Q2 2026 NETSTREIT Corp Earnings Call

July 23, 2026

Speaker #1: Greetings and welcome to the NETSTREIT second quarter, 2026 earnings call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation.

Operator: Greetings and welcome to the NETSTREIT Q2 2026 earnings call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Matt Miller, Capital Markets, Investor Relations. Thank you. You may begin.

Operator: Greetings and welcome to the NETSTREIT Q2 2026 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Matt Miller, Capital Markets, Investor Relations. Thank you. You may begin.

Speaker #1: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Matt Miller, Capital Markets Investor Relations.

Speaker #1: Thank you. You may begin.

Speaker #2: Good morning, and thank you for joining us for NETSTREIT second quarter, 2026 earnings conference call. On today's call, management's remarks and responses to your questions may contain statements considered forward-looking under federal securities law.

Matt Miller: Good morning, and thank you for joining us for NETSTREIT's Q2 2026 earnings conference call. On today's call, management's remarks and responses to your questions may contain statements considered forward-looking under federal securities law. These statements address matters subject to risks and uncertainties that may cause actual results to differ from those discussed today. For more information on these factors, we encourage you to review our latest Form 10-K and other SEC filings. All forward-looking statements are made as of today's date, and NETSTREIT assumes no obligation to update them 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, reconciliations to the most comparable GAAP measures, and an explanation of their usefulness to investors. These materials can be found in the investor relations section of the company's website at netstreit.com.

Speaker #2: These statements address matters subject to risk and uncertainties that may cause actual results to differ from those discussed today. For more information on these factors, we encourage you to review our latest Form 10-K and other SEC filings.

Speaker #2: All forward-looking statements are made as of today's date, and NETSTREIT assumes no obligation to update them in the future. In addition, certain financial information presented on this call includes non-GAAP financial measures.

Speaker #2: Please refer to our earnings release and supplemental package for definitions, reconciliations to the most comparable GAAP measures, and an explanation of their usefulness to investors.

Speaker #2: These materials can be found in the Investor Relations section of the company's website at netstreet.com. Today's call is hosted by NETSTREIT CEO Mark Manheimer and CFO Dan Donlan.

Matt Miller: Today's call is hosted by NETSTREIT CEO, Mark Manheimer, and CFO, Dan Donlan. They will make some prepared remarks, followed by a Q&A session. With that, I'll turn the call over to Mark.

Speaker #2: They will make some prepared remarks followed by a Q&A session. With that, I'll turn the call over to Mark.

Speaker #1: Thank you, Matt, and good morning, everyone. We appreciate you joining us today to discuss NETSTREIT's second quarter 2026 results. I want to begin by thanking our entire team for their outstanding execution and dedication.

Mark Manheimer: Thank you, Matt. Good morning, everyone. We appreciate you joining us today to discuss NETSTREIT's Q2 2026 results. I want to begin by thanking our entire team for their outstanding execution and dedication. We have now grown the portfolio to over $3 billion in assets. We continue to see an elevated number of high-quality opportunities at accretive pricing, which should provide for an increasingly attractive growth backdrop as we head into 2026 and beyond. In Q2, we saw continued acceleration on the investment front. We closed $298.9 million of gross investments driven by well-priced assets in our core necessity and service-based sectors, including quick service restaurants, grocery, convenience store, auto service, and other essential retail categories. These investments were completed at a blended cash yield of 7.4% with a weighted average lease term of 9.8 years.

Speaker #1: We have now grown the portfolio to over $3 billion in assets, and we continue to see an elevated number of high-quality opportunities at attractive pricing, which should provide for an increasingly attractive growth backdrop as we head into 2027 and beyond.

Speaker #1: In the second quarter, we saw continued acceleration on the investment front. We closed $298.9 million of gross investments driven by well-priced assets in our core necessity and service-based sectors.

Speaker #1: Including quick-service restaurants, grocery, convenience store, auto service, and other essential retail categories. These investments were completed at a blended cash yield of 7.4% with a weighted average lease term of 9.8 years.

Speaker #1: As a complement to this, we executed targeted dispositions at a 6.8% blended cash yield, the proceeds of which were recycled into higher-quality, longer-duration opportunities that enhanced our portfolio quality and further reduced select tenant and industry concentrations.

Mark Manheimer: As a complement to this, we executed targeted dispositions at a 6.8% blended cash yield, the proceeds of which were recycled into higher quality, longer duration opportunities that enhanced our portfolio quality and further reduced select tenant and industry concentrations. This robust start to the year reflects the depth of our sourcing platform and our team's ability to move quickly across a wide swath of opportunities while still staying disciplined in our underwriting criteria. With that in mind, we have seen an uptick in portfolio transactions in recent months, which historically have priced away from us given the large premiums these deals typically command. That said, we were successful in a couple of instances this quarter, which has fortuitously carried over into Q3.

Speaker #1: This robust start to the year reflects the depth of our sourcing platform and our team's ability to move quickly across a wide swath of opportunities, while still staying disciplined in our underwriting criteria.

Speaker #1: With that in mind, we have seen an uptick in portfolio transactions in recent months, which historically have priced away from us given the large premiums these deals typically command.

Speaker #1: That said, we were successful in a couple of instances this quarter, which has fortuitously carried over into the third quarter. As a result, we have gained additional exposure without sacrificing our investment spreads to various high-quality tenants like Chick-fil-A, Sprouts, and QuikTrip, that usually price too aggressively for us in the one-off market.

Mark Manheimer: As a result, we have gained additional exposure without sacrificing our investment spreads to various high-quality tenants like Chick-fil-A, Sprouts, and Kwik Trip that usually price too aggressively for us in the one-off market. Also of note this quarter was the UPREIT acquisition of 20 Speedway properties that we previously invested in via a first mortgage in early 2023. This was a great example of our creative structuring within our debt program, providing a path to direct fee ownership at cap rates that are significantly above market. More specifically, we acquired the Speedway assets at a 6.75% initial cash yield, which we see as a strong risk-adjusted yield given the long-term leases, the investment-grade credit support, high unit level rent coverage, and the low basis in these assets. Turning to the portfolio, we ended the quarter with 859 investments leased to 156 tenants across 28 industries and 46 states.

Speaker #1: Also of note, this quarter was the upbeat acquisition of 20 Speedway properties that we previously invested in via a first mortgage in early 2023.

Speaker #1: This was a great example of our creative structuring within our debt program, providing a path to direct fee ownership at cap rates that are significantly above market.

Speaker #1: More specifically, we acquired the Speedway assets at a 6.75% initial cash yield, which we see as a strong risk-adjusted yield given the long-term leases, the investment-grade credit support, high unit-level rent coverage, and the low basis in these assets.

Speaker #1: Turning to the portfolio, we ended the quarter with $859 investments leased to 156 tenants across 28 industries and 46 states. Our weighted average lease term is 10 years, and the percentage of investment-grade and investment-grade-profile tenants is 56.5% of ABR.

Mark Manheimer: Our weighted average lease term is 10 years. The percentage of investment-grade and investment-grade profile tenants is 56.5% of ABR. Unit level rent coverage across the portfolio remains healthy at 3.8 times. As expected, occupancy increased to 100% with the backfill of our lone vacancy, a former Big Lots location with A-rated TJ Maxx at a more than 20% increase in rent. While vacancies have been extraordinarily rare in our portfolio, we believe this execution highlights the strength of our asset management team and underwriting process. From a balance sheet perspective, we continue to maintain a conservative and flexible capital structure. Following the capital markets activities in the quarter, our leverage remains an industry-leading 3.2 times. With substantial liquidity under our revolving credit facility and the benefit of our previously raised forward equity, we are well positioned to fund accelerated growth without compromising our leverage targets.

Mark Manheimer: Our weighted average lease term is 10 years. The percentage of investment-grade and investment-grade profile tenants is 56.5% of ABR. Unit level rent coverage across the portfolio remains healthy at 3.8x. As expected, occupancy increased to 100% with the backfill of our lone vacancy, a former Big Lots location with A-rated TJ Maxx at a more than 20% increase in rent. While vacancies have been extraordinarily rare in our portfolio, we believe this execution highlights the strength of our asset management team and underwriting process. From a balance sheet perspective, we continue to maintain a conservative and flexible capital structure. Following the capital markets activities in the quarter, our leverage remains an industry-leading 3.2x. With substantial liquidity under our revolving credit facility and the benefit of our previously raised forward equity, we are well positioned to fund accelerated growth without compromising our leverage targets.

