What changed in this filing

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Item 1. Financial Statements

2023-04-26 compared with 2022-10-27 · 226 added, 448 removed, 451 unchanged (60% of the section changed)

4 unchanged sentences

(In thousands, except share and per share data)

September 30, December 31,

March 31, 2023 December 31, 2022

Real estate, at cost:

22 unchanged sentences

Common stock, $ 0.01 par value, 400,000,000 shares authorized;

54,876,295 and 44,223,050 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively

60,862,466 and 58,031,879 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively

Additional paid-in capital 1,145,160 1,091,514

8 unchanged sentences

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(In thousands, except share and per share data)

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Rental revenue (including reimbursable) $ 28,474 $ 20,921

Interest income on mortgage loans receivable 674 — 1,671 —

Interest income on loans receivable 978 411

Total revenues 29,452 21,332

3 unchanged sentences

Depreciation and amortization 14,949 10,980

Provisions for impairment — — 1,114 3,539

Transaction costs 109 165

2 unchanged sentences

Interest expense, net ( 3,944 ) ( 1,169 )

Gain on sales of real estate, net 143 1,955 2,162 2,452

Gain (loss) on sales of real estate, net ( 319 ) 161

Other income 152 —

Total other income (expense), net ( 2,874 ) 1,060 ( 3,510 ) ( 241 )

Total other expense, net ( 4,111 ) ( 1,008 )

Net income before income taxes 1,438 2,057

Income tax expense ( 171 ) — ( 356 ) ( 50 )

Income tax benefit (expense) 43 ( 91 )

Net income 1,481 1,966

10 unchanged sentences

Change in value on derivatives, net ( 5,979 ) 6,211

Total comprehensive income $ 15,306 $ 2,949 $ 26,831 $ 3,118

Comprehensive income attributable to noncontrolling interests 149 95 287 153

Comprehensive income attributable to common stockholders $ 15,157 $ 2,854 $ 26,544 $ 2,965

Total comprehensive income (loss) ( 4,498 ) 8,177

Comprehensive income (loss) attributable to noncontrolling interests ( 40 ) 100

Comprehensive income (loss) attributable to common stockholders $ ( 4,458 ) $ 8,077

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

6 unchanged sentences

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 offering, net of issuance costs 3,604,736 36 75,461 — — 75,497 — 75,497

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 5,694 — 105 — — 105 ( 105 ) —

4 unchanged sentences

Stock-based compensation, net — — 1,027 — 1,027 — 1,027

Other comprehensive income — — — — 6,135 6,135 76 6,211

Other comprehensive loss — — — — ( 5,930 ) ( 5,930 ) ( 49 ) ( 5,979 )

Net income — — — 1,472 — 1,472 9 1,481

Balance at March 31, 2023 60,862,466 $ 609 $ 1,145,160 $ ( 77,237 ) $ 17,743 $ 1,086,275 $ 9,347 $ 1,095,622

Issuance of common stock in public offering, net of issuance costs 2,397,035 24 49,976 — — 50,000 — 50,000

OP Units converted to common stock 22,265 — 418 — — 418 ( 418 ) —

Dividends and distributions declared on common stock and OP Units — — — ( 9,588 ) — ( 9,588 ) ( 104 ) ( 9,692 )

Dividends declared on restricted stock, net — — — ( 149 ) — ( 149 ) — ( 149 )

Stock-based compensation, net — — 1,298 — — 1,298 — 1,298

Other comprehensive income — — — — 1,323 1,323 15 1,338

Net income — — — 1,987 — 1,987 23 2,010

Balance at June 30, 2022 50,341,288 $ 503 $ 938,043 $ ( 49,943 ) $ 11,581 $ 900,184 $ 9,668 $ 909,852

Issuance of common stock in public offering, net of issuance costs 4,512,003 45 93,477 — — 93,522 — 93,522

Dividends and distributions declared on common stock and OP Units — — — ( 10,073 ) — ( 10,073 ) ( 103 ) ( 10,176 )

Dividends declared on restricted stock, net — — — ( 141 ) — ( 141 ) — ( 141 )

Vesting of restricted stock units 31,865 1 ( 1 ) — — — — —

Repurchase of common stock for tax withholding obligations ( 8,861 ) — ( 187 ) — — ( 187 ) — ( 187 )

Stock-based compensation, net — — 1,302 7 — 1,309 — 1,309

Other comprehensive income — — — — 13,754 13,754 133 13,887

Net income — — — 1,403 — 1,403 16 1,419

Balance at September 30, 2022 54,876,295 $ 549 $ 1,032,634 $ ( 58,747 ) $ 25,335 $ 999,771 $ 9,714 $ 1,009,485

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

NETSTREIT CORP.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(In thousands, except share data)

Shares Par Value Additional

1 unchanged sentence

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 3,604,736 36 75,461 — — 75,497 — 75,497

OP Units converted to common stock 25,629 — 484 — — 484 ( 484 ) —

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 — — — ( 128 ) — ( 128 ) — ( 128 )

Vesting of restricted stock units 85,224 1 ( 1 ) — — — — —

Repurchase of common stock for tax withholding obligations ( 16,651 ) — ( 362 ) — — ( 362 ) — ( 362 )

Stock-based compensation — — 557 — — 557 — 557

Stock-based compensation, net — — 1,045 — 1,045 — 1,045

Other comprehensive income — — — — 6,135 6,135 76 6,211

1 unchanged sentence

Balance at March 31, 2022 47,921,988 $ 479 $ 886,351 $ ( 42,193 ) $ 10,258 $ 854,895 $ 10,152 $ 865,047

