NETSTREIT Q4 2024 Earnings Report

NETSTREIT EPS Results

• Actual EPS: $0.32
• Consensus EPS: $0.31
• Beat/Miss: Beat by +$0.01
• One Year Ago EPS: N/A

NETSTREIT Revenue Results

• Actual Revenue: $44.10 million
• Expected Revenue: $42.59 million
• Beat/Miss: Beat by +$1.51 million
• YoY Revenue Growth: N/A

NETSTREIT Announcement Details

• Quarter: Q4 2024
• Date: 2/24/2025
• Time: After Market Closes
• Conference Call Date: Tuesday, February 25, 2025
• Conference Call Time: 11:00AM ET

NETSTREIT (NYSE:NTST) is a real estate investment trust that specializes in the acquisition and management of single‐tenant, net lease retail properties across the United States. The company targets assets leased to investment‐grade or creditworthy tenants under long‐term, triple‐net leases, which generally shift property‐level expenses—such as taxes, insurance and maintenance—to the tenant. This business model is designed to generate predictable, stable income streams and to limit landlord responsibilities.

NetSTREIT’s portfolio encompasses a diversified mix of essential retail and service properties, including quick‐service restaurants, convenience stores, banks, automotive service centers and medical clinics. By focusing on everyday needs businesses with strong brand recognition and resilient cash flows, the company seeks to mitigate vacancy risk and inflationary pressures. Its holdings span multiple regions of the country, spanning primary and secondary markets from coast to coast.

Since its initial public offering in December 2019, NetSTREIT has grown through strategic acquisitions of high‐quality, single‐tenant net lease assets. Headquartered in McLean, Virginia, the company is managed by a team of professionals with deep experience in net lease investing and property management. NetSTREIT continues to pursue accretive transactions that bolster portfolio diversification and support long‐term shareholder value.

NETSTREIT Q4 2024 Earnings Call Transcript

Key Takeaways

• Record transaction activity: Completed over $195 million of gross investments in Q4, the highest on record, at a blended cash yield of 7.4% with a 14-year weighted average lease term.
• Enhanced portfolio diversification: Top 10 tenant concentration declined to 45.1% of ABR, with a goal of having no tenant above 5% by year-end and accretively recycling $59 million of Q4 dispositions.
• Minimal credit losses from high-profile retail closures: Despite ~10% store closures by tenants like Walgreens, CVS and Family Dollar, the portfolio recorded only one small dark store and just four basis points of credit loss since inception.
• Ongoing cost discipline: Q4 recurring G&A fell 10% YoY to $4.3 million and cash G&A declined 6% to $3.3 million, with G&A representing 11% of revenues in 2024 versus 15% in 2023.
• Solid financial performance and guidance: Q4 core FFO of $0.32 per share (+3.2% YoY) and full-year AFFO up 3.3%, with 2025 AFFO guidance of $1.27–$1.30 per share and net investment activity guidance of $75–$125 million.

Presentation

[Operator]

Greetings, and welcome to the NetStreet Corp. Fourth Quarter twenty twenty four Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded.

[Operator]

It is now my pleasure to introduce Amy Ann, Investor Relations. Please go ahead.

[Amy An, Investor Relations at NETSTREIT]

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

[Amy An, Investor Relations at NETSTREIT]

For more information about these risk factors, we encourage you to review our Form 10 K for the year ended 12/31/2023, and our other SEC filings. All forward looking statements are made as of the date hereof, and NetStreet assumes no obligation to update any forward looking statements in the future. In addition, certain financial information presented on this call includes non GAAP financial measures. Please refer to our earnings release and supplemental package for definitions of our non GAAP measures, reconciliations to the most comparable GAAP measures and an explanation of why we believe such non GAAP financial measures are useful to investors. Today's conference call is hosted by NetStreet's Chief Executive Officer, Mark Manheimer and Chief Financial Officer, Dan Donlin.

[Amy An, Investor Relations at NETSTREIT]

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

[Mark Manheimer, President, CEO, Secretary & Director at NETSTREIT]

Thank you, Amy, and thank you all for joining us this morning on our fourth quarter twenty twenty four earnings call. I first want to congratulate the team on an outstanding quarter of accelerated transaction activity as we completed over 195,000,000 of gross investments, our highest quarter on record, at a blended cash yield of 7.4% or 8.1% on a straight line basis with fourteen years of weighted average lease term. Included in this activity were three development projects totaling over $7,000,000 that commenced rent in the quarter. As of today, our development pipeline consists of five projects with a total estimated cost of $14,600,000 which includes estimated remaining funding of $6,700,000 Similar to last quarter, a greater portion of our quarterly investments were sale leaseback transactions as we have seen improved risk adjusted returns emerge from our opportunity set within the sourcing channel. Conversely, we continue to see stickiness and less attractive returns as it pertains to the investment grade opportunities that we have historically acquired.

