NetSTREIT Corp.

Greetings. Welcome to NetStreetCorp First Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Amy on Investor Relations. Thank you. You may begin.

We thank you for joining us for NetStreet's first quarter 2025 earnings conference call. In addition to the press release distributed yesterday after market close, we posted a supplemental package and an updated investor presentation. Both can be found in the investor relations section of the company's website at www.netstreet.com. On today's call, management's remarks and answers to your questions may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters that are subject to risk and uncertainties that may cause actual results to differ from those discussed today. For more information about these risk factors, we encourage you to review our Form 10-K for the year ended December 31, 2024, and our other SEC filings. All forward-looking statements are made as of the date hereof, and NetStreet assumes no obligation to update any forward-looking statements in the future. In addition, certain financial information presented on this call includes non-GAAP financial measures. Please refer to our earnings release and supplemental package for definitions of our non-GAAP measures, reconciliations to the most comparable GAAP measure, and an explanation of why we believe such non-GAAP financial measures are useful to investors. Today's conference call is hosted by NetStreet's Chief Executive Officer, Mark Manheimer, and Chief Financial Officer, Dan Donovan. They will make some prepared remarks, and then we will open the call for your questions. Now I'll turn the call over to Mark. Mark?

Thank you, Amy, and thank you all for joining us this morning on our first quarter 2025 earnings call. During the quarter, we made additional progress on reducing our top five tenant concentrations, and we continue to see healthy performance from the stores that we own. On the external growth front, our team continues to source attractive investment opportunities, but our investment pace remains more measured versus prior years. This deliberate stance is rooted in our desire to maintain a low leverage balance sheet and our view that our cost of capital needs to better reflect our portfolio strength and best-in-class operating performance, which I will discuss later in my prepared remarks. During the quarter, we completed $90.7 million of gross investments at a blended cash yield of 7.7%. The weighted average lease term for these investments was 9.2 years, with investment-grade and investment-grade profile tenants representing 66% of ABR. Additionally, more than half of our activity this quarter was accretively funded with loan payoffs and disposition proceeds the latter of which totaled $40.3 million across 16 properties at a 7.3% blended cash yield. While we have and will continue to maintain a measured approach towards net investment activity, we are currently seeing no shortage of great investment opportunities across various capital deployment strategies. As such, we stand ready to accelerate our investment pace to levels that are similar or above where we have acquired in the past should we see a more sustained improvement in our cost of equity. Turning to the portfolio, we ended the quarter with investments in 695 properties that were leased to 101 tenants operating in 26 industries across 45 states. From a credit perspective, 71% of our total ABR is leased to investment grade or investment grade profile tenants. Our weighted average lease term remaining for the portfolio was 9.7 years with just 1.3% of ABR expiring through 2026. Our focus on granular and fungible assets has led to continued demand for our properties when we decided to decrease our concentrations. This strong level of demand resulted in our top five tenant concentration declining 70 basis points to 28.2% of ABR, including a 50 basis point reduction in our top tenant, Dollar General, to 8.1% of ABR. While we have made tremendous strides towards our diversification goals, We are not slowing our efforts as evidenced by our expectation for strong disposition activity at lower cash yields in the second quarter. We remain confident that we can achieve our previously articulated diversification goals, and we continue to see these sales being completed at accretive spreads to where we can invest, which is something we have done every quarter in our history. From a tenant perspective, we continue to add new high-quality and low-risk tenants to our roster, including Gerber Collision, who is now a top 20 tenant, as well as many other large grocers, convenience store operators, quick service restaurants, and auto service chains. We continue to avoid specialized real estate and large, less fungible boxes, given their limited reuse potential and expensive nature of repurposing the real estate. Similarly, we continue to have limited exposure to sectors that are more susceptible to distress when the economy slows. In short, we believe our portfolio, which drives 88% of ABR from necessity, discount, and service-oriented industries can weather any economic environment and avoid large losses should credit events test our real estate underwriting. With that in mind, we were the only net lease REIT to report zero credit losses during COVID, and we have maintained best-in-class performance in this regard since coming public nearly five years ago. Our credit underwriting continues to prove out despite various negative headlines and store closure announcements. As an example, our loan credit event with big lots resulted in just 20 basis points of credit loss with seven of our eight locations being assumed by Variety Wholesalers or Ali's Bargain Outlet. While we have always taken a less hyperbolic approach at that street, I'd be remiss to point out that our outcome as it relates to our Big Lots exposure draws a stark contrast to the impact felt by other landlords of Big Lots. That can only be explained by our strong underwriting and attentive asset management. While we have had some of our larger tenant concentrations experience negative headlines in the past, we have had virtually no impact to our in-place cash flow since inception. And while we expect this positive performance to continue despite two of our tenants, Family Dollar and Walgreens, being subject to going private transactions, based on our understanding of the deal structures and associated EBITDA of the standalone entities, both companies intend to operate with low leverage. Similarly, given that both companies closed a large number of stores well in advance of these announcements, it is our understanding that neither company intends to close many additional locations beyond what has already been announced. Lastly, we see reasons for optimism on the operations front as the new leadership at Family Dollar plans to return the brand to the roots that made the brand successful prior to the merger with Dollar Tree, while Walgreens stands to benefit from a more focused team with a broader understanding of retail. Before handing the call over to Dan, I wanted to reiterate a message that we have consistently provided in the past. We will not sacrifice our balance sheet for growth, nor will we grow for the sake of asset growth, without an appropriate level per share earnings growth. We will remain opportunistic as it pertains to new investments, and we are more than capable of ramping our investment pace should our investment spreads turn more favorable. Given the high quality and resilient nature of the portfolio that we own and manage, and the various catalysts we see materializing from completing our tenant diversity goals, as well as achieving an eventual investment grade credit rating, we are confident that our growth from a small-based narrative and gain further traction as we execute our strategy. With that, I'll hand the call to Dan to go over our first quarter financials and then open up the call for your questions.