Speaker #1: Unit-level rent coverage across the portfolio remains healthy at 3.8 times. As expected, occupancy increased to 100% with the backfill of our loan vacancy a former big lots location with A-rated TJ Maxx at a more than 20% increase in rent.

Speaker #1: While vacancies have been extraordinarily rare in our portfolio, we believe this execution highlights the strength of our asset management team and underwriting process. From a balance sheet perspective, we continue to maintain a conservative and flexible capital structure following the capital markets activities in the quarter.

Speaker #1: Our leverage remains in industry-leading 3.2 times. With substantial liquidity under our revolving credit facility and the benefit of our previously raised forward equity, we are well-positioned to fund accelerated growth without compromising our leverage targets.

Speaker #1: Turning to guidance, given the aforementioned strength of our balance sheet and continued momentum in our investment pipeline, we are increasing our full-year 2026 net investment activity guidance range to $700 to $800 million; we are also increasing the bottom end of our AFFO per share guidance to a new range of $1.37 to $1.39.

Mark Manheimer: Turning to guidance, given the aforementioned strength of our balance sheet and continued momentum in our investment pipeline, we are increasing our full year 2026 net investment activity guidance range to $700 to $800 million. We are also increasing the bottom end of our AFFO per share guidance to a new range of $1.37 to $1.39. In summary, Q2 continued upon our excellent start to 2026, highlighted by strong momentum on the investment front and opportunistic capital raising, which has pre-funded our equity needs for the remainder of 2026. We believe our focus on healthy tenancy, strong unit level performance, high quality real estate, proactive portfolio management, and a low leverage balance sheet continues to position NETSTREIT for sustainable long-term growth and value creation. With that, I'll turn the call over to Dan to review our Q2 financial results in greater detail.

Speaker #1: In summary, the second quarter continued upon our excellent start to 2026, highlighted by strong momentum on the investment front and opportunistic capital raising which has pre-funded our equity needs for the remainder of 2026.

Speaker #1: We believe our focus on healthy tenancy, strong unit-level performance, high-quality real estate, proactive portfolio management, and a low-leverage balance sheet continues to position NETSTREIT for sustainable, long-term growth and value creation.

Speaker #1: With that, I'll turn the call over to Dan to review our second quarter financial results in greater detail. We will then be happy to take your questions.

Mark Manheimer: We will be happy to take your questions.

Speaker #3: Thank you, Mark. Looking at our second quarter earnings, we reported net income of $6.3 million or $0.06 per diluted share. For FFO for the quarter was $34.2 million, or 33 cents per diluted share, and AFFO was $35.5 million, or 35 cents per diluted share, which was a 6.1% increase over last year.

Dan Donlan: Thank you, Mark. Looking at our Q2 earnings, we reported net income of $6.3 million, or $0.06 per diluted share. Our FFO for the quarter was $34.2 million, or $0.33 per diluted share, and AFFO was $35.5 million.

Dan Donlan: $0.35 per diluted share, which was a 6.1% increase over last year. Running to the expense front, our total recurring G&A in the quarter increased 6.7% year over year to $5.8 million, which, similar to last quarter, has mostly resulted from staffing increases that occurred over the course of 2025. That said, with our total recurring G&A representing 9.5% of total revenues this quarter versus 11.3% in the prior year quarter, our G&A continues to rationalize relative to our revenue base. Turning to the capital markets, we remained opportunistic on the ATM front, raising 9 million shares for $183 million of net proceeds as our cost of equity continued to improve throughout the quarter. Turning to the balance sheet, our adjusted net debt, which includes the impact of all forward equity, was $672.2 million.

Speaker #3: Turning to the expense front, our total recurring G&A in the quarter increased 6.7% year over year to $5.8 million, which summed the last quarter has mostly resulted from staffing increases that occurred over the course of 2025.

Speaker #3: That said, with our total recurring G&A representing $9.5% of total revenues this quarter, versus $11.3% in the prior year quarter, our G&A continues to rationalize relative to our revenue base.

Speaker #3: Turning to the capital markets, we remained opportunistic on the ATM front, raising 9 million shares, or $183 million of net proceeds, as our cost of equity continued to improve throughout the quarter.

Speaker #3: Turning to the balance sheet, our adjusted net debt, which includes the impact of all forward equity, was $672.2 million, a weighted average debt maturity was 3.6 years, and our weighted average interest rate was 4.3%.

Dan Donlan: Our weighted average debt maturity was 3.6 years, and our weighted average interest rate was 4.3%. Including extension options, what can be exercised at our discretion, we have no material debt maturing until February of 2028. Our total liquidity was $1.1 billion at quarter end, which consisted of approximately $20 million of cash on hand, $301 million available on a revolving credit facility, and $714 million of unsettled forward equity and on $50 million of undrawn term loan capacity. From a leverage perspective, our adjusted net debt to annualized adjusted EBITDARE was 3.2x at quarter end, which remains comfortably below our targeted leverage range of 4.5x to 5.5x. Moving on to 2026 guidance.

Speaker #3: Including extension options that can be exercised at our discretion, we have no material debt maturing until February of 2028. In addition, our total liquidity was $1.1 billion at quarter end, which consisted of approximately $20 million of cash on hand, $301 million available on a revolving credit facility, $714 million of unsettled forward equity, and $50 million of undrawn terminal capacity.

Speaker #3: From a leverage perspective, our adjusted net debt to annualized adjusted EBITDA RE was 3.2 times at quarter end, which remains comfortably below our targeted leverage range of 4.5 to 5.5 times.

Speaker #3: Moving on to 2026 guidance, we are increasing the loan under our AFFO per share guidance to a new range of $1.37 to $1.39 and increasing our net investment activity guidance to $700 to $800 million.

Dan Donlan: We are increasing the low end of our AFFO per share guidance to a new range of $1.37 to $1.39, and increasing our net investment activity guidance to $700 to $800 million. We now expect cash G&A to range between $16.5 and $17 million, exclusive of transaction costs and severance payments. The company's AFFO per share guidance range now includes $0.05 to $0.08 per share of estimated dilution, or 3.6 million to 5.9 million shares for the full year, due to the impact of the company's outstanding forward equity calculated in accordance with the treasury stock method. Lastly, on 16 July, the board declared a quarterly cash dividend of $0.225 per share. The dividend will be paid on 15 September to shareholders of record as of 1 September. With that operator, we will now open the line for questions.

Speaker #3: We now expect cash G&A to range between $16.5 million and $17 million, exclusive of transaction costs and severance payments. In addition, the company's AFFO per share guidance range now includes $0.05 to $0.08 per share of estimated dilution, or 3.6 million to 5.9 million shares for the full year, due to the impact of the company's outstanding forward equity, calculated in accordance with the Treasury stock method.

Speaker #3: Lastly, on July 16, the board declared a quarterly cash dividend of $22.50 per share. The dividend will be paid on September 15 to shareholders of record as of September 1.

Speaker #3: With that, operator, we will now open the line for questions.

Speaker #1: Thank you. At this time, we'll conduct the Q&A session. To ask a question, press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue.

Operator: Thank you. At this time, we'll conduct a Q&A session. To ask a question, press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. Your first question comes from Haendel St. Juste with Mizuho Securities. Please state your question.

Speaker #1: You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Speaker #1: One moment, please, while we pull for questions. And your first question comes from Hendel Sanjust with Mizuho Securities. Please state your question.

Speaker #4: Hey, guys. Good morning. Thanks for taking the question. First one is just on the implied volume for acquisitions into the back half of the year, seeing as it's excessed a pretty made me feel deceleration.

Haendel St. Juste: Hey, guys. Good morning. Thanks for taking the question. First one is just on the implied volume for acquisitions into the back half of the year, seems it's suggested pretty meaningful deceleration. I guess I'm curious if it's conservatism, the volatility of the macro, maybe something else we're missing. Maybe shed some color on that. If the macro volatility is impacting your conversations at all from a pricing or maybe having deals take a bit longer. Curious on how that all is playing out and what your expectations into the back here are. Thanks.

Speaker #4: So I guess I'm curious if it's conservatism, the volatility of the macro, maybe something else we're missing, so maybe set some color on that.

Speaker #4: And if the macro volatility is impacting your conversations at all from a pricing or maybe having deals take a bit longer. So curious on how that all is playing out and what your expectations into the back year are.

