UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



Form 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~June 30, ~~2020~~2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission File Number 001-39443



NETSTREIT Corp.

(Exact name of registrant as specified in its charter)

Maryland

84-3356606

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

~~5910 N. Central Expressway~~2021 McKinney Avenue

Suite ~~1600~~1150

Dallas, Texas

~~75206~~75201

(Address of principal executive offices)

(Zip Code)

(972) 200-7100

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

Common stock, par value $0.01 per share

NTST

The New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐☒ No ☒☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐☒

Accelerated filer

☐

Non-accelerated filer

☒☐

Smaller reporting company

☒☐

Emerging growth company

☒☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒☐

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of the issuer’s common stock, par value $0.01, outstanding as of ~~October 28, 2020~~July 24, 2023 was ~~27,979,176.~~66,993,020.

NETSTREIT CORP. AND SUBSIDIARIES

TABLE OF CONTENTS


		Page
	PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets ~~(Unaudited)~~ as of ~~September~~June 30, ~~2020~~2023 and December 31, ~~2019~~2022	3
	Condensed Consolidated ~~Statement~~s Statements of Operations and Comprehensive ~~Loss (Unaudited)~~ Income for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2020 (Successor)~~2023 and ~~2019 (Predecessor)~~2022	4
	Condensed Consolidated Statements of Changes in Equity ~~(Unaudited)~~ for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2020 (Successor)~~2023 and ~~2019 (Predecessor)~~2022	5
	Condensed Consolidated ~~Statement~~s Statements of Cash Flows ~~(Unaudited)~~ for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2020 (Successor)~~2023 and ~~2019 (Predecessor)~~2022	7
	Notes to the Condensed Consolidated Financial Statements ~~(Unaudited)~~	8
Item 2.	~~Management~~Management's Discussion and Analysis of Financial Condition and Results of Operations	2427
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3241
Item 4.	Controls and Procedures	3242
	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	3343
Item 1A.	Risk Factors	3343
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3343
Item 3.	Defaults Upon Senior Securities	3343
Item 4.	Mine Safety Disclosures	3343
Item 5.	Other Information	3343
Item 6.	Exhibits	3444
	Signatures	3545

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

NETSTREIT CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(inIn thousands, except share and per share data)

(Unaudited)


		September 30, 2020		December 31, 2019			June 30, 2023		December 31, 2022
Assets	Assets					Assets
Real estate, at cost:	Real estate, at cost:					Real estate, at cost:
Land	Land	$	168,214	$	83,996	Land	$	424,821	$	401,146
Buildings and improvements	Buildings and improvements	320,684		140,057		Buildings and improvements	1,005,884		907,084
Total real estate, at cost	Total real estate, at cost	488,898		224,053		Total real estate, at cost	1,430,705		1,308,230
Less accumulated depreciation	Less accumulated depreciation	(6,703)		(132)		Less accumulated depreciation	(80,527)		(62,526)
Property under development						Property under development	24,192		16,796
Real estate held for investment, net	Real estate held for investment, net	482,195		223,921		Real estate held for investment, net	1,374,370		1,262,500
Assets held for sale	Assets held for sale	32,599		8,532		Assets held for sale	37,915		23,208
Mortgage loans receivables, net						Mortgage loans receivables, net	107,758		46,378
Cash, cash equivalents and restricted cash	Cash, cash equivalents and restricted cash	137,010		169,319		Cash, cash equivalents and restricted cash	13,140		70,543
Acquired lease intangible assets, net		67,459		28,846
Lease intangible assets, net						Lease intangible assets, net	158,067		151,006
Other assets, net	Other assets, net	6,006		3,304		Other assets, net	56,508		52,057
Total assets	Total assets	$	725,269	$	433,922	Total assets	$	1,747,758	$	1,605,692
Liabilities and equity	Liabilities and equity					Liabilities and equity
Liabilities:	Liabilities:					Liabilities:
Term loan, net		$	174,048	$	173,913
Term loans, net						Term loans, net	$	372,686	$	373,296
Revolving credit facility						Revolving credit facility	106,000		113,000
Mortgage note payable, net						Mortgage note payable, net	7,896		7,896
Lease intangible liabilities, net	Lease intangible liabilities, net	16,645		4,672		Lease intangible liabilities, net	27,434		30,131
Liabilities related to assets held for sale	Liabilities related to assets held for sale	919		189		Liabilities related to assets held for sale	83		406
Accounts payable, accrued expenses and other liabilities	Accounts payable, accrued expenses and other liabilities	4,950		2,716		Accounts payable, accrued expenses and other liabilities	29,064		22,540
Total liabilities	Total liabilities	196,562		181,490		Total liabilities	543,163		547,269
Commitments and contingencies	Commitments and contingencies					Commitments and contingencies
Equity:	Equity:					Equity:
Shareholders’ equity
Common stock, $0.01 par value, 400,000,000 shares authorized; 25,734,474 and 8,860,760 shares issued and outstanding; as of September 30, 2020 and December 31, 2019, respectively		257		89
Stockholders’ equity						Stockholders’ equity
Common stock, $0.01 par value, 400,000,000 shares authorized; 66,991,597 and 58,031,879 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively						Common stock, $0.01 par value, 400,000,000 shares authorized; 66,991,597 and 58,031,879 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively	670		580
Additional paid-in capital	Additional paid-in capital	452,911		164,416		Additional paid-in capital	1,260,879		1,091,514
(Deficit)/Retained earnings		(5,984)		28
Accumulated other comprehensive loss		(110)		0
Total shareholders’ equity		447,074		164,533
Distributions in excess of retained earnings						Distributions in excess of retained earnings	(90,329)		(66,937)
Accumulated other comprehensive income						Accumulated other comprehensive income	24,082		23,673
Total stockholders’ equity						Total stockholders’ equity	1,195,302		1,048,830
Noncontrolling interests	Noncontrolling interests	81,633		87,899		Noncontrolling interests	9,293		9,593
Total equity	Total equity	528,707		252,432		Total equity	1,204,595		1,058,423
Total liabilities and equity	Total liabilities and equity	$	725,269	$	433,922	Total liabilities and equity	$	1,747,758	$	1,605,692

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

Table of Contents

NETSTREIT CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE ~~LOSS~~INCOME

(inIn thousands, except share and per share data)

(Unaudited)


		Successor		Predecessor		Successor		Predecessor
		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2020		2019		2020		2019			2023		2022		2023		2022
Revenues	Revenues									Revenues
Rental revenue (including reimbursable)	Rental revenue (including reimbursable)	$	9,652	$	4,786	$	22,277	$	16,203	Rental revenue (including reimbursable)	$	29,707	$	22,048	$	58,180	$	42,970
Interest income on loans receivable										Interest income on loans receivable	1,923		586		2,901		997
Total revenues										Total revenues	31,630		22,634		61,081		43,967
Operating expenses	Operating expenses									Operating expenses
Property	Property	624		293		1,344		853		Property	3,530		2,685		7,467		5,617
General and administrative	General and administrative	4,109		956		7,841		2,915		General and administrative	5,260		4,865		10,168		9,057
Depreciation and amortization	Depreciation and amortization	4,692		2,660		10,153		8,065		Depreciation and amortization	15,847		11,751		30,795		22,730
Provisions for impairment	Provisions for impairment	363		2,839		1,773		6,268		Provisions for impairment	2,836		1,114		2,836		1,114
Transaction costs	Transaction costs	1,241		3		2,969		76		Transaction costs	15		488		124		653
Total operating expenses	Total operating expenses	11,029		6,751		24,080		18,177		Total operating expenses	27,488		20,903		51,390		39,171
Other income (expense)	Other income (expense)									Other income (expense)
Interest expense, net	Interest expense, net	(1,018)		(2,449)		(3,815)		(8,349)		Interest expense, net	(5,521)		(1,522)		(9,465)		(2,691)
Gain on sales of real estate		54		1,674		1,070		5,773
Gain on forfeited earnest money deposit		0		0		250		0
Total other expense		(964)		(775)		(2,495)		(2,576)
Net loss		(2,341)		(2,740)		(4,298)		(4,550)
Net loss attributable to noncontrolling interests		(263)		0		(799)		0
Net loss attributable to common shareholders		(2,078)		(2,740)		(3,499)		(4,550)
Cumulative preferred stock dividends and redemption premium		36		0		42		0
Net loss attributable to common shareholders		$	(2,114)	$	(2,740)	$	(3,541)	$	(4,550)
Amounts available to common shareholders per common share:
Gain on sales of real estate, net										Gain on sales of real estate, net	615		1,858		296		2,019
Loss on debt extinguishment										Loss on debt extinguishment	(128)		—		(128)		—
Other income										Other income	68		36		220		36
Total other (expense) income, net										Total other (expense) income, net	(4,966)		372		(9,077)		(636)
Net (loss) income before income taxes										Net (loss) income before income taxes	(824)		2,103		614		4,160
Income tax benefit (expense)										Income tax benefit (expense)	32		(93)		75		(184)
Net (loss) income										Net (loss) income	(792)		2,010		689		3,976
Net (loss) income attributable to noncontrolling interests										Net (loss) income attributable to noncontrolling interests	(1)		23		8		47
Net (loss) income attributable to common stockholders										Net (loss) income attributable to common stockholders	$	(791)	$	1,987	$	681	$	3,929
Amounts available to common stockholders per common share:										Amounts available to common stockholders per common share:
Basic	Basic	$	(0.11)	N/A		$	(0.26)	N/A		Basic	$	(0.01)	$	0.04	$	0.01	$	0.08
Diluted	Diluted	$	(0.11)	N/A		$	(0.26)	N/A		Diluted	$	(0.01)	$	0.04	$	0.01	$	0.08
Weighted average common shares:	Weighted average common shares:									Weighted average common shares:
Basic	Basic	18,825,389		N/A		13,771,457		N/A		Basic	61,043,531		48,140,041		59,600,630		46,279,122
Diluted	Diluted	18,825,389		N/A		13,771,457		N/A		Diluted	61,043,531		48,951,833		60,294,734		47,277,468
Other comprehensive loss:
Net loss		$	(2,341)	$	(2,740)	$	(4,298)	$	(4,550)
Unrealized (loss) gain on derivatives, net		(128)		0		(128)		55
Total comprehensive loss		(2,469)		(2,740)		(4,426)		(4,495)
Comprehensive loss attributable to noncontrolling interests		(281)		0		(817)		0
Comprehensive loss attributable to common shareholders		$	(2,188)	$	(2,740)	$	(3,609)	$	(4,495)
Other comprehensive income:										Other comprehensive income:
Net (loss) income										Net (loss) income	$	(792)	$	2,010	$	689	$	3,976
Change in value on derivatives, net										Change in value on derivatives, net	6,388		1,338		409		7,549
Total comprehensive income										Total comprehensive income	$	5,596	$	3,348	$	1,098	$	11,525
Comprehensive income attributable to noncontrolling interests										Comprehensive income attributable to noncontrolling interests	48		38		8		138
Comprehensive income attributable to common stockholders										Comprehensive income attributable to common stockholders	$	5,548	$	3,310	$	1,090	$	11,387

