UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



Form 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, ~~2022~~2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission File Number 001-39443



NETSTREIT Corp.

(Exact name of registrant as specified in its charter)

Maryland

84-3356606

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

2021 McKinney Avenue

Suite 1150

Dallas, Texas

75201

(Address of principal executive offices)

(Zip Code)

(972) 200-7100

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

Common stock, par value $0.01 per share

NTST

The New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of the issuer’s common stock, par value $0.01, outstanding as of April ~~26, 2022~~24, 2023 was ~~47,921,988.~~60,862,466.

NETSTREIT CORP. AND SUBSIDIARIES

TABLE OF CONTENTS


		Page
	PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets as of March 31, ~~2022~~2023 and December 31, ~~2021~~2022	3
	Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three Months Ended March 31, ~~2022~~2023 and ~~2021~~2022	4
	Condensed Consolidated Statements of Changes in Equity for the Three Months Ended March 31, ~~2022~~2023 and ~~2021~~2022	5
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, ~~2022~~2023 and ~~2021~~2022	6
	Notes to the Condensed Consolidated Financial Statements	7
Item 2.	~~Management~~Management's Discussion and Analysis of Financial Condition and Results of Operations	2824
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3835
Item 4.	Controls and Procedures	3935
	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	4036
Item 1A.	Risk Factors	4036
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4036
Item 3.	Defaults Upon Senior Securities	4036
Item 4.	Mine Safety Disclosures	4036
Item 5.	Other Information	4036
Item 6.	Exhibits	4137
	Signatures	4238

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

NETSTREIT CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)


		March 31, 2022		December 31, 2021			March 31, 2023		December 31, 2022
Assets	Assets					Assets
Real estate, at cost:	Real estate, at cost:					Real estate, at cost:
Land	Land	$	313,366	$	299,935	Land	$	417,704	$	401,146
Buildings and improvements	Buildings and improvements	693,279		626,457		Buildings and improvements	966,743		907,084
Total real estate, at cost	Total real estate, at cost	1,006,645		926,392		Total real estate, at cost	1,384,447		1,308,230
Less accumulated depreciation	Less accumulated depreciation	(37,394)		(30,669)		Less accumulated depreciation	(72,682)		(62,526)
Property under development	Property under development	18,246		17,896		Property under development	6,501		16,796
Real estate held for investment, net	Real estate held for investment, net	987,497		913,619		Real estate held for investment, net	1,318,266		1,262,500
Assets held for sale	Assets held for sale	7,748		2,096		Assets held for sale	5,798		23,208
Mortgage loan receivable, net		40,413		—
Mortgage loans receivable, net						Mortgage loans receivable, net	92,267		46,378
Cash, cash equivalents and restricted cash	Cash, cash equivalents and restricted cash	4,687		7,603		Cash, cash equivalents and restricted cash	6,596		70,543
Lease intangible assets, net	Lease intangible assets, net	128,856		124,772		Lease intangible assets, net	154,213		151,006
Other assets, net	Other assets, net	30,528		20,351		Other assets, net	50,242		52,057
Total assets	Total assets	$	1,199,729	$	1,068,441	Total assets	$	1,627,382	$	1,605,692
Liabilities and equity	Liabilities and equity					Liabilities and equity
Liabilities:	Liabilities:					Liabilities:
Term loan, net		$	174,386	$	174,330
Term loans, net						Term loans, net	$	373,415	$	373,296
Revolving credit facility	Revolving credit facility	120,000		64,000		Revolving credit facility	96,000		113,000
Mortgage note payable, net						Mortgage note payable, net	7,901		7,896
Lease intangible liabilities, net	Lease intangible liabilities, net	24,015		23,316		Lease intangible liabilities, net	29,348		30,131
Liabilities related to assets held for sale	Liabilities related to assets held for sale	115		—		Liabilities related to assets held for sale	34		406
Accounts payable, accrued expenses and other liabilities	Accounts payable, accrued expenses and other liabilities	16,166		16,980		Accounts payable, accrued expenses and other liabilities	25,062		22,540
Total liabilities	Total liabilities	334,682		278,626		Total liabilities	531,760		547,269
Commitments and contingencies	Commitments and contingencies	0		0		Commitments and contingencies
Equity:	Equity:					Equity:
Stockholders’ equity	Stockholders’ equity					Stockholders’ equity
Common stock, $0.01 par value, 400,000,000 shares authorized; 47,921,988 and 44,223,050 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively		479		442
Common stock, $0.01 par value, 400,000,000 shares authorized; 60,862,466 and 58,031,879 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively						Common stock, $0.01 par value, 400,000,000 shares authorized; 60,862,466 and 58,031,879 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively	609		580
Additional paid-in capital	Additional paid-in capital	886,351		809,724		Additional paid-in capital	1,145,160		1,091,514
Distributions in excess of retained earnings	Distributions in excess of retained earnings	(42,193)		(35,119)		Distributions in excess of retained earnings	(77,237)		(66,937)
Accumulated other comprehensive income	Accumulated other comprehensive income	10,258		4,123		Accumulated other comprehensive income	17,743		23,673
Total stockholders’ equity	Total stockholders’ equity	854,895		779,170		Total stockholders’ equity	1,086,275		1,048,830
Noncontrolling interests	Noncontrolling interests	10,152		10,645		Noncontrolling interests	9,347		9,593
Total equity	Total equity	865,047		789,815		Total equity	1,095,622		1,058,423
Total liabilities and equity	Total liabilities and equity	$	1,199,729	$	1,068,441	Total liabilities and equity	$	1,627,382	$	1,605,692

The accompanying notes are an integral part of these condensed consolidated financial statements.

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NETSTREIT CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(In thousands, except share and per share data)

(Unaudited)


		Three Months Ended March 31,					Three Months Ended March 31,
		2022		2021			2023		2022
Revenues	Revenues					Revenues
Rental revenue (including reimbursable)	Rental revenue (including reimbursable)	$	20,921	$	11,932	Rental revenue (including reimbursable)	$	28,474	$	20,921
Interest income on mortgage loan receivable		411		—
Interest income on loans receivable						Interest income on loans receivable	978		411
Total revenues	Total revenues	21,332		11,932		Total revenues	29,452		21,332
Operating expenses	Operating expenses					Operating expenses
Property	Property	2,932		950		Property	3,936		2,932
General and administrative	General and administrative	4,190		3,137		General and administrative	4,909		4,190
Depreciation and amortization	Depreciation and amortization	10,980		5,929		Depreciation and amortization	14,949		10,980
Provisions for impairment		—		69
Transaction costs	Transaction costs	165		151		Transaction costs	109		165
Total operating expenses	Total operating expenses	18,267		10,236		Total operating expenses	23,903		18,267
Other income (expense)	Other income (expense)					Other income (expense)
Interest expense, net	Interest expense, net	(1,169)		(905)		Interest expense, net	(3,944)		(1,169)
Gain on sales of real estate, net		161		—
Total other income (expense), net		(1,008)		(905)
Net income before income tax expense		2,057		791
Income tax expense		(91)		(50)
Gain (loss) on sales of real estate, net						Gain (loss) on sales of real estate, net	(319)		161
Other income						Other income	152		—
Total other expense, net						Total other expense, net	(4,111)		(1,008)
Net income before income taxes						Net income before income taxes	1,438		2,057
Income tax benefit (expense)						Income tax benefit (expense)	43		(91)
Net income	Net income	1,966		741		Net income	1,481		1,966
Net income attributable to noncontrolling interests	Net income attributable to noncontrolling interests	24		40		Net income attributable to noncontrolling interests	9		24
Net income attributable to common stockholders	Net income attributable to common stockholders	$	1,942	$	701	Net income attributable to common stockholders	$	1,472	$	1,942
Amounts available to common stockholders per common share:	Amounts available to common stockholders per common share:					Amounts available to common stockholders per common share:
Basic	Basic	$	0.04	$	0.02	Basic	$	0.03	$	0.04
Diluted	Diluted	$	0.04	$	0.02	Diluted	$	0.03	$	0.04
Weighted average common shares:	Weighted average common shares:					Weighted average common shares:
Basic	Basic	44,415,807		28,348,975		Basic	58,155,738		44,415,807
Diluted	Diluted	45,600,810		30,052,940		Diluted	58,883,386		45,600,810
Other comprehensive income:	Other comprehensive income:					Other comprehensive income:
Net income	Net income	$	1,966	$	741	Net income	$	1,481	$	1,966
Change in value on derivatives, net	Change in value on derivatives, net	6,211		2,323		Change in value on derivatives, net	(5,979)		6,211
Total comprehensive income		8,177		3,064
Comprehensive income attributable to noncontrolling interests		100		164
Comprehensive income attributable to common stockholders		$	8,077	$	2,900
Total comprehensive income (loss)						Total comprehensive income (loss)	(4,498)		8,177
Comprehensive income (loss) attributable to noncontrolling interests						Comprehensive income (loss) attributable to noncontrolling interests	(40)		100
Comprehensive income (loss) attributable to common stockholders						Comprehensive income (loss) attributable to common stockholders	$	(4,458)	$	8,077

The accompanying notes are an integral part of these condensed consolidated financial statements.

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NETSTREIT CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(In thousands, except share data)

(Unaudited)


		Common stock																Common stock
		Shares	Par Value		Additional Paid-in Capital		Distributions in Excess of Retained Earnings		Accumulated Other Comprehensive Income		Total Stockholders’ Equity		Noncontrolling Interests		Total Equity			Shares	Par Value		Additional Paid-in Capital		Distributions in Excess of Retained Earnings		Accumulated Other Comprehensive Income		Total Stockholders’ Equity		Noncontrolling Interests		Total Equity
Balance at December 31, 2021		44,223,050	$	442	$	809,724	$	(35,119)	$	4,123	$	779,170	$	10,645	$	789,815
Issuance of common stock in public offering, net of issuance costs		3,604,736	36		75,461		—		—		75,497		—		75,497
Balance at December 31, 2022																	Balance at December 31, 2022	58,031,879	$	580	$	1,091,514	$	(66,937)	$	23,673	$	1,048,830	$	9,593	$	1,058,423
Issuance of common stock in public offerings, net of issuance costs																	Issuance of common stock in public offerings, net of issuance costs	2,759,481	28		52,875		—		—		52,903		—		52,903
OP Units converted to common stock	OP Units converted to common stock	25,629	—		484		—		—		484		(484)		—		OP Units converted to common stock	5,694	—		105		—		—		105		(105)		—
Dividends and distributions declared on common stock and OP units	Dividends and distributions declared on common stock and OP units	—	—		—		(8,888)		—		(8,888)		(109)		(8,997)		Dividends and distributions declared on common stock and OP units	—	—		—		(11,650)		—		(11,650)		(101)		(11,751)
Dividends declared on restricted stock, net	Dividends declared on restricted stock, net	—	—		—		(128)		—		(128)		—		(128)		Dividends declared on restricted stock, net	—	—		—		(122)		—		(122)		—		(122)
Vesting of restricted stock units	Vesting of restricted stock units	85,224	1		(1)		—		—		—		—		—		Vesting of restricted stock units	83,428	1		(1)		—		—		—		—		—
Repurchase of common stock for tax withholding obligations	Repurchase of common stock for tax withholding obligations	(16,651)	—		(362)		—		—		(362)		—		(362)		Repurchase of common stock for tax withholding obligations	(18,016)	—		(360)		—		—		(360)		—		(360)
Stock-based compensation, net	Stock-based compensation, net	—	—		1,045		—				1,045		—		1,045		Stock-based compensation, net	—	—		1,027		—				1,027		—		1,027
Other comprehensive income		—	—		—		—		6,135		6,135		76		6,211
Other comprehensive loss																	Other comprehensive loss	—	—		—		—		(5,930)		(5,930)		(49)		(5,979)
Net income	Net income	—	—		—		1,942		—		1,942		24		1,966		Net income	—	—		—		1,472		—		1,472		9		1,481
Balance at March 31, 2022		47,921,988	$	479	$	886,351	$	(42,193)	$	10,258	$	854,895	$	10,152	$	865,047
Balance at March 31, 2023																	Balance at March 31, 2023	60,862,466	$	609	$	1,145,160	$	(77,237)	$	17,743	$	1,086,275	$	9,347	$	1,095,622


		Common stock																Common stock
		Shares	Par Value		Additional Paid-in Capital		Distributions in Excess of Retained Earnings		Accumulated Other Comprehensive Income		Total Stockholders’ Equity		Noncontrolling Interests		Total Equity			Shares	Par Value		Additional Paid-in Capital		Distributions in Excess of Retained Earnings		Accumulated Other Comprehensive Income		Total Stockholders’ Equity		Noncontrolling Interests		Total Equity
Balance at December 31, 2020		28,203,545	$	282	$	501,045	$	(7,464)	$	235	$	494,098	$	33,975	$	528,073
Balance at December 31, 2021																	Balance at December 31, 2021	44,223,050	$	442	$	809,724	$	(35,119)	$	4,123	$	779,170	$	10,645	$	789,815
Issuance of common stock in public offerings, net of issuance costs																	Issuance of common stock in public offerings, net of issuance costs	3,604,736	36		75,461		—		—		75,497		—		75,497
OP Units converted to common stock	OP Units converted to common stock	253,344	3		4,920		—		—		4,923		(4,923)		—		OP Units converted to common stock	25,629	—		484		—		—		484		(484)		—
Dividends and distributions declared on common stock and OP units	Dividends and distributions declared on common stock and OP units	—	—		—		(5,687)		—		(5,687)		(307)		(5,994)		Dividends and distributions declared on common stock and OP units	—	—		—		(8,888)		—		(8,888)		(109)		(8,997)
Dividends declared on restricted stock		—	—		—		(132)		—		(132)		—		(132)
Dividends declared on restricted stock, net																	Dividends declared on restricted stock, net	—	—		—		(128)		—		(128)		—		(128)
Vesting of restricted stock units	Vesting of restricted stock units	15,190	—		—		—		—		—		—		—		Vesting of restricted stock units	85,224	1		(1)		—		—		—		—		—
Repurchase of common stock for tax withholding obligations	Repurchase of common stock for tax withholding obligations	(4,962)	—		(90)		—		—		(90)		—		(90)		Repurchase of common stock for tax withholding obligations	(16,651)	—		(362)		—		—		(362)		—		(362)
Stock-based compensation		—	—		557		—				557		—		557
Stock-based compensation, net																	Stock-based compensation, net	—	—		1,045		—				1,045		—		1,045
Other comprehensive income	Other comprehensive income	—	—		—		—		2,199		2,199		124		2,323		Other comprehensive income	—	—		—		—		6,135		6,135		76		6,211
Net income	Net income	—	—		—		701		—		701		40		741		Net income	—	—		—		1,942		—		1,942		24		1,966
Balance at March 31, 2021		28,467,117	$	285	$	506,432	$	(12,582)	$	2,434	$	496,569	$	28,909	$	525,478
Balance at March 31, 2022																	Balance at March 31, 2022	47,921,988	$	479	$	886,351	$	(42,193)	$	10,258	$	854,895	$	10,152	$	865,047

The accompanying notes are an integral part of these condensed consolidated financial statements.

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NETSTREIT CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In ~~thousands, except share and per share data)~~thousands)

(Unaudited)

Three Months Ended
March 31,
2022 2021
Cash flows from operating activities
Net income $ 1,966 $ 741
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 10,980 5,929
Amortization of deferred financing costs 157 157
Noncash revenue adjustments (807) (430)
Stock-based compensation expense 1,045 557
Gain on sales of real estate, net (161) —
Provisions for impairment — 69
Changes in assets and liabilities, net of assets acquired and liabilities assumed:
Other assets, net (1,484) (1,109)
Accounts payable, accrued expenses and other liabilities (2,742) (1,644)
Net cash provided by operating activities 8,954 4,270
Cash flows from investing activities
Acquisitions of real estate (89,973) (88,225)
Real estate development and improvements (4,378) (1,346)
Investment in mortgage loan receivable (40,426) —
Earnest money deposits (630) (451)
Purchase of computer equipment and other corporate assets (595) —
Proceeds from sale of real estate 2,294 —
Net cash used in investing activities (133,708) (90,022)
Cash flows from financing activities
Issuance of common stock in public offerings, net 75,497 —
Payment of common stock dividends (8,888) (5,687)
Payment of OP unit distributions (109) (307)
Payment of restricted stock dividends (106) (5)
Proceeds under revolving credit facility 128,000 13,000
Repayments under revolving credit facility (72,000) —
Proceeds under property development incentives 375 —
Repurchase of common stock for tax withholding obligations (363) (90)
Deferred offering costs (568) (86)
Net cash provided by financing activities 121,838 6,825
Net change in cash, cash equivalents and restricted cash (2,916) (78,927)
Cash, cash equivalents and restricted cash at beginning of the period 7,603 92,643
Cash, cash equivalents and restricted cash at end of the period $ 4,687 $ 13,716
Supplemental disclosures of cash flow information:
Cash paid for interest $ 1,108 $ 758
Supplemental disclosures of non-cash investing and financing activities:
Dividends declared and unpaid on restricted stock $ 128 $ 132
Cash flow hedge change in fair value $ 6,211 $ 2,323
Accrued capital expenditures and real estate development and improvement costs $ 1,418 $ —


	Three Months Ended March 31,
	2023		2022
Cash flows from operating activities
Net income	$	1,481	$	1,966
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	14,949		10,980
Amortization of deferred financing costs	308		157
Amortization of above/below-market assumed debt	29		—
Noncash revenue adjustments	(509)		(807)
Stock-based compensation expense	1,027		1,045
(Gain) loss on sales of real estate, net	319		(161)
Gain on involuntary conversion of buildings and improvements	(12)		—
Changes in assets and liabilities, net of assets acquired and liabilities assumed:
Other assets, net	(1,845)		(1,484)
Accounts payable, accrued expenses and other liabilities	(441)		(2,742)
Lease incentive payments	(500)		—
Net cash provided by operating activities	14,806		8,954
Cash flows from investing activities
Acquisitions of real estate	(67,717)		(89,973)
Real estate development and improvements	(2,480)		(4,378)
Investment in mortgage loans receivable	(45,917)		(40,426)
Earnest money deposits	(1,773)		(630)
Purchase of computer equipment and other corporate assets	—		(595)
Proceeds from sale of real estate	15,463		2,294
Proceeds from the settlement of property-related insurance claims	12		—
Net cash used in investing activities	(102,412)		(133,708)
Cash flows from financing activities
Issuance of common stock in public offerings, net	52,903		75,497
Payment of common stock dividends	(11,650)		(8,888)
Payment of OP unit distributions	(101)		(109)
Payment of restricted stock dividends	(92)		(106)
Principal payments on mortgages payable	(26)		—
Proceeds under property development incentives	—		375
Proceeds under revolving credit facilities	99,000		128,000
Repayments under revolving credit facilities	(116,000)		(72,000)
Repurchase of common stock for tax withholding obligations	(360)		(363)
Deferred offering costs	(15)		(568)
Net cash provided by financing activities	23,659		121,838
Net change in cash, cash equivalents and restricted cash	(63,947)		(2,916)
Cash, cash equivalents and restricted cash at beginning of the period	70,543		7,603
Cash, cash equivalents and restricted cash at end of the period	$	6,596	$	4,687

Supplemental disclosures of cash flow information:
Cash paid for interest	$	3,641	$	1,108
Supplemental disclosures of non-cash investing and financing activities:
Dividends declared and unpaid on restricted stock	$	122	$	128
Cash flow hedge change in fair value	$	(5,979)	$	6,211
Accrued capital expenditures and real estate development and improvement costs	$	2,516	$	1,418

The accompanying notes are an integral part of these condensed consolidated financial statements.

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NETSTREIT CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~(unaudited)~~(Unaudited)

Note 1 – Organization and Description of Business

NETSTREIT Corp. ~~(“Company”~~(the “Company”) was incorporated on October 11, 2019 as a Maryland corporation and commenced operations on December 23, 2019. The Company conducts its operations through NETSTREIT, L.P., a Delaware limited partnership (the “Operating Partnership”). NETSTREIT GP, LLC, a Delaware limited liability company and a wholly owned subsidiary of the Company, is the sole general partner of the Operating Partnership.

