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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, 2024
OR
    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)

Maryland84-3356606
(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 ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Common stock, par value $0.01 per shareNTSTThe 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 filerAccelerated filer
Non-accelerated filerSmaller 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, 2024 was 73,366,371.




NETSTREIT CORP. AND SUBSIDIARIES
TABLE OF CONTENTS

Page







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, 2024December 31, 2023
Assets
Real estate, at cost:
Land$472,330 $460,896 
Buildings and improvements1,209,333 1,149,809 
Total real estate, at cost1,681,663 1,610,705 
Less accumulated depreciation(110,632)(101,210)
Property under development21,800 29,198 
Real estate held for investment, net1,592,831 1,538,693 
Assets held for sale58,856 52,451 
Mortgage loans receivable, net124,617 114,472 
Cash, cash equivalents and restricted cash22,334 29,929 
Lease intangible assets, net165,507 161,354 
Other assets, net61,402 49,337 
Total assets$2,025,547 $1,946,236 
Liabilities and equity
Liabilities:
Term loans, net$621,500 $521,912 
Revolving credit facility75,000 80,000 
Mortgage note payable, net7,876 7,883 
Lease intangible liabilities, net24,639 25,353 
Liabilities related to assets held for sale1,110 1,158 
Accounts payable, accrued expenses and other liabilities26,265 36,498 
Total liabilities756,390 672,804 
Commitments and contingencies (Note 12)
Equity:
Stockholders’ equity
Common stock, $0.01 par value, 400,000,000 shares authorized; 73,328,411 and 73,207,080 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively
733 732 
Additional paid-in capital1,368,312 1,367,505 
Distributions in excess of retained earnings(126,270)(112,276)
Accumulated other comprehensive income18,020 8,943 
Total stockholders’ equity1,260,795 1,264,904 
Noncontrolling interests8,362 8,528 
Total equity1,269,157 1,273,432 
Total liabilities and equity$2,025,547 $1,946,236 


The accompanying notes are an integral part of these condensed consolidated financial statements.
3

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,
20242023
Revenues
Rental revenue (including reimbursable)$35,189 $28,474 
Interest income on loans receivable2,484 978 
Total revenues37,673 29,452 
Operating expenses
Property4,102 3,936 
General and administrative5,707 4,909 
Depreciation and amortization17,541 14,949 
Provisions for impairment3,662  
Transaction costs129 109 
Total operating expenses31,141 23,903 
Other (expense) income
Interest expense, net(6,180)(3,944)
Gain (loss) on sales of real estate, net997 (319)
Other (expense) income, net(280)152 
Total other (expense) income, net(5,463)(4,111)
Net income before income taxes1,069 1,438 
Income tax (expense) benefit(17)43 
Net income1,052 1,481 
Net income attributable to noncontrolling interests7 9 
Net income attributable to common stockholders$1,045 $1,472 
Amounts available to common stockholders per common share:
Basic$0.01 $0.03 
Diluted$0.01 $0.03 
Weighted average common shares:
Basic73,248,804 58,155,738 
Diluted74,565,790 58,883,386 
Other comprehensive income:
Net income$1,052 $1,481 
Change in value on derivatives, net9,128 (5,979)
Total comprehensive income (loss)10,180 (4,498)
Comprehensive income (loss) attributable to noncontrolling interests58 (40)
Comprehensive income (loss) attributable to common stockholders$10,122 $(4,458)


The accompanying notes are an integral part of these condensed consolidated financial statements.
4


NETSTREIT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands, except share data)
(Unaudited)

Common stock
SharesPar ValueAdditional
Paid-in Capital
Distributions in Excess of Retained EarningsAccumulated Other Comprehensive IncomeTotal Stockholders’ EquityNoncontrolling InterestsTotal Equity
Balance at December 31, 202373,207,080 $732 $1,367,505 $(112,276)$8,943 $1,264,904 $8,528 $1,273,432 
OP Units converted to common stock7,119 — 126 — — 126 (126) 
Dividends and distributions declared on common stock and OP units— — — (15,031)— (15,031)(98)(15,129)
Dividends declared on restricted stock, net— — — (143)— (143)— (143)
Vesting of restricted stock units176,197 2 (2)— — — —  
Repurchase of common stock for tax withholding obligations(61,985)(1)(1,068)— — (1,069)— (1,069)
Stock-based compensation, net— — 1,751 135 1,886 — 1,886 
Other comprehensive income— — — — 9,077 9,077 51 9,128 
Net income— — — 1,045 — 1,045 7 1,052 
Balance at March 31, 202473,328,411 $733 $1,368,312 $(126,270)$18,020 $1,260,795 $8,362 $1,269,157 

Common stock
SharesPar ValueAdditional
Paid-in Capital
Distributions in Excess of Retained EarningsAccumulated Other Comprehensive IncomeTotal Stockholders’ EquityNoncontrolling InterestsTotal Equity
Balance at December 31, 202258,031,879$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 costs2,759,48128 52,875 — — 52,903 — 52,903 
OP Units converted to common stock5,694— 105 — — 105 (105) 
Dividends and distributions declared on common stock and OP units— — (11,650)— (11,650)(101)(11,751)
Dividends declared on restricted stock, net— — (122)— (122)— (122)
Vesting of restricted stock units83,4281 (1)— — — —  
Repurchase of common stock for tax withholding obligations(18,016)— (360)— — (360)— (360)
Stock-based compensation, net— 1,027 — 1,027 — 1,027 
Other comprehensive loss— — — (5,930)(5,930)(49)(5,979)
Net income— — — 1,472 — 1,472 9 1,481 
Balance at March 31, 202360,862,466 $609 $1,145,160 $(77,237)$17,743 $1,086,275 $9,347 $1,095,622 


