NETSTREIT Corp. (NYSE:NTST) Q2 2025 Earnings Call Transcript

NETSTREIT Corp. (NYSE:NTST) Q2 2025 Earnings Call Transcript July 24, 2025

Operator: Greetings, and welcome to the NETSTREIT Corp. Second Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Amy An, Investor Relations. Thank you. You may begin.

Amy An:

Senior Associate of Investor Relations: We thank you for joining us for NETSTREIT’s Second 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.netstreit.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 risks 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 NETSTREIT 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 NETSTREIT’s Chief Executive Officer, Mark Manheimer; and Chief Financial Officer, Dan Donlan. 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?

Mark Manheimer: Thank you, Amy, and thank you all for joining us this morning to discuss our second quarter 2025 results. Similar to past quarters, we continued to improve our tenant diversification by a thoughtful and accretive dispositions, 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 discounts 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 ATM this quarter. With all these positives in mind, we are increasing our AFFO per share guidance midpoint by $0.01 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 million 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 that have the best risk-adjusted returns are currently blending to a 7.4% to 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 1/4 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, other service and continued 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 a 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 risks within our portfolio as well as provide more details around how 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 said before, goes well beyond just understanding the corporate credit. We also emphasize unilevel 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 rent coverage ticked up to 3.9x from 3.8x when we initially provided the disclosure less than 2 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 acquisitive, which is a welcome development to the NETSTREIT 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 our second quarter financials and then open up the call for your questions.

Daniel Paul Donlan: Thank you, Mark. Looking at our second quarter earnings, we reported net income of $3.3 million or $0.04 per diluted share. Core FFO for the quarter was $25.6 million or $0.31 per diluted share and AFFO was $27.5 million or $0.33 per diluted 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 as 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 year 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 $713.8 million, our weighted average debt maturity is 3.8 years and our weighted average interest rate was 4.58%, 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 $594 million at quarter end, which consisted of $20 million of cash on hand, $373 million available on our revolving credit facility and $202 million of unsettled forward equity. From a leverage perspective, our adjusted net debt to annualized adjusted EBITDAre was 4.6x at quarter end, which was down from 4.7x last quarter and remains well within our targeted leverage range of 4.5 to 5.5x.

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’re increasing our net investment activity guidance range to $125 million to $175 million from the prior range of $75 million to $125 million. Additionally, we now see recurring cash G&A ranging between $15 million 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 assumes slightly less than $0.01 of dilution resulting from the treasury stock method. Lastly, on July 21, the Board declared a quarterly cash dividend of $0.215 per share, which represents a 2.4% increase over the prior quarter dividend.

The dividend will be payable on September 15 to shareholders of record as of September 2. With that, operator, we will now open the line for questions.

Q&A Session

Operator: [Operator Instructions] The first question is from Haendel St. Juste from Mizuho Securities.

Haendel Emmanuel St. Juste: 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 WACC and investment spreads have improved pretty dramatically. So I guess, can you talk a bit more about how this improved WACC impacts the range as capital deployment alternatives available to you now? And how much and where you can deploy capital. Your initial guide, obviously was pretty conservative, even though the updated acquisition that keeps below where you’ve been in some other quarters recently. So I was just curious on some thoughts on that front.

Mark Manheimer: Yes, sure. So thanks, Haendel. Yes, it’s going to be — it’s going to continue to be pretty fluid as we continue to monitor our cost of capital. And 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 to 8, I think, kind of more normal for us in this environment, it’s probably 7.4%, 7.5%, something like that. But for us to be able to deploy net $150 million to $200 million would be pretty easy. If it’s going to come down to our cost of capital and hopefully, we can continue to see improvement there.

Haendel Emmanuel St. Juste: Got it. It sounds like a bit more IG will be part of the mix and part of why we expect the yields to come down in the next couple of quarters?

Mark Manheimer: Yes. I think this quarter, we had a couple of unique opportunities with some C-store operators where we have relationships where they’re doing some add-on acquisitions of — from some smaller operators. We were able to get attractive leases, add these properties into existing master leases, extend the term out at 4x rent coverage. So at a pretty attractive cap rate. So any time we see those types of opportunities, we’re going to jump all over them. We just don’t expect to see that every quarter. We 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 investment-grade profile. It doesn’t have a credit rating that has no debt for all of those operators. So an operator, we’re very comfortable with. And of course, at 4x rent coverage in a master lease, you’re pretty well protected.

