NETSTREIT (NTST) Q3 2026 Earnings Call Transcript

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DATE

Oct. 22, 2026

CALL PARTICIPANTS

• Chief Executive Officer - Mark Manheimer
• Chief Financial Officer - Daniel Paul Donlan

TAKEAWAYS

• Gross Investment Activity -- $273.1 million, achieved at a 7.4% blended cash yield with a weighted average lease term of 13 years.
• Net Investment Activity -- $205.4 million, including $39.5 million in dispositions at a 7.2% cash yield and $28.2 million in loan repayments at an 8.8% cash yield.
• 2026 Investment Guidance -- at least $800 million for net investment activity, representing an increase from the previous range of $700 million to $800 million.
• Portfolio Occupancy -- 99.9% across 913 investments, with one vacant asset at quarter end.
• AFFO Per Diluted Share -- $0.35, representing a 6.1% increase.
• Core FFO Per Diluted Share -- $0.34, representing a 9.7% increase.
• Investment Grade Tenancy -- 58.2% of annualized base rent, consisting of 40.1% from investment grade and 18.1% from investment grade profile tenants.
• Tenant Concentration -- 29.2% of annualized base rent from the top 10 tenants, compared to 37.9% in the prior year.
• Total Liquidity -- $1.3 billion, which included $42.3 million in cash, $499.9 million in unused revolver capacity, $311.9 million in unsettled forward equity, and $400 million in undrawn term loan capacity.
• Leverage Ratio -- 3.7x adjusted net debt to annualized adjusted EBITDAre, which remains below the company's target comfort range of 4.5x to 5.5x.
• Forward Equity Settlement -- 24 million shares, which generated approximately $419.6 million in net proceeds during the quarter.
• Full-Year AFFO Guidance -- $1.37 to $1.39 per diluted share, which was maintained by management.
• Debt Maturity Profile -- no material debt maturities until 2029, with a weighted average debt maturity of four years.
• G&A Scale -- $6 million in recurring general and administrative expenses, representing 9.1% of total revenues compared to 10.6% in the prior year.
• Unit Level Coverage -- 3.9x for the total portfolio, with 3.4% of annualized base rent having less than 1.5x coverage.
• Quarterly Dividend -- $0.225 per share, representing an annualized rate of $0.90 per share.
• Weighted Average Interest Rate -- 4.26% on total debt as of quarter end.
• Investment Pipeline Credit -- 44% of the annualized base rent from third quarter investments was derived from investment grade or investment grade profile tenants.
• New Financing Commitment -- $400 million through a new seven-year delayed draw term loan due Sept. 2033.
• Remaining Forward Equity -- 15.9 million unsettled shares, representing a net value of $311.9 million.
• Cash G&A Guidance -- $16.5 million to $17.5 million for the full year 2026.

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RISKS

• CFO Daniel Paul Donlan warned that the decision to settle 24 million forward shares resulted in an estimated weighted average share count for 2026 that is 2 million to 2.3 million shares higher than previously anticipated, creating a dilutive impact of 2.5 cents to 3 cents per share.
• CEO Mark Manheimer stated, "We believe cap rates are likely to increase moderately in the short term, as higher financing costs continue to work through the system," indicating potential pressure on the net lease sector.
• CFO Daniel Paul Donlan noted that the company faces "headwinds from refi and the $175 million swap" as it forecasts growth for the 2027 fiscal year.

SUMMARY

NETSTREIT Corp. (NYSE:NTST) reported third quarter results including gross investment activity of $273.1 million and a portfolio occupancy rate of 99.9%. Management reported that the company maintains significant liquidity of $1.3 billion to fund its 2026 and 2027 investment pipeline without the immediate need for new equity issuance. The company increased its full-year net investment guidance and reported a reduction in its top 10 tenant concentration. CFO Daniel Paul Donlan reported that the decision to settle 24 million forward shares strengthened the balance sheet for credit rating agencies and reduced future dilution from the treasury stock method.

• CEO Mark Manheimer stated, "Discipline and focus have allowed us to stay both active and selective in a quickly changing transaction environment."
• Donlan reported that the company has approximately $550 million in net investment capacity before reaching the midpoint of its leverage comfort zone of 4.5x to 5.5x.
• Management reported that the portfolio unit level coverage improved to 3.9x, with only 3.4% of annualized base rent originating from tenants with less than 1.5x coverage.
• Manheimer noted that the company is observing a reduction in competition from private buyers who rely on community bank financing at higher interest rates.
• The company settled 24 million forward shares for $419.6 million in net proceeds, which resulted in a higher-than-anticipated share count for the start of the fourth quarter.
• Donlan stated the company sees a path toward mid-single-digit AFFO growth next year without needing to raise additional equity through the end of 2027.

