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Date
Tuesday, April 21, 2026 at 11 a.m. ET
Call participants
- Chief Executive Officer — Mark Manheimer
- Chief Financial Officer — Daniel Donlan
- Chief Operating Officer — Matt Miller
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Takeaways
- Net Investment Activity -- $239 million in gross investments closed, primarily in necessity and service-based retail sectors at a 7.5% blended cash yield and a weighted average lease term of 14.1 years.
- Portfolio Composition -- 804 properties leased to 138 tenants across 28 industries and 46 states; occupancy at 99.9% at quarter-end, returning to 100% post-quarter with the backfill of the Big Lots vacancy at a>20% rent increase by TJ Maxx.
- Tenant Credit Profile -- 58.3% of annual base rent from investment grade or investment grade profile tenants; unit-level rent coverage increased to 3.9x.
- Financial Results -- Net income of $5.7 million, $0.06 per diluted share; Core FFO of $32 million, $0.32 per diluted share; AFFO of $33.2 million, $0.34 per diluted share, a 6.3% increase.
- Expense Management -- Total recurring G&A rose 9.7% to $5.8 million, driven by expanded staffing; G&A as a percentage of total revenue declined to 10% from 11%.
- Capital Raising -- $304.1 million in net proceeds from 16.6 million forward shares issued, comprising $230.3 million from a February forward equity offering and $73.8 million from ATM activity.
- Liquidity -- $1.1 billion total liquidity, including $11 million cash, $412 million in available revolving credit, $606 million unsettled forward equity, and $100 million undrawn term loan.
- Leverage -- Adjusted net debt to annualized adjusted EBITDAre at 3.2x, below the 4.5x-5.5x target range.
- 2026 Guidance -- Net investment activity guidance raised to $550 million-$650 million; AFFO per share guidance range raised to $1.36-$1.39, reflecting $0.03-$0.06 of estimated dilution from forward equity.
- Dividend -- Quarterly cash dividend of $0.22 per share declared, payable June 15, 2026 to shareholders of record on June 1, 2026.
- Dispositions -- Fewer dispositions planned in 2026, focusing on assets with credit or unit-level risks, with cash yields on Q1 dispositions at 6.6%.
- Portfolio Growth and Sector Exposure -- Grocery and convenience stores each expected to remain in the 15%-16% portfolio ABR range; acquisitions for Q2 expected to be more diversified.
Summary
NETSTREIT (NTST 0.05%) emphasized accelerated investment activity and successful capital deployment, positioning the company for continued expansion and stable leverage. Forward equity settlements are structured for accretive future years, with management planning to ratably resolve outstanding shares sold in prior years. The portfolio remains stable, with improvements in rent coverage and investment grade exposure, and proactive risk management of underperforming assets. Revised 2026 guidance factors in ongoing dilution management and reflects confidence in the existing acquisition pipeline. The capital structure provides an extended runway for investment pacing in line with target leverage metrics.
- Manheimer said, "With substantial liquidity under our revolving credit facility, and the benefit of previously raised forward equity, we are well positioned to fund accelerated growth without compromising our leverage targets."
- The company reported backfilling its only vacancy following quarter end, securing increased rental income by leasing to a rated tenant.
- Donlan noted, "we have no material debt maturing until February 2028." after accounting for extension options exercisable at management's discretion.
- Forward guidance for G&A expects total cash G&A in the $16 million-$17 million range for the year.
- Exposure to the fitness and quick service restaurant segments is balanced by discipline on lease escalators, with a target of 2% annual contractual increases on select new transactions.
Industry glossary
- Net Lease: A lease arrangement where the tenant pays property taxes, insurance, and maintenance in addition to rent.
- Sale-Leaseback: A transaction where a property owner sells its asset and simultaneously leases it back from the buyer, often to free up capital while retaining operational control.
- AFFO (Adjusted Funds From Operations): A REIT performance metric reflecting funds available for distribution to shareholders, adjusted for maintenance capex and other non-cash items.
- Core FFO: Funds from operations adjusted for items not representative of ongoing business, such as acquisition costs and certain nonrecurring charges.
- ATM (At-the-Market) Program: A mechanism for issuing shares incrementally into the public market, often used for opportunistic capital raising.
- Unit-Level Rent Coverage: The ratio of store-level EBITDA to rent, indicating tenant operating health on a property basis.
