Prepared remarks
Greetings, and welcome to the NETSTREIT Second Quarter 2026 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 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-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 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 netstreit.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 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 $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, which 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, 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 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 represented 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, which 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.
Questions and answers
Thank you. At this time, we will conduct a Q&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 handset before pressing the star keys. One 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 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 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 pricing or speed standpoint—are deals taking a bit longer? So curious how all of that is playing out and what your expectations are into the back half of the year. Thanks.
Yeah. Thanks, Haendel. I think there is a little bit of conservatism built into that, but we also do not want to have a target out there with capital that we have not raised yet. So if we do choose to raise a little more capital, I think there is likely some upside to that. But more broadly related to what we are seeing in the market: I do not recall a healthier acquisitions market than what we are seeing right now 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 are really kind of clicking on all cylinders. So there is a great opportunity set with very attractive pricing that we are seeing. We are following the macro and what is going on geopolitically; that has 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 could 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. That is great color. And then my second question pertains to some comments you made earlier in your discussion. You referred to some higher-tenant credit names like Chick-fil-A and Sprouts. I guess I am curious: we have seen your high-grade share trickle down over the last couple quarters as you have pursued optimizing your risk-adjusted growth. But cost of capital must have improved and you are now, I guess, able to underwrite deals that perhaps you were not able to do 6 to 12 months ago. So curious if your investment-grade 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 the dynamic is that there have been a large number of portfolios that have crossed our desk that we have had the opportunity to tackle. It is too difficult for one or two shops that historically have really paid up for those portfolios to take them all. A few of those have come our way, which has allowed us to get some assets that historically maybe we would not have been able to. But as it relates to this quarter being a little bit high on the investment-grade profile, a good chunk of that was the Speedway UPREIT unit transaction that we did this quarter, so that may be more of a one-off. We are 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 bit of in the third quarter as well. I would expect us to stick around that 30% to 35% investment-grade profile, assuming the market dynamics continue.
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 where you are seeing some opportunity?
Yeah, sure. The sectors that have shown up in some of the portfolio deals are similar to what we typically target, but with a few additional names. We mentioned Kwik Trip, Sprouts, Chick-fil-A that we now have in the portfolio that we did not have much concentration in before, which created a unique opportunity for us to add some of those. We have also added names like Tire Discounters, some of the Darden brands, and some Brinker or Chili's assets which have not been in our mix over the past couple of years. So it is very similar sectors, just with some tenants that do not trade as much in the one-off market. Why so many portfolio deals: as you recall, during 2021 when interest rates were near zero and cap rates were at all-time lows, many players entered the space and put financing on those transactions. That debt is coming due—typically a five-year term on that bank debt—and the refi looks a lot different, so selling the portfolios makes a lot of sense in many cases.
We are just seeing a lot of opportunity there. Each deal has its idiosyncratic reasons for coming to market, but that is a common theme. In some of these portfolio situations, we have gotten creative, buying some portfolios and simultaneously selling assets that did not fit our long-term view—some banks and other assets that still trade at a pretty good cap rate. That allows us to juice our net cap rate a bit while getting a better risk-adjusted return. So sector-wise, it looks pretty similar to what we have been doing, but with some additional tenant diversity and different ways of structuring those transactions.
And I guess that leads me to my next question, which would be about the chunkier disposition activity in 2Q. Is that related to the Speedway deal? And if we were to see more portfolio deals and net investments climbing, would you also expect disposition amounts to remain a bit elevated?
Yeah, good question. On the portfolio deals, if it is going to be a diversified portfolio, we are likely to sell some assets that we do not want to own long-term. We have been very active on the disposition side, which has allowed us to build relationships with reliable buyers that we can lean on. So you may see dispositions elevated a little bit if we do more portfolio deals. But every quarter is different, so it is hard to predict. We have seen third quarter activity similar to second quarter in that we have done some portfolio deals and also been able to sell some assets that we did not want to own long-term.
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. When do you think that could peak? And 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. What is your appetite to continue tapping incremental forward equity at these levels?
Hey, Jay. Appreciate the commentary. If you look at our total shares outstanding relative to the weighted average share count, I think it is around 38% today. That should normalize closer to 15% as we get through the course of 2027. It remains to be seen where the stock price goes relative to the outstanding forwards, but from a percentage basis, the outstanding forwards will normalize closer to 15%. The amount of treasury stock method dilution probably peaks in the third quarter, depending on where the stock price goes, and then will drop off from there, both nominally and on a percentage basis. On the equity front, you are right—we do not need to do anything if we do not choose to. But to the degree the investment market remains as robust as it has, we will likely utilize the ATM at some point in the third or fourth quarter. With the S&P 600 inclusion, we had a lot of liquidity come into the name and we wanted to take advantage of that in the back half of June, which accelerated our needs relative to what we were expecting when we put out guidance in April of this year.
And going off the inclusion to the S&P 600 recently, which should bring liquidity and additional passive investors to the name: are there any other incremental corporate goals we should be monitoring—index inclusion, new credit ratings, unsecured bond issuance, or anything else we should have on the radar?
