Netstreit Corp Stock

Greetings, and welcome to the NETSTREIT's Second Quarter 2026 Earnings Call. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce Matt Miller, Capital Markets Investor Relations. Thank you. You may begin.

Good morning, and thank you for joining us for NETSTREIT's Second Quarter 2026 Earnings Conference Call. On today's call, management's remarks and responses to your questions may contain statements considered forward-looking under federal securities law. These statements address matters subject to risks and uncertainties that may cause actual results to differ from those discussed today. For more information on these factors, we encourage you to review our latest Form 10-K and other SEC filings. All forward-looking statements are made as of today's date, and NETSTREIT assumes no obligation to update them in the future.

In addition, certain financial information presented on this call includes non-GAAP financial measures. Please refer to our earnings release and supplemental package for definitions, reconciliations to the most comparable GAAP measures and an explanation of their usefulness to investors. These materials can be found in the Investor Relations section of the company's website at netstreit.com.

Today's call is hosted by NETSTREIT's CEO, Mark Manheimer; and CFO, Dan Donlan. They will make some prepared remarks followed by a Q&A session.

With that, I'll turn the call over to Mark.

Thank you, Matt, and good morning, everyone. We appreciate you joining us today to discuss NETSTREIT's second quarter 2026 results. I want to begin by thanking our entire team for their outstanding execution and dedication. We have now grown the portfolio to over $3 billion in assets, and we continue to see an elevated number of high-quality opportunities at accretive pricing, which should provide for an increasingly attractive growth backdrop as we head into 2027 and beyond.

In the second quarter, we saw continued acceleration on the investment front. We closed $298.9 million of gross investments driven by well-priced assets in our core necessity and service-based sectors, including quick service restaurants, grocery, convenience store, auto service and other essential retail categories. These investments were completed at a blended cash yield of 7.4% with a weighted average lease term of 9.8 years.

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

This robust start to the year reflects the depth of our sourcing platform and our team's ability to move quickly across a wide swath of opportunities while still staying disciplined in our underwriting criteria. With that in mind, we have seen an uptick in portfolio transactions in recent months, which historically have priced away from us given the large premiums these deals typically command. That said, we were successful in a couple of instances this quarter, which has fortuitously carried over into the third quarter.

As a result, we have gained additional exposure without sacrificing our investment spreads to various high-quality tenants like Chick-fil-A, Sprouts and QuikTrip that usually price too aggressively for us in the one-off market. Also of note this quarter was the UPREIT acquisition of 20 Speedway properties that we previously invested in via a first mortgage in early 2023. This was a great example of our creative structuring within our debt program, providing a path to direct fee ownership at cap rates that are significantly above market.

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

Turning to the portfolio. We ended the quarter with 859 investments leased to 156 tenants across 28 industries and 46 states. Our weighted average lease term is 10 years, and the percentage of investment-grade and investment-grade profile tenants is 56.5% of ABR. Unit level rent coverage across the portfolio remains healthy at 3.8x.

As expected, occupancy increased to 100% with the backfill of our loan vacancy, a former Big Lots location with A-rated T.J. Maxx at a more than 20% increase in rent. While vacancies have been extraordinarily rare in our portfolio, we believe this execution highlights the strength of our asset management team and underwriting process.

From a balance sheet perspective, we continue to maintain a conservative and flexible capital structure. Following the capital markets activities in the quarter, our leverage remains an industry-leading 3.2x. With substantial liquidity under our revolving credit facility and the benefit of our previously raised forward equity, we are well positioned to fund accelerated growth without compromising our leverage targets.

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

In summary, the second quarter continued upon our excellent start to 2026, highlighted by strong momentum on the investment front and opportunistic capital raising, which has prefunded our equity needs for the remainder of 2026. We believe our focus on healthy tenancy, strong unit level performance, high-quality real estate, proactive portfolio management and a low leverage balance sheet continues to position NETSTREIT for sustainable long-term growth and value creation.

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

Thank you, Mark. Looking at our second quarter earnings, we reported net income of $6.3 million or $0.06 per diluted share. Core FFO for the quarter was $34.2 million or $0.33 per diluted share and AFFO was $35.5 million or $0.35 per diluted share, which was a 6.1% increase over last year.

Turning to the expense front. Our total recurring G&A in the quarter increased 6.7% year-over-year to $5.8 million, which similar to last quarter has mostly resulted from staffing increases that occurred over the course of 2025. That said, with our total recurring G&A representing 9.5% of total revenues this quarter versus 11.3% in the prior year quarter, our G&A continues to rationalize relative to our revenue base.

Turning to the capital markets. We remained opportunistic on the ATM front, raising 9 million shares for $183 million of net proceeds as our cost of equity continued to improve throughout the quarter. Turning to the balance sheet. Our adjusted net debt, which includes the impact of all forward equity, was $672.2 million. Our weighted average debt maturity was 3.6 years, and our weighted average interest rate was 4.3%. Including extension options, which can be exercised at our discretion, we have no material debt maturing until February of 2028.

In addition, our total liquidity was $1.1 billion at quarter end, which consisted of approximately $20 million of cash on hand, $301 million available on our revolving credit facility and $714 million of unsettled forward equity and $50 million of undrawn term loan capacity. From a leverage perspective, our adjusted net debt to annualized adjusted EBITDA was 3.2x at quarter end, which remains comfortably below our targeted leverage range of 4.5 to 5.5x.

Moving on to 2026 guidance. We are increasing the low end of our AFFO per share guidance to a new range of $1.37 to $1.39 and increasing our net investment activity guidance to $700 million to $800 million. We now expect cash G&A to range between $16.5 million and $17 million, exclusive of transaction costs and severance payments. In addition, the company's AFFO per share guidance range now includes $0.05 to $0.08 per share of estimated dilution or 3.6 million to 5.9 million shares for the full year due to the impact of the company's outstanding forward equity calculated in accordance with the treasury stock method.

Lastly, on July 16, the Board declared a quarterly cash dividend of $0.225 per share. The dividend will be paid on September 15 to shareholders of record as of September 1.

With that, operator, we will now open the line for questions.

[Operator Instructions]

And your first question comes from Haendel St. Juste with Mizuho Securities.

First one is just on the implied volume for acquisitions into the back half of the year. It seems to suggest a pretty meaningful deceleration. So I guess I'm curious if it's conservatism, the volatility of the macro, maybe something else we're missing. So maybe shed some color on that and if the macro volatility is impacting your conversations at all from a pricing or maybe having deals take a bit longer. So curious on how that all is playing out and what's your expectations into the back of year are.

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

So there's really a great opportunity set with very attractive pricing that we're seeing. And then we're following the macro and kind of what's going on geopolitically. That's obviously had some impact on interest rates. We have not yet seen that have much of an impact on cap rates. But I would imagine if that sustains and we continue to see upward pressure on the 5-year and the 10-year, that could potentially move up cap rates, but we just have not seen that yet.

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

Yes. No, it's a good question. I think it's really the dynamic that there's been just a large number of portfolios that have crossed our desk and that we've had the opportunity to try to tackle. It's -- I think it's too difficult for 1 or 2 shops that historically have really paid up for those portfolios to take them all. And so a few of those have kind of come our way, which has allowed us to get some of those assets that historically maybe we wouldn't have been able to. But as it relates to this quarter being a little bit high on the investment-grade, investment-grade profile, a good chunk of that was the Speedway, UPREIT unit transaction that we did this quarter. So I think that maybe more of a one-off.

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

Your next question comes from John Kilichowski with Wells Fargo.

Maybe could you guys talk about the composition of what you bought in the quarter outside of the Speedway deal? And then, Mark, you talked about some portfolios out there. Can you talk about the sectors that you're seeing some opportunity?

Yes, sure. So I mean, I think the sectors that have kind of shown up in some of the portfolio deals are similar, but there's maybe a few names. We mentioned QuickTrip, Sprouts, Chick-fil-A that are in our portfolio. We just didn't have much of a concentration there, but it's created a unique opportunity for us to add some of those. But then we've also added some other names like Tire Discounters, some of the Darden brands that the cap rates have historically been pretty aggressive. There are some Brinker, Chili's assets as well we've added during the quarter, which haven't really been in our mix over the past, call it, a couple of years.

So it's very similar sectors, just maybe some other tenants that don't trade as much in the one-off market. And I think that's likely -- the reason why I think we're seeing so many of these portfolio deals is, as you recall, maybe in 2021 when interest rates were near 0 and cap rates were at all-time lows, you had a lot of players enter the space, look at putting financing on those transactions, get a really nice cash on cash, even though the cap rates were low because they could borrow so cheaply. That debt's coming due, typically a 5-year term on most of that bank debt that comes due.

The refi looks a lot different. So selling the portfolio makes a lot more sense. And so we're just seeing a lot of opportunity there. And I think that's probably what's driving a lot of that. Each deal has got its own idiosyncratic reasons for why it comes to market or why it crosses our desk, but I think that's one theme that we've seen a little bit of. But yes, I mean, I think the mix in terms of sectors has been very similar to what we've tried to pull in the portfolio. And then we've also gotten a little bit creative when we're buying some of these portfolios and simultaneously sold some assets at the same time.

Some of these portfolios had some banks and things in there that maybe were not as big of a fan, but they still trade at pretty good cap rates. So that can allow us to kind of juice our net cap rate a bit while I think kind of getting a better risk-adjusted return. So we've gotten a little bit creative in some of those situations. But I think in terms of -- if you look at the categories and the industries that we've added to, it looks pretty similar to what we've done. It's just been a little bit different in how we've gotten into those transactions and added further tenant diversity to the portfolio.

Got it. That's very helpful. And I guess that leads me to my next question, which would be a little bit chunkier on the disposition side in 2Q. Is that related to the Speedway deal? And if we were to see more portfolio deals and that investments climbing, if you're able to do that, would you also expect kind of that disposition number to run a little bit more elevated?

Yes. That's a good question. So on the portfolio deals, if it's going to be a diversified portfolio, we're likely to -- we've been very active on the disposition side. So that's allowed us to really build some relationships with some people to sell to that we can rely on that perform. So I would -- I think you may see dispositions elevated a little bit in the event that we do some more portfolio deals. But each quarter is going to be a little bit different. So it's hard to predict, but we've seen third quarter a little bit similar to second quarter and that we've done some portfolio deals and also been able to sell some of the assets that maybe we didn't want to own long term.

Next question comes from Jay Kornreich with Cantor Fitzgerald.

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

Yes, Jay, I appreciate the commentary. From a -- if you look at our total shares outstanding relative to the weighted average share count, I think it's kind of at 38% today. That should normalize close to 15% as we get out through the course of 2027. So now it remains to see where the kind of the stock price goes relative to the outstanding forwards. But certainly from a standpoint on a percentage basis, the outstanding forwards will normalize, again, closer to 15%. And so I think what you'll probably see is that the amount of TSM dilution probably peaks in third quarter, just kind of depends on where the stock price goes and then kind of drop off from there not only nominally, but on a percentage basis as well.

So I think that answers the first part. I think the second part on kind of equity, you're right, we don't need to do anything if we don't choose. But I think to the degree that the investment market remains as robust as it has, I think we'll likely utilize the ATM at some point in time in the third and potentially in the fourth quarter just to stay well ahead of our capital needs. But I think we can certainly choose to be selective given where our leverage is. And we saw a kind of big front half coming for us, and so we wanted to get out ahead of that.

And with the S&P 600 inclusion, we had a ton of liquidity coming to the name, and we wanted to take advantage of that in the back half of June. So that also kind of accelerated our needs relative to kind of what we were expecting when we put out guidance in April of this year.

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

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

And your next question comes from Michael Goldsmith with UBS.

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

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

You take that out, and we're probably 7.5%, 7.6%. So we really didn't have to deviate on pricing. We don't expect that to happen in the third quarter either. And so as long as that dynamic continues to play out in the market, we're going to participate. If it doesn't, we can surely transition quickly into a more similar approach that we had in the fourth quarter and first quarter.

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

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

Yes, sure. So obviously, we pay attention to what's going on with the consumer and kind of what the margins we see across the board with grocery. And really, what we're seeing is kind of the larger operators have been able to kind of push pricing a little bit more and hold up a little bit better. Certainly having a very conservative balance sheet is extremely important in that industry. You don't want to combine any operating leverage with financial leverage.

