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 NETSTREIT Corp Fourth Quarter 2024 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, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Amy An, Investor Relations. Please go ahead.

[Amy An, Director of Investor Relations at NETSTREIT]

We thank you for joining us for NETSTREIT's Fourth Quarter 2024 Earnings Conference Call. In addition to the press release distributed yesterday after market close, we posted a supplemental package and an updated investor presentation. Both can be found in the Investor Relations section of the company's website at www.netstreit.com. On today's call, management's remarks and answers to your questions may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995.

[Amy An, Director of Investor Relations at NETSTREIT]

Forward-looking statements address matters that are subject to risk and uncertainties that may cause actual results to differ from those discussed today. For more information about these risk factors, we encourage you to review our Form 10-K for the year ended December 31st, 2023, and our other SEC filings. All forward-looking statements are made as of the date hereof, and NETSTREIT assumes no obligation to update any forward-looking statements in the future. In addition, certain financial information presented on this call includes non-GAAP financial measures.

[Amy An, Director of Investor Relations at NETSTREIT]

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 NETSTREIT's Chief Executive Officer, Mark Manheimer, and Chief Financial Officer, Dan Donlan. 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 and CEO at NETSTREIT]

Thank you, Amy, and thank you all for joining us this morning on our fourth quarter 2024 earnings call. I first want to congratulate the team on an outstanding quarter of accelerated transaction activity as we completed over $195 million 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 14 years of weighted average lease term. Included in this activity were three development projects totaling over $7 million that commenced rent in the quarter.

[Mark Manheimer, President and CEO at NETSTREIT]

As of today, our development pipeline consists of five projects with a total estimated cost of $14.6 million, which includes estimated remaining funding of $6.7 million. 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 and CEO 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 687 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.

[Mark Manheimer, President and CEO at NETSTREIT]

Our weighted average lease term remaining for the portfolio is 9.8 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 1031 buyers, family offices, and large institutions.

[Mark Manheimer, President and CEO at NETSTREIT]

This strong level of demand, which has continued into 2025, resulted in our top 10 concentration declining 410 basis points to 45.1% of ABR, including a 100 basis point reduction in Walgreens to 3.8% of ABR and a 260 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.

[Mark Manheimer, President and CEO at NETSTREIT]

Additionally, similar to this quarter's $59 million 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.

[Mark Manheimer, President and CEO at NETSTREIT]

Next, I would like to focus on a few portfolio tenants, namely Walgreens, CVS, Family Dollar, Advance Auto, and Big Lots, that have remained in the net lease news cycle over the past 12 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. 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.

[Mark Manheimer, President and CEO at NETSTREIT]

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 Advance Auto have closed or have announced the closure of nearly 10% of their stores in aggregate.

[Mark Manheimer, President and CEO at NETSTREIT]

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. 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.

[Mark Manheimer, President and CEO at NETSTREIT]

We saw a similar outcome as it relates to our Big Lots concentration, whereby the tenant entered bankruptcy with 1,389 stores, which was subsequently reduced to roughly 800 stores under the proposed Nexus Capital Management acquisition. After that acquisition failed and Variety Wholesalers emerged as the new buyer, this was further reduced to an expected 225-250 stores.

[Mark Manheimer, President and CEO at NETSTREIT]

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. All told, this has resulted in an average credit loss of just four basis points since inception.

[Mark Manheimer, President and CEO at NETSTREIT]

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 2030 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 leased to these tenants in an accretive manner.

[Mark Manheimer, President and CEO at NETSTREIT]

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. 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.

[Dan Donlan, CFO and Treasurer at NETSTREIT]

Thank you, Mark. Looking at our fourth quarter earnings, we reported a net loss of $5.4 million or $0.07 per diluted share. Core FFO for the quarter was $26.5 million or $0.32 per diluted share, and AFFO was $25.9 million or $0.32 per diluted share, which was a 3.2% increase over last year. For the full year of 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.

[Dan Donlan, CFO and Treasurer at NETSTREIT]

Turning to the expense front, total recurring G&A in the quarter declined 10% year-over-year to $4.3 million, while recurring cash G&A declined 6% year-over-year to $3.3 million. In addition, with our total recurring G&A representing 11% of total revenues for 2024 versus 15% in 2023, our G&A continues to steadily rationalize relative to our revenue base. Turning to the capital markets, on January 15th, 2025, we closed on $275 million of additional financing commitments.

[Dan Donlan, CFO and Treasurer at NETSTREIT]

This included a new fully drawn $175 million senior unsecured term loan, which was swapped to an all-in fixed rate of 5.12% through final maturity in January 2030, and an upsized $500 million revolving credit facility, which was increased from $400 million. We also extended the maturity date of our existing $175 million 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.

