NETSTREIT Corp. (NTST) 2026 Q3 法說會逐字稿

Greetings, and welcome to the NETSTREIT third quarter 2026 earnings call. (Operator Instructions) Please note this conference is being recorded.

I will now turn the conference over to your host, Matt Miller. Thank you. You may begin.

Good morning, and thank you for joining us for NETSTREIT's third quarter 2026 earnings conference call. On today's call, management's remarks and responses to your questions may contain statements considered forward-looking under federal securities law. These statements address matters subject to risks and uncertainties that may cause actual results to differ from those discussed today.

For more information on these factors, we encourage you to review our latest Form 10-K and other SEC filings. All forward-looking statements are made as of today's date, and NETSTREIT assumes no obligation to update them in the future.

In addition, certain financial information presented on this call includes non-GAAP financial measures. Please refer to our earnings release and supplemental package for definitions, reconciliations to the most comparable GAAP measures and an explanation of their usefulness to investors.

These materials can be found in the Investor Relations section of the company's website at netstreit.com. Today's call is hosted by NETSTREIT's CEO, Mark Manheimer; and CFO, Dan Donlan. They will make some prepared remarks followed by a Q&A session.

With that, I'll turn the call over to Mark.

Thank you, Matt, and good morning, everyone. We appreciate you joining us today to discuss NETSTREIT's third quarter 2026 results. Before I get into the numbers, I want to recognize the hard work of our team across acquisitions, asset management, accounting and capital markets. Their discipline and focus have allowed us to stay both active and selective in a quickly changing transaction environment. We are pleased to report another solid quarter of investments leased to high-quality net lease tenants.

While higher interest rates have raised capital costs across the net lease sector, our smaller relative denominator, low leverage and strong liquidity are true differentiators for NETSTREIT. We can afford to remain discriminating in our investment decisions, and yet we still have considerable capital capacity to fund an increasingly attractive opportunity set from a nominal yield perspective as the market evolves.

In the third quarter, we completed strong gross investment activity of $273.1 million at a 7.4% blended cash yield with a weighted average lease term of 13 years. Approximately 44% of the annualized base rent from these investments was derived from investment-grade and investment-grade profile tenants. These investments are focused around our core necessity and service-based retail categories, which we believe should prove resilient in any macroeconomic backdrop.

Year-to-date, gross investments have totaled $811 million at the same 7.4% blended cash yield, which is well ahead of $657.1 million we completed for all of 2025. This meaningful increase in volume speaks to the scalability of our platform and our team's ability to ramp up when market conditions are favorable. During the third quarter, we also executed dispositions of $39.5 million at a 7.2% cash yield and had $28.2 million of loan repayments. In the near term, we intend to remain active on asset sales to prudently manage the risk profile of our assets and lease maturities in order to maximize cash flows for the long term.

Looking at the broader market, we believe cap rates are likely to increase moderately in the short term as higher financing costs continue to work through the system. A meaningful portion of the buyer universe, particularly smaller private buyers have historically relied on higher leverage and more expensive debt to make deals pencil. As that capital has become less available and more costly, these buyers are increasingly being shut out of the acquisition market.

At the same time, larger institutions have materially less dry powder today. This dynamic is precisely why we operate with lower leverage and look to prefund our capital needs several quarters in advance. It preserves our flexibility and gives us the optionality to step up and take advantage of market disruption when and if it materializes rather than being constrained by balance sheet capacity.

Turning to our portfolio. We had 913 investments at quarter end, generating $246.3 million of ABR leased to 158 tenants across 28 industries in 46 states. With just one vacant asset at quarter end, our occupancy was 99.9%. Our weighted average lease term was 10.1 years and investment-grade and investment-grade profile tenants represented over 58% of ABR.

From a diversification standpoint, our top 10 tenants now represent 29.2% of ABR versus 37.9% at this time last year. Furthermore, the unit level coverage of our portfolio improved to 3.9 times and was just 3.4% of ABR having less than 1.5 times coverage. We are well insulated should a weaker economy more broadly dampen retail sales.