And so we feel really comfortable with the grocery assets that we have. They generate very strong sales, which kind of flows through to the bottom line with very high rent coverage in that sector. And so as long as we feel like we're buying good assets at or below market rents with high rent coverage, we like the industry, but you do have to be careful not to just partner with any operator and be careful about which assets that you're buying. But we feel really strong about the assets that we have in that sector and the rent coverage that we have.

Your next question comes from Smedes Rose with Citi.

Nick Joseph here. You had mentioned conservatism in the kind of guide potentially for the back half of the year on acquisitions. How much visibility do you have now that we're towards the end of July in the pipeline? And where does that pipeline stand today versus where it stood on average over the last year or so?

Yes, sure. Yes. I mean we're seeing a very healthy acquisitions market. I think we're sitting in a very similar spot that we were 3 months ago on this call. So no real reason to think that we should expect to see any real slowdown in the third quarter. And that's really -- I mean, we've -- we still have some sourcing to do for the third quarter, but a lot of that is done. We have virtually no visibility into the fourth quarter and not only deals that we'll be able to access, but then also what the macro is going to look like and where cap rates are, and we don't want to overextend ourselves, especially if there is the possibility of cap rates going up, we want to have that flexibility.

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

Yes. It's a good question. I mean I think the K-shaped economy is definitely real. The lower leg of that is certainly under pressure. And so if we're going to have a sector, which we don't, quite frankly, have a lot of exposure to the lower-end consumer, fortunately. But I think what you really need to have there is you need to have a real value proposition and whether that be a necessity-based product where they kind of need that to survive and -- need those products to survive or there's a real value proposition to that consumer that will drive them to those stores.

But we really make sure that we've got very healthy rent coverages and corporate credit there with a little bit less risk. And so most of that's going to be with investment-grade tenants, locations that we know that they're committed to long term that are generating very strong cash flows where we have some cushion because the lower income consumer is certainly under pressure.

Your next question comes from Wes Golladay with Baird.

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

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

Your next question comes from Greg McGinniss with Deutsche Bank (sic) [ Scotiabank. ]

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

Yes. I mean every deal has its own idiosyncratic reason for coming to market. So it's a little bit tough to overly generalize. But certainly, we saw in 2021 and even early 2022 a lot of players kind of coming out of the woodwork buying very high-quality properties and levering it up with very cheap debt, and that debt is coming due because 5 years have passed. And now they need to say, do I want to refinance this and my cash on cash deteriorate? Or do I want to turn around and sell these assets because they're still marketable? And in a lot of cases, people are deciding that the best outcome for them is to sell the portfolio to a larger institution.

And I think that's driving a lot of it. We're seeing more of that in the third quarter. And so if you kind of just extrapolate when people were being aggressive in 2021 and 2022, that could continue into 2027, if you just kind of add 5 years to where -- when people were buying those portfolios and assembling them. But you never really know what the calculus is going to be for those people and what their financial situation is and where interest rates are.

Okay. And then last quarter, you mentioned a limited pool of sub 1x covered assets. Did any of those get resolved in Q2 or any part of the disposition pool?

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

Your next question comes from Eric Borden with BMO Capital Markets.

You continue to add grocery, C-stores, QSRs, as you talked about in your earlier remarks. Just given the acquisition opportunities in those categories, how much further are you willing to increase exposure to those categories? And what kind of concentration level would start to make you uncomfortable from a portfolio construction standpoint?

Yes. No, that's a good question. I mean we'll -- we never like to turn down a good deal. And so you kind of never say never. So I never want to kind of totally box myself in. But kind of we've always had a little bit of a soft ceiling in the kind of 15-plus percent industry target. The industries that we really like where that gets a little bit softer. You get up around 20%, then maybe we start looking at disposing some of those -- some of the other assets in that category, we don't really want to see it get up to that level.

But if there's a good transaction and we really think the best -- it's our best risk-adjusted return, we may pursue those opportunities, but then look to dispose of some assets and kind of whittle that down as you've seen us do in the past with some tenant concentrations.

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

Yes. I mean that's typically going to be when we're selling a lot of assets, whether we bought them 3, 4 years ago when cap rates were a lot lower and you've seen some cap rate expansion, just selling some assets that's -- and what we put them on the books for and what we sell them for, that's going to -- any time that you're selling a lot, you're going to have some impairments, but then it was largely offset with gain on sale. So you had a lot of ones where we sold at gains and some losses. A lot of times, there's just kind of you buy a portfolio and it's how you allocate it or how the accountants want you to allocate it, quite frankly. And so I wouldn't -- there's not much of a read-through there. But if you look at the gain on sale, I think that largely offset the impairments.

Your next question comes from Michael Gorman with BTIG.

I'm just wondering, following up on the Speedway transaction. Are there more opportunities? Or are you seeing additional opportunities to use the UPREIT structure in the transactions market? And if so, does that provide any kind of pricing advantage for you here? Are you generally competing with other public buyers for those types of transactions?

Yes. It's a good question. I did think -- I try not to talk about other competitors on these calls, but I did notice one of our competitors did their first OP unit deal this quarter as well. So I don't know if there's too much of a read-through there. But yes, we love the UPREIT structure. We love doing these types of transactions when we can. And obviously, right now, our currency is very attractive to them, and it's attractive to us. We used a stock price of $21 on the UPREIT transaction, which at the time was slightly higher than where our stock was trading.

And so it's accretive here, fewer fees. It's just a much more efficient way to deploy capital. People really like it because it allows them to avoid taxes and then they end up being very sticky shareholders. So I certainly love the structure. I wouldn't be surprised to see more in the future, but they're going to be one-off and you kind of can't count on them. But when they pop up, we're certainly big fans of using that structure.

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

Yes, sure. I mean I think it's a little bit more of the latter. There's a lot of things that go into risk-adjusted returns. And that's -- for us, it's where is your -- where are you going to get -- where could you expect there to be a loss on a property. And what's that percentage look like versus the pricing that you're able to achieve in the market. And there's a lot of things that go into the risk and the credit is really just one piece of it.

The other 2 pieces that are equally as important and in some cases, more important is how sticky is that tenancy going to be and how committed to that location and mission-critical is it, and that's going to be driven off of the rent coverage. If a tenant is driving a lot of their cash flow from your location, they're going to stay there. If they're not making any money there, they're not going to stay there. So whether the credit goes away or not, the lease term -- at the end of the lease term, they're going to decide to leave your property anyway.

And then how fungible is that real estate, how easy is it going to be to get somebody else in paying the same or more rent? And are there going to be a lot of TIs associated with that? There's just a lot that kind of goes into it. So I think it's the easiest thing to point to is the credit. And I think the easiest thing to kind of share with investors and get them comfortable is showing a high percentage of investment-grade credit. But I think over time, we've been around for 6 years and have had virtually no credit loss. So I think it's -- we've I think we're proven underwriters at this point. And I think just continuing to go out and getting the best risk-adjusted returns is really our focus.

And when interest rates moved up, you saw the non-investment grade as kind of a general statement, saw the cap rates move up quite a bit. On the investment-grade side, there were still a lot of buyers willing to pay very low cap rates for those assets. So the cap rates didn't move up as much for that. So you're just not getting the same risk-adjusted returns there in most cases, not all cases. But -- and so we just see the mix of where we can get -- where our efficient frontier is right now is kind of in that 30%, 35% investment grade, which is really more of a byproduct of what we're buying. We're not really focused on that. It's just been fairly consistent of what that's been a byproduct of where we're seeing the best risk-adjusted returns in the market currently.

Your next question comes from Upal Rana with KeyBanc Capital Markets.

I wanted to get your updated thoughts on the competition in the transaction market with borrowing costs trending higher. Are you seeing less competition overall? Or you mentioned a lot of the portfolio deals that did come online at once this quarter and you're able to grab a few at attractive pricing despite the higher quality. So just any color there would be helpful.

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

Okay. Great. And then I want to get your updated thoughts on the watch list as you made further progress on reducing the exposure to some of your troubled tenants again this quarter. I just want to get your thoughts there on those tenants and how much more there is to do? And then maybe what's currently baked into your guidance for credit loss?

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

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

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

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

Greetings, and welcome to NETSTREIT Corp. First Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Matt Miller. Thank you. You may begin.

Good morning, and thank you for joining us for NETSTREIT' First Quarter 2021 Earnings Conference Call. On today's call, management's remarks and responses to your questions may contain statements considered forward-looking under federal securities laws. These statements address matters subject to risks and uncertainties that may cause actual results to differ from those discussed today. For more information on these factors, we encourage you to review our latest Form 10-K and other SEC filings.

All forward-looking statements are made as of today's date, and NETSTREIT assumes no obligation to update them in the future. In addition, certain financial information presented on this call includes non-GAAP financial measures. Please refer to our earnings release and supplemental package for definitions reconciliations to the most comparable GAAP measures and an explanation of their usefulness to investors.

These materials can be found in the Investor Relations section of the company's website at netstreet.com. Today's call is hosted by NETSTREIT's CEO, Mark Manheimer; and CFO, Dan Donlan. They will make some prepared remarks followed by a Q&A session. With that, I'll turn the call over to Mark.

Thank you, Matt, and good morning, everyone. Thank you for joining us today to discuss NETSTREIT's First Quarter 2026 results. I want to begin by thanking our entire team for their outstanding execution and dedication. We carried strong momentum from our record 2025 into the new year, and the organization has hit the ground running.

In the first quarter, we saw continued acceleration on the investment front. We closed on $239 million of gross investment activities, driven by well-priced opportunities and our core necessity and service-based sectors, including grocery, convenience store, quick service restaurants, auto service and other essential retail. These investments were completed at an attractive blended cash yield of 7.5% with a weighted average lease term of 14.1 years.

Complementing this, we executed targeted dispositions that further enhance portfolio quality reduced tenant concentrations and recycled capital into higher quality, longer duration opportunities. This robust start to the year reflects the depth of our sourcing platform and our team's ability to move quickly across a number of smaller transactions, while still adhering to our stringent underwriting criteria.

While there have been a few new participants enter the net lease business in recent years, something that has happened in each and every cycle, the market remains extremely fragmented and rife with attractive opportunities.

Turning to the portfolio. We ended the quarter with 804 properties leased to 138 tenants across 28 industries in 46 states. Our weighted average remaining lease term increased to 10.2 years, while the percentage of investment grade and investment-grade profile tenants remained flat at 58.3% of ABR.

Unit level rent coverage across the portfolio remains healthy and ticked up slightly to 3.9x. Occupancy remained at 99.9%, but subsequent to quarter end, our occupancy has returned to 100%. In early April, we backfilled our loan vacancy, a former big lap location with A-rated T.J. Maxx at more than 20% increase in rent. While vacancies have been extraordinarily rare in our portfolio, this execution highlights the expertise of our real estate underwriting and asset management teams.

On the balance sheet, we continue to maintain a conservative and flexible capital structure. Following the capital raising completed in the quarter, our leverage was an industry-leading 3.2x. With substantial liquidity under our revolving credit facility, and the benefit of previously raised forward equity, we are well positioned to fund accelerated growth without compromising our leverage targets.

Given the capital raised during the quarter as well as the strong momentum in our investment pipeline and attractive opportunities we are seeing we are increasing our full year 2026 net investment activity guidance to a range of $550 million to $650 million. We are increasing the bottom end of our AFFO per share guidance range to $1.36 to $1.39.

In summary, the first quarter represented an excellent start to 2026, highlighted by strong momentum on the acquisition front and opportunistic capital raising, which largely takes care of our 2026 equity needs. Our differentiated strategy focused on high-quality real estate, rigorous underwriting, proactive portfolio management and a low leverage balance sheet, continues to position NETSTREIT for sustainable long-term growth and value creation.

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

Thank you, Mark. Looking at our first quarter earnings, we reported an income of $5.7 million or $0.06 per diluted share. Core FFO for the quarter was $32 million or $0.32 per diluted share and AFFO was $33.2 million or $0.34 per diluted share, which was a 6.3% increase over last year.