[Dan Donlan, CFO and Treasurer at NETSTREIT]

Turning to the balance sheet, when accounting for the impact of the aforementioned debt transactions, our pro forma total adjusted net debt, which includes the impact of all forward equity, was $848 million. On a pro forma basis, our weighted average debt maturity was 4.3 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 maturing until February of 2028.

[Dan Donlan, CFO and Treasurer at NETSTREIT]

In addition, our pro forma liquidity was $635 million at year-end, which consisted of $14 million of cash on hand, $436 million of availability in a revolving credit facility, and $185 million of unsettled forward equity. From a leverage perspective, our adjusted net debt to annualized adjusted EBITDA-RE was 4.5× at quarter-end, which remains well within our targeted leverage range of 4.5-5.5×. Moving on to guidance, we are introducing our 2025 AFFO per share guidance range at $1.27-$1.30.

[Dan Donlan, CFO and Treasurer at NETSTREIT]

Additionally, we expect our net investment activity for the year to range between $75 million-$125 million, and our cash G&A to range between $14.5 million-$15.5 million, 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.

[Dan Donlan, CFO and Treasurer at NETSTREIT]

Lastly, on February 21st, the board declared a quarterly cash dividend of $0.21 per share. The dividend will be payable on March 31st to shareholders of record as of March 14th. 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. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two 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. Our first question is from Greg McGinnis with Scotiabank. Please proceed with your question.

[Elmer Chang, Analyst 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 an anomalously accretive spread, but you didn't settle any equity forwards. 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?

[Dan Donlan, CFO and Treasurer at NETSTREIT]

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

[Elmer Chang, Analyst 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?

[Dan Donlan, CFO and Treasurer at NETSTREIT]

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

[Elmer Chang, Analyst at Scotiabank]

Got it. Okay. Yeah. And then you also mentioned the REIT taking a more measured approach to investing this year. You're seeing more sale-leaseback opportunities. Does that help much on cap rates as you think about investments throughout the year? And will transacting still require slightly less investment-grade exposure?

[Mark Manheimer, President and CEO at NETSTREIT]

Yeah. I mean, right now, we're seeing risk-adjusted returns a little bit more attractive with some of the investment-grade profile and sub-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 and CEO 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 some where we're kind of 25%-30% investment-grade. Right now, the best opportunities that we're seeing largely are on the sale-leaseback side, the blend and extend side with various other retailers. Some are new relationships and some are ones that we've continued like Gerber Collision.

[Elmer Chang, Analyst 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, Analyst at UBS Securities]

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 and CEO at NETSTREIT]

Yeah. Thanks, Michael. Yeah. So the Walgreens that we've sold, I mean, 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. And then as it relates to CVS, I think we can move those at lower cap rates.

[Mark Manheimer, President and CEO at NETSTREIT]

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 seen a really robust market to be able to sell those, which has been encouraging, not just from individual 1031 buyers, but also some larger institutions.

[Michael Goldsmith, Analyst at UBS Securities]

Thanks for that. And as a follow-up, in conjunction with your dispositions this quarter, you saw strong levels of demand from the buyers. So I guess the question is then, what sort of competition are you seeing out there when you're purchasing? And then maybe you could 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 and CEO at NETSTREIT]

Yeah. Yeah. 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 1031-type buyers to go get financing from a bank if it's got an investment-grade rating. And then on the non-investment-grade side, really, I think everything that we acquired in the last quarter, 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, Analyst at UBS Securities]

Thank you very much.

[Operator]

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

[Ravi Vaidya, VP at Mizuho Securities]

Hi there. Good morning. I 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 and CEO at NETSTREIT]

Yeah. Yeah. Thanks, Ravi. So I'll take the first part of that question. 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. 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.

[Mark Manheimer, President and CEO at NETSTREIT]

We're really trying to understand what's the cash flow generated versus the financial obligations of the tenant and how volatile is that going to be? Are they going to have a fixed charge ratio well north of two for a long period of time, or are we going to start having conversations when that dips below one? Which we obviously want to avoid those situations as much as possible. And that is correlated to investment-grade tenancy and correlated to credit ratings, but not entirely.

[Mark Manheimer, President and CEO at NETSTREIT]

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.

[Mark Manheimer, President and CEO at NETSTREIT]

And then if 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? 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 could we potentially gain? So that really kind of all filters through to what's the expected loss in each investment, and we're trying to minimize that while maximizing the returns.