[Mark Manheimer, President, CEO, Secretary & Director at NETSTREIT]

While these market dynamics have caused a shift in our mix of investment grade and non investment grade opportunity sets, we are continuing to find great assets with healthy unit level performance, fungible real estate with replaceable rents and strong credit profiles, all with improved risk adjusted returns. Turning to the portfolio, we ended the quarter with investments in six eighty seven properties that were leased to 98 tenants operating in 26 industries across 45 states. From a credit perspective, nearly 71% of our total ABR is leased to investment grade or investment grade profile tenants. Our weighted average lease term remaining for the portfolio was nine point eight years with just 2.4% of ABR expiring through 2026. From an asset management perspective, we were very active this quarter as evidenced by our record disposition activity, which was facilitated by interest from a broad array of real estate investors, including small ten thirty one buyers, family offices and large institutions.

[Mark Manheimer, President, CEO, Secretary & Director at NETSTREIT]

This strong level of demand, which has continued into 2025, resulted in our top 10 concentration declining four ten basis points to 45.1% of ABR, including a 100 basis point reduction in Walgreens to 3.8% of ABR and a two sixty basis point drop in Dollar General to 8.6% of ABR. While we have made tremendous strides towards our diversification goals, we are not slowing down our efforts. Moreover, we expect our top 10 concentration to more closely mirror the sector average over the near to intermediate term, which includes having no tenant above 5% of ABR by year end. Additionally, similar to this quarter's $59,000,000 of dispositions at a blended cash yield of 7.1, we expect to accretively recycle the proceeds generated by future diversification efforts as we have done each and every quarter since coming public nearly five years ago. Next, I would like to focus on a few portfolio tenants, namely Walgreens, CVS, Family Dollar, Advanced Auto and Big Lots that have remained in the net lease news cycle over the past twelve months as they have struggled to pass on higher prices to their consumers and therefore they have appropriately decided to close underperforming stores to maximize cash flow.

[Mark Manheimer, President, CEO, Secretary & Director at NETSTREIT]

Thus far, we have experienced virtually no impact from these closure announcements, which while not surprising to us is a testament to the level of due diligence we complete at underwriting. Notwithstanding our long term tenant relationships and the constructive two way dialogue we maintain with most tenants, our evaluation during the underwriting process includes much more than understanding a tenant's corporate credit. By utilizing technology and asymmetrical information, we have proven to be highly accurate in how we decipher the unit level productivity of our locations and the strength of our real estate. More specifically, Family Dollar, Walgreens, CVS and Advanced Auto have closed or have announced the closure of nearly 10% of their stores in aggregate. However, despite owning 162 properties leased to these four tenants, we currently have just one dark store among these concentrations, which is a smaller asset that generates around $100,000 in ABR with more than eight years of remaining lease term.

[Mark Manheimer, President, CEO, Secretary & Director at NETSTREIT]

Based on our assessment, we do not foresee any loss to our small investment given our projection for re tenanting the asset and the expected lease termination fee. We saw a similar outcome as it relates to our Big Lots concentration, whereby the tenant entered bankruptcy with thirteen eighty nine stores, which was subsequently reduced to roughly 800 stores under the proposed Nexus Capital acquisition. After that acquisition failed and variety wholesalers emerged as the new buyer, this was further reduced to an expected two twenty five to two fifty stores. As we sit here today, we expect to have six of our original seven stores assumed by Variety Wholesalers and just one store in Bowie, Maryland rejected, where we expect a new tenant to pay rent at or above the prior rent. Again, we believe this stark difference in outcome when comparing our portfolio to the broader market is driven by our aforementioned relationships, experience and aptitude of our underwriting team and the discipline we consistently exercise when making long term investments.

[Mark Manheimer, President, CEO, Secretary & Director at NETSTREIT]

All told, this has resulted in an average credit loss of just four basis points since inception. From a risk perspective, we also have very low lease expiration risk with the aforementioned tenants as just 132 basis points of our ABR expiring through 02/1930 is derived from these concentrations. While our conviction in the strength of our assets and our underlying locations has remained steadfast, we believe the market should gain similar comfort in our portfolio given the de minimis impact experienced from these store closures to date and our proven ability to sell properties at least to these tenants in an accretive manner. Before handing the call over to Dan, I wanted to reiterate a message that we have consistently provided in the past. We strive to remain thoughtful and opportunistic in our mission to maximize total shareholder return and that includes maintaining balance sheet discipline.

[Mark Manheimer, President, CEO, Secretary & Director at NETSTREIT]

Despite seeing a robust opportunity set that we would prefer to pursue more aggressively, we will not grow for the sake of growth and we will remain patient with our cost of capital. With that, I'll hand the call over to Dan to go over our fourth quarter financials and then open up the call for your questions.