From a capital markets perspective, we secured $550 million of additional financing commitments and extended our weighted average debt maturity profile with no major debt maturities until 2029. Total liquidity at quarter end exceeded $1.25 billion, including significant undrawn revolver and term loan capacity along with unsettled forward equity. Leverage remains conservative with adjusted net debt to annualized adjusted EBITDAre of 3.7 times.

Turning to guidance. We are maintaining our full year 2026 AFFO per share guidance range of $1.37 to $1.39, and we now expect 2026 net investment activity of at least $800 million, which is modestly up from our prior range of $700 million to $800 million. In summary, the third quarter demonstrated the strength of our platform, the resilience of our portfolio and the flexibility of our balance sheet. We remain optimistic about our growth prospects given our capital runway through 2027 and the continued availability of attractive opportunities.

With that, I'll turn the call over to Dan to review the third quarter financial results in greater detail. We will then be happy to take your questions.

Thank you, Mark. Looking at our third quarter earnings, we reported net income of $8.5 million or $0.08 per diluted share. Core FFO for the quarter was $36.6 million or $0.34 per diluted share and AFFO was $37.5 million or $0.35 per diluted share, which was an increase of 6.1% over last year.

Turning to the expense front, our total recurring G&A in the third quarter increased 3.3% quarter over quarter to $6 million. From a G&A scale perspective, our total recurring G&A represented 9.1% of total revenues this quarter versus 10.6% in the prior year quarter. As such, G&A continues to rationalize relative to our revenue base.

Turning to the capital markets, we remain opportunistic on the ATM front, raising 1 million shares for 21 million of net proceeds. In addition, we settled 24 million shares for nearly $420 million in net proceeds, which was significantly more than we anticipated when we reported second quarter earnings in July.

While this will help to reduce future dilution from the treasury stock method, as the remaining unsettled forward balance has a weighted average gross price of $20.09, we are now starting the fourth quarter with considerably higher share count versus our prior expectations.

From a debt perspective, we paid off our $200 million term loan due February 2028 with proceeds from draws on our 2031 and 2032 term loans and simultaneously transferred over the swaps from the 2028 term loan to these new draws. As such, when including extension options, which can be exercised at our discretion, we have no material debt maturing until 2029.

In addition, we also raised a new $400 million seven-year delayed draw term loan due September 2033, which remains fully undrawn as of today. We intend to draw down on this term loan over the course of 2027 to fund future net investment activity and term out our revolving line of credit.

Turning to the balance sheet, our adjusted net debt, which includes the impact of all forward equity, was $853.7 million. Our weighted average debt maturity was four years, and our weighted average interest rate was 4.26%. In addition, our total liquidity was $1.3 billion at quarter end, which consisted of approximately $42 million on hand, $500 million available on a revolving credit facility, $312 million of unsettled forward equity, and $400 million of undrawn term loan capacity.

From a leverage perspective, our adjusted net debt to annualized adjusted EBITDAre was 3.7 times at quarter end, which remains comfortably below our leverage comfort zone of 4.5 to 5.5 times.

Moving on to guidance, we are maintaining both our full year 2026 AFFO per share guidance range of $1.37 to $1.39 and our recurring cash G&A range of $16.5 million to $17.5 million. As Mark stated earlier, we now expect 2026 net investment activity to be at least $800 million.

In addition, our AFFO per share guidance now includes approximately $0.035 to $0.04 per share of estimated dilution, or 2.8 million to 3.1 million shares, due to the impact of the company's outstanding forward equity calculated in accordance with the treasury stock method. This compares to the prior range of $0.05 to $0.08 per share of estimated dilution.

However, due to our deliberate decision to settle 24 million forward shares in the third quarter, our estimated weighted average share count for 2026 is now approximately 2 million to 2.3 million shares higher than previously anticipated, which has an estimated dilutive impact of $0.025 to $0.03 per share. In short, the positive impact to 2026 from having less dilution from the treasury stock method has been more than offset by our decision to settle more forward shares this quarter.

Lastly, on October 15, the Board declared a quarterly cash dividend of $0.225 per share. The dividend will be paid on December 15 to shareholders of record as of December 1.

With that, operator, we will now open the line for questions.

(Operator Instructions)

Haendel St. Juste, Mizuho Securities.