[Mark Manheimer, President and CEO at NETSTREIT]

And so right now, just the opportunity set is really all that has changed. 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 and getting better returns.

[Dan Donlan, CFO and Treasurer at NETSTREIT]

Yeah. 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, VP at Mizuho Securities]

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 and CVS? And do you have any further color on Big Lots regarding the remaining six boxes that you have? Thank you.

[Mark Manheimer, President and CEO at NETSTREIT]

Yeah. So I'll go in reverse order here. So yeah, I mean, Big Lots, obviously, the Nexus Capital acquisition, we were kind of settled in with six of the seven locations where we're going to get assumed. We had an eighth, of course, that Ollie's that took over and assumed and is current on. So we kind of exclude that from the analysis. We expect the negotiations with kind of getting that done, I think, are almost complete. So we think that it's going to look very similar where we end up with six assets assumed. We do have a lot of demand for those assets.

[Mark Manheimer, President and CEO at NETSTREIT]

So there is 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 Wholesalers also, as you may or may not know, is also an investment-grade profile tenant with no debt, a large operator that has a long history of being very successful. And then, I'm sorry, what was the other part of the question?

[Ravi Vaidya, VP at Mizuho Securities]

Just wanted to ask about the target exposure levels for some of your underperforming tenants with Walgreens and CVS and broad commentary regarding tenant credit, your watch list, and your reserves?

[Mark Manheimer, President and CEO at NETSTREIT]

Yeah. Sure. Yeah. So I mean, Big Lots was really it on the watch list last year. So we're not really anticipating any specific issues with any of our tenants this year. Of course, we always kind of have a little bit left in 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 and CEO 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 ten.

[Ravi Vaidya, VP at Mizuho Securities]

Thanks so much. Appreciate it.

[Mark Manheimer, President and CEO at NETSTREIT]

Thanks, Robby.

[Operator]

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

[Mark Manheimer, President and CEO at NETSTREIT]

We try to respond to this one. Yeah.

[Operator]

Our next question is from Michael Gorman with BTIG.

[Michael Gorman, Managing Director and BTIG REIT Analyst at BTIG]

Yeah. Thanks. Good morning. Appreciate the additional disclosure in the presentation on the lease expirations for some of the top tenants. I'm 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 and CEO at NETSTREIT]

Yeah. It'll be a little bit of both. It's a good question. I think we've, and Daniel, 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. So that kind of gets us down below seven. And then we'll make up the rest with dispositions. And I don't really think there's a huge market for them because they're just short-term loans. If they were longer term, I think we would potentially be able to sell those loans.

[Michael Gorman, Managing Director and BTIG REIT Analyst 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 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 and CEO at NETSTREIT]

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

[Mark Manheimer, President and CEO 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 we 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 and BTIG REIT Analyst 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.

[Michael Gorman, Managing Director and BTIG REIT Analyst at BTIG]

You have a significant platform here. 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 and CEO 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 and getting some headlines, there can be a knee-jerk reaction with some investors, and it certainly has impacted us.

[Mark Manheimer, President and CEO at NETSTREIT]

So really, where we've kind of come down is we'll continue to underwrite the way that we have and continue to try to get better and learn as much as we can. But I think we're very comfortable with our ability to underwrite assets, but we just need to keep 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 and BTIG REIT Analyst at BTIG]

Fantastic. Thanks for the time.

[Mark Manheimer, President and CEO at NETSTREIT]

Thanks, Michael.

[Operator]

Our next question is from Alex Fagan with Baird. Please proceed with your question.

[Alex Fagan, Equity Research Analyst at Baird]

Hey, good morning, and thank you for taking my question. On the acquisition side, curious which categories are you prioritizing right now? I saw that there's five new tenants quarter over quarter. You can speak on maybe which category or who they are.

[Mark Manheimer, President and CEO at NETSTREIT]

Yeah. Sure. So yeah, 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 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.

[Alex Fagan, Equity Research Analyst at Baird]

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

[Mark Manheimer, President and CEO at NETSTREIT]

Can you say that again?

[Alex Fagan, Equity Research Analyst at Baird]

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

[Mark Manheimer, President and CEO at NETSTREIT]

Yes, they are. Yes.

[Alex Fagan, Equity Research Analyst at Baird]

Okay, and Mark, you mentioned the total credit loss since inception as a very small number, but can you maybe give the specific for what that was in 2024?

[Mark Manheimer, President and CEO at NETSTREIT]

Yeah. I mean, it's four basis points annually per year, and all of that was in 2024. So that should give you a pretty good idea.