The accompanying notes are an integral part of these condensed consolidated financial statements.
5

NETSTREIT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

Three Months Ended
March 31,
20242023
Cash flows from operating activities
Net income$1,052 $1,481 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization17,541 14,949 
Amortization of deferred financing costs558 308 
Amortization of above/below-market assumed debt29 29 
Noncash revenue adjustments(583)(509)
Amortization of deferred gains on interest rate swaps(979) 
Stock-based compensation expense1,751 1,027 
(Gain) loss on sales of real estate, net(997)319 
Provisions for impairment3,662  
Loss (gain) on involuntary conversion of buildings and improvements414 (12)
Changes in assets and liabilities, net of assets acquired and liabilities assumed:
Other assets, net(4,015)(1,845)
Accounts payable, accrued expenses and other liabilities(6,782)(441)
Lease incentive payments (500)
Net cash provided by operating activities11,651 14,806 
Cash flows from investing activities
Acquisitions of real estate(95,153)(67,717)
Real estate development and improvements(12,281)(2,480)
Investment in mortgage loans receivable(10,191)(45,917)
Principal collections on mortgage loans receivable7  
Earnest money deposits(42)(1,773)
Purchase of computer equipment and other corporate assets(8) 
Proceeds from sale of real estate20,466 15,463 
Proceeds from the settlement of property-related insurance claims 12 
Net cash used in investing activities(97,202)(102,412)
Cash flows from financing activities
Issuance of common stock in public offerings, net 52,903 
Payment of common stock dividends(15,031)(11,650)
Payment of OP unit distributions(98)(101)
Payment of restricted stock dividends(384)(92)
Principal payments on mortgages payable(39)(26)
Proceeds under revolving credit facilities82,000 99,000 
Repayments under revolving credit facilities(87,000)(116,000)
Proceeds from term loans100,000  
Repurchase of common stock for tax withholding obligations(1,069)(360)
Deferred offering costs(423)(15)
Net cash provided by financing activities77,956 23,659 
Net change in cash, cash equivalents and restricted cash(7,595)(63,947)
Cash, cash equivalents and restricted cash at beginning of the period29,929 70,543 
Cash, cash equivalents and restricted cash at end of the period$22,334 $6,596 
Supplemental disclosures of cash flow information:
Cash paid for interest$6,536 $3,641 
Supplemental disclosures of non-cash investing and financing activities:
Dividends declared and unpaid on restricted stock, net$7 $122 
Deferred offering costs included in accounts payable, accrued expenses and other liabilities$107 $ 
Cash flow hedge change in fair value$10,107 $(5,979)
Accrued capital expenditures and real estate development and improvement costs$1,110 $2,516 


The accompanying notes are an integral part of these condensed consolidated financial statements.
6

NETSTREIT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1 – Organization and Description of Business

NETSTREIT Corp. (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, invests in 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. As of March 31, 2024, the Company owned or had investments in 628 properties, located in 45 states, excluding 16 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”) and the rules and regulations of the U.S. Securities and Exchange Commission (“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 SEC. These unaudited interim condensed consolidated financial statements do not include all of the information and notes required by 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, 2023, 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, 2024 and 2023 are not necessarily indicative of the results for the full year.

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. Actual results could differ from those estimates.


7

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 discount rates, 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 2 and 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,
20242023
Total provision for impairment$3,662 $ 
Number of properties: (1)
Classified as held for sale4 
Disposed within the period2
(1) Includes the number of properties that were either (i) impaired during the period on the held for sale classification date and remained as held for sale as of period-end or (ii) impaired and disposed of during the respective period. Excludes properties that did not have impairment recorded during the period. Of the total provision for impairment during the three months ended March 31, 2024, the Company recorded $0.3 million of additional impairment expense on two properties that were classified as held for sale in prior periods, and $2.2 million of impairment expense on four properties held for investment.

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 in the condensed consolidated balance sheets. The Company had $0.7 million restricted cash as of March 31, 2024, and $11.5 million of restricted cash as of December 31, 2023.

The Company’s bank balances as of March 31, 2024 and December 31, 2023 included certain amounts over the Federal Deposit Insurance Corporation limits.

Fair Value Measurement

Fair value measurements are utilized in the accounting of the Company’s assets acquired and liabilities assumed in an asset acquisition and also affect 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 and Level 3 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.”

8

Additionally, companies are required to disclose the 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, 2024 and December 31, 2023. These estimates require management’s judgment and may not be indicative of the future fair values of the assets and liabilities.

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. Additionally, the Company believes the following financial instruments have carrying values that approximate their fair values as of March 31, 2024:

Borrowings under the Company’s Revolver (as defined in “Note 6 - Debt”) approximate fair value based on their nature, terms and variable interest rates.
Carrying values of the Company’s mortgage loans receivable approximate fair values based on a number of 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.

Provisions for impairment recognized during the three months ended March 31, 2024 partially related to assets held for sale where impairment was determined based on the estimated or negotiated selling price, less costs of disposal, compared to the carrying value of the property. Of the total provision for impairment during the three months ended March 31, 2024, the Company also recorded $2.2 million of impairment expense on four properties held for investment. These properties were accounted for at fair value on a nonrecurring basis using a cash flow model (Level 3 inputs) with adjusted carrying values ranging from $0.6 million to $1.6 million. The Company estimated the fair value using capitalization rates ranging from 9.0% to 12.1% which it believes is reasonable based on current market rates. As of December 31, 2023, there were two real estate assets held for investment accounted for at fair value. Of these properties, one was accounted for at fair value on a nonrecurring basis using a cash flow model (Level 3 inputs) with an adjusted carrying value of $1.5 million.