I was hoping you could talk a bit more about your capital deployment, balance sheet management strategy here in light of higher rates and your repriced cost of capital. How much capital runway do you estimate you have? Is it fair for us to assume capital deployment is going to slow in the near term, dispositions will tick up a bit, leverage may tick up as well. So maybe some thoughts on the deployment and balance sheet strategy would be helpful.

Yes. Haendel, I appreciate the question. So as we think about the next five quarters, we have roughly $550 million of net investment capacity before we got to 5 times, which is the midpoint of our leverage comfort zone. So that's kind of how we're thinking about next year. And so if you think about that $550 million, we do see a path towards mid-single-digit AFFO growth next year without needing to raise any equity between now and 2027 year-end. And I would note that keep in mind that does include headwinds from refi the $175 million swap.

So that's how we see the base case shaping up for 2027, which is not dissimilar to how we've guided to the forward year in prior years. But look, if our cost of equity improves, we could obviously accelerate our net investment activity and the sooner the better, and that would push up our potential growth to the higher end of that mid-single-digit range while still ending the year actually in the low to mid-4x range.

So it really just depends on kind of where our cost of equity is and how quickly we deploy the capital. I think we're going to be judicious with the capital that we have raised. I guess, Mark, do you want to.

Yes, sure. And I mean, I think we're in a really good position. I mean, just turning to Page 19 in our investor presentation, you kind of see there's really only three other REITs or 3 REITs, including us that are in a pretty good leverage position where we have a lot of dry powder. We've seen from a competition standpoint, the private buyer really dry up. You think about the 1031 small family office buyer that is kind of borrowing from their community banks at 50% to 65% LTV at 7-plus percent interest rates. They're not really competitive right now.

So the supply and demand is shifting. We're seeing it happen real time. And so cap rates need to move up unless interest rates move down and everybody's equity price gets a lot better really fast. So I think something got to give, and I think it's likely going to be cap rates here in the short term. We're certainly already seeing that. And then the good news for us is we're in a really good capital position where we have capital to deploy, which is why we maintain a low leverage balance sheet.

That's great, guys. I appreciate the color there. And maybe a follow-up on cap rates you brought up. I'm curious how much price -- I guess, thoughts on balancing pricing power and risk management here as you look to optimize yield versus risk? How much do you think you could push cap rates?

Are you willing to enter new verticals or maybe I wouldn't say push risk, but just how do you envision sourcing higher cap rates and does it involve new verticals or -- and any change to perhaps your views on certain subsectors or risk profiles?

Yes. Thanks, Haendel. So I wouldn't anticipate really any change in terms of our investment criteria. We see plenty of opportunity. Deals that we're chasing look a lot like what we bought in the past. If you look at the pipeline currently, maybe the credit profiles are a little bit better. There's certainly more investment-grade, investment-grade profile. And what's in our pipeline currently, that's -- when we add more, that might not look like that. So I wouldn't necessarily count on that.

But that's what we've got in the pipeline currently. I don't think we're going to have to move into any other verticals or anything that will surprise investors. It's just a matter of how long is the bid-ask going to compress. When we went back at the very -- really the very end of the third quarter, we already closed most of our transactions, but we went back and we were able to reprice a bunch of deals.

And fortunately, the sellers were a lot more receptive this time around to those conversations if you compare to 2023, 2024, when deals were repricing, there was just a very large bid-ask spread for a long period of time.

This time, I think sellers aren't really assuming that cap rates are just going to drop back down like they did the last go around so that we were able to really get better terms, get better pricing. We were looking at a couple of portfolios where there were a few assets we thought we were going to likely put in our TRS and turn around and sell those quickly after buying portfolios. We were able to just remove those from the portfolios. So we didn't have to take on that risk, which was helpful.

So sellers are much more responsive this time around. So it feels like it could move a little bit more quickly, but we'd still like to kind of get a little bit more pricing, which is, again, why I think we're going to see fourth quarter acquisitions likely be pretty back-end loaded, which is somewhat intentional because we want to give as much time as possible to allow sellers to reprice their expectations.

Jay Kornreich, Cantor Fitzgerald.

