NETSTREIT Corp. (NTST) Q2 2026 Earnings Report, Transcript and Summary

Greetings, and welcome to the NETSTREIT Second Quarter 26 Earnings Call. At this time, all participants are in a listen-only mode. 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 26 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-Ks and other SEC filings. All forward looking statements are made as of today's date, and NETSTREIT assumes no obligation to them in the future. In addition, certain financial information presented on the 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 CEO, Mark Manheimer, and CFO, Daniel Donlan. They will make some prepared remarks followed by a Q&A session. With that, I will 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 26 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 $299 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 Kwik Trip, usually price too aggressively for us in the 1-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 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 lone vacancy, a former Big Lots location, with a rated TJ Maxx at a more than 20% increase in rent. While vacancies have been extraordinarily rare in our portfolio, we believe this execution highlights the strength of our asset management team and underwriting process. From a balance sheet perspective, we continue to maintain a conservative 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, and 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 a for sustainable long term growth and value creation. With that, I will turn the call over to Daniel 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, 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 optimistic on the ATM front, raising 9 million shares or $183 million of net proceeds, as our cost of equity continued to improve throughout the quarter. 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, what can be exercised at our discretion, we have no material debt maturing until February 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 $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, and remains comfortably below our targeted leverage range of 4.5x 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 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.

Thank you. At this time, we will conduct a Q and A session. A confirmation tone will indicate that your line is in the question queue. You may press *2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your hand before pressing the star keys. 1 moment please while we pull for questions. And your first question comes from Haendel St. Juste with Mizuho Securities. Please state your question.

Hey, guys. Good morning. Thanks for taking the question. First 1 is just on the implied volume for acquisitions into the back half of the year, seems to suggest a pretty meaningful deceleration. So I guess I am curious if it is conservatism, the volatility of the macro, maybe something else we are missing. Maybe shed some color on that. And if the macro volatility is impacting your conversations at all from a, you know, pricing or, you know, maybe having deals take a bit longer. So curious on that all is playing out and what is your expectations into the back half of the year? Thanks.

Yeah. Thanks, Haendel. Yeah. I think there is a little bit of conservatism built into that, but there is also we do not want to have a target out there with capital that we have not raised yet. So you know, if we do choose to raise a little more a little bit more capital, I think there is likely some upside to that. But as it, you know, more broadly relates to what we are seeing out in the market? You know, I do not recall a healthier acquisitions market than what we are 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 1-off market blend and extends, we are really kind of clicking on all cylinders. So there is really you know, a great opportunity set with very attractive pricing that we are seeing. And then, you know, we are following the macro and kind of what is going on geopolitically. that is obviously had some impact on interest rates. We have not yet seen, that have much of an impact on cap rates, but I would imagine if that is sustained, then 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 is 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 and names like Chick-fil-A. I think you mentioned Sprouts. I guess I am curious We have seen your high grade share trickle down over the last couple quarters as you have pursued you know, kind of optimizing your risk adjusted growth. But cost of capital must improve. You are now, I guess, able to underwrite deals that perhaps you were not 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 all your thoughts on that. Thank you.

Yeah. No. it is a good question. I think it is really the dynamic that there is been just a large number of portfolios that, you know, have crossed our desk and that we have had the opportunity to try to tackle. it is I think it is too difficult for, you know, 1 or 2 shops that historically have really paid up for those portfolios. To take them all. And so, you know, a few of those have kind of come our way. Which has allowed us to get some of those assets that historically maybe we would not have been able to. But as it relates to, you know, this quarter being a little bit high on the investment grade investment grade profile, you know, a good chunk of that was the Speedway, you know, UPREIT unit transaction that we did this quarter. So I think that is, you know, maybe a maybe more of a 1 off. You know, we are just gonna continue to try to find the best risk adjusted returns and you know, right now, that has not really evolved other than the portfolio dynamic, which we have seen a bit of that in the third quarter as well. But I would I would expect us to kind of, you know, stick around that, you know, 30-35% investment grade investment grade profile, assuming the market dynamics continue. Got it. Thank you very much. Thanks, Haendel.