The Company elected to be treated and to qualify as a real estate investment trust (“REIT”) for U.S. federal income tax purposes beginning with its short taxable year ended December 31, 2019. Additionally, the Operating Partnership formed NETSTREIT Management TRS, LLC (“NETSTREIT TRS”), which together with the Company jointly elected to be treated as a taxable REIT subsidiary under Section 856(a) of the Internal Revenue Code of 1986, as amended, (the “Code”) for U.S. federal income tax purposes.

The Company is structured as an umbrella partnership real estate investment trust (commonly referred to as an “UPREIT”) and is an internally managed real estate company that acquires, owns and manages a diversified portfolio of single-tenant, retail commercial real estate leased on a long-term basis to high credit quality tenants across the United States. The Company also invests in property developments and mortgage loans secured by real estate. As of March 31, ~~2022,~~2023, the Company owned or had investments in ~~363~~488 properties, located in ~~42 states.~~45 states, excluding four property developments where rent has yet to commence.

Note 2 – Summary of Significant Accounting Policies

Basis of Presentation

The accompanying interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ~~(GAAP)~~(“GAAP”) and the rules and regulations of the U.S. Securities and Exchange Commission ~~(SEC)~~(“SEC”). The accompanying condensed consolidated financial statements include the accounts of the Company and subsidiaries in which the Company has a controlling financial interest. All intercompany accounts and transactions have been eliminated in consolidation and the Company’s net income is reduced by the portion of net income attributable to noncontrolling interests.

Interim Unaudited Financial Information

The accompanying unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the ~~Securities and Exchange Commission (“SEC”).~~SEC. These unaudited interim condensed consolidated financial statements do not include all of the information and notes required by ~~accounting principles generally accepted in the United States of America (“GAAP”)~~GAAP for complete financial statements, and should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto on the Annual Report on Form 10-K as of and for the year ended December 31, ~~2021,~~2022, which provide a more complete understanding of the Company’s accounting policies, financial position, operating results, business properties, and other matters. In the opinion of management, all adjustments of a normal recurring nature necessary for a fair presentation have been included. The results of operations for the three months ended March 31, ~~2022~~2023 and ~~2021~~2022 are not necessarily indicative of the results for the full year.

~~Noncontrolling Interests~~

The Company presents noncontrolling interests, which represent limited partnership units in the operating partnership (the “OP Units”) not owned by the Company, as a component of permanent equity, separate from the Company's stockholders’ equity. Noncontrolling interests were created as part of an asset acquisition and recognized at fair value as of the date of the transaction. Effective with the Company’s initial public offering, each limited partner of the Operating Partnership has the right to require the Operating Partnership to redeem part or all of its OP Units for cash, based upon the value of an equivalent number of shares of the Company’s common stock at the time of the redemption, or, at the Company’s election, shares of the Company’s common stock on a one-for-one basis, subject to certain adjustments and the restrictions on ownership and transfer of the Company’s common stock. The election to pay cash or issue common stock is solely within the control of the Company to satisfy a noncontrolling interest holder's redemption request.

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Net income of the Operating Partnership is allocated to its noncontrolling interests based on the noncontrolling interests’ ownership percentages in the Operating Partnership throughout the period. Ownership percentage is calculated by dividing the number of OP Units held by the noncontrolling interests by the total OP Units outstanding.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company’s most significant assumptions and estimates relate to the useful lives of real estate assets, lease accounting, real estate impairment assessments, and allocation of fair value of purchase consideration. These estimates are based on historical experience and other assumptions which management believes are reasonable under the circumstances. The Company evaluates its estimates on an ongoing basis and makes revisions to these estimates and related disclosures as experience develops or new information becomes known. Further, the uncertainty over the ultimate impact COVID-19 will have on the global economy and the Company’s business makes any estimates and assumptions as of March 31, 2022 inherently less certain than they would be absent the current and potential impacts of COVID-19. Actual results could differ from those estimates.

~~Risk and Uncertainties~~

~~COVID-19~~

The ongoing COVID-19 pandemic, and the measures taken to limit its spread have negatively impacted the economy across many industries, including industries in which our tenants operate. The impacts may continue and/or increase in severity as the duration of the pandemic lengthens. The Company continues to monitor the global outbreak of COVID-19 and to take steps to mitigate the potential risks to us posed by the pandemic, including the identification and spread of variants. However, the Company’s operations and cash flows during the years presented in the consolidated financial statements were not materially impacted by COVID-19.

~~Real Estate Held for Investment~~

Real estate is recorded and stated at cost less any provision for impairment. At acquisition date, the purchase price of an acquired property is allocated to tangible and identifiable intangible assets or liabilities based on their relative fair values. For properties developed by the Company, all direct and indirect costs related to planning, development and construction, including interest, real estate taxes and other miscellaneous costs incurred during the construction period, are capitalized for financial reporting purposes and recorded as property under development until construction has been completed.

The Company evaluates each acquisition transaction to determine whether the acquired asset meets the definition of a business and therefore accounted for as a business combination or if the acquisition transaction should be accounted for as an asset acquisition. Under Accounting Standards Update (“ASU”) 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business” (“ASU 2017-01”), an acquisition does not qualify as a business when substantially all of the fair value is concentrated in a single identifiable asset or group of similar identifiable assets or the acquisition does not include a substantive process in the form of an acquired workforce or an acquired contract that cannot be replaced without significant cost, effort or delay. Transaction costs related to acquisitions that qualify as asset acquisitions are capitalized as part of the cost basis of the acquired assets, while transaction costs for acquisitions that are deemed to be acquisitions of a business are expensed as incurred.

The Company allocates the purchase price of acquired properties accounted for as asset acquisitions to tangible and identifiable intangible assets or liabilities based on their relative fair values. Tangible assets may include land, buildings, site improvements and tenant improvements. Intangible assets include the value of in-place leases and above-market leases and intangible liabilities include below-market leases.

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The fair value of the tangible assets of an acquired property with an in-place operating lease is determined by valuing the property as if it were vacant, and the “as-if-vacant” value is then allocated to the tangible assets based on the fair value of the tangible assets. The fair value of in-place leases is determined by considering estimates of carrying costs during the expected lease-up periods, current market conditions, as well as costs to execute similar leases based on the specific characteristics of each tenant’s lease. The Company estimates the cost to execute leases with terms similar to the remaining lease terms of the in-place leases, including leasing commissions, legal and other related expenses. The fair value of above-market or below-market leases is recorded based on the net present value (using a discount rate that reflects the risks associated with the leases acquired) of the difference between the contractual amount to be paid pursuant to the in-place lease and the Company’s estimate of the fair market lease rate for the corresponding in-place lease, measured over the remaining non-cancelable term of the lease including any below-market fixed rate renewal options for below-market leases. In making estimates of fair values for purposes of allocating purchase price, the Company utilizes a number of sources, including real estate valuations prepared by an independent valuation firm. The Company also considers information and other factors including market conditions, the industry that the tenant operates in, characteristics of the real estate; e.g., location, size, demographics, value and comparative rental rates; tenant credit profile and the importance of the location of the real estate to the operations of the tenant’s business. Additionally, the Company considers information obtained about each property as a result of its pre-acquisition due diligence, marketing and leasing activities in estimating the fair value of the tangible and intangible assets and liabilities acquired. Based on these inputs for measuring and allocating the fair value of real estate acquisitions, the Company utilizes both observable market data (categorized as level 2 on the three-level valuation hierarchy of Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurement), and unobservable inputs that reflect the Company’s own internal assumptions (categorized as level 3 under ASC Topic 820).

~~Depreciation and Amortization~~

~~Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets:~~


~~Buildings~~			~~13 – 35 years~~
~~Building improvements~~			~~15 years~~
~~Tenant improvements~~			~~Shorter of the term of the related lease or useful life~~
~~Acquired in-place leases or leasing commissions~~			~~Remaining terms of the respective leases~~
~~Assembled workforce~~			~~3 years~~
~~Computer equipment and other corporate assets~~			~~3 – 5 years~~

~~Total depreciation and amortization expense was $11.0 million and $5.9 million during the three months ended March 31, 2022 and 2021, respectively.~~

Depreciation expense on real estate held for investment and computer equipment and other corporate assets was $7.3 million and $4.1 million during the three months ended March 31, 2022 and 2021, respectively.

Amortization expense on acquired in-place lease and assembled workforce intangible assets, and leasing commission costs were $3.6 million and $1.8 million during the three months ended March 31, 2022 and 2021, respectively.

Repairs and maintenance are charged to property operating expense as incurred; major renewals and betterments that extend the useful life or improve the operating capacity of the asset are capitalized. Upon the sale or disposition of a property, the asset and the related accumulated depreciation are removed from the condensed consolidated balance sheets with the difference between the proceeds received, net of sales costs, and the carrying value of the asset group recorded as a gain or loss on sale, subject to impairment considerations.

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~~Assets Held for Sale~~

Properties classified as held for sale, including the related intangibles, on the condensed consolidated balance sheets include only those properties available for immediate sale in their present condition, which are actively being marketed, and for which management believes that it is probable that a sale of the property will be completed within one year. Properties held for sale are carried at the lower of cost or fair value, less estimated selling costs. No depreciation expense or amortization expense is recognized on properties held for sale and the related intangible assets or liabilities once they have been classified as such. Only disposals representing a strategic shift in operations are presented as discontinued operations. Accordingly, we have not reclassified results of operations for properties disposed during the interim period ended March 31, 2022 or held for sale as discontinued operations, as these events are a normal part of the Company’s operations and do not represent strategic shifts in the Company’s operations. As of March 31, 2022 and December 31, 2021, there was 1 property classified as held for sale.

~~Impairment of Long-Lived Assets~~

Fair value measurement of an asset group occurs when events or changes in circumstances related to an asset indicate that the carrying amount of the asset is no longer recoverable. An example of an event or changed circumstance is a reduction in the expected holding period of a property. If indicators are present, the Company will prepare a projection of the undiscounted future cash flows of the property, excluding interest charges, and determine if the carrying amount of the asset group is recoverable. When a carrying amount is not recoverable, an impairment loss is recognized to the extent that the carrying amount of the asset group exceeds its fair market value. The Company estimates fair value using data such as operating income, estimated capitalization rates or multiples, leasing prospects, local market information, and with regard to assets held for sale, based on the estimated or negotiated selling price, less estimated costs of disposal. Based on these unobservable inputs, the Company determined that its valuations of impaired real estate and intangible assets fall within Level 3 of the fair value hierarchy under ASC Topic 820.

~~The following table summarizes the provision for impairment during the periods indicated below (in thousands):~~

Three Months Ended
March 31,
2022 2021
Total provision for impairment $ — $ 69
Number of properties: (1)
Classified as held for sale — 1
Disposed within the period — —

~~(1)~~ Includes the number of properties that were impaired and classified as held for sale or impaired and disposed of during the respective periods. Excludes properties that did not have impairment recorded during the period.

Cash, Cash Equivalents and Restricted Cash

The Company considers all cash balances, money market accounts and highly liquid investments with original maturities of three months or less to be cash and cash equivalents. Restricted cash includes cash restricted for property tenant improvements and cash proceeds from the sale of assets held by qualified intermediaries in anticipation of the acquisition of replacement properties in tax-free exchanges under Section 1031 of the Code. Restricted cash is included in cash, cash equivalents, and restricted cash onin the condensed consolidated balance sheets. The Company had no restricted cash as of March 31, ~~2022 or~~2023, and $4.7 million of restricted cash as of December 31, ~~2021.~~2022.

The Company’s bank balances as of March 31, ~~2022~~2023 and December 31, ~~2021 include~~2022 included certain amounts over the Federal Deposit Insurance Corporation limits.

~~Revenue Recognition and Related Matters~~

The Company’s rental revenue is primarily related to rent received from tenants under leases accounted for as operating leases. Rent from leases that have fixed and determinable rent increases is recognized on a straight-line basis over the non-cancellable initial term of the lease and reasonably certain renewal periods, from the later of the date of the commencement of the lease or the date of acquisition of the property subject to the lease. The difference between rental revenue recognized and the cash rent

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~~due under the provisions of the lease is recorded as deferred rent receivable and included as a component of other assets in the condensed consolidated balance sheets.~~

Variable lease revenues include tenant reimbursements, lease termination fees, changes in the index or market-based indices after the inception of the lease or percentage rents. Variable lease revenues are not recognized until the specific events that trigger the variable payments have occurred. The Company recognized variable lease revenue related to tenant reimbursements and lease termination fees for the periods presented.

Capitalized above-market and below-market lease values are amortized on a straight-line basis as a reduction or increase of rental revenue as appropriate over the remaining non-cancellable terms of the respective leases.

Reserves for uncollectible amounts are provided against the portion of accounts receivable, net including straight-line rents, which is estimated to be uncollectible, which includes a portfolio-based reserve and reserves for specifically disputed amounts. Such reserves are reviewed each period based upon recovery experience and the specific facts of each outstanding amount. As of March 31, 2022 and December 31, 2021, the Company had an immaterial reserve for uncollectible amounts specific to uncharged reimbursable expenses.

~~Mortgage Loan Receivable~~

~~The Company holds 1 loan receivable, which is a mortgage loan secured by real estate, for long-term investment. The loan receivable is carried at amortized cost.~~

The Company recognizes interest income on the loan receivable using the effective-interest method. Direct costs associated with originating loans, along with any premium or discount, is deferred and amortized as an adjustment to interest income over the term of the related loan receivable using the effective interest method. The Company evaluates its loans receivable balance, including accrued interest, for potential credit losses by analyzing the credit of the borrower, the remaining time to maturity of the loan, collateral value and quality (if any), and other relevant factors. A loan receivable is placed on nonaccrual status when management determines that full recovery of the contractually specified payments of principal and interest is doubtful.

~~Stock-Based Compensation~~

The Company has a share-based compensation award program for our employees and directors. Stock-based compensation expense associated with these awards is recognized in general and administrative expenses in our condensed consolidated statements of operations and comprehensive income. We classify stock-based payment awards either as equity awards or liability awards based upon an analysis of ASC 718 and ASC 480. Equity classified awards are measured based on the fair value on the date of grant. Liability classified awards are remeasured to fair value each reporting period. Stock-based compensation expense is recognized over the requisite service or performance period. The Company recognizes forfeitures as they occur.

~~Forward Equity Sales~~

The Company occasionally sells shares of common stock through forward sale agreements to enable the Company to set the price of such shares upon pricing the offering (subject to certain adjustments) while delaying the issuance of such shares and the receipt of the net proceeds by the Company.

To account for the forward sale agreements, the Company considers the accounting guidance governing financial instruments and derivatives. To date, the Company has concluded that its forward sale agreements are not liabilities as they do not embody obligations to repurchase its shares nor do they embody obligations to issue a variable number of shares for which the monetary value are predominantly fixed, varying with something other than the fair value of the shares, or varying inversely in relation to its shares. The Company then evaluates whether the agreements meet the derivatives and hedging guidance scope exception to be accounted for as equity instruments. The Company has concluded that the agreements are classifiable as equity contracts based on the following assessments: (i) none of the agreements’ exercise contingencies are based on observable markets or indices besides those related to the market for the Company’s own stock price and operations; and (ii) none of the settlement provisions precluded the agreements from being indexed to its own stock.

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The Company also considers the potential dilution resulting from the forward sale agreements on the earnings per share calculations. Prior to settlement, a forward sale agreement will be reflected in the diluted earnings per share calculations using the treasury stock method. Under this method, the number of shares of the Company’s common stock used in diluted earnings per share is deemed to be increased by the excess, if any, of the number of shares of the Company’s common stock that would be issued upon full physical settlement of such forward sale agreement over the number of shares of the Company’s common stock that could be purchased by the Company in the market (based on the average market price during the period) using the proceeds receivable upon full physical settlement (based on the adjusted forward sale price at the end of the reporting period). Consequently, prior to settlement of a forward sale agreement, there will be no dilutive effect on the Company’s earnings per share except during periods when the average market price of the Company’s common stock is above the adjusted forward sale price. However, upon settlement of a forward sales agreement, if the Company’s elects to physically settle or net share settle such forward sale agreement, delivery of the Company’s shares will result in dilution to the Company’s earnings per share.

~~Transaction Costs~~

Transaction costs were $0.2 million for each of the three months ended March 31, 2022 and 2021, respectively, and represent acquisition related expenses, including costs associated with abandoned acquisitions.

~~Income Taxes~~

The Company elected to be treated and qualify as a REIT for U.S. federal income tax purposes beginning with its short taxable year ended December 31, 2019. To qualify as a REIT, the Company must meet certain organizational, income, asset and distribution tests. Accordingly, the Company will generally not be subject to corporate U.S. federal or state income tax to the extent that it makes qualifying distributions of all of its taxable income to its stockholders and provided it satisfies on a continuing basis, through actual investment and operating results, the REIT requirements, including certain asset, income, distribution and share ownership tests. The Company intends to make sufficient distributions during 2022 to receive a full dividends paid deduction.

NETSTREIT TRS is treated as a taxable REIT subsidiary which may be subject to U.S. federal, state, and local income taxes on its taxable income. In general, NETSTREIT TRS may perform services for tenants of the Company, hold assets that the Company cannot hold directly and may engage in any real estate or non-real estate-related business.

The Company recognizes franchise and other state and local tax expenses in general and administrative and recognized state and federal income tax expense in income tax expense in the accompanying condensed consolidated statements of operations and comprehensive income.

All provisions for federal income taxes in the accompanying condensed consolidated financial statements are attributable to NETSTREIT TRS. Deferred income tax expense and its ending balance in deferred tax assets and liabilities were immaterial for the years and periods presented.

The Company has elected to record related interest and penalties, if any, as general and administrative expense or as income tax expense based on the nature of the tax on the condensed consolidated statements of operations and comprehensive income. The Company had no material interest or penalties relating to income, franchise, and other state and local taxes for the years and periods presented. Additionally, there were no material accruals for interest or penalties as of March 31, 2022 and December 31, 2021.

The Company files federal, state and local income tax returns. The Company regularly analyzes its various federal and state filing positions and only recognizes the income tax effect in its financial statements when certain criteria regarding uncertain income tax positions have been met. The Company believes that its income tax positions would more likely than not be sustained upon examination by all relevant taxing authorities. Therefore, no provisions for uncertain income tax positions have been recorded in the condensed consolidated financial statements.

~~All federal tax returns for years prior to 2019 are no longer subject to examination. Additionally, state tax returns for years prior to 2017 are generally no longer subject to examination.~~

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~~Earnings Per Share~~

Earnings per common share has been computed pursuant to the guidance in FASB ASC Topic 260, Earnings per Share. Basic earnings per share (“EPS”) is computed by dividing net income allocated to common stockholders by the weighted-average number of common shares outstanding for the reporting period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. No effect is shown for any securities that are anti-dilutive. Net income allocated to common stockholders represents net income less income allocated to participating securities and noncontrolling interests. None of the Company’s equity awards are participating securities.

Fair Value Measurement

~~Fair value measurements~~Companies are ~~utilized in~~required to disclose the ~~accounting~~estimated fair values of all financial instruments, even if they are not carried at their fair value. The fair values of financial instruments are estimates based on market conditions and perceived risks as of March 31, 2023 and December 31, 2022. These estimates require management’s judgement and may not be indicative of the ~~Company’s assets acquired and liabilities assumed in an asset acquisition and also affect~~future fair values of the ~~Company’s accounting for certain of its financial~~ assets and liabilities. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The hierarchy described below prioritizes inputs to the valuation techniques used in measuring the fair value of assets and liabilities. This hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring the most observable inputs to be used when available. The hierarchy is broken down into three levels based on the reliability of inputs as follows: Level 1 inputs, such as quoted prices in an active market; Level 2 inputs, which are observable inputs for similar assets; or Level 3 inputs, which are unobservable inputs.