First, I wanted to ask about tenant credit, the sub-1 times rent coverage bucket dropped to very low 0.2%. So just curious how you're thinking about tenant credit and if there's any changes to the watch list and maybe how that's all baked into guidance, if there's been any adjustments there you can talk about?

Yes. Fortunately, we just really aren't seeing very much at all in terms of credit issues, maybe one or two assets here or there that we're paying attention to. But out of 913 assets, that's not very much. So we don't really think there's going to be anything material there. And you kind of hit the nail on the head. We're very focused on not only the credit of our assets and the real estate of our assets, but also the unit level coverage.

And so seeing our under 1 times bucket get cut in half, certainly helpful. Some of that is our focus on dispositions of really kind of trying to cull some of those assets. And so you've seen some pretty good movement both from the assets that we own improving as well as our focus on the disposition side of really trying to keep that very healthy. And I think if you compare our unit level migration, it's to others, it's really been very strong.

Okay. Appreciate that. And then just following up on the previous question around just overall transaction market. You mentioned how sellers are willing to take in higher cap rates this time around. But just as you think about the overall transaction market, is it remaining healthy or opportunities that you generally foresaw before the spike in interest rates? Are those remaining on the table that gives you confidence that as you have the financing availability that there still is a robust investment pipeline into next year that you can take advantage of?

Yes. I think the opportunity set remains very strong. So the supply is there every bit as much as it's been so far this year, maybe even a little bit better. And then the demand side has weakened substantially. So we just really think it just needs to reprice a little bit more for us to get aggressive. We've got dry powder. We want to -- we think that's a great asset to have in this environment where most others do not have that.

So we want to take advantage of it and not just chase every deal. So we really want to maximize the pricing on every opportunity that we get. And so yes, I mean, I think going into next year, the opportunity set certainly won't be holding us back. It's really going to come down to whether assets reprice enough or if cost of capital improves.

Jamie Feldman, Wells Fargo.

Great. You may have -- I think you kind of touched on it, but maybe I'll just ask it again. But with the new investment guide and $646 million of investment dollar -- net investment volume year-to-date, does the $150 million implied for 4Q reflect conservatism or a deliberate pullback? I know you said you were kind of delaying things a little bit.

And I guess even more importantly, would you think $150 million is a good run rate for the first half of '27 also or the pipeline is still so strong you could be meaningfully higher?

Yes. No, I think it's a good question. But the $150 million, we did say at least $800 million. So if things don't really change all that much, then it will be probably right on -- right around $800 million. If things get better, we're ready and able to ramp that up. And so the team has really shown a lot of ability to ramp up when opportunities are there as well as show a lot of discipline when things maybe aren't there as much.

And so right now, the pricing isn't exactly where we want it to be. But if that improves, we certainly feel like the opportunities are there, and we'd certainly be able to do a lot more than $150 million, which is why we've kind of just left that as an open-ended above $800 million.

Okay. And then I mean, what are you hearing from tenants in terms of like any changes to their expansion plans or business models with either risk to the consumer, higher cost of capital, just like you guys are -- from your vantage point, what else feels different other than we would think cap rates move a little bit here?

Yes. I mean I'd say really on a little bit where I think people have -- you've seen some announcements of some of the store openings being a little bit more conservative and operators being a little bit more selective in terms of what real estate they're willing to go in. But what's working continues to work even if margins have compressed a little bit with a lot of retailers.

And so fortunately, that's really where we have focused on investing in the necessity service and deep discount type sectors. They just remain defensive and continue to do well and they continue to expand and which is why we continue to see just a lot of opportunity for acquisitions, whether it be new developments or just buying existing assets.

Nick Joseph, Citigroup.

You touched on having plenty of capacity. Obviously, cap rates still expanding a bit, and you were opportunistic on the ATM this quarter as well and have the unsettled. But as you kind of go forward and work through that current capacity, how do you think about issuing additional shares? Obviously, the stock is kind of below consensus NAV now.

I think in the past, you've talked about investment spreads obviously being an important consideration. But can you just remind us of the broader framework associated with that as investment spreads hopefully start to normalize?