- Blended Cash Yield: The weighted average initial annual rental yield expressed as a percentage of acquisition cost across a portfolio of properties.
Full Conference Call Transcript
Mark Manheimer: Thank you, Matt, and good morning, everyone. Thank you for joining us today to discuss NETSTREIT Corp.’s first quarter 2026 results. I want to begin by thanking our entire team for their outstanding execution, and we carried strong momentum from our record 2025 into the new year, and the organization has hit the ground running. In the first quarter, we saw continued acceleration on the investment front. We closed on $239 million of gross investment activity, driven by well-priced opportunities in our core necessity and service-based sectors including grocery, convenience store, quick service restaurants, auto service, and other essential retail.
These investments were completed at an attractive blended cash yield of 7.5% and a weighted average lease term of 14.1 years. Complementing this, we executed targeted dispositions that further enhanced portfolio quality, reduced tenant concentrations, and recycled capital into higher quality, longer duration opportunities. This robust start to the year reflects the depth of our sourcing platform and our team's ability to move quickly across a number of smaller transactions while still adhering to our stringent underwriting criteria. While there have been a few new participants enter the net lease business in recent years—something that has happened in each and every cycle—the market remains extremely fragmented and rife with attractive opportunities.
Turning to the portfolio, we ended the quarter with 804 properties, leased to 138 tenants across 28 industries and 46 states. Our weighted average remaining lease term increased to 10.2 years while the percentage of investment grade and investment grade profile tenants remained flat at 58.3% of ABR. Unit-level rent coverage across the portfolio remains healthy, and ticked up slightly to 3.9x. Occupancy remained at 99.9%, but subsequent to quarter end, our occupancy has returned to 100%. In early April, we backfilled our lone vacancy, a former Big Lots location, with a rated TJ Maxx at a more than 20% increase in rent.
While vacancies have been extraordinarily rare in our portfolio, this execution highlights the expertise of our real estate underwriting and asset management teams. On the balance sheet, we continue to maintain a conservative and flexible capital structure. Following the capital raising completed in the quarter, our leverage was an industry-leading 3.2x. With substantial liquidity under our revolving credit facility, and the benefit of previously raised forward equity, we are well positioned to fund accelerated growth without compromising our leverage targets.
Given the capital raise during the quarter as well as the strong momentum in our investment pipeline and attractive opportunities we are seeing, we are increasing our full-year 2026 net investment activity to a range of $550 million to $650 million. We are increasing the bottom end of our AFFO per share guidance range to $1.36 to $1.39. In summary, the first quarter represented an excellent start to 2026, highlighted by strong momentum on the acquisitions front and opportunistic capital raising, which largely takes care of our 2026 equity needs. Our differentiated strategy—focused on high quality real estate, rigorous underwriting, proactive portfolio management, and a low leverage balance sheet—continues to position NETSTREIT Corp. for sustainable long-term growth and value creation.
With that, I will turn the call over to Dan to review the first quarter financial results in greater detail. We will then be happy to take your questions.
Daniel Donlan: Thank you, Mark. Looking at our first quarter earnings, we reported net income of $5.7 million or $0.06 per diluted share. Core FFO for the quarter was $32 million or $0.32 per diluted share, and AFFO was $33.2 million or $0.34 per diluted share, which was a 6.3% increase over last year. Turning to the expense front, our total recurring G&A in the quarter increased 9.7% year-over-year to $5.8 million, which is mostly the result of increased staffing and further investment in our team. That said, with our total recurring G&A representing 10% of total revenues this quarter, versus 11% in the prior-year quarter, our G&A continues to rationalize relative to our revenue base.
Turning to the capital markets, we completed a 12.6 million share forward equity offering in early February, which raised $230.3 million of net proceeds. This was supplemented by our ATM activity of 4 million shares or $73.8 million of net proceeds. In total, we sold 16.6 million forward shares or $304.1 million of net proceeds in the quarter, which puts us in an excellent position to fund our forecasted net investment activity this year. Turning to the balance sheet, our adjusted net debt, which includes the impact of all forward equity, was $629 million. Our weighted average debt maturity is 3.8 years, and our weighted average interest rate was 4.27%.
