NetSTREIT Corp.

Greetings and welcome to the NetStreetCorp second quarter 2025 earnings call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. Should anyone require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Amy Ahn, Investor Relations. Thank you. You may begin.

We thank you for joining us for NetStreet's second quarter 2025 earnings conference call. In addition to the press release distributed yesterday after market closed, 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 with Form Act of 1995. Forward-looking statements address matters that are subject to risk and uncertainties that may cause actual results that 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 31st, 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 relief 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 NIP Street's Chief Executive Officer, Mark Mainheimer, and Chief Financial Officer, Dan Donlund. 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 to discuss our second quarter 2025 results. Similar to past quarters, we continue to improve our tenant diversification by a thoughtful and a creative disposition, and we are now slightly ahead of pace as it relates to our year-end goals. On the external growth front, our team is actively sourcing attractive investments across a broad spectrum of tenants and industries, and we remain confident in our ability to find off-the-run opportunities that fit our underwriting standards. From a portfolio perspective, our tenants remain incredibly healthy, and our heavy concentration within the necessity, discount, and service industries adds further stability to our cash flows. In addition, we provided new disclosure during the second quarter to illustrate our de minimis credit losses since inception and better demonstrate the overall strength of our portfolio, which I will discuss later. We believe this enhanced disclosure, continued diversification efforts, and disciplined approach to capital deployment have all contributed to the improvement in our cost of capital. While there is still plenty of room for improvement on this front, we did take advantage of our favorable investment spreads to raise over $46 million via the HCM this quarter. With all these positives in mind, we are increasing our AFFO per share guidance midpoint by a penny to a new range of $1.29 to $1.31, and we are increasing our net investment guidance by $50 million at the midpoint to a new range of $125 to $175 million. Turning back to external growth, we completed $117.1 million of gross investments at a blended cash yield of 7.8% during the quarter. While we are thrilled to achieve our highest quarterly cash yield on record in the second quarter, we do not expect this to repeat in the back half of the year, as the opportunities at the best risk-adjusting returns are currently blending to a 7.4% to a 7.5% cash yield. The weighted average lease term for our second quarter investments was 15.7 years, with investment-grade and investment-grade profile tenants representing more than a quarter of these acquisitions. Additionally, more than half of our investment activity this quarter was accretively funded with disposition proceeds, which totaled $60.4 million across 20 properties at a 6.5% blended cash yield. As we look out to the third quarter and beyond, we are currently seeing great investment opportunities across a variety of tenants and industries, including farm supplies, grocery, quick service restaurants, auto service, and convenience stores, to name a few. Turning to the portfolio, we ended the quarter with investments in 705 properties that were leased to 106 tenants operating in 27 industries across 45 states. From the credit perspective, 68.7% of our total ABR is leased to investment grade or investment grade profile tenants. Our weighted average lease term remaining for the portfolio was 9.8 years, with just 1.2% of ABR expiring through 2026. As mentioned earlier, we have updated our disclosure to better demonstrate the individual property risk within our portfolio, as well as provide more details around our best-in-class track record as it relates to credit loss. Moreover, we believe this disclosure serves to better illustrate the underwriting discipline that we have maintained since inception, which, as we've said before, goes well beyond just understanding the corporate credit. We also emphasize unit-level performance in locations where we believe the rent is replaceable, which helps us to carefully manage lease expirations. We also focus on larger and more established operators that we believe are more capable of adapting to market changes. As you can see from our investor presentation, our portfolio-wide unit-level length coverage picked up to 3.9 times from 3.8 times when we initially provided the disclosure less than two months ago. To reiterate, we believe this disclosure provides excellent visibility into our best-in-class default and credit loss statistics while providing the necessary context around future risks within our portfolio. We believe this insight, which is not uniformly disclosed across the net lease industry, should provide investors with greater comfort in the future cash flow production of our portfolio, both on an absolute basis and relative to our net lease peers. 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 of per share earnings growth. However, with our cost of capital having meaningfully improved throughout the year, we can now afford to be more inclusive, which is a welcome development to the NetStreet team. We very much appreciate the support of our shareholders, and we remain confident that our growth from a small base narrative can gain additional traction as we execute our strategy. With that, I'll hand the call to Dan to go over second quarter financials and then open up the call for your questions. Thank you, Mark. Looking at our second quarter earnings, we reported net income of $3.3 million, or 4 cents per deleted share. Core FFO for the quarter was $25.6 million, or 31 cents per deleted share, and AFFO was $27.5 million, or 33 cents per deleted share, which is a 3.1% increase over last year. Turning to the expense front, our total recurring G&A in the quarter increased year-over-year to $5.4 million, which is mostly a result of our staffing levels normalizing after we restructured various roles last year. That said, with our total recurring G&A representing 11% of total revenues this quarter versus 12% in the prior quarter, our G&A continues to rationalize relative to our revenue base. Turning to capital markets activity in the second quarter, we sold 2.8 million shares via our ATM program, generating over 46.1 million of net proceeds. Additionally, we settled 1.1 million shares during the quarter. Turning to the balance sheet, our adjusted net debt, which includes the impact of all forward equity, was $713.89. Our weighted average debt maturity was 3.8 years, and our weighted average interest rate was 4.58%. 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 $594 million at quarter end, which consisted of $20 million of cash on hand, $373 million available on a revolving credit facility, and $202 million of unsettled forward equity.