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

Table of Contents

NETSTREIT CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(inIn thousands, except share data)

(Unaudited)

Preferred stock Common stock
Shares Par Value Shares Par Value Additional
Paid-in Capital (Deficit)/ Retained Earnings Accumulated Other Comprehensive Income (Loss) Shareholders’ Equity Partners’ Capital Noncontrolling Interests Total Equity
Balance at December 31, 2018 — $ — — $ — $ — $ — $ — $ — $ 82,748 $ — $ 82,748
Partners’ contribution — — — — — — — — 537 — 537
Partners’ distribution — — — — — — — — (3,600) — (3,600)
Net loss — — — — — — — — (3,076) — (3,076)
Other comprehensive income — — — — — — — — 24 — 24
Balance at March 31, 2019 — $ — — $ — $ — $ — $ — $ — $ 76,633 $ — $ 76,633
Partners’ contribution — — — — — — — — — — 0
Partners’ distribution — — — — — — — — (1,926) — (1,926)
Net income — — — — — — — — 1,266 — 1,266
Other comprehensive income — — — — — — — — 31 — 31
Balance at June 30, 2019 — $ — — $ — $ — $ — $ — $ — $ 76,004 $ — $ 76,004
Partners’ contribution — — — — — — — — — — 0
Partners’ distribution — — — — — — — — — — 0
Net loss — — — — — — — — (2,740) — (2,740)
Other comprehensive income — — — — — — — — — — 0
Balance at September 30, 2019 — $ — — $ — $ — $ — $ — $ — $ 73,264 $ — $ 73,264


	Common stock
	Shares	Par Value		Additional Paid-in Capital		Distributions in Excess of Retained Earnings		Accumulated Other Comprehensive Income		Total Stockholders’ Equity		Noncontrolling Interests		Total Equity
Balance at December 31, 2022	58,031,879	$	580	$	1,091,514	$	(66,937)	$	23,673	$	1,048,830	$	9,593	$	1,058,423
Issuance of common stock in public offerings, net of issuance costs	2,759,481	28		52,875		—		—		52,903		—		52,903
OP Units converted to common stock	5,694	—		105		—		—		105		(105)		—
Dividends and distributions declared on common stock and OP Units	—	—		—		(11,650)		—		(11,650)		(101)		(11,751)
Dividends declared on restricted stock, net	—	—		—		(122)		—		(122)		—		(122)
Vesting of restricted stock units	83,428	1		(1)		—		—		—		—		—
Repurchase of common stock for tax withholding obligations	(18,016)	—		(360)		—		—		(360)		—		(360)
Stock-based compensation, net	—	—		1,027		—				1,027		—		1,027
Other comprehensive loss	—	—		—		—		(5,930)		(5,930)		(49)		(5,979)
Net income	—	—		—		1,472		—		1,472		9		1,481
Balance at March 31, 2023	60,862,466	$	609	$	1,145,160	$	(77,237)	$	17,743	$	1,086,275	$	9,347	$	1,095,622
Issuance of common stock in public offerings, net of issuance costs	6,128,135	61		114,475		—		—		114,536		—		114,536

Dividends and distributions declared on common stock and OP Units	—	—		—		(12,173)		—		(12,173)		(102)		(12,275)
Dividends declared on restricted stock, net	—	—		—		(128)		—		(128)		—		(128)
Vesting of restricted stock units	1,416	—		—		—		—		—		—		—
Repurchase of common stock for tax withholding obligations	(420)	—		(8)		—		—		(8)		—		(8)
Stock-based compensation, net	—	—		1,252		—		—		1,252		—		1,252
Other comprehensive income	—	—		—		—		6,339		6,339		49		6,388
Net loss	—	—		—		(791)		—		(791)		(1)		(792)
Balance at June 30, 2023	66,991,597	$	670	$	1,260,879	$	(90,329)	$	24,082	$	1,195,302	$	9,293	$	1,204,595

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

Table of Contents

NETSTREIT CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(inIn thousands, except share data)

(Unaudited)

Preferred stock Common stock
Shares Par Value Shares Par Value Additional
Paid-in Capital (Deficit)/ Retained Earnings Accumulated Other Comprehensive Loss Shareholders’ Equity Partners’ Capital Noncontrolling Interests Total Equity
Balance at December 31, 2019 0 $ 0 8,860,760 $ 89 $ 164,416 $ 28 $ 0 $ 164,533 $ 0 $ 87,899 $ 252,432
Issuance of preferred stock 125 125 — — — — — 125 — — 125
Offering and related costs of preferred stock — (21) — — — — — (21) — — (21)
Issuance of common stock in private offering — — 2,936,885 29 57,974 — — 58,003 — — 58,003
Offering and related costs of common stock — — — — (3,444) — — (3,444) — — (3,444)
Net loss — — — — — (1,127) — (1,127) — (425) (1,552)
Balance at March 31, 2020 125 $ 104 11,797,645 $ 118 $ 218,946 $ (1,099) $ 0 $ 218,069 $ 0 $ 87,474 $ 305,543
Dividends declared and paid on preferred stock — — — — — (6) — (6) — — (6)
Net loss — — — — — (294) — (294) — (111) (405)
Balance at June 30, 2020 125 $ 104 11,797,645 $ 118 $ 218,946 $ (1,399) $ 0 $ 217,769 $ 0 $ 87,363 $ 305,132
Issuance of common stock in initial public offering — — 13,681,561 136 246,132 — — 246,268 — — 246,268
Offering and related costs of common stock — — — — (18,947) — — (18,947) — — (18,947)
Dividends declared on preferred stock — — — — — (2) — (2) — — (2)
Dividends and distributions declared on common stock and OP units — — — — — (2,430) — (2,430) — (419) (2,849)
Dividends declared on restricted stock — — — — — (41) — (41) — — (41)
Redemption of preferred stock upon initial public offering (125) (104) — — — (34) — (138) — — (138)
Redemption of OP Units and issuance of common stock in initial public offering — — 255,268 3 5,027 — — 5,030 — (5,030) 0
Stock-based compensation — — — — 1,753 — — 1,753 — — 1,753
Other comprehensive loss — — — — — — (110) (110) — (18) (128)
Net loss — — — — — (2,078) — (2,078) — (263) (2,341)
Balance at September 30, 2020 0 $ 0 25,734,474 $ 257 $ 452,911 $ (5,984) $ (110) $ 447,074 $ 0 $ 81,633 $ 528,707


	Common stock
	Shares	Par Value		Additional Paid-in Capital		Distributions in Excess of Retained Earnings		Accumulated Other Comprehensive Income		Total Stockholders’ Equity		Noncontrolling Interests		Total Equity
Balance at December 31, 2021	44,223,050	$	442	$	809,724	$	(35,119)	$	4,123	$	779,170	$	10,645	$	789,815
Issuance of common stock in public offerings, net of issuance costs	3,604,736	36		75,461		—		—		75,497		—		75,497
OP Units converted to common stock	25,629	—		484		—		—		484		(484)		—
Dividends and distributions declared on common stock and OP Units	—	—		—		(8,888)		—		(8,888)		(109)		(8,997)
Dividends declared on restricted stock, net	—	—		—		(128)		—		(128)		—		(128)
Vesting of restricted stock units	85,224	1		(1)		—		—		—		—		—
Repurchase of common stock for tax withholding obligations	(16,651)	—		(362)		—		—		(362)		—		(362)
Stock-based compensation, net	—	—		1,045		—				1,045		—		1,045
Other comprehensive income	—	—		—		—		6,135		6,135		76		6,211
Net income	—	—		—		1,942		—		1,942		24		1,966
Balance at March 31, 2022	47,921,988	$	479	$	886,351	$	(42,193)	$	10,258	$	854,895	$	10,152	$	865,047
Issuance of common stock in public offerings, net of issuance costs	2,397,035	24		49,976		—		—		50,000		—		50,000
OP Units converted to common stock	22,265	—		418		—		—		418		(418)		—
Dividends and distributions declared on common stock and OP Units	—	—		—		(9,588)		—		(9,588)		(104)		(9,692)
Dividends declared on restricted stock, net	—	—		—		(149)		—		(149)		—		(149)
Stock-based compensation, net	—	—		1,298		—		—		1,298		—		1,298
Other comprehensive income	—	—		—		—		1,323		1,323		15		1,338
Net income	—	—		—		1,987		—		1,987		23		2,010
Balance at June 30, 2022	50,341,288	$	503	$	938,043	$	(49,943)	$	11,581	$	900,184	$	9,668	$	909,852

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

Table of Contents

NETSTREIT CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(~~in thousands, except share and per share data)~~In thousands)

(Unaudited)