[Alex Fagan, Equity Research Analyst at Baird]

Got it. Thank you.

[Operator]

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

[Linda Tsai, Senior Equity Research 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 and CEO at NETSTREIT]

Yeah. 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 flows generated at the asset level. And so that's kind of where our relationships play a big part.

[Linda Tsai, Senior Equity Research Analyst at Jefferies]

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

[Dan Donlan, CFO and Treasurer at NETSTREIT]

Sure, Linda. We were always looking to improve efficiencies across the board. I would say our cash G&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 Equity Research Analyst at Jefferies]

Thanks.

[Operator]

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

[Daniel Guglielmo, Analyst at Capital One Securities]

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 and CEO at NETSTREIT]

Yeah. 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.

[Daniel Guglielmo, Analyst at Capital One Securities]

Okay. Great. And around kind of the renewal, the lease escalation bumps each year, is that the same? Sorry. Each quarter, the bumps or each year, the bumps?

[Mark Manheimer, President and CEO at NETSTREIT]

Yeah. Absolutely. So what we're acquiring has significantly better internal growth than what we're disposing of. And that's just really I mean, you think about Walgreens, you think about CVS. Many dollar stores is kind of a mix of whether they've got bumps or not. But most of those are going to be entirely flat leases. 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.

[Daniel Guglielmo, Analyst at Capital One Securities]

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 lots of ins and outs with the 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 and CEO 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. There's just going to be new construction and more opportunity there. But we're somewhat agnostic to what part of the country an asset's 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.

[Daniel Guglielmo, Analyst at Capital One Securities]

Great. Thank you.

[Operator]

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

[Jay Kornreich, Equity Research Analyst at Wedbush Securities]

Hey, 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 and CEO at NETSTREIT]

Yeah. I mean, I think we're going to be pretty opportunistic as it relates to the disposition side. If we're getting pretty good demands 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 yeah, 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, Equity Research Analyst at Wedbush Securities]

Okay. Appreciate that. And then just one more. Going back to the $185 million 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 in the first half, for example, would you consider deploying that capital, 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?

[Dan Donlan, CFO and Treasurer at NETSTREIT]

Yeah. 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 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.

[Dan Donlan, CFO and Treasurer at NETSTREIT]

But as you can tell with what we've done in the fourth quarter, which was a record quarter for us, we have the capability to do significantly more than we were currently guided to. We just want to see our cost of capital return to more appropriate levels.

[Mark Manheimer, President and CEO at NETSTREIT]

And the other piece to that is a good question, Jay, is in the event that we see an attractive acquisition. We are 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, Equity Research Analyst at Wedbush Securities]

All right. Appreciate it. Thanks so much.

[Mark Manheimer, President and CEO at NETSTREIT]

Thanks, Jay.

[Operator]

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

[Upal Rana, 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 and CEO at NETSTREIT]

We do not expect any downtime at all.

[Upal Rana, 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 and CEO at NETSTREIT]

Yeah. No, it's a good question. So really all of the buyers on the Walgreens side have been 1031 buyers. And it just takes a little bit more handholding than it does for some of the other tenants just because they've been in the news so much.

[Mark Manheimer, President and CEO at NETSTREIT]

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 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 Generals. But the appetite is there once people get comfortable.

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

Okay. Great. That was helpful. Thank you.

[Mark Manheimer, President and CEO at NETSTREIT]

Thanks.

[Operator]

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

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

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 and CEO at NETSTREIT]

Yeah. In terms of cap rates, we really only have, call it, 90 days maximum of 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 we'll be at or above where we were this quarter, most likely above.

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

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

[Mark Manheimer, President and CEO at NETSTREIT]

Yeah. 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, 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]

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 and CEO at NETSTREIT]

Thank you, everyone, for joining today and for your interest in NETSTREIT. 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, Director of Investor Relations
• Dan Donlan, CFO and Treasurer
• Mark Manheimer, President and CEO

Analysts

• Daniel Guglielmo, Analyst at Capital One Securities
• Michael Gorman, Managing Director and BTIG REIT Analyst at BTIG
• Upal Rana, Senior Equity Research Analyst at KeyBanc Capital Markets
• Linda Tsai, Senior Equity Research Analyst at Jefferies
• Alex Fagan, Equity Research Analyst at Baird
• Elmer Chang, Analyst at Scotiabank
• Farrell Granath, Equity Research Associate at Bank of America
• Jay Kornreich, Equity Research Analyst at Wedbush Securities
• Michael Goldsmith, Analyst at UBS Securities
• Ravi Vaidya, VP at Mizuho Securities