Thank you, Mark. Looking at our first quarter earnings, we reported net income of $1.7 million, or $0.02 per diluted share. Core FFO for the quarter was $24.6 million, or $0.30 per diluted share, and AFFO was $26.2 million, or $0.32 per diluted share, which is a 3.2% increase over last year. Turning to the expense front, our total recurring G&A in the quarter increased 5% year-over-year to $5.1 million, which is mostly the result of increased staffing and further investment in our team. That said, with our total recurring G&A representing 11% of total revenues this quarter versus 13% in the prior year quarter, our G&A continues to rationalize relative to our revenue base. Turning to the capital markets, on January 15, 2025, we closed on $275 million of additional financing commitments. This included a new fully drawn $175 million senior unsecured term loan, which was swapped to an all-in fixed rate of 5.12% through final maturity in January of 2030, and an upsized $500 million revolving credit facility, which was increased from $400 million. We also extended the maturity date of our existing $175 million term loan to January 2030 from January 2027, and amended all of our existing credit agreements to remove various financial covenants, that provide for improved pricing when we meet certain investment grade rating and leverage targets. Turning to the balance sheet, our adjusted net debt, which includes the impact of all forward equity, was $724 million. Our weighted average debt maturity was 4.1 years, and our weighted average interest rate was 4.57%. Including the extension options, which can be exercised at our discretion, we have no material debt maturing until February 2028. In addition, our total liquidity was $584 million at quarter end, which consisted of $14 million of cash on hand, $385 million available on a revolving credit facility, and $184 million of unsettled forward equity. From a leverage perspective, our adjusted net debt to annualized adjusted EBITRE was 4.7 times that quarter end, which remains well within our targeted leverage range of 4.5 to 5.5 times. Moving on to guidance. With no credit loss events realized this quarter, we are increasing the low end of our AFFO per share guidance to a new range of $1.28 to $1.30, which continues to assume 2025 net investment activity of $75 million to $125 million and recurring cash G&A of $14.5 to $15.5 million. From a rent loss perspective, our guidance now assumes roughly 75 basis points of unknown rent loss at the midpoint of our range, which to cite recent macro uncertainty, should prove conservative as the year unfolds. Lastly, on April 25th, the Board declared a quarterly cash dividend of 21 cents per share. The dividend will be payable on June 16th to shareholders or record as of June 2nd. Based on the dividend amount, our AFO pay ratio for the first quarter was 66%. With that, Operator, we will now open the line for questions.

Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. Please ask one question and one follow-up question. One moment while we poll for questions. Our first question is from Handel St. Just with Mizuho Securities. Please proceed.

Hey, guys. Good morning. I wanted to talk about the the appetite you're seeing out there for the pharmacy and dollar stores. It looks like you've been able to make some continued progress here and sell at some pretty decent cap rates. So maybe some color on the appetite, the pricing you're getting, and maybe a sense of timeline to get your dollar general CVS and Walgreens exposures down to your target levels.

Yeah, sure, Andal. Yes, I mean, I think we, on the last call, mentioned that the timeline for all tenants would be to get them below 5%. by 1231, which we continue to expect to be able to hit that timeline. Walgreens may be a little bit different. I think we'll try to get that below 3% since it's at 3.7% currently. There continues to be a pretty robust amount of interest from institutions and from 1031 buyers on the dollar store side. So I'd expect us to continue to make a lot of progress both with Dollar General and even with Family Dollar, we've got a number of those properties in the pipeline to sell. And then, you know, we do have a few pharmacies also that we expect to sell here before our next earnings call. You know, Walgreens with the news of Sycamore, you know, we do have a pretty good idea of what that balance sheet is going to look like, which I think is going to be a little bit lower levered than what I think some people may fear. So once that information gets out, I think that's certainly going to help, but we continue to see interest from the 1031 market as it relates to Walgreens.

That's great, Collin. I appreciate that. Maybe a follow-up on the debt side. Dan, I think you mentioned, I think you have an expectation of pursuing a ratings upgrade here, so maybe some color on what you're hearing from the agencies, potential timing of a potential upgrade. and any sense of what estimated savings on the debt side could be. Thanks.

Yeah. Hey, Andel. So we haven't started our preliminary discussions yet. We're preparing for that. We don't have a rating as it sits today. We've been through this process before at other companies, both Mark and I. So we have a pretty good understanding of what it would entail. I think as we sit here today, we're kind of targeting going out to certain rated agencies in the latter half of this year. And if you just look at kind of the covenants as well as the terms that we received in our newest credit agreement as well as across the term loans, that should result in about 20 basis points of savings. On top of that, there are other industry things occurring that probably will result in us receiving another 10 basis points of savings. So I think all in. you know, where we could gain a investment grade credit rating for one of the three major rating agencies. We're looking at at least a 30 basis points reduction across not only our term loans and the credit facility as well.

Thank you, guys.

Our next question is from Greg McGinnis with Scotiabank. Please proceed.

Hey, good morning. I just want to clarify, make sure I understand your initial comments on the net investment activity. So if nothing were to change from Q1, you'd be in a position to exceed the net investment guidance range? And a follow-up to that is whether or not the transaction market has changed much following April 2nd?

Yeah, no, I think what we – we would not look to increase our acquisitions if nothing changes related to our equity price. The good news about us being in capital recycling mode is that we have continued to be very active on the acquisition side, matched up with a lot of dispositions. So in the event that our stock price improves from here, we'd be in position to be able to hit the gas pretty quickly.

Okay. And has there been much of a change in the transaction market since April 2nd?

No, not since April 2nd. So we continue to see just a lot of great opportunity. And so, you know, whether that be with, you know, convenience stores, quick service restaurants, you know, a lot of different sectors, you know, auto service amongst others where, you know, we've got a lot more opportunities than we do capital right now, but we're hopeful that that changes.

Okay. Last one from me. The 75 BIPs of bad debt expense built into guidance at this point, does that include any allotment to specific tenants or is it more of a safety margin?