[Daniel Donlan, CFO & Treasurer at NETSTREIT]

Thank you, Mark. Looking at our fourth quarter earnings, we reported a net loss of $5,400,000 or $0.07 per diluted share. Core FFO for the quarter was $26,500,000 or $0.32 per diluted share and AFFO was $25,900,000 or $0.32 per diluted share, which was a 3.2% increase over last year. For the full year 2024, we reported a net loss of $0.16 per diluted share, core FFO of $1.26 per diluted share and AFFO of $1.26 per diluted share, which represented 3.3% growth over 2023. Turning to the expense front, total recurring G and A in the quarter declined 10% year over year to $4,300,000 while recurring cash G and A declined 6% year over year to $3,300,000 In addition, with our total recurring G and A representing 11% of total revenues for 2024 versus 15% in 2023, our G and A continues to steadily rationalize relative to our revenue base.

[Daniel Donlan, CFO & Treasurer at NETSTREIT]

Turning to the capital markets, On 01/15/2025, we closed on $275,000,000 of additional financing commitments. This included a new fully drawn $175,000,000 senior unsecured term loan, which was swapped to an all in fixed rate of 5.12% to final maturity in January 2030 and an upsized $500,000,000 revolving credit facility, which was increased from $400,000,000 We also extended the maturity date of our existing 175,000,000 term loan to January 2030 from January 2027 and amended all of our existing credit agreements to remove various financial covenants and provide for improved pricing when we meet certain investment grade rating and leverage targets. Turning to the balance sheet, when accounting for the impact of the aforementioned debt transactions, our pro form a total adjusted net debt, which includes the impact of all forward equity was $848,000,000 On a pro form a basis, our weighted average debt maturity was four point three years and our weighted average interest rate was 4.53%. Including extension options, which can be exercised at our discretion, we have no material debt insuring until February of twenty twenty eight. In addition, our pro form a liquidity was $635,000,000 at year end, which consisted of $14,000,000 of cash on hand, $436,000,000 of availability in our revolving credit facility and $185,000,000 of unsettled forward equity.

[Daniel Donlan, CFO & Treasurer at NETSTREIT]

From a leverage perspective, our adjusted net debt to annualized adjusted EBITDAre was 4.5 times at quarter end, which remains well within our targeted leverage range of 4.5 times to 5.5 times. Moving on to guidance, we are introducing our '20 '20 '5 AFFO per share guidance range at $1.27 to $1.3 dollars Additionally, we expect our net investment activity for the year to range between $75,000,000 to $125,000,000 and our cash G and A to range between $14,500,000 to $15,500,000 which is exclusive of transaction costs and severance payments. From a rent loss perspective, our guidance assumes roughly 100 basis points of unknown rent loss at the midpoint of our range, which we believe should prove conservative as the year unfolds. Lastly, on February 21, the Board declared a quarterly cash dividend of $0.21 per share. The dividend will be payable on March 31 to shareholders of record as of March 14.

[Daniel Donlan, CFO & Treasurer at NETSTREIT]

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

[Operator]

Thank you. We'll now be conducting a question and answer session. Our first question is from Greg McGinnis with Scotiabank. Please proceed with your question.

[Elmer Chang, Equity Research Associate at Scotiabank]

Thanks. Good morning. This is Elmer Chang on with Greg. So you sort of killed two birds with one stone by reinvesting asset sales of your riskier exposures into another record quarter of transaction volume at a modestly accretive spread, but you didn't settle any equity forward. So how should we think about the use of those forwards this year and how you're planning to optimize potential investment spreads with your capital sources?

[Daniel Donlan, CFO & Treasurer at NETSTREIT]

Yes. Hey, Elmer, it's Dan. You should expect us to settle the equity in the back half of 2025.

[Elmer Chang, Equity Research Associate at Scotiabank]

Got it. Okay. And then are you required to settle them at the end of the year or can you potentially extend them another six months or so?

[Daniel Donlan, CFO & Treasurer at NETSTREIT]

Right now the agreement calls for us to sell them by the end of the year. We could always push that out further if we want, but I think we were likely to sell them in the back half of this year.

[Elmer Chang, Equity Research Associate at Scotiabank]

Got it. Okay.

[Elmer Chang, Equity Research Associate at Scotiabank]

Yes. And then you also mentioned in the release, taking a more measured approach to investing this year, you're seeing more selli spec opportunities. Does that help much on cap rates as you think about investments throughout the year? And will transacting still or will transacting still require slightly less investment grade exposure?

[Mark Manheimer, President, CEO, Secretary & Director at NETSTREIT]

Yes. I mean, right now we're seeing risk adjusted returns a little bit more attractive with some of the investment grade profile and some investment grade opportunities. We really just haven't seen a big move, a big enough move, I should say, with some of the investment grade tenants. There are some that have moved up and some haven't. So we've kind of mentioned this on several of the last five or six earnings calls, but we're really not dogmatic about whether something is investment grade or not.