From a leverage perspective, our adjusted net debt to annualized adjusted EBITRE was 4.6 times at quarter end, which was down from 4.7 times last quarter and remains well within our targeted leverage range of 4.5 to 5.5 times.

Moving on to guidance for 2025. We are increasing our AFFO per share guidance range to $1.29 to $1.31 from the prior range of $1.28 to $1.30. And we are increasing our net investment activity guidance range to $125 million to $175 million from the prior range of $75 to $125 million. Additionally, we now see recurring cash G&A ranging between $15 to $15.5 million for 2025. From a rent loss perspective, our guidance now assumes roughly 25 basis points of unknown rent loss at the midpoint of our range. Lastly, due to our outstanding forward equity, our midpoint is assumed slightly less than a penny of dilution resulting from the treasury stock method. Lastly, on July 21st, the board declared a quarterly cash dividend of 21.5 cents per share, which represents a 2.4% increase over the prior quarter dividend. The dividend will be payable on September 15th to shareholders of record as of September 2nd. With that, operator, we will now open the line for questions.

Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star 1 on your telephone keypad. Formation tone will indicate your line is in the question key. You may press star 2 if you would like to remove your question from the queue. So, considering speaker equipment, it may be necessary to take up your handset before pressing the star keys. One moment, please, while we poll for questions. The first question is from Handel St. Just from Mizuho Securities. Please go ahead.

Hey, guys. Good morning. Great quarter. I wanted to ask you a question. I guess, Mark, a big picture one, and it kind of dovetails on your prepared remarks. The stock is up 30%.

Your lack in investment spread has improved pretty dramatically. So I guess can you talk a bit more about how this improved lack impacts the range of capital deployment alternatives available to you now and how much and where you can deploy capital. Your initial guide, obviously, was pretty conservative. Even the updated acquisition guide sits below where you've been in some other quarters recently. So just curious on some thoughts on that front. Thanks.

Yeah, sure. So thanks, Vandal. Yeah, it's going to be – it's going to continue to be pretty fluid as we continue to monitor Our cost of capital, I think as it relates to our ability to deploy capital in and around the cap rates we've been, maybe not this quarter, which I think was maybe a little bit of an outlier at 7.8, I think kind of more normal for us in this environment, probably 7.4, 7.5, something like that. But for us to be able to deploy net $150, $200 million would be pretty easy. It's just going to come down to our cost of capital and hopefully we can continue to see improvement there. Got it.

It sounds like a bit more IG will be part of the mix and part of why we expect yields to come down in the next couple quarters.

