NETSTREIT Q2 2025 Earnings Report

NETSTREIT EPS Results

• Actual EPS: N/A
• Consensus EPS: $0.32
• Beat/Miss: N/A
• One Year Ago EPS: N/A

NETSTREIT Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $45.24 million
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

NETSTREIT Announcement Details

• Quarter: Q2 2025
• Date: 7/23/2025
• Time: After Market Closes
• Conference Call Date: Thursday, July 24, 2025
• Conference Call Time: 11:00AM ET

NETSTREIT (NYSE:NTST) is an internally managed real estate investment trust (REIT) based in Dallas, Texas that specializes in acquiring single-tenant net lease retail properties nationwide. The growing portfolio consists of high-quality properties leased to e-commerce resistant tenants with healthy balance sheets. Led by a management team of seasoned commercial real estate executives, NETSTREIT's strategy is to create the highest quality net lease retail portfolio in the country with the goal of generating consistent cash flows and dividends for its investors.

NETSTREIT Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Continued tenant diversification and accretive dispositions keep NetStreet ahead of its year-end portfolio goals with a focus on necessity, discount, and service industries.
• Positive Sentiment: AFFO per share guidance midpoint was raised by $0.01 to $1.29–$1.31 and net investment guidance increased to $125–$175 million, reflecting improved capital deployment prospects.
• Neutral Sentiment: NetStreet achieved its highest quarterly gross investment cash yield on record at 7.8%, though it expects yields to normalize to 7.4–7.5% in the second half of the year.
• Positive Sentiment: Balance sheet metrics strengthened with over $46 million raised via ATM, a 3.8-year weighted average debt maturity at a 4.58% interest rate, $594 million in liquidity, and leverage at 4.6x adjusted net debt to EBITDAre.
• Positive Sentiment: Portfolio quality remains strong with 68.7% of rent from investment grade or profile tenants, a 9.8-year weighted average lease term, only 1.2% expirations through 2026, and rent coverage of 3.9x.

Presentation

[Operator]

Greetings, and welcome to the NetStreet Corp. Second Quarter twenty twenty five Earnings Call. At this time, all participants are in a listen only mode. A brief 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 your host, Amy Ahn, Investor Relations. Thank you. You may begin.

[Amy An, Director, Investor Relations at NETSTREIT]

We thank you for joining us for NetSuite's second quarter twenty twenty five 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.netsuite.com. On today's call, management's remarks and answers to your questions may contain forward looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ from those discussed today.

[Amy An, Director, Investor Relations at NETSTREIT]

For more information about these risk factors, we encourage you to review our Form 10 ks for the year ended 12/31/2024 and our other SEC filings. All forward looking statements are made as of the date hereof, and NetSuite 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 measure and an explanation of why we believe such non GAAP financial measures are useful to investors. Today's conference call is hosted by Neptune's Chief Executive Officer, Mark Mannheimer and Chief Financial Officer, Dan Donlin.

[Amy An, Director, 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 at NETSTREIT]

Thank you, Amy, and thank you all for joining us this morning to discuss our second quarter twenty twenty five results. Similar to past quarters, we continued to improve our tenant diversification via thoughtful and accretive dispositions, and we are now slightly ahead of pace as it relates to our year end goals. On the external growth front, our team is actively sourcing attractive investments across a broad spectrum of tenants and industries, and we remain confident in our ability to find off the run opportunities that fit our underwriting standards. From a portfolio perspective, our tenants remain incredibly healthy, and our heavy concentration within the necessity discount and service industries adds further stability to our cash flows. In addition, we provided new disclosure during the second quarter to illustrate our de minimis credit losses since inception and better demonstrate the overall strength of our portfolio, which I will discuss later.

[Mark Manheimer, President & CEO at NETSTREIT]

We believe this enhanced disclosure, continued diversification efforts and disciplined approach to capital deployment have all contributed to the improvement in our cost of capital. While there is still plenty of room for improvement on this front, we did take advantage of our favorable investment spreads to raise over $46,000,000 via the ATM this quarter. With all these positives in mind, we are increasing our AFFO per share guidance midpoint by $01 to a new range of $1.29 to $1.31 and we are increasing our net investment guidance by $50,000,000 at the midpoint to a new range of $125,000,000 to $175,000,000 Turning back to external growth, we completed $117,100,000 of gross investments at a blended cash yield of 7.8% during the quarter. While we are thrilled to achieve our highest quarterly cash yield on record in the second quarter, we do not expect this to repeat in the back half of the year as the opportunities that have the best risk adjusted returns are currently blending to a 7.4% to a 7.5% cash yield. The weighted average lease term for our second quarter investments was fifteen point seven years with investment grade and investment grade profile tenants representing more than a quarter of these acquisitions.

