind of viewed it as maybe a pretty aggressive cap rate compared to what we are buying assets. It's still accretively recycling capital and then considering what we sold versus what we are buying. We think we are adding better quality to the portfolio versus what we are selling. But I do think that I would expect disposition to be considerably lower in the future.

Unknown speaker

OK. Thank you. And then my second question is just around the challenges labor, as you guys are expanding, how are you grappling with this? Are you facing pressure to any specific industries for your tenants versus others? And what kind of outlook might this have with regards to like impact to G&A beyond 2021?

Mark Manheimer -- Chief Executive Officer

Do you want to take this Andy?

Andy Blocher -- Chief Financial Officer

Alright. From a tenant perspective, yes, I mean it is something that we are paying attention to. There are areas that we really expected to see a little bit more, whether it would be in restaurants, but we have actually seen some margin expansion with the restaurant properties that we own. And I do think it could have an impact on the development projects that we are looking at moving forward with.

Our development agreements with the deals that we have that we have been live right now, we don't pay for any of the cost overruns. So, if those expenses go up, those are borne by the developer. But I do think that could have an impact on future development deals and whether the rents associated with those could end up being a little bit higher, which might make us kind of pause a little bit on some of those transactions.

Unknown speaker

Got it. That's helpful. Thank you.

Operator

We have reached the end of our question-and-answer session. I would like to turn the conference back over to Mark Manheimer for closing comments.

Mark Manheimer -- Chief Executive Officer

Well, thank you everyone for joining today. We look forward to discussing our progress for those of you joining NAREIT in a couple of weeks. Thanks again.

Operator

[Operator signoff]

Duration: 36 minutes

Call participants:

Amy An -- Investor Relations

Mark Manheimer -- Chief Executive Officer

Andy Blocher -- Chief Financial Officer

Unknown speaker

Ki Bin Kim -- Truist Securities -- Analyst

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Linda Tsai -- Jefferies -- Analyst

Katy McConnell -- Citi -- Analyst

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