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

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

Yeah. Sure. So, I mean yeah. I think the sectors that have kinda shown up in some of the portfolio deals are similar, but there is maybe a few names. You know, we mentioned, you know, Kwik Trip, Sprouts, you know, Chick fil A that, you know, we that are in our portfolio. We just did not have much of a concentration there, but that is been it is created a unique opportunity for us to add some of those. But then we have also, added some other names like Tire Discounters, some of the Darden brands that, you know, the cap rates have historically been pretty aggressive. There are some you know, Brinker or Chili's assets as well we have added, you know, during the quarter, which you know, have not really been in our mix over the past, you know, call it, you know, a couple of years. So it is very similar sectors, just maybe some other tenants that do not trade as much in the 1-off market. And I think that is likely the reason why I think we are seeing so many of these portfolio deals is, as you recall, maybe in 2021 when interest rates were near zero and cap rates were at all-time lows, you had a lot of players enter the space, look at putting financing on those transactions. Get a really nice cash on cash even though the cap rates were low, because they could borrow so cheaply. That debt's coming due typically a 5-year term on most of that bank debt. Comes due. The refi looks a lot different, so selling the portfolios makes a lot more sense. And so we are just seeing a lot of opportunity there, and I think that is probably what is driving, a lot of that. Each, you know, each deal is got its own idiosyncratic reasons for why it comes to market or why it crosses our desk, but I think that is 1 theme that we have we have seen a little bit of. But, yeah, I mean, I think the mix in terms of sectors has been very similar, to what we have tried to, you know, pull on the portfolio. And then we have also gotten a little bit creative when we are buying some of these portfolios and simultaneously sold some assets at the same time. You know, some of these portfolios had some banks and things in there that maybe were not you know, not as big of a fan, but they still trade a pretty good cap rate. So that can kind of 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 have gotten a little bit creative in some of those situations, but, but I think in terms of you look at the categories in the industry, industries that we have added to, it looks pretty similar to what we have done. it is just been a little bit different in how we have gotten into those transactions and added further tenant diversity to the portfolio. Got it. that is very helpful.

And I guess that leads me into 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 net investments climbing, you know, if you are able to do that, would you also expect kind of that disposition number to run a little bit more elevated?

Yeah. No. it is a good question. So on the portfolio deals, if it is going to be a diversified portfolio, we are likely to yeah. We have, you know, we have been very active on the disposition side, so that is allowed us to really build some relationships with some, you know, people to sell to, that we can rely on that, you know, that perform. So I would you know, I think you may see dispositions elevated a little bit in the event that we, you know, do some more portfolio deals. But, you know, each quarter is gonna be a little bit different, so it is hard to predict. But we have seen third quarter, you know, a little bit similar to second quarter in that we have done some portfolio deals and also been able to sell some of the assets that maybe we did not want to own long term. Very helpful. Thank you.

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

I just want to go back to the forward equity. The treasury stock method accounting caused, I guess, $0.02 more of dilution this quarter as it relates to the annual guidance. So just wondering when do you think that could hit a peak? And then just in general, 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?

Yeah. Yeah. Hey, Jay. Appreciate the commentary. You know, from a if you look at our total shares outstanding, relative to the weighted average share count, I think it is kind of at 38% today. Know, that should normalize close to 15% as we get out through the course of 2027. So, now it remains to be seen where the, you know, kind of the stock price grows relative to the outstanding forwards. But certainly from a standpoint on a percentage basis, you know, the outstanding forwards will normalize, you know, again, closer to 15%. And so I think what you will probably see, you know, is that the amount of TSM dilution probably peaks in third quarter. Just kinda depends on where the stock price goes. And then we will, you know, 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 are right. We do not need to do anything if we do not choose. But I think to the degree that the you know, the investment market remains as robust as it has, I think we will we will likely utilize the ATM, at some point in time. And the third and the fourth quarter. And with the S and P 600 inclusion, we had a ton of liquidity come into the name and we wanted to take advantage of that in the in the back half of June. So you know, it also kind of accelerated our needs, you know, relative to kinda what we were expecting. When we put out, you know, guidance in April of this year. Appreciate that, Daniel. I will hop off.