Yeah, I mean, there really isn't any specific in there. It's really solely for unknown events, you know, based upon what we see here today.

Okay. Thank you both.

Thanks. Our next question is from John Kilachowski with Wells Fargo. Please proceed.

Good morning. Thank you. Maybe first one for me, could you give us an update maybe on the progress around the releasing of your big lots asset in Maryland?

Yeah, absolutely. So we've had a lot of interest from a number of retailers. There is a competing shopping center that's being built down the street. And so the current dynamic, we'd like to kind of really see that play out a little bit more. There's a lot more demand than there are opportunities. And so We have some retailers chasing that location as well as ours. And so I think that it may take a few months just to kind of see how that plays out. But we're in possession of a handful of LOIs that are pretty attractive and we're actively negotiating. But we think if we take our time a little bit, we may get a better outcome here in the next few months.

Okay. And just to confirm, that's not included at the high end of guide? No, we don't have anything in 2025 for that. Okay. Uh, thank you. And then the last one for me is just, how do you think about the Walgreens take private and does that change the risk profile of those assets to you?

Yeah, no, it does not. Um, you know, I think the fact that, uh, you now have a company solely focused on the retail operations rather than a very complicated business. I think that's helpful. Sycamore has proven you look at what they did with staples really over the past decade. That was a company that I think a lot of people didn't think very highly of a decade ago when they acquired them, and they've done really an outstanding job with that. And the fact that they're not going to lever it up and focus on the operations really speaks to our confidence that it should continue to be a going concern. And we have locations that do really well. So even in the event that they decide to close some more stores beyond what we're expecting, we don't expect those to be our stores.

Got it. Thank you. Thank you.

Our next question is from Michael Goldsmith with UBS. Please proceed.

Good morning. Thanks a lot for taking my questions. In your prepared remarks, you mentioned that you're going to see some strong dispositions at low cash yields in the second quarter. Within your guidance, you only provide the net number, so maybe you can provide a little bit more clarity around the expectations of, you know, how the portfolio should change over the next period, you know, from a volume, from a tenant type perspective, and also from a cap rate perspective. Thanks.

Yeah, sure. And so it's always a little bit tricky because we don't control whether the disposition is closed. We know, you know, what LOIs we've signed, and we know what's under contract, and we know who's, you know, hard on their deposit. So as you progress through that timeline, obviously you get more confidence that the buyers are going to close. And so we've got, you know, some advanced autos. We have some dollar generals. We've got some family dollars. And we have some pharmacies all in that mix. And then we'll also look to sell assets that aren't in those categories if we feel like the performance of that particular asset isn't doing as well. I mean, you saw that we sold a Lowe's in the quarter. That was due to, you know, having conversations with the tenant and understanding that of our four locations going into the year, that was the weakest location. So we were able to sell that at a 6.5% cap rate. So I'd expect that, you know, that to be the mix. There may be, you know, kind of one or two assets here or there that kind of fit that Lowe's type profile where the asset isn't doing as well and the rest in those other categories. The cap rate on the dispositions is going to be kind of mid to high, you know, 6% cap rate, depending on what closes. And then we're going to try to match fund as best we can on the acquisition side and You know, we'll continue to stay within the acquisition guidance on a net basis, but I'd expect it to be somewhat similar to what you saw in the first quarter. And then on the cap rate on the acquisition, I think you'll continue to see that north of seven and a half.

Got it. And on the other side of the coin, your exposure to grocery was up 150 basis points, but maybe not in the top 20 tenants. So maybe you could talk a little bit about where you're stepping into, where you're leaning into. Is this better understand how the portfolio is changing and the underlying tenants within the grocery category? Thanks.

Yeah, no, that's a great question. So we added one of the largest ESOPs In the country, we're focused on larger grocers that generate a lot of cash flow within the four walls that we're buying and strong retail corridors. And so where we can find tenants that may or may not have an investment grade rating, where we're getting attractive economics and good growth in the lease, those are the types of acquisitions that we're looking to do. Quite frankly, we don't have a ton of grocers in the second quarter like we did in the first quarter. But that is a sector that we like a lot.