~~The Company uses the following inputs in its fair value measurements:~~

–~~Level 2 inputs for its debt and derivative financial instrument fair value disclosures. See “Note 6 - Debt” and “Note 7 - Derivative Financial Instruments,” respectively; and~~

–~~Level 2 and Level 3 inputs when assessing the fair value of assets and liabilities in connection with real estate acquisitions and impairment. See “Note 4 - Real Estate Investments.”~~

The fair value of the Company’s cash, cash equivalents and restricted cash (including money market accounts), other assets and accounts payable, accrued expenses and other liabilities approximate their carrying value because of the short-term nature of these instruments. ~~Provisions for impairment recognized in~~Additionally, the ~~three months ended~~Company believes the following financial instruments have carrying values that approximate their fair values as of March 31, ~~2021 related to an asset held for sale and~~2023:

•Borrowings under the ~~impairment was determined~~Company’s New Revolver (as defined in “Note 6 - Debt”) approximate fair value based on their nature, terms and variable interest rates.

•Carrying values of the ~~estimated or negotiated selling price, less costs~~Company’s fixed rate mortgage loans receivable approximate fair values based on a number of ~~disposal, compared to~~factors, including either their short-term nature, the availability of market quotes for comparable instruments, and a discounted cash flow analysis using estimates of the amount and timing of future cash flows, market rates, and credit spreads.

•Carrying value of the Company’s mortgage note payable approximates fair value based on a discounted cash flow analysis using estimates of the amount and timing of future cash flows, market rates, and credit spreads.

The following table discloses fair value information for the Company’s 2024 Term Loan and 2028 Term Loan (each as defined in “Note 6 - Debt”) (in thousands):


	March 31, 2023				December 31, 2022
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
2024 Term Loan (1)	$	174,591	$	175,471	$	174,532	$	175,382
2028 Term Loan (1)	198,824		201,324		198,764		201,108

(1)The carrying value of the ~~property.~~debt instruments are net of unamortized debt issuance and discount costs.

Concentrations of Credit Risk

Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash and cash equivalents. The Company is exposed to credit risk with respect to cash held at various financial institutions, access to its ~~Credit Facility,~~credit facilities, amounts due under ~~the~~ mortgage ~~loan~~loans receivable, and amounts due or payable under derivative contracts. The credit risk exposure with regard to the Company’s cash, credit facilities, and derivative instruments is spread among a diversified group of investment grade financial institutions.

During the three months ended March 31, 2023 and 2022, ~~the Company’s rental revenues were derived from 71 separate tenants leasing 354 total properties. During this period~~ there were no tenants or borrowers with rental revenue or interest income on loans receivable, respectively, that exceeded 10% of total ~~rental revenue.~~revenues.

During the three months ended March 31, 2021, the Company’s rental revenues were derived from 63 separate tenants leasing 234 total properties. During this period there were no tenants with rental revenue that exceeded 10%

Table of ~~total rental revenue.~~Contents

Segment Reporting

~~The Company considers each one~~ASC Topic 280, Segment Reporting, establishes standards for the manner in which companies report information about operating segments. Substantially all of ~~its properties~~the Company’s investments, at acquisition, are comprised of real estate owned that is leased to ~~be an operating segment, none of which meets~~tenants on a long-term basis or real estate that secures the ~~threshold for a reportable segment.~~ Company's investment in mortgage loans receivable. The Company allocates resources and assesses operating performance based on individual investment and property needs. ~~All of the Company’s operating segments meet the aggregation criteria, and thus,~~Therefore, the Company ~~reports 1 segment, rental operations. There were no intersegment sales during the periods presented.~~

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~~Recent Accounting Pronouncements Adopted~~

~~In March 2020, the FASB issued ASU 2020-04 “Topic 848: Reference Rate Reform.” ASU 2020-04 contains practical expedients~~aggregates these investments for ~~reference rate reform related activities that impact debt, leases, derivatives,~~reporting purposes and ~~other contracts. The guidance~~operates in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. On July 1, 2020, the Company has elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company determined these elections have not materially impacted the Company's condensed consolidated financial statements. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.

one

In August 2020, the FASB issued ASU 2020-06, “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.” ASU 2020-06 simplifies accounting for convertible instruments by removing major separation models currently required. Consequently, more convertible debt instruments will be reported as a single liability instrument and more convertible preferred stock as a single equity instrument with no separate accounting for embedded conversion features. ASU 2020-06 also removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. ASU 2020-06 also simplifies the diluted earnings per share calculation in certain areas. Effective January 1, 2022 the Company adopted this standard with no material impact to the condensed consolidated financial statements. reportable segment.

Note 3 – Leases

Tenant Leases

The Company acquires, owns and manages commercial single-tenant lease properties, with the majority being long-term triple-net leases where the tenant is generally responsible for all improvements and contractually obligated to pay all operating costs (such as real estate taxes, utilities and repairs and maintenance costs). As of March 31, ~~2022,~~2023, the Company had investments in 361 single-tenant retail net leased properties spanning 42 states, with 71 different tenants represented across 23 retail sectors. As of March 31, 2022, the remaining terms of leases range from ~~one~~ ~~to 32 years, with~~Company’s weighted average remaining lease term ~~of 9.6~~was 9.4 years.

The Company’s property leases have been classified as operating leases and some have scheduled rent increases throughout the lease term. The Company’s leases typically provide the tenant one or more multi-year renewal options to extend their leases, subject to generally the same terms and conditions, including rent increases, consistent with the initial lease term.

All lease-related income is reported as a single line item, rental revenue (including reimbursable), in the condensed consolidated statements of operations and comprehensive income (loss) and is presented net of any reserves for uncollectible amounts. There were no material reserves for uncollectible amounts during the three months ended March 31, 2023 and 2022.

Fixed lease income includes stated amounts per the lease contract, which include base rent, fixed common area maintenance charges, and straight-line lease adjustments.

Variable lease income primarily includes recoveries from tenants, which represent amounts that tenants are contractually obligated to reimburse the Company for specific to their portion of actual recoverable costs incurred. Variable lease income also includes percentage rent, which represents amounts billable to tenants based on their actual sales volume in excess of levels specified in the lease contract.

The following table provides a disaggregation of lease income recognized under ASC 842 (in thousands):


		Three Months Ended March 31,					Three Months Ended March 31,
		2022		2021			2023		2022
Rental revenue	Rental revenue					Rental revenue
Fixed lease income (1)	Fixed lease income (1)	$	18,067	$	10,953	Fixed lease income (1)	$	24,723	$	18,067
Variable lease income (2)	Variable lease income (2)	2,689		789		Variable lease income (2)	3,538		2,689
Other rental revenue:	Other rental revenue:					Other rental revenue:
Above/below market lease amortization, net	Above/below market lease amortization, net	283		190		Above/below market lease amortization, net	412		283
Lease incentives	Lease incentives	(118)		—		Lease incentives	(199)		(118)
Rental revenue (including reimbursable)	Rental revenue (including reimbursable)	$	20,921	$	11,932	Rental revenue (including reimbursable)	$	28,474	$	20,921

(1) Fixed lease income includes contractual rents under lease agreements with tenants recognized on a straight-line basis over the lease term.

(2) Variable lease income primarily includes tenant reimbursements for real estate taxes, insurance, common area maintenance, and lease termination fees, and the write-off of uncollectible amounts. There were immaterial write-offs of uncollectible amounts during the three months ended March 31, 2023 with no write-offs during the three months ended March 31, 2022.

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Scheduled future minimum base rental payments (excluding base rental payments from properties classified as held for sale and ~~straight-line~~straight line rent adjustments for all properties) due to be received under the remaining non-cancelable term of the operating leases in place as of March 31, ~~2022~~2023 are as follows (in thousands):


		Future Minimum Base Rental Receipts			Future Minimum Base Rental Receipts
Remainder of 2022		$	56,738
2023		75,995
Remainder of 2023				Remainder of 2023	$	77,012
2024	2024	76,606		2024	101,804
2025	2025	76,332		2025	101,209
2026	2026	73,436		2026	98,383
2027				2027	94,112
Thereafter	Thereafter	406,911		Thereafter	488,870
		$	766,018
Total				Total	$	961,390

Future minimum rentals exclude amounts that may be received from tenants for reimbursements of operating costs and property taxes. In addition, the future minimum rents do not include any contingent rents based on a percentage of the lessees' gross sales or lease escalations based on future changes in the Consumer Price Index (“CPI”) or other stipulated reference rate.

Corporate Office Lease

In August 2021, the Company entered into a lease agreement on a new corporate office space, which commenced in October 2021 and is classified as an operating lease. The ~~Company began operating out of the new office in February 2022. The~~ lease has a remaining noncancellable lease term of ~~10.3~~9.3 years that expires on July 31, 2032, with a one-time option to terminate in 2029 exercisable by the Company. The lease is also renewable at the Company’s option for 2 additional periods of five years. No renewals were incorporated in the calculation of the corporate lease right-of-use asset and liability as it is not reasonably certain that the Company will exercise the options. Further, the lease agreement does not contain any material residual value guarantees or material restrictive covenants. The corporate office lease contains variable lease costs related to the lease of parking spaces and non-lease components related to the reimbursement of property operating expenses and certain common area maintenance expenses, all of which are recognized as incurred. The Company elected to use the component practical expedient, which permits the Company to not separate non-lease components from lease components if timing and pattern of transfer is the same.

The following table presents the lease expense components for the three months ended March 31, 2023 and 2022 (in thousands):


		Three Months Ended March 31,					Three Months Ended March 31,
		2022		2021			2023		2022
Operating lease cost	Operating lease cost	$	135	$	—	Operating lease cost	$	135	$	135
Variable lease cost	Variable lease cost	$	3	$	—	Variable lease cost	$	67	$	3

The Company recorded a right-of-use asset and operating lease liability of approximately $4.5 million at lease commencement. As of March 31, ~~2022,~~2023, the right-of-use asset and operating lease liability ~~were $4.5~~was $4.1 million and ~~$5.5~~$5.4 million, respectively. The right-of-use asset is included in other assets, net and the operating lease liability is included in accounts payable, accrued expenses and other liabilities in the accompanying condensed consolidated balance sheets.

The following table reflects the maturity analysis of payments due from the Company over the next five years and thereafter for the corporate office lease obligation as of March 31, ~~2022~~2023 (in thousands):

T ~~able of Contents~~


		Future Minimum Lease Payments			Future Minimum Lease Payments
Remainder of 2022		$	150
2023		533
Remainder of 2023				Remainder of 2023	$	412
2024	2024	617		2024	617
2025	2025	636		2025	636
2026	2026	653		2026	653
2027				2027	670
Thereafter	Thereafter	3,981		Thereafter	3,311
Total lease payments	Total lease payments	6,570		Total lease payments	6,299
Less: amount representing interest (1)	Less: amount representing interest (1)	(1,090)		Less: amount representing interest (1)	(912)
Present value of operating lease liabilities	Present value of operating lease liabilities	$	5,480	Present value of operating lease liabilities	$	5,387

(1) Imputed interest was calculated using a discount rate of 3.25%. The discount rate is based on the estimated incremental borrowing rate, calculated as the treasury rate for the same period as the underlying lease term, plus a spread determined using factors including REIT industry performance.

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Note 4 – Real Estate Investments

As of March 31, ~~2022,~~2023, the Company owned or had investments in ~~363~~488 properties, ~~including 9 properties currently under development.~~excluding four property developments where rent has yet to commence. The gross real estate investment portfolio, including properties under development, totaled approximately ~~$1.15~~$1.5 billion and consisted of the gross acquisition cost of land, buildings, improvements, and lease intangible assets and liabilities. The investment portfolio is geographically dispersed throughout 4245 states with gross real estate investments in Illinois and Texas representing 8.6% and ~~Illinois representing 11.2% and 10.5%~~8.0%, respectively, of the total gross real estate investment of the Company’s entire portfolio.

Acquisitions

During the three months ended March 31, 2023, the Company acquired 20 properties for a total purchase price of $67.7 million, inclusive of $0.7 million of capitalized acquisition costs.

During the three months ended March 31, 2022, the Company acquired 34 properties for a total purchase price of $90.0 million, inclusive of $1.2 ~~million of capitalized acquisition costs. During the three months ended March 31, 2021, the Company acquired 31 properties for a total purchase price of $88.2 million, inclusive of $1.1~~ million of capitalized acquisition costs.

The acquisitions were all accounted for as asset acquisitions. An allocation of the purchase price and acquisition costs paid for the completed acquisitions is as follows (in thousands):


		Three Months Ended March 31,					Three Months Ended March 31,
		2022		2021			2023		2022
Land	Land	$	14,654	$	21,490	Land	$	14,304	$	14,654
Buildings	Buildings	60,088		48,999		Buildings	43,133		60,088
Site improvements	Site improvements	6,538		7,545		Site improvements	3,479		6,538
Tenant improvements	Tenant improvements	1,160		1,587		Tenant improvements	391		1,160
In-place lease intangible assets	In-place lease intangible assets	8,872		10,942		In-place lease intangible assets	6,410		8,872
Above-market lease intangible assets	Above-market lease intangible assets	108		—		Above-market lease intangible assets	—		108
Construction-in-progress assets		—		—
		91,420		90,563			67,717		91,420
Liabilities assumed	Liabilities assumed					Liabilities assumed
Below-market lease intangible liabilities	Below-market lease intangible liabilities	(1,423)		(2,338)		Below-market lease intangible liabilities	—		(1,423)
Accounts payable, accrued expense and other liabilities	Accounts payable, accrued expense and other liabilities	(24)		—		Accounts payable, accrued expense and other liabilities	—		(24)
Purchase price (including acquisition costs)	Purchase price (including acquisition costs)	$	89,973	$	88,225	Purchase price (including acquisition costs)	$	67,717	$	89,973

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Development

As of March 31, ~~2022,~~2023, the Company had 9three property developments under ~~construction.~~ construction and one completed development where rent has yet to commence. During the three months ended March 31, 2023, the Company invested $4.5 million in property developments. During this period, the Company completed development on two projects and reclassified approximately $14.8 million from property under development to land, building, and improvements in the accompanying condensed consolidated balance sheets. Rent commenced for the completed developments in the first quarter of 2023. The remaining three developments in progress are expected to be substantially completed with rent commencing in the third and fourth quarters of 2023 for two of the developments and the second quarter of 2024 for the remaining development. The purchase price, including acquisition costs, and subsequent development are included in property under development in the accompanying condensed consolidated balance sheets as of March 31, 2023.

During the three months ended March 31, 2022, the Company invested $5.0 million in property developments, including the acquisition of one new build-to-suit project with an initial purchase price of $1.0 million. During the three months ended March 31, 2022, the Company completed development on 1one project under development and reclassified approximately $4.7 million from property under development to land, building, and improvements in the accompanying condensed consolidated balance sheets. Additionally, on January 1, 2022, rent commenced on a development that was previously completed in the fourth quarter of 2021. The remaining 9 developments in progress are expected to be substantially completed with rent commencing at various points throughout 2022. The purchase price, including acquisition costs, and subsequent development are included in property under development in the accompanying condensed consolidated balance sheets as of March 31, 2022.

Additionally, during both the ~~first~~ three months ofended March 31, 2023 and 2022, the Company capitalized ~~less than~~approximately $0.1 million of interest expense associated with properties under development. ~~No interest expense was capitalized during the first three months~~

Table of ~~2021.~~Contents

Dispositions

During the three months ended March 31, ~~2021,~~2023, the Company ~~invested~~sold eight properties for a ~~combined~~ total sales price, net of ~~$1.3~~disposal costs, of $15.5 million, inrecognizing a development project in Yuma, Arizona. The Company has a non-binding purchase option to acquire the property upon completion. The Company’s total investment is expected to be $4.4 million with the sole tenant in the property commencing lease payments in 2022. These amounts are included in property under development in the accompanying condensed consolidated balance sheets asloss of ~~December 31, 2021.~~

~~Dispositions~~$0.3 million.

During the three months ended March 31, 2022, the Company sold 1one property for a total sales price, net of disposal costs, of $2.3 million, recognizing a ~~net~~ gain of $0.2 ~~million on the sale.~~

~~There were no dispositions for the three months ended March 31, 2021.~~million.

Investment in Mortgage ~~Loan~~Loans Receivable

~~On January 26,~~The Company’s mortgage loans receivable portfolio as of March 31, 2023 and December 31, 2022 ~~the Company executed a fully collateralized $40.3 million loan receivable with a stated interest rate of 6.0%. The scheduled maturity date~~ is ~~July 26, 2023, however the~~summarized below (in thousands):


Loan Type	Number of Secured Properties	Effective Interest Rate (3)	Stated Interest Rate	Maturity Date	March 31, 2023		December 31, 2022
Mortgage (1)	1	5.69%	6.00%	7/26/2023	$	40,316	$	40,316
Mortgage (1)	2	5.83%	6.50%	6/30/2023	6,000		6,000
Mortgage	46	9.55%	9.55%	3/10/2026	41,940		—
Mortgage (2)	3	6.99%	6.89%	4/10/2026	4,132		—
Total					92,388		46,316
Unamortized loan origination costs					34		62
Unamortized discount					(155)		—
Total mortgage loans receivable, net					$	92,267	$	46,378

(1) The Company has the right, subject to certain terms and conditions, to purchase all or a portion of the underlying collateralized property.

(2) The ~~loan receivable~~stated interest rate is variable up to 15.0% and is calculated based on contractual rent for existing collateralized ~~by real estate that is leased by three separate investment-grade tenants. The funds provided under~~properties subject to the loan ~~in addition to~~agreement.

(3) Includes amortization of discount and loan origination costs, as applicable.

All of ~~$0.1 million, are included in loan receivable, net in~~ the ~~accompanying condensed consolidated~~Company’s mortgage loans require monthly payments of interest only with principal payments occurring as borrower disposes of underlying properties, limited to the Company’s allocated investment by property. Any remaining principal balance ~~sheets as~~will be repaid at or before the maturity date.

Assets Held for Sale

As of March 31, 2023 and December 31, 2022, there were three and eleven properties, respectively, classified as held for sale.

Provisions for Impairment

The Company had no provisions for impairment during the three months ended March 31, 2023 and 2022.