[Mark Manheimer, President & CEO at NETSTREIT]

Additionally, more than half of our investment activity this quarter was accretively funded with disposition proceeds, which totaled $60,400,000 across 20 properties at a 6.5% blended cash yield. As we look out to the third quarter and beyond, we are currently seeing great investment opportunities across a variety of tenants and industries, including farm supplies, grocery, quick service restaurants, auto service and convenience stores to name a few. Turning to the portfolio. We ended the quarter with investments in seven zero five properties that were leased to 106 tenants operating in 27 industries across 45 states. From a credit perspective, 68.7% of our total ADR is leased to investment grade or investment grade profile tenants.

[Mark Manheimer, President & CEO at NETSTREIT]

Our weighted average lease term remaining for the portfolio was nine point eight years with just 1.2% of ADR expiring through 2026. As mentioned earlier, we have updated our disclosure to better demonstrate the individual property risk within our portfolio as well as provide more details around our best in class track record as it relates to credit loss. Moreover, we believe this disclosure serves to better illustrate the underwriting discipline that we have maintained since inception, which as we've said before, goes well beyond just understanding the corporate credit. We also emphasized unit level performance and locations where we believe the rent is replaceable, which helps us to carefully manage lease expirations. We also focus on larger and more established operators that we believe are more capable of adapting to market changes.

[Mark Manheimer, President & CEO at NETSTREIT]

As you can see from our investor presentation, our portfolio wide unit level rent coverage picked up to 3.9 times from 3.8 times when we initially provided the disclosure less than two months ago. To reiterate, we believe this disclosure provides excellent visibility into our best in class default and credit loss statistics while providing the necessary context around future risks within our portfolio. We believe this insight, which is not uniformly disclosed across the net lease industry, should provide investors with greater comfort in the future cash flow production of our portfolio, both on an absolute basis and relative to our net lease peers. Before handing the call over to Dan, I wanted to reiterate a message that we have consistently provided in the past. We will not sacrifice our balance sheet for growth nor will we grow for the sake of asset growth without an appropriate level of per share earnings growth.

[Mark Manheimer, President & CEO at NETSTREIT]

However, with our cost of capital having meaningfully improved throughout the year, we can now afford to be more acquisitive, which is a welcome development for the NetStreet team. Very much appreciate the support of our shareholders, and we remain confident that our growth from a small base narrative can gain additional traction as we execute our strategy. With that, I'll hand the call to Dan to go over our second quarter financials and then open up the call for your questions.

[Daniel Donlan, CFO & Treasurer at NETSTREIT]

Thank you, Mark. Looking at our second quarter earnings, we reported net income of $3,300,000 or $04 per diluted share.

[Daniel Donlan, CFO & Treasurer at NETSTREIT]

Core FFO for the quarter was $25,600,000 or $0.31 per diluted share and AFFO was $27,500,000 or $0.33 per diluted share, which is a 3.1% increase over last year. Turning to the expense front. Our total recurring G and A in the quarter increased year over year to 5,400,000.0 which is mostly a result of our staffing levels normalizing as we restructured various roles last year. That said, with our total recurring G and A representing 11% of total revenues this quarter versus 12% in the prior year quarter, our G and A continues to rationalize relative to our revenue base. Turning to capital markets activity in the second quarter.

[Daniel Donlan, CFO & Treasurer at NETSTREIT]

We sold 2,800,000.0 shares via our ATM program, generating over $46,100,000 of net proceeds. Additionally, we settled 1,100,000.0 shares during the quarter. Turning to the balance sheet. Our adjusted net debt, which includes the impact of all forward equity, was $713,800,000 Our weighted average debt maturity is three point eight years, and our weighted average interest rate was 4.58%. Including the extension options, which can be exercised at our discretion, we have no material debt maturing until February 2028.

[Daniel Donlan, CFO & Treasurer at NETSTREIT]

In addition, our total liquidity was $594,000,000 at quarter end, which consisted of $20,000,000 of cash on hand, dollars $373,000,000 available on our revolving credit facility and $2.00 $2,000,000 of unsettled forward equity. From a leverage perspective, our adjusted net debt to annualized adjusted EBITDAre was 4.6x at quarter end, which was down from 4.7x last quarter and remains well within our targeted leverage range of 4.5x to 5.5x. Moving on to guidance for 2025. We are increasing our AFFO per share guidance range to $1.29 to $1.31 from the prior range of $1.28 to $1.3 and we are increasing our net investment activity guidance range to $125,000,000 to $175,000,000 from the prior range of 75,000,000 to $125,000,000 Additionally, we now see recurring cash G and A ranging between 15,000,000 to $15,500,000 for 2025. From a rent loss perspective, our guidance now assumes roughly 25 basis points of unknown rent loss at the midpoint of our range.

