Executive Summary / Key Takeaways

• Disciplined Growth & Portfolio Optimization: NETSTREIT Corp. (NTST) is executing a focused strategy of acquiring high-quality, e-commerce-resistant single-tenant retail properties, complemented by strategic dispositions to enhance diversification and accretively recycle capital.
• Robust Q2 2025 Performance: The company delivered strong second-quarter results, with gross investments of $117.1 million at a record 7.8% cash yield, alongside $60.4 million in dispositions at a 6.5% yield, contributing to a 3.1% year-over-year AFFO per share increase to $0.33.
• Enhanced Financial Flexibility: Recent debt amendments, including an upsized Revolver and new term loans, coupled with active ATM equity programs, bolster liquidity and provide ample capacity for future investments while maintaining a healthy leverage profile (4.6x adjusted net debt to annualized Adjusted EBITDAre).
• Underwriting Prowess & Risk Mitigation: NTST's "best-in-class" underwriting, leveraging technology and asymmetrical information to assess unit-level performance and real estate fungibility, has resulted in minimal credit losses (4 basis points since inception) despite tenant-specific headlines.
• Positive Outlook & Dividend Growth: Management raised its 2025 AFFO per share guidance to $1.29-$1.31 and increased net investment guidance to $125-$175 million, signaling confidence in its ability to generate per-share earnings growth and deliver a growing dividend (Q3 2025 dividend up 2.4%).

A Foundation of Resilience: NETSTREIT's Strategic Blueprint

NETSTREIT Corp., established in late 2019, quickly positioned itself as an internally managed real estate investment trust specializing in single-tenant net lease retail properties across the United States. From its inception, the company's core strategy has revolved around acquiring, owning, and managing a diversified portfolio of properties leased to high-credit-quality tenants. This foundational approach, coupled with investments in property developments and mortgage loans secured by real estate, has shaped its current market standing.

The company's strategic focus is firmly rooted in "defensive retail industries," encompassing necessity goods and essential services such as home improvement, auto parts, drug stores, grocers, convenience stores, discount stores, and quick-service restaurants. This deliberate concentration on e-commerce-resistant sectors aims to provide stable, recurring cash flows, a critical differentiator in a dynamic retail landscape. As of June 30, 2025, NTST's portfolio comprised 707 properties across 45 states, boasting a 99.9% occupancy rate and a weighted average remaining lease term (WALT) of 9.8 years.

Competitive Edge: Underwriting with Precision

In a competitive landscape dominated by larger, more established net lease REITs like Realty Income , NNN REIT , and Spirit Realty Capital (SRC), NETSTREIT carves out its niche through a highly disciplined and technologically informed underwriting process. While these larger peers benefit from scale and broader diversification, NTST's internal management structure and specialized focus allow for agility and a deeper dive into asset-level fundamentals. The company's approach to acquisitions often bypasses traditional auction processes, favoring off-market or relationship-driven deals that yield attractive risk-adjusted returns.

NTST's competitive moat is significantly strengthened by its unique application of technology and asymmetrical information in underwriting. This is not a product technology, but rather an advanced analytical capability that enables the company to "decipher the unit-level productivity of our locations and the strength of our real estate." By utilizing tools like Placer.ai for foot traffic analysis and engaging in direct, ongoing dialogue with tenants, NTST gains granular insights into a property's cash flow generation relative to its rent. This allows the company to identify locations where the rent is replaceable, even if a tenant faces corporate challenges, thereby mitigating risk. The tangible benefit is a "best-in-class default and credit loss statistics," with an average credit loss of just 4 basis points since inception, including zero credit losses during the COVID-19 pandemic. This contrasts with the broader market, where larger, more diversified portfolios may experience higher credit events due to less granular underwriting.

Financially, NTST's operational efficiency is evident. Its Gross Profit Margin (TTM) stands at 94.90%, and EBITDA Margin (TTM) at 55.74%, demonstrating strong property-level profitability. While its Net Profit Margin (TTM) is negative at -3.32% (common for REITs due to significant depreciation expenses), its focus on Funds From Operations (FFO) and Adjusted FFO (AFFO) provides a clearer picture of its economic profitability and cash flow generation. For comparison, Realty Income (O) has a Gross Profit Margin of 93% and NNN REIT (NNN) at 96%, indicating NTST's competitive standing in core operational efficiency, despite its smaller scale.