Thank you very much. Good luck in the second quarter. Thanks, Mike.

Our next question is from Shmeet Rose with Citibank. Please proceed.

Hi, thank you. I just wanted to ask you, as you reduce your exposure to the dollar stores in general and you think about where there's Dollar Tree and Family Dollar combined stores. Are those targets for dispositions or kind of what happens to those if those two brands separate?

Yeah, no, it's a great question.

Yeah, no, absolutely. And so there is going to be a little bit of movement where, you know, if you may go to Dollar Tree, they, you know, most of those are going to go with Family Dollar. We do have a handful of those under contract to sell just to reduce exposure to Family Dollar. And so I'd expect most of what you see in the supplemental for the combo stores to go over to Family Dollar. Okay. But we're actually selling both Family Dollar locations and combo stores.

Okay. Okay. And then I think last quarter you talked about in your guidance, you're anticipating settling the forward equity in the second half of the year. Is that still the case or would you anticipate maybe extending that depending on your acquisitions?

Yeah, I mean, I think right now, Smeeds, there could be some in the second, there could be some in the third. I think the bulk of it probably comes in the fourth. We could always extend it if we wanted to. You know, we're optimistic that, you know, based upon, you know, catalyst that we see, you know, propelling our shares further this year that we'll be able to get out and raise a little bit of equity to, you know, increase potentially our net investment activity. But as we sit here today, if we, you know, if we don't do anything, I think you're likely to see us, you know, take down most of it by year end.

Okay, thank you. Our next question is from Michael Gorman with BTIG.

Please proceed.

Yeah, thanks. Good morning. Mark, you talked a bit about how there's a lot of opportunities in the marketplace versus where you are with the cost of capital, which I completely understand at this point. I'm just curious internally, when you look at that and when you screen these opportunities and decide on what's going to close on the transaction pipeline, what are you primarily solving for here? Is it tenants? Is it a tenant that's not in the top 20? Is it yield? Is it credit rating of the tenant? What are you triangulating for as you pick the best deals out of the investment volume that you're seeing?

Yeah, no, it's a good question, Michael. Yeah, I mean, we're obviously trying to diversify the portfolio so that we've got a handful of tenants where we're really not trying to add to currently, but we're looking at pricing as well as where we're getting the best risk-adjusted returns. And so We've been somewhat agnostic as to whether it's an investment-grade rated tenant, if it's an investment-grade profile, if we've got a lot of belief in that management team and it's got a strong balance sheet and it generates a lot of cash flow, both at the corporate level and within the four walls that we're buying. And that's really how we triangulate our way to risk-adjusted returns. And that's where we're going to deploy capital, where we can get the best risk-adjusted returns. And we've been pretty pleased. I mean, at 7.7%, blended cap rate for the quality of assets that we're adding to the portfolio, I think is really encouraging, especially if we get the opportunity to hit the gas.

Great. That's helpful. And then, Dan, I want to ask how close we are to the inflection point on the cost of capital side, although certainly there's been progress here to date. I was wondering if you could just kind of walk us through the strategy again on the forward equity, though. You've got about $185 million or $184 million of unsettled versus the midpoint of net investment guidance of $100 million. How far out can you extend some of that unsettled equity as we go through the year?

Yeah, I mean, we could. Look, we've already extended it once. I don't think we'd get much pushback if we extended another six to 12 months beyond kind of year end. And look, I'm happy to answer the question. I mean, as we sit here today, you think about Our implied cap rate, we have a positive spread, and we look at our implied cap rate relative to where we're buying. If you look at our WAC, as of today, spot WAC, we're 120 basis points. When you think about the 7-7 cash yield that we achieved in the first quarter, which we think, again, we can potentially achieve that again in the second quarter. So we do have 120 basis points of spread. So I would say that the light is green, but it's limish green right now. And we just want to be patient. That's why we didn't take up, you know, our net investment activity guidance, despite having capability to do well north of what we're doing, as we've shown historically. So we do think there's a value disconnect. We think there's, you know, positive news to come out on our story that will continue to drive the shares higher. And so we're just being patient, you know, with our cost of capital. And, you know, that's really where we are. And we look forward to kind of, you know, updating you guys on everything, you know, next quarter and throughout, you know, conferences coming up here shortly.