Issuance of common stock in public offering, net of issuance costs 10,915,688 109 194,052 — — 194,161 — 194,161

OP Units converted to common stock 143,173 1 2,744 — — 2,745 ( 2,745 ) —

Dividends and distributions declared on common stock and OP Units — — — ( 7,890 ) — ( 7,890 ) ( 287 ) ( 8,177 )

Dividends declared on restricted stock — — — ( 132 ) — ( 132 ) — ( 132 )

Stock-based compensation — — 1,041 — — 1,041 — 1,041

Other comprehensive loss — — — — ( 253 ) ( 253 ) ( 12 ) ( 265 )

Net loss — — — ( 2,536 ) — ( 2,536 ) ( 94 ) ( 2,630 )

Balance at June 30, 2021 39,525,978 $ 395 $ 704,269 $ ( 23,140 ) $ 2,181 $ 683,705 $ 25,771 $ 709,476

OP Units converted to common stock 65,840 1 1,246 — — 1,247 ( 1,247 ) —

Dividends and distributions declared on common stock and OP Units — — — ( 7,916 ) — ( 7,916 ) ( 265 ) ( 8,181 )

Dividends declared on restricted stock — — — ( 125 ) — ( 125 ) — ( 125 )

Vesting of restricted stock units 35,000 — — — — — — —

Repurchase of common stock for tax withholding obligations ( 9,013 ) — ( 229 ) — — ( 229 ) — ( 229 )

Stock-based compensation — — 1,026 7 — 1,033 — 1,033

Other comprehensive income — — — — 6 6 ( 1 ) 5

Net income — — — 2,848 — 2,848 96 2,944

Balance at September 30, 2021 39,617,805 $ 396 $ 706,312 $ ( 28,326 ) $ 2,187 $ 680,569 $ 24,354 $ 704,923

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

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, except share and per share data)

Nine Months Ended

September 30,

(In thousands)

Three Months Ended

Cash flows from operating activities

3 unchanged sentences

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 on sales of real estate, net ( 2,162 ) ( 2,452 )

Provisions for impairment 1,114 3,539

(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:

1 unchanged sentence

Accounts payable, accrued expenses and other liabilities ( 441 ) ( 2,742 )

Lessee improvement obligations — ( 1 )

Lease incentive payments ( 500 ) —

7 unchanged sentences

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 )

4 unchanged sentences

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 )

Proceeds from term loans 200,000 —

Payments of mortgage note payable ( 12 ) —

Proceeds under property development incentives 605 —

Repurchase of common stock for tax withholding obligations ( 360 ) ( 363 )

Deferred offering costs ( 15 ) ( 568 )

Deferred financing costs ( 3,755 ) —

Net cash provided by financing activities 23,659 121,838

4 unchanged sentences

Cash paid for interest $ 3,641 $ 1,108

Cash paid for income taxes $ 45 $ —

Supplemental disclosures of non-cash investing and financing activities:

Dividends declared and unpaid on restricted stock $ 122 $ 128

Deferred offering costs included in accounts payable, accrued expenses and other liabilities $ — $ 88

Cash flow hedge change in fair value $ ( 5,979 ) $ 6,211

Involuntary conversion of building and improvements and change in related insurance proceeds receivable $ — $ 490

Mortgage note assumed at fair value $ 7,913 $ —

Accrued capital expenditures and real estate development and improvement costs $ 2,516 $ 1,418

Accrued lease incentives $ 1,690 $ —

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

4 unchanged sentences

NETSTREIT Corp.

(“Company”) was incorporated on October 11, 2019 as a Maryland corporation and commenced operations on December 23, 2019.

(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”).

5 unchanged sentences

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.

As of September 30, 2022, the Company owned or had investments in 409 properties, located in 42 states.

The Company also invests in property developments and mortgage loans secured by real estate.

As of March 31, 2023, the Company owned or had investments in 488 properties, located in 45 states, excluding four property developments where rent has yet to commence.

Note 2 – Summary of Significant Accounting Policies

9 unchanged sentences

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 and nine months ended September 30, 2022 and 2021 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.

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.

The results of operations for the three months ended March 31, 2023 and 2022 are not necessarily indicative of the results for the full year.

Use of Estimates

4 unchanged sentences

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 and instability in macroeconomic conditions will have on the global economy and the Company’s business makes any estimates and assumptions as of September 30, 2022 inherently less certain than they would be absent the current and potential impacts of COVID-19 and instability in macroeconomic conditions.

Actual results could differ from those estimates.

Risk and Uncertainties

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 periods presented in the condensed 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.

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 $ 13.4 million and $ 8.1 million during the three months ended September 30, 2022 and 2021, respectively.

Total depreciation and amortization expense was $ 36.1 million and $ 21.1 million during the nine months ended September 30, 2022 and 2021, respectively.

Depreciation expense on real estate held for investment and computer equipment and other corporate assets was $ 9.1 million and $ 5.6 million during the three months ended September 30, 2022 and 2021, respectively.

Depreciation expense on real estate held for investment and computer equipment and other corporate assets was $ 24.4 million and $ 14.5 million during the nine months ended September 30, 2022 and 2021, respectively.

Amortization expense on acquired in-place lease and assembled workforce intangible assets and leasing commission costs were $ 4.3 million and $ 2.5 million during the three months ended September 30, 2022 and 2021, respectively.