Speaker #4: Thanks.

Speaker #2: Yeah, thanks, Hendel. Yeah, I think there is a little bit of conservatism. Built into that, but there's also we don't want to have a target out there with capital that we haven't raised yet.

Dan Donlan: Yeah, thanks, Haendel. Yeah, I think there is a little bit of conservatism built into that, but there's also, we don't want to have a target out there with capital that we haven't raised yet. If we do choose to raise a little bit more capital, I think there's likely some upside to that. But as it more broadly relates to what we're seeing out in the market, I don't recall a healthier acquisitions market than what we're seeing right now, really across all the different avenues that we look to add properties, whether that be sale leasebacks or even portfolio deals, as I mentioned in the prepared remarks. The one-off market blend and extends, we're really kind of clicking on all cylinders. There's really a great opportunity set with very attractive pricing that we're seeing.

Mark Manheimer: Yeah, thanks, Haendel. Yeah, I think there is a little bit of conservatism built into that, but there's also, we don't want to have a target out there with capital that we haven't raised yet. If we do choose to raise a little bit more capital, I think there's likely some upside to that. But as it more broadly relates to what we're seeing out in the market, I don't recall a healthier acquisitions market than what we're seeing right now, really across all the different avenues that we look to add properties, whether that be sale leasebacks or even portfolio deals, as I mentioned in the prepared remarks. The one-off market blend and extends, we're really kind of clicking on all cylinders. There's really a great opportunity set with very attractive pricing that we're seeing.

Speaker #2: So if we do choose to raise a little bit more capital, I think there's likely some upside to that. But is it more broadly relates to what we're seeing out in the market, I don't recall a healthier acquisitions market than what we're seeing right now, really, across all the different avenues that we look to add properties, whether that be sale leasebacks or even portfolio deals, as I mentioned in the prepared remarks.

Speaker #2: The one-off market and blend-and-extends were really kind of clicking on all cylinders. So there's really a great opportunity set with very attractive pricing that we're seeing, and then we're following the macro and kind of what's going on geopolitically.

Dan Donlan: We're following the macro and kind of what's going on geopolitically. That's obviously had some impact on interest rates. We have not yet seen that have much of an impact on cap rates, but I would imagine if that sustains and we continue to see upward pressure on the 5-year and the 10-year, that could potentially move up cap rates, but we just have not seen that yet.

Mark Manheimer: We're following the macro and kind of what's going on geopolitically. That's obviously had some impact on interest rates. We have not yet seen that have much of an impact on cap rates, but I would imagine if that sustains and we continue to see upward pressure on the 5-year and the 10-year, that could potentially move up cap rates, but we just have not seen that yet.

Speaker #2: That's obviously had some impact on interest rates. We have not yet seen that have much of an impact on cap rates, but I would imagine if that is sustained and we continue to see upward pressure on the five-year and the 10-year, that could potentially move up cap rates. But we just have not seen that yet.

Speaker #4: Got it. Got it. That's great color. And then my second question—I guess it pertains to some comments you made earlier in your discussion.

Haendel St. Juste: Got it. That's great color. My second question, I guess it pertains to some comments you made earlier in your discussion. You referred to some higher tenant credit tenants like Chick-fil-A, I think you mentioned Sprouts. I guess I'm curious, we've seen your IG share trickle down over the last couple of quarters as you've pursued kind of optimizing your risk-adjusted growth. But your cost of capital's much improved, you're now, I guess, able to underwrite deals that perhaps you weren't able to do 6, 12 months ago. Curious if your strategy, your IG capital deployment strategy might be evolving here, and if we might see that start to tick up a little bit. Curious on all your thoughts on that. Thank you.

Speaker #4: You referred to some higher tenant credit tenants like Chick-fil-A, I think you mentioned Sprouts. So I guess I'm curious, we've seen your I-grade share trickle down over the last couple of quarters as you've pursued kind of optimizing your risk-adjusted growth, but your cost of capital has must improved.

Speaker #4: You're now, I guess, able to underwrite deals that perhaps you weren't able to do six or twelve months ago. So I'm curious if your strategy—your investment-grade capital deployment strategy—might be evolving here, and if we might see that start to tick up a little bit.

Speaker #4: I'm curious to hear all of your thoughts on that. Thank you.

Speaker #2: Yeah, no, that's a good question. I think it's really the dynamic that there's been just a large number of portfolios that have crossed our desk and that we've had the opportunity to try to tackle.

Dan Donlan: Yeah, no, it's a good question. I think it's really the dynamic that there's been just a large number of portfolios that have crossed our desk and that we've had the opportunity to try to tackle. I think it's too difficult for one or two shops that historically have really paid up for those portfolios to take them all. A few of those have kind of come our way, which has allowed us to get some of those assets that historically maybe we wouldn't have been able to. As it relates to this quarter being a little bit high on the investment grade profile, a good chunk of that was the Speedway OP unit transaction that we did this quarter. I think that's maybe more of a one-off.

Mark Manheimer: Yeah, no, it's a good question. I think it's really the dynamic that there's been just a large number of portfolios that have crossed our desk and that we've had the opportunity to try to tackle. I think it's too difficult for one or two shops that historically have really paid up for those portfolios to take them all. A few of those have kind of come our way, which has allowed us to get some of those assets that historically maybe we wouldn't have been able to. As it relates to this quarter being a little bit high on the investment grade profile, a good chunk of that was the Speedway OP unit transaction that we did this quarter. I think that's maybe more of a one-off.

Speaker #2: I think it's too difficult for one or two shops that historically have really paid up for those portfolios to take them all. And so, a few of those have kind of come our way.

Speaker #2: Which has allowed us to get some of those assets that historically maybe we wouldn't have been able to. But as it relates to this quarter being a little bit high on the investment-grade and investment-grade profile, a good chunk of that was the speedway, upper unit transaction that we did this quarter.

Speaker #2: So I think that's maybe more of a one-off. We're just going to continue to try to find the best risk-adjusted returns and right now that has not really evolved other than the portfolio dynamic, which we have seen a little bit of that in the third quarter as well.

Mark Manheimer: We're just going to continue to try to find the best risk-adjusted returns. Right now, that has not really evolved other than the portfolio dynamic, which we have seen a little bit of that in Q3 as well. I'd expect us to stick around that 30%, 35% investment grade profile, assuming the market dynamics continue.

Speaker #2: But I'd expect us to kind of stick around that 30 to 35 percent investment-grade profile, assuming the market dynamics continue.

Speaker #4: Got it. Thank you very much.

Haendel St. Juste: Got it. Thank you very much.

Speaker #2: Thanks, Hendel.

Mark Manheimer: Thanks, Daniel.

Speaker #1: Your next question comes from John Kilichowski with Wells Fargo. Please state your question.

Operator: Your next question comes from John Kilichowski with Wells Fargo. Please state your question.

Speaker #5: Hi, good morning. Thanks for taking my question. Maybe could you guys talk about the composition of what you bought in the quarter outside of the Speedway deal? And then, Mark, you talked about some portfolios out there.

John Kilichowski: Hi. Good morning. Thanks for taking my question. Maybe could you guys talk about the composition of what you bought in the quarter outside of the Speedway deal? Mark, you talked about some portfolios out there. Could you talk about the sectors that you're seeing some opportunity?

Speaker #5: Could you talk about the sectors where you're seeing some opportunity?

Speaker #4: Yeah, sure. So I mean, yeah, I think the sectors that have kind of shown up in some of the portfolio deals are similar, but there's maybe a few names.

Mark Manheimer: Yeah, sure. I think the sectors that have shown up in some of the portfolio deals are similar, but there's maybe a few names. We mentioned Kwik Trip, Sprouts, Chick-fil-A that are in our portfolio. We just didn't have much of a concentration there. It's created a unique opportunity for us to add some of those. We've also added some other names like Tire Discounters, some of the Darden brands that the cap rates have historically been pretty aggressive there. Some Brinker or Chili's assets as well we've added during the quarter, which haven't really been in our mix over the past call it a couple of years. It's very similar sectors, just maybe some other tenants that don't trade as much in the one-off market.

Speaker #4: We mentioned QuickTrip, Sprouts, Chick-fil-A that are in our portfolio. We just didn't have much of a concentration there, but it's created a unique opportunity for us to add some of those.

Speaker #4: But then we've also added some other names like tire discounters, some of the Darden brands that the cap rates have historically been pretty aggressive there, some Brinker Chilies, assets as well we've added.