Turning to the expense front. Our total recurring G&A in the quarter increased 9.7% year-over-year to $5.8 million, which is mostly the result of increased staffing and further investment in our team. That said, with our total recurring G&A representing 10% of total revenues this quarter, versus 11% in the prior year quarter, our G&A continues to rationalize relative to our revenue base.

Turning to the capital markets. We completed a $12.6 million share forward equity offering in early February, which raised $230.3 million of net proceeds. This was supplemented by our ATM activity of 4 million shares or $73.8 million of net proceeds. In total, we sold $16.6 million forward shares or $304.1 million of net proceeds in the quarter, which puts us in an excellent position to fund our forecasted net investment activity this year.

Turning to the balance sheet. Our adjusted net debt, which includes the impact of all forward equity, was $629 million. Our weighted average debt maturity is 3.8 years and our weighted average interest rate was 4.27%, including extension options, which can be exercised at our discretion, we have no material debt maturing until February of 2028.

In addition, our total liquidity was $1.1 billion at quarter end, which consisted of approximately $11 million of cash on hand $412 million available on our revolving credit facility, $606 million on settled forward equity and $100 million of undrawn term loan capacity. From a leverage perspective, our adjusted net debt to annualized adjusted EBITDAre was 3.2x at quarter end, which remains comfortably below our targeted leverage range of 4.5 to 5.5x.

Moving on to 2026 guidance. We're increasing the loan to our AFFO per share guidance to a new range of $1.36 to $1.39 and and increasing our net investment activity guidance to $550 million to $650 million. We continue to expect cash G&A to range between $16 million and $17 million. In addition, the company's AFFO per share guidance range now includes $0.03 to $0.06 of estimated dilution due to the impact of the company's outstanding forward equity calculated in accordance with the treasury stock method.

Lastly, on April 16, the Board declared a quarterly cash dividend of $0.23 per share -- the dividend will be payable on June 15 to shareholders of record as of June 1. With that, operator, we will now open the line for questions.

[Operator Instructions].

Guys, but if you think about what implies the last year seems there's a pretty meaningful slowdown in activity. So maybe some color on what you saw in the first quarter that drove such robust activity and what your seeing in the pipeline and maybe expectations near term given what the new guide implies for activity going forward.

Yes. Thanks, Haendle. Yes, I mean, I think, obviously, it was a very strong quarter. Similar to the fourth quarter that we just had. We're just really seeing very attractively priced opportunities that fit our investment criteria. -- which I think is accretive to the acquisitions team and the underwriting team of kind of getting all of that through the system pretty quickly. We're seeing a very similar environment right now.

Pricing, we expect to remain relatively the same give or take, 10 basis points. And so we just want to be conservative with what's going to happen in the back half of the year. We certainly feel very comfortable that we can sustain this level of acquisitions, but we want to make sure that we're out ahead of our capital needs.

That's helpful. I guess, is there anything more on the competitive side that you can maybe share? There's been lots of geopolitical macro volatility. I'm curious if you're seeing maybe perhaps some of the private equity players step back a bit here, your ability to win your fair share of deals seems to not face any, I guess, any headwinds.

But I guess I'm curious, that competitive set, what you're seeing from them and perhaps if you're expecting the landscape near term to be more of the same or perhaps for maybe just a change in the level of volume or competition near term given what we're seeing in the macro?

Yes. No, look, I mean I mean, I think it's a credit to the net lease space that there are more people looking to get in. I think there are a few that have been pretty active. We're not really running into them very often on a one-off basis. But yes, I mean, I think the competition has really been in the space for a long period of time. You go back to kind of post financial crisis, you had coal and Arc and the nontraded deploying a ton of capital even more than what we're even seeing from the private equity world, and there was still plenty of opportunities for the publicly traded REITs that had a reasonable cost of capital to go out and compete.

And I wouldn't expect that to change. They may look to acquire more than what they've done in the past, but I don't think that's really going to have a huge impact. on pricing and really our opportunity set.

Our next question is from John Kilichowski Showcase with Wells Fargo.

Good morning. Thank you. My first question is on just the treasury stock method dilution in the quarter. Could you tell us what your expectations are, what's included at the midpoint in terms of expectation of price versus the low end and the high end?

Yes. I mean I don't want to go too much into detail. I mean, obviously, we're expecting $0.03 to $0.06 at the midpoint. We're expecting, call it, $4.5 million I think we've been fairly concerned on the high end even, probably assuming even more than kind of 4.5%. So our expectation is that we'll kind of drift somewhere into the low 20s and stay there.

So to the degree that, that doesn't happen, obviously, that would probably be upside relative to what we provided. But we kind of just stair step up the price per share from kind of where we ended the quarter each and every quarter this year. So without going into too much detail. But there is a healthy amount of conservatism baked in even to the high end just from a dilution standpoint.

Okay. And then maybe a follow-up to that would just be, what's the strategy to manage those forwards? You have some older data outstanding -- excuse me, outstanding forward. I'm just curious if your strategy for managing those changes based on the stock price? And then also, how does this impact your growth profile heading into 2027 as you kind of get rid of these and maybe you have a faster churn of your forwards into eventually no investments.

Yes. I mean, the dates really don't matter to us. What matters is what are the lowest price forwards that we have. I mean, there is a 12-month kind of expiration to these. We haven't had an issue extending those. So it's really just taking what the lowest price forwards are in selling those first because those are the most dilutive -- and as far as our plan for this year, we'd like to get done with everything that's still outstanding that we issued -- that we sold in 2024 and 2025. So -- and I think you should expect that to occur ratably over the course of the year.

And you hit on something important there too, John. Looking to 2027, we're taking some of that dilution now. So that just makes it more accretive when we actually do take down the shares and and really allows us to have better growth in 2027 and future years.

Our next question comes from Greg McGinniss with Scotiabank.

With the G&A guidance maintained, but they do plenty of liquidity and a good acquisition market. Is there any push or need in your mind to increase the size of the acquisitions team kind of given the success that they've had and the potential for more going forward?

Yes, and that's a good question. I think right now, the acquisitions team is really humming and really bringing a ton of really attractive opportunities. And -- and really the filter has been pricing and where we're getting the best risk-adjusted returns. So I don't necessarily think if we bring on more team that's going to automatically translate into a lot more volume. But we're always making sure that we have a deep enough bench there.

And right now, I think the team not only gets along great and fits in very well with our culture, but they're bringing in plenty of opportunities for us to be able to hit our growth goals and beyond.

And then just looking on the disposition side, healthy 6.6% cash yield on those. Anything specific in there that you can talk about or the types of tenants or assets that you're looking to that you either sold in Q1 or that you're looking to sell later this year?

Yes. I mean I think the difference between this year and last year is going to be -- you're going to see certainly fewer dispositions -- and we're always open to selling any asset in the portfolio, someone's willing to pay us an aggressive cap rate, but it's really going to center around less so on the tenant concentrations, although you'll see a couple here and there with some pharmacies and maybe a couple of dollar stores here and there.

But it's really going to be more focused on where we're seeing some potential deterioration, whether it would be corporate credit or unit level performance, and we'd like to try to get way out ahead of that. And I think we've been successful of doing that and getting out ahead of some risks well before they start reaching headlines and really start to get more difficult to sell, which is why our credit loss stats are what they are.

Our next question is from Michael Goldsmith with UBS.

Investment volume was robust in the first quarter. You took up the acquisition guidance pretty materially, and you have the prefunding. So I guess, what are the factors that would limit your acquisitions kind of going forward? Except on the fourth quarter was strong first quarter was equally strong. Like should we expect you to kind of continue to step on the gas? Or what would kind of hold you back in any way?

Yes, sure. So it's a good question. We've got visibility going out 60, 90 days. If you get beyond that, it's hard to predict not only what the opportunity set is going to look like, but also what the acquisition environment looks like. and what opportunities there, what the pricing is. And obviously, with the work going on and a lot of geopolitical risk out there, we didn't want to get too far over our skis and predict what that's going to look like.

But yes, I mean, I think that's something that we're likely to revisit if the market remains the same and our cost of capital remains the same, then I think there's no reason why we can't keep this clip going forward for several quarters.

Got it. And just to follow-up, you were able to continue to acquire quite a bit but at a similar cap rate. So -- and I think you mentioned earlier in the prepared remarks, you were happy with the opportunities and the risk of word on what you're buying. So can you just talk a little bit about the pricing environment what you're seeing and what would need to happen for it to change and turn less favorable.

Yes, sure. So I mean, I think the #1 thing that could make it a little bit less favorable, also has an offset where our debt would get cheaper. But I think if interest rates come down, then you may see cap rates come down along with it. I don't really foresee there being much of a slowdown in the opportunity set. You had -- you go back to 2021, where the 5-year was under 1% all the way up until the end of the year there.

That allowed a lot of people to kind of enter the space, kind of small family offices that got very aggressive, put 5-year debt on a lot of those acquisitions that they made, that's coming due at higher interest rates. And so we're starting to see some of those people that maybe don't want to refinance and are looking to sell some smaller portfolios. That's -- I think that's going to certainly continue for the rest of the year because you really had that really cheap debt through 2021, you put 5 years on that, it really gets us through the end of 2026 and into 2027.

So hard to predict there being much of a slowdown in opportunity set, but interest rates can -- can certainly drive some cap rates down, but we just don't really see that happening too much here in the short term.

Good luck in the second quarter.

Our next question comes from Jay Kornreich with Cantor Fitzgerald.

I wanted to ask about the tenant credit and the watch list, recognizing it's only been a couple of months since last quarter's earnings. But has there been any change just to the watch list or how you're thinking about bad debt baked into guidance at this point?

Yes. No. We don't see much of a change. In fact, I think if you look at the histograms that we provide in the investor presentation on Slide 13 there. You've seen some improvement really across the board with unit level performance as well as corporate performance has improved a little bit, but look, we have a few assets under 1x coverage.

I believe there's 3 assets that kind of fit that category and 3 or 4 that plus on an implied rating basis. So those are ones that we're paying attention to. But in each of those situations, we feel like we'll have a pretty good outcome. So I really don't see much in terms of impacting AFFO for the next several years.

Okay. And then if I could just follow up on the question relating to the dilution from the treasuries talking about the accounting. I guess, should we be expecting that number to come down throughout the year as you settle forward equity -- or as you're maybe going to be employing future capital markets activity is kind of that $0.045 range, more of a sticky number to expect going forward?

Yes. I mean it's difficult to answer the question because I don't know where the stock price is going to go. But I think what you should expect us to model is the stock price rising throughout the year. And so even though you're settling more shares and therefore be less dilution from those shares, the dilution stays about even because the stock price is going higher throughout the year.

So that's how you should think about it. It's certainly going to be higher. We're certainly modeling higher than what it was in the first quarter. Our average stock price in the quarter was $192 -- so as we sit here today, it's been in the 19s and 20s or higher 19s and 20s. So what the midpoint assumes is kind of you're staying in and around the kind of the $20 to $21 level. And that probably equates to anywhere from 4 million to 5 million shares every quarter until you get out to next year.

Next question comes from Smedes Rose with Citi. .

I just wanted to ask a little bit more about what you're seeing kind of in the opportunity set. It looked like you've leaned in into convenience stores a little more in the quarter. I know you've talked in the past about and maybe some more fitness, I'm just wondering where those kind of line up on your interest level right now and kind of any pricing changes around those categories?

Yes, sure. Yes, I mean, we did buy more convenience stores in the quarter. I think that's probably not going to be the case as much in the second quarter. I think what we're going to be buying is it's going to be maybe a little bit more diversified than what we typically have bought in the past. There were just a lot -- we did a lot of sale leasebacks, just under half of what we bought.

In the first quarter, were sale-leasebacks and a lot of that were convenience store, more regional operators buying smaller operators, which is kind of our favorite type of sale leasebacks because you're seeing a fixed charge coverage ratio typically go up after those acquisitions versus financing. And so -- those were some attractive opportunities.

Right now, we're seeing maybe a little bit of a different opportunity set in that there's some more diversified pools of assets that were that we have under contract and are looking forward to adding to the portfolio. But yes, the convenience store space is certainly 1 that we like. The fitness business is another 1 that we like as long as we're dealing with some of the more sophisticated operators that provide unit level coverage and get very comfortable that they have enough members at those locations to generate strong enough rent coverage in the future, and we were able to source a decent amount of those in the fourth quarter and the first quarter. maybe a little bit less than in the second quarter.