[Daniel Donlan, CFO & Treasurer at NETSTREIT]

Lastly, due to our outstanding forward equity, our midpoint assumes slightly less than a zero of dilution resulting from the treasury stock method. Lastly, on July 21, the Board declared a quarterly cash dividend of $0.02 $15 per share, which represents a 2.4% increase over the prior quarter dividend. The dividend will be payable on September 15 to shareholders of record as of September 2. With that, operator, we will now open the line for questions.

[Operator]

Thank you. We will now be conducting a question and answer session. The first question is from Haendel St. Juste from Mizuho Securities. Please go ahead.

[Haendel St. Juste, MD & Senior REIT Analyst at Mizuho Financial Group]

Hey, guys. Good morning. Great quarter. Wanted to ask you a question, I guess, Mark, a big picture one. And it kind of dovetails on your prepared remarks.

[Haendel St. Juste, MD & Senior REIT Analyst at Mizuho Financial Group]

Stock is up 30%. Your WACC and investment spread has improved pretty dramatically. So I guess, can you talk a bit more about how this improved WACC impact the range of capital deployment alternatives available to you now and how much and where you can deploy capital? Your initial guide obviously was pretty conservative. Even the updated acquisition guide sits below where you've been in some other quarters recently. So just curious on some thoughts on that front.

[Mark Manheimer, President & CEO at NETSTREIT]

Yes, sure. So thanks, Anvil. Yes, it's going to be it's going to continue to be pretty fluid as we continue to monitor our cost of capital. I think as it relates to our ability to deploy capital in and around the cap rates we've been maybe not this quarter, which I think was maybe a little bit of an outlier at 7.8 I think kind of more normal for us in this environment probably 7.4%, 7.5% something like that.

[Mark Manheimer, President & CEO at NETSTREIT]

But for us to be able to deploy net $350,000,000 would be pretty easy. It's just going to come down to our cost of capital and hopefully we can continue to see improvement there.

[Haendel St. Juste, MD & Senior REIT Analyst at Mizuho Financial Group]

Got it. It sounds like a bit more IG will be part of the mix and part of why we expect the yields to come down in the next couple of quarters?

[Mark Manheimer, President & CEO at NETSTREIT]

Yes.

[Mark Manheimer, President & CEO at NETSTREIT]

I think this quarter we had a couple of unique opportunities with some C store operators where we have relationships where they're doing some add on acquisitions of some from some smaller operators where we're able to get attractive leases, add these properties into existing master leases, extend the term out at four times rent coverage. So at pretty attractive cap rates. So anytime we see those types of opportunities, we're going to jump all over them. We just don't expect to see that every quarter. We just really felt like this was a great opportunity for us this quarter, which is why you see that seven 0.8 It's a larger operator, doesn't quite qualify for investment grade profile, doesn't have a credit rating, but has no debt for all of those operators.

[Mark Manheimer, President & CEO at NETSTREIT]

So an operator we're very comfortable with and of course at four times rent coverage and a master lease, you're pretty well protected.

[Haendel St. Juste, MD & Senior REIT Analyst at Mizuho Financial Group]

Great, great. And second question is on the Walgreens, the Dollar Store disposition things seem to be proceeding pretty well. And maybe some color on if you could compare and contrast the demand for the assets and the cap rates you get in the private market on those fronts? And then maybe some color on where we expect you to maybe add more exposure or deploy some of that capital?

[Mark Manheimer, President & CEO at NETSTREIT]

Yes, yes, sure. So yes, and I'd say as it relates to dispositions, yes, kind of similar to our acquisitions this quarter, the cap rate was a little bit better than what we've seen in the past. We did execute a number of pretty attractive dispositions, sold off some advanced autos kind of in the low six cap rate range, got that concentration really where we're more comfortable. Sold to CVS outside of Nashville at a 5.5 cap. So really had a couple of cap rates that kind of drug that down a little bit.

[Mark Manheimer, President & CEO at NETSTREIT]

And we're about done with what we need to sell with Walgreens. We may need to sell another one or maybe two for the rest of the year to kind of get us below that 3% concentration that we outlined a couple of quarters ago. So I feel pretty good about that. But the demand for dollar stores, I think that's really we still have a little bit of chat. There's just a ton of demand from both ten thirty one buyers as well as institutional investors at pretty attractive cap rates.

[Mark Manheimer, President & CEO at NETSTREIT]

So every quarter since inception, we've been able to accretively recycle capital and I don't think that's going be any different in the third and fourth quarter. I just don't think it's going to be quite as dramatic as it was this quarter.