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Note 5 – Intangible Assets and Liabilities

Intangible assets and liabilities consisted of the following (in thousands):


		March 31, 2022						December 31, 2021							March 31, 2023						December 31, 2022
		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount			Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Assets:	Assets:													Assets:
In-place leases	In-place leases	$	124,605	$	(16,724)	$	107,881	$	116,368	$	(13,408)	$	102,960	In-place leases	$	162,784	$	(33,103)	$	129,681	$	154,876	$	(28,472)	$	126,404
Above-market leases	Above-market leases	17,455		(1,843)		15,612		17,348		(1,516)		15,832		Above-market leases	20,091		(3,263)		16,828		20,091		(2,892)		17,199
Assembled workforce	Assembled workforce	873		(665)		208		873		(592)		281		Assembled workforce	873		(873)		—		873		(873)		—
Lease incentives	Lease incentives	5,343		(188)		5,155		5,821		(122)		5,699		Lease incentives	8,521		(817)		7,704		8,021		(618)		7,403
Total intangible assets	Total intangible assets	$	148,276	$	(19,420)	$	128,856	$	140,410	$	(15,638)	$	124,772	Total intangible assets	$	192,269	$	(38,056)	$	154,213	$	183,861	$	(32,855)	$	151,006

Liabilities:	Liabilities:													Liabilities:
Below-market leases	Below-market leases	$	27,425	$	(3,410)	$	24,015	$	26,185	$	(2,869)	$	23,316	Below-market leases	$	35,596	$	(6,248)	$	29,348	$	35,596	$	(5,465)	$	30,131

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The remaining weighted average amortization period for the Company’s intangible assets and liabilities as of March 31, ~~2022~~2023 and as of December 31, ~~2021~~2022 by category were as follows:


		Years Remaining			Years Remaining
		March 31, 2022	December 31, 2021		March 31, 2023	December 31, 2022
In-place leases	In-place leases	7.3	9.7	In-place leases	9.2	9.4
Above-market leases	Above-market leases	11.8	12.8	Above-market leases	12.8	13.0
Below-market leases	Below-market leases	9.8	12.3	Below-market leases	11.4	11.6
Assembled workforce		0.8	1.0
Lease incentives	Lease incentives	11.8	12.7	Lease incentives	11.4	11.8

The Company records amortization of in-place lease assets and assembled workforce intangible assets to amortization expense, and records net amortization of above-market and below-market lease intangibles as well as amortization of lease incentives to rental revenue. The following amounts in the accompanying condensed consolidated statements of operations and comprehensive income (loss) related to the amortization of ~~intangibles~~intangible assets and liabilities for all property and ground leases (in thousands):


		Three Months Ended March 31,					Three Months Ended March 31,
		2022		2021			2023		2022
Amortization:	Amortization:					Amortization:
Amortization of in-place leases	Amortization of in-place leases	$	3,555	$	1,719	Amortization of in-place leases	$	4,670	$	3,555
Amortization of assembled workforce	Amortization of assembled workforce	73		73		Amortization of assembled workforce	—		73
		$	3,628	$	1,792		$	4,670	$	3,628

Net adjustment to rental revenue:	Net adjustment to rental revenue:					Net adjustment to rental revenue:
Above-market lease assets	Above-market lease assets	(327)		(183)		Above-market lease assets	(371)		(327)
Below-market lease liabilities	Below-market lease liabilities	610		373		Below-market lease liabilities	783		610
Lease incentives	Lease incentives	(118)		—		Lease incentives	(199)		(118)
		$	165	$	190		$	213	$	165

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The following table provides the projected amortization of in-place lease ~~assets and assembled workforce intangible~~ assets to amortization expense and the net amortization of above-market, below-market, and lease incentive lease intangibles to rental revenue as of March 31, ~~2022,~~2023, for the next five years and thereafter (in thousands):


		Remainder of 2022		2023		2024		2025		2026		Thereafter		Total			Remainder of 2023		2024		2025		2026		2027		Thereafter		Total
In-place leases	In-place leases	$	11,034	$	13,704	$	12,933	$	12,642	$	11,430	$	46,138	$	107,881	In-place leases	$	13,439	$	17,481	$	16,907	$	15,694	$	13,423	$	52,737	$	129,681
Assembled workforce		208		—		—		—		—		—		208
Amortization expense		$	11,242	$	13,704	$	12,933	$	12,642	$	11,430	$	46,138	$	108,089

Above-market lease assets	Above-market lease assets	(997)		(1,330)		(1,326)		(1,325)		(1,324)		(9,310)		(15,612)		Above-market lease assets	(1,113)		(1,480)		(1,479)		(1,478)		(1,450)		(9,828)		(16,828)
Below-market lease liabilities	Below-market lease liabilities	1,830		2,375		2,317		2,294		2,178		13,021		24,015		Below-market lease liabilities	2,276		3,005		2,982		2,890		2,818		15,377		29,348
Lease incentives	Lease incentives	$	(322)	$	(428)	$	(428)	$	(428)	$	(428)	$	(3,121)	$	(5,155)	Lease incentives	$	(556)	$	(741)	$	(741)	$	(741)	$	(691)	$	(4,234)	$	(7,704)
Net adjustment to rental revenue	Net adjustment to rental revenue	$	511	$	617	$	563	$	541	$	426	$	590	$	3,248	Net adjustment to rental revenue	$	607	$	784	$	762	$	671	$	677	$	1,315	$	4,816

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Note 6 – Debt

Debt consists of the following (in thousands):


		Maturity Date	Interest Rate	March 31, 2022		December 31, 2021			Maturity Date	Interest Rate	March 31, 2023		December 31, 2022
Term Loan (1)		December 23, 2024	1.36%	$	175,000	$	175,000
Revolver (2)		December 23, 2023	1.64%	120,000		64,000
Debt:								Debt:
2024 Term Loan (1)								2024 Term Loan (1)	December 23, 2024	1.37%	$	175,000	$	175,000
New Revolver (2)								New Revolver (2)	August 11, 2026	5.94%	96,000		113,000
2028 Term Loan (3)								2028 Term Loan (3)	February 11, 2028	3.88%	200,000		200,000
Mortgage Note								Mortgage Note	November 1, 2027	4.53%	8,472		8,498
Total debt	Total debt			295,000		239,000		Total debt			479,472		496,498
Unamortized discount and debt issuance costs	Unamortized discount and debt issuance costs			(613)		(670)		Unamortized discount and debt issuance costs			(2,156)		(2,306)
Unamortized deferred financing costs, net (3)				(696)		(796)
Unamortized deferred financing costs, net (4)								Unamortized deferred financing costs, net (4)			(2,499)		(2,684)
Total debt, net	Total debt, net			$	293,691	$	237,534	Total debt, net			$	474,817	$	491,508

(1) ~~Interest rate includes~~Loan is a floating-rate loan which resets daily at daily SOFR plus a SOFR adjustment of 0.10% plus the ~~effect~~applicable margin which was 1.15% as of ~~a variable~~March 31, 2023. The Company has entered into four interest rate swap agreements that ~~has been swapped~~effectively convert the floating rate to a fixed ~~interest~~ rate.

(2) The annual interest rate of the New Revolver assumes ~~one-month LIBOR~~daily SOFR as of March 31, ~~2022~~2023 of ~~0.44%. Additionally,~~4.84% plus a SOFR adjustment of 0.10% plus the applicable margin which was 1.00% as of March 31, 2023. The New Revolver may be extended up to one year.

(3) Loan is a floating-rate loan which resets monthly at one-month term SOFR plus a SOFR adjustment of 0.10% plus the applicable margin which was 1.15% as of March 31, 2023. The Company has entered into three interest rate swap agreements that effectively convert the floating rate to a fixed rate.

(4) The Company records deferred financing costs for the New Revolver in other assets, net on its condensed consolidated balance sheets.

New Credit Facility

~~In December 2019,~~On August 11, 2022, the Company entered into a sustainability-linked senior unsecured credit facility consisting of (i) a ~~$175.0~~$200.0 million senior ~~secured~~unsecured term loan (“(the “2028 Term Loan”) and (ii) a $400.0 million senior unsecured revolving credit facility (the “New Revolver”, and together with the 2028 Term Loan, the “New Credit Facility”). The New Credit Facility may be increased by $400.0 million in the aggregate.

The New Revolver refinanced and increased the available borrowing capacity under the Company’s $250.0 million senior ~~secured~~unsecured revolving credit facility (“(the “Prior Revolver”~~, and collectively with~~) pursuant to the ~~Term Loan, the “Credit Facility”). Wells Fargo Securities, LLC is lead arranger and bookrunner and Wells Fargo Bank, National Association is administrative agent under the~~credit agreement, dated as of December 23, 2019, governing such facility (the “Prior Credit ~~Facility (the “Administrative Agent”~~Agreement”).

The Company used the proceeds from the borrowings made on the closing date to repay the Prior Revolver. Remaining and future borrowings under the New Revolver will be used by the Company for general corporate purposes of the Company and its subsidiaries, including acquisitions. The Company’s $175.0 million senior unsecured term loan (“2024 Term Loan”) under the Prior Credit Agreement, which matures in December 2024, remained outstanding upon the closing of the New Credit Facility.

The 2028 Term Loan matures on ~~December 23, 2024~~February 11, 2028 and the New Revolver matures on ~~December 23, 2023,~~August 11, 2026, subject to extension of up to one year. ~~The~~Borrowings under the New Credit Facility ~~effective during the fourth quarter of 2020, is unsecured as the Administrative Agent released the collateral in connection with~~are repayable at the Company’s ~~satisfaction of the collateral release requirements. Therefore interest rates~~option in whole or in part without premium or penalty. Borrowings under the ~~Credit Facility~~New Revolver may be repaid and reborrowed from time to time prior to the maturity date.

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Prior to the date the Company obtains an investment grade rating, interest rates are based on the Company’s consolidated total leverage ratio, and are determined by (A) in the case of the 2028 Term Loan either (i) ~~LIBOR,~~SOFR, plus a SOFR adjustment of 0.10%, plus a margin ranging from 1.15% to 1.60%, based on the Company’s consolidated total leverage ratio, or (ii) a Base Rate (as defined in the credit agreement governing the New Credit ~~Facility)~~Facility (the “New Credit Agreement”)), plus a margin ranging from 0.15% to 0.60%, based on the Company’s consolidated total leverage ratio and (B) in the case of ~~Revolving Loans~~the New Revolver either (i) ~~LIBOR,~~SOFR, plus a SOFR adjustment of 0.10%, plus a margin ranging from ~~1.20%~~1.00% to ~~1.80%~~1.45%, based on the Company’s consolidated total leverage ratio, or (ii) a Base Rate (as defined in the New Credit ~~Facility)~~Agreement), plus a margin ranging from ~~0.20%~~0.00% to ~~0.80%~~0.45%, based on the Company’s consolidated total leverage ratio.

After the date the Company obtains an investment grade rating, interest rates are based on the Company’s investment grade rating, and are determined by (A) in the case of the 2028 Term Loan either (i) SOFR, plus a SOFR adjustment of 0.10%, plus a margin ranging from 0.80% to 1.60%, based on the Company’s investment grade rating, or (ii) a Base Rate (as defined in the New Credit Agreement), plus a margin ranging from 0.00% to 0.60%, based on the Company’s investment grade rating and (B) in the case of the New Revolver either (i) SOFR, plus a SOFR adjustment of 0.10%, plus a margin ranging from 0.725% to 1.40%, based on the Company’s investment grade rating, or (ii) a Base Rate (as defined in the New Credit Agreement), plus a margin ranging from 0.00% to 0.40%, based on the Company’s investment grade rating.

Additionally, the Company will incur a facility fee based on the total commitment amount of $400.0 million under the New Revolver. Prior to the date the Company obtains an investment grade rating, the applicable facility fee will range from 0.15% to 0.30% based on the Company’s consolidated total leverage ratio. After the date the Company obtains an investment grade rating, the applicable facility fee will range from 0.125% to 0.30% based on the Company’s investment grade rating.

The New Credit Facility also contains a sustainability-linked pricing component pursuant to which the Company will receive interest rate reductions up to 0.025% based on its performance against a sustainability performance target focused on the portion of the Company’s annualized base rent attributable to tenants with commitments or quantifiable targets for reduced greenhouse gas emission in accordance with the standards of the Science Based Targets initiative (“SBTi”).

The Company has fully hedged the 2028 Term Loan with an all-in interest rate of 3.88%. Interest is payable monthly or at the end of the applicable interest period in arrears on any outstanding borrowings. The interest rate hedge is further described in “Note 7 – Derivative Financial Instruments.”

~~The~~In connection with the New Credit Facility, the Company ~~is required~~incurred $3.8 million of deferred financing costs which were allocated between the New Revolver and 2028 Term Loan in the amounts of $2.4 million and $1.3 million, respectively. Additionally, $0.5 million of unamortized deferred financing costs associated with the Prior Revolver were reclassed to ~~pay~~the New Revolver. Deferred financing costs are amortized over the remaining terms of each respective borrowing and are included in interest expense, net in the Company’s consolidated statements of operations and comprehensive income.

Prior Credit Facility

In December 2019, the Company entered into the Prior Credit Agreement for a ~~Revolver~~senior credit facility ~~fee at an annual rate of 0.15%~~consisting of the ~~unused capacity if usage exceeds 50% of~~Prior Revolver and the ~~total available facility, or 0.25% of~~2024 Term Loan (collectively, the unused facility if usage does not exceed 50%. Loans from the Revolver are generally restricted if, among other things, the proposed usage of the proceeds from the loan do not meet certain criteria as outlined in the“Prior Credit ~~Facility Agreement, if an event of default exists, or if the requested loan will create an event of default. Loans from the Revolver may not exceed the total revolving commitments.~~Facility”).

Effective September 28, 2020, the Company entered into an interest rate derivative contract to fix the base interest rate (one-month LIBOR) on the 2024 Term Loan. The total interest rate includes the fixed base interest rate of 0.21% plus a leverage-based margin of 1.15% ~~as of March 31, 2022.~~. The interest rate hedge is further described in “Note 7 - Derivative Financial Instruments.”

On January 27, 2023, the Company executed an amendment to the Prior Credit Agreement that replaced the interest rate benchmark from LIBOR to Secured Overnight Financing Rate (“SOFR”). Additionally, on January 30, 2023 and effective through the maturity date of December 31, 2024, the Company converted its four existing LIBOR swap agreements associated with 2024 Term Loan into four new SOFR swaps that convert the SOFR variable rate to a fixed rate of 0.12%. The Company has fully hedged the 2024 Term Loan with an all-in interest rate of 1.37%. The interest rate hedge is further described in “Note 7 - Derivative Financial Instruments.”

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Mortgage Note Payable

As of March 31, 2023, the Company had total gross mortgage indebtedness of $8.5 million, which was collateralized by related real estate and a tenant’s lease with an aggregate net book value of $13.0 million. The Company incurred debt issuance costs of less than $0.1 million and recorded a debt discount of $0.6 million, both of which are recorded as a reduction of the principal balance in mortgage note payable, net in the Company’s condensed consolidated balance sheets. The mortgage note matures on November 1, 2027, but may be repaid in full beginning August 2027.

Debt Maturities

Payments on the 2024 Term Loan and 2028 Term Loan are interest only through maturity. As of March 31, 2023, scheduled debt maturities, including balloon payments, are as follows (in thousands):


	Scheduled Principal		Balloon Payment		Total
Remainder of 2023	$	117	$	—	$	117
2024	162		175,000		175,162
2025	170		—		170
2026	178		96,000		96,178
2027	170		7,663		7,833
Thereafter	—		200,000		200,000
Total	$	797	$	478,663	$	479,460

Interest Expense

The following table is a summary of the components of interest expense related to the Company’s borrowings (in thousands):


	Three Months Ended March 31,
	2023		2022
Revolving credit facilities (1)	$	1,150	$	478
Term loans (2)	2,499		590
Mortgage note payable	93		—
Non-cash:
Amortization of deferred financing costs	185		101
Amortization of debt discount, net	151		56
Capitalized interest	(134)		(56)
Total interest expense, net	$	3,944	$	1,169

(1) Includes facility fees and non-utilization fees of approximately $0.2 million and $0.1 million for the three months ended March 31, 2023 and 2022, respectively.

(2) Includes the effects of interest rate hedges.

Deferred financing, discount, and debt issuance costs are ~~being~~ amortized over the remaining terms of each respective ~~loan. Total costs amortized on the Term Loan~~borrowing and ~~Revolver were $0.2 million for each of the three months ended March 31, 2022 and March 31, 2021, respectively. This is~~are included in interest expense, net onin the Company’s condensed consolidated statements of operations and comprehensive income (loss).

~~For~~During the threemonths ended March 31, 2023 and 2022, ~~and 2021, the Term Loan~~term loans had a weighted average interest rate, exclusive of amortization of deferred financing costs and the effects of ~~the~~ interest rate ~~hedge,~~hedges, of ~~1.32%~~5.77% and ~~1.30%~~1.32%, respectively.

~~The~~During the threemonths ended March 31, 2023 and 2022, the Company incurred interest expense on revolving credit facilities with a weighted average interest rate, exclusive of ~~$0.6 million in connection with the Term Loan for each~~amortization of ~~the three months ended March 31, 2022~~deferred financing costs and ~~2021,~~facility fees, of 5.86% and 1.39%, respectively.

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The estimated fair ~~value~~values of the Company’s ~~Term Loan has~~term loans have been derived based on market observable inputs such as interest rates and discounted cash flow analysis using estimates of the amount and timing of future cash flows. These measurements are classified as Level 2 within the fair value hierarchy. ~~The Company determined that the carrying value materially approximated the estimated~~Refer to “Note 2 - Summary of Significant Accounting Policies” for additional detail on fair value ~~of the Term Loan as of March 31, 2022 and December 31, 2021.~~

During the three months ended March 31, 2022 and March 31, 2021, the Company incurred interest expense, exclusive of facility fees for unused capacity, on borrowings under the Revolver of $0.4 million and less than $0.1 million, respectively, with a weighted average interest rate, exclusive of amortization of deferred financing costs, of 1.39% and 1.29%, respectively. As of March 31, 2022 and December 31, 2021, the Company had $120.0 million and $64.0 million in borrowings outstanding under the Revolver. The Company also incurred interest expense in connection with unused capacity for the three months ended March 31, 2022 and 2021 of $0.1 million and $0.2 million, respectively.

During the first three months of 2022, the Company capitalized less than $0.1 million of interest expense associated with properties under development. No interest expense was capitalized during the first three months of 2021.measurements.

The Company was in compliance with all of its debt covenants as of March 31, ~~2022~~2023 and expects to be in compliance for the ~~following~~ twelve-month ~~period.~~period ending December 31, 2023.

~~Debt Maturity~~

~~Payments on the Term Loan are interest only through maturity. All outstanding amounts on the Term Loan are due on December 23, 2024.~~

Note 7 – Derivative Financial Instruments

The Company uses interest rate derivative contracts to manage its exposure to changes in interest rates on its variable rate debt. These derivatives are considered cash flow hedges and are recorded on a gross basis at fair value. Assessments of hedge effectiveness are performed quarterly using either a qualitative or quantitative approach. The Company recognizes the entire change in the fair value in Accumulated Other Comprehensive Income (“AOCI”) and the change is reflected as cash flow hedge changes in fair value in the supplemental disclosures of non-cash investing and financing activities in the condensed consolidated statement of cash flows.

Effective September 28, 2020 and September 1, 2022, such derivatives were initiated to hedge the variable cash flows associated with the 2024 Term ~~Loan. Accordingly,~~Loan and 2028 Term Loan, respectively. Additionally, the Company converted its existing LIBOR swap agreements associated with the 2024 Term Loan into new SOFR swaps effective January 30, 2023. The interest rate for the variable rate 2024 Term Loan is based on the hedged fixed rate ~~(one-month)~~ of ~~0.21%~~0.12% compared to the variable 2024 Term Loan ~~one-month LIBOR~~SOFR rate as of March 31, ~~2022~~2023 of ~~0.23%~~4.80%, plus a SOFR adjustment of 0.10% and applicable margin of 1.15%. The interest rate for the variable rate 2028 Term Loan is based on the hedged fixed rate of 2.63% compared to the variable 2028 Term Loan one-month SOFR rate as of March 31, 2023 of 4.67%, plus a SOFR adjustment of 0.10% and applicable margin of 1.15%. The maturity ~~date~~dates of the interest rate swaps coincide with the respective maturity ~~date~~dates of the 2024 and 2028 Term ~~Loan.~~Loans.

Amounts will subsequently be reclassified to earnings when the hedged item affects earnings. The Company does not enter into derivative contracts for speculative or trading purposes and does not have derivative netting arrangements.

The Company is exposed to credit risk in the event of non-performance by its derivative counterparties. The Company evaluates counterparty credit risk through monitoring the creditworthiness of counterparties, which includes review of debt ratings and financial performance. To mitigate credit risk, the Company enters into agreements with counterparties it considers credit-worthy, such as large financial institutions with favorable credit ratings.

The Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk (in thousands, except number of instruments):


		Number of Instruments		Notional					Number of Instruments		Notional
Interest Rate Derivatives	Interest Rate Derivatives	March 31, 2022	December 31, 2021	March 31, 2022		December 31, 2021		Interest Rate Derivatives	March 31, 2023	December 31, 2022	March 31, 2023		December 31, 2022
Interest rate swaps	Interest rate swaps	4	4	$	175,000	$	175,000	Interest rate swaps	7	7	$	375,000	$	375,000

The following table presents the fair value of the Company's derivative financial instruments as well as their classification on the condensed consolidated balance sheets as of March 31, ~~2022~~2023 and December 31, ~~2021~~2022 (in thousands):

Derivative Assets

Fair Value at

Derivatives Designated as Hedging Instruments:

Balance Sheet Location

March 31, 2023

December 31, 2022

Interest rate swaps

Other assets, net

18,088

24,067

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Derivative Assets
Fair Value at
Derivatives Designated as Hedging Instruments: Balance Sheet Location March 31, 2022 December 31, 2021
Interest rate swaps Other assets, net $ 10,520 $ 4,310

The following table presents the effect of the Company's interest rate swaps on the condensed consolidated statements of operations and comprehensive income (loss) for the three months ended March 31, ~~2022~~2023 and ~~2021~~2022 (in thousands):


		Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion)			Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)						Amount of Gain (Loss) Recognized in OCI on Derivative (Effective Portion)		Location of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)		Amount of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)

Derivatives in Cash Flow Hedging Relationships	Derivatives in Cash Flow Hedging Relationships		2022						2021												2022		2021	Derivatives in Cash Flow Hedging Relationships			2023			2022	2023	2022
For the Three Months Ended March 31
Interest Rate Products	Interest Rate Products		$	6,188		$	2,290	Interest expense, net		$	(23)		$	(34)	Interest Rate Products		$	(3,141)	$	6,188		Interest expense, net			$	2,837		$	(23)

The Company did not exclude any amounts from the assessment of hedge effectiveness for the three months ended March 31, ~~2022~~2023 and ~~2021.~~2022. During the next twelve months, the Company estimates that ~~$2.8~~an additional $11.7 million will be reclassified as a decrease to interest expense.