INDUSTRY GLOSSARY

• ABR: Annualized Base Rent, representing the yearly rent due under a lease agreement.
• AFFO: Adjusted Funds From Operations, a non-GAAP financial measure used by REITs to measure performance by adjusting FFO for recurring capital expenditures and non-cash items.
• Core FFO: Core Funds From Operations, FFO adjusted to exclude infrequent and unusual items not expected to impact ongoing performance.
• EBITDAre: Earnings Before Interest, Taxes, Depreciation, and Amortization for Real Estate, a performance measure defined by NAREIT.
• Investment Grade Profile: Tenants with investment grade credit metrics, such as more than $1 billion in annual sales and a debt to adjusted EBITDA ratio of less than 2.0x, but without a published rating.
• TRS: Taxable REIT Subsidiary, a corporation owned by a REIT that can provide services to tenants and third parties without jeopardizing the REIT's tax status.
• TSM: Treasury Stock Method, an accounting approach used to calculate the number of new shares that could be created by unexercised in-the-money warrants and options.
• WALT: Weighted Average Lease Term, the average remaining time on a portfolio's leases, weighted by annualized base rent.

Full Conference Call Transcript

Operator: Greetings, and welcome to the NETSTREIT Third Quarter 26 Earnings Call. At this time, participants are in a listen-only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to your host, Matt Miller. Thank you. You may begin.

Matt Miller: Good morning, and thank you for joining us for NETSTREIT's Third 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 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, Daniel Paul Donlan. They will make some prepared remarks followed by a Q&A session. With that, I will turn the call over to Mark.

Mark Manheimer: Thank you, Matt, and good morning, everyone. We appreciate you joining us today to discuss NETSTREIT's third quarter 26 results. Before I get into the numbers, I want to recognize the hard work of our team across asset management, accounting, and capital markets. Discipline and focus have allowed us to stay both active and selective in a quickly changing transaction environment. We are pleased to report another solid quarter of investments leased to high quality net lease tenants. While higher interest rates have raised capital cost, across the net lease sector, our smaller relative denominator low leverage, and strong liquidity are true differentiators for NETSTREIT.

We can afford to remain discriminating in our investment decisions and yet we still have considerable capital capacity to fund an increasingly attractive opportunity set from a nominal yield perspective as the market evolves. In the third quarter, we completed strong gross investment activity of $273 million at a 7.4% blended cash yield. With a weighted average lease term of 13 years. Approximately 44% of the annualized base rent from these investments derived from investment grade and investment grade profile tenants. These investments are focused around our core necessity and service based retail categories, which we believe should prove resilient in any macroeconomic backdrop.

Year to date, gross investments have totaled $811 million at the same 7.4% blended cash yield, which is well ahead of $657 million that we completed for all of 2025. This meaningful increase in volume speaks to the scalability of our platform, our team's ability to ramp up when market conditions are favorable. During the third quarter, we also executed dispositions of $39.5 million at a 7.2% cash yield and had $28.2 million of loan repayments. In the near term, we intend to remain active on asset sales to prudently manage the risk profile of our assets and lease maturities. In order to maximize cash flows for the long term.

Looking at the broader market, we believe cap rates are likely to increase moderately in the short term, as higher financing costs continue to work through the system. A meaningful portion of the buyer universe, particularly smaller private buyers, have historically relied on higher leverage and more expensive debt, to make deals pencil out. As that capital has become less available and more costly, these buyers are increasingly being shut out of the acquisition market. At the same time, larger institutions have materially less dry powder today. This dynamic is precisely why we operate with lower leverage and look to prefund our capital needs several quarters in advance.

It preserves our flexibility and gives us the optionality to step up and take advantage of market disruption when and if it materializes. Rather than being constrained by balance sheet capacity. Turning to our portfolio. We had 913 investments at quarter-end, $246 million of ABR, still 158 tenants across 28 industries, in 46 states. With just 1 vacant asset at quarter-end, our occupancy was 99.9%, Our weighted average lease term was 10.1 years, investment grade and investment grade profile tenants represented over 58% of ABR. From a diversification standpoint, our top 10 tenants now represent 29.2% of ABR, versus 37.9% at this time last year. Furthermore, the unit level coverage of our portfolio improved to 3.9x.

And was just 3.4% of ABR having less than 1.5x coverage. We are well insulated should a weaker economy more broadly dampen retail sales. From a capital markets perspective, we secured $550 million of additional financing commitments and extended our weighted average debt maturity profile with no major debt maturities until 2029. Total liquidity at quarter end exceeded $1.25 billion. Including significant undrawn revolver and term loan capacity along with unsettled forward equity. Leverage remains conservative, with adjusted net debt to annualized adjusted EBITDAre of 3.7x.