Including the extension options, which can be exercised at our discretion, we have no material debt maturing until February 2028. In addition, our total liquidity was $1.1 billion at quarter end, consisting of approximately $11 million of cash on hand, $412 million available on our revolving credit facility, $606 million of unsettled forward equity, and $100 million of undrawn term loan capacity. From a leverage perspective, our adjusted net debt to annualized adjusted EBITDAre was 3.2x at quarter end, which remains comfortably below our target leverage range of 4.5x to 5.5x.
Moving on to 2026 guidance, we are increasing the low end of our AFFO per share guidance to a new range of $1.36 to $1.39 and increasing our net investment activity guidance to $550 million to $650 million. We continue to expect cash G&A to range between $16 million and $17 million. In addition, the company's AFFO per share guidance range now includes $0.03 to $0.06 of estimated dilution due to the impact of the company's outstanding forward equity, calculated in accordance with the treasury stock method. Lastly, on April 16, 2026, the board declared a quarterly cash dividend of $0.22 per share.
The dividend will be payable on June 15, 2026 to shareholders of record as of June 1, 2026. With that, operator, we will now open the line for questions.
Operator: Thank you. At this time, we will be conducting a question and answer session. Our first question comes from Haendel St. Juste with Mizuho. Please proceed with your question.
Haendel St. Juste: Hey, good morning and congrats on a strong quarter here. It seems like things are clicking on all cylinders here. I was curious about the level of activity in the first quarter. It was close to a record quarter for you. If you think about what that implies for the rest of the year, it seems there is a pretty meaningful slowdown in activity. So maybe some color on what you saw in the first quarter that drove such robust activity and what you are seeing in the pipeline, and maybe expectations near term, given what the new guide implies for activity going forward. Thanks.
Mark Manheimer: Thanks, Haendel. It was a very strong quarter, similar to the fourth quarter that we just had. We are seeing very attractively priced opportunities that fit our investment criteria, which I think is a credit to the acquisitions team and the underwriting team. We are getting all that through the system pretty quickly. We are seeing a very similar environment right now. Pricing, we expect to remain relatively the same, give or take 10 basis points. We just want to be conservative with what is going to happen in the back half of the year.
We certainly feel very comfortable that we can sustain this level of acquisitions, but we want to make sure that we are out ahead of our capital needs.
Haendel St. Juste: That is helpful. Anything more on the competitive side that you can share? There has been lots of geopolitical and macro volatility. Are you seeing some of the private equity players step back a bit here? Your ability to win your fair share of deals seems to not face any headwinds. How are you thinking about the competitive set and whether the landscape near term will be more of the same or perhaps change in the level of volume or competition given what we are seeing in the macro? Thanks.
Mark Manheimer: I think it is a credit to the net lease space that there are more people looking to get in. There are a few that have been pretty active. We are not really running into them very often on a one-off basis. Competition has been in the space for a long period of time. If you go back to post financial crisis, you had Cole and ARC and the non-traded deploying a ton of capital—even more than what we are seeing from the private equity world—and there were still plenty of opportunities for the publicly traded REITs that had a reasonable cost of capital to go out and compete. I would not expect that to change.
They may look to acquire more than what they have done in the past, but I do not think that is going to have a huge impact on pricing and our opportunity set.
Haendel St. Juste: That is great. Thank you, and congrats again.
Operator: Our next question is from John Kilichowski with Wells Fargo. Your line is now live.
John Kilichowski: Good morning. Thank you. My first question is on the treasury stock method dilution in the quarter. Could you tell us what your expectations are—what is included at the midpoint in terms of expectation of price versus the low end and the high end?
Daniel Donlan: I do not want to go too much into detail. We are expecting $0.03 to $0.06. At the midpoint, call it 4.5. I think we have been fairly conservative on the high end, probably assuming even more than kind of 4.5. Our expectation is that we will drift somewhere into the low $20s and stay there. To the degree that does not happen, that would probably be upside relative to what we provided. We kind of stair-step up the price per share from where we ended the quarter each and every quarter this year. There is a healthy amount of conservatism baked into the high end, just from a dilution standpoint.
John Kilichowski: Thanks, Dan. And then maybe a follow-up: what is your strategy to manage those forwards? You have some older dated outstanding forward. Does your strategy for managing those change based on the stock price? And how does this impact your growth profile heading into 2027 as you get rid of these and maybe have a faster churn of your forwards into new investments?