The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves.

To comply with the provisions of ASC 820, the Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.

Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of March 31, ~~2022,~~2023, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

The table below presents the Company’s derivative ~~liabilities~~assets measured at fair value on a recurring basis as of March 31, 2023 and December 31, 2022, aggregated by the level in the fair value hierarchy within which those measurements fall (in thousands):


		Fair Value Hierarchy Level									Fair Value Hierarchy Level
Description	Description	Level 1		Level 2		Level 3		Total Fair Value		Description	Level 1		Level 2		Level 3		Total Fair Value
March 31, 2022
March 31, 2023										March 31, 2023
Derivative assets	Derivative assets	$	—	$	10,520	$	—	$	10,520	Derivative assets	$	—	$	18,088	$	—	$	18,088

December 31, 2021
December 31, 2022										December 31, 2022
Derivative assets	Derivative assets	—		4,310		—		4,310		Derivative assets	$	—	$	24,067	$	—	$	24,067

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Note 8 – Supplemental Detail for Certain Components of the Condensed Consolidated Balance Sheets

Other assets, net consist of the following (in thousands):


		March 31, 2022		December 31, 2021			March 31, 2023		December 31, 2022
Accounts receivable, net	Accounts receivable, net	$	4,147	$	2,801	Accounts receivable, net	$	8,600	$	7,167
Deferred rent receivable	Deferred rent receivable	2,918		2,263		Deferred rent receivable	6,335		5,629
Prepaid assets	Prepaid assets	2,589		1,473		Prepaid assets	4,048		3,864
Earnest money deposits	Earnest money deposits	1,483		853		Earnest money deposits	1,958		185
Fair value of interest rate swaps	Fair value of interest rate swaps	10,520		4,309		Fair value of interest rate swaps	18,088		24,067
Deferred offering costs	Deferred offering costs	598		615		Deferred offering costs	825		796
Deferred financing costs, net	Deferred financing costs, net	696		796		Deferred financing costs, net	2,499		2,685
Right-of-use asset	Right-of-use asset	4,490		4,581		Right-of-use asset	4,144		4,235
Leasehold improvements and other corporate assets		2,212		1,657
Leasehold improvements and other corporate assets, net						Leasehold improvements and other corporate assets, net	1,907		1,969
Interest receivable	Interest receivable	202		—		Interest receivable	600		256
Other assets, net	Other assets, net	673		1,003		Other assets, net	1,238		1,204
		$	30,528	$	20,351		$	50,242	$	52,057

Accounts payable, accrued expenses and other liabilities consists of the following (in thousands):


		March 31, 2022		December 31, 2021			March 31, 2023		December 31, 2022
Accrued expenses	Accrued expenses	$	5,851	$	6,254	Accrued expenses	$	6,815	$	5,745
Accrued bonus	Accrued bonus	396		1,742		Accrued bonus	352		1,305
Prepaid rent	Prepaid rent	1,791		1,918		Prepaid rent	4,038		2,937
Operating lease liability	Operating lease liability	5,480		5,442		Operating lease liability	5,387		5,464
Accrued interest						Accrued interest	2,020		1,782
Deferred rent						Deferred rent	2,134		1,756
Accounts payable	Accounts payable	1,014		419		Accounts payable	2,050		1,394
Other liabilities	Other liabilities	1,634		1,205		Other liabilities	2,266		2,157
		$	16,166	$	16,980		$	25,062	$	22,540

Note 9 – Shareholders’ Equity, Partners’ Capital and Preferred Equity

~~Common Stock~~ATM Program

On September 1, 2021, the Company entered into a $250.0 million at-the-market equity program (the “ATM Program”) through which, from time to time, it may sell shares of its common stock in registered transactions. The Company has issued shares of common stock in connection with the ATM Program for the periods presented as follows:

•In March 2023, the Company issued 146,745 shares of common stock at a weighted average price of $20.22 per share for net proceeds of approximately $2.9 million, net of sales commissions and offering costs of less than $0.1 million. The Company contributed the net proceeds to the Operating Partnership in exchange for 146,745 Class A OP Units.

•In March 2022, the Company issued 163,774 shares of common stock at a weighted average price of $22.08 per share for net proceeds of approximately $3.5 million, net of sales commissions and offering costs of less than $0.1 million. The Company contributed the net proceeds to the Operating Partnership in exchange for 163,774 Class A OP Units.

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August 2022 Follow-On Offering

On August 8, 2022, the Company completed a registered public offering of 9,000,000 shares of its common stock at a public offering price of $20.20 per share, which excluded an over-allotment option to the underwriters to purchase up to an additional 1,350,000 shares, which was exercised in full on August 10, 2022. In connection with the offering, the Company entered into forward sale agreements for 10,350,000 shares of its common stock. The Company did not initially receive any proceeds from the sales of shares of common stock by the forward purchasers upon registration of the offering. The Company may physically settle the forward sale agreements (by the delivery of shares of common stock) and receive proceeds from the sale of those shares upon one or more forward settlement dates, which shall occur no later than August 3, 2023. The Company may, at its election, cash settle or net share settle all or a portion of its obligations under a forward sale agreement if it concludes it is in its best interest to do so over the prescribed offering period. If the Company elects to cash settle a forward sale agreement, it may not receive any proceeds and may owe cash to the relevant forward counterparty in certain circumstances.

On March 30, 2023, the Company partially physically settled 2,612,736 shares of common stock at a price of $20.20 per share in accordance with the forward sale agreements. The Company received net proceeds from the settlement of $50.0 million, net of underwriting discounts and offering costs of $2.8 million. The Company contributed the net proceeds to the Operating Partnership in exchange for 2,612,736 Class A OP Units. As of March 31, 2023, 4,763,320 shares remained unsettled under the August 8, 2022 forward sale agreements.

January 2022 Follow-On Offering

On January 13, 2022, the Company completed a registered public offering of 10,350,000 shares of its common stock at a public offering price of $22.25 per share. In connection with the offering, the Company entered into forward sale agreements for 10,350,000 shares of its common stock. The Company did not initially receive any proceeds from the sale of shares of common stock by the forward purchasers. The Company expects to physically settle the forward sale agreements (by the delivery of shares of common stock) and receive proceeds from the sale of those shares upon one or more forward settlement dates, which shall occur no later than January 10, 2023. The Company may also elect to cash settle or net share settle all or a portion of its obligations under a forward sale agreement if it concludes it is in its best interest to do so. If the Company elects to cash settle a forward sale agreement, it may not receive any proceeds and may owe cash to the relevant forward counterparty in certain circumstances.

On March 30, 2022, the Company settled 3,440,962 shares of common stock at a price of $22.25 per share in accordance with the forward sale agreements. The Company received net proceeds from the ~~offering~~settlement of $72.0 million, net of underwriting discounts and offering costs of $4.6 million. The Company contributed the net proceeds to the Operating Partnership in exchange for 3,440,962 Class A OP Units.

~~On September 1, 2021, the Company entered into a new $250.0 million at-the-market equity program (the “ATM Program”) through which, from time to time, it may sell shares~~ As of ~~its common stock in registered transactions. For the three months ended March~~December 31, 2022, the Company ~~issued 163,774~~fully physically settled the forward sale agreements (by the delivery of shares of common ~~stock at a weighted average price of $22.08 per share in connection with the ATM Program for net proceeds of approximately $3.5 million, net of sales commissions and offering costs~~stock).

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~~of less than $0.1 million. The Company contributed the net proceeds to the Operating Partnership in exchange for 163,774 Class A OP Units.~~Surrendered Shares on Vested Stock Unit Awards

During the three months ended March 31, 2023 and 2022, portions of restricted stock unit awards (“RSUs”) granted to certain of the Company’s officers, directors, and employees vested. The vesting of these awards, granted pursuant to the NETSTREIT Corp. 2019 Omnibus Incentive ~~Compensation~~ Plan (the “Omnibus Incentive Plan”), resulted in federal and state income tax liabilities for the recipients. AsDuring the three months ended March 31, 2023 and 2022, as permitted by the terms of the Omnibus Incentive Plan and the award grants, certain executive officers and employees elected to surrender a total of 18 thousand and 17 thousand RSUs, respectively both valued at approximately $0.4 million, solely to pay the associated statutory tax withholding. The surrendered RSUs are included in the row entitled “repurchase of shares of common stock” on the condensed consolidated statements of cash flows.

Dividends

During the three months ended March 31, ~~2022,~~2023, the Company declared and paid the following common stock dividends (in thousands, except per share data):

Three Months Ended March 31, 2023

Declaration Date

Dividend Per Share

Record Date

Total Amount

Payment Date

Declaration Date

Dividend Per Share

Record Date

Total Amount

Payment Date

February 22, 2022

0.20

March 15, 2022

8,888

March 30, 2022

February 21, 2023

0.20

March 15, 2023

11,650

March 30, 2023

Three Months Ended March 31, 2022

Declaration Date

Dividend Per Share

Record Date

Total Amount

Payment Date

February 22, 2022

0.20

March 15, 2022

8,888

March 30, 2022

The holders of OP Units are entitled to an equal distribution per ~~Class A OP Unit and Class B~~each OP Unit held as of each record date. Accordingly, during the three months ended March 31, 2023 and 2022, the Operating Partnership paid distributions of $0.1 million to holders of OP Units.

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Noncontrolling Interests

Noncontrolling interests represent noncontrolling holders of OP Units in the Operating Partnership. OP Units are convertible into common stock as the OP Units may be redeemed for cash or, at the Company’s election, exchanged for shares of the Company’s common stock on a one-for-one basis. As of March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, noncontrolling interests represented ~~1.1%~~0.8% and ~~1.3%~~0.9%, respectively, of OP Units. During the three months ended March 31, 2023 and 2022, OP Unit holders redeemed 5,694 and 25,629 OP units, ~~into shares of common stock on a one-for-one basis. During the three months ended March 31, 2021, OP Unit holders redeemed 253,344 OP units~~respectively, into shares of common stock on a one-for-one basis.

Note 10 – Stock-Based Compensation

Under the Omnibus Incentive Plan, 2,094,976 shares of common stock are reserved for issuance. The Omnibus Incentive Plan provides for the grant of stock options, stock appreciation rights, restricted shares, RSUs, long-term incentive plan units, dividend equivalent rights, and other share-based, share-related or cash-based awards, including performance-based awards, to employees, directors and consultants, with each grant evidenced by an award agreement providing the terms of the award. The Omnibus Incentive Plan is administered by the Compensation Committee of the Board of Directors.

As of March 31, ~~2022,~~2023, the only stock-based compensation granted by the Company were ~~RSUs.~~restricted stock units. The total amount of stock-based compensation costs recognized in general and administrative expense in the accompanying condensed consolidated statements of operations and comprehensive income (loss) was $1.0 million ~~and $0.6 million~~ for both the three months ended March 31, ~~2022~~2023 and ~~2021.~~2022. All awards of unvested ~~RSUs~~restricted stock units are expected to fully vest over the next one to ~~five~~four years.

Performance-Based RSUs (effectiveness of ~~shelf registration)~~Initial Public Offering)

Pursuant to the Omnibus Incentive Plan, the Company ~~granted~~made performance-based RSUs to certain employees and non-employee directors. The performance condition required the Company to effectively file a shelf registration statement. Up until the point of filing the registration statement, performance was not deemed probable and accordingly, no RSUs had the capability of vesting and no stock-based compensation expense was recorded. As a result of the Company's initial public offering in August 2020, the performance condition was satisfied and the Company recorded a stock-based compensation expense catch-up adjustment of $1.4 million. The vesting terms of these grants are specific to the individual grant and vest in equal annual installments over the next ~~one~~ ~~to three~~two years.

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The following table summarizes performance-based ~~restricted stock unit~~RSU activity for the period ended March 31, ~~2022:~~2023:

Shares Weighted Average Grant Date Fair Value per Share
Unvested restricted stock grants outstanding as of December 31, 2021 157,380 $ 19.75
Vested during the period (15,190) 19.75
Unvested restricted stock grants outstanding as of March 31, 2022 142,190 $ 19.75


	Shares	Weighted Average Grant Date Fair Value per Share
Unvested RSU grants outstanding as of December 31, 2022	61,391	$	19.75
Granted during the period	—	—
Forfeited during the period	—	—
Vested during the period	—	19.75
Unvested RSU grants outstanding as of March 31, 2023	61,391	$	19.75

For the three months ended March 31, ~~2022,~~2023, the Company recognized ~~$0.2~~$0.1 million in stock-based compensation expense associated with performance-based RSUs. As of March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, the remaining unamortized stock-based compensation expense totaled ~~$1.1~~$0.3 million and ~~$1.3~~$0.4 million, respectively, and as of March 31, ~~2022,~~2023, these awards are expected to be recognized over a remaining weighted average period of ~~2.0~~1.4 years. These units are subject to graded vesting and ~~amortization~~stock-based compensation expense is recognized ratably over the requisite service period for each vesting tranche in the award.

The ~~weighted average~~ grant date fair value of unvested ~~restricted units~~RSUs is calculated as the per share price ~~determined~~in the private offering that closed on December 23, ~~2019, through a series of completed transactions (collectively the “Private Offering”).~~2019.

Service-Based RSUs

Pursuant to the Omnibus Incentive Plan, the Company has ~~granted~~made service-based ~~restricted stock unit~~RSU grants to certain employees and non-employee directors. The vesting terms of these grants are specific to the individual grant and vest in equal annual installments over the next one to ~~five~~four years.

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The following table summarizes service-based ~~restricted stock unit~~RSU activity for the period ended March 31, ~~2022:~~2023:


		Shares	Weighted Average Grant Date Fair Value per Share			Shares	Weighted Average Grant Date Fair Value per Share
Unvested restricted stock grants outstanding as of December 31, 2021		295,207	$	17.84
Unvested RSU grants outstanding as of December 31, 2022					Unvested RSU grants outstanding as of December 31, 2022	247,079	$	19.86
Granted during the period	Granted during the period	141,833	22.14		Granted during the period	125,112	20.19
Forfeited during the period	Forfeited during the period	(12,082)	18.62		Forfeited during the period	—	—
Vested during the period	Vested during the period	(70,034)	17.47		Vested during the period	(83,428)	20.39
Unvested restricted stock grants outstanding as of March 31, 2022		354,924	$	19.23
Unvested RSU grants outstanding as of March 31, 2023					Unvested RSU grants outstanding as of March 31, 2023	288,763	$	19.85

For the three months ended March 31, ~~2022,~~2023, the Company recognized $0.6 million in stock-based compensation expense associated with service-based RSUs. As of March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, the remaining unamortized stock-based compensation expense totaled ~~$5.5~~$4.8 million and ~~$4.1~~$3.0 million, respectively, and as of March 31, ~~2022,~~2023, these awards are expected to be recognized over a remaining weighted average period of ~~2.6~~2.3 years. ~~Amortization~~Stock-based compensation expense is recognized on a straight-line basis over the total requisite service period for the entire award.

The grant date fair value of ~~service based~~service-based unvested ~~restricted units~~RSUs is calculated as the per share price determined in the initial public offering for awards granted in 2020 and as the per share price of the Company’s stock on the date of grant for those granted in ~~2021.~~years subsequent to 2020.

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Performance-Based RSUs (total shareholder return)

Pursuant to the Omnibus Incentive Plan, the Company has ~~granted performance-based RSUs~~made market-based RSU grants to certain employees. These grants are subject to the participant’s continued service over a ~~three-year~~three year period with 40% of the award based on the Company’s total shareholder return (“TSR”) as compared to the TSR of 32identified peer companies and 60% of the award based on total absolute TSR over the cumulative three-year period. The performance ~~periods~~period of these grants ~~run~~runs through March 8, 2024, February 28, 2025, and February 28, ~~2025.~~2026. Grant date fair ~~values~~value of the ~~performance-based~~market-based share awards ~~were~~was calculated using the Monte Carlo simulation model, which incorporated stock price volatility of the Company and each of the Company’s peers and other variables over the performance period. Significant inputs for the ~~2022~~current period calculation were expected volatility of the Company of ~~36.3%~~29.0% and expected volatility of the Company's peers, ranging from ~~28.7%~~32.2% to ~~95.3%~~102.8%, with an average volatility of ~~46.6%~~46.7% and a risk-free interest rate of ~~1.61%~~4.46%. The fair value per share on the grant date specific to the target TSR relative to the Company’s peers was ~~$26.13~~$24.13 and the target absolute TSR was ~~$20.42~~$20.15 for a weighted average grant date fair value of ~~$22.38~~$21.57 per share. Stock-based compensation expense associated with unvested ~~performance-based~~market-based share awards is recognized on a straight-line basis over the minimum required service period, which is three years.

The following table summarizes ~~performance-based restricted stock unit~~market-based RSU activity for the period ended March 31, ~~2022:~~2023:


		Shares	Weighted Average Grant Date Fair Value per Share			Shares	Weighted Average Grant Date Fair Value per Share
Unvested restricted stock grants outstanding as of December 31, 2021		134,467	$	17.77
Unvested RSU grants outstanding as of December 31, 2022					Unvested RSU grants outstanding as of December 31, 2022	177,350	$	19.83
Granted during the period	Granted during the period	106,645	22.38		Granted during the period	81,751	21.57
Forfeited during the period	Forfeited during the period	(1,722)	17.77		Forfeited during the period	—	—
Unvested restricted stock grants outstanding as of March 31, 2022		239,390	$	19.82
Unvested RSU grants outstanding as of March 31, 2023					Unvested RSU grants outstanding as of March 31, 2023	259,101	$	20.38

For the three months ended March 31, ~~2022,~~2023, the Company recognized $0.3 million in stock-based compensation expense associated with ~~performance-based~~market-based RSUs. As of March 31, ~~2022,~~2023, the remaining unamortized stock-based compensation expense totaled ~~$3.8~~$3.4 million and as of March 31, ~~2022,~~2023, these awards are expected to be recognized over a remaining weighted average period of ~~2.6~~2.3 years.

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Alignment of Interest Program

During March 2021, the Company adopted the Alignment of Interest Program (the “Program”), which allows employees to elect to receive a portion of their annual bonus in unvested RSUs in the first quarter of the following year that would then vest over a four-year service period beginning in the period that the bonus relates. The Program is deemed to be a liability-classified award (accounted for as an equity-classified award as the service date precedes the grant date and the award would otherwise bybe classified as equity on grant date), which will be fair-valued and accrued over the applicable service period. The total estimated fair value of the elections made for ~~2022~~2023 under the Program ~~as of March 31, 2022~~ was approximately ~~$0.9~~$0.4 million. The award will be remeasured to fair value each reporting period until the unvested RSUs are granted. For the three months ended March 31, ~~2022,~~2023, the Company recognized approximately $0.1 million in stock-based compensation expense associated with these awards. Previous awards under the Program that have been granted are included within service based RSUs above.

Note 11 – Earnings Per Share

Net income per common share has been computed pursuant to the guidance in the FASB ASC Topic 260, Earnings per Share. Basic earnings per share is computed by dividing net income attributable to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share is similarly calculated except that the denominator is increased by using the treasury stock method to determine the potential dilutive effect of the Company’s outstanding unvested RSUs and unsettled shares under open forward equity contracts and using the if-converted method to determine the potential dilutive effect of the OP Units. The Company has noncontrolling interests in the form of OP Units which are convertible into common stock and represent potentially dilutive securities, as the OP Units may be redeemed for cash or, at the Company’s election, exchanged for shares of the Company’s common stock on a one-for-one basis. The following table is a reconciliation of the numerator and denominator used in the computation of basic and diluted net income per common share for the three months ended March 31, ~~2022~~2023 and ~~2021.~~2022.