And then quick service restaurants is always an area that we like just sometimes the pricing can get pretty aggressive there. So -- that could be a little bit tricky to get our hands on, but we did buy a handful of Starbucks in the quarter that were really strong on Placer and are doing very well. So it's always a little bit of a mix in each quarter is a little bit different. But I think I'd expect the second quarter to be a little bit more diversified.

Okay. And then we noticed that Family Dollar was, I guess, upgraded to an investment-grade profile from solid investment grade. I'm just wondering what drove that?

Yes. I mean it was really that they were willing to allow us to put that out there as they are a private company now, and so we are subject to NDAs we can't just share everybody's financial statements and financial condition. And so we got them to agree to allow us to -- they've always been investment grade profile ever since they spun out, but now we're able to share that with the public.

Our next question comes from Wes Golladay with Baird.

I just have a few housekeeping questions for you. For the TJ MAX fleet that you signed, has that tenant commenced rent paying as of this moment?

They have not. They have some work that they need to do within the store. It's a relocation store for them. And so we have about a year before they actually start paying rent.

Okay. And we did notice a few loans were extended, but they were just for a very short period. Can you kind of give us an idea of what's going on and the visibility on them being repaid?

Yes, sure. So I think you're probably specifically talking about Speedway. And that is an ongoing negotiation where that will get extended much further. We may end up acquiring some of the assets kind of TBD a little bit, but it should have a very positive outcome for us.

Our next question comes from Eric Borden with BMO Capital Markets.

As you continue to lean into IG profile and non-IT investments, they do tend to have better escalators than true IG. Do you have internal growth target for these assets? And how should we be thinking about the longer-term internal growth for the overall portfolio?

Well, you're right. I mean we try to negotiate any time that we can to try to get better escalators. And so -- and you have a little bit more leverage, more specifically when you're doing a fair leaseback and you're writing the lease and that a lot of the sub-investment grade or IGP opportunities that we're doing are in those categories.

So we try to get 2% annual is what we shoot for. I think we're probably, on a blended basis, going to be kind of probably more in the 1.25%. It's probably a good thing to model for future acquisitions, and that will continue to bring up our average escalators in the portfolio.

Great. And then could you just quantify what's assumed in guidance for bad debt?

At the midpoint, we're looking in and around kind of 50 basis points.

ur next question comes from Michael Gorman with BTIG.

If I could just go back to the forward equity for a minute. Obviously, you've been pretty strong and opportunistic there. with kind of more than $600 million outstanding, that just back of the envelope is kind of 18 months' worth of acquisition volume at a pretty conservative leverage level. What's the target there for you to keep a runway? Is it that 18-month target? Or how should we think about that going forward?

Yes. I mean as we think about it, our leverage range -- targeted leverage range is kind of 4.5% to 5.5%. That's where we feel comfortable running the balance sheet we could complete the $650 million at the high end of our guidance and still be at 4.5%. And so I think we'll be opportunistic with the ATM where we think it makes sense. And to the degree that we continue to see opportunities at the same clip we saw in the first quarter, you should expect us to access that market when appropriate. But I think your assessment of kind of our runway is fair, but we want to stay on our front foot and make sure we're never in a position where we have to raise equity.

Okay. That's helpful. Makes sense. And then, Mark, maybe just thinking about the loan book again with some of the let's call the volatility in the private credit space. Are you seeing more opportunities maybe on the loan book side of the portfolio to expand that? And if so, how are you thinking about that in terms of the investment pipeline?

Yes. No, it's a good question. And the answer is no. I mean, really, we're looking at providing developers with capital and kind of some acquisition capital here and there for some people like we did on Speedway. We're not lending directly to tenants, and I think we'll likely avoid that as best we can. And so I don't think we'd be competing with any of them, and I would not expect that to have any impact on what we're doing.

And in fact, I think the opportunity set on the loan side is probably not quite as good as what it was maybe a couple of years ago. And so I would expect us to do maybe fewer loans on a go-forward basis.

That's very helpful. And then maybe last 1 for me because it's come up a few times. Obviously, C stores are important, an important exposure in a space that you like. but it's also 1 that's going through an evolution in kind of form and how operators are thinking about it. I think 7-Eleven announced about 650 closures last week. Can you maybe just remind us how you think about underwriting the space both in terms of the existing portfolio and new acquisitions in terms of kind of KPIs, formats, just how you think about that as a sector.

Yes, sure. And I think that the 7-Eleven news is they're a very old company. They have a lot of very old smaller stores that they're doing away with. We don't own any of those, but we're constantly looking at kind of a few different factors as it relates to C store that what is the gallonage that they're generating? Is that going up, going down?

We've seen pretty consistent levels across the portfolio on the C store space. In fact, it's gone up a little bit. And then how is the inside sales doing. So they're really kind of 2 separate revenue drivers making sure that they're getting enough volume and the margins are staying the same. And so seeing pretty consistent performance across our convenience store operators -- but look, I mean, when we -- I think 2 or 3 years ago, we had 21, 7-Elevens, now we have 13 because we're constantly looking at which ones are doing well, which ones aren't and the ones that aren't going to stay in our portfolio until the end of the lease.

And so we have, I think, 9.5 years of weighted average lease term on our 7-Elevens, none of them below 8.5 years. So I feel pretty strong that we've got a lot of time to deal with that. But that being said, we've got locations that are generating positive cash flow and aren't -- we don't think are related to the news that came out around 7-Eleven.

But yes, I mean, I think there is certainly a move towards a larger format. We're kind of seeing that across the board. But really, it comes down to the fundamentals that haven't changed over the past 25 years, and that's having strong inside sales having strong gallonage and being able to push price and not get squeezed on margins. And if you're able to do that, you're going to be successful for a long time in the community store space.

Our next question is from Linda Tsai with Jefferies.

Thank you. just given more volatility year-to-date in the 10 years, as you look across your key tenant categories, C-stores, grocers, home improvement, dollar stores, have you seen cap rates shift more so in any of these categories?

They've been pretty consistent. So we really haven't seen much of a change. In fact, I think we've been at 7.5% for -- on going to cap rate with very similar mix of tenants. I think the tenant mix will probably change a little bit, be a little bit more diversified in the second quarter, but I'd expect a very similar pricing, but we haven't really seen much movement, if any, across the board.

And then more of a big picture question. Your AFFO per share CAGR has been high single digit since 2021. How do you think about the CAGR of AFFO per share over the next several years?

Yes. I mean, Linda, we'd like to maintain that level. I mean, obviously, this year, at the high end, it's 5.3% year-over-year growth. And I think concensus assumes even higher growth next year. I think to the degree that we can maintain spreads where they are today in the kind of 190 basis points range.

I certainly think we can be north of kind of where we are this year. But I mean, it just remains to be seen where the stock price goes and where debt is. But I think the 1 thing that -- 1 of the many things that I feel confident in is our team's ability to underwrite assets and get them into the portfolio in an expeditious manner. So I certainly think it's -- if the cost of capital is there, the runway for us to be able to compound earnings is there for sure.

Our next question comes from Jana Galan with Bank of America.

Congrats on the strong start to the year. There are lots of questions on C stores, but I was wondering if you could remind us on kind of how you're thinking about the grocery category now that it's above 15%. And could we see further growth there?

Yes, that's a good question, Jana. We've seen really a lot of great opportunities in the grocery space. with some strong performing stores with great credit and good lease terms. We expect that to continue. There's really not as much in the second quarter, so a little bit difficult to predict. I don't think we'd let in and get to 20%.

And so I think 15% is kind of kind of nudging up against where we're comfortable. And we don't really want to let things get too far above that. But if there's a great opportunity, we don't want to be quoted from being able to move forward. But I would expect that kind of 15%, 16% range to be pretty consistent with grocery. It just happens to be an industry that we like a lot. And I think the same can be said for convenience stores.

And then maybe just an update on the development projects. It's currently a small part of the business with 4 underway. But can you remind us of yields there? And would you be willing to kind of increase exposure to development, if that's what some retailers prefer?

Yes. I mean, certainly, if retailers prefer that route, and that's our best way to get the best risk-adjusted returns, and that is something that we would be more aggressive on. Right now, we feel like we're picking up like 25 basis points, and it just happens to be some tenants that we really want to put in the portfolio. But you're really just not getting paid enough for the risk in our mind to get really aggressive on developments right now.

If you're picking up 50, 75, 100 basis points, then it would be a lot more interesting to us, but the pricing just isn't there. People are willing to pay up in the -- in single-tenant net lease retail for the most part. The development projects are pretty short. So they don't demand that much of a premium. And so we're able to get similar opportunities outside of the development area and just put them on the balance sheet right away.

And that's right now what we're looking to do. We've had quarters where we've had almost half of what we're doing has been development. Right now, it's about 10% of what we're doing. So it's a little bit less -- but if that's to change, our acquisition team is pretty filled of being able to move very quickly and start adding those into the pipeline. We just don't see that happening anytime soon.

Our next question comes from Upal Rana with KeyBanc Capital Markets.

Mark, I appreciate the color you've already provided on investment phase for the rest of the year. But given we're almost through April and you probably have a good sense on May as well. I just want to get your sense on the pace of investments for?

Yes, second quarter looks strong. So I don't think you're going to see too much difference in the second quarter. We'll see what closes. We're looking at some opportunities that we have under our control. that may close in June, make lots in July, we'll see. We're kind of getting closer to being done with sourcing for the quarter.

But yes, we like the pipeline, the quality and the pricing and for -- at least for the second quarter, I think you can expect a pretty similar quarter to the first.

Okay. Great. That was helpful. And then just overall, dispositions for World it this quarter, and you've talked about this being the case in the prior calls, but -- is this the pace that we should be expecting for the remainder of the year as well?

I think so. I mean there's -- every now and then there's an opportunity where someone comes to you and they want to pay something aggressive or take some risk off your hands. And if that were to happen, we certainly move quickly on that as well. But I think -- and in general, you may see a quarter here or there that might be a little bit heavier or a little bit light. But I think in general, yes, you can expect a pretty similar pace.

Our next question comes from Daniel Guglielmo from Capital One Securities.

Following up on the escalator question from earlier, as the portfolio mix starts to move from larger tenants to adding some smaller growth to your tenants -- are there differences in how you all manage a smaller tenant that's maybe less visible to the public versus a large tenant that's a public filer and visible?

Yes. I don't think there's much difference in terms of how we manage it. Certainly, I think we don't want to let any concentrations get very high with some of the public tenants just because you subject yourself to some headline risk that isn't real risk as it relates to our portfolio. But we're doing the same things across the board on every tenant. We're tracking the corporate financial performance.

Obviously, you probably have a little bit less cushion with the smaller tenants than you do with some of the larger investment-grade tenants, but also tracking foot traffic and the unit level performance. And we've been pretty aggressive and we want to be proactive and not reactive on the asset management front when we start to see some potential issues. And I think if we continue to do that over time, you're just going to continue to see very low credit loss debts.

Awesome. I appreciate that. And then with private credit seemingly less available this year than it was last year, -- are you seeing more smaller operators start to search for capital funding elsewhere like by a sale leaseback? Or is it too early to see something like that flow through to your transaction market?

Yes. We have not seen that. I'd be surprised if we see a ton of that. The private credit guys were kind of not only focused on retail. They're kind of all lending to software companies, a lot of different that's got a lot of headlines in a lot of different industries that are maybe a little bit less real estate heavy. So I don't think it's going to have a huge impact 1 way or the other, and we have not seen any impact to date.

We have reached the end of the question-and-answer session. I'd now like to turn the call back over to Mark Manheimer for closing comments.

Well, thank you all for joining us this morning, good luck to the rest of the earnings season, and we look forward to seeing you at upcoming conferences. Appreciate the time.

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

Greetings, and welcome to the NETSTREIT Corp. Fourth Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Matt Miller, Head of Capital Markets and Investor Relations. Thank you. You may begin.

Good morning, and thank you for joining us for NETSTREIT's Fourth Quarter 2025 Earnings Conference Call. On today's call, management's remarks and responses to your questions may contain statements considered forward-looking under federal securities laws. These statements address matters subject to risks and uncertainties that may cause actual results to differ from those discussed today. For more information on these factors, we encourage you to review our Form 10-K for the year ended December 31, 2025, and other SEC filings. All forward-looking statements are made as of today, February 11, 2025, and NETSTREIT assumes no obligation to update them in the future.

