Q3 2025 NetSTREIT Corp Earnings Call
Speaker #3: Greetings and welcome to the NETSTREIT Corp. . Third Quarter 2025 Earnings Call . At this time , all participants are in a listen only mode .
Speaker #3: A question and answer session will follow the formal presentation . If anyone should require operator assistance , please press Star Zero on your telephone keypad .
Speaker #3: As a reminder , this conference is being recorded . It is now my pleasure to introduce Matt Miller Capital Markets and IR . Please go ahead .
Speaker #4: We thank you for joining us for NETSTREIT Corp.'s Third Quarter 2025 Earnings Conference Call. In addition to the press release distributed yesterday after market close, we posted a supplemental package in an updated investor presentation.
Speaker #4: Both can be found in the Investor Relations section of the company's website at NETSTREIT Corp. . 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 .
Speaker #4: 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 31st , 2020 .
Speaker #4: Four , and our other SEC filings . All forward looking statements are made as of the date hereof and net assumes no obligation to update any forward looking statements in the future .
Speaker #4: 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 .
Speaker #4: 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 NETSTREIT Corp.
Speaker #4: Chief Executive Officer , Mark Manheimer and Chief Financial Officer Dan Donilon . They will make some prepared remarks , and then we will open up the call for questions .
Speaker #4: Now , I'll turn the call over to Mark .
Speaker #5: Thank you , Matt , and good morning , everyone . We appreciate you joining us today to discuss our strong third quarter results , which were highlighted by record quarterly investment activity .
Speaker #5: Well executed capital markets transactions and consistent performance from our defensive net lease portfolio . Looking ahead to the fourth quarter and beyond , we expect to remain highly acquisitive due to our improved cost of capital , our attractive opportunity set and well capitalized balance sheet .
Speaker #5: With that in mind , we are increasing our 2025 net investment guidance range to 350 million to $400 million from 125 million to $175 million .
Speaker #5: Additionally , our year to date disposition activity has us well ahead of schedule to exceed our year end diversification goals . As evidenced by our top five tenancy declining 600 basis points this year to 22.9% at quarter end .
Speaker #5: Our momentum on the external growth front picked up considerable pace in the quarter as we closed a record $203.9 million of investments across 50 properties at a blended cash yield of 7.4% .
Speaker #5: These assets , which are primarily within resilient sectors such as grocery , auto service , convenience stores and quick service restaurants , have an average lease lease term remaining of 13.4 years , and more than one third of our of these investments are occupied by investment grade or investment grade profile .
Speaker #5: Tenants . Our weighted average lease term now stands at 9.9 years , up from 9.5 years a year ago , providing a strong foundation for predictable cash flows .
Speaker #5: Our ability to quickly ramp investments after raising capital in late July illustrates the inherent strength of our relationship driven investment , underwriting and closing teams .
Speaker #5: We would also note that our later start in the quarter did result in a substantial number of investments closing in the last week of the quarter , which limits their impact to the full year results .
Speaker #5: On the disposition front , we sold 24 properties for $37.8 million at a 7.2% cap rate , allowing us to recycle the proceeds into higher yielding opportunities as we have done every quarter in our existence .
Speaker #5: Please note that we see the fourth quarter as our last quarter of elevated disposition volume due to our focus on diversification as we plan to return to our more normal disposition .
Speaker #5: Volumes focused on credit risk and opportunistic sales. Turning to the portfolio, we ended the quarter with 721 investments involving 114 tenants across 28 industries, generating more than $183 million in Annualized Base Rent (ABR) across 45 states. More than 62% of our ABR is generated from tenants with investment grade ratings or investment grade profiles.
Speaker #5: And only 2.7% of our ABR expiring through 2027 . Our portfolio should continue to produce consistent and predictable cash flow . Our active portfolio management continues to contribute to our occupancy rate , remaining at an industry leading 99.9% with no material tenant disruptions .
Speaker #5: With that in mind , we expect to have our loan vacant property . A former Big Lots leased by the fourth quarter to an investment grade tenant at more than a 20% increase in rent , with rent to commence later in 2026 .