Turning to guidance, we are maintaining our full year 2026 AFFO per share guidance range of $1.37 to 1.39 And we now expect 2026 net investment activity of at least $800 million which is modestly up from our prior range of $700 million to $800 million. In summary, the third quarter demonstrated the strength of our platform, the resilience of our portfolio and the flexibility of our balance sheet. We remain optimistic about our growth prospects given our capital runway through 2027. And the continued availability of attractive opportunities. With that, I will turn the call over to Daniel Paul Donlan to review the third quarter financial results in greater detail. We will then be happy to take your questions.

Daniel Paul Donlan: Thank you, Mark. Looking at our third quarter earnings, we reported net income of $8.5 million or $0.08 per diluted share. Core FFO for the quarter was $36.6 million or $0.34 per diluted share. And AFFO was $37.5 million or $0.35 per diluted share. Which was an increase of 6.1% over last year. Turning to the expense front, our total recurring G&A in the quarter increased 3.3% quarter over quarter to $6 million From a G&A scale perspective, our total recurring G&A represented 9.1% of total revenues this quarter, versus 10.6% in the prior year quarter. As such, G&A continues to rationalize relative to our revenue base. Turning to the capital markets.

We remain opportunistic on the ATM front, raising 1 million shares for $21 million of net proceeds. In addition, we settled 24 million shares nearly 420 million in net proceeds which was significantly more than we anticipated when we reported second quarter earnings back in July. While this will help to reduce future dilution from the treasury stock method, as a remaining unsettled forward balance has a weighted average gross price of $20.09 we are now starting the fourth quarter with considerably higher share count versus our prior expectations. From a debt perspective, we paid off our 200 million term loan due February 2028 with proceeds from draws on our 2031 and 2032 term loans.

Simultaneously transferred over the swaps from the 2028 term loan to these new draws. As such, when including extension options, which can be exercised at our discretion, we have no material debt insuring until 2029. In addition, we also raised a new $400 million 7 year delayed draw term loan due September 2033 which remains fully undrawn as of today. Intend to draw down on this term loan over the course of 2027 to fund future net investment activity and term out our revolving line of credit. Turning to the balance sheet. Our adjusted net debt includes the impact of all forward equity, $854 million.

Our weighted average debt maturity was 4 years, and our weighted average interest rate was 4.26%. In addition, our total liquidity was 1.3 billion at quarter end, which consisted of approximately $42 million of cash on hand, 500 million available on a revolving credit facility, 312 million of unsettled forward equity, and $400 million of undrawn term loan capacity. From a leverage perspective, our adjusted net debt to annualized adjusted EBITDAre was 3.7x at quarter end, which remains comfortably below our leverage comfort zone of 4.5 to 5.5x. Moving on to guidance.

We are maintaining our both our full year 2026 AFFO per share guidance range of $1.37 to $1.39 and our recurring cash G&A range of 16.5 to 17.5 million. dollars. As Mark stated earlier, we now expect 2026 net investment activity to be at least $800 million In addition, our AFFO per share guidance now includes approximately $0.35 to $0.04 per share of estimated dilution of 2.8 million to 3.1 million shares due to the impact of the company's outstanding forward equity calculated in accordance with the treasury stock method. This compares to the prior range of 5 to 8 cents per share of estimated dilution.

However, due to our deliberate decision to settle 24 million forward shares in the third quarter, our estimated weighted average share count for 2026 is now approximately 2 million to 2.3 million shares higher than previously anticipated, which has an estimated dilutive impact of 2.5 to 3 cents per share. In short, the positive impact to 2026 from having less dilution from the treasury stock method has been more than offset by our decision to settle more forward shares this quarter. Lastly, on October 15th, the Board declared a quarterly cash dividend of 22.5 cents per share. The dividend will be paid on December 15th to shareholders of record as of December 1st.

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

Operator: Thank you. We will now be conducting a question and answer session. It may be necessary to pick up your handset before pressing the star keys. And our first question will come from Haendel St-Juste with Mizuho Securities.

Haendel Sanjoust: Hey, guys, good morning, and thanks for taking my question. I was hoping you could talk a bit more about your capital deployment, balance sheet management strategy here in light of higher rates and your replaced cost of capital How much capital runway do you estimate you have? Is it fair for us to assume capital deployment is going to slow in the near term? Dispositions will tick up a bit. Leverage may tick up as well. So maybe some thoughts on the deployment and balance sheet strategy would be helpful. Thank you.

Daniel Paul Donlan: Yeah. Hey, Haendel St-Juste. Appreciate the question. So, you know, as we think about the next 5 quarters, we have roughly 550 million of net investment capacity. Before we got to 5x, which is the midpoint of our leverage comfort zone. So that is kind of how we are thinking about, you know, next year. And so if you think about that $5.50 you know, we do see a path towards mid-single-digit AFFO growth next year. Without needing to raise any equity between now and 2027 year-end. And I would note that, you know, keep in mind that does include headwinds from refi and the $175 million swap.