Great. Appreciate the time, guys.

Our next question is from Wes Galladay with Baird. Please proceed.

Hey, good morning, everyone. On that comment about potentially being able to hit the gas, it sounds like you have a decent pipeline, just need the cost of capital to improve. If you were to do more volume, would you still be able to maintain the 7.7 cap rate, or do you think it'll go down to maybe mid to low 7s?

Yeah, and I think we'd likely, you know, if we were to do similar volume to what we did in the fourth quarter, I think we're probably about a 7.5% cap rate. So it would come down a little bit, but I think there's enough depth in what we're looking at right now where it wouldn't come down, you know, more than 20 basis points.

Okay, and then when you look at your health or cell or your pending disposition pipeline, is that mostly tenants you're looking to pare back exposure to? Do you have any opportunistic cells in there? And would you provide seller financing for any deals?

We have not provided seller financing recently. But when you look at what we're selling, there is one opportunistic sale that I expect to close in the second quarter. And then the rest of what we're looking at selling is going to be family dollar, some dollar general, just to reduce that exposure, as well as pharmacy.

Okay. Thank you. Thanks, Wes.

Our next question is from Ki Bin Kim with Truist Securities. Please proceed.

Thank you. Good morning. I was curious if you could comment on new store opening appetite, especially from those tenants that might be more potentially exposed to tariffs.

Which stores are opening stores, or would we look to acquire some of those stores? Just making sure I understand.

Just overall kind of more new store opening appetite.

Yeah, no, look, I mean, we're seeing, you know, a lot of our tenant roster are still in growth mode. So, you know, we've got healthy operators that continue to do well. Some are subject to tariffs, some aren't. I do think you've seen that muted a little bit. It's just very difficult for companies to make decisions right now with all of the uncertainty. But the ones that have been growing historically over the past 12 months, we expect to to continue to grow and they've reiterated some of that on their earnings calls.

Okay. And on the acquisitions this quarter, you were able to achieve a 7.7% yield, which was nice to see. I'm sure there's a range of, you know, some deals in the sevens and maybe some others in the eights. I was just curious if you can provide some commentary on the types of assets that you're buying at the higher cap rates and the kind of credit quality. Thank you.

Yeah, sure. I mean, two-thirds of what we bought was investment grade or investment grade profile, which, honestly, we don't really see a big difference between investment grade profile and investment grade. In fact, I'd say the investment grade profile typically has a better balance sheet and stronger financial statements than what you'd see with a BBB company. The range wasn't that wide this quarter. I think you kind of cut the range pretty accurately. the acquisitions that we've acquired at the higher end. There's maybe some C-stores that are in pretty heavy growth mode, but there are larger operators where we're getting unit level financials that have rent coverage of north of three and a half times, in some cases north of four times. So very attractive real estate at a replaceable basis. So we don't really feel like we're taking on much more risk. In fact, I'd say the risk adjusted returns for what we're acquiring at the higher cap rate range is certainly stronger than a lot of what we're seeing on the investment grade side, where we continue to just not see a ton of movement with cap rates for investment grade retailers, unless you're willing to take on what we call really hidden risk, which is going to be, you know, you get more of a shopping center type lease where you've got, you know, you know, you've got co-tenancy and you've got use restrictions and things like that that don't show up for a long time. But when they do show up, they fight pretty hard.

Okay, thank you.

Our next question is from Linda Tsai with Jefferies.

Please proceed.

Hi. Albeit not where you want it to be, your stock has done really well year-to-date. To the extent the environment doesn't get better, how comfortable are you continuing on this path of capital recycling mode with acquisitions funded by dispositions? Or, you know, how do you think about capital allocation over the next 12 to 18 months to the extent market volatility continues?