Speaker #4: During the quarter, which haven't really been in our mix over the past couple of years. So it's very similar sectors, just maybe some other tenants that don't trade as much in the one-off market.

Speaker #4: And I think that's likely the reason why I think we're seeing so many of these portfolio deals is, as you recall, maybe in 2021 when interest rates were near zero and cap rates were at all-time lows, you had a lot of players enter the space, look at putting financing on those transactions, get a really nice cash-on-cash, even though the cap rates were low, because they could borrow so cheaply.

Mark Manheimer: The reason why I think we're seeing so many of these portfolio deals is, as you recall, maybe in 2021 when interest rates were near zero and cap rates were at all-time lows, you had a lot of players enter the space, look at putting financing on those transactions, get a really nice cash on cash, even though the cap rates were low because they could borrow so cheaply. That debt's coming due, typically a 5-year term on most of that bank debt. That comes due. The refi looks a lot different. Selling the portfolios makes a lot more sense. We're just seeing a lot of opportunity there, and I think that's probably what's driving a lot of that.

Speaker #4: That debt's coming due—typically a five-year term on most of that bank debt. When that comes due, the refi looks a lot different, so selling the portfolios makes a lot more sense.

Speaker #4: And so we're just seeing a lot of opportunity there, and I think that's probably what's driving a lot of that. Each deal's got its own idiosyncratic reasons for why it comes to market or why it crosses our desk, but I think that's one theme that we've seen a little bit of.

Mark Manheimer: Each deal's got its own idiosyncratic reasons for why it comes to market or why it crosses our desk, but I think that's one theme that we've seen a little bit of. Yeah, I think the mix in terms of sectors has been very similar to what we've tried to pull into the portfolio. Then we've also gotten a little bit creative when we're buying some of these portfolios and simultaneously sold some assets at the same time. Some of these portfolios had some banks and things in there that maybe we're not as big of a fan, but they still trade a pretty good cap rate. That can allow us to juice our net cap rate a bit, while I think getting a better risk-adjusted return. We've gotten a little bit creative in some of those situations.

Speaker #4: But yeah, I mean, I think the mix, in terms of sectors, has been very similar to what we've tried to pull into the portfolio.

Speaker #4: And then we've also gotten a little bit creative when we're buying some of these portfolios and simultaneously sold some assets at the same time, some of these portfolios had some banks and things in there that maybe were not as big of a fan, but they still trade a pretty good cap rate, so that kind of can allow us to kind of juice our net cap rate, a bit, while I think kind of getting a better risk-adjusted return.

Speaker #4: So we've gotten a little bit creative in some of those situations, but I think in terms of—if you look at the categories and the industries that we've added to—it looks pretty similar to what we've done.

Mark Manheimer: I think in terms of you look at the categories and the industries that we've added to, it looks pretty similar to what we've done. It's just been a little bit different in how we've gotten into those transactions and then added further tenant diversity to the portfolio.

Speaker #4: It's just been a little bit different in how we've gotten into those transactions and added further tenant diversity to the portfolio. Got it. That's very helpful.

John Kilichowski: Got it. That's very helpful. I guess that leads me into my next question, which would be a little bit chunkier on the disposition side in Q2. Is that related to the Speedway deal? If we were to see more portfolio deals and net investments climbing, if you were able to do that, would you also expect that disposition number to run a little bit more elevated?

Speaker #4: And I guess that leads into my next question, which would be a little bit chunkier on the disposition side into Q. Is that related to the speedway deal and if we were to see more portfolio deals and net investments climbing if you were able to do that, would you also expect kind of that disposition number to run a little bit more elevated?

Speaker #3: Yeah, no, it's a good question. So on the portfolio deals, if it's going to be a diversified portfolio, we're likely to we've been very active on the disposition side, so that's allowed us to really build some relationships with some people to sell to.

Mark Manheimer: Yeah, that's a good question. On the portfolio deals, if it's going to be a diversified portfolio, we've been very active on the disposition side, so that's allowed us to really build some relationships with some people to sell to that we can rely on that perform. I think you may see dispositions elevated a little bit in the event that we do some more portfolio deals. Each quarter's going to be a little bit different, so it's hard to predict. We've seen Q3 a little bit similar to Q2 in that we've done some portfolio deals, and also been able to sell some of the assets that maybe we didn't want to own long term.

Speaker #3: That we can rely on, that perform. So I would I think you may see dispositions elevated a little bit in the event that we do some more portfolio deals, but each quarter is going to be a little bit different, so it's hard to predict, but we've seen third quarter a little bit similar to second quarter in that we've done some portfolio deals and also been able to sell some of the assets that maybe we didn't want to own long-term.

Speaker #4: Very helpful. Thank you.

John Kilichowski: Very helpful. Thank you.

Speaker #1: Next question comes from Jay Kornreich with Cantor Fitzgerald. Please state your question.

Operator: Next question comes from Jay Kornreich with Cantor Fitzgerald. Please state your question.

Speaker #5: All right, thanks. Good morning. I just want to go back to the forward equity. The Treasury stock method accounting caused, I guess, two more sense of dilution this quarter as it relates to the annual guidance.

Jay Kornreich: Hey, thanks. Good morning. I just want to go back to the forward equity. The Treasury stock method accounting caused, I guess, $0.02 more of dilution this quarter as it relates to the annual guidance. Just wondering, when do you think that could hit a peak? And then just in general, as you seemingly have more than enough equity to meet your near-term investment needs really well into next year, yet your cost of equity continues to improve, I guess, what is your appetite to continue tapping incremental forward equity at these levels?

Speaker #5: So just wondering, when do you think that could hit a peak and then just in general, have you seemingly have more than enough equity to meet your near-term investment needs really well into next year?

Speaker #5: Yet your cost of equity continues to improve. I guess, what is your appetite to continue tapping incremental forward equity at these levels?

Speaker #4: Yeah, hey, Jay, I appreciate the commentary. From a if you look at our total shares outstanding, relative to the weighted average share count, I think it's kind of at 38% today.

Dan Donlan: Yeah. Hey, Jay. Appreciate the commentary. If you look at our total shares outstanding relative to the weighted average share count, I think it's at 38% today. That should normalize close to 15% as we get out through the course of 2027. Now it remains to be seen where the stock price grows relative to the outstanding forwards, but certainly from a standpoint on a percentage basis, the outstanding forwards will normalize again closer to 15%. I think what you'll probably see is that the amount of TSM dilution probably peaks in Q3, just depends on where the stock price goes, and then will drop off from there, not only nominally, but on a percentage basis as well. I think that answers the first part. I think the second part on equity, you're right, we don't need to do anything if we don't choose.

Speaker #4: That should normalize close to 15% as we get out through the course of 2027. So now it remains to be seen where the stock price goes relative to the outstanding forwards, but certainly, from a standpoint on a percentage basis, the outstanding forwards will normalize again, closer to 15%.

Speaker #4: And so I think what you'll probably see is that the amount of TSM dilution probably peaks in the third quarter. It just kind of depends on where the stock price goes.

Speaker #4: And then we'll kind of drop off from there not only nominally, but on a percentage basis as well. So I think that answers the first part.

Speaker #4: I think the second part on kind of equity—you’re right, we don’t need to do anything if we don’t choose. But I think, to the degree that the investment market remains as robust as it has, I think we’ll likely utilize the ATM at some point in time in the third and potentially in the fourth quarter.

Dan Donlan: I think to the degree that the investment market remains as robust as it has, I think we'll likely utilize the ATM at some point in time in Q3 and potentially in Q4 just to stay well ahead of our capital needs. I think we can certainly choose to be selective given where our leverage is. We saw a big H1 coming for us, and we wanted to get out ahead of that. With the S&P 600 inclusion, we had a ton of liquidity come into the name. We wanted to take advantage of that in H2 of June. It also kind of accelerated our needs relative to what we were expecting when we put out guidance in April 2024.

Speaker #4: Just to say, we're well ahead of our capital needs. But I think we can certainly choose to be selective, given where our leverage is, and we saw a kind of big front half coming for us.

Speaker #4: And so we wanted to get out ahead of that. And with the S&P 600 inclusion, we had a ton of liquidity coming to the name and we wanted to take advantage of that in the back half of June.

Speaker #4: So, that also kind of accelerated our needs relative to what we were expecting when we put out guidance in April of this year.