Strategic Capital Allocation and Portfolio Evolution

NETSTREIT's growth narrative is deeply intertwined with its strategic capital allocation. The company has consistently demonstrated a commitment to "accretively recycling" capital, selling non-core assets to fund new, higher-quality investments. In the second quarter of 2025, this strategy was in full display, with $117.1 million in gross investments at a record 7.8% cash yield, significantly higher than the 6.5% blended cash yield on $60.4 million of dispositions. This accretive spread underscores management's ability to enhance portfolio quality while generating value.

The company's disciplined approach extends to its balance sheet. As of June 30, 2025, NTST maintained a robust liquidity position of $594 million, comprising $20 million in cash, $373 million available on its revolving credit facility, and $202 million in unsettled forward equity. Its adjusted net debt to annualized Adjusted EBITDAre stood at a healthy 4.6x, well within its targeted range of 4.5x to 5.5x. Recent debt amendments in January 2025, including an upsized Revolver to $500 million and new term loans, have extended debt maturities, with no material debt maturing until February 2028 (including extension options), providing significant financial flexibility.

A key strategic initiative is the ongoing reduction of tenant concentrations. NTST aims to have no tenant above 5% of Annualized Base Rent (ABR) by year-end, with a specific target of reducing Walgreens (WBA) exposure below 3%. This proactive management is a direct response to macroeconomic pressures and tenant-specific headlines, particularly in the pharmacy sector, which faces challenges from decreasing drug reimbursement rates. Despite these industry headwinds, NTST's underwriting has proven resilient. For instance, its Big Lots (BIG) exposure, which entered bankruptcy in September 2024, resulted in minimal economic impact. Six of seven locations were assumed by Variety Wholesalers (an investment-grade profile tenant), and the remaining site is expected to be re-leased at or above prior rent, with no anticipated downtime for the assumed locations. This outcome highlights the strength of NTST's unit-level underwriting and asset management capabilities.

Outlook and Forward Momentum

Looking ahead, NETSTREIT's management has expressed confidence in its trajectory, raising its 2025 AFFO per share guidance midpoint by $0.01 to a new range of $1.29 to $1.31. Concurrently, net investment guidance for 2025 was increased by $50 million at the midpoint, now ranging from $125 million to $175 million. This increased investment pace, while mindful of the cost of capital, is supported by management's assessment that deploying $150 million to $200 million in net acquisitions quarterly is "certainly doable" given current market opportunities and the team's capabilities.

While the record 7.8% cash yield on Q2 2025 acquisitions is not expected to repeat, future investment opportunities are projected to blend to a solid 7.4% to 7.5% cash yield. This reflects a continued focus on high-quality assets, including a potential shift towards a higher mix of investment-grade or investment-grade profile tenants. The company's guidance also incorporates a conservative 25 basis points for unknown rent loss, a testament to its robust portfolio and proactive risk management. Furthermore, NTST's commitment to shareholder returns is evident in its recent 2.4% increase in the quarterly cash dividend to $0.215 per share for Q3 2025.

The pursuit of an investment-grade credit rating, with preliminary discussions planned for the latter half of 2025, represents another potential catalyst. Achieving this rating could lead to approximately 30 basis points of savings across its debt, further enhancing its cost of capital and investment spreads. While macroeconomic conditions, including fluctuating interest rates and consumer spending trends, remain a risk, NTST's focus on defensive retail and its proven ability to manage tenant-specific challenges position it favorably to weather potential economic slowdowns.

Conclusion

NETSTREIT Corp. stands as a compelling investment in the net lease retail REIT sector, distinguished by its disciplined growth, strategic capital allocation, and a robust underwriting methodology that leverages technology for deep asset-level insights. The company's ability to consistently generate accretive spreads on acquisitions, even while systematically de-risking its portfolio through targeted dispositions, underscores its operational excellence. Recent financial performance, marked by strong revenue growth and a raised AFFO guidance, reflects the tangible benefits of this strategy.

As NTST continues to execute its diversification goals and potentially achieves an investment-grade credit rating, its cost of capital is poised for further improvement, enabling sustained per-share earnings growth. The company's proactive asset management, demonstrated by its minimal credit losses and successful navigation of tenant distress, provides a strong foundation for future stability. For investors seeking a resilient, growth-oriented REIT with a proven track record of value creation through meticulous underwriting and strategic portfolio management, NETSTREIT presents a compelling opportunity.