The following table discloses estimated fair value information for the Company’s 2027 Term Loan, 2028 Term Loan, and 2029 Term Loan (each as defined in “Note 6 - Debt”) which is derived based primarily on unobservable market inputs such as interest rates and discounted cash flow analysis using estimates of the amount and timing of future cash flows, market rates and credit spreads (in thousands):

March 31, 2024December 31, 2023
Carrying Value (1)
Estimated Fair Value
Carrying Value (1)
Estimated Fair Value
2027 Term Loan$174,155 $172,770 $174,037 $175,641 
2028 Term Loan199,066 198,101 199,006 201,396 
2029 Term Loan248,279 247,002 148,869 150,666 
(1) The carrying value of the debt instruments are net of unamortized debt issuance and discount costs.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company 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 facilities, amounts due under mortgage 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, 2024, one tenant, Dollar General, accounted for 10.43% of total revenues. During the three months ended March 31, 2023, there were no tenants or borrowers with rental revenue or interest income on loans receivable that exceeded 10% of total rental revenue.


9

Segment Reporting

ASC Topic 280, Segment Reporting, establishes standards for the manner in which companies report information about operating segments. Substantially all of the Company’s investments, at acquisition, are comprised of real estate owned that is leased to tenants on a long-term basis or real estate that secures the Company's investment in mortgage loans receivable. The Company allocates resources and assesses operating performance based on individual investment and property needs. Therefore, the Company aggregates these investments for reporting purposes and operates in one reportable segment.

Recent Accounting Pronouncements Issued But Not Yet Adopted

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”). ASU 2023-07 is intended to improve reportable segment disclosures by requiring disclosure of incremental segment information on an annual and interim basis such as, annual and interim disclosure of significant segment expenses that are regularly provided to the chief operating decision maker, interim disclosure of a reportable segment’s profit or loss and assets, and the requirement that a public entity that has a single reportable segment provide all the disclosures required by ASU 2023-07 and all existing segment disclosures in Topic 280. The amendments in ASU 2023-07 do not change how a public entity identifies its operating segments, aggregates those operating segments, or applies the quantitative thresholds to determine its reportable segments. The amendments in ASU 2023-07 are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The disclosures are applied retrospectively to all periods presented and early adoption is permitted. The Company has one reportable segment and continues to evaluate additional disclosures that may be required for entities with a single reportable segment.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 requires annual disclosure of specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold within the rate reconciliation. In addition, the amendments require annual disclosure of income taxes paid disaggregated by federal, state and foreign jurisdictions as well as individual jurisdictions in which income taxes paid is equal to or greater than 5 percent of total income taxes paid. ASU 2023-09 is effective for annual periods beginning after December 15, 2024 on a prospective basis, however early adoption and retrospective application is permitted. The Company continues to evaluate the potential impact of the guidance and potential additional disclosures required.

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, 2024, exclusive of mortgage loans receivable, the Company’s weighted average remaining lease term was 9.2 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, write-offs, or recoveries for uncollectible amounts.

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.


10

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

Three Months Ended March 31,
20242023
Rental revenue
Fixed lease income (1)
$31,865 $24,723 
Variable lease income (2)
3,228 3,538 
Other rental revenue:
Above/below market lease amortization, net287 412 
Lease incentives(191)(199)
Rental revenue (including reimbursable)$35,189 $28,474 

(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 no material reserves, write-offs, or recoveries of uncollectible amounts during the three months ended March 31, 2024 and March 31, 2023.

Scheduled future minimum base rental payments (excluding base rental payments from properties classified as held for sale and 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, 2024 are as follows (in thousands):

Future Minimum Base
Rental Receipts
Remainder of 2024$94,421 
2025125,888 
2026123,362 
2027119,701 
2028112,884 
Thereafter615,487 
Total$1,191,743 

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 or other stipulated reference rate.

Note 4 – Real Estate Investments

As of March 31, 2024, the Company owned or had investments in 628 properties, excluding 16 property developments where rent has yet to commence. The gross real estate investment portfolio, including properties under development, totaled approximately $1.9 billion and consisted of the gross acquisition cost of land, buildings, improvements, lease intangible assets and liabilities, and property development costs. The investment portfolio is geographically dispersed throughout 45 states with gross real estate investments in Illinois and Texas representing 9.4% and 8.8%, respectively, of the total gross real estate investment of the Company’s investment portfolio.

Acquisitions
    
During the three months ended March 31, 2024, the Company acquired 28 properties for a total purchase price of $95.2 million, inclusive of $1.2 million of capitalized acquisition costs.

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.

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):

11

Three Months Ended March 31,
20242023
Land$16,608 $14,304 
Buildings59,379 43,133 
Site improvements6,428 3,479 
Tenant improvements1,445 391 
In-place lease intangible assets11,293 6,410 
Purchase price (including acquisition costs)$95,153 $67,717 

Development

As of March 31, 2024, the Company had 13 property developments under construction. During the three months ended March 31, 2024, the Company invested $11.0 million in property developments, including the land acquisition of two new developments with a combined initial purchase price of $0.8 million. During the three months ended March 31, 2024, the Company completed development on seven projects and reclassified approximately $18.4 million from property under development to land, buildings and improvements, and other assets (leasing commissions) in the accompanying condensed consolidated balance sheets. Rent commenced for four of the seven completed developments in the first quarter of 2024, while rent is expected to commence for the other three completed developments in the second quarter of 2024. The remaining 13 developments are expected to be substantially completed with rent commencing at various points throughout 2024. 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, 2024.

During the three months ended March 31, 2023, the Company invested $4.5 million in property developments. During the three months ended March 31, 2023, the Company completed development on two projects and reclassified approximately $14.8 million from property under development to land, buildings and improvements in the accompanying condensed consolidated balance sheets. Rent commenced for the completed developments in the first quarter of 2023. The purchase price, including acquisitions costs, and subsequent development are included in property under development in the accompanying condensed consolidated balance sheets as of March 31, 2023.