Speaker #5: While we have been able to generate highly favorable cash yields on investments as a public company, we are proud of our best-in-class credit loss statistics, as we again had no credit losses in the quarter.
Speaker #5: On the left side of the balance sheet , we believe our job is to find assets that generate the best risk adjusted returns available , which is supported by our creative , multi-pronged investment approach .
Speaker #5: Proven underwriting method and proactive asset management process . By adhering to those core competencies , we aim to provide attractive and consistent cash flow generation for our investors .
Speaker #5: Looking at the right side of the balance sheet , we had an active quarter adding long dated , unsecured debt . Further extending our debt maturity profile and decreased our leverage with significant equity raising , which has accelerated our ability to grow our portfolio .
Speaker #5: And in turn , enhance our earnings power . As we look out to 2026 and beyond . Ending with the macro . While we have seen softness develop in the lower and middle income consumer , and some noise in the private credit markets , our focus remains on accretive investments in high quality and less volatile necessity based retail properties .
Speaker #5: We believe our tenant quality , diversification and emphasis on opportunities with the best risk adjusted returns positions us well for any and all macroeconomic environments .
Speaker #5: With that in mind , we are currently seeing the most attractive opportunity set that we have seen since going public over five years ago , and we are excited to have the dry powder to execute and drive growth well into the future .
Speaker #5: With that , I'll turn it over to Dan for more details on our financials and outlook .
Speaker #6: Thank you . Mark . Looking at our third quarter earnings , we reported net income of $621,000 , or one cents per diluted share .
Speaker #6: Core FFO for the quarter was $26.4 million , or $0.31 per diluted share , an AFO was $28 million , or $0.33 per diluted share , which was an increase of 3.1% over last year .
Speaker #6: Turning to the expense front, our total recurring G&A in the quarter increased year over year to $5.1 million, which is mostly a result of our staffing levels normalizing after restructuring various roles last year.
Speaker #6: That said , with our total recurring G&A representing 10.6% of total revenues this quarter versus our 11.1% quarterly average last year , our G&A continues to rationalize relative to our revenue base , and we expect this rationalization to accelerate in 2026 and beyond .
Speaker #6: Turning to capital markets activities in the third quarter , we completed a 12.4 million share follow on offering in July , which raised 209.7 million in net proceeds .
Speaker #6: Turning to the ATM , we sold 1.2 million shares for 20.6 million of net proceeds in the quarter and subsequent to quarter end , we sold an additional 1.6 million shares for 29.7 million of net proceeds .
Speaker #6: Looking at the balance sheet , our adjusted net debt , which includes the impact of all forward equity , was 623.5 million , our weighted average debt maturity was 4.2 years , and our weighted average interest rate was 4.45% , including an extension options , which can be exercised at our discretion .
Speaker #6: We have no material debt maturing until February 2028 . In addition , our total liquidity was over $1.1 billion at quarter end , which consisted of $53 million of cash on hand , 500 million available on our revolving credit facility , 431 million of unsettled forward equity and 150 million of undrawn term loan capacity from leveraged perspective , our pro forma adjusted net debt to annualized adjusted EBITDA was 3.6 times at quarter end , which remains well below our targeted range of four and a half to five and a half times .
Speaker #6: Moving on to 2025 guidance, we are reiterating our AFFO per share guidance range of $1.29 to $1.31, and we are increasing our net investment activity range to $350 to $400 million from the prior range of $125 to $175 million.
Speaker #6: We continue to expect cash G&A to range between 15 and $15.5 million . Additionally , with our outstanding forward equity increasing to 430 million this quarter from 202 million last quarter , our Afh per share guidance now assumes one and a half to two and a half cents of dilution from the Treasury stock method .
Speaker #6: Lastly , on October 24th , the board declared a quarterly cash dividend of 21.5 cents per share . The dividend will be payable on December 15th to shareholders of record as of December 1st .
Speaker #6: With that operator , we'll now open the line for questions .
Speaker #3: Thank you . We'll now be conducting a question and answer session . If you would like to ask a question , please press star one on your telephone keypad .