In addition, certain financial information presented on this call includes non-GAAP financial measures. Please refer to our earnings release and supplemental package for definitions, reconciliations to the most comparable GAAP measures and an explanation of their usefulness to investors, which can be found in the Investor Relations section of the company's website at netstreit.com.

Today's call is hosted by NETSTREIT's CEO, Mark Manheimer; and CFO, Dan Donlan. They will make some prepared remarks followed by a Q&A session.

With that, I'll turn the call over to Mark.

Thank you, Matt, and thank you all for joining us this morning on our fourth quarter 2025 earnings call. I first want to congratulate the team on an outstanding 2025. We are efficiently running on all cylinders as we have the right people in place in each role across the entire organization to expand upon our success. We are well equipped from a balance sheet and cultural perspective at NETSTREIT to source the best opportunities, thoroughly underwrite them and close them efficiently while also maintaining rigorous monitoring and asset management to get ahead of future risks.

We had a strong quarter of accelerated transaction activity as we completed $245.4 million of gross investments, our highest quarter on record, at a blended cash yield of 7.5% with 15 years of weighted average lease term. For the full year, we completed a record $657.1 million of gross investments at a 7.5% blended cash yield with 13.9 years of weighted average lease term. When considering how modest our investment goals were to start the year, this record level investment activity is even more impressive, as it demonstrates our team's ability to rapidly adapt to fluctuations in both our cost of capital and the overall net lease marketplace.

In addition, we accomplished this record activity while maintaining our focus on diversification, as evidenced by our record level of dispositions, which were completed 60 basis points inside our blended cash yield on investments. Additionally, our diversification efforts led to 15 new tenants joining our roster in the fourth quarter alone, with 31 new tenants being added for the full year.

From an earnings perspective, our attractive investment activity helped us reach the high end of our upwardly revised AFFO per share guidance range. And looking ahead to this year, the team continues to find well-priced, high-quality investment opportunities with heightened levels of activity within the grocery, fitness, convenience store and quick service restaurant industries.

As previously announced, we achieved an investment grade rating of BBB- from Fitch Ratings, which has greatly improved our access to debt and allows for tighter spreads. Coupled with our growing pipeline of opportunities, improving cost of capital and our low dividend payout ratio, all of which have accelerated our growth prospects, we are increasing our quarterly dividend by 2.3% to $0.22 per share. Our balance sheet remains in excellent condition with pro forma leverage of 3.8x, $100 million of undrawn term loan capital as of today, $373.1 million of unsettled forward equity at year-end and no major debt maturities until 2028.

Turning to the portfolio. We ended the quarter with investments in 758 properties that were leased to 129 tenants operating in 28 industries across 45 states. From a credit perspective, 58.3% of our total ABR is leased to investment-grade or investment-grade profile tenants. Our weighted average lease term remaining for the portfolio was 10.1 years, with just 2.4% of ABR expiring through 2027. The portfolio weighted average unit level coverage is a very healthy 3.8x.

Moving on to dispositions. We sold 76 properties in 2025 totaling $178.6 million at a 6.9% cash yield, which allowed us to accomplish all of our diversification goals for the year, including bringing all tenants below 5% of ABR. With our diversification efforts now met, we do anticipate selling fewer assets in 2026, with our focus turning more towards opportunistic sales and risk mitigation in order to get ahead of potential risks well before they can impact our AFFO per share. That said, we do expect to improve the portfolio diversity through the year, with Walgreens representing less than 2% of ABR by 2026 year-end.

We are confident in the strength of the portfolio we have constructed and the durability of our in-place rent stream. More specifically, when analyzing the ABR that expires over the next 4 years, we continue to see a high probability of renewal given the cohort's blended rent coverage ratio of 5.1x and our ongoing dialogue with these tenants. Coupled with our high corporate credit portfolio, properties with in-place rents near market with strong real estate fundamentals and active asset management process, we remain confident that our portfolio can continue to produce the most consistent cash flow generation in the net lease space.

In summary, 2025 was a year of record achievement for NETSTREIT, driven by our focus on high-quality, necessity-based retail properties and commitment to a well-capitalized balance sheet. We are excited about the momentum we have established in 2026 and our ability to deliver value to shareholders as one of the fastest AFFO per share growers in this space.

With that, I'll hand the call to Dan to go over our fourth quarter financials and then open up the call for your questions.

Thank you, Mark. Looking at our fourth quarter earnings, we reported net income of $1.3 million or $0.02 per diluted share. Core FFO for the quarter was $26.6 million or $0.31 per diluted share, and AFFO was $28.2 million or $0.33 per diluted share, which is a 3.1% increase over last year. For the full year 2025, we reported net income of $0.08 per diluted share, core FFO of $1.23 per diluted share and AFFO of $1.31 per diluted share, which represented a 4% growth over 2024.

Turning to the expense front. With the company making 7 net new hires during the year, our total recurring G&A represented 11% of total revenues in 2025, which was unchanged versus 2024. Looking ahead to 2026, we expect this metric to average below 10% as our G&A continues to rationalize relative to our revenue base.

Turning to capital markets activity. We sold 5.8 million shares for $104 million of net proceeds in the quarter via our ATM program. Subsequent to quarter end, we sold an additional 2.6 million shares for $46 million of net proceeds.

Looking at the balance sheet. Our adjusted net debt, which includes the impact of all forward equity, was $720 million. Our weighted average debt maturity was 3.9 years, and our weighted average interest rate was 4.24%. Including extension options which can be exercised at our discretion, we have no material debt maturing until February 2028. In addition, our total liquidity of $1 billion at year-end consisted of $14 million of cash on hand, $0.5 billion available on our revolving credit facility, $373 million of unsettled forward equity and $150 million of undrawn term loan capacity. From a leverage perspective, our adjusted net debt to annualized adjusted EBITDAre was 4x at quarter end, which remains comfortably below our target leverage range of 4.5x to 5.5x. Including the ATM raised subsequent to quarter end, our adjusted net debt to annualized adjusted EBITDAre was 3.8x.

Moving on to guidance. We are reaffirming our 2026 AFFO per share guidance range of $1.35 to $1.39, which assumes year-over-year growth of 5% at the midpoint. Additionally, we continue to expect our net investment activity to range between $350 million to $450 million and our cash G&A to range between $16 million to $17 million. In addition, the company's AFFO per share guidance range includes $0.01 to $0.03 per share of estimated dilution due to the impact of the company's outstanding forward equity calculated in accordance with the treasury stock method.

Lastly, on February 5, the Board declared a quarterly cash dividend of $0.22 per share, which represented a 2.3% increase from the prior quarter dividend of $0.215 per share. The dividend will be payable on March 31 to shareholders of record on March 16.

With that, operator, we will now open the line for questions.

[Operator Instructions] The first question is from Haendel St. Juste from Mizuho Securities.

This is Ravi Vaidya on the line for Haendel. I hope you guys are doing well. I wanted to ask, how are you thinking about balancing tenant credit and yield as part of your capital deployment? [ Talk about 7-Eleven on Festival ] are no longer in your top tenant list, but [ Academy ], a lower corporate credit, has entered the list. Is there more of a focus on 4-wall coverage or lease term as you move forward to your capital deployment?

Ravi, good to hear from you. So yes, I mean, I guess, specifically as it relates to Academy, I mean they're BB+. So that's 1 notch away from being investment grade. And I think if you just look at their current ratios, I mean, very low debt levels, 3.3x fixed charge coverage ratio, more than a $6 billion revenue company. I think if you just took the name off of it, you might think that they'd be investment grade. I think the fact that they went public, I don't know, 5-plus years ago after being a private equity-backed company, they've really kind of returned to their roots as being what they were as kind of a family-run business when most people really thought of them as an investment-grade company. So I do think that they are a high-quality retailer, and we have been very selective in terms of the assets that we've acquired.

We've got a very good relationship directly with the folks down in Katy, Texas. And so we make sure that we're buying locations that generate very strong cash flows. But I do think that is a potential upgrade at some point in time. So that could, at some point in time, move up into the investment-grade bucket.

And then just more broadly, as it relates to [ investment-grade investment-grade ] profile versus kind of the sub-investment grade. Overall, I'd say we are seeing probably the better risk-adjusted returns in the non-rated bucket, where we're doing our own underwriting of the corporate credit, many of whom don't have any debt, so there's no reason for them to have a rating, and I think could be really safer than some of the investment-grade names out there. And then we're getting stronger leases where we're getting master leases. We're getting better rent escalations and pure absolute triple net leases. So we feel like the risk-adjusted returns are a little bit stronger there.

But as you note in the past, we've gone a little bit heavier on the investment-grade side where the pricing was condensed. There wasn't much of a difference. And so I think it shows the strength of the acquisitions team and the underwriting team to be able to go out and source a lot of different types of opportunities and really sort through figuring out where we're getting the best risk-adjusted returns.

Got it. That's really helpful color. And maybe you could just talk about the guide. What is your level of confidence towards reaching the upper end of the acquisition rate in the upper end of the AFFO guide? And maybe some thoughts on how 1Q has progressed so far from a capital deployment standpoint?

Yes. I'll just jump in on the acquisition side. Yes, I mean, I think you saw the number of acquisitions that we did last year, certainly feel very comfortable that we can hit the high end of the acquisitions guide, especially in light of the fact that we're going to be selling significantly fewer properties this year.

Yes. Ravi, anytime we put together guidance, I think we obviously have a bias towards the upper end of the range. As you think about it, there's really 4 drivers. It's not investment activity and the timing thereof. It's cash G&A, it's dilution from the treasury stock method and as well as potential loss rent from credit events.

I would say it's not linear. So if we come in at the low end of some of those ranges, that doesn't mean we can't be at the high end. It's kind of a mixed bag in terms of where we can end up, but we certainly feel confident as we did last year that we can reach the upper end of our range.

The next question is from Greg McGinniss from Scotiabank.

Mark, with these non-IG investments, you mentioned master leases and stronger rent escalation. Are you also getting property-level P&Ls to compensate for the lower or lack of credit?

Yes. I mean I think in most cases, we are. Each transaction is a little bit different. And again, just because S&P or Moody's or Fitch doesn't say that somebody is investment grade, they can still have an investment-grade balance sheet and strong operations, generating a lot of cash flow. But yes, I mean, I think in general, you have a little bit more leverage. A lot of these are sale leasebacks where we're dealing directly with the tenant, not buying the assets from other landlords. So it makes it a lot easier to have that negotiation. It is very important for us to really understand not just so much at the corporate level, but also at the unit level that we're getting productive stores that tenants committed to long term.

Okay. And Dan, on the guidance, are you able to kind of give us some -- maybe some guidelines or your thoughts around the equity issuance that you're kind of building in there and on the treasury solutions as well?

Yes. Look, I think where we sit today at 3.8x pro forma leverage and you think about -- we have $100 million of undrawn term loan capital today, we have over $400 million of unsettled forward equity that we can draw upon, over $40 million of free cash flow. We certainly don't need to raise any equity at the moment. We can afford to be patient. I think what I'd tell you is we sort of have a de minimis amount of equity baked into the model at this point in time. So nothing that we can't handle as we sit here today.

So can we assume that with a slightly higher -- I don't know how much higher you guys [ still needs ] to be stock priced than you kind of open up a lot of opportunity on the acquisition side and growth?

Yes. I think what I would say is just from a leverage perspective, our targeted range is 4.5x to 5.5x. I think we can easily operate within that range, raise no additional equity. I think our preference is to obviously be over-equitized. And to the degree that our stock price stays where it is or moves higher, I think we're comfortable raising equity as we sit here today. Our spreads are 160 to 170 basis points over. I think that's certainly above the industry average over the last 20 years. But at the same time, it's early in the year, and we're not necessarily in -- we can be patient. And so I think to the degree that the pipeline continues to increase and we feel good about our cost of equity, we could certainly raise it, but it's still early on in the year.

The next question is from John Kilichowski from Wells Fargo.