Additionally, during the three months ended March 31, 2024 and 2023, the Company capitalized approximately $0.4 million and $0.1 million, respectively, of interest expense associated with properties under development.

Dispositions

During the three months ended March 31, 2024, the Company sold 12 properties for a total sales price, net of disposal costs, of $20.5 million, recognizing a net gain of $1.0 million.

During the three months ended March 31, 2023, the Company sold eight properties for a total sales price, net of disposal costs, of $15.5 million, recognizing a net loss of $0.3 million.


12

Investment in Mortgage Loans Receivable

The Company’s mortgage loans receivable portfolio as of March 31, 2024 and December 31, 2023 is summarized below (in thousands):

Loan Type
Monthly Payment (1)
Number of Secured Properties
Effective Interest Rate (2)
Stated Interest RateMaturity DateMarch 31, 2024December 31, 2023
Mortgage (3) (4) (5)
I/O16.74%7.00%4/8/2024$43,612 $43,612 
Mortgage (4)
I/O469.55%9.55%3/10/202641,940 41,940 
Mortgage (4) (6)
I/O38.10%6.89%4/10/20264,132 4,132 
Mortgage (3) (4) (6)
I/O97.59%7.59%6/10/202514,023 14,024 
Mortgage
None (7)
18.50%8.50%12/29/2024660 660 
Mortgage (3)
P+I17.50%7.50%1/8/20253,239 3,246 
Mortgage (3) (4) (8)
I/O1110.22%10.25%3/19/202514,209 5,007 
Mortgage (3) (4)
I/O210.25%10.25%12/22/20242,915 1,909 
Total124,730 114,530 
Unamortized loan origination costs and fees, net(10)58 
Unamortized discount(103)(116)
Total mortgage loans receivable, net$124,617 $114,472 

(1) I/O: Interest Only; P+I: Principal and Interest.
(2) Includes amortization of discount and loan origination costs, as applicable.
(3) The Company has the right, subject to certain terms and conditions, to acquire all or a portion of the underlying collateralized properties.
(4) 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 will be repaid at or before the maturity date.
(5) The $43.6 million mortgage note receivable was scheduled to mature on April 8, 2024, however, the Company executed an amendment in April 2024 that extended the maturity date to January 8, 2025.
(6) The stated interest rate is variable up to 15.0% and is calculated based on contractual rent for existing collateralized properties subject to the loan agreement.
(7) Payments of both interest and principal are due at maturity.
(8) The collateralized properties are in process developments with varying maturity dates dependent upon initial funding. Maturity dates range from December 5, 2024 to March 19, 2025.

Assets Held for Sale

As of March 31, 2024 and December 31, 2023, there were 23 properties classified as held for sale.

Provisions for Impairment

The Company recorded provisions for impairment of $3.7 million on 12 properties for the three months ended March 31, 2024. The Company recorded no provisions for impairment for the three months ended March 31, 2023.


13

Note 5 – Intangible Assets and Liabilities

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

March 31, 2024December 31, 2023
Gross
Carrying
Amount
Accumulated AmortizationNet Carrying AmountGross
Carrying
Amount
Accumulated AmortizationNet Carrying Amount
Assets:
In-place leases$190,133 $(48,667)$141,466 $181,564 $(45,210)$136,354 
Above-market leases21,635 (4,749)16,886 21,661 (4,361)17,300 
Lease incentives8,577 (1,422)7,155 8,996 (1,296)7,700 
Total intangible assets$220,345 $(54,838)$165,507 $212,221 $(50,867)$161,354 
Liabilities:   
Below-market leases$33,170 $(8,531)$24,639 $33,196 $(7,843)$25,353 

The remaining weighted average amortization period for the Company’s intangible assets and liabilities as of March 31, 2024 and as of December 31, 2023 by category were as follows:

Years Remaining
March 31, 2024December 31, 2023
In-place leases8.98.8
Above-market leases12.012.2
Below-market leases10.710.9
Lease incentives10.811.1

The Company records amortization of in-place lease 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 intangible assets and liabilities for all property and ground leases (in thousands):

Three Months Ended March 31,
20242023
Amortization:
Amortization of in-place leases$4,875 $4,670 
Amortization of assembled workforce  
$4,875 $4,670 
Net adjustment to rental revenue:
Above-market lease assets(416)(371)
Below-market lease liabilities702 783 
Lease incentives(191)(199)
$95 $213 

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The following table provides the projected amortization of in-place lease assets to amortization expense and the net amortization of above-market, below-market, and lease incentive lease intangible assets and liabilities to rental revenue as of March 31, 2024, for the next five years and thereafter (in thousands):

Remainder of 2024
2025202620272028ThereafterTotal
In-place leases$15,531 $20,386 $19,153 $17,160 $14,356 $54,880 $141,466 
Above-market lease assets(1,241)(1,655)(1,632)(1,568)(1,523)(9,267)(16,886)
Below-market lease liabilities2,098 2,776 2,686 2,615 2,483 11,981 24,639 
Lease incentives(564)(752)(752)(696)(666)(3,725)(7,155)
Net adjustment to rental revenue$293 $369 $302 $351 $294 $(1,011)$598 