Yeah, I think this quarter, you know, we had a couple of unique opportunities with some C-store operators where we have relationships where they're doing some add-on acquisitions from some smaller operators. We were able to get attractive leases, add these properties into existing master leases, extend the term out. at four times rent coverage, so at pretty attractive cap rates. So anytime we see those types of opportunities, we're going to jump all over them. We just don't expect to see that, you know, every quarter. We just, you know, really felt like this was a great opportunity for us this quarter, which is why you see that 7.8. It's a larger operator, doesn't quite qualify for an investment grade profile, doesn't have a credit rating, but has no debt for all of those operators. So, you know, an operator we're very comfortable with, and, of course, at four times rent coverage in a master lease, you're pretty well protected. Great, great. And the second question is on the Walgreens, the dollar store disposition. Things seem to be proceeding pretty well. There may be some color on if you could compare contracted demand for the assets and the cap rates you're getting in the private market on those fronts, and then maybe some color where we expect you to maybe add more exposure before some of that. Yeah, yeah, sure. So, yeah, I'd say they're like the dispositions, you know, kind of similar to our acquisitions this quarter. The cap rate was a little bit better than what we've seen in the past. We did execute a number of pretty attractive dispositions, you know, sold off some advanced autos kind of in the low six cap rate range, you know, got that concentration really where we're more comfortable, you know, sold a CVS, you know, outside of Nashville at a five and a half cap. So, So, you know, I really had a couple of, you know, cap rates that kind of drugged that down a little bit. And we're about done with what we need to sell with Walgreens. We may need to sell another one or maybe two for the rest of the year to kind of get us below that 3%, you know, 3% concentration that we outlined a couple of quarters ago. So I feel pretty good about that. But the demand for dollar stores, which, you know, I think that's really – we still have a little bit of wood to chop. There's just a ton of demand from both 1031 buyers as well as institutional investors at pretty attractive cap rates. So every quarter since inception, we've been able to accretively recycle capital, and I don't think that's going to be any different in the third and fourth quarter. I just don't think it's going to be quite as dramatic as it was this quarter. Great. Thank you, and best of luck. Thanks, Annabelle.

The next question is from John Karachowski from Wells Fargo. Please go ahead.

Thanks, and good morning.

Kind of a follow-up to the first question. Mark, you answered this a little bit, and I'm not sure if you can give any more color here. But just as we think about, you know, in the second half of the year, you said IG percentage is going to increase and cap rates are going to tighten a little bit and your increased investment guidance. How much of your new investment guide has some sort of conservatism for the uncertainty about your access to equity capital? And maybe if the opportunity arises here in the near future for you to lock in more equity capital, where do you think that investment guide could go to? Or what do you think the opportunity set is for you all? Yeah, I mean, I think the opportunity set is pretty massive right now. You know, the team is very excited to be able to start to really access the the acquisitions market a little bit more than we have more recently. And, yeah, I mean, I think right now with the team we have in place, the market as it sits today, deploying $150 million, $200 million net acquisitions each quarter and around the cap rates that we've been at with a similar mix of product is certainly doable. But we're going to continue to be mindful about where our equity is trading and our cost of capital. Got it. And then maybe just on the test side of the equation, I know we discussed potential for a ratings upgrade. Curious if you've had any conversations with the rating agency, then what do you think the impact would be on your WAC and if that's considered at all in your guide? Yeah. Hey, John, it's Dan. We don't have anything, you know, penciled into our guidance, you know, for this year if we were to receive a rating. We don't have a current rating, so there's nothing to it. to upgrade, but certainly if we were to get an investment-grade credit rating, that would allow us to then utilize a leveraged title, which would then, you know, look to reduce, you know, bring down our term loan debt by 20 basis points, and then we'd also get the credit service adjustment that's in the 10 basis points. So basically all of our debt would come down by about 30 basis points. As far as our conversations, we're going to start having those. come later in the third quarter and you know, we're optimistic that we can reach a favorable outcome, but You know, that's just where we are today Yeah, very helpful, thank you The next question is from West holiday from Baird, please go ahead Hey, good morning guys. Just looking at the balance sheet about 58 million held for sale and Will this be all done, disposed of this year, and will this be the last of the heavy dispositions? Yeah, I mean, I think we, you know, have a decent amount that we're still doing. So, I mean, the last three quarters have been pretty heavy. I think the third quarter will be pretty heavy again. We'll start to moderate a little bit in the fourth quarter. We can never guarantee that anybody that we're trying to sell a property to is actually going to close. So, can't make a guarantee that that'll all be gone. But I'd say the lion's share of that should be gone. And then when you look towards next year, I would expect our disposition pace to moderate, you know, more closely to what it was maybe two, three years ago. Okay. When you look at the investment pipeline, is there a lot of loans in that? There are some, but it's really, you know, about enough to replace what's getting paid off. So it's not a massive amount. Okay. And then just one more big lots question. I know you love these. Do you have an update on the vacant lease? Yeah, I mean, we've progressed pretty far along. We're negotiating, you know, really with two, but there are three LOIs that we're still kind of going back and forth with. The two more likely operators are national tenants and definite grade tenants. They're both willing to pay more rent than what Big Lots was, so... They need to get through their investment committee and kind of get through their process of what they need to actually do to the box to make it ready for them to move in. So I would expect us to have an LOI signed this quarter before the next earnings call. But then by the time that they come in and start paying rent, it will likely be early next year.