[Operator]

The next question is from John Karachowski from Wells Fargo.

[John Kilichowski, VP - Equity Research at Wells Fargo]

Just kind of a follow-up to the first question. Mark, you answered this a little bit, and I'm not sure if you can give any more color here. But just as we think about in the second half of the year, you said IG percentage are going to increase and cap rates are going to tighten a little bit and your increased investment guidance. How much of your new investment guide has some sort of conservatism for the uncertainty about your access to equity capital and maybe if the opportunity arises here in the near future for you to lock in more equity capital? Where do you think that investment guide could go to?

[John Kilichowski, VP - Equity Research at Wells Fargo]

Or what do you think the opportunity set is for you all?

[Mark Manheimer, President & CEO at NETSTREIT]

Yes. I mean, think the opportunity set is pretty massive right now. We're the team is very excited to be able to start to really access the acquisitions market a little bit more than we have more recently. And yes, mean I think right now with the team we have in place, the market as it sits today deploying $150,000,000 $200,000,000 net acquisitions each quarter in and around the cap rates that we've been at with a similar mix of product is certainly doable.

[Mark Manheimer, President & CEO at NETSTREIT]

But we're going to continue to be mindful about where our equity is trading and our cost of capital.

[John Kilichowski, VP - Equity Research at Wells Fargo]

Got it. And then maybe just on the test planning equation, I know we've discussed the potential for a ratings upgrade. Curious if you've had any conversations with the rating agencies and what do you think the impact would be on your WACC and if that's considered at all in your guide?

[Daniel Donlan, CFO & Treasurer at NETSTREIT]

John, it's Dan.

[Daniel Donlan, CFO & Treasurer at NETSTREIT]

We don't have anything penciled into our guidance for this year if we were to receive a rating. We don't have a current rating, there's nothing to upgrade. But certainly, if we were to get an investment grade credit rating, that would allow us to then utilize a leverage toggle, which would then look to reduce bring down our term loan debt by 20 basis points. And then we'd also get the credit service adjustment that's another 10 basis points. So basically, all of our debt would come down by about 30 basis points.

[Daniel Donlan, CFO & Treasurer at NETSTREIT]

As far as our conversations that we've we're going to start having those come later in the third quarter, and we're optimistic that we can reach a favorable outcome, but that's just where we are today.

[John Kilichowski, VP - Equity Research at Wells Fargo]

Yeah. Very helpful. Thank you.

[Operator]

The next question is from Wes Golladay from Baird. Please go ahead.

[Wesley Golladay, Senior Research Analyst at Robert W. Baird & Co]

Hey. Good morning, guys. Just looking at the balance sheet, you have about $58,000,000 held for sale. Will this be all done disposed of this year? And will this be the last of the heavy dispositions?

[Mark Manheimer, President & CEO at NETSTREIT]

Yes. I mean, think we have a decent amount that we're still doing. So I mean, the last few quarters have been pretty heavy. I think the third quarter will be pretty heavy again. We'll start to moderate a little bit in the fourth quarter.

[Mark Manheimer, President & CEO at NETSTREIT]

We can never guarantee that anybody that we're trying to sell a property to is actually going to close. So I can't make guarantees that, that will all be gone. But I'd say the lion's share of that should be gone. And then when you look towards next year, I would expect our disposition pace to moderate more closely to what it was maybe two, three years ago.

[Wesley Golladay, Senior Research Analyst at Robert W. Baird & Co]

Okay.

[Wesley Golladay, Senior Research Analyst at Robert W. Baird & Co]

When you look at the investment pipeline, is there a lot of loans in that?

[Mark Manheimer, President & CEO at NETSTREIT]

There are some, but it's really about enough to replace what's getting paid off. So it's not a massive amount.

[Wesley Golladay, Senior Research Analyst at Robert W. Baird & Co]

Okay. And then just one more big last question.

[Wesley Golladay, Senior Research Analyst at Robert W. Baird & Co]

I know you love these. Do you have an update on the vacant lease?

[Mark Manheimer, President & CEO at NETSTREIT]

Yes. I mean we've progressed pretty far along. We're negotiating really with two, but there are three LOIs where we're still kind of going back and forth with.

[Mark Manheimer, President & CEO at NETSTREIT]

The two more likely operators are national tenants, investment grade tenants. They're both willing to pay more rent than what they lost was. So they need to get through their investment committee and kind of get through their process of what they need actually do to the box to make it ready for them to move in. So I do I would expect us to have an LOI signed this quarter before the next earnings call. But then by the time that they come in and start paying rent, we'll likely be early next year. The

[Operator]

next question is from Greg McKinnis from Scotiabank.