Haendel Emmanuel St. Juste: Great. Great. And second question is on the Walgreens, the Dollar Store disposition things seem to be proceeding pretty well. And maybe some color on if you could compare and contrast the demand for the assets and the cap rates you’re getting the private market on those front? And then maybe some color on where we expect you to maybe add more exposure to deploy some of that capital.

Mark Manheimer: Yes, yes, sure. So yes, I’d say as it relates to dispositions, 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 sold off some advanced autos kind of in the low 6% cap rate range. I got that concentration really where we’re more comfortable. So the CVS outside of natural at a 5.5 cap. So I really had a couple of cap rates to kind of drug back down a little bit. And we’re about done with what we need to sell with Walgreens. We may need to sell another 1 or maybe 2 for the rest of the year to kind of get us below that 3% concentration that we outlined a couple of quarters ago. So I feel pretty good about that.

But the demand for Dollar stores, which 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.

Operator: The next question is from John Kilichowski from Wells Fargo.

William John Kilichowski: Just 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, 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?

Mark Manheimer: Yes. I mean, I think the opportunity set is pretty massive right now. We’re — the team is very excited to be able to start to really access the acquisitions market a little bit more than we have more recently. And yes, 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.

William John Kilichowski: Got it. And then maybe just on the test side of the equation. I know you discussed the potential for ratings upgrade. Curious if you’ve had any conversations with the rating agencies and what do you think the impact would be on your WACC and if that’s considered at all in your guide?

Daniel Paul Donlan: Yes. John, it’s Dan. We don’t have anything penciled into our guidance for this year. If we were to receive a rating, we don’t have a current rating, so there’s nothing to upgrade, but certainly, if we were to get an investment-grade credit rating, that would allow us to then utilize the leverage title, which would then look to reduce — bring down our term loan debt by 20 basis points and then we also get the credit service adjustment that’s about 10 basis points. So basically all of our debt would come down by about 30 basis points. As far as our conversations that we’ve — we’re going to start having those come later in the third quarter, and we’re optimistic that we can reach a favorable outcome, but that’s just where we are today.

Operator: Next question is from Wes Golladay from Baird.

Wesley Keith Golladay: Just looking at the balance sheet. You have about $58 million held for sale. Will this be all done disposed of this year? And will this be the last of the heavy dispositions?

Mark Manheimer: Yes. I mean, I think that we have a decent amount of that we’re still doing. So I mean, in the last few 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 I can’t get guarantees that will 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 us our disposition pace to moderate more closely to what it was maybe 2, 3 years ago.

Wesley Keith Golladay: Okay. When you look at the investment pipeline, is there a lot of loans in that?

Mark Manheimer: There are some, but it’s really about enough to replace what’s getting paid off. So it’s not a massive amount.

Wesley Keith Golladay: Okay. And then just one more big last question, I know you all lease. Do you have an update on the vacant lease?

Mark Manheimer: Yes. I mean we progressed pretty far along. We’re negotiating really with 2, but there are 3 LOIs where we’re still kind of going back and forth with those. Two of — the two more likely operators or national tenants, investment-grade tenants. They’re both willing to pay more rent than what they lost 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 do — 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 will likely be early next year.

Operator: The next question is from Greg McGinniss from Scotiabank.

Elmer Chang: This is Elmer Chang on with Greg. You mentioned maybe 7% cap rates for investments with 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 any healthier investment spreads? Or are there any other trends driving cap rates for investment-grade tenants below that mid-7% level.

Mark Manheimer: Yes. Elmer, I mean, I would say, unfortunately, we don’t control what the market bears and what we can really buy a 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 take on 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 to get through our filter where we’ve got larger operators, very good credits and very strong unit level coverage, whereas the investment-grade side, we’re just not going to go out and pay, like I mentioned, we sold a CVS at a 5.5 cap.

We’re not going to go buy CVSs anywhere around that type of cap rate or rebuying pharmacies. But, yes, I mean, I think it’s really been the market has fared 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 a number of opportunities still get — that we’re able to source and I think they’re maybe not marketed quite as effectively. And so we get pretty good pricing on a ample 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.