		Successor		Predecessor
		Nine Months Ended September 30,					Six Months Ended June 30,
		2020		2019			2023		2022
Cash flows from operating activities	Cash flows from operating activities					Cash flows from operating activities
Net loss		$	(4,298)	$	(4,550)
Adjustments to reconcile net loss to net cash from operating activities:
Net income						Net income	$	689	$	3,976
Adjustments to reconcile net income to net cash provided by operating activities:						Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	10,153		8,065		Depreciation and amortization	30,795		22,730
Amortization of deferred financing costs	Amortization of deferred financing costs	464		775		Amortization of deferred financing costs	615		314
Amortization of above/below-market assumed debt	Amortization of above/below-market assumed debt	0		(13)		Amortization of above/below-market assumed debt	57		—
Noncash revenue adjustments	Noncash revenue adjustments	1,077		1,174		Noncash revenue adjustments	(839)		(1,427)
Stock-based compensation expense	Stock-based compensation expense	1,753		0		Stock-based compensation expense	2,279		2,344
Gain on sale of real estate		(1,070)		(5,773)
Gain on forfeited earnest money deposit		(250)		0
Gain on sales of real estate, net						Gain on sales of real estate, net	(296)		(2,019)
Provisions for impairment	Provisions for impairment	1,773		6,268		Provisions for impairment	2,836		1,114
Loss on debt extinguishment						Loss on debt extinguishment	128		—
Gain on involuntary conversion of building and improvements						Gain on involuntary conversion of building and improvements	(47)		—
Changes in assets and liabilities, net of assets acquired and liabilities assumed:	Changes in assets and liabilities, net of assets acquired and liabilities assumed:					Changes in assets and liabilities, net of assets acquired and liabilities assumed:
Other assets, net	Other assets, net	(4,323)		432		Other assets, net	(2,227)		(3,325)
Accounts payable, accrued expenses and other liabilities	Accounts payable, accrued expenses and other liabilities	2,313		(1,080)		Accounts payable, accrued expenses and other liabilities	1,628		(1,057)
Lessee improvement obligations		(1,893)		0
Lease incentive payments						Lease incentive payments	(1,223)		(400)
Net cash provided by operating activities	Net cash provided by operating activities	5,699		5,298		Net cash provided by operating activities	34,395		22,250
Cash flows from investing activities	Cash flows from investing activities					Cash flows from investing activities
Acquisitions of real estate	Acquisitions of real estate	(327,338)		(1,232)		Acquisitions of real estate	(163,934)		(207,289)
Real estate improvements		(1,268)		(450)
Real estate development and improvements						Real estate development and improvements	(19,426)		(8,016)
Investment in mortgage loan receivables						Investment in mortgage loan receivables	(61,422)		(46,466)
Earnest money deposits	Earnest money deposits	(43)		0		Earnest money deposits	(1,066)		(39,659)
Purchase of computer equipment		(51)		0
Purchase of computer equipment and other corporate assets						Purchase of computer equipment and other corporate assets	(23)		—
Proceeds from sale of real estate	Proceeds from sale of real estate	11,778		70,353		Proceeds from sale of real estate	19,299		12,177
Net cash (used in) provided by investing activities		(316,922)		68,671
Proceeds from the settlement of property-related insurance claims						Proceeds from the settlement of property-related insurance claims	47		—
Net cash used in investing activities						Net cash used in investing activities	(226,525)		(289,253)
Cash flows from financing activities	Cash flows from financing activities					Cash flows from financing activities
Issuance of common stock in initial public offering, net		227,321		0
Issuance of common stock in private offering, net		54,559		0
Issuance of preferred stock, net		104		0
Payment of preferred stock dividends		(8)		0
Issuance of common stock in public offerings, net						Issuance of common stock in public offerings, net	167,439		125,497
Payment of common stock dividends	Payment of common stock dividends	(2,430)		0		Payment of common stock dividends	(23,823)		(18,476)
Payment of OP unit distributions	Payment of OP unit distributions	(419)		0		Payment of OP unit distributions	(203)		(213)
Redemption of preferred stock, net		(138)		0
Proceeds from term loans		0		708
Principal payments on term loans		0		(53,811)
Payment of restricted stock dividends						Payment of restricted stock dividends	(93)		(106)
Principal payments on mortgages payable	Principal payments on mortgages payable	0		(14,756)		Principal payments on mortgages payable	(63)		—
Proceeds under revolving credit facility		50,000		0
Repayments under revolving credit facility		(50,000)		0
Proceeds under property development incentives						Proceeds under property development incentives	—		605
Proceeds under revolving credit facilities						Proceeds under revolving credit facilities	221,000		245,000
Repayments under revolving credit facilities						Repayments under revolving credit facilities	(228,000)		(72,000)

Repurchase of common stock for tax withholding obligations						Repurchase of common stock for tax withholding obligations	(368)		(363)
Deferred offering costs						Deferred offering costs	(185)		(694)
Deferred financing costs	Deferred financing costs	(75)		(199)		Deferred financing costs	(977)		—
Partners’ contributions		0		537
Partners’ distributions		0		(5,526)
Net cash provided by (used in) financing activities		278,914		(73,047)
Net change in cash and cash equivalents		(32,309)		922
Net cash provided by financing activities						Net cash provided by financing activities	134,727		279,250
Net change in cash, cash equivalents and restricted cash						Net change in cash, cash equivalents and restricted cash	(57,403)		12,247
Cash, cash equivalents and restricted cash at beginning of the period	Cash, cash equivalents and restricted cash at beginning of the period	169,319		1,950		Cash, cash equivalents and restricted cash at beginning of the period	70,543		7,603
Cash, cash equivalents and restricted cash at end of the period	Cash, cash equivalents and restricted cash at end of the period	$	137,010	$	2,872	Cash, cash equivalents and restricted cash at end of the period	$	13,140	$	19,850

Supplemental disclosures of cash flow information:	Supplemental disclosures of cash flow information:					Supplemental disclosures of cash flow information:
Cash paid for interest		$	3,484	$	7,557
Cash paid for interest, net						Cash paid for interest, net	$	8,045	$	2,345
Cash paid for income taxes						Cash paid for income taxes	$	477	$	45
Supplemental disclosures of non-cash investing and financing activities:	Supplemental disclosures of non-cash investing and financing activities:					Supplemental disclosures of non-cash investing and financing activities:
Redemption of OP units and issuance of common stock upon initial public offering		$	5,030	$	0
Reclassification of deferred offering expenses to additional paid-in capital upon initial public offering		$	4,171	$	0
Dividends declared on restricted stock		$	41	$	0
Dividends declared and unpaid on restricted stock						Dividends declared and unpaid on restricted stock	$	250	$	277
Deferred offering costs included in accounts payable, accrued expenses and other liabilities						Deferred offering costs included in accounts payable, accrued expenses and other liabilities	$	121	$	—
Cash flow hedge change in fair value	Cash flow hedge change in fair value	$	(128)	$	0	Cash flow hedge change in fair value	$	409	$	7,549
Accrued capital expenditures and real estate development and improvement costs						Accrued capital expenditures and real estate development and improvement costs	$	3,858	$	2,848
Accrued lease incentives						Accrued lease incentives	$	—	$	500

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

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NETSTREIT CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1 – Organization and Description of Business

NETSTREIT Corp. ~~(“Successor” or the~~(the “Company”) was incorporated on October 11, 2019 as a Maryland corporation and commenced operations on December 23, 2019. The Company conducts its operations through NETSTREIT, L.P., a Delaware limited partnership (the “Operating Partnership”). NETSTREIT GP, LLC, a Delaware limited liability company and a wholly owned subsidiary of the Company, is the sole general partner of the Operating Partnership.

The Company elected to be treated and to qualify as a real estate investment trust (“REIT”) for U.S. federal income tax purposes beginning with its short taxable year ended December 31, ~~2019 upon the filing of its U.S. federal income tax return for such taxable year.~~2019. Additionally, the Operating Partnership formed NETSTREIT Management TRS, LLC (“NETSTREIT TRS”), which together with the Company jointly elected to be treated as a taxable REIT subsidiary under Section 856(a) of the Internal Revenue Code of 1986, as amended, (the “Code”) for U.S. federal income tax purposes.

The Company is structured as an umbrella partnership real estate investment trust (commonly referred to as an ~~"UPREIT"~~“UPREIT”) and is an internally managed real estate company that acquires, owns and manages a diversified portfolio of single-tenant, retail commercial real estate leased on a long-term basis to high credit quality tenants across the United States. The Company also invests in property developments and mortgage loans secured by real estate. As of ~~September~~June 30, ~~2020,~~2023, the Company owned ~~189~~or had investments in 525 properties, located in ~~37 states.~~

~~Private Offering and Formation Transactions~~

~~On December~~45 states, excluding 23 ~~2019, the Company completed a series of transactions (collectively the “Private Offering”) pursuant~~property developments where rent has yet to which the Company sold 8,860,760 shares of common stock at $19.75 per share in a private placement under Rule 144A and Regulation D under the Securities Act of 1933, as amended (the “Securities Act”). In connection with the Private Offering, the Company completed the formation transactions described below. On January 30, 2020, the initial purchaser in the Private Offering exercised its over-allotment option to purchase 2,936,885 shares of the Company’s common stock, which were delivered on February 6, 2020. The Company contributed the net proceeds of $219.0 million from the Private Offering to the Operating Partnership in exchange for 11,797,645 Class A Operating Partnership Units (“OP Units”). Upon completion of the Private Offering and the over-allotment option, non-controlling interest holders owned approximately 27.4% of the Operating Partnership (the Operating Partnership issued total Class A and Class B OP Units of 15,449,794 and 796,870, respectively).

Concurrently with the closing of the Private Offering, EverSTAR Income and Value Fund V, LP, a Delaware limited partnership (the “Predecessor”), was merged with and into the Operating Partnership, with the Operating Partnership surviving, and the continuing investors in the Operating Partnership receiving an aggregate of 3,652,149 Class A OP Units, other than the Chief Executive Officer of the Company, who received 8,884 Class B OP Units, and an affiliate of the Predecessor’s general partner, which received 287,234 Class B OP Units.

The Operating Partnership entered into a contribution agreement with EBA EverSTAR LLC, a Texas limited liability company, to internalize the Company’s management infrastructure, whereby EBA EverSTAR LLC contributed 100% of the membership interests in EBA EverSTAR Management, LLC, a Texas limited liability company and the manager of the Predecessor, to the Operating Partnership in exchange for 500,752 Class B OP Units. In connection with the internalization, EBA EverSTAR Management, LLC was re-domiciled in Delaware and its name was changed to NETSTREIT Management, LLC. A 0.01% interest in NETSTREIT Management, LLC was issued to NETSTREIT TRS.

Concurrently with the consummation of the Private Offering, the Company entered into a $175.0 million term loan and $250.0 million revolving credit facility. On December 23, 2019, in connection with the acquisition of the Predecessor, the Company fully drew down on its term loan and used the proceeds to acquire the Predecessor, which concurrently settled its outstanding debt facilities. As part of the acquisition, the Company did not assume any obligations under the Predecessor’s then outstanding debt facilities.