[Mark Manheimer, President, CEO, Secretary & Director at NETSTREIT]

We're really trying to maximize our risk adjusted returns and sometimes those opportunities are investment grade and sometimes they're not. We've had quarters where we've been 100% investment grade and obviously we've had somewhere where kind of 25%, thirty % investment grade. And right now the best opportunity that we're seeing largely are on the sale leaseback side, the blend and extend side with various other retailers that we some are new relationships and some are ones that we've continued like Gerber Collision.

[Elmer Chang, Equity Research Associate at Scotiabank]

Okay. Thanks so much. That's helpful. That's it for me.

[Operator]

Our next question is from Michael Goldsmith with UBS.

[Michael Goldsmith, US REITs Analyst at UBS Securities LLC]

Good morning. Thanks a lot for taking my question. You talked about diversifying the portfolio and reducing exposure with no tenants above 5%, which implies kind of continued selling of Dollar General and CVS. So can you talk a little bit about the cap rates that you're seeing in the market from that as well as what sort of cap rate you're seeing on the Walgreens that you've been selling? Thanks.

[Mark Manheimer, President, CEO, Secretary & Director at NETSTREIT]

Yes. Thanks, Michael. Yes. So the Walgreens that we've sold, honestly, the cap rates have varied quite widely depending on really the quality of the asset and lease term certainly driving some of that. So we've seen a pretty wide range there, some of the sixes and some pretty far north of that.

[Mark Manheimer, President, CEO, Secretary & Director at NETSTREIT]

So and then as it relates to CVS, I think we can move those at lower cap rates. I think there's more ability to get a better cap rate on some of the CVS opportunities that we're potentially looking at. And then dollar stores, we've been we've seen a really robust market to be able to sell those, which has been encouraging, not just from individual ten thirty one buyers, but also some larger institutions.

[Michael Goldsmith, US REITs Analyst at UBS Securities LLC]

Thanks for that. And as a follow-up, right, like in conjunction with your dispositions this quarter, you saw strong levels of demand from the buyer. So I guess the question is then what sort of competition are you seeing out there when you're purchasing? And then maybe you can split out how that looks for investment grade properties or investment grade tenants versus non investment grade, which you've been targeting more? Thanks.

[Mark Manheimer, President, CEO, Secretary & Director at NETSTREIT]

Yes. That's a good question. So as it relates to investment grade tenants, there is more competition. There's really always been a little bit more competition there. It's easier for ten thirty one site buyers to go get financing from a bank if it's got an investment grade rating.

[Mark Manheimer, President, CEO, Secretary & Director at NETSTREIT]

And then on the non investment grade side, really I think everything that we acquired in the last quarter, we really there was no auction process, there was no bidding process. It was really us negotiating with the seller versus what their expectations were on price.

[Michael Goldsmith, US REITs Analyst at UBS Securities LLC]

Thank you very much.

[Operator]

Our next question is from Ravi Vaidya with Mizuho. Please proceed with your question.

[Ravi Vaidya, Vice President at Mizuho Financial Group]

Hi there, good morning. Hope you guys are doing well. Just wanted to think about how do you view your acquisition criteria today? Are you still focusing on investment grade? And what can we expect for a minimum acquisition spread in the current environment?

[Mark Manheimer, President, CEO, Secretary & Director at NETSTREIT]

Yes. Thanks, Robbie. So I'll take the first part of that question and I'll let Dan kind of tackle the spread side of the equation. Our investment criteria has not changed one iota really since inception. We continue to look for the best risk adjusted returns that we can find.

[Mark Manheimer, President, CEO, Secretary & Director at NETSTREIT]

There's really three big pieces. I mean, there's probably 100 things that go into our underwriting, but there's really three big pieces that fall into our investment criteria. One of which is corporate credit, which I think some people think investment grade, not investment grade. We're really trying to understand what's the cash flow generated versus the financial obligations tenant and how volatile is that going to be? Are they going to have a big charge coverage ratio well north of two for a long period of time or are we going to start starting out having conversations when that dips below one, which we obviously want to avoid those situations as much as possible.

[Mark Manheimer, President, CEO, Secretary & Director at NETSTREIT]

And that is correlated to investment grade tenancy and correlated to credit ratings, but not entirely. And then the second big piece that we're focused on is we want to buy assets whether that's an investment grade tenant or not, where they're generating strong cash flow at the unit level, so that at the end of the lease term in a restructuring, the tenant wants to stay there and the negotiation is pretty simple. If they're generating a lot of cash flow at the location, there's no conversation on reducing rent or rejecting a store or not renewing a store at the end of the lease term. And then the third big piece, of course, is the real estate, which is ultimately what we're buying. And then if we have to we get the first two things wrong and we have to take the asset back or the world changes and that use doesn't work anymore, how much is it going to cost us to put a new tenant in?