First one, just kind of going back to that last question. I'm curious if there's no real extra need for equity here. I guess as far as the acquisition guide is concerned, how much of that is dictated by capital needs versus just what the opportunity set is out there on the market? Because it's good to hear there's nothing that you need, but I'm curious like how far above and beyond you can go given where leverage is and given the equity capacity you've built up?

Yes. And I think with the guide, I mean, we want to have some optionality in there. I think the team is able to source significantly more than what we've done in the past. And so yes, I mean, I think it's really capital -- cost of capital constraints. If it's -- if our cost of capital gets meaningfully more attractive, we can certainly ramp up acquisitions quite a bit.

And then maybe just one for me on the IG side. You've seen a little bit of drift downwards in that IG IG profile exposure over the past couple of quarters. Is there anything to note there strategically? I understand there's just better risk-adjusted returns in that space that you're seeing right now, but I'm curious, what's in that move? Are you just -- is there a target subsectors that sit outside of that box that you like more? Do you like the unit level coverage? Just curious, what's making that move?

Yes. I mean it's really just the pricing of the opportunities. We're seeing a lot of great opportunities really on both sides. It's just we feel like the pricing has been more attractive and really kind of our efficient frontier of what our portfolio allocation looks like right now, it's kind of really more -- it's not really -- it's a byproduct of what we're doing, which is 30% to 40% investment-grade investment-grade profile tenants right now, but that can certainly change if we see the market dynamics change. And then I think things that don't jump off the page are really the quality of the leases. We don't really want to go out and buy what are effectively shopping center leases, where you have co-tenancy, use restrictions and a lot of things, landlord responsibilities that we don't really want to be taking on and taking on the cost of. And so we're not as dogmatic about whether something is just investment grade or investment -- or not investment grade. We're really just kind of focused on the right risk-adjusted returns.

The next question is from Michael Goldsmith from UBS.

Portfolio diversification is presumably more complete. How would you characterize the shift in strategy from here? I think you talked a little bit about being more opportunistic. Is there a way to think about like shifting from defense to offense? Just trying to get a sense of how your actions this year and in the future may change from kind of what [ you ] kind of transpired in the last year or so.

Yes, sure. I mean, I think coming out of the gates back in 2020, with a smaller portfolio, anytime that we saw a really great opportunity that had some size to it, it really kind of moved the concentrations around quite a bit with a smaller portfolio. And so really just with the market reaction of some of the tenants even though we felt like they were good assets and continue to think that they were good assets, they're going to continue to pay rent and continue to renew their leases, had an impact on our multiple, so we became a little bit more aggressive on addressing some of the concentrations to bring them down. Which was kind of a longer-term plan, but we expedited that into a shorter medium-term plan.

I think as we look forward today, I would just expect us to not have to sell down as much. It's going to -- it would take a lot more for us to buy to really start to run into any type of concentration concerns. On a go-forward basis, I think under 5% is where all tenants are today. I'd be surprised to see anybody move up above that threshold. In fact, I think you're going to see the diversity of the portfolio just continue to improve over time.

And as a follow-up, the sub onetime coverage tranche, it picked up sequentially by 50 basis points. So what's driving that? Is that something that you're monitoring? Just trying to get a little bit more color there.

Yes, sure. So yes, I mean, it is something that we monitor. I mean, we're monitoring everything on that histogram. I think that's going to move around a little bit quarter-to-quarter. So we try not to overreact to any moves there. But that relates to some assets that we feel like are fine, that are -- the rent per square foot is below market for each of those assets, and we've got some lease terms. So we'll continue to monitor that. If we don't see improvement over the next several quarters, then we may look to monetize the assets or do something there. But it's certainly nothing of concern here in the short or medium term.

The next question is from Smedes Rose from Citi.

It's Nick Joseph here with Smedes. Maybe just following up on that last question. I think in the opening remarks, you talked about opportunistic sales and really just risk mitigation. So as you look at the portfolio today, is that a comment more on industries? Or is that tenant or property specific?

Yes. I think last year, we sold a lot of properties. And so that was really addressing some of the concentrations, trying to bring those down. I think we're more or less done with what needs to get accomplished there. We hit the goal that we set out at the beginning of the year. And so when we think about dispositions now, we've got some relationships where people will come to us with very aggressive cap rates on some assets that we own, and we feel like, okay, they're valuing those assets more than we are, and so we can take that capital and redeploy it accretively and improve the quality of the portfolio. So any time we can do that, we're going to -- we'll take advantage of those situations.

And then it's just general risk mitigation. I think you can kind of look at the histogram to get some idea of the things that we're thinking about. And if we start to see degradation of performance either at the corporate or unit level, that -- those will likely be -- more likely to be disposed of in the future. But it's -- when you think about the quantum of what we'll be selling, it will be significantly less than what we did last year.

And then I know there's not a high percentage of rent expiring this year, but what are the expectations for kind of the new rent versus the expiring rent?

Yes. I mean, I think in most cases, they're just going to renew the lease. And then I think there's 1 property where the rent is about $160,000 where we do not expect the lease to get renewed, but we're in conversations with a convenience store operator that would be interested in taking that over as a ground lease. Either to ground lease it or to just sell it, we're going to kind of figure out where we're getting the better outcome.

The next question is from Jay Kornreich from Cantor Fitzgerald.

Following up on the deal spreads you outlined at currently 160 to 170 basis points. Can you maybe just describe the competitive landscape for net lease assets currently? I mean, it looks like cap rates hold up at 7.5% in 4Q. So just curious if you anticipate elevated competition to compress rates in 2026? Or perhaps that's why you like the nonrated tenant investments that they face less competition and have better yields? So just curious of your thoughts on that as the year goes on.

Yes. And we've certainly read a lot about competition coming into the space and are aware of some groups stepping in and buying some larger portfolios. But they're really not chasing the smaller opportunities. We're averaging [ $3 million, $4 million ] per property. It's a little bit too cumbersome for a lot of those larger shops with smaller teams to go out and compete there. So we just haven't really seen them very much.

And so the competition has not changed at all. We're typically competing with the seller's expectations in most cases and occasionally, a 1031 buyer. But for the most part, the competition has not had an impact on pricing at all. We've seen a very tight band of where the 10-year is trading. I think it was a little less than 4.2% before we got on the call. So it's really kind of bounced around 4 or low 4s and maybe a little bit under 4 here and there. But that tight band has really allowed prices to get very sticky. And so we expect at least through first quarter and even some of what we've acquired or looking to acquire in the second quarter that's in our pipeline to see very similar cap rates what we saw throughout 2025.

Okay. I appreciate that. And then just 1 follow-up. You received your first rating at investment grade from Fitch in December. So can you just outline what the cost of capital improvements are you expect from that? And any update to timing or impact from further ratings from Moody's or S&P?

Sure. Look, as you can see in the disclosure, most of our term loans price down 25 to 20 basis points. So it kind of resulted in basically $2 million of annual interest rate savings. We feel good about the rating that we received to the degree that we got an upgrade in that rating. It would be another probably 10 basis points of upside across the term loan stack.

As we sit here today, we don't really have a need to go out and raise long-term debt until probably mid-2027. So we're not necessarily in a rush to get another rating. But certainly, we'll be talking and speaking with the agencies throughout this year and into next year just to maintain dialogue.

The next question is from Wes Golladay from Baird.

I believe you mentioned you added 31 tenants in 2025. I guess, when you look at the deal volume in 2026, do you expect to add a lot more relationships like you did last year and just kind of work more with the existing relationships?

Yes. I mean, it will certainly be a combination. We expect to add new tenants. To be totally frank, the 31 tenants, most of those are 1 or 2 properties. A couple of portfolios in there, sale leasebacks, but a lot of those are just kind of very small investments that kind of make that number seem maybe a little bit bigger. But I would expect us to be adding 5, 6 new tenants per quarter would be a good assumption.

Okay. And what about categories, do you expect to add a lot this year or lean into some a lot more?

I think we'll be shopping in the same food groups as we've been more recently. So we're seeing really good opportunities in -- convenience stores continues to be a big one, grocery, even some fitness selectively. And quick service restaurants has been really, really good for us as well.

The next question is from Michael Gorman from BTIG.

Just 1 quick 1 for me, Dan. Going back to your mentioning not needing to raise long-term debt until kind of mid 2027. Can you just remind us of the road map? Would that be an unsecured listed -- would you be looking at the unsecured listed market then? Or just kind of what the road map is to get to the unsecured listed market there?

Yes. Yes. So you actually don't even need an investment-grade credit rating to access the private placement market, that certainly is preferred. So as we sit here today, if we wanted to go out and access the private placement market efficiently, I think we could. As we think about 2027, it's 1.5 years away. I think it could take -- it could be a private placement. It could be an unsecured bond to the degree that we got a second or third rating from 1 of the rating agencies. I think it just kind of depends on kind of the growth of the company and where we see the lowest cost of capital from the debt side. So it just kind of remains to be seen, Michael.

The next question is from Upal Rana from KeyBanc Capital Markets.

Great. Mark, I want to get your thoughts on the broader retail space and what you're seeing in terms of any kind of troubled tenants or trouble categories? You've had your fair share of headline risks in '24 but was able to sidestep that last year. So just curious on your thoughts heading into '26 and how maybe bankruptcies or sort of closings might impact how you invest or divest this year?

Yes, sure. I mean there's really not anything in our portfolio that -- any themes there. I think just more broadly, as you think about the consumer, not new news to anybody, but the K-shaped economy is real, and the lower income consumers felt a lot more pressure, and that's leaked into some middle income consumers. So I think you have to be very careful about understanding who the consumers are of each business and whether these are necessity products or how discretionary they are. And so that cross-section of the lower-income consumer and more discretionary spend is likely to have a little bit more pressure. We've seen a handful of casual diners come under some pressure, whether it be [ Bahama Breeze ], I think, completely shutting their doors, 1 of the [ Darden ] concepts. And we've seen a couple of those types of things. But I think that's going to be the theme is -- it's going to be the lower income consumer at a cross section of more discretionary spend.

Okay. Great. That was helpful. And then I'm just doing less dispositions this year. Just curious, are you still planning to reduce store count exposure to some of your troubled tenants? Or are you comfortable with what you currently own? And maybe you could talk about the appetite for those types of tenants in the transaction market today?

Yes, sure. I mean I'm not sure if we have troubled tenants. I think we had a couple of tenants that maybe the news flow wasn't quite as positive. But that being said, we're unlikely to be adding to the tenants that we were decreasing exposure to. I think they're likely to continue to decrease a little bit on the margin. But the portfolio is just today and even with those tenants, we've got really strong performing assets. Our relationships with the tenants are really very helpful in making sure that we understand what that risk looks like and making sure that we've got locations that generate very strong cash flow, and we're very confident in the portfolio.

Next question is from Jana Galan from Bank of America.

Following up on the rent recapture conversation, Mark, I thought your comments on rent coverage of 5.1x for the near to medium term lease expirations was very interesting. Do most of these tenants still have renewal options available? Or can lease recapture in the future be higher than the historical level?

I wish we had a lot of leases with no options, but very rarely do we have any leases that don't have options left. Our expectation is that almost all of those locations or at least the lion's share of those locations, the tenant is just going to hit the option because they're generating so much cash flow there.

And maybe for Dan, on the balance sheet. Some of your peers in net lease have implemented commercial paper programs. Is that something you would look to in the future?

Yes. It's not something I've looked into the near term. I think you have to be much more sizable than we are today to access that program. So it's something we look forward to doing. But I think at our size today, I don't think that -- as well as our credit ratings, I don't think that market is available to us at the moment.

The next question is from Dan Guglielmo from Capital One Securities.

On the net investment guidance, do you think of kind of the higher end of the range as a limit? Or would you be willing to push through that if the conditions are right?

Yes. I mean it certainly -- I have very few concerns about us being able to source attractive opportunities. So that's not really a limit at all. In fact, I think we could do significantly more than the high end of the band there. It's really going to come down to how accretive would it be for us to go down that path. If we've got a really strong cost of capital and our stock price is doing really well, then I would expect us to increase that.

Okay. I appreciate that. And then on the 3Q call, you all had said there was about $100 million of acquisitions the last 2 days of the quarter. Were there similar kind of investment volumes the last few days of 4Q? Or was it more evenly spread?