Okay. Thanks for the time, everyone.

Thanks, Wes. Thanks, Wes.

The next question is from Greg McInnis from Scotiabank. Please go ahead.

Hi. This is . I'm with Greg. You mentioned seeing made 7% cap rates for investing to the best risk-adjusted returns.

Are you just facing pricing power challenges given investment-grade sellers may have been aware that your high cost of equity at the start of the year was restricting

maybe healthier investment spreads, or are there any other trends trying to pass rates for investment grade tenants and all that at an investment percent level?

Yeah, Elmer, I mean, I would say, unfortunately, we don't control what the market bears and what we can really buy property for. We can negotiate our end, but we need to have a willing seller. And really what we've seen on the investment grade side is, Unless you're willing to, you know, take on, you know, co-tenancy and other types of risks that we're not willing to really put into the portfolio, the cap rates just haven't moved up enough for us to really feel like we're getting paid a strong enough risk adjusted return on most investment grade opportunities, which is why you've seen other opportunities get through our filter, you know, where we've got, you know, larger operators, very good credits, and very strong unit level coverage. whereas the investment grade side, you know, we're just not going to go out and pay, you know, like I mentioned, we sold a CVS at a five and a half cap. We're not going to go buy, you know, CVSs anywhere around that type of cap rate, nor are we buying pharmacies. But, yeah, I mean, I think it's really been the market has bared, you know, higher cap rates for non-investment grade tenants and getting better risk-adjusted returns than you are for the investment grade tenants. In most cases, you are seeing you know, a number of, you know, opportunities still get, you know, that we're able to source. And I think they're maybe not marketed quite as effectively. And so we get, you know, pretty good pricing on a handful of those deals. But to really be able to scale investment-grade acquisitions at cap rates that make sense right now, I don't think is really achievable.

Okay. Thanks, Rhett. And giving you some of the other events too, Nate, what are you now assuming is or bad debt expense for the rest of the year since, you know, while you're increasing investment guidance and the export range, but, you know, you expect less creation based on comments for cap rates for the rest of the year.

Hey, Elmer, it's Dan. I think I caught most of your question. You're breaking up a little bit, but, you know, as we stated in prepared remarks, we're We're assuming about 25 basis points of credit loss between year and year end at the midpoint of the range.

Okay. Thank you.

The next question is from Michael Goldsmith from UBS. Please go ahead.

Good morning. Thanks a lot for taking my question. It's clear you're feeling more comfortable with the issue of equity at the ATM. Is that contingent of you buying at the cap, you know, these elevated cap rates in the last couple of quarters in the 7778 range? And, you know, as you move into more ID stuff, presumably the cap rates will come down on a blended basis. So just trying to understand, you know, what spread you're comfortable issuing and acquiring.