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, you know, other either index inclusion, new credit ratings, unsecured bond issuance, or anything else we should just have on the radar?

Yeah. I mean, far as indices 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 is a lot of corporate goals, but as it pertains to kind of the credit rating, or additional credit ratings, we already have BBB minus from Fitch. We are likely to go out to other agencies sometime you know, early next year, which would then open us up to the public bond markets, which is something we are very excited about. Potentially tapping, in 2027. So I think that should be that is kind of the intermediate term goal for us.

Okay. Alrighty. Thank you so much.

Thank you. And your next question comes from Michael Goldsmith with UBS. Please state your question.

Good morning. Thanks a lot for taking my question. Guess just with the improved cost of capital, you have been you have talked a little bit about getting into some portfolio deals and getting maybe into a little bit of higher quality tenants than maybe 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 have been interacting with in the past, or is this just, like, hey, for the same price that we would pay for some, you know, what would be traditional, we are able to improve the quality of our tenant base.

Yeah, 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 is really driven by the fact that there were just so many portfolios that came to market you know, in a in a pretty short period of time. So that made it difficult for some others to just buy them all. And so I would have thought that would have been a very unique quarter, but we are seeing a similar dynamic play out in the third quarter. But, I mean, I would say that, you know, 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, you know, minimal, was, you know, the Speedway deal at 6.75, the UPREIT that we did. That kind of drove that down. You take that out, we are probably, you know, 7.5, 7.6. So we really did not have to deviate, on pricing. We do not expect to happen in the third quarter either. And so, you know, as long as that dynamic continues to play out in the market, we are gonna participate. If it does not, we, you know, we can you know, surely, you know, transition quickly into, you know, more similar approach that we had in the fourth quarter and first quarter.

Yeah. And hey, Michael. You know, a lot of the 4 was rounding and sometimes the 5 is rounding. So the delta to kind of where we have been transacting is actually less than 10 basis points. When you factor in rounding.

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

Yeah. Sure. So, you know, obviously, we pay attention to what is going on the consumer and kind of what the margins we see across the board with grocery. And really what we are seeing is kind of the larger operators have been able to, you know, push pricing a little bit more and hold up a little bit better. Certainly, having a very conservative balance sheet extremely important in that industry. You do not wanna combine any operating leverage with financial leverage. And so, you know, we feel really comfortable with the grocery ads that we have. They generate, you know, very strong sales, which you know, kinda flows through to the bottom line with very high rent coverage in that sector. And so as long as we feel like we are buying, you know, good assets at or below market rents, with high rent coverage. You know, we like the industry, but, you know, you do have to be careful not to just you know, partner with any with any operator, and be careful about which assets they you are buying. But we feel really, really strong about the assets that we have in that sector and the rent coverage that we have. Thank you very much. Good luck in the back half.

Thanks, Michael.

Your next question comes from Smedes Rose with Citi.

Thanks. it is it is Nick Joseph-- oh, sorry, 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 are 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?

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

Hi. This is Smedes. So 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, like, you know, on lower end consumers, are you hearing anything from them just in terms of you know, trends that might give you pause and maybe think about the way you are underwriting you know, some of those kinds of leases.

Yeah. No. It yeah. it is a good question. I mean, I think, you know, the case economy is definitely real. The lower leg of that is certainly under pressure. And so if we are going to have a sector, which we do not quite frankly have a lot of exposure to the lower end consumer, fortunately. But I think, you know, what you really need to have there is you need to have a real value proposition And, you know, whether that be a necessity based product where they kinda need that to survive and need those products to survive, or there is a real value proposition, to that consumer that will drive them to those stores. But we really, you know, make sure that we have got very healthy rent coverages and, you know, corporate credit there, with a little bit less risk. So most of that is gonna be with investment grade tenants, locations that we know that they are committed to long term that are generating very strong cash flows, where we have some cushion you know, because, you know, the lower income lower end lower income consumer is certainly under pressure. Thank you. Appreciate it.