Speaker #3: A confirmation tone will indicate your line is in the question queue . You may press star two to remove your question from the queue .
Speaker #3: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions.
Speaker #3: Thank you. Our first question is from John Krstevski with Wells Fargo.
Speaker #7: Hi . Good morning . Thank you . Mark , you made the comment in the opening remarks that you're currently seeing the most attractive opportunity set that you've seen .
Speaker #7: Maybe could you dive deeper there in terms of the assets that you're looking at pricing and then maybe the cadence that you think you can achieve going forward from here ?
Speaker #5: Yeah , sure . Good to hear from you , John . Yeah . So I mean , very similar types of assets . I mean , we're looking at a lot of c-stores quick service restaurants , grocery , QSR , similar to what we've really kind of done in the last several quarters , pricing very close to to what we did in in the most recent quarter .
Speaker #5: So I think we're probably going to be in the seven three , seven four range , maybe a little bit more investment grade so far .
Speaker #5: We'll kind of see what we what we source from from here on out . But pretty confident that we should be able to be at at the high end of the of the acquisition range provided .
Speaker #5: And then , you know , looking forward to 2026 , you know , not giving guidance on acquisitions at this point . But I think you can expect the dispositions to come in quite a bit .
Speaker #5: We'll continue to opportunistically sell some assets and focus on potential credit issues down the line and try to get out ahead of that , which which we did even when we were in diversification mode .
Speaker #5: But , you know , we've really accomplished the goals that we set out at the beginning of the year on the Dispo side .
Speaker #5: So it feels like the net investments should be a little bit higher next year .
Speaker #7: Okay . That was very helpful . And then just from a pricing perspective , I know this quarter there was a step down , but you had communicated that several times intra quarter .
Speaker #7: I'm just curious , are the rates that you're seeing today a better run rate for the business going forward ?
Speaker #5: Yeah , I think so . And yeah , I mean , I appreciate your comment there . We did try to make that clear in the second quarter that the seven eight was not going to be repeated and we'd return back to that kind of seven , four , seven , five type cap rate range .
Speaker #5: I think right now , you know , the ten year come in from call it four and a half to four inside for right now , and it's a little bit more competition in the in the space .
Speaker #5: So I think it's reasonable to to assume that there could be another ten basis points of compression looking , you know , looking forward into 2026 .
Speaker #5: But that's always difficult to predict outside of, you know, call it 60 to 90 days on a go-forward basis.
Speaker #7: Very helpful . Thank you .
Speaker #3: Our next question is from Michael Goldsmith with UBS .
Speaker #8: Good morning . Thanks a lot for taking my questions . You know , lots of activity in the quarter , but the guidance didn't really move .
Speaker #8: So can you just talk a little bit about , you know , what are the factors that that maybe didn't move the 2025 AFFO share outlook and , you know , I guess how how will that impact .
Speaker #8: You know , how that impact the earnings growth kind of going forward . Thanks .
Speaker #6: Yeah . Hey , Michael I think there's really two drivers to to the guidance . The first being that while we had a ton of activity in the third quarter , the timing of that activity was on the investment side was heavily weighted to the back half of the quarter .
Speaker #6: We closed basically 100 million on the last two days of the quarter , whereas the loan payoffs and the dispositions were heavily weighted to the front end .
Speaker #6: And you can see that in on the income statement . You know , our total revenues went up $22,000 quarter over quarter . So certainly timing played a big part in that .
Speaker #6: Whereas in the second quarter, the exact opposite was true. The other factor is just the unknown nature of the Treasury stock dilution.
Speaker #6: I mean , we clearly know how much we've raised . We know how much we're thinking about raising . It's just the price at which the stock is going to average over the quarter .
Speaker #6: Is unknowable . And so we certainly baked in a ton of conservatism . What I can say is , if if the stock kind of stays , where to open this morning , you know , obviously the the bottom end of the range would be , you know , nowhere possible .
Speaker #6: But , you know , hopefully that's not the case . And we think our , our stock price should continue to season . And and move higher from here .