Daniel Donlan: The dates really do not matter to us. What matters is what are the lowest price forwards that we have. There is a 12-month expiration to these. We have not had an issue extending those. It is really just taking the lowest price forwards and settling those first because those are the most dilutive. As far as our plan for this year, we would like to get done with everything that is still outstanding that we sold in 2024 and 2025. You should expect that to occur ratably over the course of the year.
Mark Manheimer: And you hit on something important there too, John. Looking to 2027, we are taking some of that dilution now that just makes it more accretive when we actually do take down the shares and really allows us to have better growth in 2027 and future years.
John Kilichowski: Very helpful. Thank you. Our next question comes from Greg McGinniss with Scotiabank. Your line is now live.
Greg McGinniss: Hey, good morning. With the G&A guidance maintained, plenty of liquidity, and a good acquisition market, is there any push or need in your mind to increase the size of the acquisitions team given the success they have had and the potential for more going forward?
Mark Manheimer: That is a good question. Right now, the acquisitions team is really humming and bringing in a ton of attractive opportunities. The filter has been pricing and where we are getting the best risk-adjusted returns. I do not necessarily think adding more team members automatically translates into a lot more volume, but we are always making sure that we have a deep enough bench. The team gets along great, fits very well with our culture, and is bringing in plenty of opportunities for us to hit our growth goals and beyond.
Greg McGinniss: And then on the disposition side, a healthy 6.6% cash yield on those. Anything specific there that you can talk about or the types of tenants or assets that you either sold in Q1 or that you are looking to sell later this year?
Mark Manheimer: The difference between this year and last year is you are going to see fewer dispositions. We are always open to selling any asset in the portfolio if someone is willing to pay us an aggressive cap rate, but it is going to center less on tenant concentrations—although you will see a couple here and there with some pharmacies and maybe a couple of dollar stores—and more on where we are seeing potential deterioration, whether corporate credit or unit-level performance. We like to get well out ahead of that.
We have been successful doing that, getting ahead of some risks well before they start reaching headlines and become more difficult to sell, which is why our credit loss stats are what they are.
Michael Goldsmith: Good morning. Thanks for taking my questions. Investment volume was robust in the first quarter. You took up the acquisition guidance materially and you have the prefunding. What are the factors that would limit your acquisitions going forward? The fourth quarter was strong, first quarter was equally strong. Should we expect you to continue to step on the gas, or what would hold you back?
Mark Manheimer: We have visibility 60 to 90 days out. Beyond that, it is hard to predict—not only what the opportunity set looks like, but also the acquisition environment and pricing. With the war going on and a lot of geopolitical [inaudible], we did not want to get too far over our skis. It is something we are likely to revisit. If the market remains the same and our cost of capital remains the same, there is no reason why we cannot keep this clip going forward for several quarters.
Michael Goldsmith: As a follow-up, you were able to continue to acquire quite a bit but at a similar cap rate. You mentioned you were happy with the opportunities and the risk/reward. Can you talk about the pricing environment and what would need to happen for it to change and turn less favorable?
Mark Manheimer: The number one thing that could make it less favorable also has an offset where our debt would get cheaper. If interest rates come down, you may see cap rates come down along with it. I do not foresee a slowdown in the opportunity set. Go back to 2021, when the five-year was under 1% until the end of the year. That allowed a lot of small family offices to enter the space and put five-year debt on acquisitions. That is coming due at higher interest rates. We are starting to see some of those groups that maybe do not want to refinance looking to sell smaller portfolios.
I think that continues through the rest of the year because that really cheap debt through 2021 with five years gets you through 2026 and into 2027. Hard to predict a slowdown in the opportunity set. Interest rates can drive some cap rates down, but we do not really see that happening too much in the short term.
Michael Goldsmith: Thank you very much. Good luck in the second quarter.
Matt Miller: Thanks, Michael.
Operator: Our next question comes from Jay Kornreich with Cantor Fitzgerald. Your line is now live.
Jay Kornreich: Hi, thanks. Good morning. I wanted to ask about tenant credit and the watch list. Recognizing it has only been a couple of months since last quarter’s earnings, have there been any changes to the watch list or how you are thinking about bad debt baked into guidance?