Amortization expense on acquired in-place lease and assembled workforce intangible assets and leasing commission costs were $ 11.7 million and $ 6.5 million during the nine months ended September 30, 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.

Assets Held for Sale

The Company is continually evaluating the portfolio of real estate assets and may elect to dispose of assets considering criteria including, but not limited to, tenant concentration, tenant credit quality, unit financial performance, local market conditions and lease rates, asset location, and tenant operation type (e.g., tenant or retail sector).

Real estate assets held for sale are expected to be sold within twelve months.

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 September 30, 2022 or held for sale as discontinued operations as of September 30, 2022, 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 September 30, 2022 and December 31, 2021, there were twelve and one properties, respectively, 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 September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Total provision for impairment $ — $ — $ 1,114 $ 3,539

Number of properties:

Classified as held for sale — — — 3

Disposed within the period — — 1 3

(1) Includes the number of properties that were impaired and classified as held for sale as of year-end or impaired and disposed of during the respective periods.

Excludes properties that did not have impairment recorded during the year.

Cash, Cash Equivalents and Restricted Cash

1 unchanged sentence

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 on the condensed consolidated balance sheets.

The Company had no restricted cash as of September 30, 2022 or December 31, 2021.

The Company’s bank balances as of September 30, 2022 and December 31, 2021 include 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 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 September 30, 2022 and December 31, 2021, the Company had an immaterial reserve for uncollectible amounts specific to uncharged reimbursable expenses.

Mortgage Loans Receivable

The Company holds loans receivable, which are mortgage loans secured by real estate, for long-term investment.

Loans receivable are carried at amortized cost.

The Company recognizes interest income on loans 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 loan receivable balances, 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 sells shares of common stock through forward sale agreements from time to time 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.

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 $ 0.1 million and $ 0.1 million for the three months ended September 30, 2022 and 2021, respectively, and represent acquisition related expenses, including costs associated with abandoned acquisitions.

Transaction costs were $ 0.7 million and $ 0.5 million for the nine months ended September 30, 2022 and 2021.

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 related 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 September 30, 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.

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.

Restricted cash is included in cash, cash equivalents, and restricted cash in the condensed consolidated balance sheets.

The Company had no restricted cash as of March 31, 2023, and $ 4.7 million of restricted cash as of December 31, 2022.

The Company’s bank balances as of March 31, 2023 and December 31, 2022 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 inputs for its debt and derivative financial instrument fair value disclosures.

See “Note 6 – Debt” and “Note 7 – Derivative Financial Instruments,” respectively;

– 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.”

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, 2023 and December 31, 2022.

These estimates require management’s judgement 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.

Provisions for impairments recognized in the three and nine months ended September 30, 2022 and 2021 related to assets held for sale and the impairment was determined based on the estimated or negotiated selling price, less costs of disposal, compared to the carrying value of the property.

Additionally, the Company believes the following financial instruments have carrying values that approximate their fair values as of March 31, 2023:

• Borrowings under the 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 Company’s fixed rate 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.

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 debt instruments are net of unamortized debt issuance and discount costs.

Concentrations of Credit Risk

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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 and nine months ended September 30, 2022 and 2021, there were no tenants with rental revenue that exceeded 10% of total rental revenue.

During the three months ended March 31, 2023 and 2022, there were no tenants or borrowers with rental revenue or interest income on loans receivable, respectively, that exceeded 10% of total revenues.

Segment Reporting

The Company considers each one of its properties to be an operating segment, none of which meets the threshold for a reportable segment.

The Company allocates resources and assesses operating performance based on individual property needs.

All of the Company’s operating segments meet the aggregation criteria, and thus, the Company reports one segment, rental operations.

In addition, there were no intersegment sales during the periods presented.

Recent Accounting Pronouncements Adopted

In March 2020, the FASB issued ASU 2020-04 “Topic 848:

Reference Rate Reform.” ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives, and other contracts.

The guidance 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 London Inter-Bank Offered Rate (“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.

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.

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.

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 September 30, 2022, the Company had 406 single-tenant retail net leases spanning 42 states, with 77 different tenants represented across 24 retail sectors.

As of September 30, 2022, the remaining terms of leases range from 1 - 21 years, with weighted average lease term of 9.6 years.

As of March 31, 2023, the Company’s weighted average remaining lease term 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 and is presented net of any reserves for uncollectible amounts.

There were no material reserves for uncollectible amounts during the three and nine months ended September 30, 2022 and 2021.

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 September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Three Months Ended March 31,

Rental revenue

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Variable lease income (2)

2,086 1,434 7,004 3,290

Other rental revenue:

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(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.

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 September 30, 2022 are as follows (in thousands):

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.

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, 2023 are as follows (in thousands):

Future Minimum Base

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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 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 two 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 and nine months ended September 30, 2022 (in thousands):

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

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,

Operating lease cost $ 135 $ 135

1 unchanged sentence

The Company recorded a right-of-use asset and operating lease liability of approximately $ 4.5 million at lease commencement.

As of September 30, 2022, the right-of-use asset and operating lease liability were $ 4.3 million and $ 5.5 million, respectively.

As of March 31, 2023, the right-of-use asset and operating lease liability was $ 4.1 million and $ 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 September 30, 2022 (in thousands):

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, 2023 (in thousands):

Future Minimum Lease Payments

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Note 4 – Real Estate Investments

As of September 30, 2022, the Company owned or had investments in 409 properties, including six properties currently under development.