Note 6 – Debt

Debt consists of the following (in thousands):
Amounts Outstanding as of
Contractual Maturity Date
Fully Extended Maturity Date (1)
Interest Rate (2)
March 31, 2024December 31, 2023
Debt:
2027 Term Loan (3)
January 15, 2026January 15, 20273.12%$175,000 $175,000 
2028 Term Loan (4)
February 11, 20283.88%200,000 200,000 
2029 Term Loan (5)
July 3, 2026January 3, 20294.99%250,000 150,000 
Revolver (6)
August 11, 2026August 11, 20276.42%75,000 80,000 
Mortgage NoteNovember 1, 20274.53%8,322 8,361 
Total debt708,322 613,361 
Unamortized discount and debt issuance costs(3,946)(3,566)
Unamortized deferred financing costs, net (7)
(1,757)(1,942)
Total debt, net$702,619 $607,853 
(1) Date represents the fully extended maturity date available to the Company, subject to certain conditions, under each related debt instrument.
(2) Rate represents the effective interest rate as of March 31, 2024 and includes the effect of interest rate swap agreements, as described further in “Note 6 - Debt” and “Note 7 - Derivative Financial Instruments.”
(3) Loan is a floating-rate loan which resets daily at daily SOFR plus a SOFR adjustment of 0.10% plus the applicable margin which was 1.15% as of March 31, 2024. The Company has entered into five interest rate swap agreements that effectively convert the floating rate to a fixed rate. The hedged fixed rate reset effective November 27, 2023 to 1.87% and will reset again effective December 23, 2024 to 2.40%.
(4) 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, 2024. The Company has entered into three interest rate swap agreements that effectively convert the floating rate to a fixed rate.
(5) Loan is a floating-rate loan which resets daily at daily SOFR plus a SOFR adjustment of 0.10% plus the applicable margin which was 1.15% as of March 31, 2024. The Company has entered into four interest rate swap agreements that effectively convert the floating rate to a fixed rate.
(6) The annual interest rate of the Revolver assumes daily SOFR as of March 31, 2024 of 5.32% plus a SOFR adjustment of 0.10% plus the applicable margin which was 1.00% as of March 31, 2024.
(7) The Company records deferred financing costs associated with the Revolver in other assets, net on its condensed consolidated balance sheets. The Company reclassed the net amount of loan commitment fees associated with the 2029 Term Loan from other assets, net to debt issuance costs upon the $100.0 million draw under the 2029 Term Loan.

2029 Term Loan

On July 3, 2023, the Company entered into an agreement (the “2029 Term Loan Agreement”) related to a $250.0 million sustainability-linked senior unsecured term loan (the “2029 Term Loan”) which may, subject to the terms of the 2029 Term Loan Agreement, be increased to an amount of up to $400.0 million at the Company’s request. The 2029 Term Loan contains a 12-month delayed draw feature and $150.0 million was drawn on July 3, 2023. The 2029 Term Loan is prepayable at the Company’s option in whole or in part without premium or penalty. The 2029 Term Loan matures on July 3, 2026, subject to extension options at the Company’s election on two occasions, by one year and, on one occasion, by six months (subject to certain conditions). Subject to the terms of the 2029 Term Loan Agreement, the Company drew an additional $100.0 million under the 2029 Term Loan on March 1, 2024.

The interest rate applicable to the 2029 Term Loan is determined by the Company’s Investment Grade Rating (as defined in the 2029 Term Loan Agreement). Prior to the date the Company obtains an Investment Grade Rating, interest shall accrue at either
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(i) SOFR, plus a margin ranging from 1.15% to 1.60% or (ii) Base Rate (as defined in the 2029 Term Loan Agreement), plus a margin ranging from 0.15% to 0.60%, in each case based on the Company’s consolidated total leverage ratio. After the date the Company obtains an Investment Grade Rating, interest shall accrue at either (i) SOFR, plus a margin ranging from 0.80% to 1.60% or (ii) Base Rate, plus a margin ranging from 0.00% to 0.60%, in each case based on the Company’s Investment Grade Rating.

The Company has hedged the entire $250.0 million of the 2029 Term Loan at an all-in fixed interest rate of 4.99%, through January 2029, which consists of a fixed SOFR rate of 3.74%, plus a credit spread adjustment of 0.10% and, at current leverage levels, a borrowing spread of 1.15%. Interest is payable monthly or at the end of the applicable interest period in arrears on any outstanding borrowings.

The 2029 Term Loan also contains 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 based rent attributable to tenants with commitments or quantifiable targets for reduced GHG emission in accordance with the standards of the Science Based Targets initiative (“SBTi”).

In connection with the 2029 Term Loan, the Company incurred $1.4 million of deferred financing costs. Additionally, the Company incurred $0.9 million of loan commitment fees associated with the 2029 Term Loan, which were capitalized to other assets, net on the condensed consolidated balance sheets and subsequently reclassed to debt issuance costs upon the $100.0 million draw under the 2029 Term Loan. Deferred financing costs are amortized over the term of the loan and are included in interest expense, net on the Company’s condensed consolidated statements of operations and comprehensive income (loss).

Credit Facility

On August 11, 2022, the Company entered into a sustainability-linked senior unsecured credit facility consisting of (i) a $200.0 million senior unsecured term loan (the “2028 Term Loan”) and (ii) a $400.0 million senior unsecured revolving credit facility (the “Revolver”, and together with the 2028 Term Loan, the “Credit Facility”). The Credit Facility may be increased by $400.0 million in the aggregate for total availability of up to $800.0 million.

The 2028 Term Loan matures on February 11, 2028. The Revolver matures on August 11, 2026, subject to a one year extension option at the Company’s election (subject to certain conditions) to August 11, 2027. Borrowings under the Credit Facility are repayable at the Company’s option in whole or in part without premium or penalty. Borrowings under the Revolver may be repaid and reborrowed from time to time prior to the maturity date.