Mark Manheimer: We do not see much of a change. If you look at the histograms that we provide in the investor presentation on slide 13, you have seen some improvement across the board with unit-level performance as well as corporate performance improving a little bit. We have a few assets under 1x coverage—believe there are three assets that fit that category—and three or four that are CCC+ on an implied rating basis. Those are ones we are paying attention to, but in each situation we feel like we will have a pretty good outcome. I do not see much impacting AFFO for the next several years.
Jay Kornreich: Thanks for that. And then on the dilution from the treasury stock method accounting, should we expect that number to come down throughout the year as you settle forward equity, or as you employ future capital markets activity is that $0.04 to $0.05 range more of a sticky number to expect going forward?
Daniel Donlan: It is difficult to answer because I do not know where the stock price is going to go. You should expect us to model the stock price rising throughout the year. Even though you are settling more shares and therefore there would be less dilution from those shares, the dilution stays about even because the stock price is going higher throughout the year. That is how you should think about it. It is certainly going to be higher than what it was in the first quarter. Our average stock price in the quarter was $19.26. As we sit here today, it has been in the $19s and $20s.
The midpoint assumes you are staying around the $20 to $21 level, and that probably equates to anywhere from 4 to 5 million shares every quarter until you get out to next year.
Jay Kornreich: Okay. That is helpful. Thank you.
Operator: Our next question comes from Smedes Rose with Citi. Your line is now live.
Smedes Rose: Hi, thanks. I wanted to ask more about what you are seeing in the opportunity set. It looked like you leaned into convenience stores a little more in the quarter. You have talked in the past about QSRs and maybe some more fitness. Where do those line up on your interest level right now and any pricing changes around those categories?
Mark Manheimer: We did buy more convenience stores in the quarter. That is probably not going to be the case as much in the second quarter. What we will be buying will be a little more diversified than what we typically have bought. In the first quarter, just under half of what we bought were sale-leasebacks, and a lot of that were convenience store operators—more regional operators buying smaller operators. That is our favorite type of sale-leaseback because you typically see fixed charge coverage go up after those acquisitions. Those were attractive opportunities. Right now, we are seeing a more diversified pool of assets that we have under contract and are looking forward to adding to the portfolio.
The convenience store space is certainly one that we like. The fitness business is another one that we like as long as we are dealing with more sophisticated operators that provide unit-level coverage and we get comfortable they have enough members at those locations to generate strong rent coverage. We sourced a decent amount of those in the fourth and first quarters, maybe a little less so in the second quarter. Quick service restaurants is always an area that we like; sometimes the pricing can get pretty aggressive there, so it can be tricky, but we did buy a handful of Starbucks in the quarter that were really strong on Placer and are doing very well.
Each quarter is a little different, but I would expect the second quarter to be a bit more diversified.
Smedes Rose: We noticed that Family Dollar was upgraded to an investment grade profile from sub-investment grade. What drove that?
Mark Manheimer: It was really that they were willing to allow us to put that out there. They are a private company now, and we are subject to NDAs. We cannot share everyone’s financial statements and condition. We got them to agree to allow us to disclose that. They have always been investment grade profile ever since they spun out, but now we are able to share that with the public.
Operator: Our next question comes from Wes Golladay with Baird. Your line is now live.
Wes Golladay: Good morning, everyone. I have a few housekeeping questions. For the TJ Maxx lease that you signed, has that tenant commenced paying rent as of this moment?
Mark Manheimer: They have not. They have some work they need to do within the store. It is a relocation store for them, and we have about a year before they actually start paying rent.
Wes Golladay: Okay. And we noticed a few loans were extended, but just for a very short period. Can you give us an idea of what is going on and the visibility on them being repaid?
Mark Manheimer: You are probably specifically talking about Speedway. That is an ongoing negotiation where that will get extended much further. We may end up acquiring some of the assets—TBD a little bit—but it should have a very positive outcome for us.
Wes Golladay: Thank you very much.
Operator: Our next question comes from Eric Borden with BMO Capital Markets. Your line is now live.
Eric Borden: Hey, thanks. Good morning. You continue to lean into IG profile and non-IG investments. They tend to have better escalators than true IG. Do you have an internal growth target for these assets? How should we think about longer-term internal growth for the overall portfolio?