As of March 31, 2023, the Company owned or had investments in 488 properties, excluding four property developments where rent has yet to commence.

The gross real estate investment portfolio, including properties under development, totaled approximately $ 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 45 states with gross real estate investments in Illinois and Texas representing 8.6 % and 8.0 %, respectively, of the total gross real estate investment of the Company’s entire portfolio.

During the nine months ended September 30, 2022, the Company acquired 82 properties for a total purchase price of $ 329.0 million, inclusive of $ 3.2 million of capitalized acquisition costs.

During the nine months ended September 30, 2021, the Company acquired 92 properties for a total purchase price of $ 292.0 million, inclusive of $ 3.0 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.

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.

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):

Nine Months Ended September 30,

Three Months Ended March 31,

Land $ 14,304 $ 14,654

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Above-market lease intangible assets — 108

Assumed receivables — 44

67,717 91,420

1 unchanged sentence

Below-market lease intangible liabilities — ( 1,423 )

Mortgage note payable ( 7,913 ) —

Accounts payable, accrued expense and other liabilities — ( 24 )

Purchase price (including acquisition costs) $ 67,717 $ 89,973

As of September 30, 2022, the Company had six property developments under construction.

During the nine months ended September 30, 2022, the Company invested $ 14.3 million in property developments, including the acquisition of one new build-to-suit project with an initial purchase price of $ 1.0 million.

During this nine-month period, the Company completed development on four projects and reclassified approximately $ 14.7 million from property under development to land, building, and improvements in the accompanying condensed consolidated balance sheets.

The remaining six developments in progress are expected to be substantially completed with rent commencing at various points through the first quarter of 2023.

The purchase price, including acquisition costs, and subsequent development are included in property under development in the accompanying condensed consolidated balance sheets as of September 30, 2022.

Additionally, during the first nine months of 2022 and 2021, the Company capitalized approximately $ 0.1 million of interest expense associated with properties under development.

During the nine months ended September 30, 2021, the Company invested a total of $ 2.6 million in a development project in Yuma, Arizona.

The Company exercised its non-binding purchase option to acquire the property upon completion and rent commenced in the second quarter of 2022.

This amount, and subsequent development costs, were included in property under development in the accompanying condensed consolidated balance sheets as of December 31, 2021.

During the nine months ended September 30, 2021, the Company also invested a total of $ 6.9 million, including the purchase price of $ 5.4 million, in four properties.

Upon acquisition, the Company commenced development of four build-to-suit projects, of which three total properties have been completed during the fourth quarter of 2021, the first quarter of 2022, and the second quarter of 2022, respectively.

Rent commenced for the three completed developments in 2022.

The purchase price, including acquisitions costs, and subsequent development costs are included in property under development in the accompanying condensed consolidated balance sheets as of December 31, 2021.

During the three months ended September 30, 2022, the Company sold one property for a total sales price, net of disposal costs, of $ 1.7 million, recognizing a gain of $ 0.1 million.

During the nine months ended September 30, 2022, the Company sold four properties for a total sales price, net of disposal costs, of $ 13.8 million, recognizing a gain of $ 2.2 million.

During the three months ended September 30, 2021, the Company sold four properties for a total sales price, net of disposal costs, of $ 18.1 million, recognizing a gain on $ 2.0 million.

During the nine months ended September 30, 2021, the Company sold nine properties for a total sales price, net of disposal costs, of $ 30.4 million, recognizing a gain of $ 2.5 million.

As of March 31, 2023, the Company had three property developments under 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 one 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.

Additionally, during both the three months ended March 31, 2023 and 2022, the Company capitalized approximately $ 0.1 million of interest expense associated with properties under development.

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 loss of $ 0.3 million.

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

Investment in Mortgage Loans Receivable

On January 26, 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 Company has the right, subject to certain terms and conditions, to purchase a portion of the underlying collateralized property.

The loan receivable is collateralized by real estate that is leased by three separate investment-grade tenants.

The funds provided under the loan, in addition to loan origination costs of $ 0.1 million, are included in loans receivable, net in the accompanying condensed consolidated balance sheets as of September 30, 2022.

On June 30, 2022, the Company executed a fully collateralized $ 6.0 million loan receivable with a stated interest rate of 6.5 %.

The scheduled maturity date is June 30, 2023, however the Company has the right, subject to certain terms and conditions, to purchase the underlying collateralized properties.

The loan receivable is collateralized by real estate that is leased by two separate tenants, one of which has an investment grade profile.

The funds provided under the loan, in addition to loan origination costs of less than $ 0.1 million, are included in loans receivable, net in the accompanying condensed consolidated balance sheets as of September 30, 2022.

The Company’s mortgage loans receivable portfolio as of March 31, 2023 and December 31, 2022 is 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

1 5.69 % 6.00 % 7/26/2023 $ 40,316 $ 40,316

2 5.83 % 6.50 % 6/30/2023 6,000 6,000

Mortgage 46 9.55 % 9.55 % 3/10/2026 41,940 —

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 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.

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

All of the 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 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.