[Elmer Chang, Equity Research Associate at Scotiabank]

Hi. This is Elmer Chang. I'm with DREG. You mentioned seeing maybe 7% cap rate for investments with the past risk adjusted returns. Are you just facing pricing power challenges given investment grade sellers may have been aware that your high cost of equity at the start of the year was just shifting the health care investment spreads?

[Elmer Chang, Equity Research Associate at Scotiabank]

Or are there any other trends trying to tap in for investment or tenants for that kind of mid-twenty percent level?

[Mark Manheimer, President & CEO at NETSTREIT]

No, Omar. I mean, I would say, unfortunately, we don't control what the market bears and what we can really buy properties for. We can negotiate our end, we need to have a willing seller. And really what we've seen on the investment grade side is unless you're willing to take on co tenancy and other types of risks that we're not willing to really put into the portfolio, The cap rates just haven't moved up enough for us to really feel like we're getting paid a strong enough risk adjusted return on most investment grade opportunities, which is why you've seen other opportunities get through our filter where we've got larger operators, very good credits and very strong unit level coverage, whereas the investment grade side, we're just not going to go out and pay.

[Mark Manheimer, President & CEO at NETSTREIT]

Like I mentioned, we sold a CVS at a 5.5 cap. We're not going to go buy CVSs anywhere around that type of cap rate nor are we buying pharmacies. Yes, mean, think it's really been the market has fared higher cap rates for non investment grade tenants and getting better risk adjusted returns than you are for the investment grade tenants in most cases. You are seeing a number of opportunities still get that we're able to source and I think they're maybe not marketed quite as effectively. And so we get pretty good pricing on a handful of those deals, but to really be able to scale investment grade acquisitions at cap rates that make sense right now, I don't think is really achievable.

[Elmer Chang, Equity Research Associate at Scotiabank]

Okay. For that. And given you've had no major credit events to date, what are you now assuming for bad bad debt expense for the rest of the year since, you know, while you're increasing that guidance and the expo range, but, you know, you you expect less accretion based on your comments for cap rates for the rest of the year?

[Daniel Donlan, CFO & Treasurer at NETSTREIT]

Elmer, it's Dan. I think I caught most of your question.

[Daniel Donlan, CFO & Treasurer at NETSTREIT]

You're breaking up a little bit. But as we stated in the prepared remarks, we're assuming about 25 basis points of credit loss between here and year end at the midpoint of the range.

[Operator]

The next question is from Michael Goldsmith from UBS. Please go ahead.

[Michael Goldsmith, US REITs Analyst at UBS Group]

Good morning. Thanks a for taking my question. Clearly, you're more comfortable with issuing equity at the ATM. Is is that contingent of you buying at at the cap you know, these elevated cap rates in the last couple of quarters in the seven seven, seven eight range? And, you know, as, you know, as you move into more ID stuff, presumably, the cap rates will come down on a blended basis.

[Michael Goldsmith, US REITs Analyst at UBS Group]

So just trying to understand what spreads you're comfortable issuing and acquiring?

[Daniel Donlan, CFO & Treasurer at NETSTREIT]

Yes. Michael, we've always said that we would be comfortable issuing equity if we were north of 100 basis points of spread relative to our WACC. As we sit here today and you think about a 7.5% cap rate in the back half of the year, maybe 7.4%. When you think about our AFFO yield using our run rate AFFO coming out of the second quarter and then looking at five point five year to seven year term loans as the debt source there, we can source transactions about 150 to 160 basis points wide of what we think our WAC is the current moment.

[Michael Goldsmith, US REITs Analyst at UBS Group]

Got it. Thanks for that, Dan. And my follow-up question is, based on the guidance, obviously, you've been able to acquire more on a net basis. But are there any mitigating factors that is contemplated within the guidance? Are you taking into account the treasury stock dilution just given given some of these issuances and trying to get understand kind of, like, the moving pieces within the within the outlook?

[Daniel Donlan, CFO & Treasurer at NETSTREIT]

Yes. At the midpoint, I mean, that's the mitigating item that we mentioned. At the midpoint, we're assuming a little bit less than $01 of dilution from the treasury stock method. Obviously, we have no idea where the stock's going to go, but we assumed a pretty healthy movement even from current levels to justify our guidance range. So we feel eminently comfortable we've been conservative on that front. Thank you.

[Operator]

The next question is from Michael Gorman from BTIG. Please go ahead.

[Michael Gorman, Managing Director at BTIG]

Yes. Thanks. Good morning. I was wondering if you could just talk a little bit more about competition in the deal market. We've seen some new entrants, I would say, from nontraditional net lease investors.