Mark Manheimer: You are right. We try to negotiate better escalators any time we can, and you have a little more leverage when you are doing a sale-leaseback and writing the lease. A lot of the sub-investment grade or IGP opportunities we are doing are in those categories. We try to get 2% annual; that is what we shoot for. On a blended basis, for future acquisitions we are probably going to be more in the 1% to 1.25% range, and that will continue to bring up our average escalators in the portfolio.
Eric Borden: Great. Could you quantify what is assumed in guidance for bad debt?
Daniel Donlan: At the midpoint, we are looking around 50 basis points.
Eric Borden: Alright. Great. Thank you.
Operator: Our next question comes from Michael Gorman with BTIG. Your line is now live.
Michael Gorman: Thanks. Good morning. If we could go back to the forward equity for a minute. You have been pretty strong and opportunistic there. With more than $600 million outstanding, that, back of the envelope, is about 18 months’ worth of acquisition volume at a conservative leverage level. What is the target runway you want to keep? Is it that 18-month target, or how should we think about that?
Daniel Donlan: Our leverage range is 4.5x to 5.5x—that is where we feel comfortable running the balance sheet. We could complete the $650 million at the high end of our guidance and still be at 4.5x. We will be opportunistic with the ATM where it makes sense. To the degree we continue to see opportunities at the same clip we saw in the first quarter, you should expect us to access that market when appropriate. Your assessment of the runway is fair, but we want to stay on our front foot and make sure we are never in a position where we have to raise.
Michael Gorman: That is helpful. And then, Mark, thinking about the loan book again. With some of the volatility in the private credit space, are you seeing more opportunities on the loan side to expand that? If so, how are you thinking about that in the investment pipeline?
Mark Manheimer: The answer is no. We are looking at providing developers with capital and some acquisition capital here and there for some people like we did on Speedway. We are not lending directly to tenants; we will likely avoid that. I do not expect private credit volatility to impact what we are doing. The opportunity set on the loan side is probably not as good as it was a couple of years ago, so I would expect us to do fewer loans on a go-forward basis.
Michael Gorman: That is very helpful. Lastly, on C-stores—important exposure and a space you like, but evolving. 7-Eleven announced about 650 closures last week. Can you remind us how you think about underwriting the space, both existing and new—KPIs, formats, how you think about the sector?
Mark Manheimer: The 7-Eleven news reflects that they are a very old company with a lot of older, smaller stores they are doing away with. We do not own any of those. We are constantly looking at a few factors: gallonage—whether it is going up or down—and inside sales. Those are two separate revenue drivers. We want to be sure they are getting enough volume and margins are staying the same. We are seeing consistent performance across our C-store operators, with gallonage up a little. Three years ago, we had 21 7-Elevens; now we have 13, because we are constantly evaluating which ones are doing well.
The ones that are not will not stay in our portfolio until the end of the lease. Our weighted average lease term on our 7-Elevens is about 9.5 years, none below 8.5 years, so we have time to deal with that. Our locations are generating positive cash flow and are not related to the recent 7-Eleven news. There is a move toward larger formats across the board, but fundamentals have not changed: strong inside sales, strong gallonage, and the ability to push price without margin squeeze. If you can do that, you will be successful for a long time in the convenience store space.
Michael Gorman: Great. Thank you for the time.
Operator: Our next question is from Linda Tsai with Jefferies. Your line is now live.
Linda Tsai: Given more volatility year-to-date in the 10-year, looking across your key tenant categories—C-stores, grocers, home improvement, dollar stores—have you seen cap rates shift more so in any of these categories?
Mark Manheimer: They have been pretty consistent. We really have not seen much change. We have been at 7.5% for ongoing cap rate with a very similar mix of tenants. The tenant mix will probably change a little and be more diversified in the second quarter, but I would expect very similar pricing. We have not really seen much movement across the board.
Linda Tsai: Thanks. A big picture question: your AFFO per share CAGR has been high single-digit since 2021. How do you think about the CAGR over the next several years?
Daniel Donlan: We would like to maintain that level. This year at the high end, it is 5.3% year-over-year growth, and I think consensus assumes even higher growth next year. To the degree that we can maintain spreads where they are today, in the roughly 190 basis points range, I certainly think we can be north of where we are this year. It remains to be seen where the stock price and debt go. One thing I feel confident in is our team's ability to underwrite assets and get them into the portfolio expeditiously. If the cost of capital is there, the runway to compound earnings is there for sure.
Operator: Our next question comes from Analyst with Bank of America. Your line is now live.