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		Three Months Ended March 31,					Three Months Ended March 31,
(In thousands, except share and per share data)	(In thousands, except share and per share data)	2022		2021		(In thousands, except share and per share data)	2023		2022
Numerator:	Numerator:					Numerator:
Net income	Net income	$	1,966	$	741	Net income	$	1,481	$	1,966
Net (income) attributable to noncontrolling interest	Net (income) attributable to noncontrolling interest	(24)		(40)		Net (income) attributable to noncontrolling interest	(9)		(24)
Net income attributable to common shares, basic	Net income attributable to common shares, basic	1,942		701		Net income attributable to common shares, basic	1,472		1,942
Net (income) attributable to noncontrolling interest		(24)		(40)
Net income attributable to noncontrolling interest						Net income attributable to noncontrolling interest	9		24
Net income attributable to common shares, diluted	Net income attributable to common shares, diluted	$	1,966	$	741	Net income attributable to common shares, diluted	$	1,481	$	1,966

Denominator:	Denominator:					Denominator:
Weighted average common shares outstanding, basic	Weighted average common shares outstanding, basic	44,415,807		28,348,975		Weighted average common shares outstanding, basic	58,155,738		44,415,807
Effect of dilutive shares for diluted net income per common share:	Effect of dilutive shares for diluted net income per common share:					Effect of dilutive shares for diluted net income per common share:
OP Units	OP Units	550,673		1,616,005		OP Units	511,402		550,673
Unvested RSUs	Unvested RSUs	294,272		87,960		Unvested RSUs	175,859		294,272
Unsettled shares under open forward equity contracts	Unsettled shares under open forward equity contracts	340,058		—		Unsettled shares under open forward equity contracts	40,387		340,058
Weighted average common shares outstanding, diluted	Weighted average common shares outstanding, diluted	45,600,810		30,052,940		Weighted average common shares outstanding, diluted	58,883,386		45,600,810

Net income available to common stockholders per common share, basic	Net income available to common stockholders per common share, basic	$	0.04	$	0.02	Net income available to common stockholders per common share, basic	$	0.03	$	0.04
Net income available to common stockholders per common share, diluted	Net income available to common stockholders per common share, diluted	$	0.04	$	0.02	Net income available to common stockholders per common share, diluted	$	0.03	$	0.04

As of March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, there were ~~537,155~~507,773 and ~~562,784~~513,467 of OP Units outstanding, respectively.

Note 12 – Commitments and Contingencies

Litigation and Regulatory Matters

In the ordinary course of business, from time to time, the Company may be subject to litigation, claims and regulatory matters, none of which are currently outstanding, which the Company believes could have, individually or in the aggregate, a material adverse effect on its business, financial condition or results of operations, liquidity or cash flows.

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Environmental Matters

The Company is subject to environmental regulations related to the ownership of real estate. The cost of complying with the environmental regulations was not material to the Company’s results of operations for any of the periods presented. The Company is not aware of any environmental condition on any of its properties that is likely to have a material adverse effect on the condensed consolidated financial statements when the fair value of such liability can be reasonably estimated and is required to be recognized.

Commitments

In the normal course of business, the Company enters into various types of commitments to purchase real estate properties or fund development projects. These commitments are generally subject to the Company’s customary due diligence process and, accordingly, a number of specific conditions must be met before the Company is obligated or receives an option to purchase the properties. As of March 31, 2023, the Company had tenant improvement allowance commitments totaling approximately $4.1 million, all of which is expected to be funded over the next two years. Additionally, as of March 31, ~~2022,~~2023, the Company had commitments to fund 9three properties under development totaling ~~$20.9~~$6.0 million which is expected to be funded over the next ~~twelve months.~~two years.

In August 2021, the Company entered into a lease agreement on a new corporate office space, which is classified as an operating lease. The Company began operating out of the new office in February 2022. The lease has an ~~initial~~remaining noncancellable term of ~~10.3~~9.3 years that expires on July 31, 2032 and is renewable at the Company’s option for 2two additional periods of ~~five~~5 years. Future minimum base rental payments under the lease are outlined in “Note - 3 - Leases.” Annual rent expense, excluding operating expenses, is ~~expected to be~~ approximately $0.5 million during the initial term.

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As of March 31, ~~2022,~~2023, the Company did not have any other material commitments for re-leasing costs, recurring capital expenditures, non-recurring building improvements, or similar types of costs.

~~Note 13 – Related-Party Transactions~~

Effective with the Private Offering and commencement of the Company’s operations on December 23, 2019, the Company executed a facilities agreement with a subsidiary of EB Arrow Holdings, LLC, which was subsequently amended in April 2021 and ultimately terminated in July 2021. Under the facilities agreement, the Company shared in office rent by paying a fixed monthly rate and office related expenses based on employee headcount. For the three months ended March 31, 2021, the Company incurred less than $0.1 million in related expenses.

Note 1413 – Subsequent Events

The Company has evaluated all events that occurred subsequent to March 31, ~~2022~~2023 through the date on which these condensed consolidated financial statements were issued to determine whether any of these events required disclosure in the financial statements.

Common Stock Dividend

On April ~~26, 2022,~~25, 2023, the Company's Board of Directors declared a cash dividend of $0.20 per share for the second quarter of ~~2022.~~2023. The dividend will be paid on June 15, ~~2022~~2023 to stockholders of record on June 1, ~~2022.~~2023.

Revolver Activity

In April ~~2022,~~2023, the Company borrowed ~~$20.0~~$72.0 million on the 2026 Revolver which will be used for general corporate purposes, including the acquisition of properties in the Company’s pipeline.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements include, without limitation, statements concerning our business and growth strategies, investment, financing and leasing activities and trends in our business, including trends in the market for single-tenant, retail commercial real estate. Words such as “expects,” “anticipates,” “intends,” “plans,” “likely,” “will,” “believes,” “seeks,” “estimates,” and variations of such words and similar expressions are intended to identify such forward-looking statements. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from the results of operations or plans expressed or implied by such forward-looking statements. Although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore such statements included in this Quarterly Report on Form 10-Q may not prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that the results or conditions described in such statements or our objectives and plans will be achieved. For a further discussion of these and other factors that could impact future results, performance or transactions, see the information under the heading “Risk Factors” Part I, Item 1A. in our Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, filed with the Securities and Exchange Commission (the “SEC”) on February ~~24, 2022,~~23, 2023, and other reports filed with the Securities and Exchange Commission from time to time.

Forward-looking statements and such risks, uncertainties and other factors speak only as of the date of this Quarterly Report on Form 10-Q. New risks and uncertainties may arise over time and it is not possible for us to predict those events or how they may affect us. Many of the risks identified have been and will continue to be heightened as a result of the ongoing numerous adverse effects arising from the novel coronavirus and instability in macroeconomic conditions. We expressly disclaim any obligation or undertaking to update or revise any forward-looking statement contained herein, to reflect any change in our expectations with regard thereto, or any other change in events, conditions or circumstances on which any such statement is based, except to the extent otherwise required by law.

Business Overview

We are an internally managed real estate company that acquires, owns and manages a diversified portfolio of single-tenant, retail commercial real estate subject to long-term net leases with high credit quality tenants across the United States. ~~Our diversified portfolio consists~~We also invest in property developments and mortgage loans secured by real estate. As of ~~361~~March 31, 2023, we owned or had investments in 488 single-tenant retail net leased properties ~~spanning 42 states, with 71~~that were diversified by tenant, industry and geography, including 83 different tenants, ~~represented~~ across 2325 retail ~~sectors. Our portfolio generates ABR~~1 of $77.0 million and is 100% occupied, with a weighted average lease term (“WALT”) of 9.6 years and consisting of approximately 64% and 17% of investment grade tenants and investment grade profile tenants, respectively, by ABR, which we believe provides us with a strong, stable source of recurring cash flow.sectors in 45 states. This excludes four property developments where rent has yet to commence. We focus on tenants in industries where a physical location is critical to the generation of sales and profits, with a focus on necessity goods and essential services in the retail sector, including home improvement, auto parts, drug stores and pharmacies, general retail, grocers, convenience stores, discount stores, and quick-service restaurants, all of which we refer to as defensive retail industries. ~~We believe these characteristics make~~As of March 31, 2023, our ~~tenants' businesses e-commerce resistant and resilient through all economic cycles.~~investments generated ABR

~~COVID-19~~

~~We continue to monitor the global outbreak~~ of ~~COVID-19 and to take steps to mitigate the potential risks to us posed by the pandemic. In addition, we continue to stay in close contact with~~$108.9 million. Approximately 67% of our ABR is from investment grade2 credit rated tenants and ~~monitor the timeliness~~an additional 15% of ~~rental payments and any significant changes in~~ our ~~tenants' businesses. See “Note 2 - Summary~~ABR is derived from tenants with an investment grade profile3. Exclusive of ~~Significant Accounting Policies” to~~mortgage loans receivable, our ~~condensed consolidated financial statements included herein. The Company’s operations and~~portfolio was 100% occupied with a weighted average remaining lease term (“WALT”) of 9.4 years, which we believe provides us with a strong stable source of recurring cash ~~flows for the three months ended March 31, 2022 and 2021 were not materially impacted by COVID-19.~~flow from our portfolio.

~~(1)~~( ~~ABR~~1) Annualized base rent (“ABR”) is ~~calculated by multiplying (i) cash rental payments (a) for the month ended March 31, 2022 (or, if applicable, the next full month's cash~~annualized contractual base rent ~~contractually due in the case of rent abatements, rent deferrals, recently acquired properties and properties with contractual rent increases, other than properties under development) for leases~~ in place as of ~~March 31, 2022, plus (b)~~the most recent quarter end for ~~properties under development, the first full month's estimated permanent~~all leases that commenced as of that date, and annualized cash ~~rent contractually due after the development period by (ii) 12.~~interest on mortgage loans receivable in place as of that date.

(2) We define “investment grade” tenants as tenants, or tenants that are subsidiaries of a parent entity, with a credit rating of BBB- (S&P/Fitch), Baa3 (Moody's) or NAIC2 (National Association of Insurance Commissioners) or higher.

(3) We define “investment grade profile” tenants as tenants with metrics of more than $1.0 billion in annual sales and a debt to adjusted EBITDA ratio of less than 2.0x but do not carry a published rating from S&P, Moody’s or NAIC.

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~~Financing Activities~~August 2022 Follow-On Offering

On ~~January 13,~~August 8, 2022, we completed a registered public offering of ~~10,350,000~~9,000,000 shares of our common stock at a public offering price of ~~$22.25~~$20.20 per ~~share.~~share, which excluded an over-allotment option to the underwriters to purchase up to an additional 1,350,000 shares, which was exercised in full on August 10, 2022. In connection with the offering, we entered into forward sale agreements for 10,350,000 shares of ~~our~~its common stock. We did not initially receive any proceeds from the ~~sale~~sales of shares of common stock by the forward ~~purchasers.~~purchasers upon registration of the offering. We ~~expect to~~may physically settle the forward sale agreements (by the delivery of shares of common stock) and receive proceeds from the sale of those shares upon one or more forward settlement dates, which shall occur no later than ~~January 10,~~August 3, 2023. We may, ~~also elect to~~at our election, cash settle or net share settle all or a portion of our obligations under a forward sale agreement if we ~~conclude~~concludes it is in ~~our~~its best interest to do ~~so.~~so over the prescribed offering period. If we elect to cash settle a forward sale agreement, we may not receive any proceeds and we may owe cash to the relevant forward counterparty in certain circumstances.

On March 30, ~~2022,~~2023, we partially physically settled ~~3,440,962~~2,612,736 shares of common stock at a price of ~~$22.25~~$20.20 per share in ~~connection~~accordance with the forward sale agreements. We received net proceeds from the ~~offering~~settlement of ~~$72.0~~$50.0 million, net of underwriting discounts and offering costs of ~~$4.6~~$2.8 million. As of March 31, 2023, 4,763,320 shares remained unsettled under the August 8, 2022 forward sale agreements.

ATM Program

On September 1, 2021, we entered into a $250.0 million ~~ATM Program~~at-the-market equity program (the “ATM Program”) through which, from time to time, we may sell shares of our common stock in registered transactions. ~~During the first quarter of 2022,~~In March 2023, we issued ~~163,774~~146,745 shares of common stock at a weighted average price of ~~$22.08~~$20.22 per share ~~in connection with the ATM Program~~ for net proceeds of approximately ~~$3.5~~$2.9 million, net of sales commissions and offering costs of less than $0.1 million. We have $151.2 million remaining gross proceeds available for future issuances of shares of our common stock under the ATM Program.

Results of Operations

Overall

~~The Company~~We continued to grow ~~its~~our assets ~~held for investment~~ during the first quarter of ~~2022 by increasing its property portfolio from 328~~2023 through the acquisition of properties as of December 31, 2021 to 363 properties as of the end of March 31, 2022. This includes nine real estate development projects owned by the Company, one property under development with a non-binding option to purchase, and ~~one property fully collateralized by an~~ investment in ~~loan~~mortgage loans receivable. This growth was financed through the settlement of shares of common stock through our forward sale agreements in an amount of ~~$72.0~~$50.0 million, the issuance of common stock under the ATM Program in an amount of ~~$3.5~~$2.9 million, ~~and net~~the usage of existing cash balances as a result of borrowings ~~of $56.0 million~~ on our Revolver, and cash flows from operations during the three months ended March 31, ~~2022.~~2023.

Acquisitions

During the three months ended March 31, ~~2022,~~2023, we acquired 3420 properties for a total purchase price of ~~$90.0~~$67.7 million, ~~including $1.2~~inclusive of $0.7 million of capitalized acquisition costs.

The acquisitions were all accounted for as asset acquisitions. These properties are located in 1712 states with a WALT of approximately ~~8.2~~9.4 years. The underwritten weighted-average capitalization rate on ~~first quarter~~our year to date acquisitions was approximately ~~6.3%~~6.9%.

Development

As of March 31, 2023, we had three property developments under construction and one completed development where rent has yet to commence. During the three months ended March 31, ~~2022,~~2023, we invested ~~$5.0~~$4.5 million in ~~our~~ property ~~developments, including the acquisition of one new build-to-suit project with an initial purchase price of $1.0 million.~~developments. During ~~the three months ended March 31, 2022,~~this period, we completed development on ~~one project under development~~two projects and reclassified approximately ~~$4.7~~$14.8 million from property under development to land, building, and improvements in the accompanying condensed consolidated balance sheets. Rent commenced for the completed developments in the first quarter of 2023. The remaining ~~nine~~three developments in progress are expected to be substantially completed with rent commencing ~~at various points throughout 2022.~~in the third and fourth quarters of 2023 for two of the developments and the second quarter of 2024 for the remaining development. The purchase price, including ~~acquisitions~~acquisition costs, and subsequent development are included in property under development in the accompanying condensed consolidated balance sheets as of March 31, ~~2022.~~2023.

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Dispositions

During the three months ended March 31, ~~2022,~~2023, we sold ~~one property~~eight properties for a total sales price, net of disposal costs of ~~$2.3~~$15.5 million, recognizing a net ~~gain~~loss of ~~$0.2 million on the sale.~~$0.3 million.

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Investment in Mortgage ~~Loan~~Loans Receivable

On ~~January 26, 2022,~~March 3, 2023, we executed a fully collateralized ~~$40.3~~$41.9 million loan receivable with a stated interest rate of ~~6.0%. The~~9.55% and scheduled maturity date ~~is July 26, 2023, however we have the right, subject to certain terms and conditions, to purchase a portion~~ of ~~the underlying, collateralized property.~~March 10, 2026. The loan receivable is collateralized by ~~real estate that is~~46 properties leased by ~~three separate investment-grade tenants.~~one investment grade tenant. The funds provided under the loan ~~in addition to loan origination costs of $0.1 million,~~ are included in ~~loan~~mortgage loans receivable, net in the accompanying condensed consolidated balance sheets as of March 31, ~~2022.~~2023.

On March 24, 2023, we executed a fully collateralized $4.1 million loan receivable with a stated interest rate of 6.89% and scheduled maturity date of April 10, 2026. The loan receivable is collateralized by three properties leased by one investment grade tenant. The funds provided under the loan are included in mortgage loans receivable, net in the accompanying condensed consolidated balance sheets as of March 31, 2023.

Economic and Financial Environment

The average inflation rate for the three months ended March 31, 2023 was 5.0%. While the Federal Reserve has been continuing to raise interest rates in an effort to lower inflation, the pace at which it may continue to do so is unclear leading to uncertainties in the financing market and a volatile economy.

In the commercial real estate market, property prices generally continue to fluctuate which may impact our investment capitalization rates and operating costs. Likewise, during certain periods, including the current market, the credit markets have experienced significant price volatility, dislocations, and liquidity disruptions, which may impact our access to and cost of capital. We continually monitor the commercial real estate and credit markets carefully and, if required, will make decisions to adjust our business strategy accordingly.

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Three Months Ended March 31, ~~2022~~2023 Compared with Three Months Ended March 31, ~~2021~~2022

The following table sets forth our operating results for the periods indicated (in thousands):


		Three Months Ended March 31,					Three Months Ended March 31,
		2022		2021			2023		2022
Revenues	Revenues					Revenues
Rental revenue (including reimbursable)	Rental revenue (including reimbursable)	$	20,921	$	11,932	Rental revenue (including reimbursable)	$	28,474	$	20,921
Interest income on mortgage loan receivable		411		—
Interest income on loans receivable						Interest income on loans receivable	978		411
Total revenues	Total revenues	21,332		11,932		Total revenues	29,452		21,332
Operating expenses	Operating expenses					Operating expenses
Property	Property	2,932		950		Property	3,936		2,932
General and administrative	General and administrative	4,190		3,137		General and administrative	4,909		4,190
Depreciation and amortization	Depreciation and amortization	10,980		5,929		Depreciation and amortization	14,949		10,980
Provisions for impairment		—		69
Transaction costs	Transaction costs	165		151		Transaction costs	109		165
Total operating expenses	Total operating expenses	18,267		10,236		Total operating expenses	23,903		18,267
Other income (expense)	Other income (expense)					Other income (expense)
Interest expense, net	Interest expense, net	(1,169)		(905)		Interest expense, net	(3,944)		(1,169)
Gain on sales of real estate, net		161		—
Total other income (expense), net		(1,008)		(905)
Net income before income tax expense		2,057		791
Income tax expense		(91)		(50)
Gain (loss) on sales of real estate, net						Gain (loss) on sales of real estate, net	(319)		161
Other income						Other income	152		—
Total other expense, net						Total other expense, net	(4,111)		(1,008)
Net income before income taxes						Net income before income taxes	1,438		2,057
Income tax benefit (expense)						Income tax benefit (expense)	43		(91)
Net income	Net income	$	1,966	$	741	Net income	$	1,481	$	1,966

Revenue. Revenue for the three months ended March 31, ~~2022~~2023 increased by ~~$9.4~~$8.2 million to ~~$21.3~~$29.5 million from ~~$11.9~~$21.3 million for the three months ended March 31, ~~2021. This~~2022 which is ~~primarily due~~attributed to an increase in the ~~real estate portfolio from 203~~number of our operating leases and properties ~~as of January 1, 2021 to 352 operating properties as of March 31, 2022.~~securing our mortgage loans. The increase includes an increase in cash rental receipts of ~~$6.7~~$6.9 million, combined with net increases of property expense reimbursements of ~~$1.7 million, of which~~ $0.9 million, ~~was related to tax reimbursements, an increase of $0.4 million in straight-line rental revenue,~~ and an increase of ~~$0.4~~$0.6 million related to interest income on ~~the~~ mortgage ~~loan receivable.~~loans receivable offset by a decrease in straight-line rental revenue.

Total Operating Expenses. Total expenses increased by ~~$8.1~~$5.6 million to $23.9 million for the three months ended March 31, 2023 as compared to $18.3 million for the three months ended March 31, ~~2022 as compared to $10.2 million for the three months ended March 31, 2021.~~2022. The increase in operating expenses is primarily attributed to the increase in the number of operating properties, with the most significant increases being depreciation and amortization expense, property-specific reimbursable expenses, and ~~property-specific expenses, in addition to an increase in stock-based compensation.~~payroll costs. Total operating expenses include the following:

•Property Expenses. Property expenses increased ~~$1.9~~$1.0 million to $3.9 million for the three months ended March 31, 2023 from $2.9 million for the three months ended March 31, 2022. The increase is primarily attributed to the increase in the ~~real estate portfolio from 203~~number of operating properties, including combined net increases of reimbursable property expenses of $1.0 million, of which $0.4 million, $0.3 million, and $0.3 million was related to ~~352 operating properties. The largest increases are from~~reimbursable common area maintenance costs, reimbursable insurance costs, and reimbursable property taxes, ~~of $0.8 million and reimbursable maintenance expense of $0.8 million. Remaining net increases are from non-reimbursable expenses of $0.2 million.~~respectively.