So that is how we see the base case shaping up for 2027, which is not dissimilar to how we have, guided to, the forward year and prior years. But, look, if our cost of equity improves, we could obviously accelerate our net investment activity, and the sooner the better. And that would push up our, you know, potential growth, to the higher end of that mid-single-digit range while still ending the year, you know, actually in the in the low to mid 4x range. So it really just depends on kind of where our cost of equity is. And, you know, how quickly we deploy the capital.

I think we are going to be judicious with the capital that we have raised. I guess, Mark, do you wanna Yeah.

Mark Manheimer: Sure. And so, I mean, you know, I think we are in a really good position. I mean, just turning the page 19 in our investor presentation, you kind of see, you know, there is really only 3 other REITs or 3 REITs including us that in a pretty good leverage position where we have a lot of dry powder. We have seen, from a competition standpoint, you know, the private buyer really dry up. You think about the 1.03 thousand small family office buyer that is, you know, kind of borrowing from their community banks that, you know, 50 to 65% LTV at 7 plus percent interest rates. They are just not really competitive right now.

So the supply and demand is shifting. We are seeing it happen real time. And so know, cap rates need to move up unless interest rates move down and everybody's equity price a lot better really fast. So, so I think something has got to give and I think it is likely gonna be cap rates here in the short term. We are certainly already seeing that. And then, you know, the good news for us is we are in a really good capital position where we have capital to deploy which is why we maintain a low leverage balance sheet.

Haendel Sanjoust: that is great, guys. Appreciate the color there. And maybe a follow-up on cap rates you brought up. I am curious, how much price. How do. I guess, thoughts on balancing pricing power and risk management here as you look to optimize yield versus risk? How much you think you could push cap rates Are you willing to enter new verticals or maybe I would not say, push risk, but just how do. How are you going to--how do you envision sourcing higher cap rates? Does this involve new verticals? Or and any change to perhaps your views on certain subsectors or risk profiles? Thanks.

Mark Manheimer: Wes. Thanks, Haendel. So I would not anticipate really any change in terms of our investment criteria. We see plenty of opportunity Deals that we are chasing look a lot like what we bought in the past. If you look at the pipeline currently, maybe the credit profiles are a little bit better. there is certainly more investment grade and investment-grade profile. In what is in our pipeline currently. that is know, when we add more, that might not look like that, so I would not necessarily count on that. But that is what, you know, we have got in the in the pipeline currently.

I do not think we have to move into any other verticals or anything, that will surprise investors. it is just a matter of how long is the bid ask going to compress, You know, when we went back at the very really, very end of the third quarter, we already closed most of our transactions. But we went back and were able to reprice a bunch of deals. And, fortunately, the sellers were a lot more receptive this time around. To those conversations if you if you compare to 2023, 2024. When deals were repricing, there was just a very large bid ask spread for a long period of time.

This time, I think sellers are not really assuming that cap rates are just gonna drop back down like they did the last go around, so that we were able to really get better terms, get better pricing. You know, we. We are looking at a couple of portfolios where, you know, there are a few assets we thought we were going to likely put in our TRS and turn around to sell those, you know, quickly after buying portfolios. We are able to just remove those from the portfolios. So we did not have to take on that risk, which was helpful. So sellers are much more responsive this time around.

So it feels like it could, you know, move a little bit more quickly. But we would still like to kinda get a little bit more pricing, which is, you know, again, why I think we are going to see fourth quarter acquisitions likely be pretty back end loaded, which is somewhat intentional because we wanna give as much time as possible to allow sellers to rephrase their expectations. Super helpful.

Haendel Sanjoust: Thank you.

Operator: And our next question will come from Jay Kornreich with Cantor Fitzgerald.

Jay Kornreich: First, just wanted to ask about tenant credit of the sub-1x rent coverage bucket dropped to very low 0.2%. So just curious how you are thinking about tenant credit and if there is any changes to the watch list and maybe how that is all baked into guidance, if there is been any adjustments there you can talk about? Yeah.

Mark Manheimer: And unfortunately, we just really are not seeing very much at all. You know, in terms of, you know, credit issues. Maybe 1 or 2 assets here or there that we are paying attention to. But out of 913 assets, that is not that is not very much. So we do not really think there is gonna be anything material there. And you kinda hit the nail on the head. We are very focused on the. Not only the credit of our assets and the real estate of our assets, but also the unit level coverage. And so seeing our, you know, under 1x bucket get cut in half, certainly helpful.

Some of that is, you know, our on dispositions of really kinda trying to call some of those assets. And so you have seen some, you know, pretty good movement, you know, both from the assets that we own improving as well as our focus on the disposition side. Of, of really trying to keep that very healthy. And I think if you know, compare our, unit level, you know, migration, it is, you know, to others, it is really been very strong.