Note 5 – Intangible Assets and Liabilities

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

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Amount Accumulated Amortization Net Carrying Amount Gross

6 unchanged sentences

Below-market leases $ 35,596 $ ( 6,248 ) $ 29,348 $ 35,596 $ ( 5,465 ) $ 30,131

The remaining weighted average amortization period of the Company’s intangible assets and liabilities as of September 30, 2022 and as of December 31, 2021 by category were as follows:

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

Years Remaining

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

In-place leases 9.2 9.4

1 unchanged sentence

Below-market leases 11.4 11.6

Assembled workforce 0.3 1.0

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 related to the amortization of intangibles assets and liabilities for all property and ground leases (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

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,

Amortization:

6 unchanged sentences

Lease incentives ( 199 ) ( 118 )

$ 313 $ 159 $ 644 $ 583

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 September 30, 2022, for the next five years and thereafter (in thousands):

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 intangibles to rental revenue as of March 31, 2023, for the next five years and thereafter (in thousands):

Remainder of 2023

1 unchanged sentence

In-place leases $ 13,439 $ 17,481 $ 16,907 $ 15,694 $ 13,423 $ 52,737 $ 129,681

Assembled workforce 61 — — — — — 61

Amortization expense $ 4,352 $ 16,161 $ 15,389 $ 14,815 $ 13,602 $ 60,034 $ 124,353

Above-market lease assets ( 1,113 ) ( 1,480 ) ( 1,479 ) ( 1,478 ) ( 1,450 ) ( 9,828 ) ( 16,828 )

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Debt consists of the following (in thousands):

Maturity Date Interest Rate September 30, 2022 December 31, 2021

Prior Revolver December 23, 2023 — $ — $ 64,000

Maturity Date Interest Rate March 31, 2023 December 31, 2022

2024 Term Loan (1)

10 unchanged sentences

Total debt, net $ 474,817 $ 491,508

(1) Loan is a floating-rate loan which resets monthly at one-month LIBOR plus the applicable margin which was 1.15 % as of September 30, 2022.

The Company has entered into four interest rate swap agreements that effectively convert the floating rate to the fixed rate noted as of September 30, 2022.

(2) The annual interest rate of the New Revolver assumes one-month SOFR as of September 30, 2022 of 2.85 % plus a SOFR adjustment of 0.10 % plus the applicable margin which was 1.00 % as of September 30, 2022.

Additionally, 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 September 30, 2022.

The Company has entered into three interest rate swap agreements that effectively convert the floating rate to the fixed rate noted as of September 30, 2022.

(1) 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, 2023.

The Company has entered into four interest rate swap agreements that effectively convert the floating rate to a fixed rate.

(2) The annual interest rate of the New Revolver assumes daily SOFR as of March 31, 2023 of 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.

2 unchanged sentences

The New Credit Facility may be increased by $ 400.0 million in the aggregate.

The New Revolver refinanced and upsized the Company’s existing $ 250.0 million senior unsecured revolving credit facility (the “Prior Revolver”) pursuant to the credit agreement, dated as of December 23, 2019, governing such facility (the “Prior Credit Agreement”).

The Company used the proceeds from the borrowings made on the closing date to repay in full 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 in the Company’s pipeline.

The New Revolver refinanced and increased the available borrowing capacity under the Company’s $ 250.0 million senior unsecured revolving credit facility (the “Prior Revolver”) pursuant to the credit agreement, dated as of December 23, 2019, governing such facility (the “Prior Credit 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.

13 unchanged sentences

Additionally, $ 0.5 million of unamortized deferred financing costs associated with the Prior Revolver were reclassed to the New Revolver.

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

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 senior credit facility consisting of the Prior Revolver and the 2024 Term Loan (collectively, the “Prior Credit Facility”).

The 2024 Term Loan matures on December 23, 2024 and the Prior Revolver was set to mature on December 23, 2023, subject to extension up to one year , prior to the Company using the proceeds from the New Credit Facility to repay the Prior Revolver in full.

Interest rates under the Prior Credit Facility are based on the Company’s consolidated total leverage ratio, and are determined by (A) in the case of the 2024 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 Prior Credit Facility), 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 Prior 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 Prior 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 was required to pay a Prior Revolver facility fee at an annual rate of 0.15 % of the unused capacity if usage exceeded 50% of the total available facility, or 0.25 % of the unused facility if usage did not exceed 50%.

Loans from the Prior Revolver were generally restricted if, among other things, the proposed usage of the proceeds from the loan did not meet certain criteria as outlined in the Prior Credit Agreement, if an event of default exists, or if the requested loan will create an event of default.

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.

1 unchanged sentence

The interest rate hedge is further described in “Note 7 - Derivative Financial Instruments.”

During the third quarter of 2022, the Company executed an amendment to the Prior Credit Agreement that governs the 2024 Term Loan, which conformed financial covenants and event of default materiality thresholds to align with those under the New Credit Facility, added a carve-out to the derivatives contracts negative covenant to permit forward sale transactions, and added erroneous payment provisions.

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.”

Mortgage Note Payable

As of September 30, 2022, the Company had total gross mortgage indebtedness of $ 8.8 million, which was collateralized by related real estate and a tenant’s lease with an aggregate net book value of $ 13.2 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 on the Company’s condensed consolidated balance sheets.

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 and 2028 Term Loan are interest only through maturity.

As of September 30, 2022, scheduled maturities, including balloon payments, are as follows (in thousands):

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

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

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Three Months Ended March 31,

Revolving credit facilities (1)

6 unchanged sentences

Total interest expense, net $ 3,944 $ 1,169

(1) Includes facility fees and non-utilization fees of approximately $ 0.1 million and $ 0.2 million for the three months ended September 30, 2022 and 2021, and facility fees of $ 0.5 million and $ 0.2 million for the nine months ended September 30, 2022 and 2021.