Speaker #6: Just given the growth that we see coming in 2026 from everything that we're doing here in 2025 , you know , I'm sure as you know , what you do in the third and the fourth quarter has a very big impact on what can happen in the following year .
Speaker #6: And we're cognizant of that , too . So I certainly think , you know , looking at where our cost of capital is today , we're where we've already raised capital in terms of our term loans .
Speaker #6: We have another 150 million we can draw down on basically in the in the mid fours . And assuming we can get an IG rating coming up here shortly , you know , that moves down even further from there .
Speaker #6: So if you think about that accretion , you know , we feel pretty strongly we can get back to certainly above average growth rate in 2026 and beyond .
Speaker #5: And just a little bit of color on the extreme nature of the timing of our acquisitions in the quarter , we raised capital at the end of July .
Speaker #5: So we're you know , we don't want to get over our skis and start deploying capital before we raise it . So we really had a couple of months to to deploy the capital .
Speaker #5: We were really only planning on doing a little bit more , as you know , on top of the , you know , covering the dispositions that we did .
Speaker #5: But raising capital at the end of July , you know , kind of put us in a spot where we , you know , two months to close and , you know , we're still still able to hit pretty good numbers .
Speaker #5: But , you know , it's a dance point . That was all very late in the quarter .
Speaker #8: Got it . Thanks for that , guys . I really appreciate it . My follow up question is just on the equity that needs to be settled .
Speaker #8: How are you thinking about that ? And then what would be kind of the accretion on that equity associated with future deals ?
Speaker #6: Yeah . So in terms of the forward equity , you know , as you think about it , you also got to think about where we raised the equity versus where our prior cap rates were .
Speaker #6: You know , and the first half of the year , we averaged a 7.7 . So some of the equity raise that was that lower stock prices than we are today .
Speaker #6: The spread is still fairly high on that . Anywhere from 135 to 150 basis points . When you think about where , you know , we raised the term loan capital , as we sit here today , you know , our spreads are closer to call it .
Speaker #6: You know , 165 170 , which is still a very healthy spread when you think about the historical average for the sector over the last 20 plus years .
Speaker #6: So I think for us that should allow us again to continue to grow AFO per share as we look out to to 2026 , you know , at a fairly healthy pace .
Speaker #6: And then should ramp up further , hopefully in 2027 as some of the the lower priced , you know , Fords get settled over the course of of 2026 .
Speaker #6: But , you know , for modeling purposes , I think you should settle somewhere around 8 to 9 million shares at the end of the fourth quarter .
Speaker #6: And then , you know , we should get rid of most of what was raised over the course of 2024 and 2025 . You know , radically over the course of of 2026 .
Speaker #8: Thank you very much. Good luck in the fourth quarter.
Speaker #5: Thanks , Michael .
Speaker #6: Thanks .
Speaker #3: Our next question is from Greg McGinnis with Scotiabank .
Speaker #9: Hey , good morning . So although we weren't surprised by the lower cash cap rates achieved this quarter because of the commentary that you guys have been providing , we were a little surprised by the limited increase in IgG or IgG like acquisitions .
Speaker #9: Now it like you're not really expecting much of an increase on that front going forward either . Could you just help us understand what you're seeing on pricing for the IgG or equivalent assets ?
Speaker #9: And potential for increased acquisition levels within that subset ? As your cost of equity improves ?
Speaker #5: Yeah , sure . So I'd say there's probably about a 50 basis points difference in terms of the investment grade and investment grade .
Speaker #5: You know , like assets that we acquired versus the non-investment grade . So enough of a delta there where , you know , as long as we're not taking , you much more risk , that's something that we're , you know , more than comfortable doing .
Speaker #5: And there just is a lot more attractive opportunities in the Non-investment grade side at this point . I am expecting the fourth quarter to be a little bit more heavy on the investment investment grade side than what we've done .
Speaker #5: You for this year . But you know , the reality is we investment grade is just not really something that we focused on , focus on .