As far as indices, nothing comes to mind; hopefully we stay in the S&P 600 for a long time because that results in quite a bit of passive ownership. On the credit side, we already have BBB- from Fitch. We are likely to approach other rating agencies sometime early next year, which would open us up to the public bond markets. That's something we are excited about and potentially tapping in 2027. So that is the intermediate-term goal for us.
Thank you. Your next question comes from Michael Goldsmith with UBS. Please state your question.
Good morning. Thanks for taking my question. With the improved cost of capital, you've been doing some portfolio deals and getting into a little bit higher-quality tenants than maybe you normally would have. Does that come at the expense of maintaining larger spreads in some of the more traditional tenants you've interacted with in the past, or are you able to, for the same price you would pay for the traditional assets, improve tenant quality?
Michael, I think we were a little surprised at some of the portfolio deals we were able to get at the pricing we did, driven by the fact that a lot of portfolios came to market in a relatively short period of time, making it difficult for a few players to buy them all. I would have thought this quarter would be unique, but we are seeing a similar dynamic in the third quarter. If you look at the cap rate we achieved this quarter, and what drove that to a 7.4% blended cash yield from a 7.5% or 7.6% is really the Speedway UPREIT deal at 6.75%. Take that out and we're probably at 7.5% or 7.6%, so we did not have to deviate much on pricing. We do not expect that to change in the third quarter either. As long as the market dynamic continues to present these opportunities at attractive pricing, we'll participate. If it does not, we can transition back to our more typical approach.
And Michael, a lot of times the reported figures are rounding—sometimes 7.4 versus 7.5—that delta is less than 10 basis points when you factor in rounding.
Got it. Thanks for that. My follow-up: you continue to move into grocery with Sprouts, and the penetration of grocery within your portfolio remains elevated. Today, Albertsons reported and the stock is down quite a bit, noting grocers face increasing pressure from softer industry unit trends and a more cautious consumer. Not all grocers are equal, but how are you feeling about the grocery assets within your portfolio and any update from tenants in that category would be helpful. Thanks.
We pay attention to consumer trends and grocery margins. We are seeing that larger operators have been able to push pricing a bit more and hold up better. Having a very conservative balance sheet is extremely important in that industry; you do not want to combine operating leverage with financial leverage. We feel really comfortable with the grocery assets we have: they generate very strong sales, which flows through to the bottom line with very high rent coverage in that sector. As long as we buy good assets at or below market rents with high rent coverage, we like the industry. You do have to be careful about which operators and assets you partner with, but we feel very strong about the assets we have and their rent coverage.
Thanks, Michael.
Your next question comes from Smedes Rose with Citi.
Thanks. It is Nick Joseph—sorry about that. You had mentioned conservatism in the guidance 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 into the pipeline? And where does that pipeline stand today versus where it stood on average over the last year or so?
We are seeing a very healthy acquisitions market. I think we are sitting in a very similar spot to where we were three months ago on this call, so no real reason to expect a slowdown in the third quarter. 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—not only which deals we will be able to access, but also what the macro will look like and where cap rates will trend. We do not want to overextend ourselves, especially if there is the possibility of cap rates going up; we want to have that flexibility.
Hi. This is Smedes. I wanted to follow up on the comments around grocery. For tenants more focused on lower-end consumers, are you hearing anything from them in terms of trends that might give you pause or make you reconsider how you are underwriting some of those leases?
The case-economy is real; the lower-end consumer is certainly under pressure. Fortunately, we do not have a lot of exposure to lower-end consumer-focused tenants. If we do have exposure there, we require a real value proposition from the tenant—either necessity-based products or a clear value proposition that will drive traffic. We make sure those assets have very healthy rent coverages and corporate credit, often investment grade, locations where the operator is committed long-term and where we see strong cash flows and cushion to protect against consumer weakness. The lower-income consumer is under pressure, so we ensure our underwriting reflects that risk.
Your next question comes from Wes Golladay with Baird. Please state your question.
Hey, good morning. 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 has changed?
It is interesting. We have seen some portfolios that were very well marketed with multiple rounds of bidding go off at a substantial premium. But the smaller portfolios we've looked at have been closer to par—we wouldn't call them discounted, but they have been similar to the pricing of small portfolios and single-asset deals. So it is probably close to no premium/no discount on many of the smaller ones. Some larger portfolios that are very well-marketed are still achieving premiums in the market.
Your next question comes from Greg McGinniss with Deutsche Bank. Please state your question.
I wanted to go back to your earlier comments on the portfolio deals coming to market. Do you have any view on what is driving those deals to market? You mentioned expected moderation that has not materialized yet, but if there were to be a slowdown, what would drive that?
Every deal has its idiosyncratic reason, so it is tough to generalize. But the overarching theme is that many players were aggressive buyers in 2020–2021, leveraging assets with very cheap debt that is now coming due. With five years having passed for many of those loans, the refinancing looks different and sellers are deciding it may be better to sell portfolios to larger institutions rather than refinance. That dynamic is driving a lot of the activity. You could reasonably expect this to continue to show up over a multi-year window if you add five years to when portfolios were assembled, but timing and motivations can vary by seller.