Yeah, and hey, Michael, you know, we've always said that, you know, we would be comfortable issuing equity, you know, if we were north of 100 basis points of spread relative to our WAC. You know, as we sit here today and you think about a 7.5% cap rate, you know, in the back half of the year, maybe 7.4%. When you think about our AFFO yield using our run rate AFFO coming out of the second quarter and then looking at 5.5-year to 7-year term loans as the debt source there, you know, we can source transactions about 150 to 160 basis points wide of what we think our WAC is at the current moment.

Got it. Thanks for that, Dan. And my follow-up question is, based on the guidance, obviously you've been able to acquire more on a net basis, but are there any mitigating factors that may be contemplated within the guidance? Are you taking into account the treasury stock solution just given – given some of these issuances and just to kind of understand kind of like the moving pieces within the outlook. Thanks.

Yeah, at the midpoint, I mean, that's the mitigating item that we mentioned at the midpoint. We're assuming a little bit less than a penny of dilution from the Treasury stock method. Obviously, we have no idea, you know, where the stock's going to go, but, you know, we assumed a pretty healthy movement even from current levels to justify our guidance range. So, I'm really comfortable we've been conservative on that front.

Thank you very much. Good luck in the back half.

Thank you.

The next question is from Michael Gorman from DTIG. Please go ahead.

Yeah, thanks. Good morning. I was wondering if you could just talk a little bit more about competition in the deal market. We've seen some new entrants, I would say, from non-traditional at-lease investors that And I understand it's a deep liquid market, but I'm just curious if you started to bump into any of these new buyers in the marketplace or kind of where you're seeing them show up as you look at the pipeline and future transactions. Yeah, thanks, Michael. Yeah, I mean, good question. We've certainly heard a lot about some new entrants, are aware of some capital that has been deployed by a number of them, but we just really have not run into them at all. on the acquisition side. And so, you know, I think most of the deals that we're looking at are pretty small, you know, bite-sized deals or they're relationship deals where really the only negotiating that we're doing is, you know, with the tenant and them, you know, where the tenant and the seller trying to figure out, you know, where they're willing to, you know, to part with their properties. And less so in getting ourselves in bidding wars anytime we see those opportunities, you know, you know, we'll come in and we'll bid, but, you know, we're not really interested in paying the top price for our deals. We want to get the best risk-adjusted returns, and from our perspective, the largely marketed deals, you know, typically don't really yield those opportunities too well. And so, you know, I'm pretty aware of a number of the new entrants, and I think their strategies don't really line up, you know, too much with ours, so I'd be surprised if we, you know, run into them very frequently. I'm sure there will be a situation here or there where we see them, but I don't think it's going to have much impact on our capital deployment. That's helpful. Thanks. And maybe just one more on the competition side and maybe a little off the wall here, but given the supply-demand dynamics in retail kind of broadly, are you coming across more user bidders or owner-occupants in the marketplace either looking at properties previously sold or is it more competition in terms of looking at the sale leasebacks? that they want more control over their properties or to keep control of their properties in a supply-constrained environment. Yeah, we have not really seen that, you know, quite yet, but, you know, I think that's something to potentially keep an eye on. Okay, great. Thanks for the time. Thank you.

The next question is from Linda Tsai from Jefferies. Please go ahead.

Hi. With your cost of capital having improved, what verticals or investments are you considering now that you couldn't have before? And then how would investment spreads trend as a result?

Yeah, Linda, I don't think really much is going to change at all in terms of what we're looking at. You know, I think if we were to deploy a lot more capital than we are right now, which, you know, isn't necessarily the plan in the near term, I think if maybe the filter kind of opens up a little bit more where we're going to acquiesce a little bit more in pricing, which is why I think our 7.8 could come down to a 7.4, 7.5 if we wanted to deploy more capital. But I would expect, you know, for us to continue to buy similar types of products that we have over the past five years.

And then can you give us some general color on dynamics in the C-store space? Does your pipeline have more of these?