Elmer Chang: Okay. Given you’ve had no major events to date, what are you now assuming for bad debt expense for the rest of the year since why you increased on investment guidance and the AFFO range, but that you expect less based on your comments for cap rates for the rest of the year. .

Daniel Paul Donlan: Elmer, it’s Dan. I think I caught most of your question, you’re breaking up a little bit. But as we stated in the prepared remarks, we’re assuming about 25 basis points of credit loss between here and year-end at the midpoint of the range.

Operator: The next question is from Michael Goldsmith from UBS.

Michael Goldsmith: Clearly, you’re feeling more comfortable with issuing equity at the ATM. Is that contingent of you buying at the cap — the elevated cap rates in the last couple of quarters in the 7.7%, 7.8% range? And as you move into more IG, stuff like presumably the cap rates will come down on a blended basis. So I’m just trying to understand on what spreads you’re comfortable issuing and acquiring.

Mark Manheimer: Yes. Michael, we’ve always said that we would be comfortable issuing equity if we were north of 100 basis points of spread relative to our WACC. As we sit here today and you think about a 7.5% cap rate 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, we can source transactions about 150 to 160 basis points wide of what we think our WACC is at the current moment.

Michael Goldsmith: Got it. And my follow-up question is, baked into the guidance, obviously, you’ve been able to acquire more on a net basis. But are there any mitigating factors that we’ve contemplated within the guidance are you taking into account the treasury stack solution just given some of these issuances and just kind of understand kind of the moving pieces within the outlook?

Mark Manheimer: Yes. At the midpoint, I mean, that’s the mitigating item that we mentioned at the midpoint. We’re assuming a little bit less than $0.01 of dilution from the treasury stock method. Obviously, we have no idea where the stock is going to go, but we assumed a pretty healthy movement even from current levels to justify our guidance range. So we feel, I’m really comfortable we’ve been conservative on that front.

Operator: The next question is from Michael Gorman from BTIG.

Michael Patrick Gorman: I was wondering if you could just talk a little bit more about competition in the deal market. We’ve seen new entrants, I would say, from nontraditional net lease investors. 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 deal pipeline and future transactions?

Mark Manheimer: Yes, 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 I think most of the deals that we’re looking at are pretty small bite-size deals or their relationship deals where really the only negotiating that we’re doing is with the tenants and then where the tenant and the seller trying to figure out where they’re willing to park with their properties and less so in getting ourselves in bidding words anytime we see those opportunities, we’ll come in and we’ll bid, but 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 typically don’t really yield those opportunities too well. And so I’m pretty aware of a number of the new entrants. And I think their strategies don’t really line up too much with ours. So I’d be surprised if we 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.

Michael Patrick Gorman: That’s helpful. 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 starting — 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.

Mark Manheimer: Yes. We have not really seen that quite yet, but I think that’s something to potentially keep an eye on.

Operator: The next question is from Linda Tsai from Jefferies.

Linda Tsai: 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 grades trend as a result?

Mark Manheimer: Yes. I don’t think really much is going to change at all in terms of what we’re looking at. I think if we were to deploy a lot more capital than we are right now, which isn’t necessarily the plan in the near term. I think that maybe the filter kind of opens up a little bit more, where we’re going to acting up a little bit more on 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 for us to continue to buy similar types of products that we have over the past 5 years.

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

Mark Manheimer: Yes. I mean the C-store space is an attractive industry for us. Obviously, you’ve got 2 large profit drivers coming from the gas pumps as well as the inside sales of the store. And we’ve got really good relationships in that space. I mean, I know I’ve been doing convenience store deals for 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. We’ll continue to look for those. We did a few of them this quarter. We may do one this quarter. But I think it’s likely that we’re going to do as many as we did in the second quarter as in the third quarter.

Linda Tsai: Just one last one for Dan. What do you expect G&A as a percentage of revenues to be at the end of next year, similar to this year?

Daniel Paul Donlan: 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 down considerably versus what it was this year.

Operator: The next question is from Smedes Rose from Citi.

Smedes Rose: I just wanted to ask a quick question. You talked about 25 bps of 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 was 75 bps baking into full year or…

Mark Manheimer: Yes. So last quarter, we said our guidance was based on 75 basis points of credit loss, I guess, for the full year. I mean this 25 basis points of credit losses for the full year as well. It’s just that at half year ago.