Yes. We hope they normalize as well, Nick. Look, as we sit here today, we think our spreads are about 60 to 70 basis points. And what we've historically said is that we really need to be north of 100. So we don't have any near-term need to raise equity. We don't have to raise equity at all next year if we so choose.

So I think we need to be above kind of 100 basis points and feel comfortable we can stay at those levels. But right now, it's just not really a concern of ours given the capacity that we have.

Greg McGinniss, Scotiabank.

So you got supply -- you're saying supply is still there, demand side has weakened. Are you optimistic that cap rates may react faster to this rate cycle than the two to three quarters that it took historically to see kind of cap rates move up higher?

Yes. I think we're optimistic just because the conversations that we had about revisiting pricing on deals that we had in the third quarter were very constructive where I don't feel like they were that constructive back in 2023. And so I think people kind of get it a little bit more this time, and there's not a knee-jerk reaction that things are going to just kind of swing back to the way that they were.

So it does feel like it's going to be quicker. How much quicker? I don't think we really know. So that's why we're just kind of putting some conservatism in terms of how we're thinking about deploying capital in the fourth quarter.

How would you categorize that seller that's kind of more willing to adjust to the repricing?

Yes. I mean it typically will depend on their level of sophistication and kind of understanding that there's probably not a buyer right around the corner that's just going to step into our place. And then the other big piece is going to be how much pressure is on that seller to transact.

If they have debt coming due and it's a portfolio and they say, okay, if I have to do something and redoing the debt is just going to be really painful. I'd rather just sell and maybe sell it 30, 40 basis points higher.

Okay. And then with regards to kind of the forward equity that you have in place, how you think about raising capital today and cap rates that you're looking to achieve. When you're doing the acquisitions, looking forward on the acquisitions and considering your weighted average cost of capital, is that kind of you think about, hey, we already raised this capital at this rate, so we just need to get the spread to that rate? Or are you thinking about, hey, here's the environment today? What's a reasonable cap rate spread based on today?

Yes, Greg, it's obviously the latter. So we definitely need to -- we definitely factor in where we are today versus kind of where cap rates are today. So as we think about settlement of equity, I think it will be light over the next two quarters, could be -- and then probably pick back up in the back half of 2027.

But as far as new equity is concerned, we're just -- that's just not in the model at this point in time, given where we are. But we're optimistic that people will see the value in our shares as well as, frankly, the net lease space in general. So we're hopeful that we can be back to issuing equity at some point in time next year or this year.

Michael Goldsmith, UBS.

Just on the settled shares, which is used to pay down debt, I guess, just why is now the right time to do that? And then also like your reported leverage ratio comes down, do you expect that to have a material impact in your conversations with the rating agencies? What could that eventually lead to by having a reported leverage ratio that's now 1.5 times lower?

Yes. I appreciate the question, Michael. Look, it certainly puts us in a more favorable light with the rating agencies. They really look at leverage without the impact of the forward. And so you really want to be below 6.5 times without the forward. And so at 5 times, we're comfortably below that.

So we're optimistic that we can continue to have constructive dialogue with those parties when and if we decide to get additional ratings probably sometime next year. And I think the first part of your question, why is now the time? I mean, look, we don't really view beating earnings on having less TSM dilution than we expected as a clean beat or as a good way to guide higher.

So in order to kind of blunt the positive impact that came from that, we decided to settle more shares, which obviously has the positive impact that we talked -- that you referenced in terms of the rating agencies. It obviously increases our float. It also allow us -- allowing us to delay the pull down of the seven-year term loan.

And kind of given where swap rates have moved in the last like week or two, hopefully, they continue to move down, and that will allow us to swap at better-than-expected rates versus what we have in the model today. So it did afford us a lot of advantages while not impacting earnings at all relative to our prior guidance.

And as a follow-up, it seems like you're less into capital recycling at this time maybe than others. So I'd love to get your thoughts around capital recycling. You continue to dispose of targeted assets in the pharmacy and dollar store industries. Just trying to get a sense of would you need -- like would you be interested in doing that? It seems like you have pretty good access to capital. So just trying to get like the thought process and how you think your portfolio is positioned from here.