Speaker #5: I appreciate that, Dan. All helpful. And just going off the comment about the inclusion to the S&P 600 recently, which should bring liquidity and additional passive investors to the name.

Jay Kornreich: Appreciate that, Dan. All helpful. Just going off the comment about the inclusion to S&P 600 recently, which should bring liquidity and additional passive investors to the name, I guess, are there any other incremental corporate goals we should be monitoring for other either index inclusion, new credit ratings, unsecured bond issuance, or anything else we should just have on the radar?

Speaker #5: I guess, are there any other incremental, I guess, corporate goals we should be monitoring for—either index inclusion, new credit ratings, unsecured bond issuance, or anything else we should just have on the radar?

Speaker #4: Yeah, I mean, as far as index inclusions, nothing comes to mind. Hopefully, we stay in the 600 a very long period of time because that results in quite a hefty ownership amongst passive funds.

Dan Donlan: Yeah. As far as index inclusions, nothing comes to mind. Hopefully, we stay in the 600 a very long period of time because that results in quite a hefty ownership amongst passive funds. There's a lot of corporate goals, but as it pertains to the credit rating or additional credit ratings, we already have a BBB- from Fitch. We're likely to go out to other agencies sometime early 2025, which would then open us up to the public bond markets, which is something we're very excited about potentially tapping in 2027. I think that's the intermediate term goal for us.

Speaker #4: I think that the next kind of there's a lot of corporate goals, but as it pertains to kind of the credit rating, or additional credit ratings, we already have tripled me minus from Fitch.

Speaker #4: We're likely to go out to other agencies sometime early next year, which would then open us up to the public bond markets. This is something we're very excited about, potentially tapping in 2027.

Speaker #4: So, I think that should be—that's kind of the intermediate-term goal for us.

Speaker #5: Okay. All righty. Thank you so much.

Jay Kornreich: Okay. All right. Thank you so much.

Speaker #1: Thank you, Ann. Your next question comes from Michael Goldsmith with UBS. Please state your question.

Operator: Thank you. Your next question comes from Michael Goldsmith with UBS. Please state your question.

Speaker #6: Good morning. Thanks a lot for taking my question. I guess just with the improved cost of capital, you talked a little bit about getting into some portfolio deals and getting maybe into a little bit of higher quality tenants than maybe the new normally would have.

Michael Goldsmith: Good morning. Thanks a lot for taking my question. I guess, just with the improved cost of capital, you've talked a little bit about getting into some portfolio deals and getting maybe into a little bit of higher quality tenants than you normally would have. Does that come at the expense of maintaining larger spreads in some of the more traditional tenants that you've been interacting with in the past? Or is this just like, hey, for the same price that we would pay for what would be traditional, we're able to improve the quality of our tenant base?

Speaker #6: Is that maybe at the expense of kind of the does that come at the expense of maintaining larger spreads in some of the more traditional tenants that you've been interacting with in the past, or is this just like, hey, for the same price that we would pay for some what would be traditional, we're able to improve the quality of our tenant base?

Speaker #4: Yeah, Michael. I mean, I think quite...

Mark Manheimer: Yeah. Michael, I think quite frankly, we were a little bit surprised that some of the portfolio deals we're able to get at the pricing that we did. I think that's really driven by the fact that there were just so many portfolios that came to market in a pretty short period of time. That made it difficult for some others to just buy them all. I would've thought that would've been a very unique quarter, we're seeing a similar dynamic play out in Q3. Yeah, I would say that if you look at the cap rate that we achieved this quarter, and I think really what drove that down to a 7.4 from a 7.5, which is minimal, was the Speedway deal at 6.75, the upfront deal that we did, that kind of drove that down.

Speaker #3: frankly, we were a little bit surprised that some of the portfolio deals we were able to get at the pricing that we did. But I think that's really driven by the fact that there were just so many portfolios that came to market in a pretty short period of time.

Speaker #3: So that made it difficult for some others to just buy them all. And so I would have thought that would have been a very unique quarter, but we're seeing a similar dynamic play out in the third quarter.

Speaker #3: But yeah, I mean, I would say that you look at the cap rate that we achieved this quarter, and I think really what drove that down to a 7.4 from a 7.5, which is minimal, was the speedway deal at 6.75, the uprate deal that we did.

Speaker #3: That kind of drove that down. You take that out, and we're probably at 7.5%, 7.6%. So we really didn't have to deviate on pricing. We don't expect that to happen in the third quarter, either.

Mark Manheimer: You take that out and we're probably 7.5, 7.6. We really didn't have to deviate on pricing. We don't expect that to happen in Q3 either. As long as that dynamic continues to play out in the market, we're going to participate. If it doesn't, we can surely transition quickly into more similar approach that we had in Q4 and Q1.

Speaker #3: And so, as long as that dynamic continues to play out in the market, we're going to participate. If it doesn't, we can surely transition quickly into a more similar approach that we had in the fourth quarter and first quarter.

Speaker #4: Yeah. And hey, Michael, a lot of the 7.4 was rounding and sometimes the 7.5 is rounding. So the delta between kind of where we've been transacting is actually less than 10 basis points when you factor in rounding.

Dan Donlan: Yeah. Hey, Michael, a lot of the 7.4 was rounding, and sometimes the 7.5 is rounding. The delta between where we've been transacting is actually less than 10 basis points when you factor in rounding.

Speaker #6: Got it. Thanks for that. And my follow-up is, you continue to move into growthary with sprouts. And the penetration of that within your portfolio, of course, overall, it remains elevated.

Michael Goldsmith: Got it. Thanks for that. My follow-up is, you continue to move into grocery with Sprouts, and the penetration of that within your portfolio of grocery overall remains elevated. Today, Albertsons reported, stock is down quite a bit, with the company noting that core grocery faced increasing pressure from softer industry unit trends and a more cautious consumer. Clearly not all grocers are equal, but how are you feeling about the grocery within your portfolio? Just any update from the tenants within the grocery category would be helpful. Thanks.

Speaker #6: Today, Albertsons reported and stock is down quite a bit with the company noting that core grocery faced increasing pressure from softer industry unit trends and a more cautious consumer.

Speaker #6: So clearly not all grocers are equal, but how are you feeling about the grocery within your portfolio and just any update from the tenants within the grocery category would be helpful.

Speaker #6: Thanks.

Speaker #3: Yeah, sure. So obviously, we pay attention to what's going on with the consumer and kind of what margins we see across the board with grocery.

Mark Manheimer: Yeah, sure. Obviously we pay attention to what's going on with the consumer, and what the margins we see across the board with grocery. Really what we're seeing is the larger operators have been able to push pricing a little bit more and hold up a little bit better. Certainly having a very conservative balance sheet is extremely important in that industry. You don't want to combine any operating leverage with financial leverage. We feel really comfortable with the grocery assets that we have. They generate very strong sales, which kind of flows through to the bottom line with very high rent coverage in that sector. As long as we feel like we're buying good assets at or below market rents, with high rent coverage, we like the industry.

Speaker #3: And really what we're seeing is kind of the larger operators have been able to kind of push pricing a little bit more and hold up a little bit better, certainly having a very conservative balance sheet is extremely important.

Speaker #3: And that industry—you don't want to combine any operating leverage with financial leverage, and so we feel really comfortable with the grocery assets that we have.

Speaker #3: They generate very strong sales, which kind of flows through to the bottom line with very high rent coverage in that sector. And so, as long as we feel like we're buying good assets at or below market rents, with higher rent coverage, we like the industry.

Speaker #3: But you do have to be careful not to just partner with any operator, and you have to be careful about which assets you're buying. But we feel really strong about the assets that we have in that sector and the rent coverage that we have.

Mark Manheimer: You do have to be careful not to just partner with any operator, and be careful about which assets that you're buying. We feel really strong about the assets that we have in that sector and the rent coverage that we have.

Speaker #6: Thank you very much. Good luck in the back half.

Michael Goldsmith: Thank you very much. Good luck in the H2.

Speaker #3: Thanks, Michael.

Mark Manheimer: Thanks, Michael.

Speaker #1: Your next question comes from Smeads Rose with Citi. Please state your question.

Operator: Your next question comes from Smedes Rose with Citi. Please state your question.

Speaker #6: Thanks. Oh, sorry. Nick Joseph here, Smead. You had mentioned conservatism in the kind of guide, potentially for the back half of the year, on acquisitions.