Speaker #5: We're looking for the best risk adjusted returns that we can . You know , in some quarters that's going to be high , in some quarters that's going to be low .
Speaker #5: And you know , we're really kind of focused on getting the best pricing that we can , managing the portfolio . And then , not having credit losses , which which I think we've been able to accomplish both really strong pricing with minimal loss .
Speaker #9: And are you are you seeing any trends in terms of what you're looking to acquire from that standpoint ? On an industry level , in terms of where you're seeing the better risk adjusted returns now versus maybe historically ?
Speaker #5: Yeah , sure . I mean , certainly I've seen more opportunities on the convenience store side in a quick service . Restaurants is another area that has been a focus .
Speaker #5: You know , grocery , auto services , that's really been kind of the main for four food groups that we've had the most success .
Speaker #5: But there's always , you know , a deal here or there that's outside of those , you know , we've added a bit more Tractor Supply .
Speaker #5: You saw that move up quite a bit . You know , we're adding a little bit more in the fourth quarter . But it's a , it's a it's a pretty broad diversified mix .
Speaker #5: What we're adding in the fourth quarter .
Speaker #9: Okay . Thank .
Speaker #10: You .
Speaker #3: Our next question is from Handle Saint with Mizuho Securities.
Speaker #11: Hey, thanks for calling on me here. I appreciate the time. I wanted to ask about competition. It has certainly come up quite a bit on the call so far this quarter.
Speaker #11: You mentioned that you're seeing a bit of competition from private equity . I'm curious what you think of what you think . Their investment strategy is where they deploying more capital versus where you are looking to deploy .
Speaker #11: And if and how you'll be able to insulate yourself from , from from that a bit . Thanks .
Speaker #5: Yeah that's a great question . Handel . It's been a , you know , a big topic . You know , I think every private equity firm is a little different .
Speaker #5: You know , you saw a couple , you know , larger private equity firms kind of get in the game a few years ago and didn't really make much of an impact , quite frankly .
Speaker #5: And you've seen , you know , a couple more in the last couple of years , really , you know , kind of smaller teams going out elephant hunting .
Speaker #5: You know , a lot of those have been more focused on industrial , but even on the retail side , you know , kind of looking for the larger transactions to to put a lot of capital to work .
Speaker #5: So we're not really running into obviously , the industrial side , but also , you know , if someone's kind of doing nine figure type transactions , that's not going to be , you know .
Speaker #5: Where we play more recently , you know , we've seen , you know , one large player focus on smaller transactions . But you know , further down the credit curve than really where we like to play .
Speaker #5: Although we have seen them a little bit on the on the back side , you know , but there's more than enough opportunity where and especially being that they are looking at a different credit profile for the most part than what we're looking at , not going to have a big impact on us .
Speaker #5: But they're really the first one that we've seen out there . You know , in the in the investment world . But I think , you know , with how fragmented the net lease retail space is and how little institutionally owned it is , there's just , you know , there's just a lot of opportunity for even more groups to come in without having a large impact on the pricing that we're seeing .
Speaker #11: Appreciate the thoughts there . Maybe as a follow up , I was curious , maybe an update just more broadly on your your strategic plans to reduce your Dollar General Walgreens CVS looks like you made quite a bit of progress in your quarter .
Speaker #11: Curious how the pricing came in versus prior sales versus your expectations , and then looking ahead , any any other categories that you're looking to call a bit into next year ?
Speaker #11: Understanding that much of the heavy lifting has already been done . Thanks .
Speaker #6: Yep .
Speaker #5: Yeah . I mean , I think , you know , the heavy lifting , you know , to your point , is really already done .
Speaker #5: You know , we made a big move on the dollar store side pricing , you know , was , pretty attractive . We did do a little bit more with some institutions where the cap rate was maybe slightly higher than the 1031 market .
Speaker #5: So I think the remaining sales that we have in that space are going to be . 1031 Driven we were already in a pretty good spot going into the quarter as it relates to pharmacy .
Speaker #5: So we're being a little bit more selective on pricing . There . And so we've hit our goal on Walgreens getting that below 3% just about there on on CVS certainly will be there here in the next in the next couple of weeks .