Prior to the date the Company obtains an Investment Grade Rating (as defined in the credit agreement governing the Credit Facility (the “Credit Agreement”)), 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) 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), 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 the Revolver either (i) SOFR, plus a SOFR adjustment of 0.10%, plus a margin ranging from 1.00% to 1.45%, based on the Company’s consolidated total leverage ratio, or (ii) a Base Rate (as defined in the Credit Agreement), plus a margin ranging from 0.00% to 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 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 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 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 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 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
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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 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.”

In connection with the Credit Facility, the Company incurred approximately $3.8 million of deferred financing costs which were allocated between the 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 Company’s previous revolving credit facility were reclassed to the 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 condensed consolidated statements of operations and comprehensive income (loss).

2027 Term Loan

In December 2019, the Company entered into an agreement governing a $175.0 million senior unsecured term loan that was scheduled to mature in December 2024 (the “2024 Term Loan”). On June 15, 2023, the Company amended and restated the agreement governing the 2024 Term Loan to provide for a $175.0 million senior unsecured term loan with a maturity date of January 15, 2026 that is subject to a one year extension option at the Company’s election (subject to certain conditions) (the “2027 Term Loan”). The 2027 Term Loan is repayable at the Company’s option in whole or in part without premium or penalty.

The interest rate applicable to the 2027 Term Loan is determined by the Company’s Investment Grade Rating (as defined in the 2027 Term Loan). Prior to the date the Company obtains an Investment Grade Rating, interest shall accrue at either (i) SOFR, plus a margin ranging from 1.15% to 1.60% or (ii) Base Rate (as defined in the 2027 Term Loan), plus a margin ranging from 0.15% to 0.60%, in each case based on the Company’s consolidated total leverage ratio. After the date the Company obtains an Investment Grade Rating, interest shall accrue at either (i) SOFR, plus a margin ranging from 0.80% to 1.60% or (ii) Base Rate, plus a margin ranging from 0.00% to 0.60%, in each case based on the Company’s Investment Grade Rating.

Interest is payable monthly or at the end of the applicable interest period in arrears. The Company has fully hedged the 2027 Term Loan. The interest rate hedges are described in “Note 7 – Derivative Financial Instruments.”

Mortgage Note Payable

As of March 31, 2024, the Company had total gross mortgage indebtedness of $8.3 million, which was collateralized by related real estate and a tenant’s lease with an aggregate net book value of $12.5 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 2027 Term Loan, 2028 Term Loan, and 2029 Term Loan are interest only through maturity. As of March 31, 2024, scheduled debt maturities, including balloon payments, are as follows (in thousands):

Scheduled Principal
Balloon Payment (1)
Total
Remainder of 2024$123 $ $123 
2025170  170 
2026178 500,000 500,178 
2027170 7,681 7,851 
2028 200,000 200,000 
Total$641 $707,681 $708,322 
(1) Does not assume the exercise of any extension options available to the Company.


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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,
20242023
Revolving credit facilities (1)
$1,158 $1,150 
Term loans (2)
5,672 2,499 
Mortgage note payable95 93 
Non-cash:
Amortization of deferred financing costs238 185 
Amortization of debt discount and debt issuance costs, net349 151 
Amortization of deferred gains on interest rate swaps(979) 
Capitalized interest(353)(134)
Total interest expense, net$6,180 $3,944 

(1) Includes facility fees and non-utilization fees of approximately $0.2 million for both the three months ended March 31, 2024 and 2023.
(2) Includes the effects of interest rate hedges in place as of such date.

Deferred financing, discount, and debt issuance costs are amortized over the remaining terms of each respective borrowing and are included in interest expense, net in the Company’s condensed consolidated statements of operations and comprehensive income (loss).

During the three months ended March 31, 2024 and 2023, term loans had a weighted average interest rate, exclusive of amortization of deferred financing costs and the effects of interest rate hedges, of 6.69% and 5.77%, respectively.

During the three months ended March 31, 2024 and 2023, the Company incurred interest expense on revolving credit facilities with a weighted average interest rate, exclusive of amortization of deferred financing costs and facility fees, of 6.54% and 5.86%, respectively.

The estimated fair values of the Company’s 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. Refer to “Note 2 - Summary of Significant Accounting Policies” for additional detail on fair value measurements.

The Company was in compliance with all of its debt covenants as of March 31, 2024 and expects to be in compliance for the twelve-month period ending December 31, 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 statements of cash flows.

Effective July 3, 2023, such derivatives were initiated to hedge the variable cash flows associated with the 2029 Term Loan. The interest rate for the variable rate 2029 Term Loan is based on the hedged fixed rate of 3.74% compared to the variable 2029 Term Loan daily SOFR rate as of March 31, 2024 of 5.32%, plus a SOFR adjustment of 0.10% and applicable margin of 1.15%. The maturity dates of the interest rate swaps coincide with the fully extended maturity date of the 2029 Term Loan.

Effective September 1, 2022, such derivatives were initiated to hedge the variable cash flows associated with the 2028 Term Loan. 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, 2024 of 5.33%, plus a SOFR adjustment of 0.10% and applicable margin of 1.15%. The maturity dates of the interest rate swaps coincide with the maturity date of the 2028 Term Loan.

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Effective January 27, 2023, the Company converted its four existing LIBOR swap agreements associated with the 2024 Term Loan into four new SOFR swaps that convert the SOFR variable rate to a fixed rate of 0.12% and on June 15, 2023, the Company amended and restated its 2024 Term Loan, providing for the 2027 Term Loan. In anticipation of the amendment and restatement of the 2024 Term Loan, additional derivatives, effective November 27, 2023 and December 23, 2024 at hedged fixed rates of 1.87% and 2.40%, respectively, were initiated to hedge the variable cash flows associated with the 2027 Term Loan through the fully extended maturity date. The interest rate on the variable 2027 Term Loan includes a daily SOFR rate as of March 31, 2024 of 5.31%, plus a SOFR adjustment of 0.10% and applicable margin of 1.15%.