Jay Kornreich: Okay. Appreciate that. And then just following up on the previous question around just overall transaction market. You mentioned how sellers are willing to bake in higher cap rates this time around. But just as you think about the overall transaction market, is it remaining healthy? Are opportunities that you generally foresaw before the spike in interest rates Are those remaining on the table that gives you confidence that, you know, as you have the financing ability. Availability that there is a robust investment pipeline into next year that you can take advantage of.

Mark Manheimer: Yeah. I think the opportunity set, remains very strong. So the supply is there. Every bit as much as it is been, you know, so far this year, maybe even a little bit better. And then the demand side is weakened substantially. So we just really think it just needs to reprice a little bit more for us to get aggressive. You know, we have got dry powder. We wanna we think that is a great asset to have in this environment, where most others do not have that. So we wanna take advantage of it and not just chase every deal. So we really wanna maximize the pricing on every opportunity that we get. And so. Yeah.

I mean, you know, I think, you know, going into next year, the opportunity set certainly will not be holding us back. it is really gonna come down to, you know, whether assets reprice enough or if cost of capital improves.

Jay Kornreich: Got it. Okay. I will hold it there. Thank you.

Operator: We will go next to Jamie Feldman with Wells Fargo.

Jamie Feldman: Greg. Thank you. Greg. Thank you. You may have--I think you kind of touched on it, but maybe I will just ask it again. But with the new investment guide and $646 million of net investment dollar, net investment volume year to date. Does the $150 million implied for Q4 reflect conservatism or a deliberate pullback? I know you said you were kind of delaying things a little bit. And I guess even more importantly, would you think a $150 million is a good run rate for the first half of 2027 also? Or the pipeline is still so strong, you could be meaningfully higher?

Mark Manheimer: Yeah. No. I think it is a good question. But I. Know, the $150 million you know, we did say at least 800 million So, you know, if things do not really change all that much, you know, then it will be probably you know, right on. Right around $800 million. If things get better, you know, we are we are, you know, ready and able to, you know, to ramp that up and So the team's really shown a lot of ability to ramp up when, you know, when opportunities are there. As well as show a lot of discipline when things maybe are not there as much.

And so right now, the pricing is not exactly where we want it to be. But if that improves, we certainly feel like the opportunities are there. And we. We would certainly be able to do a lot more than a 150 which is why we kinda just left that as an open ended, you know, above $800 million. Okay.

Jamie Feldman: And then, I mean, what are you hearing from tenants in terms of, like, any changes to their expansion plans or business models? With you know, either the. Either risk to the consumer, you know, higher cost of capital, just like, if you guys are. You know, from your vantage point, what else feels different other than you know, we would think cap rates move a little bit here?

Mark Manheimer: Yeah. I mean, I. I would say really on a you know, a little bit, you know, where I think people have. You have seen some announcements of some of the store openings being a little bit more conservative. And operators being a little bit more selective terms of what real estate they are they are willing to go in. But the. what is working continues to work. Even if margins are. Have compressed a little bit, you know, with a lot of retailers. And so, fortunately, that is really where we--we have focused on investing in the necessity of servicing and deep discount, type sectors.

Where they just remain defensive and, you know, continue to do well, and they continue to expand and. Which is why we continue to see just a lot of opportunity for acquisitions, whether it be, you know, new developments or just buying a existing assets. Okay.

Jamie Feldman: Thank you.

Operator: We will go next to Nick Joseph with Citigroup.

Nick Joseph: Thanks. You touched on having plenty of capacity. Obviously, cap rates still expanding a bit. And you were opportunistic on the ATM this quarter as well and have the unsettled. But as you kind of go forward and work through that current capacity, how do you think about issuing additional shares Obviously, the stock is kind of below consensus NAV now. I think in the past, you have talked about investments spreads, obviously, being an important consideration. But could you just remind us of the broader framework associated with that as investment spreads hopefully start to normalize?

Daniel Paul Donlan: Wes. We hope they normalize as well. Nick. Look, as we sit here today, we think our spreads are about 60 to 70 basis points. And what we have historically said is that we really need to be north of 100. So, you know, we do not have any, know, near term need to raise equity. You do not have to raise equity at all next year if we so choose. So I think we need to be above kind of a 100 basis points and feel comfortable, you know, we can stay at those levels. But right now, it is just not really a concern of ours given the capacity, you know, that we have. Thanks.

Operator: And our next question will come from Greg McGinniss with Scotiabank.

Greg McGinniss: Hey. Good morning. So you got supply. You are saying supply is still there. Demand side is weakened. Are you optimistic that cap rates may react faster to this rate cycle than the 2 to 3 quarters that it took historically to see kind of cap rates move up higher?