Speaker #5: So getting those down , you know , we can be a little bit more choosy when it comes to the pricing and not feel as much pressure there .
Speaker #5: So I'd expect , you know , us to continue to to run the portfolio with tenants below 5% . Walgreens will continue to to decrease over time a little bit less of a , you know , a little bit less pressure there .
Speaker #5: But , you know , that'll still continue to come down with a sale here or there . And then with us not adding to to either of those sectors , just increasing the asset base will decrease .
Speaker #5: Those exposures over time .
Speaker #10: Thank you .
Speaker #3: Our next question is from Smedes Rose with Citi .
Speaker #12: High . Thanks . I just wanted to understand maybe the opportunity set a little better . I mean , you significantly increased the acquisitions .
Speaker #12: You know outlook obviously for the year . I know part of that is driven by better cost of capital . But also I mean is the is the overall market kind of expanding because I mean , we've just hear from other companies too .
Speaker #12: It seems like the acquisitions outlook just continues to sort of accelerate and wondering if you think that is sort of going to continue indefinitely , or is there anything in particular that's driving that ?
Speaker #5: Yeah . No , it's yeah , we certainly are seeing a lot more opportunity , I think , to your point , others are saying the same thing on their calls .
Speaker #5: So I don't think it's just us and thinking through really what's driving that . You know , rates have come in enough where you have , you know , the ten years gone from , you know , four and a half to , you know , to for the , you know , the five year , which is probably more important to 1031 buyers , you know , down around three , six or whatever .
Speaker #5: I haven't looked today , but I mean , that's , that's an area where , you know , it . Pencils on the debt side .
Speaker #5: So I think , you know , we're at a , a a point where , you know , rates aren't really restrictive to , you know , to getting deals done .
Speaker #5: So I think that's kind of opened up the maybe not the floodgates , but I think on the margin , you know , seeing more opportunity across the board with every with every different approach to acquisitions that we that we take , we're seeing more opportunity really everywhere .
Speaker #12: Okay . Thank you .
Speaker #3: Our next question is from Linda Tsai with Jefferies.
Speaker #13: Hi . Yeah , it makes a lot of sense to continue diversification in your portfolio , reducing the drug and dollar stores and AAP exposure .
Speaker #13: That being said, where do you think spreads between acquisition and disposition cap rates could trend in 2026?
Speaker #5: Hey , Linda . Yeah , I mean , it's probably a little bit difficult to say because , you know , we're going to be more opportunistic on the disposition side .
Speaker #5: So , you know , the cap rates could come in a little bit if we're , you know , if we see some good opportunities there , you know , we had some pressure on our , you know , put some pressure on ourselves by setting some diversification goals where , you know , we're selling , you know , assets in industries that were maybe a little bit out of favor .
Speaker #5: So I think that made it a little bit more difficult . But certainly a , you know , a strong . 1031 market allowed us to be able to hit those goals .
Speaker #5: You know , a little bit ahead of time . So but the dispositions really aren't going to drive much next year . You know , we'll probably return to a 15 to $25 million pace , which I think is historically what we had done .
Speaker #5: You know , coming into 2025 . But overall , I think the cap rates probably be a little bit lower on the disposition side .
Speaker #13: Thanks for that . And then just in terms of your investment spread at 160 Bips relative to your WACC , how do you think that could trend , say , by like the second half of 26 ?
Speaker #6: Yeah , I mean , you tell me where the stock's going to go . Linda and I can I can give you that answer .
Speaker #6: I think , you know , as we look at cap rates , as Mark said , we think cap rates may could potentially drift down .
Speaker #6: You know ten basis points over the next . You know , six to eight months . It's really unsure . You know I think we have a very good value proposition here .
Speaker #6: We've got our cost of capital back . We can continue to grow earnings at a at a at a healthier clip and a stronger clip than we did last year .
Speaker #6: So it really just all depends on kind of the stock price . And then to a lesser degree , you know , the where debt is I mean we've basically satisfied our debt needs for the next call it 12 to , 15 months .