Mark Manheimer: Thanks.

Nick Sekas: Thanks.

Mark Manheimer: Hi.

Mark Manheimer: It's Nick Yekosa here, Smedes. You had mentioned conservatism in the kind of guide potentially for the H2 of the year on acquisitions. How much visibility do you have now that we're towards the end of July in the pipeline, and where does that pipeline stand today versus where it's stood on average over the last year or so?

Nick Sekas: It's Nick Yekosa here, Smedes. You had mentioned conservatism in the kind of guide potentially for the H2 of the year on acquisitions. How much visibility do you have now that we're towards the end of July in the pipeline, and where does that pipeline stand today versus where it's stood on average over the last year or so?

Speaker #6: How much visibility do you have now that we're towards the end of July and the pipeline and where does that pipeline stand today versus where it's stood on average over the last year or so?

Speaker #3: Yeah, sure. I mean, we're seeing a very healthy acquisitions market. I think we're sitting in a very similar spot to where we were three months ago on this call.

Mark Manheimer: Yeah, sure. We're seeing a very healthy acquisitions market. I think we're sitting in a very similar spot that we were 3 months ago on this call. No real reason to think that we should expect to see any real slowdown in Q3. We still have some sourcing to do for Q3, but a lot of that is done. We have virtually no visibility into Q4. Not only deals that we'll be able to access, but also what the macro is going to look like and where cap rates are. We don't want to overextend ourselves, especially if there is the possibility of cap rates going up, and we want to have that flexibility.

Speaker #3: So no real reason to think that we should expect to see any real slowdown in the third quarter. And that's really I mean, we've still have some sourcing to do for the third quarter, but a lot of that is done.

Speaker #3: We have virtually no visibility into the fourth quarter. And not only deals that we'll be able to access, but then also what the macro is going to look like, and where cap rates are. We don't want to overextend ourselves, especially if there is the possibility of cap rates going up.

Speaker #3: We want to have that flexibility.

Smedes Rose: Hi, this is Sneed. I just wanted to follow up on some of the comments you made a little bit earlier around grocery. Just for your tenants that are more or less focused on lower-end consumers, are you hearing anything from them just in terms of trends that might give you pause and maybe think about the way you are underwriting some of those kinds of leases for that-

Speaker #5: Hi, this is Smeads. I just wanted to follow up on some of the comments you made a little bit earlier around grocery, but just for your tenant federation more or less focused on lower-end consumers.

Speaker #5: Are you hearing anything from them, just in terms of trends, that might give way as you are underwriting some of those kinds of leases?

Speaker #3: Yeah. No, it's a good question. I mean, I think the K-shaped economy is definitely real. The lower leg of that is certainly under pressure.

Mark Manheimer: Yeah. No, it's a good question. I think, the K-shaped economy is definitely real. The lower leg of that is certainly under pressure. If we're going to have a sector, which we don't, quite frankly, have a lot of exposure to the lower-end consumer, fortunately. I think what you really need to have there is you need to have a real value proposition, and whether that be a necessity-based product where they kind of need that to survive, need those products to survive, or there's a real value proposition to that consumer that will drive them to those stores. We really make sure that we've got very healthy rent coverages and corporate credit there with a little bit less risk.

Speaker #3: And so if we're going to have a sector, which we don't quite frankly have a lot of exposure to the lower-end consumer, fortunately, but I think what you really need to have there is you need to have a real value proposition.

Speaker #3: And whether that be a necessity-based product where they kind of need that to survive and need those products to survive, or there's a real value proposition to that consumer that will drive them to those stores, but we really make sure that we've got very healthy rent coverages and corporate credit there with a little bit less risk.

Speaker #3: And so most of that's going to be with investment-grade tenants, in locations where we know they're committed long-term and are generating very strong cash flows, where we have some cushion because the lower-end income consumer is certainly under pressure.

Mark Manheimer: Most of that's going to be with investment-grade tenants, locations that we know that they're committed to long term, that are generating very strong cash flows, where we have some cushion, because the lower-income consumer is certainly under pressure.

Speaker #5: Thank you. Appreciate it.

Smedes Rose: Thank you. Appreciate it.

Speaker #1: Your next question comes from Wes Gallauday with Baird. Please state your question.

Operator: Your next question comes from Wes Golladay with Baird. Please state your question.

Speaker #7: Hey, yeah, good morning, guys. Going back to the comments on having success on the portfolio deals, are you seeing a portfolio discount or just no premium?

Operator: Hey. Good morning, guys. Going back to the comments on having success on the portfolio deals, are you seeing a portfolio discount or just no premium? What are you seeing exactly on the pricing that's changed?

Wes Golladay: Hey. Good morning, guys. Going back to the comments on having success on the portfolio deals, are you seeing a portfolio discount or just no premium? What are you seeing exactly on the pricing that's changed?

Speaker #7: What are you seeing exactly on the pricing that's changed?

Speaker #3: Yeah, it's kind of funny, Wes. We've seen some portfolios go off that are really well marketed, where there's several rounds of bidding. I think those are going off at a pretty substantial premium.

Mark Manheimer: It's kind of funny, Wes. We've seen some portfolios go off that are really well marketed, where there's several rounds of bidding. I think those are going off at a pretty substantial premium. The ones that are maybe a little bit smaller, I think if we're achieving the cap rates that we are for the quality of what we're pulling in, I wouldn't go as far as to call it a discount. I'd say that it's very similar to for us kind of doing our onesie-twosie kind of small portfolios that we've done in the past. It's probably pretty close to no premium, no discount, so maybe at par. Some of the larger ones that we've seen, that we bid on and don't get quite frankly, I think are still going at a premium.

Speaker #3: But the ones that are maybe a little bit smaller, I think if we're achieving the cap rates that we are for the quality of what we're pulling in, I wouldn't go as far as to call it a discount, but I'd say that it's very similar to us kind of doing our onesie-twosie, kind of small portfolios that we've done in the past.

Speaker #3: So it's probably pretty close to no premium, no discount. So maybe at par, but some of the larger ones that we've seen that we've bid on and don't get quite frankly, I think are still going at a premium.

Speaker #7: Okay. That's all from me. Thank you.

Operator: Okay. That's all for me. Thank you.

Wes Golladay: Okay. That's all for me. Thank you.

Speaker #3: Thanks, Wes.

Mark Manheimer: Thanks, Wes.

Speaker #1: Your next question comes from Greg McGuinness with Deutsche Bank. Please state your question.

Operator: Your next question comes from Greg McGinniss with Deutsche Bank. Please state your question.

Greg McGinniss: Hey, Greg McGinniss with Scotiabank. I wanted to go back to your earlier comment on the portfolio deals that were coming to market. I'm curious if you have any view on what's driving those deals to market. I know you mentioned expected moderation that's yet to materialize. If there's anything that you would expect to see in terms of a slowdown there, what would drive that?

Speaker #6: Hey, Greg McGuinness with Scotia. I wanted to go back to your earlier comment on the portfolio deals that were coming to market. I'm curious if you have any view on what's driving those deals to market.

Speaker #6: And I know you mentioned an expected moderation that's yet to materialize. But if there's anything that you would expect to see in terms of a slowdown there, what would drive that?

Speaker #3: Yeah, I mean, every deal has its own idiosyncratic reason for coming to market. So it's a little bit tough to overly generalize, but certainly we saw in 2021 and even early 2022 a lot of players kind of coming out of the woodwork buying very high-quality properties and levering them up with very cheap debt.

Mark Manheimer: Yeah, every deal has its own idiosyncratic reason for coming to market. It's a little bit tough to overly generalize. Certainly we saw in 2021 and even early 2022, a lot of players kind of coming out of the woodwork, buying very high-quality properties and levering it up with very cheap debt. That debt's coming due, because five years have passed. Now they need to say, do I want to refinance this and watch my cash on cash deteriorate, or do I want to turn around and sell these assets because they're still marketable? In a lot of cases, the people are deciding that the best outcome for them is to sell the portfolio to a larger institution. I think that's driving a lot of it. We're seeing more of that in the Q3.

Speaker #3: And that debt's coming due. Because five years have passed. And now they need to say, do I want to refinance this and what's my cash on cash deteriorate or do I want to turn around and sell these assets because they're still marketable?

Speaker #3: And in a lot of cases that people are deciding that the best outcome for them is to sell the portfolio to a larger institution and I think that's driving a lot of it.