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

Hey, good morning, guys. Going back to the comments on having success on the portfolio deals, are you seeing a portfolio discount or just, you know, no premium? What are you seeing exactly on the pricing that is changed?

it is kinda funny, Wes. You we have seen some portfolios go off that are really well marketed where there is several rounds of bid bidding, and I think those are going off at a pretty substantial premium. But the ones that are maybe a little bit smaller, know, I think if we are achieving the cap rates that we are for the quality of what we are pulling in, you know, I would not go as far as to call it a discount, but I would say that it is you know, very similar to you know, for us to kinda doing our onesie, twosie kinda small portfolios that we have done in the past. So it is probably pretty close to, you know, no premium, no discounts, so maybe at par. But some of the larger ones that we have seen, that we have bid on and do not get, you know, quite frankly, you know, I think are still going at a premium. Okay. that is all for me. Thank you. Thanks, Wes.

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

I was I am I am wanting to go back to your earlier comments on the portfolio deals that are coming to market. I am curious if you have any, you know, view on what is driving those deals to market And I know you mentioned expected moderation that is yet to materialize. But if there is anything, you know, you would expect to see in terms of slowdown there, what would what would drive that?

Yeah. I mean I mean, every deal has its own idiosyncratic reason for it coming to market. So it is a little bit tough to overly generalize. But certainly, we saw in 2021 and 2020 and even late 2021, early 2022, a lot of players, you know, kinda coming out of the woodwork buying, you know, very high quality properties and levering it up with very cheap debt, and that debt's coming due. 5 years have passed. And now they need to say, do I wanna refinance this? And what is my cash-on-cash deteriorate, or do I wanna turn around and sell these assets because they are still marketable? And in a lot of cases, the people are deciding that the best outcome for them is to sell the portfolio to a larger institution and, you know, I think that is driving that is driving a lot of it. Seeing more of that in the third quarter. And so, you know, if you kinda just you know, 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 -- to when people were buying those, you know, portfolios and assembling them. But you never really know, you know, what the calculus is gonna be for those people and what their financial situation is and where interest rates are. Okay. Thanks.

And then last quarter, you mentioned a limited pool of sub-1.1x covered assets. Did any of those get resolved in Q2, or any part of the disposition pool?

Wes. You know, we did dispose of 1 of those assets, and then we also had 1 that we were expecting to start to ramp has ramped out of that out of that bucket, and we may continue to explore, you know, the couple that are left. Greg. Thank you. Thanks, Greg.

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

Hey, good morning, everyone. Thanks for taking my question. 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?

Yeah. No. it is a good question. I mean, we are you know, we will never like to turn down a good deal. And so you kinda never say never. So I never wanna kinda totally box myself in. But, you know, we have always had a little bit of a soft ceiling in the, you know, kind of 15 plus percent industry target, you know, 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 do not really wanna see you know, get up to that level. But, you know, if there is a good transaction and, you know, we really think it is our best risk adjusted return, we may, you know, pursue those opportunities but then look to, you know, dispose of some assets and kinda whittle that down. As you have seen us do in the past with, you know, some tenant concentrations. Greg. Thank you.

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

Yeah. I mean, that is typically gonna be when we are selling, lot of assets, you know, you know, whether we bought them, you know, 3-4 years ago when cap rates were a lot lower and you have seen some, you know, cap rate expansion. You know, just selling some assets that is, you know, and what we put them on the books for and what we sell them for. that is gonna anytime that you are selling a lot, you are gonna have some impairments, but then it was largely offset with gain on sale. So you had a lot of ones where we sold at, you know, at gains and some at some at losses. A lot of times, there is just kind of be a buy a portfolio. it is how you allocate it. or how the accounts want you to allocate it quite frankly. And so I would not there is not much of a read through there, but I if you look at the gain on sale, I think that largely offset the impairment. Alright. Appreciate it. Thanks for the time.

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

Thanks. Good morning. I am 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?