Yeah, sure. It's a good question, Linda. I mean, you know, we think we have a lot of work still to do. We've obviously accomplished a lot here in the last few quarters. But, you know, we'd like to get the concentrations inside of what our long term ranges were that we've told investors for, you know, for the last several years. We're just kind of expediting that a little bit. And, you know, fortunately, you know, I think we're going to continue to be able to make progress on that. And, you know, once we've really gotten, you know, to our goals, if we're, you know, still not, if we're still not trading, you know, where we need to be, then I think, you know, there's other alternatives for us to explore.

Yeah. And Linda, I'd say, you know, keep in mind that, you know, our comfortability in terms of leverage is four and a half to five and a half times. You know, if we hit the high end of our net investment activity guidance, we'd probably in the air right around five times. So we can still operate well into next year within our comfortability range that we've provided to the company or to the street.

Thanks.

Our next question is from Daniel Juliamello with Capital One Securities. Please proceed.

Hi, everyone. Thank you for taking my question. I think it was the last call where you all said it seemed harder for private buyers to get bank financing for leases with non-investment grade tenants. Have you seen that continue to play out these last few months or has anything changed there?

Yeah, I don't think there's been much change in the market. I think you've seen some banks willing to lend and some not. We really see that more on The disposition side, you know, when we're looking to sell, we've had to do a little bit more handholding to try to help some buyers source some bank financing. And, you know, fortunately, we've been pretty successful at that.

Okay. I appreciate that, caller. Thanks. And then as a follow-up, I think you had mentioned it, but the investment grade profile for this quarter's acquisitions was around 66%. Are you expecting kind of that same mix for acquisitions going forward based on the visible pipeline or any changes there?

Yeah, I mean, I think, you know, we're just going to chase where we're getting the best risk adjusted returns. We've had quarters where 100% of what we acquired in the quarter was investment grade. We've had quarters where it was, you know, 20 or 30%. And so, you know, we just really aren't as dogmatic as people might think about whether something is a triple B minus or double B plus or not rated. If we feel like we're doing our own underwriting, and if we feel like we're not taking on a lot of risk and we're getting an attractive yield, then those are the types of opportunities that we're chasing.

Great. Thanks.

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

Please proceed.

Thank you. Good morning. You know, following up on that, I just wanted to comment on the team's very impressive credit underwriting, and I was curious if you could talk to if any criteria has been modified or updated, whether it be on the real estate side or on the tenant credit side.

Hey, Yana, good to hear from you. Yeah, no changes really broadly from how we're underwriting. I think really the filter hasn't changed. It's really what's getting through the filter that may have changed. Just as we haven't seen cap rates move up enough where you've had interest rates move up on the investment grade side, but cap rates have moved up on the investment grade profile and sub-investment grade tenants. And so that just happens to be currently where the more attractive opportunities are. But more broadly, we're looking at the corporate credit, what kind of cash flow the tenant is generating today, and what can impact that over time, and what are the financial obligations that they need to meet, and how tight is that, and what can change that? And then the second piece, of course, is the location that we're buying. Are they generating a lot of cash flow at that location well beyond the rent that they're paying so that if we get the first part wrong or something changes with the corporate credit, whether it's the balance sheet or operations, do we have locations that they're going to want to keep in restructuring? And it's really the same analysis when you get to the end of the lease term. They're going to renew the leases that generate cash flow, and the ones that don't, they're going to renegotiate or leave. And so we want to avoid those situations. And then, of course, if you get the first two pieces wrong, hopefully we don't have a lot of those. What's the real estate and how fungible is the real estate? How much is it going to cost to reposition it? And how interesting is that location going to be to other retailers that we want to grow with? And so And can you replace that rent? And so it's really the same three buckets. I think we think about it the same way. It's just we have different opportunities that are getting through the filter.

And I guess maybe just is there kind of a maximum box size that you won't go over? And just curious also, I understand the disposition of the loads was more cap rate driven, but just curious if you're just moving away from larger boxes in general.