Yes. Thanks, Michael. Yes, we'll continue to do what we've been doing in those sectors. In fact, I think you can expect some more sales in both of those sectors in the fourth quarter. And then -- and we'll be -- we've always been opportunistic.

So in the event that there is somebody that wants to pay aggressive cap rates for some of our assets, and we can redeploy that capital into better assets at better pricing, we're always interested in doing that.

We've been asked a few times about the bonus depreciation buyer. We certainly have a lot of convenience stores and some interested parties. So there's always the possibility that we go down that route. But yes, we're going to be opportunistic.

And I think historically, we've probably been the most active on the disposition side, whether it be focused on concentrations or just improving the quality of the portfolio, which ultimately is why I think we've got the lowest credit loss rate in the space at 3 basis points per year.

Eric Borden, BMO Capital Markets.

Rent coverage remained healthy. Just curious, looking beyond the portfolio average, are there any categories where tenant margins or coverage are beginning to weaken? And how much of the improvement this quarter came from existing store performance versus the investments and sales that you completed?

Yes. It's a good question. So I'd say most of the improvement came, quite frankly, from some sales. And then overall, I would say the coverages for the existing portfolio slightly improved, but was really just pretty stable. And then from new investments, that was kind of more in the kind of the 3.5 times coverage. So that actually brought it down a little bit, but certainly feel comfortable with where those came in.

Great. And then you mentioned being able to remove assets from portfolio purchases that you would otherwise have sold after closing. But beyond price, are sellers becoming more flexible on other terms that improve your returns or reduce credit risk?

Yes. I mean that was kind of the big one is we look at a portfolio, there's a bell curve every portfolio that we look to buy. Even if we like all the assets, there's certainly some better than others. And so in the event that we're able to cull down and really kind of chop off the tail of the weaker assets at acquisition, that's obviously a big plus to us.

I mean I think in sale leasebacks, you might be able to get better escalators and some other maybe longer terms, things like that. But yes, we're -- everything is on the table. And fortunately, we've had very constructive conversations with all sellers.

Linda Tsai, Truist.

To the extent that you repriced deals with your sellers in 3Q, how much expansion on acquisition cap rates did you achieve? And by back-end loading your 4Q acquisitions, how much additional expansion might you expect on those deals?

Yes. So a little bit difficult to know where things are going to land in the fourth quarter. Our expectations are certainly much higher, and we'll kind of see what we're able to extract. But in terms of the third quarter, most of that was really at the very end of the quarter because you really think about when things moved.

I mean, the 10-year at the beginning of the quarter was less than 4.5% and moved up to, I think, 5.3% at the end of the quarter, and most of that was really in the last three weeks, which you also kind of saw most of that move in our stock price and other stock prices in the space was really in that last three weeks.

So it's really -- we had closed on most of the transactions at that point in time or were in the closing process. So we were able to revisit pricing on 10 different deals, and were able to move pricing on average about 30 basis points on those transactions, but it just didn't really move the needle that much for the entire quarter. It did take it from a 7.3% to 7.4% overall for the quarter.

But it was -- if you think of it as really very late stages of the quarter when things really started to move, and we weren't willing to sacrifice relationships as well as have a ton of dead deal costs, which we didn't think was really needed.

Did you have any dead deal costs?

No, we did not.

No.

Just one other question. In terms of the 1031 buyers going away across the top industries you invest in, grocery, convenience, home improvement, dollar stores, where are you seeing the cap rate expand fastest?

Yes. I mean it's not necessarily driven by sector. It's driven by seller. And again, how sophisticated is that seller? Do they kind of really understand where you're coming from and really what's going on in the market and then how much pressure is on them to transact.

And so I think the people that maybe need to kind of see some comps at higher cap rates, that's going to take a little bit more time. But it's really pretty broad across all sectors. It's really driven by who the seller is and what position that they're in.

Alec Feygin, Baird.

Maybe just one for me. Are there any changes in the expectations for how much lending you can do that could lead to acquisitions and just helping your partners out in this kind of environment?

Yes. It's an interesting question, Alec, because we kind of think that the longer this disruption lasts, there's just going to be kind of some one-off opportunities. We haven't really seen much on the lending side currently that's that attractive to us beyond what's normal course for us. But we do think there's a possibility that, that could pop up.