~~Series A Preferred Stock~~

To maintain the Company’s status as a REIT, on January 27, 2020, the Company issued and sold 125 shares of 12.0% Series A Cumulative Non-Voting Preferred Stock, par value $0.01 per share (“Series A Preferred Stock”), for $1,000 per share to accredited investors pursuant to Regulation D under the Securities Act. The shares of Series A Preferred Stock may be redeemed solely at the Company’s option for consideration equal to $1,000 per share, plus accrued and unpaid dividends thereon to and including the date fixed for redemption, plus a redemption premium as follows (i) until December 31, 2021, $100 and (ii) thereafter, 0 redemption premium. The Company redeemed all 125 outstanding shares of Series A Preferred Stock upon the completion of the initial public offering. See "Note 9 - Shareholders’ Equity, Partners’ Capital and Preferred Equity."

~~Initial Public Offering~~

On August 17, 2020, the Company completed the initial public offering of its common stock. The Company sold 12,244,732 shares of common stock and selling stockholders sold 255,268 shares of common stock at a price of $18.00 per share. The Company's common stock began trading on the New York Stock Exchange under the symbol "NTST" on August 13, 2020. On September 16, 2020, the Company issued an additional 1,436,829 shares of its common stock pursuant to the underwriters' over-allotment option in connection with the Company's initial public offering. The net proceeds to the Company from the initial public offering was $227.3 million, which is net of transaction costs and

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underwriter fees of $18.9 million. The Company contributed the net proceeds of the initial public offering and related over-allotment option to the Operating Partnership in exchange for 13,681,561 Class A OP Units.commence.

Note 2 – Summary of Significant Accounting Policies

Basis of Presentation

The accompanying interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). The accompanying condensed consolidated financial statements include the accounts of the Company and subsidiaries in which the Company has a controlling financial interest. All intercompany accounts and transactions have been eliminated in consolidation and the Company’s net ~~loss~~(loss) income is reduced by the portion of net ~~loss~~(loss) income attributable to ~~non-controlling~~noncontrolling interests.

~~For the periods prior to December 23, 2019, the accompanying condensed consolidated financial statements represent the historical financial information of the Predecessor.~~

For the periods after December 23, 2019, the accompanying consolidated financial statements represent the historical financial information of the Successor. As a result of the Company’s formation transactions, the consolidated financial statements after December 23, 2019 are presented on a new basis of accounting pursuant to Accounting Standards Codification 805, Business Combinations.

Interim Unaudited Financial Information

The accompanying unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the ~~Securities and Exchange Commission (“SEC”).~~SEC. These unaudited interim condensed consolidated financial statements do not include all of the information and notes required by ~~accounting principles generally accepted in the United States of America (“GAAP”)~~GAAP for complete financial statements, and should be read in conjunction with the Company’s audited consolidated financial statements ~~included in~~and notes thereto on the ~~Company's registration statement~~Annual Report on Form ~~S-11 and notes thereto~~10-K as of and for the year ended December 31, ~~2019,~~2022, which provide a more complete understanding of the Company’s accounting policies, financial position, operating results, business properties, and other matters. In the opinion of management, all adjustments of a normal recurring nature necessary for a fair presentation have been included. The results of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2023 and ~~2019~~2022 are not necessarily indicative of the results for the full year.

~~Noncontrolling Interests~~

The Company presents noncontrolling interests, which represents OP Units, and classifies such interests as a component of permanent equity, separate from the Company's common stock shareholders' equity. Noncontrolling interests were created as part of an asset acquisition and recognized at fair value as of the date of the transaction. Effective with the Company’s initial public offering, each limited partner of the Operating Partnership has the right to require the Operating Partnership to redeem part or all of its OP Units for cash, based upon the value of an equivalent number of shares of the Company’s common stock at the time of the redemption, or, at the Company’s election, shares of the Company’s common stock on a one-for-one basis, subject to certain adjustments and the restrictions on ownership and transfer of the Company’s common stock. The election to pay cash or issue common stock is solely within the control of the Company to satisfy a noncontrolling interest holder's redemption request.

Net income or loss of the Operating Partnership is allocated to its noncontrolling interests based on the noncontrolling interests' ownership percentages in the Operating Partnership. Ownership percentage is calculated by dividing the number of OP Units held by the noncontrolling interests by the total OP Units outstanding at the balance sheet date.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company’s most significant assumptions and estimates relate to the useful lives of real estate assets, lease accounting, real estate impairment assessments, and allocation of fair value of purchase consideration. These estimates are based on historical experience and other assumptions which management believes are reasonable under the circumstances. The Company evaluates its estimates on an ongoing basis and makes revisions to these estimates and related disclosures as experience develops or new information becomes known. Further, the uncertainty over the ultimate impact COVID-19 will have on the global economy and the Company’s business makes any estimates and assumptions as of September 30, 2020 inherently less certain than they would be absent the current and potential impacts of COVID-19. Actual results could differ from those estimates.

~~Reclassifications~~

Certain reclassifications have been made to conform with current period presentation of transactions costs within the condensed consolidated financial statements. Transaction costs were previously included within the caption "general and administrative".

~~Risk and Uncertainties~~

~~COVID-19~~

On March 11, 2020, the World Health Organization announced a new strain of coronavirus ("COVID-19”) was reported worldwide, resulting in COVID-19 being declared a pandemic, and on March 13, 2020 the U.S. President announced a National Emergency relating to the disease.

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COVID-19 and the measures taken to limit its spread are negatively impacting the economy across many industries, including industries in which our tenants operate. The impacts may continue and increase in severity as the duration of the pandemic lengthens. As a result, the Company is not yet able to determine the full impact of COVID-19 on its operations and therefore whether any such impact will be material. However, the Company’s operations and cash flows during the three and nine months ended September 30, 2020 were not materially impacted by COVID-19. As of October 29, 2020, the Company has collected 100.0% of October rent payments. In addition, the Company has not provided for any abatements or deferrals after August 1, 2020.

The Company also adopted an optional remote-work policy and other physical distancing policies for its corporate office. The Company does not anticipate these policies to have any adverse impact on its ability to continue to operate its business. Transitioning to a remote-work environment has not had a material adverse impact on the Company's general ledger system, internal controls or controls and procedures related to its financial reporting process.

~~Real Estate Held for Investment~~

~~Real estate is recorded and stated at cost less any provision for impairment. Assets are recognized at fair value at acquisition date.~~

The Company evaluates each acquisition transaction to determine whether the acquired asset meets the definition of a business and therefore accounted for as a business combination or if the acquisition transaction should be accounted for as an asset acquisition. Under Accounting Standards Update (“ASU”) 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business” (“ASU 2017-01”), an acquisition does not qualify as a business when substantially all of the fair value is concentrated in a single identifiable asset or group of similar identifiable assets or the acquisition does not include a substantive process in the form of an acquired workforce or an acquired contract that cannot be replaced without significant cost, effort or delay. Transaction costs related to acquisitions that qualify as asset acquisitions are capitalized as part of the cost basis of the acquired assets, while transaction costs for acquisitions that are deemed to be acquisitions of a business are expensed as incurred.

The Company allocates the purchase price of acquired properties accounted for as asset acquisitions to tangible and identifiable intangible assets or liabilities based on their relative fair values. Tangible assets may include land, buildings, site improvements and tenant improvements. Intangible assets include the value of in-place leases and above-market leases and intangible liabilities include below-market leases.

The fair value of the tangible assets of an acquired property with an in-place operating lease is determined by valuing the property as if it were vacant, and the “as-if-vacant” value is then allocated to the tangible assets based on the fair value of the tangible assets. The fair value of in-place leases is determined by considering estimates of carrying costs during the expected lease-up periods, current market conditions, as well as costs to execute similar leases based on the specific characteristics of each tenant’s lease. The Company estimates the cost to execute leases with terms similar to the remaining lease terms of the in-place leases, including leasing commissions, legal and other related expenses. The fair value of above-market or below-market leases is recorded based on the net present value (using a discount rate that reflects the risks associated with the leases acquired) of the difference between the contractual amount to be paid pursuant to the in-place lease and the Company’s estimate of the fair market lease rate for the corresponding in-place lease, measured over the remaining non-cancelable term of the lease including any below-market fixed rate renewal options for below-market leases. In making estimates of fair values for purposes of allocating purchase price, the Company utilizes a number of sources, including real estate valuations prepared by independent valuation firms. The Company also considers information and other factors including market conditions, the industry that the tenant operates in, characteristics of the real estate; e.g., location, size, demographics, value and comparative rental rates; tenant credit profile and the importance of the location of the real estate to the operations of the tenant’s business. Additionally, the Company considers information obtained about each property as a result of its pre-acquisition due diligence, marketing and leasing activities in estimating the fair value of the tangible and intangible assets and liabilities acquired.

~~Depreciation and Amortization~~

~~Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets:~~


~~Buildings~~			~~13 – 35 years~~
~~Building improvements~~			~~15 years~~
~~Tenant improvements~~			~~Shorter of the term of the related lease or useful life~~
~~Acquired in-place leases~~			~~Remaining terms of the respective leases~~
~~Assembled workforce~~			~~3 years~~
~~Computer equipment~~			~~3 years~~

Total depreciation and amortization expense was $4.7 million and $2.7 million during the three months ended September 30, 2020 and 2019, respectively. Total depreciation and amortization expense was $10.2 million and $8.1 million during the nine months ended September 30, 2020 and 2019, respectively.

Depreciation expense on real estate held for investment and computer equipment was $3.2 million and $2.2 million during the three months ended September 30, 2020 and 2019, respectively. Depreciation expense on real estate held for investment and computer equipment was $7.0 million and $6.5 million during the nine months ended September 30, 2020 and 2019, respectively.

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Amortization expense on acquired in-place lease and assembled workforce intangible assets, and leasing commission costs were $1.4 million and $0.5 million during the three months ended September 30, 2020 and 2019. Amortization expense on acquired in-place lease and assembled workforce intangible assets, and leasing commission costs were $3.1 million and $1.6 million during the nine months ended September 30, 2020 and 2019.