Analyst: Thank you. Good morning, and congrats on the strong start to the year. There are lots of questions on C-stores, but could you remind us how you are thinking about the grocery category now that it is above 15%, and could we see further growth there?
Mark Manheimer: We have seen a lot of great opportunities in grocery with strong performing stores, great credit, and good lease terms. We expect that to continue. There is not as much in the second quarter, so it is a little difficult to predict. I do not think we would let anything get to 20%. Fifteen percent is nudging up against where we are comfortable. We do not want to let things get too far above that. If there is a great opportunity, we do not want to be precluded from moving forward, but I would expect the 15% to 16% range to be pretty consistent for grocery. The same can be said for convenience stores.
Analyst: Thank you. And an update on development projects: it is currently a small part of the business with four underway. Can you remind us of yields there? Would you be willing to increase exposure to development if that is what some retailers prefer?
Mark Manheimer: If retailers prefer that route and that is the best way to get the best risk-adjusted returns, we would be more aggressive. Right now, we feel like we are picking up about 25 basis points, and it happens to be tenants we really want in the portfolio. You are not getting paid enough for the risk, in our minds, to get really aggressive on developments right now. If you were picking up 50, 75, 100 basis points, it would be more interesting. Pricing just is not there. People are willing to pay up in single-tenant net lease retail for the most part. The development projects are pretty short, so they do not demand much of a premium.
We are able to get similar opportunities outside development and put them on the balance sheet right away, which is what we are looking to do. We have had quarters where almost half of what we did was development; now it is about 10%. If that needs to change, our acquisitions team can move quickly to add those, but we do not see that happening anytime soon.
Operator: Our next question comes from Upal Rana with KeyBanc Capital Markets. Your line is now live.
Upal Rana: Thank you. Mark, appreciate the color you have already provided on investment pace for the rest of the year. Given we are almost through April and you probably have a good sense on May as well, what is your sense on the pace of investments for 2Q?
Mark Manheimer: Second quarter looks strong. I do not think you are going to see too much difference in the second quarter. We will see what closes. We are looking at some opportunities we have under our control that may close in June or in July. We are getting closer to being done with sourcing for the quarter. We like the pipeline, the quality, and the pricing. At least for the second quarter, expect a pretty similar quarter to the first.
Upal Rana: Great. That was helpful. And just overall on dispositions for the quarter—and you have talked about this previously—is this a pace that we should be expecting for the remainder of the year as well?
Mark Manheimer: I think so. Every now and then, an opportunity comes where someone wants to pay something aggressive or take some risk off your hands. If that were to happen, we would certainly move quickly. In general, you may see a quarter here or there that is a little heavier or lighter, but you can expect a pretty similar pace.
Operator: Our next question comes from Daniel Guglielmo from Capital One Securities. Your line is now live.
Daniel Guglielmo: Hi, everyone. Thank you for taking my questions. Following up on the escalator question from earlier, as the portfolio mix starts to move from larger tenants to adding some smaller growthier tenants, are there differences in how you manage a smaller tenant that may be less visible to the public versus a large tenant that is a public filer and very visible?
Mark Manheimer: I do not think there is much difference in how we manage it. We do not want to let any concentrations get very high with some of the public tenants, because you submit yourself to some headline risk that is not real risk as it relates to our portfolio. We are doing the same things across the board: tracking corporate financial performance, foot traffic, and unit-level performance. We want to be proactive, not reactive, on asset management when we start to see potential issues. If we continue to do that over time, you will continue to see very low credit loss stats.
Daniel Guglielmo: Appreciate that. With private credit seemingly less available this year than last, are you seeing more smaller operators search for capital funding elsewhere, like via sale-leaseback? Or is it too early to see that flow through to your transaction market?
Mark Manheimer: We have not seen that. I would be surprised if we see a ton of it. The private credit guys were not only focused on retail; they were lending to software companies and a lot of different industries that are less real estate heavy. I do not think it will have a huge impact one way or the other, and we have not seen any impact to date.
Operator: We have reached the end of the question and answer session. I would now like to turn the call back over to Mark Manheimer for closing comments.
Mark Manheimer: Thank you all for joining us this morning. Good luck the rest of the earnings season, and we look forward to seeing you at upcoming conferences. We appreciate the time.
Operator: This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.