Mark Manheimer: Yeah. I think we are optimistic just because the conversations that we had about revisiting pricing on deals that we had in the third quarter were very constructive where I do not really feel like they were that constructive, you know, back in 2023. And so I think people kind of get it a little bit more this time. And there is not a knee jerk reaction that things are gonna just kind of swing back to the way that they were. So it does feel like it is going to be quicker. How much quicker? You know, I do not think we really, you know, you know, really know.

So that is why we are just kind of putting in some conservatism in terms of how we are thinking about deploying capital in the fourth quarter.

Greg McGinniss: Mhmm. How would you categorize that seller that is kind of more willing to adjust To the repricing.

Mark Manheimer: Yeah. I mean, it typically will depend on their level of sophistication. And kind of understanding that there is probably not a buyer right around the corner that is just gonna step into our place. And then the other big piece is be how much pressure there is on that seller to transact. You know, if they, you have debt coming due, and it is a portfolio and they say, Okay, I have to-- You know, I have to do something and re. Redoing the debt is just gonna be really painful. I would rather just sell and maybe, you know, sell it at, you know, 30-40 basis points higher. Mhmm.

Greg McGinniss: Okay. And then with regards to, the forward equity that you have in place, how you think about raising capital today and cap rates that you are looking to achieve. When you are doing the acquisitions, you know, looking forward up in the acquisitions, and considering your weighted average cost of capital, is that kind of think about, hey. We already raised this capital at this rate. So we just need to get the spread to that rate, or are you thinking about hey. Here's the environment today. what is a reasonable cap rate spread based on today?

Daniel Paul Donlan: Wes, Greg, it is obviously the latter. So we definitely need to we definitely factor in where we are today versus kind of where cap rates are today. So, as we think about settlement of equity, you know, I think, it will be light over the next, you know, 2 quarters. Could be, and then probably pick back up in the back half of 2027. But as far as new equity is concerned, you know, we are just not in the model at this point in time, given where we are. But you know, we are optimistic that, you know, people will see the value in our shares as well as frankly the net lease space in general.

So, you know, we are hopeful that we can be back to issuing equity at some point in time. Next year. Or this year. Greg. Thanks.

Operator: And moving on to Michael Goldsmith with UBS.

Michael Goldsmith: Good morning. Thanks a lot for taking my question. Just on the settled shares, which is used to pay down debt, guess, you know, why is now the right time to do that? And then also, right, like your reported leverage ratio comes down, you know, do you expect that to have a material impact in your conversations with the rating agencies? What could that eventually lead to by having reported leverage ratio that is now, 1.5x lower?

Daniel Paul Donlan: Yeah. I appreciate the question, Michael. Look, it certainly puts us in a more favorable light with the rating agencies. They really look at leverage without the impact of the Ford. So, and so we. You really wanna be below 6.5x, without the forward. And so at 5x, we are comfortably below that. So we are optimistic that we can continue to have constructive dialogue with those parties when and if we decide to get additional ratings, probably sometime next year. And I think the first part of your question, why is now the time? I mean, look. We, you know, we do not really view beating earnings on, having less TSM. Dilution than we expected as a clean beat.

Or as a good way to guide higher. So, you know, in order to kind of blunt the positive impact that came from that, we decided to settle more shares, which you know, obviously has the positive impact that we talked. That you, you know, referenced in terms of the rate agencies. It obviously increases our, our float.

You know, it also allowed us to. it is allowing us to delay, the pull down of the 7 year term loan, and kind of given where swap rates have moved in the last, like, week or 2, hopefully, they continue to move down, and that will allow us to, swap that at better than expected rates versus what we have in the model today. So it did afford us, a lot of advantages, while not impacting earnings at all relative to our prior guidance.

Michael Goldsmith: Thanks for that. And as a follow-up, it seems like you are less into capital recycling. At this time maybe than others. So love to get your thoughts around capital recycling. You continue to dispose of targeted assets in the pharmacy and dollar store industries. Just trying to get a sense of, you know, would you need. Like, would you be interested in doing that? It seems like you have pretty good access to capital. So just trying to get, like, the thought process and how you think your portfolio positioned from here.

Mark Manheimer: Yeah. Thanks, Michael. Yeah. We will continue to do what we have been doing in those sectors. In fact, I think you can expect some more sales than in both of those sectors in the fourth quarter and then. And we will be at. We are. We have always been opportunistic. So, in the event that there is there that wants to pay aggressive cap rates, for some of our assets, then we can redeploy that capital into, you know, better assets at better pricing. You know, we are always interested in doing in doing that. We have been asked a few times about the bonus depreciation buyer.

We certainly have a lot of convenience stores and some interested parties, so there is always the possibility that we go down that. Go down that, that route. But, but, yeah, we are gonna be opportunistic And, you know, I think historically, we have probably been the most active on the disposition side, whether it be focused on concentrations or just improving the quality of the portfolio, which, you know, ultimately, is why I think we have got the lowest credit loss in the space of 3 basis points per year.