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

For the three months ended September 30, 2022 and 2021, term loans had a weighted average interest rate, exclusive of amortization of deferred financing costs and the effects of interest rate hedges, of 3.53 % and 1.26 %, respectively.

For the nine months ended September 30, 2022 and 2021, the term loans had a weighted average interest rate, exclusive of amortization of deferred financing costs and the effects of interest rate hedges, of 2.49 % and 1.28 %, respectively.

During the three months ended September 30, 2022 and 2021, the Company incurred interest expense on revolving credit facilities with a weighted average interest rate, exclusive of amortization of deferred financing costs, of 3.28 % and 1.26 %, respectively.

During the nine months ended September 30, 2022 and 2021, the Company incurred interest expense on revolving credit facilities with a weighted average interest rate, exclusive of amortization of deferred financing costs, of 2.29 % and 1.24 %, respectively.

(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 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, 2023 and 2022, term loans had a weighted average interest rate, exclusive of amortization of deferred financing costs and the effects of interest rate hedges, of 5.77 % and 1.32 %, respectively.

During the three months ended March 31, 2023 and 2022, 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 5.86 % and 1.39 %, 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.

The Company determined that the carrying value materially approximated the estimated fair value of the term loans as of September 30, 2022 and December 31, 2021.

The Company was in compliance with all of its debt covenants as of September 30, 2022 and expects to be in compliance for the following twelve-month period.

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, 2023 and expects to be in compliance for the twelve-month period ending December 31, 2023.

Note 7 – Derivative Financial Instruments

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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 consolidated statements 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 and 2028 Term Loan, respectively.

Accordingly, the interest rate for the variable rate 2024 Term Loan is based on the hedged fixed rate of 0.21 % compared to the variable 2024 Term Loan one-month LIBOR rate as of September 30, 2022 of 2.56 %, plus the 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 September 30, 2022 of 2.51 %, plus a SOFR adjustment of 0.10 % and applicable margin of 1.15 %.

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 of 0.12 % compared to the variable 2024 Term Loan SOFR rate as of March 31, 2023 of 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 dates of the interest rate swaps coincide with the respective maturity dates of the 2024 and 2028 Term Loans.

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Number of Instruments Notional

Interest Rate Derivatives September 30, 2022 December 31, 2021 September 30, 2022 December 31, 2021

Interest Rate Derivatives March 31, 2023 December 31, 2022 March 31, 2023 December 31, 2022

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 September 30, 2022 and December 31, 2021 (in thousands):

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, 2023 and December 31, 2022 (in thousands):

Derivative Assets

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Derivatives Designated as Hedging Instruments:

Balance Sheet Location September 30, 2022 December 31, 2021

Balance Sheet Location March 31, 2023 December 31, 2022

Interest rate swaps Other assets, net $ 18,088 $ 24,067

The following table presents the effect of the Company's interest rate swaps on the condensed consolidated statements of operations and comprehensive income for the three and nine months ended September 30, 2022 and 2021 (in thousands):

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

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, 2023 and 2022 (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 Relationships 2023 2022 2023 2022

For the Three Months Ended September 30

Interest Rate Products $ ( 3,141 ) $ 6,188 Interest expense, net $ 2,837 $ ( 23 )

For the Nine Months Ended September 30

Interest Rate Products $ 22,539 $ 1,932 Interest expense, net $ 1,103 $ ( 131 )

The Company did not exclude any amounts from the assessment of hedge effectiveness for the three and nine months ended September 30, 2022 and 2021.

The Company did not exclude any amounts from the assessment of hedge effectiveness for the three months ended March 31, 2023 and 2022.

During the next twelve months, the Company estimates that an additional $ 11.7 million will be reclassified as a decrease to interest expense.

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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 September 30, 2022, 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

However, as of March 31, 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 assets measured at fair value on a recurring basis as of September 30, 2022, aggregated by the level in the fair value hierarchy within which those measurements fall (in thousands):

The table below presents the Company’s derivative 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

Description Level 1 Level 2 Level 3 Total Fair Value

September 30, 2022

March 31, 2023

Derivative assets $ — $ 18,088 $ — $ 18,088

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

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Accounts receivable, net $ 8,600 $ 7,167

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

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Accrued expenses $ 6,815 $ 5,745

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Operating lease liability 5,387 5,464

Accrued interest 2,020 1,782

Deferred rent 2,134 1,756

Accounts payable 2,050 1,394

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

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.

As of September 30, 2022, the Company fully physically settled the forward sale agreements (by the delivery of shares of common stock) as follows:

• On September 29, 2022 the Company settled 4,512,003 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 of $ 93.5 million,

net of underwriting discounts and offering costs of $ 6.9 million.

The Company contributed the net proceeds to the Operating Partnership in exchange for 4,512,003 Class A OP Units.

• On June 23, 2022, the Company settled 2,397,035 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 of $ 50.0 million, net of underwriting discounts and offering costs of $ 3.3 million.

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.

• 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 of $ 72.0 million, net of underwriting discounts and offering costs of $ 4.6 million.

• 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.

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 an additional 1,350,000 shares, which was exercised on August 10, 2022.

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 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 August 3, 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 over the prescribed offering period.

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.

As of September 30, 2022, 10,350,000 shares remained unsettled under the August 8, 2022 forward sale agreements.

For the nine months ended September 30, 2022, the Company issued 163,774 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 of less than $ 0.1 million.