Jana Galan, Bank of America.

Maybe just following up on that last question. During the last market disruption in 2023, you guys were able to find some attractive opportunities with mortgage loans. I'm curious how long did those take to kind of enter the pipeline? And if that's an area that you would consider in any specific tenant categories or structures?

Yes. I mean I think we'd consider anything, especially as some of those have paid off or converted into fee ownership. Our loan book is certainly a lot smaller. So I think we have a little bit more capacity there. And last time, it really was some people that had some financing commitments that fell through.

So I think that will probably take some time, maybe a quarter or two, if that's going to happen again or if lenders want to kind of reprice the interest rates on deals if they burn through some rate locks or things like that. I think that's certainly possible. It's just very difficult to predict whether that happens again or not.

Upal Rana, KeyBanc Capital Markets.

Just following up on that as well. On the loan repayments this quarter, that carried about an 8.8% yield. How much additional repayment or conversion activity should we anticipate over the next year? And how are you incorporating that income replacement into your acquisition needs?

Yes. I mean I think in most cases, the loans as they repay, they're replaced with a new development and a new loan. And so as those assets are sold. And so I would think of it just kind of standing in place with most of those. There's a couple of chunkier deals that may pay off, but those are at much lower interest rates, and that would be a great source of capital.

Okay. Great. And then when looking at new deals today, how are you distinguishing between a deal that is accretive using capital that you've already raised versus one that clears your return hurdles at today's replacement cost of capital. I'm just curious what standard is driving your investment decisions right now?

Yes. We never take into effect where we've raised equity in the past when we think about putting new capital to work. It's really where can we raise it today and what does that outlook look like and what is the spread on that cost of capital. It's -- where we raised equity in the past is not relevant to us at all.

Jamie Feldman, Wells Fargo.

Dan, I just want to go back to a comment you made earlier where you said you see a path towards mid-single-digit AFFO growth next year without needing to raise any equity between now and '27 year-end. Can you just walk us through the key building blocks to get there? And as you think about the course of the year, are there certain quarters you think are higher or lower? Or what would really move that away from that mid-single-digit number?

Well, I mean, there's a lot of different factors. So equity is not one of them. But I think it would be where we refi the $175 million swap in January, what type of credit losses we recognize in the quarter, where our cash G&A shapes up relative to this year.

The timing of investments would also factor into that. And then where we're able to eventually pull down the seven-year term loan and swap debt. Those are all different -- those are all the factors that would go into the growth range that we gave. But that growth range is based upon, again, $550 million of net investment capacity being deployed between now and the end of 2027.

Okay. And then what are you assuming for like core growth before investments?

I mean you think about our average escalator growing at kind of a little bit around 1%, give or take, 10 to 20 basis points depending upon how -- what lease bumps we have.

Okay. And then just going back to the bonus depreciation comments. How big is that pipeline for your team? And do you think it's going to grow meaningfully or stay pretty constant? And is there any time line on people wanting to get those deals done?

Yes. I mean it's very opportunistic and really escalates massively at the very end of the year. So a little bit tough to predict how much we do, if any. I mean I imagine we'll do some there. But yes, I mean, we had a lot of people coming to us literally in early to mid-December last year, frantically wanting to figure out how to get their hands on some of our C-store assets.

And so I would expect this to continue to be the same this year, kind of running out of the last couple of years of this administration, I think there's a fear that maybe that goes away at some point in time. But yes, it's -- the tax planning seems to really escalate quite a bit in the last few weeks of the year.

Do you have a certain pool of assets that are ready to go for that? Or you consider anything?

We understand which of our assets would qualify for that tax treatment. And so if somebody approaches us, we're ready to go.

Which type of assets qualify?

Yes, yes. There are certain criteria beyond just what sector that they're in, but it's primarily just convenience store assets within our portfolio.

And this now concludes our question-and-answer session. I would like to turn the floor back over to Mark Manheimer for closing comments.

Well, thanks, everybody, for your interest in the company today. We look forward to seeing many of you at the upcoming conference schedule. Take care.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.