Speaker #3: We're seeing more of that in the third quarter. And so if you kind of just extrapolate when people were being aggressive in 2021 and 2022, that could continue into 2027 if you just kind of add five years.

Mark Manheimer: If you kind of just extrapolate when people were being aggressive in 2021 and 2022, that could continue into 2027, if you just add five years to when people were buying those portfolios and assembling them. You never really know what the calculus is going to be for those people and what their financial situation is and where interest rates are.

Speaker #3: To when people were buying those portfolios and assembling them. But you never really know what the calculus is going to be for those people and what their financial situation is and where interest rates are.

Speaker #6: Okay, thanks. And then last quarter, you mentioned a limited pool of sub-1x, one-times covered assets. Did any of those get resolved in Q2 or were any part of the disposition pool?

Greg McGinniss: Okay, thanks. Last quarter, you mentioned a limited pool of sub 1x covered assets. Did any of those get resolved in Q2 or any part of the disposition pool?

Speaker #3: Yes, we did dispose of one of those assets, and then we also had one that we were expecting to start to ramp, which has ramped out of that bucket.

Mark Manheimer: Yes. We did dispose of one of those assets. We also had one that we were expecting to start to ramp, has ramped out of that bucket. We may continue to explore the couple that are left.

Speaker #3: And we may continue to explore the couple that are left. Thanks, Greg.

Greg McGinniss: Great. Thank you.

Mark Manheimer: Thanks, Greg.

Speaker #1: Your next question comes from Eric Borden with BMO Capital Markets. Please go ahead.

Operator: Your next question comes from Eric Borden with BMO Capital Markets. Please go ahead.

Speaker #8: Hey, good morning, everyone. Thanks for taking my question. You continue to add grocery, see stores, QSRs as you talked about in your earlier remarks.

Eric Borden: Hey, good morning, everyone. Thanks for taking my question. You've continued to add grocery, C stores, QSRs, as you talked about in your earlier remarks. Just given the acquisition opportunities in those categories, how much further are you willing to increase exposure to those categories? What kind of concentration level would start to make you uncomfortable from a portfolio construction standpoint?

Speaker #8: Just given the acquisition opportunities in those categories, how much further are you willing to increase exposure to those categories and what kind of concentration level would start to make you uncomfortable from a portfolio construction standpoint?

Speaker #3: Yeah, no, that's a good question. I mean, we never like to turn down a good deal, so you kind of never say never.

Mark Manheimer: Yeah, no, it's a good question. We'd never like to turn down a good deal. You kind of never say never. I never want to kind of totally box myself in. We've always had a little bit of a soft ceiling in the kind of 15-plus percent industry target. The industries that we really like where that gets a little bit softer. You get up around 20%, maybe we start looking at disposing some of the other assets in that category. We don't really want to see it get up to that level. If there's a good transaction and we really think it's our best risk-adjusted return, we may pursue those opportunities, look to dispose of some assets and kind of whittle that down as you've seen us do in the past with some tenant concentrations.

Speaker #3: So I never want to kind of totally box myself in, but we've always had a little bit of a soft ceiling in the kind of 15-plus percent industry.

Speaker #3: Target, the industries that we really like were that gets a little bit softer. You get up around 20%, then maybe we start looking at disposing some of those some of the other assets in that category.

Speaker #3: We don't really want to see it get up to that level. But if there's a good transaction and we really think it's our best risk-adjusted return, we may pursue those opportunities.

Speaker #3: But then look to dispose of some assets and kind of whittle that down, as you've seen us do in the past with some tenant concentrations.

Speaker #8: Great, thank you. And then my next question is just on the impairment. You recognized in the quarter the $4.2 million charge. Could you just provide a little bit more detail around that—whether or not it reflects an isolated, asset-specific issue, or if there is a broader theme there?

Eric Borden: Great, thank you. My next question is just on the impairment you recognized in the quarter, the $4.2 million charge. Can you just provide a little bit more detail around that, whether or not it reflects like an isolated asset-specific issue, or is there a broader theme there?

Speaker #3: Yeah. I mean, that's typically going to be when we're selling. A lot of assets. Whether we bought them three, four years ago when cap rates were a lot lower and you've seen some cap rate expansion.

Mark Manheimer: Yeah, that's typically going to be when we're selling a lot of assets, whether we bought them three, four years ago when cap rates were a lot lower and you've seen some cap rate expansion. Just selling some assets, and what we put them on the books for and what we sell them for, anytime that you're selling a lot, you're going to have some impairments, it was largely offset with gain on sale. You had a lot of ones that were resold at gains and some at losses. A lot of times there's just kind of, you buy a portfolio, it's how you allocate it, or how the accountants want you to allocate it, quite frankly. There's not much of a read-through there, if you look at the gain on sale, I think that largely offset the impairments.

Speaker #3: Just selling some assets, that's and what we put them on the books for and what we sell them for. That's going to anytime that you're selling a lot, you're going to have some impairments, but then it was largely offset with gain on sale.

Speaker #3: So you had a lot of ones where we sold at gains and some at losses. A lot of times there's just kind of a buy a portfolio and how you allocate it.

Speaker #3: Or how the accountants want you to allocate it, quite frankly. And so I wouldn't there's not much of a read-through there, but if you look at the gain on sale, I think that largely offset the impairments.

Speaker #8: All right. Appreciate it. Thanks for your time.

Eric Borden: All right. Appreciate it. Thanks for the time.

Speaker #1: Your next question comes from Michael Gorman with BTIG. Please go ahead with your question.

Operator: Your next question comes from Michael Gorman with BTIG. Please go ahead with your question.

Speaker #8: Yeah. Thanks. Good morning. I'm just wondering following up on the Speedway transaction. Are there more opportunities or are you seeing additional opportunities to use the upreach structure in the transactions market?

Michael Gorman: Yeah, thanks. Good morning. I'm just wondering, following up on the Speedway transaction, are there more opportunities or are you seeing additional opportunities to use the upREIT structure in the transactions market? If so, does that provide any kind of pricing advantage for you here, or are you generally competing with other public buyers for those types of transactions?

Speaker #8: And if so, does that provide any kind of pricing advantage for you here? Are you generally competing with other public buyers for those types of transactions?

Speaker #3: Yeah. No, it's a good question. I did think I try not to talk about other competitors on these calls, but I did notice one of our competitors did their first OP unit deal this quarter as well.

Mark Manheimer: Yeah, no, it's a good question. I try not to talk about other competitors on these calls, but I did notice one of our competitors did their first OP unit deal this quarter as well. I don't know if there's too much of a read-through there. Yeah, we love the upREIT structure. We love doing these types of transactions when we can. Obviously, right now our currency is very attractive to them and it's attractive to us. We used a stock price of $21 on the upREIT transaction, which at the time was slightly higher than where our stock was trading. It's accretive, fewer fees. It's just a much more efficient way to deploy capital. People really like it because it allows them to avoid taxes, and then they end up being very sticky shareholders. Certainly love the structure.

Speaker #3: So, I don't know if there's too much of a read-through there. But yeah, we love the upreach structure. We love doing these types of transactions when we can.

Speaker #3: And obviously right now our currency is very attractive to them and it's attractive to us. We use a stock price of $21 on the upreach transaction.

Speaker #3: Which at the time was slightly higher than where our stock was trading. And so it's accretive. Fewer fees. It's just a much more efficient way to deploy capital.

Speaker #3: People really like it because it allows them to avoid taxes, and then they end up being very sticky shareholders. So, certainly love the structure.

Speaker #3: I wouldn't be surprised to see more in the future, but they're going to be one-off and you kind of can't count on them. But when they pop up, we're certainly big fans of using that structure.

Mark Manheimer: I wouldn't be surprised to see more in the future, they're going to be one-off and you kind of can't count on them. When they pop up, we're certainly big fans of using that structure.

Speaker #8: Great, that's helpful. And then maybe just going back to the IG exposure—it has ticked down a little bit here. Is that more of a function of just as the portfolio grows?

Michael Gorman: Great. That is helpful. Then maybe just going back to the IG exposure. It has ticked down a little bit here. Is that more of a function of just as the portfolio grows, there is just less of a focus or less of a need because there is more diversification? Or is this kind of you all saying that you think IG is a little bit mispriced in the market, in terms of opportunities as you continue to build the portfolio?