Speaker #6: So , you know , any type of , you know , our capital raising and or our usage of debt is going to be relegated to the , you know , to the , the credit facility as well as just settling the Fords over the course of 2026 .
Speaker #6: So , you know , I'm hopeful that we're hopeful the stock price can continue to move higher . Just given the opportunity set that we're seeing .
Speaker #6: And so I think spreads can hang out where they are or move higher . But I think the one thing we feel confident in least over the next six months is that cap rate should remain in and around kind of where they have been .
Speaker #13: Just one last question . Your tenant credit outlook versus a year ago . How does that compare ?
Speaker #5: Yeah , not much different . I mean I guess , you know , a year ago we had , you know , Big Lots , which we knew was , you know , something that we had to work through .
Speaker #5: Right now , we don't really have anything on the credit watch list . You know , some coverages have moved around a little bit here or there , but nothing that we're concerned .
Speaker #5: Concerned with .
Speaker #13: Thank you .
Speaker #3: Our next question is from Jay Kornreich with Cantor Fitzgerald .
Speaker #14: Hey . Good morning . Thank you . I wanted to go back to the pace of growth going forward . You mentioned a robust opportunity set and net investments to pick up in 2026 .
Speaker #14: Be curious just about how you think about your goals for next year . Are you more focused on getting to a certain quarterly investment pace ?
Speaker #14: Or is it more about achieving a certain earnings growth level ? Just how do you think about that now that you've returned to that opportunity set ?
Speaker #5: Yeah , I mean , I think you have to evaluate what the opportunity set is . And , you know , right now it's robust .
Speaker #5: We expect that to continue . And then you have to consider your cost of capital , which is which is improving . Certainly not , you know , quite where we want it to be .
Speaker #5: And you need to consider , you know , your team and what we're capable of . And I think we're capable of significantly more than , than what we've done in the past .
Speaker #5: And so I think there's an opportunity , as our stock has continued to , to recover and get better , that we can ramp acquisitions beyond what we've done historically , you know , to what level remains to be seen ?
Speaker #5: You know , I guess we'll decide when we want to give AFFO per share guidance and acquisitions guidance . You know , at a later date .
Speaker #5: But I think right now that's trending to a larger number.
Speaker #14: Okay . And then just as a follow up , you referenced the the prospects of getting investment grade rating . Can you just give an update as to where that process stands .
Speaker #14: And potential timing to achieve that?
Speaker #6: Yeah , I mean , I think I think , you know , we you know , I think what we've said all along is that we would we would hope that we have some type of discussion this year .
Speaker #6: And I think that still remains true . But , you know , obviously nothing is set in stone . And so , you know , I think we'll continue to say , you know , hopefully we can , you know , do something by the end of the year .
Speaker #14: Okay . Thank you .
Speaker #3: Our next question is from Wes Golladay with Baird .
Speaker #15: Hey . Good morning guys . Looking outside of traditional acquisitions , are you seeing any development opportunities . And do you have any appetite to increase the loans ?
Speaker #5: Good question Wes . Yeah , we are seeing good opportunities . Both on on the loan side and the development side . But you know , really not seeing enough , you know , risk adjusted return on the development side to really kind of ramp that you know we've continued to work with a few tenants .
Speaker #5: You know , directly on some development that's been pretty good . And I think we'll probably see 1 or 2 , new tenants , you know , kind of pop up in our top tenant list .
Speaker #5: You know , in 2026 , you know , from that . But it's I don't think it's going to be as big a piece of , of , of what we've done historically .
Speaker #5: The loan book , we've decided to kind of bring that down a little bit , you know , over time . And but we're still seeing some pretty good opportunities to replace some of the loans that are , that are being paid off .
Speaker #15: All right. Thanks for the time.
Speaker #5: Thanks , Wes .
Speaker #3: Our next question is from Uppala Rama with KeyBanc Capital Markets.
Speaker #16: Great . Thank you . Just one quick one for me . You know , I want to get your thoughts on the auto parts exposure as it makes up about 2.5% of your ABR just given some of the recent bankruptcy news out there .