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 InstrumentsNotional
Interest Rate DerivativesMarch 31, 2024December 31, 2023March 31, 2024December 31, 2023
Interest rate swaps12 12 $650,000 $650,000 


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, 2024 and December 31, 2023 (in thousands):

Derivative Assets
Fair Value as of March 31,
Derivatives Designated as Hedging Instruments:Balance Sheet Location20242023
Interest rate swapsOther assets, net$21,476 $14,442 
Derivative Liabilities
Fair Value as of March 31,
Derivatives Designated as Hedging Instruments:Balance Sheet Location20242023
Interest rate swapsAccounts payable, accrued expenses and other liabilities$ $3,073 

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, 2024 and 2023 (in thousands):

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 Relationships2024202320242023
Interest Rate Products$13,761 $(3,141)Interest expense, net$4,633 $2,837 

The Company did not exclude any amounts from the assessment of hedge effectiveness for the three months ended March 31, 2024 and 2023. During the next twelve months, the Company estimates that an additional $14.5 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.

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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, 2024, 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 assets measured at fair value on a recurring basis as of March 31, 2024 and December 31, 2023, aggregated by the level in the fair value hierarchy within which those measurements fall (in thousands):

Fair Value Hierarchy Level
DescriptionLevel 1Level 2Level 3Total Fair Value
March 31, 2024
Derivative assets$ $21,476 $ $21,476 
December 31, 2023
Derivative assets$ $14,442 $ $14,442 
Derivative liabilities$ $3,073 $ $3,073 

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

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

March 31, 2024December 31, 2023
Accounts receivable, net$10,813 $10,074 
Deferred rent receivable8,594 7,744 
Prepaid assets3,904 1,387 
Earnest money deposits492 450 
Fair value of interest rate swaps21,476 14,442 
Deferred offering costs1,554 1,031 
Deferred financing costs, net1,757 2,724 
Right-of-use asset3,772 3,866 
Leasehold improvements and other corporate assets, net1,651 1,723 
Interest receivable1,929 1,397 
Other assets, net5,460 4,499 
$61,402 $49,337 

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

March 31, 2024December 31, 2023
Accrued expenses$8,176 $8,826 
Accrued bonus520 2,575 
Prepaid rent3,394 3,896 
Operating lease liability4,994 5,104 
Accrued interest2,958 2,921 
Deferred rent3,627 3,257 
Accounts payable622 4,691 
Fair value of interest rate swaps 3,073 
Other liabilities1,974 2,155 
$26,265 $36,498 
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Note 9 – Shareholders’ Equity, Partners’ Capital and Preferred Equity

ATM Program

On September 1, 2021, the Company entered into a $250.0 million at-the-market equity program (the “2021 ATM Program”). In March 2023, the Company issued 146,745 shares of common stock under the 2021 ATM Program 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.

On October 25, 2023, the Company entered into a $300.0 million at-the-market equity program (the “2023 ATM Program”) through which, from time to time, it may sell shares of its common stock in registered transactions. Effective October 24, 2023, in connection with the establishment of the new at-the-market offering program, the 2021 ATM Program was terminated.

On March 28, 2024, the Company entered into a forward confirmation with respect to 107,500 shares of its common stock under the 2023 ATM Program, at a public offering price of $18.29 per share. 107,500 shares remain unsettled under the forward confirmation as of March 31, 2024. The Company may physically settle this forward confirmation (by the delivery of shares of common stock) and receive proceeds from the sale of those shares on one or more forward settlement dates, which shall occur no later than April 12, 2025.

The following table presents information about the 2023 ATM Program and the 2021 ATM Program (in thousands):
Maximum Sales AuthorizationGross Sales through March 31, 2024
Program NameDate EstablishedDate Terminated
2021 ATM Program (1)
September 2021October 2023$250,000 $150,391 
2023 ATM Program (2)
October 20230$300,000 $77,323 
(1) Includes 1,516,289 shares of common stock partially physically settled at a price of $16.49 per share under the forward confirmation with respect to the 2021 ATM Program. 5,983,711 shares remain unsettled under the forward confirmation as of March 31, 2024 at the available net settlement price of $16.46.
(2) 107,500 shares remain unsettled under the forward confirmation as of March 31, 2024 at the available net settlement price of $18.12.

January 2024 Follow-On Offering

In January 2024, the Company completed a registered public offering of 11,040,000 shares of its common stock at a public offering price of $18.00 per share. In connection with the offering, the Company entered into forward sale agreements for 11,040,000 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 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 9, 2025. 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 it may owe cash to the relevant forward counterparty in certain circumstances. As of March 31, 2024, 11,040,000 shares remain unsettled under the January 2024 forward sale agreements.

Surrendered Shares on Vested Stock Unit Awards

During the three months ended March 31, 2024 and 2023, 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 Plan (the “Omnibus Incentive Plan”), resulted in federal and state income tax liabilities for the recipients. During the three months ended March 31, 2024 and 2023, as permitted by the terms of the Omnibus Incentive Plan and the award grants, certain executive officers and employees elected to surrender an approximate total of 62 thousand and 18 thousand RSUs, respectively, valued at approximately $1.1 million and $0.4 million, respectively, solely to pay the associated statutory tax withholding. The surrendered RSUs are included in the row entitled “repurchase of common stock for tax withholding obligations” in the condensed consolidated statements of cash flows.