[Mark Manheimer, President, CEO, Secretary & Director at NETSTREIT]

What's the demand going to be? And what's the market rent at that location? So how much rent are we going to lose or how much rent that we potentially gain? So that really kind of all filters through to what's the expected loss at each in each investment and we're trying to minimize that while maximizing the returns. And so right now, just the opportunity set is really all that has changed.

[Mark Manheimer, President, CEO, Secretary & Director at NETSTREIT]

And so while we might be doing fewer acquisitions that might have an investment grade rating at the tenant level, we think that in most cases, we're actually taking less risk in getting better returns.

[Daniel Donlan, CFO & Treasurer at NETSTREIT]

Yes. Hey, Ravi. Our AFFO guidance doesn't assume any equity raising in it. And so I think you can infer that spreads for us right now relative to where we're acquiring are less than 100 basis points.

[Ravi Vaidya, Vice President at Mizuho Financial Group]

Got it. That's helpful. Just one more here. How should we think about your tenant credit, maybe watch lists and any reserves? Can you remind us of your target exposures for some of your tenants here such as Walgreens, CVS? And do you have any further color on big lots regarding the remaining six boxes that you have? Thank you.

[Mark Manheimer, President, CEO, Secretary & Director at NETSTREIT]

Yes. So I'll go in reverse order here. So, yes, I mean, Big Glass, obviously, the Nexus Capital acquisition, we've got to settled in with six of the seven locations where we're going to get assumed. We had an ASE, of course, that Ollie's that took over and assumed and is current on. So we kind of exclude that from the analysis.

[Mark Manheimer, President, CEO, Secretary & Director at NETSTREIT]

We expect the negotiations with kind of getting that done, I think are almost complete. So we think that is going to look very similar where we end up with six assets assumed. We do have a lot of demand for those assets. So there's a possibility that we try to negotiate something with Big Lots and with Variety to potentially try to get a new tenant in there that's willing to pay a lot more rent. But Variety Wholesaler is also, as you may or may not know, is also an investment grade profile, a tenant with no debt, a large operator that has a long history of being very successful.

[Mark Manheimer, President, CEO, Secretary & Director at NETSTREIT]

And then I'm sorry, what was the other part of the question?

[Ravi Vaidya, Vice President at Mizuho Financial Group]

Just wanted to ask about the target exposure levels or some of your underperforming tenants with Walgreens and CVS and broad commentary writing tenant credit for watchlist and your reserves?

[Mark Manheimer, President, CEO, Secretary & Director at NETSTREIT]

Yes, sure. Yes, so I mean, big loss was really it on the watchlist last year. So we're not really anticipating any specific issues with any of our tenants this year. Of course, we're always kind of have a little bit less than the budget in case there's something that we're not thinking of happens, which is always, of course, a risk. But then in terms of our concentrations, we'd really like to get all tenants below 5%.

[Mark Manheimer, President, CEO, Secretary & Director at NETSTREIT]

You see Walgreens already down to 3.8%. That'll come down maybe not as rapidly as it has. In the past two quarters, you may see us be a little bit more active with some of the other tenants and just trying to get a more diversified top five and top 10.

[Ravi Vaidya, Vice President at Mizuho Financial Group]

Thanks so much. Appreciate it.

[Mark Manheimer, President, CEO, Secretary & Director at NETSTREIT]

Thanks, Robbie.

[Operator]

Our next question is from Smedes Rose with Citi. Is your line on mute?

[Mark Manheimer, President, CEO, Secretary & Director at NETSTREIT]

We chat at, one of us on here.

[Operator]

Our next question is from Michael Korman with BTIG.

[Michael Gorman, Managing Director at BTIG]

Yes, thanks. Good morning. I appreciate the additional disclosure in the presentation on the lease expirations for some of the top tenants. Curious for Dollar General, does any of that kind of 120 basis points of loans receivable, does any of that burn off in 2025 that could potentially help reduce some of the concentration there or are those loans also marketable or would these be kind of property dispositions?

[Mark Manheimer, President, CEO, Secretary & Director at NETSTREIT]

Yes. And there will be a little bit of both. It's a good question. I think we've and Dan, correct me if I'm wrong, but I think it's 170 basis points of loans that could roll this year. So that certainly helps reduce the exposure.

[Mark Manheimer, President, CEO, Secretary & Director at NETSTREIT]

So that kind of gets us down below seven and then we'll make up the rest with this position. And I don't really think there's a huge market for us because they're just short term loans. If they were longer term, I think we would actually be able to sell those loans.

[Michael Gorman, Managing Director at BTIG]

Got it. That's helpful. And then maybe just stepping back and I don't know if I've missed it, so I apologize if I did, but do you all have a kind of a coverage level or rent coverage level across the portfolio and how we should think about that in terms of kind of buckets across the portfolio in terms of below two, above two kind of situation?