Smedes Rose: Okay. Okay. Okay. And then I just wanted to ask you, your — would it be your expectations to settle the — 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 DryPowder for next year as well?

Mark Manheimer: Yes. I mean when we think about our leverage, we always incorporate the Ford. And so at 4.6x today, we feel good about our leverage. We don’t really have — we don’t have to do anything to hit the high end of the guidance at $175. We’d still end the year about 4.9x. 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 if we raise additional capital, but the governor for us is kind of we need to maintain our debt to gross 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.

Operator: The next question is from Daniel Guglielmo from Capital One Securities.

Daniel Edward Guglielmo: I think it was in the 4Q call where we had talked about increased population growth in 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 are watching? And then are there regions that are more attractive in the second half?

Mark Manheimer: 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-leaseback side. So I don’t think that has really changed much since fourth quarter last year.

Daniel Edward Guglielmo: Okay. Appreciate that. And then year-over-year average earnings has continued to increase across the country. When you talk with tenants and then think about your investments, has the spending and revenue being 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 investment?

Mark Manheimer: Yes. 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 more specifically restaurants and some others where just the labor line item has become more expensive and has squeezed profitability a little bit. Many have, of course, seen inflation last year, kind of squeezed margins a little bit for some operators, but that’s really moderated quite a bit. And most of the retailers that we’re feeling — talking to, maybe 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 maybe this time last quarter.

Operator: The next question is from Upal Rana from KeyBanc Capital Markets.

Upal Dhananjay Rana: 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?

Mark Manheimer: No. I mean, we had pretty attractive terms this quarter with longer lease terms, I think you can expect something similar to that, maybe not quite as long in the third quarter. A lot of what we’re looking to do in the third quarter is going to be on the sale-leaseback side and even with the — on the nonsale-leaseback side, still pretty long lease terms with attractive rent escalators. It’s been a focus of ours over the past, call it, 1 year, 1.5 years to really improve the internal growth in the portfolio, and that continues to be the case. And I don’t think you’ll see much change as we kind of moderate closer to what we were doing previous to the second quarter at 7.4%, 7.5%. But I think it’s — I feel pretty good about the opportunity set and what we’re looking at right now.

Upal Dhananjay Rana: Okay. Great. That was helpful. And then I want to get your sense on what the appetite is from buyers for Walgreens today. You mentioned you wanted to sell maybe 1 or 2 by year-end to reach that 3% ABR, but has demand for pharmacy changed in any way in recent months? I know you did sell that on CVS for 5.5 cap?

Mark Manheimer: Yes, sure. I mean, I think CVS and Walgreens may be a little bit different. Walgreens, there’s just — there just isn’t a lot of clarity to the buyer environment. As to what the balance sheet is 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. But I think once that information comes out, which is presumably the transaction should close in December, at least that’s the schedule of today. In the leases, 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 from early next year when people start to see that. But I think until that happens, it’s a little bit more challenging to sell those assets, which is why we’re pretty happy that we got out ahead of a lot of that and really sold that exposure down to 3.5% as it sits today and only needing to sell 1, maybe 2 to get below that 3%.

And I think we should be able to have little trouble finding a 1031 buyer for 1 or 2 of the assets, and that will be comfortable that they’re not closing the store and that it’s a good location, fortunately, have rents at $19 a foot, well inside the average of what you see with Walgreens and CVS for that matter. So that allows other people to get comfortable that even if they ever do have to take the box back 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 I guess maybe a good problem to have, but I think our downside protection on the Walgreens is actually pretty good 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?

Is there just a lot of different operators that are interested in those stores at or above the rents that we currently have? But it’s — I think we’re just like we can only sell 1 or 2 more and likely just continue collecting around from Walgreens over the next 10-plus years.

Operator: The next question is from Jana Galan from Bank of America.

Jana Galan: 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 the tenant’s decision?

Mark Manheimer: Yes. I mean each lease is a little bit different, but typically, it’s about 6 months at a time that you have to tell you whether they’re leaving or staying. But 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 conversations in typically not a great idea to reach out to kind of a year or two out without having another recent stock to them, otherwise you kind of start to lose some leverage in that negotiation, if there is one. But yes, I mean, we feel very comfortable with what’s expiring in 2026. We think we’ll have very close to, if not all of those renew at their option rent.

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

Mark Manheimer: 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.

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