NETSTREIT Corp. Q2 FY2026 earnings call

Investment Activity

• Closed $298.9 million in gross investments during the quarter, concentrated in core necessity and service-based sectors including quick service restaurants, grocery, convenience stores, and auto service. Investments were completed at a blended cash yield of 7.4% with a weighted average lease term of 9.8 years.
• Completed targeted dispositions of lower-quality assets at a 6.8% blended cash yield, recycling proceeds into higher-quality, longer-duration opportunities that reduce tenant and industry concentration and improve overall portfolio quality.
• Successfully won multiple large portfolio deals this quarter, an unusual outcome for the firm historically because these deals typically demand large premiums that price NetStreet out. This momentum has carried into the third quarter, allowing the firm to add exposure to high-quality tenants (Chick-fil-A, Sprouts, Quick Trip) that are usually too aggressively priced in the one-off transaction market.
• Upgraded ownership of 20 Speedway properties, originally held via a first mortgage originated in early 2023, to full direct fee ownership at a 6.75% initial cash yield, a strong risk-adjusted return supported by long-term leases, investment-grade credit, high unit-level rent coverage, and a low cost basis.

Portfolio Health

• Weighted average lease term across the full portfolio is 10 years, with 56.5% of annual base rent (ABR) coming from investment-grade or investment-grade profile tenants. Unit-level rent coverage across the portfolio remains healthy at 3.8x.
• Full portfolio occupancy increased to 100% after backfilling a vacant former Big Lots location with A-rated TJ Maxx at a rent increase of more than 20% over the prior rent, demonstrating the strength of the firm's asset management and underwriting capabilities.
• One low-coverage (<1x) asset was disposed of in Q2, and another asset exited the low-coverage bucket, with only a small number of remaining low-coverage assets to address.

Balance Sheet & Capital Structure

• Maintains a conservative, flexible capital structure with leverage of 3.2x adjusted net debt to annualized adjusted EBITDA RE, well below the firm's target range of 4.5x to 5.5x and industry-leading levels.
• Total liquidity at quarter end was $1.1 billion, consisting of $20 million in cash on hand, $301 million available on the revolving credit facility, $714 million in unsettled forward equity, and $50 million in undrawn term loan capacity. The firm has no material debt maturities until February 2028 when including extension options.
• Raised $183 million in net proceeds via its at-the-market (ATM) equity program during the quarter, as the firm's cost of equity improved through the period. Previously raised forward equity has pre-funded all equity needs for the remainder of 2026.
• The Board of Directors declared a quarterly cash dividend of 22.5 cents per share, payable September 15 to shareholders of record as of September 1.

Strategic Positioning

• The firm maintains a disciplined underwriting approach, prioritizing strong risk-adjusted returns over arbitrary investment-grade tenant targets, with a target investment-grade allocation of 30% to 35% of the portfolio.

NetStreet is a single-segment real estate investment trust focused on net-lease essential retail properties, so separate product segment financials are not provided. Aggregate Q2 2026 financial results are as follows: reported net income of $6.3 million, or $0.06 per diluted share; Core FFO was $34.2 million, or $0.33 per diluted share; AFFO was $35.5 million, or $0.35 per diluted share, representing a 6.1% year-over-year increase. Total recurring G&A expense increased 6.7% year-over-year to $5.8 million, driven by 2025 staffing increases. Recurring G&A as a percentage of total revenue fell to 9.5% in Q2 2026 from 11.3% in the year-ago quarter, showing improving operating efficiency as revenue grows. The company ended the quarter with a total portfolio of over $3 billion in assets, consisting of 859 investments leased to 156 tenants across 28 industries and 46 U.S. states.

• Full year 2026 net investment activity guidance is increased from prior levels to a new range of $700 million to $800 million, driven by a strong balance sheet and robust investment pipeline.
• Full year 2026 AFFO per share guidance has been revised upward, with the bottom end of the range raised to a new range of $1.37 to $1.39 per share.
• Full year 2026 cash G&A (excluding transaction costs and severance) is projected to range between $16.5 million and $17 million.
• The AFFO per share guidance includes $0.05 to $0.08 per share of estimated dilution from outstanding forward equity, calculated under the Treasury stock method, corresponding to 3.6 million to 5.9 million new full-year shares.
• Management expects that Treasury stock method dilution from outstanding forward equity will peak in the third quarter of 2026 and decline thereafter, normalizing to ~15% of total shares outstanding by the end of 2027, down from 38% at present.

• Sustained upward pressure on long-term interest rates could lead to cap rate increases across the net lease sector, which would impact transaction pricing and investment returns.
• Lower-income consumers are under notable macroeconomic pressure, which creates risk for tenants focused on this demographic, though the firm has limited direct exposure to this segment.
• Weak broader consumer spending and industry pressure on grocery operators creates some risk, though the firm's grocery holdings are concentrated in operators with strong balance sheets, high sales, and high rent coverage.
• Portfolio transactions require disposing of unwanted assets included in the purchased portfolio, which can lead to isolated impairment charges when selling assets purchased at lower prior cap rates.
• Large, widely marketed portfolio transactions typically trade at substantial premiums, and NetStreet is often outbid for these deals by competitors willing to pay higher prices.

Q: The revised full-year net investment guidance implies a meaningful acquisition deceleration in the second half of 2026. Is this due to conservatism, macro volatility, or another factor? And how is macro volatility affecting pricing or deal timelines? / A: Management confirms intentional conservatism is built into the guidance, as the firm does not set targets based on unraised capital; there is upside to the range if additional capital is raised. Management notes the current acquisition market is the healthiest it has been across all transaction channels, with abundant attractive, well-priced opportunities. While sustained upward pressure on interest rates could eventually push cap rates higher, this impact has not materialized in the market to date.

Q: Recent portfolio deals have allowed NetStreet to add more investment-grade (IG) tenants than usual. Will this lead to a permanent shift higher in IG allocation, and how has the acquisition strategy evolved? / A: The higher IG share this quarter is largely a one-off outcome from the Speedway transaction, driven by a recent market dynamic where a surge in portfolio deal volume has left too many assets for the usual buyers to absorb. The firm will continue to prioritize the best risk-adjusted returns, and expects IG allocation to remain in its long-run target range of 30% to 35% going forward.

Q: What is driving the recent surge in portfolio transactions coming to market, and how long could this dynamic last? / A: The primary driver is that many portfolios assembled in 2021-2022, when interest rates were near zero and buyers used cheap short-term bank leverage to acquire high-quality assets, are now facing maturing debt. Refinancing at current higher rates destroys expected cash-on-cash returns, so many owners are choosing to sell the portfolios to larger institutions. Extrapolating from this timeline, this dynamic could continue into 2027.

Q: Adding high-quality IG tenants via portfolio deals requires giving up yield on those assets. Does this come at the expense of overall investment spreads for the portfolio? / A: The yield impact is minimal: the blended 7.4% cash yield this quarter is only 10 basis points lower than the firm's typical transaction yield, and the slight decline is entirely driven by the Speedway transaction. Excluding Speedway, the yield on other transactions is in line with historical levels at 7.5% to 7.6%, so the firm has not had to deviate from its pricing requirements to access these opportunities.

Q: With the improved cost of equity and enough pre-raised equity to cover near-term needs, what is the appetite for tapping additional equity going forward? / A: Management notes the firm does not need to raise additional equity, but will likely selectively use the ATM program in the second half of 2026 to stay well ahead of investment needs if the robust acquisition market continues. The firm took advantage of S&P 600 inclusion and improved liquidity to raise equity earlier than planned, which accelerated its capital raising schedule.