Last quarter you mentioned a limited pool of sub-1.1x unit-level rent coverage assets. Did any of those get resolved in Q2 or were any part of the disposition pool?
We did dispose of one of those assets, and another that we expected to start to ramp has moved out of that bucket. We may continue to explore options for the couple that remain, but we've made progress in reducing those exposures.
Your next question comes from Eric Borden with BMO Capital Markets. Please state your question.
Good morning, everyone. Thanks for taking my question. You continue to add grocery, convenience stores, and QSRs. Given the acquisition opportunities in those categories, how much further are you willing to increase exposure to those categories? What concentration level would start to make you uncomfortable from a portfolio construction standpoint?
We will never turn down a good deal, so we do not want to box ourselves in, but we generally target a soft ceiling in industry exposure around 15% as a guideline for industries we really like. Once you get up around 20% we typically start looking to dispose assets in that category to reduce concentration. If there is a very attractive transaction that increases a category, we may pursue it and then dispose other assets to bring the concentration back down. The goal is to manage concentration risk and keep exposures within prudent construction parameters.
And the impairment you recognized in the quarter, the $4.2 million charge—could you provide more detail on whether that was an isolated asset-specific issue or if there is a broader theme?
Those impairments typically occur in the context of selling assets. When you sell a lot of assets, especially assets bought at lower cap rates three to four years ago, you can see cap rate expansion and some assets sell at losses relative to their book value. The impairment was largely offset by gains on sale. Many of these outcomes are driven by how portfolios are allocated across accounts and buyers. There is not a material read-through beyond the normal gains and losses associated with active disposition activity; the gain on sale in the quarter largely offset the impairment.
Your next question comes from Michael Gorman with BTIG. Please go ahead with your question.
Thanks. 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? If so, does that provide any pricing advantage for you? Are you generally competing with other public buyers for those types of transactions?
We like the UPREIT structure and the Speedway transaction was a great example of that. I noted another public REIT did an OP deal this quarter, so public buyers will sometimes pursue UPREIT/OP structures as well. We used a stock price of $21 on the UPREIT transaction, which at the time was slightly higher than our trading price; it was accretive, with fewer fees and an efficient deployment of capital. Sellers like it because it allows them to defer taxes and often creates sticky shareholders. I would not be surprised to see more in the future, but they are one-offs and you cannot count on them; when they pop up, we are big fans of using the structure if it makes sense.
And maybe going back to IG exposure—it's ticked down a bit. Is that more a function of portfolio growth and diversification, or are you saying investment-grade is kind of mispriced in the market relative to other opportunities?
It is a bit of both, but more the latter: where you get the best risk-adjusted return right now is not always in investment-grade credits given how cap rates moved. Credit is only one piece of risk assessment for us. Equally important is how mission-critical a location is to a tenant, rent coverage, and how fungible the real estate is at lease maturity—i.e., how easy is it to re-lease or convert the asset and what TIs would be required. When interest rates moved up, non-investment-grade cap rates moved up more; on the investment-grade side, there were still buyers willing to pay low cap rates, so risk-adjusted returns were often better outside pure investment-grade. As a result, the efficient frontier for us has been in the 30–35% investment-grade range. That is more of a byproduct of where we are finding the best risk-adjusted returns, not a strategic shift to avoid investment-grade tenants.
Your next question comes from Upal Rana with KeyBanc Capital Markets. Please state your question.
I wanted to get your updated thoughts on competition in the transaction market with borrowing costs trending higher. Are you seeing less competition overall? You mentioned a lot of portfolio deals that came online at once this quarter and you were able to pick up a few at attractive pricing. Any color there would be helpful. Thanks.
We continue to see virtually no competition from larger private institutions that typically grab headlines. Our primary competition is the thousands of smaller individual and family-office buyers. Occasionally we compete with public REITs, but when we are up against other public REITs we typically do not win those transactions. Smaller buyers are often using 50–60% LTV bank debt, and those interest rates have made it more difficult for them to compete. So competition is significantly lower from that cohort, which benefits us as an efficient public buyer with scale and access to capital.
I also wanted updated thoughts on the watch list as you have made progress reducing exposure to troubled tenants. How much more is there to do and what is currently baked into your guidance for credit loss?
We do not have many tenants in distress. We had a few that were out of favor and we've significantly reduced those concentrations. We will likely continue to chip away at the margins. Our real focus is on the histogram in our presentation that shows corporate credit and unit-level coverage—we want to keep chopping the tail off the weaker corporate credits and weaker unit-level coverage. You've seen strong progress there and we will continue to address any remaining outliers. There is not a material amount left to fix, and we are actively managing these exposures.
There are no further questions at this time. I will hand the floor back over to Mark Manheimer for closing remarks.
Thank you. Well, thanks, everyone, for joining us today. We appreciate everyone's interest in NETSTREIT. Thanks.
This concludes today's conference. All parties may disconnect. Have a good day.