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.

Share Repurchase Authorization

Effective September 1, 2021, the Board of Directors of the Company (the “Board”) authorized a repurchase program for up to $ 150.0 million of common stock.

Repurchases of common stock may be made at management’s discretion from time to time in open market transactions, privately negotiated transactions or by other means (including through Rule 10b5-1 trading plans or one or more accelerated stock repurchase programs).

The timing of share repurchases and the number of shares of common stock to be repurchased will depend upon prevailing market conditions and other factors and there can be no assurances that the Company will make any purchases under the common stock repurchase program.

During the nine months ended September 30, 2022, portions of restricted stock unit awards (“RSUs”) granted to certain of the Company’s officers, directors, and employees vested.

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.

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 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.

As of December 31, 2022, the Company fully physically settled the forward sale agreements (by the delivery of shares of common stock).

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.

As permitted by the terms of the Omnibus Incentive Plan and the award grants, certain executive officers and employees elected to surrender 26 thousand RSUs valued at approximately $ 0.5 million, solely to pay the associated statutory tax withholding.

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, 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.

During the nine months ended September 30, 2022, the Company declared and paid the following common stock dividends (in thousands, except per share data):

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 Date Dividend Per Share Record Date Total Amount Payment Date

February 21, 2023 $ 0.20 March 15, 2023 $ 11,650 March 30, 2023

April 26, 2022 0.20 June 1, 2022 9,588 June 15, 2022

July 26, 2022 0.20 September 1, 2022 10,068 September 15, 2022

$ 0.60 $ 28,544

The holders of OP Units are entitled to an equal distribution per Class A OP Unit and Class B OP Unit held as of each record date.

Accordingly, during the nine months ended September 30, 2022 and 2021 the Operating Partnership paid distributions of $ 0.3 million and $ 0.9 million, respectively, to holders of OP Units.

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 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.

Noncontrolling Interests

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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 September 30, 2022 and December 31, 2021, noncontrolling interests represented 0.9 % and 1.3 %, respectively of OP Units.

During the three months ended September 30, 2022, there were no OP Unit redemptions and during the three months ended September 30, 2021, OP Unit holders redeemed 65,840 OP Units, into shares of common stock on a one -for-one basis.

During the nine months ended September 30, 2022 and 2021, OP Unit holders redeemed 47,894 and 462,357 OP Units, respectively, into shares of common stock on a one -for-one basis.

As of March 31, 2023 and December 31, 2022, noncontrolling interests represented 0.8 % and 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, respectively, into shares of common stock on a one -for-one basis.

Note 10 – Stock-Based Compensation

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The Omnibus Incentive Plan is administered by the Compensation Committee of the Board of Directors.

As of September 30, 2022, the only stock-based compensation granted by the Company were 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 was $ 1.3 million and $ 1.0 million for the three months ended September 30, 2022 and 2021, respectively.

Stock-based compensation expense was $ 3.6 million and $ 2.6 million for the nine months ended September 30, 2022 and 2021, 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 shelf registration)

As of March 31, 2023, the only stock-based compensation granted by the Company were 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 for both the three months ended March 31, 2023 and 2022.

All awards of unvested restricted stock units are expected to fully vest over the next one to four 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 shelf registration statement.

Up until the point of filing the registration statement, performance was not deemed probable and accordingly, no restricted stock units had the capability of vesting and no stock-based compensation expense was recorded.

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 years .

The following table summarizes performance-based restricted stock unit activity for the period ended September 30, 2022:

The vesting terms of these grants are specific to the individual grant and vest in equal annual installments over the next two years .

The following table summarizes performance-based RSU activity for the period ended March 31, 2023:

Shares Weighted Average Grant Date Fair Value per Share

Unvested restricted stock grants outstanding as of December 31, 2021 157,380 $ 19.75

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 restricted stock grants outstanding as of September 30, 2022 141,557 $ 19.75

For the three and nine months ended September 30, 2022, the Company recognized $ 0.2 million and $ 0.6 million, respectively, in stock-based compensation expense associated with performance-based restricted stock units.

As of September 30, 2022 and December 31, 2021, the remaining unamortized stock-based compensation expense totaled $ 0.8 million and $ 1.3 million, respectively and as of September 30, 2022, these awards are expected to be recognized over a remaining weighted average period of 1.7 years.

Unvested RSU grants outstanding as of March 31, 2023 61,391 $ 19.75

For the three months ended March 31, 2023, the Company recognized $ 0.1 million in stock-based compensation expense associated with performance-based RSUs.

As of March 31, 2023 and December 31, 2022, the remaining unamortized stock-based compensation expense totaled $ 0.3 million and $ 0.4 million, respectively, and as of March 31, 2023, these awards are expected to be recognized over a remaining weighted average period of 1.4 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 restricted units is calculated as the per share price determined on December 23, 2019, through a series of completed transactions (collectively the “Private Offering”).

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 restricted stock unit 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 restricted stock unit activity for the period ended September 30, 2022:

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 four years .

The following table summarizes service-based RSU activity for the period ended March 31, 2023:

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 247,079 $ 19.86

Granted during the period 125,112 20.19

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Vested during the period ( 83,428 ) 20.39

Unvested restricted stock grants outstanding as of September 30, 2022 326,824 $ 19.79

For the three and nine months ended September 30, 2022, the Company recognized $ 0.7 million and $ 1.9 million, respectively, in stock-based compensation expense associated with service-based restricted stock units.