No. It's -- it wasn't as bad as the third quarter just because we really started to accelerate our growth when we got the follow on in mid-July. I think our average closing date was kind of middle of December, and we did close about $77 million of transactions in the last 3 days of the quarter. So it was more back weighted, similar to third quarter.

And then just to piggyback on that, I would not expect that in the first quarter, where we were able to close more earlier in the quarter.

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

Well, thanks, everybody, for joining today. We appreciate your interest in the company and look forward to seeing many of you at the upcoming conference season.

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

Greetings, and welcome to the NETSTREIT Corp. Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce Matt Miller, Capital Markets and IR. Please go ahead.

We thank you for joining us for NETSTREIT's Third Quarter 2025 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 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. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ from those discussed today. For more information about these risk factors, we encourage you to review our Form 10-K for the year ended December 31, 2024, 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. 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 NETSTREIT's Chief Executive Officer, Mark Manheimer; and Chief Financial Officer, Dan Donlan. They will make some prepared remarks, and then we will open up the call for questions.

Now I'll turn the call over to Mark.

Thank you, Matt, and good morning, everyone. We appreciate you joining us today to discuss our strong third quarter results, which were highlighted by record quarterly investment activity, well-executed capital markets transactions and consistent performance from our defensive net lease portfolio.

Looking ahead to the fourth quarter and beyond, we expect to remain highly acquisitive due to our improved cost of capital, our attractive opportunity set and well-capitalized balance sheet. With that in mind, we are increasing our 2025 net investment guidance range to $350 million to $400 million from $125 million to $175 million. Additionally, our year-to-date disposition activity has us well ahead of schedule to exceed our year-end diversification goals as evidenced by our top 5 tenancy declining 600 basis points this year to 22.9% at quarter end.

Our momentum on the external growth front picked up considerable pace in the quarter as we closed a record $203.9 million of investments across 50 properties at a blended cash yield of 7.4%. These assets, which are primarily within resilient sectors such as grocery, auto service, convenience stores and quick-service restaurants have an average lease term remaining of 13.4 years and more than 1/3 of these investments are occupied by investment-grade or investment-grade profile tenants. Our weighted average lease term now stands at 9.9 years, up from 9.5 years a year ago, providing a strong foundation for predictable cash flows. Our ability to quickly ramp investments after raising capital in late July illustrates the inherent strength of our relationship-driven investment underwriting and closing teams. We would also note that our later start in the quarter did result in a substantial number of investments closing in the last week of the quarter, which limits their impact to the full year results.

On the disposition front, we sold 24 properties for $37.8 million at a 7.2% cap rate, allowing us to recycle the proceeds into higher-yielding opportunities as we have done every quarter in our existence. Please note that we see the fourth quarter as our last quarter of elevated disposition volume due to our focus on diversification as we plan to return to our more normal disposition volumes focused on credit risk and opportunistic sales.

Turning to the portfolio. We ended the quarter with 721 investments with 114 tenants in 28 industries generating more than $183 million in ABR across 45 states. With more than 62% of our ABR being generated from tenants with investment-grade ratings or investment-grade profiles and only 2.7% of our ABR expiring through 2027, our portfolio should continue to produce consistent and predictable cash flow. Our active portfolio management continues to contribute to our occupancy rate remaining at an industry-leading 99.9% with no material tenant disruptions. With that in mind, we expect to have our loan vacant property, a former Big Lots, leased by the fourth quarter to an investment-grade tenant at more than a 20% increase in rent with rent to commence later in 2026. While we have been able to generate highly favorable cash yields on investments as a public company, we are proud of our best-in-class credit loss statistics as we again had no credit losses in the quarter.

On the left side of the balance sheet, we believe our job is to find assets that generate the best risk-adjusted returns available, which is supported by our creative multipronged investment approach, proven underwriting method and proactive asset management process. By adhering to those core competencies, we aim to provide attractive and consistent cash flow generation for our investors.

Looking at the right side of the balance sheet, we had an active quarter adding long-dated unsecured debt, further extending our debt maturity profile and decreased our leverage with significant equity raising, which has accelerated our ability to accretively grow our portfolio and in turn, enhance our earnings power as we look out to 2026 and beyond.

Ending with the macro, while we have seen softness develop in the lower and middle-income consumer and some noise in the private credit markets, our focus remains on accretive investments in high-quality and less volatile necessity-based retail properties. We believe our tenant quality, diversification and emphasis on opportunities with the best risk-adjusted returns positions us well for any and all macroeconomic environments. With that in mind, we are currently seeing the most attractive opportunity set that we have seen since going public over 5 years ago, and we are excited to have the dry powder to execute and drive growth well into the future.

With that, I'll turn it over to Dan for more details on our financials and outlook.

Thank you, Mark.

Looking at our third quarter earnings, we reported net income of $621,000 or $0.01 per diluted share. Core FFO for the quarter was $26.4 million or $0.31 per diluted share, and AFFO was $28 million or $0.33 per diluted share, which was an increase of 3.1% over last year.

Turning to the expense front. Our total recurring G&A in the quarter increased year-over-year to $5.1 million, which is mostly a result of our staffing levels normalizing after restructured various roles last year. That said, with our total recurring G&A representing 10.6% of total revenues this quarter versus our 11.1% quarterly average last year, our G&A continues to rationalize relative to our revenue base, and we expect this rationalization to accelerate in 2026 and beyond.

Turning to capital markets activities in the third quarter. We completed a 12.4 million share follow-on offering in July, which raised $209.7 million in net proceeds.

Turning to the ATM. We sold 1.2 million shares for $20.6 million of net proceeds in the quarter. And subsequent to quarter end, we sold an additional 1.6 million shares for $29.7 million of net proceeds.

Looking at the balance sheet. Our adjusted net debt, which includes the impact of all forward equity, was $623.5 million. Our weighted average debt maturity was 4.2 years, and our weighted average interest rate was 4.45%. Including extension options, which can be exercised at our discretion, we have no material debt maturing until February 2028. In addition, our total liquidity was over $1.1 billion at quarter end, which consisted of $53 million of cash on hand, $500 million available on our revolving credit facility, $431 million of unsettled forward equity and $150 million of undrawn term loan capacity. From a leverage perspective, our pro forma adjusted net debt to annualized adjusted EBITDAre was 3.6x at quarter end, which remains well below our targeted range of 4.5 to 5.5x.

Moving on to 2025 guidance. We are reiterating our AFFO per share guidance range of $1.29 to $1.31 and are increasing our net investment activity range to $350 million to $400 million from the prior range of $125 million to $175 million. We continue to expect cash G&A to range between $15 million and $15.5 million. Additionally, with our outstanding forward equity increasing to $430 million this quarter from $202 million last quarter, our AFFO per share guidance now assumes $0.015 to $0.025 of dilution from the treasury stock method.

Lastly, on October 24, the Board declared a quarterly cash dividend of $0.215 per share. The dividend will be payable on December 15 to shareholders of record as of December 1.

With that, operator, we will now open the line for questions.

[Operator Instructions] Our first question is from John Kilichowski with Wells Fargo.

Mark, you made the comment in the opening remarks that you're currently seeing the most attractive opportunity set that you've seen. Maybe could you dive deeper there in terms of the assets that you're looking at pricing and then maybe the cadence that you think you can achieve going forward from here?

Yes, sure. Good to hear from you, John. Yes, so I mean, very similar types of assets. I mean, we're looking at a lot of C-stores, quick-service restaurants, grocery, QSR, similar to what we've really kind of done in the last several quarters. Pricing very close to what we did in the most recent quarter. So I think we're probably going to be in the 7.3%, 7.4% range. Maybe a little bit more investment grade so far. We'll kind of see what we source from here on out, but pretty confident that we should be able to be at the high end of the acquisition range provided.

And then looking forward to 2026, I'm not giving guidance on acquisitions at this point, but I think you can expect the dispositions to come in quite a bit. We'll continue to opportunistically sell some assets and focus on potential credit issues down the line and try to get ahead of that, which we did even when we were in diversification mode, but we've really accomplished the goals that we set out at the beginning of the year on the dispose side. So it feels like the net investments should be a little bit higher next year.

Okay. That was very helpful. And then just from a pricing perspective, I know this quarter, there was a step down, but you had communicated that several times intra-quarter. I'm just curious, are the cap rates that you're seeing today a better run rate for the business going forward?

Yes, I think so. And yes, I mean, I appreciate your comment there. We did try to make that clear in the second quarter that the 7.8% was not going to be repeated, and we've returned back to that kind of 7.4%, 7.5% type cap rate range. I think right now, the 10 years come in from, call it, 4.5% to 4%, inside 4% right now. And so a little bit more competition in the space. So I think it's reasonable to assume that there could be another 10 basis points of compression looking forward into 2026, but that's always difficult to predict outside of, call it, 60, 90 days on a go-forward basis.

Our next question is from Michael Goldsmith with UBS.

Lots of activity in the quarter, but the guidance didn't really move. So can you just talk a little bit about what are the factors that maybe didn't move the 2025 AFFO per share outlook? And I guess, how will that impact the earnings growth kind of going forward?

Yes. Michael, I think there's really 2 drivers to the guidance. The first being that while we had a ton of activity in the third quarter, the timing of that activity was -- on the investment side was heavily weighted to the back half of the quarter. We closed basically $100 million on the last 2 days of the quarter, whereas the loan payoffs and the dispositions were heavily weighted to the front end. And you can see that on the income statement. Our total revenues went up $22,000 quarter-over-quarter. So certainly, timing has played a big part in that, whereas in the second quarter, it was the exact opposite was true.

And the other is just the unknown nature of the treasury stock dilution. I mean we clearly know how much we've raised. We know how much we're thinking about raising. It's just the price at which the stock is going to average over the quarter is unknowable. And so we certainly baked in a ton of conservatism. What I can say is if the stock kind of stays were to open this morning, obviously, the bottom end of the range would be nowhere possible. But hopefully, that's not the case. And we think our stock price should continue to season and move higher from here, just given the growth that we see coming in 2026 from everything that we're doing here in 2025. I'm sure, as you know, what you do in the third and the fourth quarter has a very big impact on what can happen in the following year, and we're cognizant of that, too.

So I certainly think looking at where our cost of capital is today, where we've already raised capital in terms of our term loans, we have another $150 million we can draw down on, basically in the mid-4s. And assuming we can get an IG rating coming up here shortly, that moves down even further from there. So as you think about that accretion, we feel pretty strongly we can get back to certainly an above-average growth rate in 2026 and beyond.

And just a little bit of color on the extreme nature of the timing of our acquisitions in the quarter. We raised capital at the end of July. So we're -- we don't want to get over our skis and start deploying capital before we raise it. So we really had a couple of months to deploy the capital. We were really only planning on doing a little bit more on top of the -- covering the dispositions that we did, but raising capital at the end of July kind of put us in a spot where we had 2 months to close, and we're still able to hit pretty good numbers. But to Dan's point, that was all very late in the quarter.

Got it. I really appreciate it. And my follow-up question is just on the equity that needs to be settled. How are you thinking about that? And then what would be kind of the accretion on that equity associated with future deals?

Yes. So in terms of the forward equity, as you think about it, you also got to think about where we raised the prior equity versus where our prior cap rates were. In the first half of the year, we averaged 7.7%. So some of the equity raise that was at lower stock prices than we are today, the spread is still fairly high on that anywhere from 135 to 150 basis points when you think about where we raised the term loan capital. As we sit here today, our spreads are closer to, call it, 165, 170, which is still a very healthy spread when you think about the historical average for the sector over the last 20-plus years.

So I think for us, that should allow us, again, to continue to grow AFFO per share as we look out to 2026 at a fairly healthy pace and then should ramp up further, hopefully, in 2027 as some of the lower-priced forwards get settled over the course of 2026. But for modeling purposes, I think you should settle somewhere around 8 million to 9 million shares at the end of the fourth quarter. And then we should get rid of most of what was raised over the course of 2024 and 2025 ratably over the course of 2026.

Our next question is from Greg McGinniss with Scotiabank.

So although we weren't surprised by the lower cash cap rates achieved this quarter because of the commentary that you guys have been providing, we were a little surprised by the limited increase in IG or IG-like acquisitions. Now it sounds like you're not really expecting much of an increase on that front going forward either. Could you just help us understand what you're seeing on pricing for the IG or equivalent assets and potential for increased acquisition levels within that subset as your cost of equity improves?

Yes, sure. So I'd say there's probably about a 50-basis-point difference in terms of the investment-grade and investment-grade like assets that we acquired versus the non-investment grade. So enough of a delta there where as long as we're not taking much more risk, that's something that we're more than comfortable doing. And there just is a lot more attractive opportunities in the non-investment-grade side at this point. I am expecting the fourth quarter to be a little bit more heavy on the investment-grade side than what we've done for this year. But the reality is investment grade is just not really something that we focus on. We're looking for the best risk-adjusted returns that we can. In some quarters, that's going to be high and some quarters, that's going to be low. And we're really kind of focused on getting the best pricing that we can, managing the portfolio and then not having credit losses, which I think we've been able to accomplish both really strong pricing with minimal loss.

Are you seeing any trends in terms of what you're looking to acquire from that standpoint on an industry level in terms of where you're seeing the better risk-adjusted returns now versus maybe historically?

Yes, sure. I mean we certainly have seen more opportunities on the convenience store side. Quick-service restaurants is another area that has been a focus. Grocery, auto services, that's really been kind of the main 4 food groups that we've had the most success, but there's always a deal here or there that's outside of those. We've added a bit more tractor supply. You saw that move up quite a bit. We're adding a little bit more in the fourth quarter, but it's a pretty broad diversified mix what we're adding in the fourth quarter.

Our next question is from Haendel St. Juste with Mizuho Securities.

I wanted to ask about competition. Certainly quite a bit on the call so far this quarter, you mentioned that you're seeing a bit of competition from private equity. I'm curious what you think of -- what you think their investment strategy is, where are they deploying more capital versus where you are looking to deploy and if and how you'll be able to insulate yourself from that a bit?

Yes, that's a great question, Haendel. It's been a big topic. I think every private equity firm is a little different. You saw a couple of larger private equity firms kind of get in the game a few years ago and didn't really make much of an impact, quite frankly. And then you've seen a couple more in the last couple of years, really kind of smaller teams going out elephant hunting. A lot of those have been more focused on industrial, but even on the retail side, kind of looking for the larger transactions to put a lot of capital to work. So we're not really running into, obviously, the industrial side, but also if someone's kind of doing 9-figure type transactions, that's not going to be where we play.

More recently, we've seen one large player focused on smaller transactions, but further down the credit curve than really where we like to play, although we have seen them a little bit on the sale leaseback side, but there's more than enough opportunity where -- and especially being that they are looking at a different credit profile for the most part than what we're looking at, not going to have a big impact on us, but they're really the first one that we've seen out there in the investment world. But I think with how fragmented the net lease retail space is and how little institutionally owned it is, there's just a lot of opportunity for even more groups to come in without having a large impact on the pricing that we're seeing.

Appreciate the thoughts there. Maybe as a follow-up, I was curious, maybe an update just more broadly on your strategic plans to reduce your Dollar General, Walgreens and CVS. It looks like you made quite a bit of progress in your quarter. Curious how the pricing came in versus prior sales versus your expectations. And then looking ahead, any other category that you're looking to call a bit into next year, understanding that much of the heavy lifting has already been done?

Yes. I mean I think the heavy lifting, to your point, is really already done. We made a big move on the dollar store side. Pricing was pretty attractive. We did do a little bit more with some institutions where the cap rate was maybe slightly higher than the 1031 market. So I think the remaining sales that we have in that space are going to be 1031 driven. We were already in a pretty good spot going into the quarter as it relates to pharmacy. So we're being a little bit more selective on pricing there.

And so we've hit our goal on Walgreens getting that below 3%, just about there on CVS. Certainly, we'll be there here in the next couple of weeks. So getting those down, we can be a little bit more choosy when it comes to the pricing and not feel as much pressure there. So I'd expect us to continue to run the portfolio with tenants below 5%. Walgreens will continue to decrease over time, a little bit less of a -- a little bit less pressure there, but that will still continue to come down with a sale here or there and then with us not adding to either of those sectors, just increasing the asset base will decrease those exposures over time.

Our next question is from Smedes Rose with Citi.

I just wanted to understand maybe the opportunity set a little better. I mean you significantly increased the acquisitions outlook, obviously, for the year. I know part of that is driven by better cost of capital. But also, I mean, is the overall market kind of expanding? Because I mean we just hear from other companies, too, it seems like the acquisitions outlook just continues to sort of accelerate. I'm wondering if you think that's sort of going to continue indefinitely? Or is there anything in particular that's driving that?

Yes. No, it's -- yes, we certainly are seeing a lot more opportunity. I think to your point, others are saying the same thing on their call. So I don't think it's just us. And thinking through really what's driving that, rates have come in enough where you have the 10-year has gone from 4.5% to 4%, the 5-year, which is probably more important to 1031 buyers, down around 3.6% or wherever I even looked today. But I mean, that's an area where it pencils on the debt side. So I think we're at a point where rates aren't really restrictive to getting deals done. So I think that's kind of opened up the -- maybe not the floodgates, but I think on the margin, we are seeing more opportunity across the board with every different approach to acquisitions that we take, we're seeing more opportunity really everywhere.

Our next question is from Linda Tsai with Jefferies.

Yes, it makes a lot of sense to continue diversification in your portfolio, reducing the drug and dollar stores and AAP exposure. That being said, where do you think spreads between acquisitions and disposition cap rates could trend into '26?

Linda, yes, I mean, it's probably a little bit difficult to say because we're going to be more opportunistic on the disposition side. So the cap rates could come in a little bit if we're -- if we see some good opportunities there. We had some pressure on our -- put some pressure on ourselves by setting some diversification goals where we're selling assets in industries that were maybe a little bit out of favor. So I think that made it a little bit more difficult, but certainly, a strong 1031 market allowed us to be able to hit those goals a little bit ahead of time. So -- but the dispositions really aren't going to drive much next year. We'll probably return to a $15 million to $25 million pace, which I think is historically what we had done coming into 2025. But overall, I think the cap rates will probably be a little bit lower on the disposition side.

And then just in terms of your investment spread at 160 bps relative to your WACC, how do you think that could trend, say, by like the second half of '26?

Yes. I mean, you tell me where the stock is going to go, Linda, I can give you that answer. I think as we look at cap rates, as Mark said, we think cap rates may -- could potentially drift down 10 basis points over the next 6 to 8 months. It's really unsure. I think we have a very good value proposition here. We've got our cost of capital back. We can continue to grow earnings at a healthier clip and a stronger clip than we did last year. So it really just all depends on kind of the stock price and then to a lesser degree, the -- where debt is.

I mean we've basically satisfied our debt needs for the next, call it, 12 to 15 months. So any type of our capital raising and/or our usage of debt is going to be relegated to the credit facility as well as just bring -- settling the forwards over the course of 2026. So I'm hopeful that -- we're hopeful the stock price can continue to move higher, just given the opportunity set that we're seeing. And so I think spreads can hang out where they are or move higher. But I think the one thing we feel confident in at least over the next 6 months is that cap rates should remain in and around kind of where they have been.

Just one last question. Your tenant credit outlook versus a year ago, how does that compare?

Yes, not much different. I mean, I guess, a year ago, we had Big Lots, which we knew was something that we had to work through. Right now, we don't really have anything on the credit watch list. Some coverages have moved around a little bit here or there, but nothing that we're concerned with.

Our next question is from Jay Kornreich with Cantor Fitzgerald.

I wanted to go back to the pace of growth going forward. You mentioned a robust opportunity set and net investments to pick up in 2026. I'd be curious just about how you think about your goals for next year. Are you more focused on getting to a certain quarterly investment pace? Is it more about achieving a certain earnings growth level? Just how do you think about that now that you've returned to that opportunity set?

Yes. I mean I think you have to evaluate what the opportunity set is. And right now, it's robust. We expect that to continue. And then you have to consider your cost of capital, which is improving, certainly not quite where we want it to be. And you need to consider your team and what we're capable of. And I think we're capable of significantly more than what we've done in the past. And so I think there's an opportunity as our stock has continued to recover and get better that we can ramp acquisitions beyond what we've done historically. To what level remains to be seen. I guess we'll decide when we want to give AFFO per share guidance and acquisitions guidance at a later date. But I think right now, that's trending to a larger number.

Okay. And then just as a follow-up, you referenced the prospects of getting investment-grade rating. Can you just give an update as to where that process stands and potential timing to achieve that?

Yes. I mean I think what we said all along is that we would hope that we have some type of discussion this year. And I think that still remains true. But obviously, nothing is set in stone. And so I think we'll continue to say, hopefully, we can do something by the end of the year.

Our next question is from Wes Golladay with Baird.

Looking outside of traditional acquisitions, are you seeing any development opportunities? And do you have any appetite to increase the loans?

Good question, Wes. So yes, we are seeing good opportunities, both on the loan side and the development side, but really not seeing enough of risk-adjusted return on the development side to really kind of ramp that. We've continued to work with a few tenants directly on some development. That's been pretty good. And I think we'll probably see 1 or 2 new tenants kind of pop up in our top tenant list in 2026 from that, but it's -- I don't think it's going to be as big a piece of what we've done historically. The loan book, we've decided to kind of bring that down a little bit over time. And -- but we're still seeing some pretty good opportunities to replace some of the loans that are being paid off.

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

Just one quick one for me. I want to get your thoughts on the auto parts exposure as it makes up about 2.5% of your ABR, just given some of the recent bankruptcy news out there.

Yes, sure. I mean, so we've got really 3 tenants there, Advanced Auto, which has been brought down quite a bit closer to 1% at this point. O'Reilly's and AutoZone. We don't really think that the most recent bankruptcy is something that is going to impact them or even really tangential to them. Really, the bankruptcies that we've seen and kind of the cockroaches that people are talking about, we haven't seen the spread of the cockroaches at this point. And some of that is really due to fraud, which we don't think is really indicative of what's really going on in the economic market.

Our next question is from Jana Galan with Bank of America.

Given the increased competition for net lease retail strategies, are you seeing any changes in lease structures, whether it's term or escalators or options? Just curious if people are trying to compete on something other than price.

We haven't really seen any change. I mean I think the institutional capital that's come to the space, I think they're pushing to try to get a lot of the same things that our public peers are trying to get, which is longer leases with good rental escalations. So we haven't really seen much of a change in terms of lease structures.

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

Based on the commentary and results, you are exiting the recycling phase and headed back into a growth and scaling phase. Looking back on the recycling efforts, are there any learnings that you're going to take with you as net acquisitions ramp back up?

Yes. I mean I think we've always been confident in our ability to reduce exposures. And I think maybe the lesson learned for us is having some larger concentrations with publicly traded companies that are constantly in the news cycle at the tenant level, even if you've got really strong assets that generate a lot of cash flow, sometimes it doesn't matter and can still impact your cost of capital, which matters as an external growth vehicle like we are. So I think we're going to be a little bit more cognizant of allowing some exposures to get higher, which is a little bit easier to do now that we've got about $2.5 billion of assets. So being a little bit bigger does help that.

Okay. Great. I appreciate that and makes sense. And then we always like to look at the ABR by state slide. So when you think about the existing pipeline, are there states or regions where you see better investment opportunities over the next year or so?

Yes. I mean we're somewhat agnostic to what state an asset is in. We're focused a little bit more on the micro market of does that location have the demographics to support not only the use of the asset that we're buying, but also potentially future uses and future tenants. And I think overall, we're probably seeing a little bit more opportunity in the Sunbelt where you're seeing more population growth. Texas is a big state. So that being our #1 state. We kind of think of Texas as kind of being like 2 or 3 states, depending on what region of Texas you're in. And so kind of breaking that up by state, sometimes I think you see a lot of our peers also have Texas as the #1 state. But I wouldn't draw too many conclusions from what's in the pipeline or where we're looking to grow. I think it's really just where the opportunities are, where we can get the best risk-adjusted returns and that can be in really any state.

There are no further questions at this time. I'd like to hand the floor back over to Mark Manheimer for any closing comments.

Well, thanks, everybody, for joining today. We appreciate the interest in the company and look forward to meeting up with everybody in the conference season. Take care.

Thank you. This concludes today's conference. We thank you again for your participation. You may now disconnect.