Yeah. No. it is a good question. You know, I did-- and I try not to talk about other competitors on these calls, but I did notice 1 of our competitors did their first OP deal, this quarter as well. So, I do not know if there is too much of a read through there. But, yeah, we love the UPREIT structure. We love doing these types of transactions when we can. And, obviously, right now, our current is very attractive to them, and it is, you know, attractive to us that we, you know, we use you know, a stock price of $21 on the UPREIT transaction, which at the time was, you know, slightly higher than where our stock was trading. And so you know, it is accretive here, you know, fewer fees. it is 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 would not be surprised to see more in the future, but they are gonna be 1 off and, you know, you kinda cannot count on them. But when they pop up, I you know, certainly big fans of using that structure. Greg. that is 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 is just less of a focus or less of a need because there is more diversification, or is this kind of y'all saying that you think IG is a little bit mispriced in the market in terms of opportunities as you as you continue to build the portfolio?

Yeah. Sure. I mean, I think it is a little bit more of the latter. there is a lot of things that go into risk adjusted returns. And that is for us, it is you know, you know, where do you where's your where are you gonna get, you know, where could you expect there to be a loss on a property and, you know, what is that percentage look like versus the pricing that you are able to achieve in the market. And there is a lot of things that go into, you know, to the risk and, you know, the credit, is really just 1 piece of it. The other 2 pieces that are that are equally as important in some cases more important is, you know, how sticky is that tendency gonna be and how committed they are, you know, to that location and how mission-critical is it, and that is gonna be driven off of the rent coverage. If a tenant is driving a lot of their cash flow from your location, they are gonna stay there. If they are not making any money there, they are not going to stay there. So, you know, whether they credit goes away or not, the lease term at the end of the lease term, they are gonna decide to leave your property anyway. And then, you know, how fungible is that real estate? How easy is it gonna be to get somebody else in paying the same or more rent? I you know, are there going to be a lot of TIs associated with that? You know, there is just a lot that kinda goes into it. So I think the easiest thing to point to is the is the credit. I think the easiest thing to kinda share with investors and get them comfortable is, you know, is showing a high percentage of investment grade investment grade credit. But I think over time, you know, we have been around for 6 years and have had virtually no credit loss. So I think, you know, it is we have I think we are proven underwriters at this point, and I think, you know, just know, continuing to go out and getting the best risk adjusted returns is really our focus. And when interest rates moved up, you saw the noninvestment grade, as it, you know, kind of in 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, you know, the, you know, the cap rates did not move up as much for that. So you are 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 the efficient frontier is right now is kind of in that 30-35% investment grade, which is really more of a byproduct of what we are buying. We are not really focused on that. it is just been fairly consistent of what that is been a byproduct of, you know, where we are seeing the best risk adjusted returns in the market currently. Greg. Thanks for the time. Thanks, Michael.

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

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 portfolio deals that did come online at once this quarter, and you are able to grab a few at attractive pricing despite the higher quality. So just any color there would be would be helpful. Thanks.

Yeah. Sure. So and we continue to see virtually no competition from, you know, the larger private institutions, which grab a lot of the headlines. Our competition continues to be, the 1.03 thousand market individuals and small family offices. Occasionally, the public REITs, but we, you know, when we are up against the other public REITs, we typically do not win those transactions. So we view our competition is more the 1.03 thousand type buyer. And they are typically borrowing, you know, putting, you know, 50-60% LTV bank debt on their transactions, and those interest rates have made it more difficult. Difficult for them to compete. So I would say competition is significantly lower. Okay. Greg.

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

Yeah. Sure. So, yeah, we do not really have, you know, any tenants. I think we maybe had a few tenants that were out of favor, and I think we have got you know, those concentrations down significantly. We will likely chip away a little bit on the margin, you know, 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 is on page 13, that shows, you know, the corporate credit and the unit level coverage of those assets. You know, we really wanna kinda keep chopping the tail off of the of the weaker corporate credits and the weaker unit level coverage. You have seen some pretty strong progress there. And we will continue to do that. Okay. Greg. That was helpful. Thank you.

There are no further questions at this time. So I will hand the floor over to Mark Mannheimer for closing remarks.

Thank you. Well, thanks, everyone, for joining us today. We appreciate everyone's interest in NetStreet. Thanks.

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