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Dividends

During the three months ended March 31, 2024, the Company declared and paid the following common stock dividends (in thousands, except per share data):

Three Months Ended March 31, 2024
Declaration DateDividend Per ShareRecord DateTotal AmountPayment Date
February 13, 2024$0.205 March 15, 2024$15,031 March 28, 2024

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

Three Months Ended March 31, 2023
Declaration DateDividend Per ShareRecord DateTotal AmountPayment Date
February 21, 2023$0.200 March 15, 2023$11,650 March 30, 2023

The holders of OP Units are entitled to an equal distribution per each OP Unit held as of each record date. Accordingly, during each of the three months ended March 31, 2024 and 2023, the Operating Partnership paid distributions of $0.1 million to holders of OP Units.

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, 2024 and December 31, 2023, noncontrolling interests represented 0.6% and 0.7%, respectively, of OP Units. During the three months ended March 31, 2024 and 2023, OP Unit holders redeemed 7,119 and 5,694 and 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, 2024, the only stock-based compensation granted by the Company were RSUs. 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 $1.8 million and $1.0 for the three months ended March 31, 2024 and 2023, respectively. All awards of unvested restricted stock units are expected to fully vest over the next one to five years.

Performance-Based RSUs (effectiveness of Initial Public Offering)

Pursuant to the Omnibus Incentive Plan, the Company made performance-based RSUs to certain employees and non-employee directors. The performance condition required the Company to effectively file a resale 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 are expected to fully vest during the current year.


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The following table summarizes performance-based RSU activity for the period ended March 31, 2024:

SharesWeighted Average Grant Date Fair Value per Share
Unvested RSU grants outstanding as of December 31, 202330,379 $19.75 
Granted during the period  
Forfeited during the period  
Vested during the period  
Unvested RSU grants outstanding as of March 31, 202430,379 $19.75 

For the three months ended March 31, 2024, the Company recognized less than $0.1 million in stock-based compensation expense associated with performance-based RSUs. As of March 31, 2024 and December 31, 2023, the remaining unamortized stock-based compensation expense totaled $0.1 million and $0.1 million, respectively, and as of March 31, 2024, these awards are expected to be recognized over a remaining weighted average period of 0.7 years. These units are subject to graded vesting and stock-based compensation expense is recognized ratably over the requisite service period for each vesting tranche in the award.

The grant date fair value of unvested RSUs is calculated as the per share price in the private offering that closed on December 23, 2019.

Service-Based RSUs

Pursuant to the Omnibus Incentive Plan, the Company has made service-based 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 years.

The following table summarizes service-based RSU activity for the period ended March 31, 2024:

SharesWeighted Average Grant Date Fair Value per Share
Unvested RSU grants outstanding as of December 31, 2023298,108 $19.79 
Granted during the period200,140 17.33 
Forfeited during the period  
Vested during the period(130,220)19.85 
Unvested RSU grants outstanding as of March 31, 2024368,028 $18.50 

For the three months ended March 31, 2024, the Company recognized $1.0 million in stock-based compensation expense associated with service-based RSUs. As of March 31, 2024 and December 31, 2023, the remaining unamortized stock-based compensation expense totaled $5.4 million and $3.4 million, respectively, and as of March 31, 2024, these awards are expected to be recognized over a remaining weighted average period of 2.2 years. 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 unvested 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 years subsequent to 2020.

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Performance-Based RSUs (total shareholder return)

Pursuant to the Omnibus Incentive Plan, the Company has made market-based RSU grants to certain employees. These grants are subject to the participant’s continued service over a three year period with 40% of the award based on the Company’s total shareholder return (“TSR”) as compared to the TSR of identified peer companies and 60% of the award based on total absolute TSR over the cumulative three year period. The performance period of these grants runs through February 28, 2025, February 28, 2026, and December 31, 2026. Grant date fair value of the market-based share awards 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 current period calculation were expected volatility of the Company of 24.9% and expected volatility of the Company's peers, ranging from 19.9% to 49.4%, with an average volatility of 27.1% and a risk-free interest rate of 4.41%. The fair value per share on the grant date specific to the target TSR relative to the Company’s peers was $18.03 and the target absolute TSR was $14.56 for a weighted average grant date fair value of $15.77 per share. Stock-based compensation expense associated with unvested 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 market-based RSU activity for the period ended March 31, 2024:

SharesWeighted Average Grant Date Fair Value per Share
Unvested RSU grants outstanding as of December 31, 2023258,558 $20.38 
Granted during the period169,002 16.05 
Forfeited during the period(69,959)16.92 
Vested during the period
(45,977)20.29 
Unvested RSU grants outstanding as of March 31, 2024311,624 $18.82 

For the three months ended March 31, 2024, the Company recognized $0.6 million in stock-based compensation expense associated with market-based RSUs. As of March 31, 2024, the remaining unamortized stock-based compensation expense totaled $4.0 million and as of March 31, 2024, these awards are expected to be recognized over a remaining weighted average period of 2.4 years.

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 RSUs in the first quarter of the following year, that vests from one to four years based on the terms of the grant agreement. Stock-based compensation expense is recognized on a straight-line basis over the total requisite service period for the entire award, which begins in the period 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 be 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 2024 under the Program was approximately $1.7 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, 2024, 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.


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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, 2024 and 2023.

Three Months Ended March 31,
(In thousands, except share and per share data)20242023
Numerator:
Net income$1,052 $1,481 
Net (income) attributable to noncontrolling interest(7)(9)
Net income attributable to common shares, basic1,045 1,472 
Net income attributable to noncontrolling interest7 9 
Net income attributable to common shares, diluted$1,052 $1,481 
Denominator:
Weighted average common shares outstanding, basic73,248,804 58,155,738 
Effect of dilutive shares for diluted net income per common share:
OP Units478,524 511,402 
Unvested RSUs168,556 175,859 
Unsettled shares under open forward equity contracts669,906 40,387 
Weighted average common shares outstanding, diluted74,565,790 58,883,386