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•General and Administrative Expenses. General and administrative expenses increased ~~$1.1~~$0.7 million to $4.9 million for the three months ended March 31, 2023 from $4.2 million for the three months ended March 31, 2022. The increase is primarily due to an increase in ~~stock-based compensation expense~~payroll expenses $0.4 million in addition to smaller net increases in corporate office rent and franchise tax expense. While our general and administrative expenses will continue to rise in some measure as our portfolio grows, we expect that such expenses as a percentage of ~~$0.5 million and~~our portfolio will decrease over time due to ~~increases in payroll~~efficiencies and ~~payroll-related expenses~~economies of ~~$0.2 million associated with the Company’s continued growth.~~scale.

•Depreciation and Amortization. Depreciation and amortization expense increased ~~$5.1~~$3.9 million to $14.9 million for the three months ended March 31, 2023 from $11.0 million for the three months ended March 31, 2022. The increase in depreciation and amortization is proportionate to the increase in the size of the portfolio over the comparable period ~~primarily~~ with associated increases in building depreciation expense of $2.1 million, in-place lease amortization expense of ~~$1.8~~$1.1 million, and building improvements depreciation expense of ~~$0.9 million, and leasehold improvement depreciation expense of $0.2~~$0.8 million.

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Interest Expense. ~~Provision for Impairment.~~ ~~For the three months ended March 31, 2022, no provision for impairment was recorded, however, we recorded a provision for impairment of approximately $0.1~~Interest expense increased by $2.7 million to $3.9 million for the three months ended March 31, 2021 on one property which was classified as held-for-sale as of December 31, 2020 and sold in April 2021. This impairment and subsequent disposal relate to our plan of strategically identifying properties that can be re-leased or disposed of in an effort to improve returns and manage risk exposure.

~~Interest Expense.~~ ~~Interest expense increased by $0.3 million to~~2023 from $1.2 million for the three months ended March 31, 2022. The increase is primarily ~~due~~attributed to an increase of $1.9 million of interest incurred under our $200.0 million senior unsecured term loan (the “2028 Term Loan”), a net increase of $0.6 million under our $400.0 million senior unsecured revolving credit facility (the “New Revolver”) as a result of higher interest rates driving an increase of $0.8 million offset by a decrease in average borrowings outstanding during the ~~increase in the average balances outstanding~~respective periods. Additional increases of $0.1 million and $0.1 million are attributed to increased facility fees and interest incurred under the ~~Revolver (as defined in “Note 6 - Debt” to our condensed consolidated statements of operations and comprehensive income),~~mortgage note payable, respectively. This is offset by ~~decreases in facilities fees incurred for unused capacity and~~$0.1 million of increased capitalized interest ~~expense associated with the interest rate swap.~~on our property developments.

Gain (loss) on sales of real estate, net. ~~For~~Net loss on sales of real estate increased by $0.5 million to $0.3 million for the three months ended March 31, ~~2022, we recorded~~2023 from a $0.2 million net gain ~~on the sales of real estate of $0.2 million. No disposals occurred during~~for the three months ended March 31, ~~2021.~~2022. The table below summarizes the properties sold for the periods indicated (in thousands):


		Three Months Ended March 31,					Three Months Ended March 31,
		2022		2021			2023		2022
Number of properties sold	Number of properties sold	1		—		Number of properties sold	8		1
Sales price, net of disposal costs	Sales price, net of disposal costs	$	2,294	$	—	Sales price, net of disposal costs	$	15,463	$	2,294
Gain on sales of real estate, net		$	161	$	—
Gain (loss) on sales of real estate, net						Gain (loss) on sales of real estate, net	$	(319)	$	161

Other income. The change in other income is primarily related to $0.1 million of interest income earned on the Company’s cash, cash equivalents and restricted cash balances as presented in the condensed consolidated balance sheets.

Income tax benefit (expense). Income tax expense decreased by $0.1 million for three months ended March 31, 2023. The decrease relates to income tax benefits regarding current period losses on disposals offset by provisions for federal and state income taxes on the financial results of NETSTREIT Management TRS, LLC.

Net income. Net income ~~increased $1.3~~decreased $0.5 million to $1.5 million for the three months ended March 31, 2023 from $2.0 million for the three months ended March 31, 2022. Net income ~~increased~~decreased primarily due to increases in interest expense, depreciation and amortization expense, and payroll expense offset by increases in additional rental revenues primarily due to the growth in the size of our real estate investment portfolio, ~~which generated additional rental revenues, offset by the impact of increases in depreciation and amortization expenses and to increases in general and administrative expenses, as set forth above.~~including interest income associated with our mortgage loans receivable.

Liquidity and Capital Resources

Our primary capital requirements are to fund property acquisitions and required interest payments, as well as working capital needs, operating expenses and capital expenditures. Our capital resources primarily consist of cash from operations, sales of equity securities and borrowings under ~~our~~the $175.0 million senior ~~credit facility.~~unsecured term loan (the “2024 Term Loan”), 2028 Term Loan and New Revolver. As of March 31, ~~2022,~~2023, we had a $175.0 million ~~senior secured term loan (“~~outstanding principal amount of the 2024 Term ~~Loan”)~~Loan, $200.0 million outstanding principal amount of the 2028 Term Loan, and ~~$120.0~~$96.0 million of borrowings outstanding under our ~~$250.0 million senior secured revolving credit facility (“Revolver”, and collectively with the Term Loan, the “Credit Facility”).~~New Revolver. Additionally, as of March 31, ~~2022,~~2023, we had ~~6,909,038~~4,763,320 shares that were unsettled under open forward equity contracts. We believe that the availability of proceeds from future issuances of shares of our common stock under the ATM Program and the physical settlement of forward sales of our common stock, coupled with our cash flows from operations and available borrowing capacity under the New Revolver, will be adequate to support our ongoing operations and to fund our debt service requirements, capital expenditures and working capital requirements for at least the next 12 months. We anticipate funding our long-term capital needs through cash provided from operations, borrowings under our New Revolver and issuances of common stock, including settlement of existing forward sales agreements.

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Contractual Obligations and Commitments

As of March 31, ~~2022,~~2023, our contractual debt obligations primarily include the maturity of our ~~$175.0 million~~2024 Term Loan with the scheduled principal payment due on December 23, 2024, the maturity of our 2028 Term Loan with the scheduled principal payment due on February 11, 2028, and repayment of borrowings on our ~~$250.0 million~~New Revolver with a maturity of ~~December 23, 2023.~~August 11, 2026. During the three months ended March 31, ~~2022,~~2023, we borrowed ~~$128.0~~$99.0 million at a weighted average interest rate of 5.86% and also repaid ~~$72.0~~$116.0 million on our ~~Revolver at a weighted-average interest rate of 1.39% to fund specifically identified property acquisitions.~~revolving credit facilities.

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The following table provides information with respect to our debt obligations and other commitments as of March 31, ~~2022~~2023 (in thousands):

Payment Due by Period
Total From April 1, 2022 to December 31, 2022 1 – 3 Years 3 – 5 Years
Contractual Obligations
Term Loan – Principal $ 175,000 $ — $ 175,000 $ —
Term Loan – Variable interest (1)
6,482 1,782 4,700 —
Revolver – Borrowings 120,000 — 120,000 —
Revolver – Variable interest 3,410 1,480 1,930
Unutilized borrowing fees on Revolver (2)
562 244 318 —
Property development under contract 20,902 20,902 —
Corporate office lease obligations 6,570 150 1,150 5,270
Total $ 332,926 $ 24,558 $ 303,098 $ 5,270


	Payment Due by Period
	Total		From April 1, 2023 to December 31, 2023		1 – 3 Years		3 – 5 Years		Thereafter
Contractual Obligations
2024 Term Loan – Principal	$	175,000	$	—	$	175,000	$	—	$	—
2024 Term Loan – Variable interest (1)	4,154		1,803		2,351		—		—
New Revolver – Borrowings	96,000		—		—		96,000		—
New Revolver – Variable interest	19,166		4,277		11,405		3,484		—
Facility Fee (2)	2,017		450		1,200		367		—
2028 Term Loan – Principal	200,000		—		—		—		200,000
2028 Term Loan – Variable Interest (3)	37,756		5,821		15,522		15,522		891
Mortgage Note – Principal	8,460		117		332		8,011		—
Mortgage Note – Interest	1,709		286		742		681		—
Property development under contract	5,953		5,953		—		—		—
Tenant Improvement Allowances	4,089		—		4,089		—		—
Corporate office lease obligations	6,299		412		1,253		1,323		3,311
Total	$	560,603	$	19,119	$	211,894	$	125,388	$	204,202

(1) Effective September 28, 2020, we entered into anfour interest rate ~~hedge~~hedges to fix the base interest rate (one-month LIBOR) on our 2024 Term ~~Loan.~~Loan which were converted to daily SOFR effective January 30, 2023. Accordingly, the projected interest rate obligations for the variable rate 2024 Term Loan are based on the hedged fixed rate of ~~0.21%~~0.12% compared to the variable 2024 Term Loan ~~one-month LIBOR~~daily SOFR rate as of March 31, ~~2022~~2023 of ~~0.23%~~4.80%, plus a SOFR adjustment of 0.10%, plus a margin of 1.15% based on the $175.0 million Term Loan outstanding through the maturity date of December 23, 2024.

(2) We are subject to a facility fee of 0.15% on our New Revolver.

(3) Effective August 11, 2022, we entered into three interest rate hedges to fix the base interest rate (one-month SOFR) on our 2028 Term Loan. Accordingly, the projected interest rate obligations for the variable ~~unutilized borrowing fee~~rate 2028 Term Loan are based on the ~~unused portion~~hedged fixed rate of ~~our $250.0~~2.63% compared to the variable 2028 Term Loan one-month SOFR rate as of December 31, 2022 of 4.67%, plus a SOFR adjustment of 0.10% and applicable margin of 1.15% based on the $200.0 million ~~Revolver. This reflects our projected unutilized borrowing fee at 0.25% assuming no additional borrowing~~2028 Term Loan outstanding through the maturity date of ~~December 23, 2023.~~February 11, 2028.

In August 2021, ~~the Company~~we entered into a lease agreement on a new corporate office space, which is classified as an operating lease. ~~The Company~~We began operating out of the new office in February 2022. The lease has ~~an initial~~a remaining noncancellable term of ~~10.3~~9.3 years that expires on July 31, 2032 ~~with a one-time option to terminate in 2029 exercisable by the Company. The lease~~and is ~~also~~ renewable at ~~the Company’s~~our option for two additional periods of five years. Future minimum base rental payments under the lease are outlined in “Note - 3 - ~~Leases”.~~Leases.” Annual rent expense, excluding operating expenses, is ~~expected to be~~ approximately $0.5 million during the initial term.

Additionally, in the normal course of business, ~~the Company enters~~we enter into various types of commitments to purchase real estate properties or fund development projects. These commitments are generally subject to ~~the Company’s~~our customary due diligence process and, accordingly, a number of specific conditions must be met before the Company is obligated or receives an option to purchase the properties. As of March 31, ~~2022, the Company~~2023, we had commitments to fund properties under development totaling ~~$20.9~~$6.0 million, all of which is expected to be funded over the next ~~12 months.~~two years.

Credit ~~Facility~~Facilities

~~In December 2019,~~On January 27, 2023, we executed an amendment to the ~~Company entered into~~Prior Credit Agreement that replaced the Credit Facility which consisted of (i) the $175.0 million Term Loan and (ii) the $250.0 million Revolver. Wells Fargo Securities, LLC is lead arranger and bookrunner and Wells Fargo Bank, National Association is the administrative agent under the Credit Facility (the “Administrative Agent”).

The Term Loan matures on December 23, 2024 and the Revolver matures on December 23, 2023, subject to extension up to one year. The Credit Facility, effective during the fourth quarter of 2020, is unsecured as the Administrative Agent released the collateral in connection with the Company’s satisfaction of the collateral release requirements. Therefore interest rates under the Credit Facility are based on the Company’s consolidated total leverage ratio, and are determined by (A) in the case of the Term Loan either (i) LIBOR, plus a margin ranging from 1.15% to 1.60%, based on the Company’s consolidated total leverage ratio, or (ii) a Base Rate (as defined in the Credit Facility), plus a margin ranging from 0.15% to 0.60%, based on the Company’s

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consolidated total leverage ratio and (B) in the case of the Revolver either (i) LIBOR, plus a margin ranging from 1.20% to 1.80%, based on the Company’s consolidated total leverage ratio, or (ii) a Base Rate (as defined in the Credit Facility), plus a margin ranging from 0.20% to 0.80%, based on the Company’s consolidated total leverage ratio. Interest is payable monthly or at the end of the applicable interest period in arrears on any outstanding borrowings.

~~The Company uses~~ interest rate ~~derivative contracts~~benchmark from LIBOR to ~~manage~~Secured Overnight Financing Rate (“SOFR”). Additionally, on January 30, 2023 and effective through the maturity date of December 31, 2024, we converted its exposure to changes in interest rates on its variable rate debt. These derivatives are considered cash flow hedges and are recorded on a gross basis at fair value. Effective September 28, 2020, such derivatives were used to hedge the variable cash flowsfour existing LIBOR swap agreements associated with the 2024 Term ~~Loan.~~Loan into four new SOFR swaps that convert the SOFR variable rate to a fixed rate of 0.12%. We have fully hedged the 2024 Term Loan with an all-in interest rate of 1.37%. The interest rate hedge is further described in “Note 7 - Derivative Financial Instruments.”

Further discussion of our debt is included in “Note 6 - Debt” of our condensed consolidated financial statements, included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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As of March 31, 2023 and December 31, 2022, we did not have any off-balance sheet arrangements that have had or are reasonably likely to have a material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital resources or capital expenditures.

Historical Cash Flow Information

Three Months Ended March 31, ~~2022~~2023 Compared with Three Months Ended March 31, ~~2021~~2022


		Three Months Ended March 31,			Three Months Ended March 31,
		2022	2021		2023		2022
(In thousands)	(In thousands)	(Unaudited)		(In thousands)	(Unaudited)
Net cash provided by (used in):	Net cash provided by (used in):			Net cash provided by (used in):
Operating activities	Operating activities	8,954	4,270	Operating activities	$	14,806	$	8,954
Investing activities	Investing activities	(133,708)	(90,022)	Investing activities	(102,412)		(133,708)
Financing activities	Financing activities	121,838	6,825	Financing activities	23,659		121,838

Cash Flows Provided By Operating Activities. Net cash provided by operating activities increased by ~~$4.7~~$5.8 million for the three months ended March 31, ~~2022~~2023 compared to the three months ended March 31, ~~2021.~~2022. The increase was largely attributed to the increase in the size of the Company’s real estate investment portfolio with an increase in rental receipts of ~~$6.7~~$6.9 million, offset primarily by increases in operating and general and administrative expenses paid associated with our larger portfolio.

Cash Flows Used In Investing Activities. Net cash used in investing activities ~~increased~~decreased by ~~$43.7~~$31.3 million for the three months ended March 31, ~~2022~~2023 compared to the three months ended March 31, ~~2021.~~2022. The ~~increase~~decrease was primarily due to decreases in cash spent on acquisitions ~~including~~of real estate of $22.3 million and cash spent on real estate development and improvements of $1.9 million, offset by an increase in our investment in a mortgage ~~loan~~loans receivable of ~~$40.4~~$5.5 million. ~~The remaining~~Additionally, an increase ~~is related primarily to acquisition and development activity, which increased $4.9~~of $13.2 million ~~compared to the prior period, offset by $2.3 million more~~ of proceeds were received ~~from~~in connection with the sale of ~~assets.~~real estate.

Cash Flows Provided By Financing Activities. Net cash provided by financing activities ~~increased~~decreased by ~~$115.0~~$98.1 million for the three months ended March 31, ~~2022~~2023 compared to the three months ended March 31, ~~2021.~~2022. The ~~increase~~decrease was primarily attributed to a reduction in net borrowings of $73.0 million under our revolving credit facilities. Further, issuances of common stock in connection with our ATM Program and physical settlement of our common stock under the forward sale agreements ~~for combined net proceeds of $75.5 million.~~provided $22.6 million fewer proceeds. Additionally, we paid ~~$3.0~~$2.8 million more ofin common stock dividends ~~and distributions~~ during the three months ended March 31, ~~2022. Lastly, we net borrowed $43.0 million more under the Revolver during the three months ended March 31, 2022 than the prior period.~~2023.

Income Taxes

We maintain a taxable REIT subsidiary (“TRS”) which may be subject to U.S. federal, state, and local income taxes on its taxable income. In general, our TRS may perform services for tenants of the Company, hold assets that the Company cannot hold directly and may engage in any real estate or non-real estate-related business.

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During three months ended March 31, 2022 and 2021, the Company recognized franchise and other state and local tax expenses in general and administrative expense and recognized state and federal income tax expense in income tax expense in the accompanying condensed consolidated statements of operations and comprehensive income.

~~Recent Accounting Pronouncements~~

A discussion of new accounting standards and the possible effects of these standards on our condensed consolidated financial statements is included in “Note 2 - Summary of Significant Accounting Policies” of our condensed consolidated financial statements, included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Critical Accounting Policies and Estimates

Our accounting policies have been established to conform with U.S. GAAP. The preparation of financial statements in conformity with U.S. GAAP requires us to use judgment in the application of accounting policies, including making estimates and assumptions. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Management believes that we have made these estimates and assumptions in an appropriate manner and in a way that accurately reflects our financial condition. We continually test and evaluate these estimates and assumptions using our historical knowledge of the business, as well as other factors, to ensure that they are reasonable for reporting purposes. However, actual results may differ from these estimates and assumptions. If our judgment or interpretation of the facts and circumstances relating to the various transactions had been different, it is possible that different accounting policies would have been applied, thus resulting in a different presentation of the financial statements. Additionally, other companies may utilize different estimates that may impact comparability of our results of operations to those of companies in similar businesses. A summary of our critical accounting policies is included in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, which is accessible on the SEC’s website at www.sec.gov. There have been no material changes to these policies during the periods covered by this quarterly report.

~~Purchase Price Allocation of Acquired Properties~~

We evaluate each acquisition transaction to determine whether the acquired asset meets the definition of a business and therefore accounted for as a business combination or if the acquisition transaction should be accounted for as an asset acquisition. Under Accounting Standards Update (“ASU”) 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business” (“ASU 2017-01”), an acquisition does not qualify as a business when substantially all of the fair value is concentrated in a single identifiable asset or group of similar identifiable assets or the acquisition does not include a substantive process in the form of an acquired workforce or an acquired contract that cannot be replaced without significant cost, effort or delay. Transaction costs related to acquisitions that qualify as asset acquisitions are capitalized as part of the cost basis of the acquired assets, while transaction costs for acquisitions that are deemed to be acquisitions of a business are expensed as incurred.

We allocate the purchase price of acquired properties accounted for as asset acquisitions to tangible and identifiable intangible assets or liabilities based on their relative fair values. Tangible assets may include land, buildings, site improvements and tenant improvements. Intangible assets include the value of in-place leases and above-market leases and intangible liabilities include below-market leases.

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estate; e.g., location, size, demographics, value and comparative rental rates; tenant credit profile and the importance of the location of the real estate to the operations of the tenant’s business. Additionally, we consider information obtained about each property as a result of its pre-acquisition due diligence, marketing and leasing activities in estimating the fair value of the tangible and intangible assets and liabilities acquired.

~~Impairment of Long-Lived Assets~~

Fair value measurement of an asset group occurs when events or changes in circumstances related to an asset indicate that the carrying amount of the asset group is no longer recoverable. An example of an event or changed circumstance is a reduction in the expected holding period of a property. If indicators are present, we will prepare a projection of the undiscounted future cash flows of the property, excluding interest charges, and determine if the carrying amount of the asset group is recoverable. When a carrying amount is not recoverable, an impairment loss is recognized to the extent that the carrying amount of the asset group exceeds its fair market value. We estimate fair value using data such as operating income, estimated capitalization rates or multiples, leasing prospects, local market information, and with regard to assets held for sale, based on the estimated or negotiated selling price, less estimated costs of disposal.