Yeah, I mean, the C-Store space is, you know, an attractive industry for us. Obviously, you've got, you know, two large profit drivers, you know, coming from the gas pumps as well as the, you know, the inside sales of the store. And, you know, we've got really good relationships, you know, in that space. I mean, I know I've been doing, you know, convenience store deals for, you know, I guess going on 20 years, so pretty aware of who's in the space and who the operators are as well as our team has done a great job. of going out and finding some of these opportunities and building relationships with some operators. You know, we'll continue to look for those. We did a few in this quarter. We may do one this quarter. But, you know, I think it's less likely that we're going to do as many as we did, you know, in the second quarter as in the third.

Just one last one for Dan. What do you expect GMAs, the percentage of revenues, to be at the end of next year, similar to this year?

No, I think it should continue to trend down, and I don't have the model pulled up. I definitely think when you think about the year-over-year growth, it should slow dramatically next year versus this year, just given that we had a lot of hiring to do this year and into the back half of last year, and that hiring pace should moderate considerably as we look out to 2026. So I don't know what that would impute necessarily on a percentage basis but it's certainly going to be lower as a percentage of revenues next year and again the year-over-year growth rate should be you know down considerably versus what it was this year thank you the next question is from smith as rose from city please go ahead hi thanks um i just wanted to um ask a quick question you talked about um 25 bits of uh

rent loss embedded through the back half of the year.

And so what is it now for the full year, I guess? I think you said last quarter it was 75 bids based on the full year? Yeah, so last quarter we said our guidance is based on 75 basis points of credit loss, I guess, for the full year. I mean, this 25 basis points of credit loss is for the full year as well. It's just that half a year is over.

Okay, okay, sorry, okay. And then I just wanted to ask you, would it be your expectations to settle much of this forward equity by year end, or are you in a position now where you can start to kind of, I guess, get ready with dry powder for next year as well?

Yeah, I mean, when we think about our leverage, we always incorporate the forward. And so at 4.6 times today, we feel good about our leverage. We don't have to do anything to hit the high end of the guidance at 175. It's still in the year about 4.9 times. Obviously, we've shown a propensity to raise ATM equity in and around current levels. But as far as selling the forward, it just really depends on you know, if we raise additional capital. But, you know, the governor for us is kind of we need to maintain our debt-to-growth assets below 35% to get the most attractive pricing off of our term loans and credit facilities. So that's really what governs our decision to pull down the equity. So I think you'll probably see a little bit in the third, and you should see a healthy chunk into the fourth quarter as well.

Okay, great. I appreciate it. Thank you.

The next question is from Daniel Guglielmo from Capital One Securities. Please go ahead.

Hi, everyone. Thank you for taking my questions. I think it was in the 4Q call where we had talked about increased population growth and the Sunbelt and elevated opportunities there, but that you all don't have a specific regional focus. Has there been any changes to that view or population trends you're watching? And then are there regions that are more attractive in the second half?

Yeah, I would say it really hasn't changed very much at all. You're still kind of seeing population growth in the same areas, which is where retailers are going to continue to try to grow. So you're going to see more opportunities there on the development side as well as the sales aspect side. So I don't think that has really changed much since fourth quarter last year.

Okay, thank you. I appreciate that. And then Year-over-year, average area of earnings has continued to increase across the country. When you talk with tenants and then think about your investments, has the spending and revenue been able to keep pace with something like the labor and technology costs, or has it become an increased kind of topic of conversation when you're talking with them and thinking through the investments?

Yeah, no, I don't know if it's really been an increased topic of conversation with people. I mean, there are challenges in some industries as it relates to labor costs, you know, more specifically restaurants and some others where, you know, just the labor line item has become more expensive and has squeezed profitability a little bit. And then you've, of course, seen inflation last year, you know, kind of squeezed margins a little bit for some operators, but that's really moderated quite a bit. And, yeah, most of the retailers that we're talking to Maybe you're kind of curious to see what happens with tariffs, but there really hasn't been much of an impact from that yet. So most retailers that we've spoken to are feeling pretty bullish and are really more in growth mode than they were, yeah, maybe this time last quarter.

Great. Thank you. Appreciate it.

The next question is from Upal Rana from KeyBank Capital Markets. Please go ahead.