[Michael Gorman, Managing Director at BTIG]

And I understand it's a deep liquid market, but I'm just curious if you started to bump into any of these new buyers in the marketplace or kind of where you're seeing them show up as you look at the deal pipeline and future transactions?

[Mark Manheimer, President & CEO at NETSTREIT]

Yes. Thanks, Michael. Yes, I mean, good question. We've certainly heard a lot about some new entrants are aware of some capital that has been deployed by a number of them.

[Mark Manheimer, President & CEO at NETSTREIT]

But we just really have not run into them at all on the acquisition side. And so I think most of the deals that we're looking at are pretty small, bite sized deals or their relationship deals where really the only negotiating that we're doing is with the tenant and them or the tenant and the seller trying to figure out where they're willing part with properties. And less so getting ourselves in bidding wars anytime we see those opportunities, we'll come in and we'll bid, but we're not really interested in paying the top price for our deals. We want to get the best risk adjusted returns. And from our perspective, the largely marketed deals typically don't really yield those opportunities too well.

[Mark Manheimer, President & CEO at NETSTREIT]

And so I'm pretty aware of a number of the new entrants and I think their strategies don't really line up too much with ours. So I'd be surprised if we run into them very frequently. I'm sure there will be a situation here or there where we see them, but I don't think it's going have much impact on our capital deployment.

[Michael Gorman, Managing Director at BTIG]

That's helpful. Thanks.

[Michael Gorman, Managing Director at BTIG]

And maybe just one more on the competition side and maybe a little off the wall here. But given the supply demand dynamics in retail kind of broadly, are you starting are you coming across more user bidders or owner occupants in the marketplace, either looking at properties previously sold? Or is it more competition in terms of looking at the sale leasebacks that they want more control over their properties or to keep control of their properties in a supply constrained environment?

[Mark Manheimer, President & CEO at NETSTREIT]

Yeah. We we have not really seen that, you know, quite yet, but, you know, I I think that's something to to potentially keep an eye on.

[Michael Gorman, Managing Director at BTIG]

Okay. Great. Thanks for the time.

[Mark Manheimer, President & CEO at NETSTREIT]

Thank you.

[Operator]

The next question is from Linda Tsai from Jefferies. Please go ahead.

[Linda Tsai, Senior Analyst at Jefferies]

Hi. With your cost of capital having improved, what verticals or investments are you considering now that you couldn't have before? And then how would investment spreads trend as a result?

[Mark Manheimer, President & CEO at NETSTREIT]

Linda, I don't think really much is going to change at all in terms of what we're looking at. I think if we were to deploy a lot more capital than we are right now, which isn't necessarily the plan in the near term. I think that maybe the filter kind of opens up a little bit more where we're going to actuate a little bit more in pricing, which is why I think our 7.8 could come down to a 7.4%, 7.5 if we want to deploy more capital. But I would expect for us to continue to buy similar types of products that we have over the past five years.

[Linda Tsai, Senior Analyst at Jefferies]

And then can you give us some general color on dynamics in the C store space? And does your pipeline have

[Mark Manheimer, President & CEO at NETSTREIT]

Yes. I mean the C store space is an attractive industry for us. Obviously, you've got two large profit drivers coming from the guest pumps as well as the inside sales of the store. And we've got really good relationships in that space. I mean I know I've been doing convenience store deals for I guess going on twenty years.

[Mark Manheimer, President & CEO at NETSTREIT]

So pretty aware of who's in the space and who the operators are as well as our team has done a great job of going out and finding some of these opportunities and building relationships with some operators. We'll continue to look for those. We did a few of them this quarter. We may do one this quarter. But I think it's less likely that we're going do as many as we did in the second quarter as in the third.

[Linda Tsai, Senior Analyst at Jefferies]

Just one last one for Dan. What do you expect G and A as a percentage of revenues to be at the end of next year similar to this year?

[Daniel Donlan, CFO & Treasurer at NETSTREIT]

No. I think it should continue to trend down, and I don't have the model pulled up. I definitely think when you think about the year over year growth, it should slow dramatically next year versus this year, just given that we had a lot of hiring to do, this year and into the back half of last year. And that hiring pace should moderate considerably as we look out to 2026. So I don't know what that would impute necessarily on percentage basis, but it's certainly going to be lower as a percentage of revenues next year.

[Mark Manheimer, President & CEO at NETSTREIT]

And again, the year over year growth rate should be down considerably versus what it was this year.

[Operator]

The next question is from Smedes Rose from Citi. I

[Smedes Rose, Director at Citigroup]

just wanted to ask a quick question. You talked about 25 bps of rent loss embedded through the back half of the year. And so what is it now for the full year, I guess? I think you said last quarter was 75 bps baked into full year or?