[Mark Manheimer, President, CEO, Secretary & Director at NETSTREIT]

Yes. And so we have not disclosed what that coverage is across the entire portfolio. But we mainly just because we're extrapolating what that coverage is in many cases where we're not getting a full P and L. In many cases, we get sales. In many cases, we have conversations directly with the tenant that give us a pretty good indication of what the cash flows are that are generated.

[Mark Manheimer, President, CEO, Secretary & Director at NETSTREIT]

And in other situations, we're deriving that from Placer, which tells us what the foot traffic is versus the average foot traffic. And then you can extrapolate from there what the sales are and then apply margins. And so overall, our portfolio rent coverage haven't disclosed in the past, but since you asked, I think it's extraordinarily healthy in the neighborhood of four times.

[Michael Gorman, Managing Director at BTIG]

Great. That's really helpful. And then maybe just last one, maybe just an offshoot of that. Mark, you've talked about kind of your experience with the portfolio versus some of the headline risk and obviously you've done a good job underwriting. You have a significant platform here.

[Michael Gorman, Managing Director at BTIG]

How do you think about the opportunity to get better risk adjusted returns based on the quality of your platform and underwriting and credit monitoring, while also kind of bridging the gap with market sentiment and expectations versus some of the tenants, whether they're currently in the portfolio or future investment opportunities. How do you balance that out between your capabilities and getting better returns for shareholders versus also maybe dealing with some market sentiment issues?

[Mark Manheimer, President, CEO, Secretary & Director at NETSTREIT]

It's a great question, Michael. That's certainly something that we've been wrestling with for the better part of the last year or so. We've been very confident in our ability to underwrite, especially at the asset level and the real estate level and getting very comfortable that we've got locations that even if there's some disruption or some headlines that it's not going to impact us economically really at all. But then where we've been hit is some of the concentrations being a little bit higher, getting some headlines, they just there can be a knee jerk reaction with some investors and it certainly has impacted us. So really where we've kind of come down is we'll continue to underrate the way that we have and continue to try to get better and learn as much as we can.

[Mark Manheimer, President, CEO, Secretary & Director at NETSTREIT]

But I think very comfortable with our ability to underwrite assets, but we just need to get the concentrations lower on a go forward basis. And that really kind of allows us to kind of keep our head down and not get impacted by headlines that might not have a real economic impact on our business.

[Michael Gorman, Managing Director at BTIG]

Fantastic. Thanks for the time.

[Mark Manheimer, President, CEO, Secretary & Director at NETSTREIT]

Thanks, Michael.

[Operator]

Our next question is from Alex Fagan with Baird.

[Alec Feygin, Equity Research Analyst at Baird]

On the acquisition side, curious which categories are you prioritizing right now? I saw that there's five new tenants quarter over quarter. If you can speak on maybe which category or who they are?

[Mark Manheimer, President, CEO, Secretary & Director at NETSTREIT]

Yes, sure. So, yes, I mean, we've seen a lot of opportunity, the convenience store side, quick service restaurants, I guess, auto service, auto collision and then grocery. And so and even farm supplies, we continue to invest with tractor supply, but there are a couple of their competitors that we think are pretty attractive as well. So it's a pretty diversified mix.

[Alec Feygin, Equity Research Analyst at Baird]

And the new tenant relationships, are they or as you mentioned?

[Mark Manheimer, President, CEO, Secretary & Director at NETSTREIT]

Can you say that again?

[Alec Feygin, Equity Research Analyst at Baird]

I asked with the new tenant relationships, are they in the categories you mentioned?

[Mark Manheimer, President, CEO, Secretary & Director at NETSTREIT]

Yes, they are. Yes.

[Alec Feygin, Equity Research Analyst at Baird]

Okay. And Mark, you mentioned that I believe the total credit loss since inception is a very small number, but can you maybe give the specific for what that was in 2024?

[Mark Manheimer, President, CEO, Secretary & Director at NETSTREIT]

Yes. I mean, it's four basis points annually per year and all of that was in 2024. So that's going to be a pretty good idea. Got it. Thank you.

[Operator]

Thank you. Our next question is from Linda Tsai with Jefferies.

[Linda Tsai, Senior Analyst at Jefferies]

Hi. In terms of your underwriting helping to limit store closure exposure, I know you mentioned Placer AI. What are some examples of asymmetrical information you utilize?

[Mark Manheimer, President, CEO, Secretary & Director at NETSTREIT]

Yes. So certainly Placer is a phenomenal tool that we have really taken advantage of and really helps us understand the assets and the foot traffic. But I don't think you can ever completely replace your relationships directly with the tenants and your conversations with them and how they're thinking about their assets and the cash flow generated at the asset level. And so that's kind of where our relationships play a big part.

[Linda Tsai, Senior Analyst at Jefferies]

And then in terms of G and A coming down, I realize there is natural positive leverage from you growing your revenue base, but are you also running any processes differently to improve efficiencies?