As of September 30, 2022 and December 31, 2021, the remaining unamortized stock-based compensation expense totaled $ 4.6 million and $ 4.1 million, respectively, and as of September 30, 2022, these awards are expected to be recognized over a remaining weighted average period of 2.3 years.

Unvested RSU grants outstanding as of March 31, 2023 288,763 $ 19.85

For the three months ended March 31, 2023, the Company recognized $ 0.6 million in stock-based compensation expense associated with service-based RSUs.

As of March 31, 2023 and December 31, 2022, the remaining unamortized stock-based compensation expense totaled $ 4.8 million and $ 3.0 million, respectively, and as of March 31, 2023, these awards are expected to be recognized over a remaining weighted average period of 2.3 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 restricted units 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.

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.

Performance-Based RSUs (total shareholder return)

Pursuant to the Omnibus Incentive Plan, the Company has made market-based restricted stock unit 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 32 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 March 8, 2024 and February 28, 2025.

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 March 8, 2024, February 28, 2025, and February 28, 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 calculation were expected volatility of the Company of 36.3 % and expected volatility of the Company's peers, ranging from 28.7 % to 95.3 %, with an average volatility of 46.6 % and a risk-free interest rate of 1.61 %.

Significant inputs for the current period calculation were expected volatility of the Company of 29.0 % and expected volatility of the Company's peers, ranging from 32.2 % to 102.8 %, with an average volatility of 46.7 % and a risk-free interest rate of 4.46 %.

The fair value per share on the grant date specific to the target TSR relative to the Company’s peers was $ 24.13 and the target absolute TSR was $ 20.15 for a weighted average grant date fair value of $ 21.57 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 restricted stock unit activity for the period ended September 30, 2022:

The following table summarizes market-based RSU activity for the period ended March 31, 2023:

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 177,350 $ 19.83

Granted during the period 81,751 21.57

Forfeited during the period — —

Vested during the period — —

Unvested restricted stock grants outstanding as of September 30, 2022 238,296 $ 19.82

For the three and nine months ended September 30, 2022, the Company recognized $ 0.4 million and $ 1.0 million, respectively, in stock-based compensation expense associated market-based restricted stock units.

As of September 30, 2022 and December 31, 2021, the remaining unamortized stock-based compensation expense totaled $ 3.0 million and $ 1.8 million, respectively, and as of September 30, 2022, these awards are expected to be recognized over a remaining weighted average period of 2.1 years.

Unvested RSU grants outstanding as of March 31, 2023 259,101 $ 20.38

For the three months ended March 31, 2023, the Company recognized $ 0.3 million in stock-based compensation expense associated with market-based RSUs.

As of March 31, 2023, the remaining unamortized stock-based compensation expense totaled $ 3.4 million and as of March 31, 2023, these awards are expected to be recognized over a remaining weighted average period of 2.3 years.

Alignment of Interest Program

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The award will be remeasured to fair value each reporting period until the unvested RSUs are granted.

For the three and nine months ended September 30, 2022, the Company recognized approximately $ 0.1 million and $ 0.2 million, respectively in stock-based compensation expense associated with these awards.

For the three months ended March 31, 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.

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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 and nine months ended September 30, 2022 and 2021.

Three Months Ended September 30, Nine Months Ended September 30,

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, 2023 and 2022.

Three Months Ended March 31,

(In thousands, except share and per share data) 2023 2022

2 unchanged sentences

Net income attributable to common shares, basic 1,472 1,942

Net income (loss) attributable to noncontrolling interest 16 96 63 42

Net income attributable to noncontrolling interest 9 24

Net income attributable to common shares, diluted $ 1,481 $ 1,966

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

As of September 30, 2022 and December 31, 2021, there were 514,890 and 562,784 of OP Units outstanding, respectively.

As of March 31, 2023 and December 31, 2022, there were 507,773 and 513,467 of OP Units outstanding, respectively.

Note 12 – Commitments and Contingencies

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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.

Additionally, as of September 30, 2022, the Company had commitments to fund six properties under development totaling $ 11.2 million which is expected to be funded over the next six months .

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, 2023, the Company had commitments to fund three properties under development totaling $ 6.0 million which is expected to be funded over the next 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 a remaining noncancellable term of 9.8 years that expires on July 31, 2032 and is renewable at the Company’s option for two additional periods of five years .

The lease has an remaining noncancellable term of 9.3 years that expires on July 31, 2032 and is renewable at the Company’s option for two additional periods of 5 years.

Future minimum base rental payments under the lease are outlined in “Note - 3 - Leases.” Annual rent expense, excluding operating expenses, is approximately $ 0.5 million during the initial term.

As of September 30, 2022, 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 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 and nine months ended September 30, 2021, the Company incurred less than $ 0.1 million in related expenses.

As of March 31, 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 – Subsequent Events

The Company has evaluated all events that occurred subsequent to September 30, 2022 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.

The Company has evaluated all events that occurred subsequent to March 31, 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 October 25, 2022, the Company's Board of Directors declared a cash dividend of $ 0.20 per share for the fourth quarter of 2022 which will be paid on December 15, 2022 to shareholders of record on December 1, 2022.

On April 25, 2023, the Company's Board of Directors declared a cash dividend of $ 0.20 per share for the second quarter of 2023.

The dividend will be paid on June 15, 2023 to stockholders of record on June 1, 2023.

Revolver Activity

In April 2023, the Company borrowed $ 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.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements