NETSTREIT Corp. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Special Note Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements include, without limitation, statements concerning our business and growth strategies, investment, financing and leasing activities and trends in our business, including trends in the market for single-tenant, retail commercial real estate. Words such as “expects,” “anticipates,” “intends,” “plans,” “likely,” “will,” “believes,” “seeks,” “estimates,” and variations of such words and similar expressions are intended to identify such forward-looking statements. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from the results of operations or plans expressed or implied by such forward-looking statements. Although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore such statements included in this Quarterly Report on Form 10-Q may not prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that the results or conditions described in such statements or our objectives and plans will be achieved. For a further discussion of these and other factors that could impact future results, performance or transactions, see the information under the heading “Risk Factors” Part I, Item 1A. in our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the Securities and Exchange Commission (the “SEC”) on February 24, 2025, and other reports filed with the Securities and Exchange Commission from time to time. Forward-looking statements and such risks, uncertainties and other factors speak only as of the date of this Quarterly Report on Form 10-Q. New risks and uncertainties may arise over time and it is not possible for us to predict those events or how they may affect us. We expressly disclaim any obligation or undertaking to update or revise any forward-looking statement contained herein, to reflect any change in our expectations with regard thereto, or any other change in events, conditions or circumstances on which any such statement is based, except to the extent otherwise required by law. Business Overview We are an internally managed real estate company that acquires, owns, and manages a diversified portfolio of single-tenant retail commercial properties, subject to long-term net leases with high-credit-quality tenants across the United States. We also invest in property developments and mortgage loans secured by real estate. As of March 31, 2025, we owned or had investments in 695 properties diversified by tenant, industry, and geography, including 101 different tenants, across 26 retail sectors in 45 states. This excludes four property developments where rent has not yet commenced. We focus on tenants in industries where a physical location is critical to the generation of sales and profits, with a focus on necessity goods and essential services in the retail sector, including home improvement, auto parts, drug stores and pharmacies, general retail, grocers, convenience stores, discount stores, and quick-service restaurants, all of which we refer to as defensive retail industries. As of March 31, 2025, our investments generated ABR 1 of $168.7 million. Approximately 55% of our ABR is from investment grade 2 credit rated tenants and an additional 16% of our ABR is derived from tenants with an investment grade profile 3 . Our portfolio was 99.9% occupied and, excluding mortgage loans receivable, had a weighted average remaining lease term (“WALT”) of 9.7 years, which we believe provides a strong, stable source of recurring cash flow. ( 1 ) Annualized base rent (“ABR”) is annualized base rent for all leases that commenced and annualized cash interest for all executed mortgage loans as of March 31, 2025. (2) We define “investment grade” tenants as tenants, or tenants that are subsidiaries of a parent entity, with a credit rating of BBB- (S&P/Fitch), Baa3 (Moody’s) or NAIC2 (National Association of Insurance Commissioners) or higher. (3) We define “investment grade profile” tenants as tenants with metrics of more than $1.0 billion in annual sales and a debt to adjusted EBITDA ratio of less than 2.0x but do not carry a published rating from S&P, Moody’s or NAIC. 27 Table of Contents January 2025 Debt Transactions On January 15, 2025, we amended our existing credit agreements agented by PNC Bank, National Association (the “PNC Credit Agreement”), Wells Fargo Bank, National Association (the “Wells Fargo Credit Agreement”) and Truist Bank (the “Truist Credit Agreement”). The PNC Credit Agreement was amended and restated and provides for: a new $175.0 million senior unsecured term loan (the “2030 Term Loan B”); an existing $200.0 million senior unsecured term loan, which was fully funded under the existing PNC Credit Agreement (the “2028 Term Loan”); and an upsized $500.0 million senior unsecured revolving credit facility (increased from $400 million under the existing PNC Credit Agreement) (the “Revolver”). The 2030 Term Loan B and the upsized Revolver initially mature in January 2029 and include, at our election, a one-year option to extend the maturity to January 2030. The 2030 Term Loan B was fully funded on the closing date and we have hedged the entire $175.0 million 2030 Term Loan B at an all-in fixed interest rate of 5.12% through January 2030. The Wells Fargo Credit Agreement was amended and restated to extend the maturity date of the existing $175.0 million senior unsecured term loan (the “2030 Term Loan A”) thereunder from January 2027 to January 2029 with an option, at our election, to extend the maturity to January 2030. The Truist Credit Agreement governs existing term loans thereunder (the “2029 Term Loan”). Among other changes, each of the PNC Credit Agreement, Wells Fargo Credit Agreement, and Truist Credit Agreement were also amended to remove certain financial covenants and provide for revised, improved pricing when we meet certain investment grade rating and leverage targets. Results of Operations Overall We continued to grow our assets held for investment during the three months ended March 31, 2025 through the acquisition of properties, property developments, and investment in mortgage loans receivable, with an underwritten weighted-average capitalization rate of approximately 7.7%. This growth was financed through the amendment of our PNC Credit Agreement and receipt of proceeds of $175.0 million under the 2030 Term Loan B, the usage of cash balances as a result of borrowings on our Revolver, the usage of restricted cash balances as a result of tax-free exchanges under Section 1031 of the Internal Revenue Code of 1986, and cash flows from operations during the three months ended March 31, 2025. Acquisitions During the three months ended March 31, 2025, we acquired 18 properties for a total purchase price of $77.5 million, inclusive of $0.9 million of capitalized acquisition costs. The acquisitions were all accounted for as asset acquisitions. These properties are located in 14 states with a WALT of approximately 9.0 years. Development As of March 31, 2025, we had three property developments under construction. During the three months ended March 31, 2025, we invested $0.7 million in our property developments. During the three months ended March 31, 2025, we completed development on one project and reclassified approximately $3.8 million from property under development to land, buildings and improvements, and other assets (leasing commissions) in the accompanying condensed consolidated balance sheets. Rent is expected to commence for the completed development in the second quarter of 2025. The remaining three developments are expected to be substantially completed with rent commencing at various points throughout 2025. 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, 2025. Dispositions During the three months ended March 31, 2025, we sold 16 properties for a total sales price, net of disposal costs, of $38.6 million, recognizing a net gain of $2.1 million. 28 Table of Contents Investment in Mortgage Loans Receivable During the three months ended March 31, 2025, we invested an additional $10.5 million in fully collateralized mortgage loans receivable with stated interest rates ranging from 9.75% to 10.25%. In addition, during the three months ended March 31, 2025, we collected $4.8 million in principal on our mortgage loans receivable. The mortgage loans receivable are collateralized by real estate, primarily leased by investment grade credit rated tenants. The funds provided under the loans, in addition to discount and loan origination costs, net of loan origination fees of less than $0.1 million, are included in mortgage loans receivable, net in the accompanying condensed consolidated balance sheets as of March 31, 2025. See discussion of our mortgage loans receivable portfolio included in “Note 4 – Real Estate Investments” of our condensed consolidated financial statements, included in “Item 1 – Financial Statements (unaudited)”. Economic and Financial Environment Changes in global or national market and economic conditions, such as global economic and financial market volatility and global geopolitical conflict, have caused, and may continue to cause, among other things, tightening in the credit markets, lower levels of liquidity, fluctuating interest rates and inflation, increases in the rate of default and bankruptcy, and lower consumer and business spending, which could materially and adversely affect us. For example, the current and continuing macro-economic conditions of fluctuating inflation and fluctuating interest rates have increased the costs associated with acquiring new properties and decreased the availability of financing on terms that we find attractive, which has reduced our ability to acquire properties at our historical rate with attractive terms. Additionally, other macroeconomic pressures in the U.S. and the global economy, including new and proposed tariffs on imports into the United States and current and potential countermeasures by foreign governments and recession fears, may impact our tenants as consumers reduce discretionary spending. A decline in consumer spending has had and may continue to have an adverse effect on tenants which, in turn, could impact our performance if tenants terminate leases or otherwise fail to pay rents. Other potential consequences of changes in economic and financial conditions include: changes in the performance of our tenants, which may result in lower rent and lower recoverable expenses, and tenant defaults under the lease; current or potential tenants may delay or postpone entering into long-term leases with us; continuing increased costs of acquiring new properties on attractive terms; inability to borrow on terms and conditions that we find to be acceptable, which could continue to reduce our ability to pursue acquisition opportunities or increase future interest expense; and the recognition of impairment charges on or reduced values of our properties, which may adversely affect our results of operations or limit our ability to dispose of assets at attractive prices and may reduce the availability of buyer financing. We are also limited in our ability to reduce costs to offset the results of a prolonged or severe economic downturn given certain fixed costs and commitments associated with our operations. We continually monitor the commercial real estate and credit markets carefully and, if required, will make decisions to adjust our business strategy accordingly. 29 Table of Contents Three Months Ended March 31, 2025 Compared with Three Months Ended March 31, 2024 The following table sets forth our operating results for the periods indicated (in thousands): Three Months Ended March 31, 2025 2024 Revenues Rental revenue (including reimbursable) $ 42,590 $ 35,189 Interest income on loans receivable 3,075 2,484 Other revenue 245 — Total revenues 45,910 37,673 Operating expenses Property 4,803 4,102 General and administrative 5,169 5,707 Depreciation and amortization 20,923 17,541 Provisions for impairment 3,616 3,662 Transaction costs 47 129 Total operating expenses 34,558 31,141 Other (expense) income Interest expense, net (11,460) (6,180) Gain on sales of real estate, net 2,075 997 Loss on debt extinguishment (46) — Other expense, net (205) (280) Total other expense, net (9,636) (5,463) Net income before income taxes 1,716 1,069 Income tax expense (16) (17) Net income $ 1,700 $ 1,052 Revenue. Revenue for the three months ended March 31, 2025 increased by $8.2 million to $45.9 million from $37.7 million for the three months ended March 31, 2024, which is attributed to an increase in the number of our operating leases and properties securing our mortgage loans. The increase includes additional cash rental receipts of $6.8 million, an increase of $0.6 million related to interest income on mortgage loans receivable, combined net increases of property expense reimbursements of $0.3 million, and an increase of $0.4 million in straight-line rental revenue. Total operating expenses. Total expenses increased by $3.5 million to $34.6 million for the three months ended March 31, 2025 as compared to $31.1 million for the three months ended March 31, 2024. The increase is primarily attributed to an increase in the number of operating properties, with the most significant increases being depreciation and amortization expense and property-specific reimbursable expenses. Total operating expenses include the following: • Property expenses. Property expenses increased $0.7 million to $4.8 million for the three months ended March 31, 2025 from $4.1 million for the three months ended March 31, 2024. The increase is primarily attributed to an increase in the number of operating properties, including combined net increases of reimbursable property expenses of $0.5 million, of which $0.4 million and $0.2 million were related to reimbursable property taxes and reimbursable common area maintenance costs, respectively, partially offset by a decrease of $0.1 million of reimbursable insurance costs, and combined net increases of non-reimbursable property expenses of $0.2 million primarily related to property insurance and property taxes. • General and administrative expenses. General and administrative expenses decreased $0.5 million to $5.2 million for the three months ended March 31, 2025 from $5.7 million for the three months ended March 31, 2024. The decrease is primarily related to a decrease in employee severance of $0.8 million, including cash severance of $0.5 million and expense associated with the accelerated vesting of stock-based compensation of $0.3 million, and a decrease of $0.1 million of payroll expense. The decrease is partially offset by a $0.2 million increase in bonus expense and other combined increases of $0.2 million. While our general and administrative expenses will continue to rise in some measure as our portfolio grows, we expect that such expenses as a percentage of our portfolio will decrease over time due to efficiencies and economies of scale. 30 Table of Contents • Depreciation and amortization. Depreciation and amortization expense increased $3.4 million to $20.9 million for the three months ended March 31, 2025 from $17.5 million for the three months ended March 31, 2024. The increase in depreciation and amortization is proportionate to the increase in the size of the portfolio over the comparable period with associated increases primarily in building depreciation expense of $1.8 million, building improvements depreciation expense of $0.9 million, and in-place lease amortization expense of $0.7 million. • Provisions for impairment. For the three months ended March 31, 2025, we recorded provisions for impairment of $3.6 million on 13 properties, the majority of which were newly classified as held-for-sale during the three months ended March 31, 2025. Of those properties impaired, one property was held for investment as of March 31, 2025. For the three months ended March 31, 2024, we recorded provisions for impairment of $3.7 million on 12 properties, the majority of which were either previously classified as held-for-sale, newly classified as held-for-sale, or disposed of during three months ended March 31, 2024. These disposals relate to management’s continuous assessment of our portfolio in an effort to improve returns and manage risk exposure. Interest expense. Interest expense increased by $5.3 million to $11.5 million for the three months ended March 31, 2025 from $6.2 million for the three months ended March 31, 2024. The increase is primarily attributed to an increase of $1.9 million of interest incurred on our new 2030 Term Loan B, an increase of $0.8 million of interest incurred on our 2029 Term Loan, a $1.7 million increase in amortization of deferred losses on interest rate swaps, a decrease of $0.3 million of capitalized interest on our property developments, and an increase of $0.3 million of interest incurred on our Revolver primarily due to an increase in average borrowings outstanding during the respective periods. Gain on sales of real estate, net. Net gain on sales of real estate increased by $1.1 million to $2.1 million for the three months ended March 31, 2025 from $1.0 million for the three months ended March 31, 2024. The table below summarizes the properties sold for the periods indicated (in thousands): Three Months Ended March 31, 2025 2024 Number of properties sold 16 12 Sales price, net of disposal costs $ 38,563 $ 20,466 Gain on sales of real estate, net $ 2,075 $ 997 Other expense, net. The change in other expense, net is primarily related to a $0.4 million decrease in losses associated with property damages on one property with foundation issues in 2024. The decrease is offset by a $0.4 million increase in third-party debt issuance costs expensed during the three months ended March 31, 2025 as a result of the January 2025 debt transaction. Net income. Net income increased by $0.6 million to $1.7 million for the three months ended March 31, 2025 from $1.1 million for the three months ended March 31, 2024. Net income increased primarily due to increased gains on sales of real estate, decreased general and administrative expenses, and additional rental revenues, primarily due to the growth in the size of our real estate investment portfolio, in addition to increased interest income associated with our mortgage loans receivable, partially offset by increases in interest expense, depreciation and amortization expense, and property expenses. Liquidity and Capital Resources Our primary capital requirements are to fund property acquisitions and developments, fund investments in mortgage loans receivable and required interest payments, and fund working capital needs, operating expenses, and capital expenditures. Our capital resources primarily consist of cash from operations, sales of equity securities, and available borrowing facilities. As of March 31, 2025, we had $175.0 million outstanding principal amount under the 2030 Term Loan A, $200.0 million outstanding principal amount under the 2028 Term Loan, $250.0 million outstanding principal amount under the 2029 Term Loan, $175.0 million outstanding principal amount under the 2030 Term Loan B, and $114.5 million of borrowings outstanding under the Revolver. Additionally, as of March 31, 2025, we had $30.4 million and $2.6 million of unsettled forward equity under our prior at-the-market equity program and our $300.0 million at-the-market equity program entered into in August 2024 (the “2024 ATM Program”), respectively. As of March 31, 2025, $300.0 million of remaining gross proceeds were available for future issuances of shares of our common stock under the 2024 ATM Program, inclusive of unsettled shares under forward sale agreements. Lastly, we had $151.5 million of unsettled forward equity under the January 2024 follow-on offering forward sale agreements as of March 31, 2025. 31 Table of Contents On January 15, 2025, we amended our PNC Credit Agreement to provide for: a new $175.0 million 2030 Term Loan B and an upsized $500.0 million Revolver. The 2030 Term Loan B and the upsized Revolver initially mature in January 2029 and include, at our election, a one-year option to extend the maturity to January 2030. The 2030 Term Loan B was fully funded on the closing date and we have hedged the entire $175.0 million 2030 Term Loan B at an all-in fixed interest rate of 5.12% through January 2030. The Wells Fargo Credit Agreement was amended and restated to extend the maturity date of the existing $175.0 million 2030 Term Loan A from January 2027 to January 2029 with an option, at our election, to extend the maturity to January 2030. We believe the availability of proceeds from the settlement of unsettled outstanding forward sale agreements, future issuances of shares of our common stock under the 2024 ATM Program, or subsequent at-the-market sale programs, as well as our cash flows from operations and available borrowing capacity under the Revolver, will be adequate to support our ongoing operations and to fund our debt service requirements, capital expenditures and working capital requirements for at least the next 12 months. We anticipate funding our long-term capital needs through cash provided from operations, borrowings under our Revolver, and issuances of common stock. Contractual Obligations and Commitments As of March 31, 2025, our contractual debt obligations primarily include the maturities of our 2030 Term Loan A and 2030 Term Loan B with the scheduled principal payments due on January 15, 2029, the maturity of our 2028 Term Loan with the scheduled principal payment due on February 11, 2028, the maturity of our 2029 Term Loan with the scheduled principal payment due on July 3, 2026, and the repayment of borrowings on our Revolver with a contractual maturity of January 15, 2029. During the three months ended March 31, 2025, we borrowed $89.5 million at a weighted average interest rate of 5.36% and also repaid $214.0 million on our Revolver. The following table provides information with respect to our commitments as of March 31, 2025 (in thousands): Payment Due by Period Total From April 1, 2025 to December 31, 2025 2026 - 2027 2028 - 2029 Thereafter Contractual Obligations 2028 Term Loan – Principal $ 200,000 $ — $ — $ 200,000 $ — 2028 Term Loan – Variable interest (1) 22,259 5,847 15,521 891 — 2029 Term Loan – Principal 250,000 — 250,000 — — 2029 Term Loan – Variable interest (2) 15,674 9,391 6,283 — — 2030 Term Loan A – Principal 175,000 — — 175,000 — 2030 Term Loan A – Variable interest (3) 24,212 4,807 12,762 6,643 — 2030 Term Loan B – Principal 175,000 — — 175,000 — 2030 Term Loan B – Variable interest (4) 34,025 6,756 17,934 9,335 Revolver – Borrowings 114,500 — — 114,500 — Revolver – Variable interest 23,680 4,702 12,481 6,497 — Facility Fee (5) 2,846 565 1,500 781 — Mortgage Note – Principal 8,164 133 8,031 — — Mortgage Note – Interest 956 275 681 — — Property development under contract 7,025 7,025 — — — Additional principal under mortgage loans receivable 10,893 9,673 1,220 — — Tenant improvement allowances 4,089 1,349 2,740 — — Corporate office lease obligations 5,113 479 1,323 1,396 1,915 Total $ 1,073,436 $ 51,002 $ 330,476 $ 690,043 $ 1,915 (1) We have three interest rate derivative contracts to fix the base interest rate (daily simple SOFR) on our 2028 Term Loan. Accordingly, the projected interest rate obligations for the variable rate 2028 Term Loan are based on the hedged fixed rate of 2.63% compared to the variable 2028 Term Loan daily simple SOFR rate as of March 31, 2025 of 4.32%, plus a SOFR adjustment of 0.10% and applicable margin of 1.15% based on the $200.0 million 2028 Term Loan outstanding through the maturity date of February 11, 2028. (2) We have four interest rate derivative contracts to fix the base interest rate (daily simple SOFR) on our 2029 Term Loan. Accordingly, the projected interest rate obligations for the variable rate 2029 Term Loan are based on the hedged fixed rate of 3.74% compared to the variable 2029 Term Loan daily simple SOFR rate as of March 31, 2025 of 4.36%, plus a SOFR adjustment of 0.10% and applicable margin of 1.15% based on the $250.0 million of the 2029 Term Loan outstanding through the contractual maturity date of July 3, 2026. 32 Table of Contents (3) We have four interest rate derivative contracts to fix the base interest rate (daily simple SOFR) on our 2030 Term Loan A. Accordingly, the projected interest rate obligations for the variable rate 2030 Term Loan A are based on the hedged fixed rate of 2.40%, compared to the variable 2030 Term Loan A daily simple SOFR rate as of March 31, 2025 of 4.31%, plus a SOFR adjustment of 0.10% and applicable margin of 1.15% based on the $175.0 million 2030 Term Loan A outstanding through the contractual maturity date of January 15, 2029. (4) We have seven interest rate derivative contracts to fix the base interest rate (daily simple SOFR) on our 2030 Term Loan B. Accordingly, the projected interest rate obligations for the variable rate 2030 Term Loan B are based on the hedged fixed rate of 3.87%, compared to the variable 2030 Term Loan B daily simple SOFR rate as of March 31, 2025 of 4.35%, plus a SOFR adjustment of 0.10% and applicable margin of 1.15% based on the $175.0 million 2030 Term Loan B outstanding through the contractual maturity date of January 15, 2029. (5) We are subject to a facility fee of 0.15% on our Revolver. In August 2021, we entered into a lease agreement related to our corporate office space, which is classified as an operating lease. We began operating out of the office in February 2022. The lease has a remaining noncancellable term of 7.3 years that expires on July 31, 2032 and is renewable at our option for two additional periods of five years. Annual rent expense, excluding operating expenses, is approximately $0.5 million during the initial term. Additionally, in the normal course of business, we enter into various types of commitments to purchase real estate properties, fund development projects, or extend funds under mortgage loans receivable. These commitments are generally subject to our customary due diligence process and, accordingly, a number of specific conditions must be met before we are obligated to purchase or extend funding. As of March 31, 2025, we had commitments to fund properties under development and extend funds under mortgage loans receivable totaling $7.0 million and $10.9 million, respectively, which is expected to be funded over the next 12 months. Debt See discussion of our debt and interest rate hedges included in “Note 6 – Debt,” and “Note 7 – Derivative Financial Instruments” in “Item 1 – Financial Statements (unaudited).” Historical Cash Flow Information Three Months Ended March 31, 2025 Compared with Three Months Ended March 31, 2024 Three Months Ended March 31, 2025 2024 (In thousands) (Unaudited) Net cash provided by (used in): Operating activities $ 22,091 $ 11,651 Investing activities (48,308) (97,202) Financing activities 26,102 77,956 Cash Flows Provided By Operating Activities. Net cash provided by operating activities increased by $10.4 million for the three months ended March 31, 2025 compared to the three months ended March 31, 2024. The increase was largely attributed to the increase in the size of our real estate investment portfolio with an increase in rental receipts of $6.8 million, additional interest received under our mortgage loans receivable, partially offset by an increase in cash interest paid of $3.5 million, increases in operating and general and administrative expenses paid associated with our larger portfolio, and changes in working capital accounts. Cash Flows Used In Investing Activities. Net cash used in investing activities decreased by $48.9 million for the three months ended March 31, 2025 compared to the three months ended March 31, 2024. The decrease was primarily due to an increase of $18.1 million in proceeds from the sale of real estate, a decrease of $17.7 million in acquisitions of real estate, a decrease of $9.5 million in real estate development and improvements, and an increase of $4.8 million in principal collections on mortgage loans receivable, partially offset by an increase of $0.9 million in earnest money deposits. Cash Flows Provided By Financing Activities. Net cash provided by financing activities decreased by $51.9 million for the three months ended March 31, 2025 compared to the three months ended March 31, 2024. The decrease was primarily attributed to an increase in net repayments of $119.5 million under our Revolver, an increase in payments of common stock dividends of $2.2 million, and an increase in deferred financing costs of $6.3 million. The decrease is partially offset by an increase in net term loan proceeds of $75.0 million, a decrease in the repurchase of common stock for tax withholding obligations of $0.5 million, a decrease in payment of restricted stock dividends of $0.2 million, and a decrease in deferred offering costs of $0.3 million. 33 Table of Contents Income Taxes We elected to be treated and qualify as a REIT for U.S. federal income tax purposes beginning with our short taxable year ended December 31, 2019. To qualify as a REIT, we must meet certain organizational, income, asset and distribution tests. Accordingly, we will generally not be subject to corporate U.S. federal or state income tax to the extent that we make qualifying distributions of all of our taxable income to our stockholders and provided we satisfy on a continuing basis, through actual investment and operating results, the REIT requirements, including certain asset, income, distribution and share ownership tests. We intend to make sufficient distributions during 2025 to receive a full dividends paid deduction. We maintain a taxable REIT subsidiary (“TRS”) which may be subject to U.S. federal, state, and local income taxes on its taxable income. In general, our TRS may perform services for our tenants, hold assets that we cannot hold directly, and may engage in any real estate or non-real estate-related business. Recent Accounting Pronouncements A discussion of recent accounting pronouncements and their possible effects on our condensed consolidated financial statements is included in “Note 2 – Summary of Significant Accounting Policies” in “Item 1 – Financial Statements (unaudited).” Critical Accounting Policies and Estimates Our accounting policies have been established to conform with U.S. GAAP. The preparation of financial statements in conformity with U.S. GAAP requires us to use judgment in the application of accounting policies, including making estimates and assumptions. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Management believes that we have made these estimates and assumptions in an appropriate manner and in a way that accurately reflects our financial condition. We continually test and evaluate these estimates and assumptions using our historical knowledge of the business, as well as other factors, to ensure that they are reasonable for reporting purposes. However, actual results may differ from these estimates and assumptions. If our judgment or interpretation of the facts and circumstances relating to the various transactions had been different, it is possible that different accounting policies would have been applied, thus resulting in a different presentation of the financial statements. Additionally, other companies may utilize different estimates that may impact comparability of our results of operations to those of companies in similar businesses. A summary of our critical accounting policies is included in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2024, which is accessible on the SEC’s website at www.sec.gov. There have been no material changes to these policies during the periods covered by this quarterly report. Non-GAAP Financial Measures Our reported results are presented in accordance with GAAP. We also disclose the following non-GAAP financial measures: Funds From Operations (“FFO”), Core FFO, Adjusted FFO (“AFFO”), earnings before interest expense, income tax expense, and depreciation and amortization (“EBITDA”), EBITDA further adjusted to exclude gains (or losses) from the sales of depreciable property and real estate impairment losses (“EBITDA re ”), Adjusted EBITDA re , Annualized Adjusted EBITDA re , Net Debt, Adjusted Net Debt, property-level net operating income (“Property-Level NOI”), property-level cash net operating income (“Property-Level Cash NOI”), property-level cash net operating income estimated run rate (“Property-Level Cash NOI Estimated Run Rate”), and total property-level cash net operating income estimated run rate (“Total Property-Level Cash NOI Estimated Run Rate”), all of which are detailed below. We believe these non-GAAP financial measures are industry measures used by analysts and investors to compare the operating performance of REITs. FFO, Core FFO and AFFO The National Association of Real Estate Investment Trusts (“NAREIT”), an industry trade group, has promulgated a widely accepted non-GAAP financial measure of operating performance known as FFO. Our FFO is net income in accordance with GAAP, excluding gains (or losses) resulting from dispositions of properties, plus depreciation and amortization and impairment charges on depreciable real property. 34 Table of Contents Core FFO is a non-GAAP financial measure defined as FFO adjusted to remove the effect of unusual and non-recurring items that are not expected to impact our operating performance or operations on an ongoing basis. These include non-recurring executive transition costs, severance and related charges, other loss (gain), net, and loss on debt extinguishments and other related costs. AFFO is a non-GAAP financial measure defined as Core FFO adjusted for GAAP net income related to non-cash revenues and expenses, such as straight-line rent, amortization of above- and below-market lease-related intangibles, amortization of lease incentives, capitalized interest expense and earned development interest, non-cash interest expense, non-cash compensation expense, amortization of deferred financing costs, amortization of above/below-market assumed debt, and amortization of loan origination costs. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. In fact, real estate values historically have risen or fallen with market conditions. FFO is intended to be a standard supplemental measure of operating performance that excludes historical cost depreciation and valuation adjustments from net income. We consider FFO to be useful in evaluating potential property acquisitions and measuring operating performance. We further consider FFO, Core FFO, and AFFO to be useful in determining funds available for payment of distributions. FFO, Core FFO, and AFFO do not represent net income or cash flows from operations as defined by GAAP. You should not consider FFO, Core FFO, and AFFO to be alternatives to net income as a reliable measure of our operating performance nor should you consider FFO, Core FFO, and AFFO to be alternatives to cash flows from operating, investing, or financing activities (as defined by GAAP) as measures of liquidity. FFO, Core FFO, and AFFO do not measure whether cash flow is sufficient to fund our cash needs, including principal amortization, capital improvements and distributions to stockholders. FFO, Core FFO, and AFFO do not represent cash flows from operating, investing, or financing activities as defined by GAAP. Further, FFO, Core FFO, and AFFO as disclosed by other REITs might not be comparable to our calculations of FFO, Core FFO, and AFFO. The following table sets forth a reconciliation of FFO, Core FFO, and AFFO for the periods presented to net income before allocation to noncontrolling interests, as computed in accordance with GAAP (in thousands): Three Months Ended March 31, 2025 2024 (Unaudited) Net income $ 1,700 $ 1,052 Depreciation and amortization of real estate 20,850 17,462 Provisions for impairment 3,616 3,662 Gain on sales of real estate, net (2,075) (997) FFO 24,091 21,179 Adjustments: Non-recurring executive transition costs, severance and related charges 76 857 Loss on debt extinguishment and other related costs 403 — Other non-recurring loss, net — 414 Core FFO 24,570 22,450 Adjustments: Straight-line rent adjustments (954) (542) Amortization of deferred financing costs 664 558 Amortization of above/below-market assumed debt 29 29 Amortization of loan origination costs and discounts (77) 39 Amortization of lease-related intangibles (70) (95) Earned development interest 43 332 Capitalized interest expense (50) (353) Non-cash interest expense (income) 705 (979) Non-cash compensation expense 1,388 1,424 AFFO $ 26,248 $ 22,863 35 Table of Contents EBITDA, EBITDAre, Adjusted EBITDAre and Annualized Adjusted EBITDAre We compute EBITDA as earnings before interest expense, income tax expense, and depreciation and amortization. In 2017, NAREIT issued a white paper recommending that companies that report EBITDA also report EBITDA re . We compute EBITDA re in accordance with the definition adopted by NAREIT. NAREIT defines EBITDA re as EBITDA (as defined above) excluding gains (or losses) from the sales of depreciable property and impairment charges on depreciable real property. Adjusted EBITDA re is a non-GAAP financial measure defined as EBITDA re further adjusted to exclude straight-line rent, non-cash compensation expense, non-recurring executive transition costs, severance and related charges, loss on debt extinguishment and other related costs, transaction costs, other non-recurring loss (gain), net, other non-recurring expenses (income) including lease termination fees, as well as adjustments for construction in process and for intraquarter activities. Annualized Adjusted EBITDA re is Adjusted EBITDA re multiplied by four. We present EBITDA, EBITDA re , Adjusted EBITDA re , and Annualized Adjusted EBITDA re as they are measures commonly used in our industry. We believe that these measures are useful to investors and analysts because they provide supplemental information concerning our operating performance, exclusive of certain non-cash items and other costs. We use EBITDA, EBITDA re , Adjusted EBITDA re , and Annualized Adjusted EBITDA re as measures of our operating performance and not as measures of liquidity. EBITDA, EBITDA re , Adjusted EBITDA re , and Annualized Adjusted EBITDA re do not include all items of revenue and expense included in net income, they do not represent cash generated from operating activities and they are not necessarily indicative of cash available to fund cash requirements; accordingly, they should not be considered alternatives to net income as a performance measure or cash flows from operations as a liquidity measure and should be considered in addition to, and not in lieu of, GAAP financial measures. Additionally, our computation of EBITDA, EBITDA re , Adjusted EBITDA re , and Annualized Adjusted EBITDA re may differ from the methodology for calculating these metrics used by other equity REITs and, therefore, may not be comparable to similarly titled measures reported by other equity REITs. The following table sets forth a reconciliation of EBITDA and EBITDA re for the periods presented to net income before allocation to noncontrolling interests, as computed in accordance with GAAP (in thousands): Three Months Ended March 31, 2025 2024 (Unaudited) Net income $ 1,700 $ 1,052 Depreciation and amortization of real estate 20,850 17,462 Amortization of lease-related intangibles (70) (95) Non-real estate depreciation and amortization 73 79 Interest expense, net 11,460 6,180 Income tax expense 16 17 Amortization of loan origination costs and discounts (77) 39 EBITDA 33,952 24,734 Adjustments: Provisions for impairment 3,616 3,662 Gain on sales of real estate, net (2,075) (997) EBITDA re $ 35,493 $ 27,399 36 Table of Contents The following table sets forth a reconciliation of EBITDA, EBITDA re , Adjusted EBITDA re, and Annualized Adjusted EBITDA re for the period presented to net income before allocation to noncontrolling interests, as computed in accordance with GAAP (in thousands): Three Months Ended March 31, 2025 Net income $ 1,700 Depreciation and amortization of real estate 20,850 Amortization of lease-related intangibles (70) Non-real estate depreciation and amortization 73 Interest expense, net 11,460 Income tax expense 16 Amortization of loan origination costs and discounts (77) EBITDA 33,952 Adjustments: Provisions for impairment 3,616 Gain on sales of real estate, net (2,075) EBITDA re 35,493 Adjustments: Straight-line rent adjustments (954) Loss on debt extinguishment and other related costs 403 Non-recurring executive transition costs, severance and related charges 76 Other non-recurring expenses, net 364 Transaction costs 47 Non-cash compensation expense 1,388 Adjustment for construction in process (1) 146 Adjustment for intraquarter investment activities (2) 1,162 Adjusted EBITDA re $ 38,125 Annualized Adjusted EBITDA re (3) $ 152,500 Adjusted Net Debt / Annualized Adjusted EBITDA re 4.7 (1) Adjustment reflects the estimated cash yield on developments in process as of March 31, 2025. (2) Adjustment assumes all re-leasing activity, investments in and dispositions of real estate, including developments completed during the three months ended March 31, 2025, had occurred on January 1, 2025. (3) We calculate Annualized Adjusted EBITDA re by multiplying Adjusted EBITDA re by four. Net Debt and Adjusted Net Debt We calculate our Net Debt as our principal amount of total debt outstanding excluding deferred financing costs, net discounts, and debt issuance costs less cash, cash equivalents, and restricted cash available for future investment. We further adjust Net Debt by the net value of unsettled forward equity as of period end to derive Adjusted Net Debt. We believe excluding cash, cash equivalents, and restricted cash available for future investment from our principal amount in addition to excluding the net value of unsettled forward equity, all of which could be used to repay debt, provides an estimate of the net contractual amount of borrowed capital to be repaid. We believe these adjustments are additional beneficial disclosures to investors and analysts. 37 Table of Contents The following table reconciles the principal amount of total debt to Net Debt and Adjusted Net Debt (in thousands): As of March 31, 2025 Principal amount of total debt $ 922,664 Less: Cash, cash equivalents, and restricted cash (14,205) Net Debt 908,459 Less: Net value of unsettled forward equity (1) (184,481) Adjusted Net Debt $ 723,978 (1) There were 10,735,647 unsettled shares under forward sale agreements as of March 31, 2025 at the available weighted-average net settlement price of $17.18. Property-Level NOI, Property-Level Cash NOI, Property-Level Cash NOI - Estimated Run Rate, and Total Cash NOI - Estimated Run Rate Property-Level NOI, Property-Level Cash NOI, Property-Level Cash NOI - Estimated Run Rate, and Total Cash NOI - Estimated Run Rate are non-GAAP financial measures which we use to assess our operating results. We compute Property-Level NOI as net income (computed in accordance with GAAP), excluding general and administrative expenses, interest expense (or income), income tax expense, amortization of loan origination costs and discounts, transaction costs, depreciation and amortization, gains (or losses) on sales of depreciable property, real estate impairment losses, interest income on mortgage loans receivable, loss on debt extinguishment, and other expense (income), net, including lease termination fees. We further adjust Property-Level NOI for non-cash revenue components of straight-line rent and amortization of lease-intangibles to derive Property-Level Cash NOI. We further adjust Property-Level Cash NOI for intraquarter acquisitions, dispositions, and completed development to derive Property-Level Cash NOI - Estimated Run Rate. We further adjust Property-Level Cash NOI - Estimated Run Rate for interest income on mortgage loans receivable and intraquarter mortgage loan activity to derive Total Cash NOI - Estimated Run Rate. We believe Property-Level NOI, Property-Level Cash NOI, Property-Level Cash NOI - Estimated Run Rate, and Total Cash NOI - Estimated Run Rate provide useful and relevant information because they reflect only those income and expense items that are incurred at the property level and present such items on an unlevered basis. Property-Level NOI, Property-Level Cash NOI, Property-Level Cash NOI - Estimated Run Rate, and Total Cash NOI - Estimated Run Rate are not measurements of financial performance under GAAP and may not be comparable to similarly titled measures of other companies. You should not consider our measures as alternatives to net income or cash flows from operating activities determined in accordance with GAAP. 38 Table of Contents The following table sets forth a reconciliation of Property-Level NOI, Property-Level Cash NOI, Property-Level Cash NOI - Estimated Run Rate, and Total Cash NOI - Estimated Run Rate for the period presented (in thousands): Three Months Ended March 31, 2025 Net income $ 1,700 General and administrative 5,169 Depreciation and amortization 20,923 Provisions for impairment 3,616 Transaction costs 47 Interest expense, net 11,460 Gain on sales of real estate, net (2,075) Income tax expense 16 Amortization of loan origination costs and discounts (77) Loss on debt extinguishment 46 Interest income on mortgage loans receivable (3,075) Other expense, net 495 Property-Level NOI 38,245 Straight-line rent adjustments (954) Amortization of lease-related intangibles (70) Property-Level Cash NOI $ 37,221 Adjustment for intraquarter acquisitions, dispositions, and completed development (1) 1,078 Property-Level Cash NOI Estimated Run Rate 38,299 Interest income on mortgage loans receivable 3,075 Adjustments for intraquarter mortgage loan activity (2) 84 Total Cash NOI - Estimated Run Rate $ 41,458 (1) Adjustment assumes all re-leasing activity, investments in and dispositions of real estate, including developments completed during the three months ended March 31, 2025, had occurred on January 1, 2025. (2) Adjustment assumes all loan activity completed during the three months ended March 31, 2025 had occurred on January 1, 2025.