Yeah, I wouldn't say much is changing there, but we are much more cautious if the box is bigger, especially like a Lowe's. We don't want to take back many big box assets. They're just going to be very difficult to reposition. There's only four or five operators that could step into a Lowe's without us having to spend the money to split it up into three or four tenants. And that's costly. And you may be able to increase the rent, but it's going to cost you so much in CapEx that it's really not worth it. And so, you know, our strong preference is to focus on the smaller fungible boxes. We will, you know, have a handful of larger boxes, but we have to be, you know, very sure about our underwriting as it relates to the corporate credit and the unit-level profitability.

Thank you.

Our next question is from Apal Rana with KeyBank Capital Markets. Please proceed.

Great. Thank you. I was wondering, have you heard anything from your tenants regarding tariffs or any potential impacts to them? Would tariffs potentially add any new tenants to your tenant credit watch list?

Tariffs have not. I mean, it's been an interesting ride. I think the tenants are really just trying to figure out what's going to happen because it's moved around. It moved around this morning in terms of what's exempt and what's not with automobiles. So Yeah, I think it's really just made it difficult for them to make decisions. It may slow their growth a little bit. I think some companies will have trouble making hiring decisions. So I think that it's really added some level of confusion for some people. But we've gone through our entire portfolio and really tried to think through what could be the negative impacts of tariffs and where people source their goods. And that also applies to services as much as it does for You know, people that just, you know, sell things in their stores. And what's the ease of being able to switch that? But then, you know, I think, you know, that's going to move around a lot. And I think, you know, people get caught up in the first derivative of what's going on with tariffs. But, you know, I think it's really prudent to think through what's the second derivative of what could happen as things continue to move around and we, you know, kind of muddle our way through this much uncertainty. And that's, you know, we could see a slowdown. And that's really, you know, for us, we view that as an opportunity for us where our portfolio shines, you know, when things slow down. You saw that during COVID. You know, we collected all of our rent during COVID when others were really struggling to collect rent and we were able to play a little bit more offense. And so we just don't have very much that's discretionary. within our portfolio, and so that's really where we're not just thinking about the first derivative. We're thinking through the second and third derivative and what might happen.

Okay, great. That was helpful. And then just last one for me. In the acquisitions you did in 1Q, were there any new relationships in there, or were they all with existing tenants?

I believe we added three new tenants in the quarter, if I recall. Okay, great. Thank you.

Our next question is from Jay Kornreich with Wedbush Securities. Please proceed.

Hey, thanks. Good morning. You mentioned one new addition into the top 20 tenant list, and I'm just curious if you are able to get an improved cost of capital to acquire more, do you see any growing opportunity to get additional new tenants into that top 20, either from growing current, smaller exposures, or just totally new tenants?

Yeah, no, absolutely. I mean, that top 2010 and Gerber Collision, we've got a few more in the pipeline. So that one, by definition, we'll be adding to that. And we have a number of tenants that kind of fall in our top 40 that we'd like to continue to grow with, as well as looking at some new opportunities. And so, absolutely. I think that's one thing that we're focused on going into 2025 and 2026 is really we need to improve the diversification of the portfolio. And that's really a great way to do it.

All right, thank you. And then just one follow up, going back to the transaction market, I guess just given the overall economic uncertainty, are you seeing increased interest from your competition in safer investment grade assets that you would typically invest into relative to what you'd currently, you know, what you expect during, you know, more economic, you know, understood times? Or are you seeing, you know, an expansion in competition in that investment grade asset class?

Yeah, you know, difficult to say, you know, honestly. We haven't really seen a lot more competition, you know, show up at this point. But, yeah, I mean, I think if we end up in a more sustained, uncertain environment and you really start to see the economy slow, I certainly would expect to see that.

Okay. Thank you.

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

Well, thank you, everybody, for joining today and for your interest in NetStreet. We look forward to seeing many of you at the upcoming conferences.

Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.