[Daniel Donlan, CFO & Treasurer at NETSTREIT]

Sure, Linda. We're always looking to improve efficiencies across the board. I would say our cash G and A is going up in 2025 versus 2024. And that is just kind of increasing the headcount on the margin across a couple of different roles as we continue to scale the portfolio.

[Linda Tsai, Senior Analyst at Jefferies]

Thanks.

[Operator]

Our next question is from Daniel Guglomo with Capital One Securities. Please proceed with your question.

[Dan Guglielmone, Equity Research Analyst at Capital One Securities, Inc]

Hi, everyone. Thanks for taking my questions. On the acquisitions and the disposition side, are there any material differences between the weighted average lease escalation for the leases coming in versus those going out?

[Mark Manheimer, President, CEO, Secretary & Director at NETSTREIT]

Yes, I would say on the disposition side, the leases are shorter in general. And so when we're looking at dispositions, oftentimes we're looking at either decreasing exposure overall and oftentimes trying to get out ahead of some potential risk as we get closer to renewal. And so in general, you're going to see the lease term, what we're selling to be on the margin a little bit shorter.

[Dan Guglielmone, Equity Research Analyst at Capital One Securities, Inc]

Okay, great. And with around kind of like the renewal the lease escalation bumps each year, is that the same, sorry, like each quarter the bumps or each year the bumps?

[Mark Manheimer, President, CEO, Secretary & Director at NETSTREIT]

Yes, absolutely. So what we're acquiring has significantly better internal growth than what we're disposing of. And And that's just really I mean, you think about Walgreens, you think about CVS, many dollar stores kind of a mix of whether they've got bumps or not. But most of those are going to be entirely flat leases. And so and really where we're focused and where we're seeing the best opportunities on the acquisition side, we're getting annual increases, which is certainly helpful.

[Dan Guglielmone, Equity Research Analyst at Capital One Securities, Inc]

Perfect. That's really helpful and I appreciate that. And then the next one is just there are a few changes to the diversification by state map quarter to quarter. And I know there's going to be a lot to acquisitions and then increased dispositions. So thinking about that map, are there certain states or regions where you would expect kind of material changes there?

[Mark Manheimer, President, CEO, Secretary & Director at NETSTREIT]

No, I wouldn't think so. And I think overall, you'll likely see us continue to grow more in the Sunbelt where you're seeing population increases. They're just going to be new construction and more opportunities there. But we're somewhat agnostic to what part of the country an asset is in as long as we get comfortable with the individual market and the market dynamics and the potential demand for other tenants in the event that we have to take an asset back.

[Dan Guglielmone, Equity Research Analyst at Capital One Securities, Inc]

Great. Thank you.

[Operator]

Our next question is from Jay Kornreich with Wedbush Securities. Please proceed with your question.

[Jay Kornreich, VP - Equity Research at Wedbush Securities]

Thank you. So earlier you mentioned aiming to get all tenant exposures under 5%. And I'm wondering just beyond that, which is really just the top three tenants, how much additional work do you really want to do on the tenant exposures this year? And is there a ballpark of disposition volume you're really aiming for in 2025?

[Mark Manheimer, President, CEO, Secretary & Director at NETSTREIT]

Yes, I mean, I think we're going to be pretty opportunistic as it relates to the disposition side. If we're getting pretty good demand and we're able to sell at attractive cap rates, We may push that a little bit harder. But I think if we're not, then we're going to just work hard to try to find the right buyers for assets. We're not going to fire sale anything. And yes, I mean, I think you'll likely see, of course, all tenants below 5%, but I think it makes sense for that to be the exception, not the rule and really have most tenants, even if we like them below 3%.

[Jay Kornreich, VP - Equity Research at Wedbush Securities]

Okay. Appreciate that. And then just one more. Going back to the $185,000,000 unsettled forward equity, which you mentioned letting you settle at the end of the year. I guess, if you saw compelling acquisition opportunities during the year on the first half, for example, would you consider deploying that capital?

[Jay Kornreich, VP - Equity Research at Wedbush Securities]

Or is the plan for this year really to focus on tenant exposures and wait closer to 2026 to really drive the acquisition volume back up?

[Daniel Donlan, CFO & Treasurer at NETSTREIT]

Yes. I mean, look, I think the net investment activity guidance that we set is really driven with the viewpoint of the forwards embedded in the leverage that we're assuming. So I think we'd really in order for us to get more aggressive on the net investment front and start to be more acquisitive than we've laid out, we have to see a more attractive cost of equity, I think, come alongside that. But as you can tell, what we've done in the fourth quarter, which was a record quarter for us, we have the capability to do significantly more than what we're currently guiding to. We just want to see our cost of capital return to more appropriate levels.