[Mark Manheimer, President & CEO at NETSTREIT]

Yes.

[Mark Manheimer, President & CEO at NETSTREIT]

So last quarter, we said our guidance is based on 75 basis points of credit loss, I guess, for the full year. I mean, this 25 basis points of credit losses for the full year as well. It's just that half a year is over.

[Smedes Rose, Director at Citigroup]

So Okay. Okay.

[Smedes Rose, Director at Citigroup]

Sorry. Okay. And then I just wanted to ask you, in your would it be your expectations to settle the much of this forward equity by year end? Or are you in a position now where you can start to kind of, get, I guess, get ready with dry powder for next year as well?

[Mark Manheimer, President & CEO at NETSTREIT]

Yes.

[Mark Manheimer, President & CEO at NETSTREIT]

I mean, we think about our leverage, always incorporate the forward. And so at 4.6 times today, we feel good about our leverage. We don't really have to do anything to hit the high end of guidance at 1.75 times. It's still end the year about 4.9 times. Obviously, we've shown a propensity to raise ATM equity in and around current levels.

[Mark Manheimer, President & CEO at NETSTREIT]

But as far as settling the forward, it just really depends on if we raise additional capital. But the governor for us is kind of we need to maintain our debt to gross assets below 35% to get the most attractive pricing off of our term loans and credit facility. So that's really what governs our decision to pull down the equity. So I think you'll probably see a little bit in the third and you should see a healthy chunk into the fourth quarter as well.

[Smedes Rose, Director at Citigroup]

Okay. Great. Appreciate it. Thank you.

[Operator]

The next question is from Daniel Guglielmo from Capital One Securities. Please go ahead.

[Dan Guglielmo, Equity Research Analyst - Consumer at Capital One Financial]

Hi, everyone. Thank you for taking my questions. I I think it was in the 4Q call where we had talked about increased population growth in the Sunbelt and elevated opportunities there, but that you all don't have a specific regional focus. Has there been any changes to that view or or population trends you're watching? And then are there regions that are more attractive in the second half?

[Mark Manheimer, President & CEO at NETSTREIT]

Yes. I would say it really hasn't changed very much at all. You're still kind of seeing population growth in the same areas, which is where retailers are going to continue to try to grow. So you're going to see more opportunities there on the development side as well as the sale leaseback side. So I don't think that has really changed much since fourth quarter last year.

[Dan Guglielmo, Equity Research Analyst - Consumer at Capital One Financial]

Okay. Thank you. Appreciate that. And then year over year average earnings has continued to increase across the country. When you talk with tenants and then think about your investments, has the spending and revenue been able to keep pace with some of, like, the labor and technology cost?

[Dan Guglielmo, Equity Research Analyst - Consumer at Capital One Financial]

Or or has it become an increased kind of topic of conversation when when you're talking with them and thinking to the investment?

[Mark Manheimer, President & CEO at NETSTREIT]

Yeah. No. I I don't know if it's really been an increased topic of conversation with people. I mean, I there there are challenges in some industries as it relates to labor costs.

[Mark Manheimer, President & CEO at NETSTREIT]

Yeah. More specifically, restaurants and some others where, just the labor line item has become more expensive and it squeezed profitability a little bit. And then you've of course seen inflation last year kind of squeeze margins a little bit for some operators, but that's really moderated quite a bit. And most of the retailers that we're feeling and talking to maybe are kind of curious to see what happens with tariffs, but there really hasn't been much of an impact from that yet. So most retailers that we've spoken to are feeling pretty bullish and are really more in growth mode than they were maybe this time last quarter.

[Dan Guglielmo, Equity Research Analyst - Consumer at Capital One Financial]

Great. Thank you. Appreciate it.

[Operator]

The next question is from Upal Rana from KeyBanc Capital Markets. Please go ahead.

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

Great. Thanks for taking my question. With the net investment activity accelerating and that you expect cap rates to trend lower to the mid 7% range, are there any changes you would point out on lease economics in terms of wall escalators or rents that we should expect?

[Mark Manheimer, President & CEO at NETSTREIT]

No. I mean we had pretty attractive terms this quarter.

[Mark Manheimer, President & CEO at NETSTREIT]

Longer lease terms I think you can expect something similar to that maybe not quite as long in the third quarter. A lot of what we're looking to do in the third quarter is going to be on the sale leaseback side. And even with the on the non sale leaseback side, still pretty long lease terms with attractive rent escalators. It's been a focus of ours over the past, call it, year, year and a half to really improve the internal growth in the portfolio and that continues to be the case. And I don't think you'll see much change as we kind of moderate closer to what we were doing previous to the second quarter 7.4%, 7.5%.

[Mark Manheimer, President & CEO at NETSTREIT]

But I think it's feel pretty good about the opportunity set and what we're looking at right now.

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

Okay, great. That was helpful. And then I want to get your sense on what the appetite is from buyers for Walgreens today. You mentioned you wanted to sell maybe one or two by year end to reach that 3% ABR, but has demand for pharmacy changed in any way in recent months?

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

I know you did sell that one CVS for 5.5% cap.

[Mark Manheimer, President & CEO at NETSTREIT]

Yes, sure. I mean, I think CVS and Walgreens may be a little bit different. Walgreens, there just isn't a lot of clarity to the buyer environment as to what the balance sheet is going to look like with Walgreens. I think we've got some insight there that it's not going to be a very leveraged balance sheet.

[Mark Manheimer, President & CEO at NETSTREIT]

So I think once that information comes out, which presumably the transaction should close in December, at least that's the schedule today. In the leases, it does provide for financial reporting. So people will start to see that they didn't lever up the balance sheet. And so I think that's going to be a big positive come early next year when people start to see that. So I think until that happens, it's a little bit more challenging to sell those assets, which is why we're pretty happy that we got out ahead of a lot of that and really sold that exposure down to 3.5% as it sits today and only needing to sell 1% maybe 2% to get to below that 3%.

[Mark Manheimer, President & CEO at NETSTREIT]

And I think we should be able to have a little trouble finding a ten thirty one buyer for one or two of the assets if that will get comfortable that they're not closing the store and that it's a good location. Fortunately, our rent at $19 a foot, well inside the average of what you see with Walgreens and CVS for that matter. So that allows other people to get comfortable that even if they ever do have to take the box back that they can replace the rents and there are other things that they can do with the assets. There has been we've had a lot of inbound demand from retailers and developers interested in our sites. But the problem is we can't get Walgreens out.

[Mark Manheimer, President & CEO at NETSTREIT]

So I guess maybe a good problem to have, but I think our downside protection on the Walgreens is actually pretty good with cheaper rents and really good real estate. And so whether that be a convenience store operator or kind of the auto services sub stores or there's just a lot of different operators that are interested in those stores at or above the rents that we currently have. But I think we're just likely going to only sell one or two more and likely just continue collecting rent from Walgreens over the next ten plus years.

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

Okay, great. That was helpful. Thank you.

[Operator]

The next question is from Liana Galan from Bank of America. Please go ahead.

[Jana Galan, Director at Bank of America]

Thank you. Good morning and congrats on a great quarter. Just a quick one. I'm looking at the 1.2% of ABR expiring in 2026, and granted it's very small. But can you remind us of how early renewal discussions start and when do you typically get notice of a tenant's decision?

[Mark Manheimer, President & CEO at NETSTREIT]

Yeah. I mean, each lease is a little bit different, but, typically, it's about six months at a time that you'll have you'll they'll have to tell you whether they're leaving or or staying. But, you know, we're somewhat proactive, especially if we already have a reason to be talking to a tenant about other locations. We try to loop those conversations in. Typically not a great idea to reach out to tenants a year or two out without having another reason to talk to them.

[Mark Manheimer, President & CEO at NETSTREIT]

Otherwise, you start to lose some leverage in that negotiation if there is one. But yes, mean, we feel very comfortable with what's expiring in 2026. We think we'll have very close to, if not all of those renew at their option rent.

[Jana Galan, Director at Bank of America]

Great. Thank you.

[Mark Manheimer, President & CEO at NETSTREIT]

Thank you, hon.

[Operator]

There are no further questions at this time. I would like to turn the floor back over to Mark Mannheimer for closing comments.

[Mark Manheimer, President & CEO at NETSTREIT]

Well, everybody for your interest on the call today and in the company, and we look forward to continuing the dialogue here in the near future.

[Operator]

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

Participants

Executives

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

Analysts

• Haendel St. Juste, MD & Senior REIT Analyst at Mizuho Financial Group
• John Kilichowski, VP - Equity Research at Wells Fargo
• Wesley Golladay, Senior Research Analyst at Robert W. Baird & Co
• Elmer Chang, Equity Research Associate at Scotiabank
• Michael Goldsmith, US REITs Analyst at UBS Group
• Michael Gorman, Managing Director at BTIG
• Linda Tsai, Senior Analyst at Jefferies
• Smedes Rose, Director at Citigroup
• Dan Guglielmo, Equity Research Analyst - Consumer at Capital One Financial
• Upal Rana, Senior Equity Research Analyst - US REITs at KeyBanc Capital Markets
• Jana Galan, Director at Bank of America