Great. Thanks for taking my question. With the net investment activity accelerating and that you expect cap rates to trend lower to the mid-7% range, are there any changes you would point out on lease economics in terms of wall escalators or rents that we should expect? No, I mean, you know, we had pretty attractive, you know, terms this quarter. You know, with the longer lease terms, I think you can expect something, you know, something similar to that, maybe not quite as long in the third quarter. You know, a lot of what we're looking to do in the third quarter is going to be on the sale-expect side, and even on the non-sale-expect side, still pretty long lease terms with attractive rent escalators. It's been a focus of ours over the past, you know, call it year, year and a half, to really improve the internal growth in the portfolio, and, you know, that continues to be the case. And I don't think you'll see, you know, much change as we progress. kind of moderate closer to what we were doing, you know, previous to the second quarter, you know, 7.4, 7.5. But I think it's, you know, I feel pretty good about the opportunity set and what we're looking at right now. Okay, great. That was helpful. And then, you know, I want to get your sense on what the appetite is from buyers for Walgreens today. You mentioned you wanted to sell maybe one or two by year end to reach that 3% EBR, but has demand for pharmacy changed in any way in recent months? You know, I know you did sell that one CVS for 5.5 cap. Yeah, sure. I mean, I think CVS and Walgreens may be a little bit different. You know, Walgreens, there just isn't a lot of clarity to the buyer environment as to what the balance sheet's going to look like with Walgreens. I think we've got some insight there that it's not going to be a very leveraged balance sheet. So I think once that information comes out, which, you know, presumably the transaction should close in December, at least that's the schedule today, In the leases, it does, you know, it does provide for financial reporting. So people will start to see that they didn't lever up the balance sheet. And so I think that's going to be a big positive, you know, come early next year when people start to see that. So I think until that happens, it's, you know, a little bit more challenging to sell those assets, which is why we're pretty happy that we got ahead of a lot of that and really sold that exposure down to 3.5% as it sits today. and only needing to sell, you know, one, maybe two to get below that 3%. And I think we should be able to have, you know, little trouble finding a 1031 buyer for, you know, one or two of the assets. That'll get comfortable that they're not closing the store and that, you know, it's a good location. Fortunately, our rent's at $19 a foot, you know, well inside the average of what you see with, you know, with Walgreens and CVS for that matter. So, That allows, you know, other people to get comfortable that even if they ever do have to take the box back that they're, you know, that they can replace the rent and there are other things that they can do with the assets. There has been, we've had a lot of inbound demand from retailers and developers interested in our sites. But the problem is we can't get Walgreens out. So, you know, I guess it may be a good problem to have, but I think our downside protection on the Walgreens is actually pretty good with, you know, with cheaper rents and really good real estate. And so whether that be a convenience store operator or kind of the auto services sub-stores, there's just a lot of, you know, different operators that are interested in those stores at or above the rents that we currently have. But it's, you know, I think, you know, we're just likely going to only sell one or two more and likely just continue, you know, collecting rent from Walgreens over the next 10 plus years. Okay, great. That was helpful. Thank you.

The next question is from Yana Galan from Bank of America. Please go ahead.

Thank you. Good morning and congrats on a great quarter. Just a quick one. Looking at the 1.2% of ABR expiring in 2026, and granted it's very small, but can you remind us of how early renewal discussions start and when do you typically get notice of a tenant's decision?

Yeah, I mean, each lease is a little bit different, but typically it's about six months at a time that they'll have to tell you whether they're leaving or staying. But, you know, we're somewhat proactive, especially if we have a reason to be talking to a tenant about other locations. We usually try to loop those, you know, conversations in. You know, it's typically not a great idea to reach out to tenants, you know, a year or two out. you know, without having another reason to talk to them. Otherwise, you kind of start to lose some leverage in that negotiation if there is one. But, yeah, I mean, we feel very comfortable with what's expiring in 2026. We think we'll have, you know, very close to if not all of those renew at their option rate.

Great. Thank you.

Thanks, John.

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

Well, thanks, everybody, for your interest on the call today and in the company, and we look forward to continuing the dialogue here in the near future.

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