[Mark Manheimer, President, CEO, Secretary & Director at NETSTREIT]

And the other piece to that is a good question, Jay, is in the event that we see an attractive acquisition, we're pretty close on price on some dispositions that we can potentially push forward if we really just love an opportunity that we see on the acquisition side.

[Jay Kornreich, VP - Equity Research at Wedbush Securities]

All right. Appreciate it. Thanks so much.

[Mark Manheimer, President, CEO, Secretary & Director at NETSTREIT]

Thanks, Jeff.

[Operator]

Our next question is from Uphol Rana with KeyBanc Capital Markets. Please proceed with your question.

[Upal Rana, Director - Senior Equity Research Analyst at KeyBanc Capital Markets]

Great. Thanks for taking my question. Mark, I appreciate the update on the Big Lots so far, but do you anticipate any downtime from any of your six locations? And how is that baked into your guidance for this year?

[Mark Manheimer, President, CEO, Secretary & Director at NETSTREIT]

We do not expect any downtime at all.

[Upal Rana, Director - Senior Equity Research Analyst at KeyBanc Capital Markets]

Okay, great. And then last one for me would be just, what kind of investors are you selling your Walgreens to? And given you were successful in selling several of your Walgreens properties over the last few months, what did you learn about the appetite from investors to buy some of these troubled tenants?

[Mark Manheimer, President, CEO, Secretary & Director at NETSTREIT]

Yes, it's a good question. So most really all of the buyers on the Walgreens side have been ten thirty one buyers. And it just takes a little bit more hand holding than it does for some of the other tenants just because they've been in the news so much. And just getting the buyer comfortable that this is not going to be a location that's going to be closed. We're extraordinarily confident in that.

[Mark Manheimer, President, CEO, Secretary & Director at NETSTREIT]

All of the Walgreens that we own are not going to get closed. And so getting investors comfortable that that's an unlikely outcome is really just kind of what made that a little bit slower than being able to sell Dollar General's. But the appetite is there once people get comfortable.

[Upal Rana, Director - Senior Equity Research Analyst at KeyBanc Capital Markets]

Okay, great. That was helpful. Thank you.

[Mark Manheimer, President, CEO, Secretary & Director at NETSTREIT]

Thanks.

[Operator]

Our next question is from Farrell Granite with Bank of America. Please proceed with your question.

[Farrell Granath, Equity Research Associate at Bank of America Merrill Lynch]

Hi. Thank you so much for taking my question. I was curious, what is your cap rate expectations, especially associated with your guidance that you have in place for 2025?

[Mark Manheimer, President, CEO, Secretary & Director at NETSTREIT]

Yes. In terms of cap rates, we really only have, call it, ninety days maximum visibility. So it's always a little bit of a dangerous game of predicting where cap rates are going to be, but we feel very comfortable at least for the next quarter that will be at or above where we were this quarter most likely above.

[Farrell Granath, Equity Research Associate at Bank of America Merrill Lynch]

Okay. Thank you. And I guess also a little bit more on the macro front. When thinking about the consumer and the impacts that may be having on some of your tenant base, how are you seeing that trend going forward?

[Mark Manheimer, President, CEO, Secretary & Director at NETSTREIT]

Yes. It's a good question. I mean, I think inflation is rampant as it was, and that certainly isn't gone yet. It's nowhere near what it was. So I think we've really seen the worst of it.

[Mark Manheimer, President, CEO, Secretary & Director at NETSTREIT]

And so now it's really going to come down to the consumer at the lower end certainly continues to struggle. And we've tried to adjust for that here in the short term. But I think most of the damage has been done by inflation, which was I think the bigger problem. But we're always focused on trying to understand the health of the consumer overall, which does seem to be softening a little bit.

[Farrell Granath, Equity Research Associate at Bank of America Merrill Lynch]

Okay. Thank you so much.

[Operator]

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.

[Mark Manheimer, President, CEO, Secretary & Director at NETSTREIT]

Thank you everyone for joining today and for your interest in NetStream. We look forward to seeing many of you at the upcoming conferences here in the next couple of weeks.

[Operator]

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

Participants

Executives

• Amy An, Investor Relations
• Mark Manheimer, President, CEO, Secretary & Director
• Daniel Donlan, CFO & Treasurer

Analysts

• Elmer Chang, Equity Research Associate at Scotiabank
• Michael Goldsmith, US REITs Analyst at UBS Securities LLC
• Ravi Vaidya, Vice President at Mizuho Financial Group
• Michael Gorman, Managing Director at BTIG
• Alec Feygin, Equity Research Analyst at Baird
• Linda Tsai, Senior Analyst at Jefferies
• Dan Guglielmone, Equity Research Analyst at Capital One Securities, Inc
• Jay Kornreich, VP - Equity Research at Wedbush Securities
• Upal Rana, Director - Senior Equity Research Analyst at KeyBanc Capital Markets
• Farrell Granath, Equity Research Associate at Bank of America Merrill Lynch