Non-GAAP Financial Measures

Our reported results are presented in accordance with GAAP. We also disclose the following non-GAAP financial measures: Funds From Operations (“FFO”), Core FFO, Adjusted FFO (“AFFO”), earnings before interest expense, income tax expense, and depreciation and amortization (“EBITDA”), EBITDA adjusted to exclude gains (or losses) from the sales of depreciable property and real estate impairment losses (“~~EBITDAre”~~EBITDAre”), ~~EBITDAre~~EBITDAre further adjusted to exclude straight-line rent, ~~and~~ non-cash compensation expense, non-recurring severance and related charges, and other non-recurring expenses (or income) (“Adjusted EBITDAre”), net operating income (“NOI”) and cash net operating income (“Cash NOI”). We believe these non-GAAP financial measures are industry measures used by analysts and investors to compare the operating performance of REITs.

FFO, Core FFO and AFFO

The National Association of Real Estate Investment Trusts ("NAREIT"), an industry trade group, has promulgated a widely accepted non-GAAP financial measure of operating performance known as FFO. Our FFO is net income in accordance with GAAP, excluding gains (or losses) resulting from dispositions of properties, plus depreciation and amortization and impairment charges on depreciable real property.

Core FFO is a non-GAAP financial measure defined as FFO adjusted to remove the effect of unusual and non-recurring items that are not expected to impact our operating performance or operations on an ongoing basis. ~~Historically, these have included gains from forfeited earnest money deposits,~~These include non-recurring ~~public company costs,~~severance and ~~gains from~~related charges and gain on insurance proceeds.

AFFO is a non-GAAP financial measure defined as Core FFO adjusted for GAAP net income related to non-cash revenues and expenses, such as straight-line rent, amortization of ~~above- and below-market~~ lease-related intangibles, ~~amortization of lease incentives,~~ capitalized interest expense, non-cash compensation expense, ~~and~~ amortization of deferred financing costs, amortization of above/below-market assumed debt, and amortization of loan origination costs.

Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. In fact, real estate values historically have risen or fallen with market conditions. FFO is intended to be a standard supplemental measure of operating performance that excludes historical cost depreciation and valuation adjustments from net income. We consider FFO to be useful in evaluating potential property acquisitions and measuring operating performance.

We further consider FFO, Core FFO and AFFO to be useful in determining funds available for payment of distributions. FFO, Core FFO and AFFO do not represent net income or cash flows from operations as defined by GAAP. You should not consider FFO, Core FFO and AFFO to be alternatives to net income as a reliable measure of our operating performance nor should you consider FFO, Core FFO and AFFO to be alternatives to cash flows from operating, investing or financing activities (as defined by GAAP) as measures of liquidity.

FFO, Core FFO and AFFO do not measure whether cash flow is sufficient to fund our cash needs, including principal amortization, capital improvements and distributions to stockholders. FFO, Core FFO and AFFO do not represent cash flows

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from operating, investing or financing activities as defined by GAAP. Further, FFO, Core FFO and AFFO as disclosed by other REITs might not be comparable to our calculations of FFO, Core FFO and AFFO.

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The following table sets forth a reconciliation of FFO, Core FFO and AFFO for the periods presented to net income before allocation to noncontrolling interests, as computed in accordance with GAAP (in thousands):

Three Months Ended March 31,
2022 2021
(Unaudited)
Net income $ 1,966 $ 741
Depreciation and amortization of real estate 10,862 5,852
Provision for impairment — 69
Gain on sales of real estate, net (161) —
FFO 12,667 6,662
Adjustments:
Gain on insurance proceeds — —
Core FFO 12,667 6,662
Adjustments:
Straight-line rent adjustments (526) (240)
Amortization of deferred financing costs 157 157
Amortization of loan origination costs 13 —
Amortization of above/below market lease intangibles (283) (190)
Amortization of lease incentives 118 —
Capitalized interest expense (56) —
Non-cash compensation expense 1,045 557
AFFO $ 13,135 $ 6,946


	Three Months Ended March 31,
	2023		2022
	(Unaudited)
Net income	$	1,481	$	1,966
Depreciation and amortization of real estate	14,884		10,862
Loss (gain) on sales of real estate, net	319		(161)
FFO	16,684		12,667
Adjustments:
Non-recurring severance and related charges	13		—
Other non-recurring expenses (income)	(12)		—
Core FFO	16,685		12,667
Adjustments:
Straight-line rent adjustments	(311)		(526)
Amortization of deferred financing costs	308		157
Amortization of above/below-market assumed debt	29		—
Amortization of loan origination costs	28		13
Amortization of lease-related intangibles	(213)		(165)
Capitalized interest expense	(134)		(56)
Non-cash compensation expense	1,027		1,045
AFFO	$	17,419	$	13,135

EBITDA, EBITDAre and Adjusted EBITDAre

We compute EBITDA as earnings before interest expense, income tax expense, and depreciation and amortization. In 2017, NAREIT issued a white paper recommending that companies that report EBITDA also report EBITDAre. We compute EBITDAre in accordance with the definition adopted by NAREIT. NAREIT defines EBITDAre as EBITDA (as defined above) excluding gains (or losses) from the sales of depreciable property and impairment charges on depreciable real property.

Adjusted EBITDAre is a non-GAAP financial measure defined as EBITDAre further adjusted to exclude straight-line rent, ~~and~~ non-cash compensation ~~expense.~~expense, non-recurring severance and related charges, and gain on insurance proceeds.

We present EBITDA, EBITDAre and Adjusted EBITDAre as they are measures commonly used in our industry. We believe that these measures are useful to investors and analysts because they provide supplemental information concerning our operating performance, exclusive of certain non-cash items and other costs. We use EBITDA, EBITDAre and Adjusted EBITDAre as measures of our operating performance and not as measures of liquidity.

EBITDA, EBITDAre and Adjusted EBITDAre do not include all items of revenue and expense included in net income, they do not represent cash generated from operating activities and they are not necessarily indicative of cash available to fund cash requirements; accordingly, they should not be considered alternatives to net income as a performance measure or cash flows from operations as a liquidity measure and should be considered in addition to, and not in lieu of, GAAP financial measures. Additionally, our computation of EBITDA, EBITDAre and Adjusted EBITDAre may differ from the methodology for calculating these metrics used by other equity REITs and, therefore, may not be comparable to similarly titled measures reported by other equity REITs.

The following table sets forth a reconciliation of EBITDA, EBITDAre and Adjusted EBITDAre for the periods presented to net income before allocation to noncontrolling interests, as computed in accordance with GAAP (in thousands):

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		Three Months Ended March 31,					Three Months Ended March 31,
		2022		2021			2023		2022
		(Unaudited)					(Unaudited)
Net income	Net income	$	1,966	$	741	Net income	$	1,481	$	1,966
Depreciation and amortization of real estate	Depreciation and amortization of real estate	10,862		5,852		Depreciation and amortization of real estate	14,884		10,862
Amortization of above/below market lease intangibles		(283)		(190)
Amortization of lease incentives		118		—
Amortization of lease-related intangibles						Amortization of lease-related intangibles	(213)		(165)
Non-real estate depreciation and amortization	Non-real estate depreciation and amortization	117		77		Non-real estate depreciation and amortization	65		117
Interest expense, net	Interest expense, net	1,169		905		Interest expense, net	3,944		1,169
Income tax expense		91		50
Income tax (benefit) expense						Income tax (benefit) expense	(43)		91
Amortization of loan origination costs	Amortization of loan origination costs	13		—		Amortization of loan origination costs	28		13
EBITDA	EBITDA	14,053		7,435		EBITDA	20,146		14,053
Adjustments:	Adjustments:					Adjustments:
Provision for impairments		—		69
Gain on sales of real estate, net		(161)		—
Loss (gain) on sales of real estate, net						Loss (gain) on sales of real estate, net	319		(161)
EBITDAre	EBITDAre	13,892		7,504		EBITDAre	20,465		13,892
Adjustments:	Adjustments:					Adjustments:
Straight-line rent adjustments	Straight-line rent adjustments	(526)		(240)		Straight-line rent adjustments	(311)		(526)
Non-recurring severance and related charges						Non-recurring severance and related charges	13		—
Other non-recurring expenses (income)						Other non-recurring expenses (income)	(12)		—
Non-cash compensation expense	Non-cash compensation expense	1,045		557		Non-cash compensation expense	1,027		1,045
Adjusted EBITDAre	Adjusted EBITDAre	$	14,411	$	7,821	Adjusted EBITDAre	$	21,182	$	14,411

NOI and Cash NOI

NOI and Cash NOI are non-GAAP financial measures which we use to assess our operating results. We compute NOI as net income (computed in accordance with GAAP), excluding general and administrative expenses, interest expense (or income), income tax expense, transaction costs, depreciation and amortization, gains (or losses) ~~from the~~on sales of depreciable property, real estate impairment ~~charges~~losses, interest income on ~~depreciable real property, transaction costs,~~mortgage loans receivable, and other income (or expense). We further adjust NOI for non-cash revenue components of straight-line rent and amortization of ~~lease~~lease-related intangibles ~~and lease incentives~~ to derive Cash NOI. We believe NOI and Cash NOI provide useful and relevant information because they reflect only those income and expense items that are incurred at the property level and present such items on an unlevered basis.

NOI and Cash NOI are not measurements of financial performance under GAAP, and our NOI and Cash NOI may not be comparable to similarly titled measures of other companies. You should not consider our NOI and Cash NOI as alternatives to net income or cash flows from operating activities determined in accordance with GAAP.

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The following table sets forth a reconciliation of NOI and Cash NOI for the periods presented (in thousands):

Three Months Ended March 31,
2022 2021
(Unaudited)
Net income $ 1,966 $ 741
General and administrative 4,190 3,137
Depreciation and amortization 10,980 5,929
Provisions for impairment — 69
Transaction costs 165 151
Interest expense, net 1,169 905
Gain on sales of real estate, net (161) —
Income tax expense 91 50
Interest income on mortgage loan receivable (411) —
NOI 17,989 10,982
Straight-line rent adjustments (526) (240)
Amortization of above/below market lease intangibles (283) (190)
Amortization of lease incentives 118 —
Cash NOI $ 17,298 $ 10,552


	Three Months Ended March 31,
	2023		2022
	(Unaudited)
Net income	$	1,481	$	1,966
General and administrative	4,909		4,190
Depreciation and amortization	14,949		10,980
Transaction costs	109		165
Interest expense, net	3,944		1,169
Loss (gain) on sales of real estate, net	319		(161)
Income tax (benefit) expense	(43)		91
Interest income on mortgage loans receivable	(978)		(411)
Other income	(152)		—
NOI	24,538		17,989
Straight-line rent adjustments	(311)		(526)
Amortization of lease-related intangibles	(213)		(165)
Cash NOI	$	24,014	$	17,298

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our future income, cash flows and fair value relevant to our financial instruments ~~depends~~depend upon prevailing market interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates. Based upon the nature of our operations, the principal market risk to which we are exposed is the risk related to interest rate fluctuations. As of March 31, ~~2022,~~2023, we had total indebtedness of approximately $175.0 million under the 2024 Term Loan, $200.0 million under the 2028 Term Loan, and ~~$120.0~~$96.0 million of borrowings under the New Revolver, ~~both~~all of which are floating rate debt with a variable interest rate. For the three months ended March 31, ~~2022,~~2023, we had average daily outstanding borrowings on our New Revolver of ~~$118.8~~$69.2 million.

On September 28, 2020 and September 1, 2022, and effective through the maturity dates of December 23, 2024 and February 11, 2028, respectively, we entered into interest rate derivative contracts in order to hedge our market interest risk associated with the 2024 Term Loan and the 2028 Term Loan, respectively. On January 27, 2023, we executed an amendment to the Prior Credit Agreement that replaced the interest rate benchmark from LIBOR to Secured Overnight Financing Rate (“SOFR”). Additionally, on January 30, 2023 and effective through the maturity date of December ~~23,~~31, 2024, ~~the Company entered into an interest rate derivative in order to hedge its market interest risk~~we converted our four existing LIBOR swap agreements associated with the 2024 Term ~~Loan.~~Loan into four new SOFR swaps that convert the SOFR variable rate to a fixed rate of 0.12%. The interest rate derivative ~~converts~~contracts convert the variable rate debt on the ~~Term Loan~~term loans to a fixed interest rate ~~of 0.21%, plus a margin of 1.15%~~(as further described in “Note 6 - Debt” in our condensed consolidated financial statements).

Additionally, we will occasionally fund acquisitions through the use of our New Revolver which bears an interest rate determined by either (i) ~~LIBOR,~~SOFR, plus a SOFR adjustment of 0.10%, plus a margin ranging from ~~1.20%~~1.00% to ~~1.80%~~1.45%, based on ~~the Company’s~~our consolidated total leverage ratio, or (ii) a Base Rate (as defined in the New Credit Facility), plus a margin ranging from ~~0.20%~~0.00% to ~~0.80%~~0.45%, based on ~~the Company’s~~our consolidated total leverage ratio. Many factors, including governmental monetary and tax policies, domestic and international economic and political considerations, and other factors that are beyond our control contribute to our interest rate risk. Based on the results of our sensitivity analysis and daily outstanding borrowings on the New Revolver during ~~2022,~~2023, which assumes a 1% adverse change in the interest rate as of March 31, ~~2022,~~2023, the estimated market risk exposure ~~for the Revolver~~ was ~~less than $1.2~~approximately $0.7 million.

On March 5, 2021, the Financial Conduct Authority (“FCA”) announced that USD LIBOR will no longer be published after June 30, 2023. This announcement has several implications, including setting the spread that may be used to automatically convert contracts from LIBOR to the Secured Overnight Financing Rate (“SOFR”). Additionally, banking regulators have encouraged banks to discontinue new LIBOR debt issuances prior to December 31, 2021.

The Company anticipates that LIBOR will continue to be available at least until June 30, 2023. Any changes adopted by the FCA or other governing bodies in the method used for determining LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR. If that were to occur, our interest payments could change. In addition, uncertainty about the extent and manner of future changes may result in interest rates and/or payments that are higher or lower than if LIBOR were to remain available in its current form.

T ~~able of Contents~~

The Company’s Term Loan and Revolver, which mature on December 23, 2024 and December 23, 2023, respectively, are indexed to LIBOR, and provide for procedures for determining an alternative base rate. The Company continues to monitor and evaluate the related risks, including future negotiations with lenders and other counterparties. These risks arise in connection with transitioning contracts to an alternative rate, including any resulting value transfer that may occur, and are likely to vary by contract. The value of loans, securities, or derivative instruments tied to LIBOR, as well as interest rates on our current or future indebtedness, may also be impacted if LIBOR is limited or discontinued. For some instruments the method of transitioning to an alternative reference rate may be challenging, especially if we cannot agree with the respective counterparty about how to make the transition.

While we expect LIBOR to be available in substantially its current form until at least the end of June 30, 2023, it is possible that LIBOR will become unavailable prior to that point. This could result, for example, if sufficient banks decline to make submissions to the LIBOR administrator. In that case, the risks associated with the transition to an alternative reference rate will be accelerated and magnified.

Alternative rates and other market changes related to the replacement of LIBOR, including the introduction of financial products and changes in market practices, may lead to risk modeling and valuation challenges, such as adjusting interest rate accrual calculations and building a term structure for an alternative rate.

~~The introduction of an alternative rate also may create additional basis risk and increased volatility as alternative rates are phased in and utilized in parallel with LIBOR.~~

Adjustments to systems and mathematical models to properly process and account for alternative rates will be required, which may strain the model risk management and information technology functions and result in substantial incremental costs for the company.

~~Off-Balance Sheet Arrangements~~

As of March 31, 2022 and December 31, 2021, we did not have any off-balance sheet arrangements that have had or are reasonably likely to have a material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital resources or capital expenditures.

Item 4. Controls and Procedures

Disclosure Controls and Procedures.

At the end of the period covered by this report, the Company conducted an evaluation, under the supervision and with the participation of its principal executive officer and principal financial officer, of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, the Company’s principal executive officer and principal financial officer concluded that its disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.

Changes in Internal Control over Financial Reporting.

During the period covered by this report, there have been no changes in ~~our~~the Company’s internal control over financial reporting identified in connection with the evaluation described above that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may be party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of our business. We are not currently subject to any lawsuits, claims, or other legal proceedings.

Item 1A. Risk Factors

For a discussion of the most significant factors that may adversely affect us, see the information under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, which is accessible on the SEC’s website at www.sec.gov. There have been no material changes to the risk factors disclosed in the Annual Report. These risk factors may not describe every risk facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities and Use of Proceeds

None.

Company Stock Repurchases

None.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

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Item 6. Exhibits


Exhibit No.						Description
3.1						Articles of Amendment and Restatement of NETSTREIT Corp. (incorporated by reference to Exhibit 3.1 to the Registrant’s Registration Statement on Form S-11 (File No. 333-239911) filed on July 17, 2020).

3.2						Articles of Amendment of NETSTREIT Corp. (incorporated by reference to Exhibit 3.3 to the Registrant's Registration Statement on Form S-11 (File No. 333-239911) filed on July 17, 2020).

3.3						Amended and Restated Bylaws of NETSTREIT Corp. (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed on August 21, 2020).

~~10.1*†~~10.3†						Employment Agreement, dated March 24, 2023, between NETSTREIT Management, LLC and Daniel Donlan (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form ~~of NETSTREIT Corp. 2019 Omnibus Incentive Compensation Plan Post-Initial Public Offering Employee Restricted Stock Unit Grant Agreement.~~

~~10.2*†~~						~~Form of NETSTREIT Corp. 2019 Omnibus Incentive Compensation Plan (Alignment of Interest Program) Restricted Stock Unit Grant Agreement.~~8-K filed on April 3, 2023).

31.1*						Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*						Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*						Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*						Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS**						XBRL Instance Document.

101.SCH***						XBRL Taxonomy Extension Schema Document.

101.CAL***						XBRL Taxonomy Extension Calculation Linkbase Document.

101.LAB***						XBRL Taxonomy Extension Label Linkbase Document.

101.PRE***						XBRL Taxonomy Extension Presentation Linkbase Document.

101.DEF***						XBRL Taxonomy Extension Definition Linkbase Document.

104**						Cover Page Interactive Data File.


*						Filed herewith.
**						The XBRL Instance Document and Cover Page Interactive Data File do not appear in the Interactive Data File because their XBRL tags are embedded within the Inline XBRL document.
***						Submitted electronically with the report.
†						Management contract or compensatory plan or arrangement.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

NETSTREIT Corp.

April ~~28, 2022~~26, 2023

/s/ MARK MANHEIMER

Date

Mark Manheimer

President, Chief Executive Officer, Secretary and Director

(Principal Executive Officer)

April ~~28, 2022~~26, 2023

/s/ ~~ANDREW BLOCHER~~DANIEL DONLAN

Date

~~Andrew Blocher~~Daniel Donlan

Chief Financial Officer ~~Treasurer~~ and ~~Secretary~~Treasurer

(Principal Financial Officer)

April ~~28, 2022~~26, 2023

/s/ PATRICIA ~~MCBRATNEY~~GIBBS

Date

Patricia ~~McBratney~~Gibbs

Senior Vice President and Chief Accounting Officer

(Principal Accounting Officer)

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	Payment Due by Period
	Total		From April 1, 2022 to December 31, 2022		1 – 3 Years		3 – 5 Years
Contractual Obligations
Term Loan – Principal	$	175,000	$	—	$	175,000	$	—
Term Loan – Variable interest (1)	6,482		1,782		4,700		—
Revolver – Borrowings	120,000		—		120,000		—
Revolver – Variable interest	3,410		1,480		1,930
Unutilized borrowing fees on Revolver (2)	562		244		318		—
Property development under contract	20,902		20,902		—
Corporate office lease obligations	6,570		150		1,150		5,270
Total	$	332,926	$	24,558	$	303,098	$	5,270