Michael Goldsmith: Thank you very much. Good luck in the fourth quarter. Thanks.

Operator: We will go next to Eric Borden with BMO Capital Markets.

Eric Borden: Greg, thanks for taking my question. Rent coverage remained healthy. You know, Just curious, looking beyond the portfolio average, are there any categories where tenant margins are coverage are beginning to weaken? And how much of the improvement this quarter came from existing store performance versus investments in sales that you completed?

Mark Manheimer: Wes. it is a good question. So I would say most of that came quite frankly from some sales. And then overall, I would say the coverages for the existing portfolio slightly improved, but was really just pretty stable. And then from new investments, that was kind of more in the kind of the 3.5 times coverage. So that actually brought it down a little bit, but, feel comfortable with where those came in. Greg. Thank you.

Eric Borden: And then you mentioned, being able to remove assets from portfolio purchases that you would otherwise have sold after closing. But beyond price, are sellers becoming more flexible on other terms that improve your, improve your returns or reduce credit risks?

Mark Manheimer: Wes. I mean, I. You know, that was kind of the big 1. As, you know, we look at a portfolio there is a book of every portfolio that we look to buy. Even if we like all the assets, they are certainly know, some better than others. And so in the event that we are able to cull down and really kind of chop off the tail, of the weaker assets, at acquisition. You know, that is obviously, you know, a big plus to us I mean, I think in sale leasebacks, you might be able to get better escalators and some other, you know, maybe longer terms things like that.

But, yeah, I mean, we are--everything's on the table. And, fortunately, we have had very constructive conversations with all sellers. Greg.

Eric Borden: Thank you very much.

Operator: Linda Tsai with Truist has our next question.

Linda Tsai: Hi, thank you. To the extent that you repriced deals with your sellers in 3Q, how much expansion on acquisition cap rates did you achieve And by back end loading your 4Q acquisitions, how much additional expansion might you expect on those deals?

Mark Manheimer: Yeah. So a little bit difficult to know where things are gonna land in the fourth quarter. Our expectations are certainly much higher, we will see what we are able to extract. But in terms of the third quarter, most of that was really at the very end of the quarter. Because you really think about when things moved. I mean, you know, the 10-year at the beginning of the quarter you know, less than 4.5, and moved up to, you know, I think, 3 at the at the at the end of the quarter, and most of that was really in the last 3 weeks.

Which you also kinda saw most of that move in our in our stock price and other stock prices in the in the space was really in the. In that last 3 weeks. So it was really know, we had closed on most of the transactions at that point in time or were, you know, in the closing process. So, you know, we were able to revisit pricing on 10 different deals. And we are able to move pricing on average about 30 basis points on the. On those transactions. But it just did not really move the needle that much for the entire quarter. It did take it from a 3 to a 4 overall, for the quarter.

But it was. You know, you think of it, it was really very late stages of the quarter when things when things really started to move, then we were not willing to, you know, sacrifice you know, relationships as well as have a ton of dead deal cost which we did not think was really needed.

Linda Tsai: Did you have any dead deal costs?

Mark Manheimer: No. We did not. No.

Linda Tsai: Just 1 other question. In terms of the 1.03 thousand buyers going away across the top industries you invest in, grocery, convenience, home improvement, dollar stores, where are you seeing the cap rate expand fastest?

Mark Manheimer: Yeah. I mean, it is not necessarily driven by sector. Driven by seller. And again, how sophisticated is that seller? Do they kind of really understand where you are coming from? And, really, what is going on in the market and then how much pressure is on them to transact? And so I think the people that maybe to kind of see some comps at higher cap rates, that is gonna take a little bit more time. But it is really pretty broad across all sectors. it is really driven by who the seller is and what position that they are in. Thanks.

Linda Tsai: Thanks, Linda.

Operator: We will go next to Alex Fagan with Baird.

Alex Fagan: Hey, thanks for taking my question. Maybe just 1 for me. Are there any changes in the expectations for how much lending you can do that could lead to acquisitions and just helping your partners out. In this kind of environment?

Mark Manheimer: Yeah. it is a. it is an interesting question. Because we kind of think that the longer the disruption lasts, you know, there is just going to be, you know, kind of some 1-off opportunities. We have not really seen much on the lending side. Currently, that is that attractive to us. Beyond what is what is normal course for us. But we do think there is the possibility that could pop up. Got it.

Alex Fagan: Thank you. Thanks, Alex.

Operator: We will go next to Jana Galan with Bank of America.

Jana Galan: Thank you. Good morning. Maybe just following up on that last question, During the last market disruption in 2023, you guys were able to find some attractive opportunities with mortgage loans. I am curious how long did those take to kind of enter the pipeline, and if that is an area that you would consider in any specific tenant categories or structures.