Speaker #8: There's just less of a focus or less of a need because there's more diversification or is this kind of you all saying that you think IG is a little bit mispriced in the market in terms of opportunities as you continue to build the portfolio?

Speaker #3: Yeah, sure. I mean, I think it's a little bit more of the latter. There's a lot of things that go into risk-adjusted returns and that's for us, it's where are you going to get where could you expect there to be a loss on a property and what's that percentage look like versus the pricing that you're able to achieve?

Mark Manheimer: Yeah, sure. I think it is a little bit more of the latter. There is a lot of things that go into risk-adjusted returns, and for us it is where could you expect there to be a loss on a property and what is that percentage look like versus the pricing that you are able to achieve in the market. There is a lot of things that go into the risk. The credit is really just one piece of it. The other two pieces that are equally as important, and in some cases more important are is how sticky is that tenancy going to be and how committed are to that location and mission-critical is it, and that is going to be driven off of the rent coverage. If a tenant is driving a lot of their cash flow from your location, they are going to stay there.

Speaker #3: In the market, and there's a lot of things that go into the risk, and the credit is really just one piece of it. The other two pieces that are equally as important—in some cases, more important—are how sticky that tenancy is going to be, and how committed they are to that location, and how mission-critical it is.

Speaker #3: And that's going to be driven off of the rent coverage. If a tenant is deriving a lot of their cash flow from your location, they're going to stay there.

Speaker #3: If they're not making any money there, they're not going to stay there. So whether the credit goes away or not, at the end of the lease term, they're going to decide to leave your property anyway.

Mark Manheimer: If they are not making any money there, they are not going to stay there. Whether the credit goes away or not, at the end of the lease term, they are going to decide to leave your property anyway. Then how fungible is that real estate? How easy is it going to be to get somebody else in paying the same or more rent? Are there going to be a lot of TIs associated with that? There is just a lot that kind of goes into it. I think the easiest thing to point to is the credit. I think the easiest thing to kind of share with investors and get them comfortable is showing a high percentage of investment-grade credit. I think over time, we have been around for 6 years and have had virtually no credit loss.

Speaker #3: And then, how fungible is that real estate? How easy is it going to be to get somebody else in, paying the same or more rent?

Speaker #3: And are there going to be a lot of TIs associated with that? There's just a lot that kind of goes into it, so I think the easiest thing to point to is the credit.

Speaker #3: And I think the easiest thing to share with investors and get them comfortable is showing a higher percentage of investment-grade credit.

Speaker #3: But I think over time, we've been around for six years and have had virtually no credit loss. So I think we're proven underwriters at this point.

Mark Manheimer: I think we are proven underwriters at this point, I think just continuing to go out and getting the best risk-adjusted returns is really our focus. When interest rates moved up, you saw the non-investment grade, as kind of a general statement, saw the cap rates move up quite a bit. On the investment-grade side, there were still a lot of buyers willing to pay very low cap rates for those assets. The cap rates did not move up as much for that. You are just not getting the same risk-adjusted returns there in most cases, not all cases. We just see the mix of where we can get, where our efficient frontier is right now is kind of in that 30% to 35% investment grade, which is really more of a byproduct of what we are buying. We are not really focused on that.

Speaker #3: And I think just continuing to go out and get the best risk-adjusted returns is really our focus. And when interest rates moved up, you saw the non-investment-grade, as a general statement, saw the cap rates move up quite a bit.

Speaker #3: On the investment-grade side, there were still a lot of buyers willing to pay very low cap rates. For those assets. So the cap rates didn't move up as much for that.

Speaker #3: So you're just not getting the same risk-adjusted returns there in most cases. Not all cases, but and so we just see the mix of where we can get where our efficient frontier is right now is kind of in that 30, 35 percent investment grade, which is really more of a byproduct of what we're buying.

Speaker #3: We're not really focused on that. It's just been fairly consistent of what that's been a byproduct of where we're seeing the best risk-adjusted returns in the market currently.

Mark Manheimer: It's just been fairly consistent of what has been a byproduct of where we're seeing the best risk-adjusted returns in the market currently.

Speaker #8: Great. Thanks for the time.

Michael Gorman: Great. Thanks for the time.

Speaker #3: Thanks, Michael.

Mark Manheimer: Thanks, Michael.

Speaker #1: Your next question comes from Upal Rana with KeyBank Capital Markets. Please state your question.

Operator: Your next question comes from Upal Rana with KeyBanc Capital Markets. Please state your question.

Speaker #8: Great. Thank you. I wanted to get your updated thoughts on the competition in the transaction market with borrowing costs trending higher. Are you seeing less competition overall or you mentioned a lot of the portfolio deals that did come online at once this quarter and you're able to grab a few at attractive pricing despite the higher quality.

Upal Rana: Great. Thank you. I wanted to get your updated thoughts on the competition in the transaction market. With borrowing costs trending higher, are you seeing less competition overall? You mentioned a lot of the portfolio deals that did come online at once this quarter, and you were able to grab a few at attractive pricing despite the higher quality. Just any color there would be helpful. Thanks.

Speaker #8: So just any color there would be helpful. Thanks.

Speaker #3: Yeah, sure. So and we continue to see virtually no competition from kind of the larger private institutions, which grabbed a lot of the headlines.

Mark Manheimer: Yeah. Sure. We continue to see virtually no competition from kind of the larger private institutions which grabbed a lot of the headlines. Our competition continues to be the 1031 market individuals and small family offices. Occasionally, the public REITs, but when we're up against the other public REITs, we typically don't win those transactions. We view our competition is more the 1031 type buyer. They're typically borrowing, putting 50%, 60% LTV bank debt on their transactions, and those interest rates have made it more difficult for them to compete. I would say competition is significantly lower.

Speaker #3: Our competition continues to be the 1031 market, individuals and small family offices—occasionally the public REITs. But when we're up against the other public REITs, we typically don't win those transactions.

Speaker #3: So we view our competition as more of the 1031-type buyer, and they're typically borrowing, putting 50–60% LTV bank debt on their transactions.

Speaker #3: And those interest rates have made it more difficult for them to compete, so I would say competition is significantly lower.

Speaker #8: Okay, great. And then I want to get your updated thoughts on the watch list. As you made further progress on reducing the exposure some of your troubled tenants again this quarter, I just want to get your thoughts there on those tenants and how much more there is to do.

Upal Rana: Okay, great. I wanted to get your updated thoughts on the watch list. As you made further progress on reducing the exposure of some of your troubled tenants again this quarter, I just want to get your thoughts there on those tenants and how much more there is to do. Maybe what's currently baked into your guidance for credit loss.

Speaker #8: And then maybe what's currently baked into your guidance for credit loss.

Speaker #3: Yeah, sure. So, we don't really have troubled tenants. I think maybe we had a few tenants that were out of favor, and I think we've gotten those concentrations down significantly.

Mark Manheimer: Yeah, sure. We don't really have troubled tenants. I think maybe we had a few tenants that were out of favor, and I think we've got those concentrations down significantly. We'll likely chip away a little bit on the margin here and there at some of those. Our real focus is really on, if you look at the histogram in our presentation, I think it's on page 13, that shows the corporate credit and the unit-level coverage of those assets. We really want to kind of keep chopping the tail off of the weaker corporate credits and the weaker unit-level coverage. You've seen some pretty strong progress there. We'll continue to do that.

Speaker #3: We'll likely chip away a little bit on the margin here and there at some of those. Our real focus is really on—if you look at the histogram in our presentation, I think it's on page 13—that shows the corporate credit and the unit-level coverage of those assets.

Speaker #3: We really want to kind of keep chopping the tail off of the weaker corporate credits and the weaker unit level coverage. You've seen some pretty strong progress there.

Speaker #3: And we'll continue to do that.

Speaker #8: Okay, great. That was helpful. Thank you.

Upal Rana: Okay, great. That was all. Thank you.

Speaker #1: There are no further questions at this time, so I'll hand the floor over to Mark Manheimer for closing remarks. Thank you.

Operator: There are no further questions at this time. I'll hand the floor over to Mark Manheimer for closing remarks. Thank you.

Speaker #3: Well, thanks, everyone, for joining us today. We certainly appreciate everyone's interest in NETSTREIT.

Mark Manheimer: Well, thanks everyone for joining us today. We certainly appreciate everyone's interest in NETSTREIT.

Operator: Thanks. This concludes today's conference. All parties may disconnect. Have a good day.

Q2 2026 NETSTREIT Corp Earnings Call

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