Speaker #16: Thanks .
Speaker #5: Yeah , sure . I mean , so we've got , you know , really three , you know , tenants there , advanced auto , which , which has been , you know , brought down quite a bit closer to 1% at this point .
Speaker #5: You know , O'Reilly's and AutoZone , we don't really think that , you know , the most recent bankruptcy is , you know , something that is going to impact them or even really tangential to them , really the bankruptcies that we've seen .
Speaker #5: And , you know , kind of the , you know , the cockroaches that , you know , that people are talking about , we haven't seen the spread of of the cockroaches at this point .
Speaker #5: And we , you know , some of that is really due to fraud , which we don't think is really indicative of what's really going on in the in the economic market .
Speaker #16: Okay, great. That was helpful. Thank you.
Speaker #3: Our next question is from Jana Galan with Bank of America .
Speaker #17: Thank you . Good morning . Given the increased competition for net lease retail strategies , are you seeing any changes in lease structures , whether it's term or escalators or options ?
Speaker #17: Just curious if people are trying to compete on , you know , something other than price .
Speaker #5: Hey . Yeah . We haven't really seen any change . I mean , I think , you know , the institutional capital that's that's coming to the space .
Speaker #5: I think there , you know , pushing to try to get a lot of the same things that the that our public peers are trying to get , which is longer leases with , with good rental escalations .
Speaker #5: So we haven't really seen much of a change in terms of lease structures .
Speaker #17: Thank you .
Speaker #3: Our next question is from Daniel Guglielmo with Capital One Securities .
Speaker #18: Hi , everyone . Thank you for taking my questions . Based on the commentary and results , you all are exiting the recycling phase and headed back into a growth and scaling phase .
Speaker #18: Looking back on the recycling efforts , are there any learnings that you're going to take with you as net acquisitions ramp back up ?
Speaker #5: Yeah , I mean , I think we've always been confident in our ability to , you know , to reduce exposures . And I think maybe the lesson learned , you know , for us is , you know , having some larger concentrations with publicly traded companies that are constantly in the news cycle at the tenant level , even if you've got really strong assets that generate a lot of cash flow , sometimes it doesn't matter and can still impact your your cost of capital , which which matters as an external growth vehicle .
Speaker #5: You know , like we are so I think we're going to be a little bit more cognizant of allowing some exposures to get higher and which is a little bit easier to do now that we've got , you know , about $2.5 billion of assets , you know , being a little bit bigger does help that .
Speaker #18: Okay , great . Yeah I appreciate that . And it makes sense . And then we always like to look at the ABR by state slide .
Speaker #18: So when you think about the existing pipeline are there states or regions where you see better investment opportunities over the next year or so .
Speaker #6: Yeah .
Speaker #5: I mean we're somewhat agnostic to what state , you know , in assets in , you know , we're focused a little bit more on , you know , the micro market of , you know , you know , does that location have the the demographics to , you know , to support not only the use of the , of the , of the , of the asset that we're buying , but also potentially , you know , future uses and future tenants .
Speaker #5: And you know , but I think overall we're probably seeing a little bit more opportunity in the Sunbelt where you're seeing more population growth .
Speaker #5: You know , Texas is a big state . So that being our our number one state , you know , we kind of think of Texas as kind of being like 2 or 3 states , depending on what region of Texas you're in .
Speaker #5: And so , you know , kind of breaking that up by state sometimes , you know , I think you see a lot of our peers also have Texas as the number one state .
Speaker #5: But I wouldn't draw too many conclusions from from what's in the pipeline or where we're looking to , I think it's really just where the opportunities are , where we can get the best risk adjusted returns .
Speaker #5: And that can be in really any state.
Speaker #18: Great . Thank you .
Speaker #3: Thank you. There are no further questions at this time. I'd like to hand the floor back over to Mark Manheimer for any closing comments.
Speaker #5: Well , thanks everybody for joining today . We appreciate the interest in the company . And , you know , look forward to to meeting up with everybody in the conference season .
Speaker #5: Take care . to grow .