Mark Manheimer: Yeah. I mean, I think we would consider anything, especially as some of those paid off or converted into to fee ownership. You know, our loan book is certainly a lot smaller. So we have a little bit more capacity there. And last time, it really was some, you know, some people that had some financing commitments that fell through. So think that will probably take some time, maybe a quarter or 2. If that is going to happen again, or if, you know, if lenders wanna you know, kinda reprice the interest rates on deals if they burn through some rate locks or things like that.

I think that is certainly possible. it is just, you know, very difficult to predict whether that happens again or not. Thank you, Mark.

Jana Galan: Thanks, Jana.

Operator: Our next question will come from Upal Rana with KeyBanc Capital Markets.

Upal Rana: Great. Thank you for taking my question. Just following up on that as well, you know, on the loan repayments this quarter, that carried about an 8.8% yield? How much additional repayment or conversion activity should we anticipate over the next year? And how are you incorporating that income replacement into your acquisition needs?

Mark Manheimer: Yeah. I mean, I think in most cases, the loans as they are repay, they are replaced with a new development and a new loan. And so as those assets are sold, And so I would think of it as just kind of, you know, standing in place with most of those. there is a couple of chunkier deals that may pay off, but those are at much lower interest rates, that would be a great source of capital.

Upal Rana: Okay, great. And then you know, when looking at, new deals today, you know, how are you distinguishing between a deal that is accretive using capital that you already raised versus 1 that clears your return hurdles that, you know, today's replacement cost of capital. And just curious which standard is, you know, driving your investment decisions right now.

Mark Manheimer: Yeah. We never, take into effect where we have raised equity in the past when we think about putting new capital to work. it is really where can we raise it today and what does that look like, and what is the spread on that cost of capital. it is where we raised equity in the past is not relevant to us at all.

Upal Rana: Okay, great. Thank you.

Operator: Moving next to Jamie Feldman with Wells Fargo.

Jamie Feldman: Greg. Thanks for taking the follow-up. Daniel, I just want to go back to a comment you made earlier where you said you see a path towards mid-single-digit AFFO growth next year without needing to raise any equity. Between now and 2027 year-end. Can you just walk us through the key building blocks to get there? And, you know, as you think about the course of the year, are there certain quarters you think are higher or lower, or, you know, what would really move that away from that mid single digit number?

Daniel Paul Donlan: Well, I mean, it is. there is a lot of different factors. So, equity is not 1 of them. But I think it would be, you know, where we refi the, $175 swap in January. What type of credit losses, you know, we recognize in the quarter, where our cash G&A shapes up, relative to, this year. You know, the timing of investments, would also factor into that. And then where we are able to eventually you know, pull down the 7 year term loan and swap that. Those are all different. Those are all the factors that would go into, you know, the growth range that we gave.

But that growth range is based upon, again, 550 million of net investment capacity being deployed between now and the end of 2027.

Jamie Feldman: Okay. And then what are you assuming for, like, core growth? Before investments?

Daniel Paul Donlan: I mean, you think about our average escalator growing at kind of a little over 1% bit around 1%. Give or take, you know, 10 to 20 basis points depending upon you know, how, you know, what you know, lease bumps we have.

Jamie Feldman: Okay. And then just going back to the bonus depreciation comment, how big is that pipeline for your team? And do you think it is gonna grow meaningfully or stay pretty constant? And is there any timeline on people wanting to get those deals done?

Mark Manheimer: Yeah. I mean, it is very opportunistic, and really escalates massively in at the very end of the year. So a little bit tough to predict how much we do, if any. I mean, I imagine we will do some there. But. Yeah. I mean, we had a lot of people coming to us you know, literally in, you know, early to mid December last year, frantically wanting to figure out how to figure out how to you know, get their hands on some of our C-store assets. And so, I would expect this to continue to be the same this year.

Linda running out of the, you know, the last couple of years of this I think there is a fear that maybe that goes away. At some point in time. But, yeah, it is, you know, the tax planning seems to really, you know, really escalate quite a bit at the. In last few weeks of the year.

Jamie Feldman: Do you have a certain pool of assets that are ready to go for that, or you consider anything?

Mark Manheimer: We understand which of our assets would qualify for that for that tax treatment. And so if somebody approaches us, we are we are we are ready to go.

Jamie Feldman: Which type of assets qualify?

Mark Manheimer: Yeah. Yeah. There are certain criteria beyond just what sector that they are in, but it is primarily just convenience store assets within our portfolio.

Jamie Feldman: Okay. Alright. Thank you. Thanks, Jamie.

Operator: And this now concludes our question and answer session. I would like to turn the floor back over to Mark Manheimer for closing comments.

Mark Manheimer: Well, thanks, everybody, for your interest in the company today. We look forward to seeing many of you at the upcoming conference schedule. Take care.

Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.

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