Repairs and maintenance are charged to operations as incurred; major renewals and betterments that extend the useful life or improve the operating capacity of the asset are capitalized. Upon the sale or disposition of a property, the asset and the related accumulated depreciation are removed from the condensed consolidated balance sheets with the difference between the proceeds received, net of sales costs, and the carrying value of the asset group recorded as a gain or loss on sale, subject to impairment considerations.

~~Assets Held for Sale~~

Properties classified as held for sale, including the related intangibles, on the condensed consolidated balance sheets include only those properties available for immediate sale in their present condition, which are actively being marketed, and for which management believes that it is probable that a sale of the property will be completed within one year. Properties held for sale are carried at the lower of cost or fair value, less estimated selling costs. No depreciation expense or amortization expense is recognized on properties held for sale and the related intangible assets or liabilities once they have been classified as such. Only disposals representing a strategic shift in operations are presented as discontinued operations. Accordingly, we have not reclassified results of operations for properties disposed during the year or held for sale as discontinued operations, as these events are a normal part of the Company’s operations and do not represent strategic shifts in the Company’s operations. As of September 30, 2020 and December 31, 2019, there were 8 and 2 properties, respectively, classified as held for sale.

Impairment of Long-Lived Assets

~~The Company reviews for impairment whenever indicators~~Fair value measurement of ~~impairment exist, including giving consideration to factors~~an asset group occurs when events or changes in circumstances related to an asset indicate that the ~~COVID-19 outbreak.~~carrying amount of the asset is no longer recoverable. An example of an event or changed circumstance is a reduction in the expected holding period of a property. If indicators are present, the Company will prepare a projection of the undiscounted future cash flows of the property, excluding interest charges, and determine if the carrying amount of the ~~real estate~~asset group is recoverable. When a carrying amount is not recoverable, an impairment loss is recognized to the extent that the carrying amount of the asset group exceeds its fair market value. The Company estimates fair value using data such as operating income, estimated capitalization rates or multiples, leasing prospects, local market information, and with regard to assets held for sale, based on the estimated or negotiated selling price, less estimated costs of disposal. Based on these unobservable inputs, the Company determined that its valuations of impaired real estate and intangible assets fall within Level 3 of the fair value hierarchy under ASC Topic 820.

The following table summarizes the provision for impairment during the periods indicated below (in thousands):


		Successor		Predecessor		Successor		Predecessor			Three Months Ended June 30,				Six Months Ended June 30,
		Three Months Ended September 30, 2020		Three Months Ended September 30, 2019		Nine Months Ended September 30, 2020		Nine Months Ended September 30, 2019			2023		2022		2023		2022
Total provision for impairment	Total provision for impairment	$	363	$	2,839	$	1,773	$	6,268	Total provision for impairment	$	2,836	$	1,114	$	2,836	$	1,114
Number of properties: (1)	Number of properties: (1)									Number of properties: (1)
Classified as held for sale	Classified as held for sale	2		4		4		5		Classified as held for sale	6		—		6		—
Disposed within the period	Disposed within the period	0		0		1		1		Disposed within the period	—		1		—		1

(1)Includes the number of properties that ~~are~~were impaired ~~and/(or) impaired~~ and classified as held for sale as of ~~the end~~year-end or impaired and disposed of during the respective periods. Excludes properties that did not have impairment recorded during the year.

Cash, Cash Equivalents and Restricted Cash

The Company considers all cash balances, money market accounts and highly liquid investments with original maturities of three months or less to be cash and cash equivalents. Restricted cash includes cash restricted for property tenant improvements and cash proceeds from the sale of assets held by qualified intermediaries in anticipation of the acquisition of replacement properties in tax-free exchanges under Section 1031 of the Code. Restricted cash is included in cash, cash equivalents, and restricted cash in the condensed consolidated balance sheets. The Company had $1.6 million of restricted cash as of June 30, 2023, and $4.7 million of restricted cash as of December 31, 2022.

The Company’s bank balances as of ~~September~~June 30, ~~2020~~2023 and December 31, ~~2019 include~~2022 included certain amounts over the Federal Deposit Insurance Corporation limits.

~~Revenue Recognition and Related Matters~~

The Company’s rental revenue is primarily related to rent received from tenants under leases accounted for as operating leases. Rent from leases that have fixed and determinable rent increases is recognized on a straight-line basis over the non-cancellable initial term of the lease and reasonably certain renewal periods, from the later of the date of the commencement of the lease or the date of acquisition of the property subject to the lease. The difference between rental revenue recognized and the cash rent due under the provisions of the lease is recorded as deferred rent receivable and included as a component of other assets in the consolidated balance sheets.

Variable lease revenues include tenant reimbursements, lease termination fees, changes in the index or market-based indices after the inception of the lease or percentage rents. Variable lease revenues are not recognized until the specific events that trigger the variable payments have occurred. The Company and its Predecessor recognized variable lease revenue related to tenant reimbursements and lease termination fees for the periods presented.

Capitalized above-market and below-market lease values are amortized on a straight-line basis as a reduction or increase of rental revenue as appropriate over the remaining non-cancellable terms of the respective leases.

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In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, “Revenue from Contracts with Customers”, which was added to the ASC under Topic 606 (“ASC 606”) (“ASU 2014-09”). ASC 606 outlines a single comprehensive model for entities to use in accounting for revenues arising from contracts with customers. As the Company’s revenues are primarily generated through leasing arrangements, and the Company has elected the lessor practical expedient to report income on one line within its condensed consolidated statements of operations and comprehensive loss from the associated lease for all existing and new leases under ASU 2016-02, “Leases (ASC 842)”, the Company’s revenues fall outside the scope of this standard.

An allowance for doubtful accounts is provided against the portion of accounts receivable, net including straight-line rents, which is estimated to be uncollectible, which includes a portfolio-based reserve and reserves for specific disputed amounts. Such allowances are reviewed each period based upon recovery experience and the specific facts of each outstanding amount.

~~Stock-Based Compensation~~

The Company has a share-based compensation award program for our employees and directors. Stock-based compensation expense associated with these awards is recognized in general and administrative expenses in our condensed consolidated statements of operations and comprehensive loss. We measure stock-based compensation at the estimated fair value on the grant date and recognize the amortization of stock-based compensation expense over the requisite service or performance period.

~~Transaction Costs~~

Represents costs incurred by the Company to facilitate the private offering and formation transactions and the initial public offering. These costs were $0.9 million and $2.2 million during the three and nine months ended September 30, 2020, respectively, with no costs in 2019. In addition, transaction costs include expenses associated with abandoned acquisitions and other acquisition related activity. Acquisition related expenses were $0.3 million and $0.8 million for the three and nine months ended September 30, 2020, respectively, and $0.1 million for both the three and nine months ended September 30, 2019.

~~Income Taxes~~

The Company elected to be treated and qualify as a REIT for U.S. federal income tax purposes beginning with its short taxable year ended December 31, 2019 upon the filing of its U.S. federal income tax return for such taxable year. To qualify as a REIT, the Company must meet certain organizational, income, asset and distribution tests. Accordingly, the Company will generally not be subject to corporate U.S. federal or state income tax to the extent that it makes qualifying distributions of all of its taxable income to its shareholders and provided it satisfies on a continuing basis, through actual investment and operating results, the REIT requirements, including certain asset, income, distribution and share ownership tests. To maintain the status of a REIT, the Company is required to declare and pay a dividend of $0.2 million relating to its 2019 fiscal period by December 31, 2020. Accordingly, the Company declared and paid a $2.8 million dividend in the second half of 2020 which was inclusive of the $0.2 million obligation for 2019.

The Company made a joint election with NETSTREIT TRS for it to be treated as a taxable REIT subsidiary which may be subject to U.S. federal, state, and local income taxes on its taxable income. In general, NETSTREIT TRS may perform services for tenants of the Company, hold assets that the Company cannot hold directly and may engage in any real estate or non-real estate-related business.

~~As of September 30, 2020, the Company has no provision for state, local or federal income taxes in its condensed consolidated financial statements.~~

~~Earnings Per Share~~

Earnings per common share has been computed pursuant to the guidance in FASB ASC Topic 260, Earnings per Share. Basic earnings per share (“EPS”) are computed by dividing net loss allocated to common shareholders by the weighted-average number of common shares outstanding for the reporting period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. No effect is shown for any securities that are anti-dilutive. Net loss allocated to common shareholders represents net loss less income allocated to participating securities and non-controlling interests. None of the Company’s equity awards are participating securities.

Fair Value Measurement

~~Fair value measurements~~Companies are ~~utilized in~~required to disclose the ~~accounting~~estimated fair values of all financial instruments, even if they are not carried at their fair value. The fair values of financial instruments are estimates based on market conditions and perceived risks as of June 30, 2023 and December 31, 2022. These estimates require management’s judgement and may not be indicative of the ~~Company’s assets acquired and liabilities acquired in an asset acquisition and also affect~~future fair values of the ~~Company’s accounting for certain of its financial~~ assets and liabilities. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The hierarchy described below prioritizes inputs to the valuation techniques used in measuring the fair value of assets and liabilities. This hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring the most observable inputs to be used when available. The hierarchy is broken down into three levels based on the reliability of inputs as follows: Level 1 inputs, such as quoted prices in an active market; Level 2 inputs, which are observable inputs for similar assets; or Level 3 inputs, which are unobservable inputs.

~~The Company uses the following inputs in its fair value measurements:~~

–~~Level 2 inputs for its debt and derivative financial instrument fair value disclosures. See "Note 6 - Debt" and "Note 7 - Derivative Financial Instruments," respectively; and~~

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–~~Level 2 and Level 3 inputs when assessing the fair value of assets and liabilities acquired in connection with real estate acquisitions. See "Note 4 - Acquisition and Disposition of Real Estate."~~

The fair value of the Company’s cash, cash equivalents and restricted cash (including money market accounts), other assets and accounts payable, accrued expenses and other liabilities approximate their carrying value because of the short-term nature of these instruments. ~~Provisions for impairments recognized~~Additionally, the Company believes the following financial instruments have carrying values that approximate their fair values as of June 30, 2023:

•Borrowings under the Company’s Revolver (as defined in ~~the three and nine months ended September 30, 2020 and 2019 related to assets held for sale and the impairment was determined~~“Note 6 - Debt”) approximate fair value based on their nature, terms and variable interest rates.

•Carrying values of the ~~negotiated selling price, less costs~~Company’s mortgage loans receivable approximate fair values based on a number of ~~disposal, compared to~~factors, including either their short-term nature, the availability of market quotes for comparable instruments, and a discounted cash flow analysis using estimates of the amount and timing of future cash flows, market rates, and credit spreads.

•Carrying value of the Company’s mortgage note payable approximates fair value based on a discounted cash flow analysis using estimates of the amount and timing of future cash flows, market rates, and credit spreads.

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The following table discloses fair value information for the Company’s 2024 Term Loan, 2027 Term Loan, and 2028 Term Loan (each as defined in “Note 6 - Debt”) (in thousands):


	June 30, 2023				December 31, 2022
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
2024 Term Loan (1)	$	—	$	—	$	174,532	$	175,382
2027 Term Loan (1)	173,801		175,729		—		—
2028 Term Loan (1)	198,885		201,466		198,764		201,108

(1)The carrying value of the ~~property.~~debt instruments are net of unamortized debt issuance and discount costs.

Concentrations of Credit Risk

Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash and cash equivalents. The Company is exposed to credit risk with respect to cash held at various financial institutions, access to its credit facilities, amounts due under mortgage loans receivable, and amounts due or payable under derivative contracts. The credit risk exposure with regard to the Company’s cash, credit facilities, and derivative instruments is spread among a diversified group of investment grade financial institutions.

~~The Company’s rental revenues are derived from 56 separate tenants leasing 190 total properties for~~During the three and ~~nine~~six months ended ~~September~~June 30, ~~2020. For the three months ended September 30, 2020, one tenant, 7-Eleven, accounted for 12.2% of rental revenue. For the nine months ended September 30, 2020,~~2023 and 2022, there were no tenants or borrowers with rental revenue or interest income on loans receivable, respectively, that exceeded 10%.

~~The Predecessor’s rental revenues are derived from 41 separate tenants leasing 104~~ of total properties and 47 separate tenants leasing 124 total properties for the three and nine months ended September 30, 2019, respectively. For the three months ended September 30, 2019, two tenants, CVS and Dollar General, accounted for 11.5% and 10.8% of rental revenue, respectively. For the nine months ended September 30, 2019, one tenant, CVS, accounted for 13.1% of the rental revenue.revenues.

Segment Reporting

~~The Company considers each one~~ASC Topic 280, Segment Reporting, establishes standards for the manner in which companies report information about operating segments. Substantially all of ~~its properties~~the Company’s investments, at acquisition, are comprised of real estate owned that is leased to ~~be an operating segment, none of which meets~~tenants on a long-term basis or real estate that secures the ~~threshold for a reportable segment.~~ Company's investment in mortgage loans receivable. The Company allocates resources and assesses operating performance based on individual investment and property needs. ~~All of the Company’s operating segments meet the aggregation criteria, and thus,~~Therefore, the Company ~~reports one segment, rental operations. There were no intersegment sales during the periods presented.~~

~~Recent Accounting Pronouncements Adopted~~

~~In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”) which changes the model~~aggregates these investments for ~~the measurement of credit losses on financial instruments. Specifically, the amendments~~reporting purposes and operates in the ASU replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. In November 2018, the FASB issued ASU 2018-19 “Codification Improvements to Topic 326, Financial Instruments - Credit Losses”, which clarifies that receivables arising from operating leases are not within the scope of this new guidance. On January 1, 2020, the Company adopted ASU 2016-13. The adoption of this standard has not materially impacted the Company's condensed consolidated financial statements.

one

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”). This new guidance modified the disclosure requirements on fair value measurements. Public entities are required to disclose the following: (i) the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and (ii) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. In addition, public entities will no longer be required to disclose the following: (i) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, (ii) the policy for timing of transfers between levels and (iii) the valuation processes for Level 3 fair value measurements. The new pronouncement also clarifies and modifies certain existing provisions, including eliminating "at a minimum" from the phrase "an entity shall disclose at a minimum" to promote the appropriate exercise of discretion by entities when considering fair value measurement disclosures and clarifying that materiality is an appropriate consideration when evaluating disclosure requirements. On January 1, 2020, the Company adopted ASU 2018-13. The adoption of this standard has not materially impacted the Company's condensed consolidated financial statements.

reportable segment.

In October 2018, the FASB issued ASU 2018-17, “Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities” (“ASU 2018-17”). ASU 2018-17 is intended to improve the accounting when considering indirect interests held through related parties under common control for determining whether fees paid to decision makers and service providers are variable interests. On January 1, 2020, the Company adopted ASU 2018-17. The adoption of this standard has not materially impacted the Company’s condensed consolidated financial statements.

In April 2020, the FASB issued a question and answer document, “Topic 842 and Topic 840: Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic” focused on the application of lease accounting guidance to lease concessions provided as a result of the COVID-19 global pandemic. Under existing lease guidance, the entity would have to determine, on a lease by lease basis, if a lease concession was the result of a new arrangement reached with the tenant, which would be accounted for under the lease modification framework, or if a lease concession was under the enforceable rights and obligations that existed in the original lease, which would be accounted for outside the lease modification framework. Entities can elect to not evaluate whether certain concessions provided by lessors to mitigate the effects of COVID-19 on lessees are lease modifications. Entities that make this election can then elect to apply the lease modification guidance in ASC 842 or account for the concession as if it were contemplated as part of the existing contract. For all leases when

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the Company is a lessor, the Company elected to not evaluate whether certain concessions that do not result in a substantial increase in the Company’s rights as the lessor or the obligations of the lessee provided to mitigate the effects of COVID-19 on tenants are lease modifications, further electing to account for the concession as if it were contemplated as part of the existing contract. On April 1, 2020, the Company adopted this guidance and determined that it has not materially impacted the Company's condensed consolidated financial statements.

In August 2020, the FASB issued ASU 2020-06, “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”. ASU 2020-06 simplifies accounting for convertible instruments by removing major separation models currently required. Consequently, more convertible debt instruments will be reported as a single liability instrument and more convertible preferred stock as a single equity instrument with no separate accounting for embedded conversion features. ASU 2020-06 also removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. ASU 2020-06 also simplifies the diluted earnings per share calculation in certain areas. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption will be permitted. The adoption of this standard will not materially impact the Company's consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04 "Topic 848: Reference Rate Reform." ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives, and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. On July 1, 2020, the Company has elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company determined these elections have not materially impacted the Company's condensed consolidated financial statements. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.

Note 3 – Leases

Tenant Leases

The Company acquires, owns and manages commercial single-tenant lease properties, with the majority being long-term triple-net leases where the tenant is generally responsible for all improvements and contractually obligated to pay all operating costs (such as real estate taxes, utilities and repairs and maintenance costs). As of ~~September~~June 30, ~~2020,~~2023, the ~~Company owned 189 single-tenant retail net leased properties spanning 37 states, with tenants representing 55 different brands or concepts across 23 retail sectors. As of September 30, 2020, the~~Company’s weighted average remaining ~~terms of leases range from 2-35~~lease term was 9.4 years.

The Company’s property leases have been classified as operating leases and some have scheduled rent increases throughout the lease term. The Company’s leases typically provide the tenant one or more multi-year renewal options to extend their leases, subject to generally the same terms and conditions, including rent increases, consistent with the initial lease term.

All lease-related income is reported as a single line item, rental revenue (including reimbursable), in the condensed consolidated statements of operations and comprehensive ~~loss~~income and is presented net of ~~provision~~any reserves for ~~doubtful accounts.~~ uncollectible amounts. There were no material reserves for uncollectible amounts during the three and six months ended June 30, 2023 and 2022.

Fixed lease income includes stated amounts per the lease contract, which include base rent, fixed common area maintenance charges, and straight-line lease adjustments.

Variable lease income primarily includes recoveries from tenants, which represent amounts that tenants are contractually obligated to reimburse the Company for specific to their portion of actual recoverable costs incurred. Variable lease income also includes percentage rent, which represents amounts billable to tenants based on their actual sales volume in excess of levels specified in the lease contract.

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

Successor Predecessor Successor Predecessor
Three Months Ended September 30, 2020 Three Months Ended September 30, 2019 Nine Months Ended September 30, 2020 Nine Months Ended September 30, 2019
Rental revenue
Fixed lease income (1)
$ 8,975 $ 4,724 $ 20,833 $ 16,134
Variable lease income (2)
458 167 1,104 555
Other rental revenue:
Above/below market lease amortization 219 (105) 340 (486)
Rental revenue (including reimbursables) $ 9,652 $ 4,786 $ 22,277 $ 16,203


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Rental revenue
Fixed lease income (1)	$	26,808	$	19,653	$	51,531	$	37,721
Variable lease income (2)	2,715		2,229		6,252		4,918
Other rental revenue:
Above/below market lease amortization, net	377		294		789		577
Lease incentives	(193)		(128)		(392)		(246)
Rental revenue (including reimbursable)	$	29,707	$	22,048	$	58,180	$	42,970

(1)Fixed lease income includes contractual rents under lease agreements with tenants recognized on a straight-line basis over the lease term.

(2)Variable lease income primarily includes tenant reimbursements for real estate taxes, insurance, common area maintenance, and lease termination fees, and the write-off of ~~doubtful accounts.~~uncollectible amounts. There were immaterial write-offs of uncollectible amounts during the three and six months ended June 30, 2023 and 2022.

Scheduled future minimum base rental payments (excluding base rental payments from properties classified as held for sale and straight line rent adjustments for all properties) due to be received under the remaining non-cancelable term of the operating leases in place as of June 30, 2023 are as follows (in thousands):


	Future Minimum Base Rental Receipts
Remainder of 2023	$	53,208
2024	108,320
2025	108,298
2026	105,548
2027	101,245
Thereafter	557,639
Total	$	1,034,258

Future minimum rentals exclude amounts that may be received from tenants for reimbursements of operating costs and property taxes. In addition, the future minimum rents do not include any contingent rents based on a percentage of the lessees' gross sales or lease escalations based on future changes in the Consumer Price Index (“CPI”) or other stipulated reference rate.

Corporate Office Lease

In August 2021, the Company entered into a lease agreement on a new corporate office space, which commenced in October 2021 and is classified as an operating lease. The lease has a remaining noncancellable lease term of 9.1 years that expires on July 31, 2032, with a one-time option to terminate in 2029 exercisable by the Company.

The following table presents the lease expense components for the three and six months ended June 30, 2023 and 2022 (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Operating lease cost	$	135	$	135	$	271	$	270
Variable lease cost	$	68	$	7	$	135	$	10

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The Company recorded a right-of-use asset and operating lease liability of approximately $4.5 million at lease commencement. As of June 30, 2023, the right-of-use asset and operating lease liability was $4.1 million and $5.3 million, respectively. The right-of-use asset is included in other assets, net and the operating lease liability is included in accounts payable, accrued expenses and other liabilities in the accompanying condensed consolidated balance sheets.

The following table reflects the maturity analysis of payments due from the Company over the next five years and thereafter for the corporate office lease obligation as of June 30, 2023 (in thousands):


	Future Minimum Lease Payments
Remainder of 2023	$	285
2024	617
2025	636
2026	653
2027	670
Thereafter	3,311
Total lease payments	6,172
Less: amount representing interest (1)	(868)
Present value of operating lease liabilities	$	5,304

(1)Imputed interest was calculated using a discount rate of 3.25%. The discount rate is based on the estimated incremental borrowing rate, calculated as the treasury rate for the same period as the underlying lease term, plus a spread determined using factors including REIT industry performance.

Note 4 – ~~Acquisition~~Real Estate Investments

As of June 30, 2023, the Company owned or had investments in 525 properties, excluding 23 property developments where rent has yet to commence. The gross real estate investment portfolio, including properties under development, totaled approximately $1.6 billion and ~~Disposition~~consisted of ~~Real Estate~~the gross acquisition cost of land, buildings, improvements, and lease intangible assets and liabilities. The investment portfolio is geographically dispersed throughout 45 states with gross real estate investments in Illinois and Texas representing 9.5% and 8.9%, respectively, of the total gross real estate investment of the Company’s entire portfolio.

Acquisitions

During the ~~nine~~three months ended ~~September~~June 30, ~~2020,~~2023, the Company acquired 9828 properties for a total purchase price of ~~$327.3~~$96.2 million, inclusive of ~~$3.6~~$1.0 million of capitalized acquisition costs. During the six months ended June 30, 2023, the Company acquired 48 properties for a total purchase price of $163.9 million, inclusive of $1.7 million of capitalized acquisition costs.

During the three months ended June 30, 2022, the Company acquired 22 properties for a total purchase price of $117.3 million, inclusive of $0.7 million of capitalized acquisition costs. During the six months ended June 30, 2022, the Company acquired 56 properties for a total purchase price of $207.3 million, inclusive of $1.9 million of capitalized acquisition costs.

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The acquisitions were all accounted for as asset acquisitions. An allocation of the purchase price and acquisition costs paid for the completed acquisitions is as follows (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Land	$	19,748	$	34,419	$	34,052	$	49,073
Buildings	56,869		67,682		100,002		127,770
Site improvements	5,490		5,314		8,969		11,852
Tenant improvements	1,168		1,016		1,559		2,176
In-place lease intangible assets	11,399		13,533		17,809		22,405
Above-market lease intangible assets	1,543		245		1,543		353


	96,217		122,209		163,934		213,629
Liabilities assumed
Below-market lease intangible liabilities	—		(4,893)		—		(6,316)
Accounts payable, accrued expense and other liabilities	—		—		—		(24)
Purchase price (including acquisition costs)	$	96,217	$	117,316	$	163,934	$	207,289

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Development

As of ~~Contents~~

June 30, 2023, the Company had 23 property developments under construction. During the three months ended June 30, 2023, the Company invested $17.7 million in property developments. During the six months ended June 30, 2023, the Company invested $22.2 million in property developments, including the acquisition of 20 new build-to-suit projects with a combined initial purchase price of $11.9 million. During the six months ended June 30, 2023, the Company completed development on two projects and reclassified approximately $14.8 million from property under development to land, building, and improvements in the accompanying condensed consolidated balance sheets. Rent commenced for the completed developments in the first quarter of 2023. The remaining 23 developments in progress are expected to be substantially completed with rent commencing at various points throughout the next twelve months. The purchase price, including acquisition costs, and subsequent development are included in property under development in the accompanying condensed consolidated balance sheets as of June 30, 2023.


	~~For the Nine Months Ended September 30, 2020~~
~~Land~~	$	~~98,587~~
~~Buildings~~	~~166,177~~
~~Site improvements~~	~~22,580~~
~~Tenant improvements~~	~~6,065~~
~~Lease in-place intangible assets~~	~~44,708~~
~~Lease above-market intangible assets~~	~~4,172~~
~~Construction-in-progress assets~~	~~270~~
~~Fuel equipment~~	~~156~~
	~~342,715~~
~~Liabilities assumed~~
~~Lease below-market intangible liabilities~~	~~(13,484)~~
~~Accounts payable, accrued expense and other liabilities~~	~~(1,893)~~
~~Purchase price (including acquisition costs)~~	$	~~327,338~~

During the ~~nine~~three months ended ~~September~~June 30, ~~2019,~~2022, the Company ~~acquired 1~~invested $4.6 million in property ~~for a total~~developments. During this period, the Company completed development on three projects and reclassified approximately $9.8 million from property under development to land, building, and improvements in the accompanying condensed consolidated balance sheets.

During the six months ended June 30, 2022, the Company invested $9.6 million in property developments, including the acquisition of one new build-to-suit project with an initial purchase price of ~~$1.2~~$1.0 million. During this period, the Company completed development on four projects and reclassified approximately $14.7 million ~~inclusive of~~from property under development to land, building, and improvements in the accompanying condensed consolidated balance sheets.

Additionally, during the six months ended June 30, 2023 and 2022, the Company capitalized approximately $0.3 million and $0.1 million, respectively, of ~~capitalized acquisition costs. The acquisition was accounted for as an asset acquisition.~~interest expense associated with properties under development.

Dispositions

During the three months ended ~~September~~June 30, ~~2020,~~2023, the Company sold ~~1 property for a total sales price, net of disposal costs, of $1.9 million, recognizing a gain on sale of $0.1 million. During the nine months ended September 30, 2020, the Company sold 3~~two properties for a total sales price, net of disposal costs, of ~~$11.8~~$3.8 million, recognizing a gain ~~on sale~~ of ~~$1.1~~$0.6 million. During ~~2019,~~the six months ended June 30, 2023, the Company entered into an agreement to sell 1 property to a third-party and received a nonrefundable $0.3 million earnest money deposit, which upon termination of the agreement in the first quarter of 2020, was recognized as a gain.

~~During the three months ended September 30, 2019, the Predecessor~~ sold 5ten properties for a total sales price, net of disposal costs, of ~~$11.4~~$19.3 million, recognizing a gain ~~on sale~~ of ~~$1.7~~$0.3 million.

During the ~~nine~~three months ended ~~September~~June 30, ~~2019,~~2022, the ~~Predecessor~~Company sold 24two properties for a total sales price, net of disposal costs, of ~~$70.4~~$9.9 million, recognizing a gain ~~on sale~~ of ~~$5.8~~$1.9 million. During the six months ended June 30, 2022, the Company sold three properties for a total sales price, net of disposal costs, of $12.2 million, recognizing a gain of $2.0 million.

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Investment in Mortgage Loans Receivable

The Company’s mortgage loans receivable portfolio as of June 30, 2023 and December 31, 2022 is summarized below (in thousands):


Loan Type	Number of Secured Properties	Effective Interest Rate (4)	Stated Interest Rate	Maturity Date	June 30, 2023		December 31, 2022
Mortgage (1)	1	5.75%	6.00%	7/26/2023	$	40,316	$	40,316
Mortgage (1) (2)	2	5.77%	6.50%	6/30/2023	6,000		6,000
Mortgage	46	9.55%	9.55%	3/10/2026	41,940		—
Mortgage (3)	3	8.03%	6.89%	4/10/2026	4,132		—
Mortgage (3)	10	7.57%	7.57%	6/10/2025	15,505		—
Total					107,893		46,316
Unamortized loan origination costs					6		62
Unamortized discount					(141)		—
Total mortgage loans receivable, net					$	107,758	$	46,378

(1) The Company has the right, subject to certain terms and conditions, to purchase all or a portion of the underlying collateralized property.

(2) The balance is expected to be settled via a like kind exchange subsequent to June 30, 2023.

(3) The stated interest rate is variable up to 15.0% and is calculated based on contractual rent for existing collateralized properties subject to the loan agreement.

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

All of the Company’s mortgage loans receivable require monthly payments of interest only with principal payments occurring as borrower disposes of underlying properties, limited to the Company’s allocated investment by property. Any remaining principal balance will be repaid at or before the maturity date.

Assets Held for Sale

As of June 30, 2023 and December 31, 2022, there were fourteen and eleven properties, respectively, classified as held for sale.

Provisions for Impairment

The Company recorded provisions for impairment of $2.8 million on six properties for both the three and six months ended June 30, 2023. The Company recorded a provision for impairment of $1.1 million on one property for both the three and six months ended June, 30, 2022.

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Note 5 – Intangible Assets and Liabilities

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


		September 30, 2020						December 31, 2019							June 30, 2023						December 31, 2022
		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount			Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Assets:	Assets:													Assets:
In-place leases	In-place leases	$	61,609	$	(2,782)	$	58,827	$	20,763	$	(56)	$	20,707	In-place leases	$	168,425	$	(36,499)	$	131,926	$	154,876	$	(28,472)	$	126,404
Above-market leases	Above-market leases	8,322		(337)		7,985		7,286		(13)		7,273		Above-market leases	21,508		(3,601)		17,907		20,091		(2,892)		17,199
Assembled workforce	Assembled workforce	873		(226)		647		873		(7)		866		Assembled workforce	873		(873)		—		873		(873)		—
Total Intangible assets		$	70,804	$	(3,345)	$	67,459	$	28,922	$	(76)	$	28,846
Lease incentives														Lease incentives	9,244		(1,010)		8,234		8,021		(618)		7,403
Total intangible assets														Total intangible assets	$	200,050	$	(41,983)	$	158,067	$	183,861	$	(32,855)	$	151,006

Liabilities:	Liabilities:													Liabilities:
Below-market leases	Below-market leases	$	17,322	$	(677)	$	16,645	$	4,682	$	(10)	$	4,672	Below-market leases	$	34,027	$	(6,593)	$	27,434	$	35,596	$	(5,465)	$	30,131

The remaining weighted average amortization period for the Company’s intangible assets and liabilities as of ~~September~~June 30, ~~2020~~2023 and as of December 31, ~~2019~~2022 by category ~~and in total,~~ were as follows:

Years Remaining
September 30, 2020 December 31, 2019
In-place leases 10.8 10.5
Above-market leases 12.8 15.3
Below-market leases 10.2 13.2
Assembled workforce 2.2 3.0


	Years Remaining
	June 30, 2023	December 31, 2022
In-place leases	9.2	9.4
Above-market leases	12.8	13.0
Below-market leases	11.4	11.6
Lease incentives	11.4	11.8

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The Company records amortization of in-place lease assets and assembled workforce intangible assets to amortization expense, and records net amortization of above-market and below-market lease intangibles as well as amortization of lease incentives to rental revenue. The following amounts in the accompanying condensed consolidated statements of operations and comprehensive ~~loss~~income related to the amortization of ~~intangibles~~intangible assets and liabilities for all property and ground leases (in thousands):


		Successor		Predecessor		Successor		Predecessor			Three Months Ended June 30,				Six Months Ended June 30,
		Three months ended September 30, 2020		Three months ended September 30, 2019		Nine months ended September 30, 2020		Nine months ended September 30, 2019			2023		2022		2023		2022
Amortization:	Amortization:									Amortization:
Amortization of in-place leases	Amortization of in-place leases	$	1,364	$	509	$	2,895	$	1,576	Amortization of in-place leases	$	4,809	$	3,734	$	9,479	$	7,288
Amortization of assembled workforce	Amortization of assembled workforce	73		0		219		0		Amortization of assembled workforce	—		73		—		147
		$	1,437	$	509	$	3,114	$	1,576		$	4,809	$	3,807	$	9,479	$	7,435

Net adjustment to rental revenue:	Net adjustment to rental revenue:									Net adjustment to rental revenue:
Above-market lease assets	Above-market lease assets	(122)		(205)		(370)		(803)		Above-market lease assets	(391)		(333)		(762)		(660)
Below-market lease liabilities	Below-market lease liabilities	341		100		710		317		Below-market lease liabilities	768		627		1,551		1,237
Lease incentives										Lease incentives	(193)		(128)		(392)		(246)
		$	219	$	(105)	$	340	$	(486)		$	184	$	166	$	397	$	331

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The following table provides the projected amortization of in-place lease assets ~~and assembled workforce intangible assets~~ to amortization expense and the net amortization of above-market, below-market, and ~~below-market~~lease incentive lease intangibles to rental revenue as of ~~September~~June 30, ~~2020,~~2023, for the next five years and thereafter (in thousands):


		Remainder of 2020		2021		2022		2023		2024		Thereafter			Remainder of 2023		2024		2025		2026		2027		Thereafter		Total
In-place leases	In-place leases	$	1,475	$	5,899	$	5,872	$	5,833	$	5,743	$	34,005	In-place leases	$	9,094	$	18,035	$	17,462	$	16,233	$	13,942	$	57,160	$	131,926
Assembled workforce		73		291		283		0		0		0
Amortization expense		$	1,548	$	6,190	$	6,155	$	5,833	$	5,743	$	34,005

Above-market lease assets	Above-market lease assets	173		693		678		673		669		5,099		Above-market lease assets	$	(785)	$	(1,565)	$	(1,564)	$	(1,563)	$	(1,535)	$	(10,895)	$	(17,907)
Below-market lease liabilities	Below-market lease liabilities	(351)		(1,402)		(1,402)		(1,395)		(1,380)		(10,715)		Below-market lease liabilities	1,434		2,857		2,835		2,743		2,671		14,894		27,434
Lease incentives														Lease incentives	(396)		(793)		(793)		(793)		(743)		(4,716)		(8,234)
Net adjustment to rental revenue	Net adjustment to rental revenue	$	(178)	$	(709)	$	(724)	$	(722)	$	(711)	$	(5,616)	Net adjustment to rental revenue	$	253	$	499	$	478	$	387	$	393	$	(717)	$	1,293

Note 6 – Debt

Debt consists of the following (in thousands):

September 30, 2020 December 31, 2019
Term loan:
Term Loan (due December 23, 2024) $ 175,000 $ 175,000
Less: Unamortized discount and debt issuance costs (952) (1,087)
$ 174,048 $ 173,913


				Amounts Outstanding as of
	Contractual Maturity Date	Fully Extended Maturity Date (5)	Interest Rate	June 30, 2023		December 31, 2022
Debt:
2024 Term Loan	December 23, 2024	—	1.37%	$	—	$	175,000
2027 Term Loan (1)	January 15, 2026	January 15, 2027	1.37%	175,000		—
Revolver (2)	August 11, 2026	August 11, 2027	6.15%	106,000		113,000
2028 Term Loan (3)	February 11, 2028	—	3.88%	200,000		200,000
Mortgage Note	November 1, 2027	—	4.53%	8,435		8,498
Total debt				489,435		496,498
Unamortized discount and debt issuance costs				(2,853)		(2,306)
Unamortized deferred financing costs, net (4)				(2,313)		(2,684)
Total debt, net				$	484,269	$	491,508

(1) Loan is a floating-rate loan which resets daily at daily SOFR plus a SOFR adjustment of 0.10% plus the applicable margin which was 1.15% as of June 30, 2023. The Company has entered into four interest rate swap agreements that effectively convert the floating rate to a fixed rate.

(2) The annual interest rate of the Revolver assumes daily SOFR as of June 30, 2023 of 5.05% plus a SOFR adjustment of 0.10% plus the applicable margin which was 1.00% as of June 30, 2023.

(3) Loan is a floating-rate loan which resets monthly at one-month term SOFR plus a SOFR adjustment of 0.10% plus the applicable margin which was 1.15% as of June 30, 2023. The Company has entered into three interest rate swap agreements that effectively convert the floating rate to a fixed rate.

(4) The Company records deferred financing costs for the Revolver in other assets, net on its condensed consolidated balance sheets.

(5) Date represents the fully extended maturity date available to the Company under each related debt instrument.

~~In December 2019,~~Credit Facility

On August 11, 2022, the Company entered into a sustainability-linked senior unsecured credit facility consisting of (i) a ~~$175.0~~$200.0 million senior ~~secured~~unsecured term loan (“(the “2028 Term Loan”) and (ii) a ~~$250.0~~$400.0 million senior ~~secured~~unsecured revolving credit facility ~~(“Revolver”~~(the “Revolver”, and ~~collectively~~together with the 2028 Term Loan, the “Credit Facility”). ~~Wells Fargo Securities, LLC is lead arranger and bookrunner and Wells Fargo Bank, National Association is administrative agent~~The Credit Facility may be increased by $400.0 million in the aggregate for total availability of up to $800.0 million.

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

~~The Term Loan matures on December 23, 2024 and~~

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Prior to the Revolver matures on December 23, 2023, subject to extension up to one year. The Credit Facility is secured by a first priority perfected security interest in and lien on all existing and future equity interests ofdate the ~~Company’s direct and indirect subsidiaries of any Eligible Property~~Company obtains an Investment Grade Rating (as defined in the ~~Credit Facility) owned by the Company or any of the Company’s subsidiaries. The Credit Facility also provides that the Administrative Agent has the option to release the collateral securing~~credit agreement governing the Credit Facility upon delivery of satisfactory evidence from the Company that Collateral Release Requirements (as defined in the Credit Facility) have been met, which requirements include, among others, conditions related to the unencumbered asset value and asset diversification of the Company.

~~Interest is payable monthly or at the end of the applicable~~(the “Credit Agreement”)), interest ~~period in arrears on any outstanding borrowings. For so long as the Credit Facility is secured, the interest~~ rates ~~under the Credit Facility~~ are based on the Company’s consolidated total leverage ratio, and are determined by (A) in the case of the 2028 Term Loan either (i) ~~LIBOR,~~SOFR, plus a margin ranging from 1.25% to 2.25%, based on the Company’s consolidated total leverage ratio, or (ii) a Base Rate (as defined in the Credit Facility), plus a margin ranging from 0.25% to 1.25%, based on the Company’s consolidated total leverage ratio and (B) in the caseSOFR adjustment of ~~Revolving Loans either (i) LIBOR, plus a margin ranging from 1.35% to 2.30%~~0.10%, based on the Company’s consolidated total leverage ratio, or (ii) a Base Rate (as defined in the Credit Facility), plus a margin ranging from 0.35% to 1.30%, based on the Company’s consolidated total leverage ratio. To the extent the Administrative Agent releases the collateral in connection with the Company’s satisfaction of the Collateral Release Requirements, the interest rates under the Credit Facility will be based

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~~on the Company’s consolidated total leverage ratio, and are determined by (A) in the case of Term Loan either (i) LIBOR,~~ plus a margin ranging from 1.15% to 1.60%, based on the Company’s consolidated total leverage ratio, or (ii) a Base Rate (as defined in the Credit ~~Facility)~~Agreement), plus a margin ranging from 0.15% to 0.60%, based on the Company’s consolidated total leverage ratio and (B) in the case of ~~Revolving Loans~~the Revolver either (i) ~~LIBOR,~~SOFR, plus a SOFR adjustment of 0.10%, plus a margin ranging from ~~1.20%~~1.00% to ~~1.80%~~1.45%, based on the Company’s consolidated total leverage ratio, or (ii) a Base Rate (as defined in the Credit ~~Facility)~~Agreement), plus a margin ranging from ~~0.20%~~0.00% to ~~0.80%~~0.45%, based on the Company’s consolidated total leverage ratio.

~~The~~After the date the Company ~~is required to pay a Revolver facility fee at~~obtains an ~~annual rate of 0.15%~~Investment Grade Rating, interest rates are based on the Company’s Investment Grade Rating, and are determined by (A) in the case of the ~~unused capacity if usage exceeds 50%~~2028 Term Loan either (i) SOFR, plus a SOFR adjustment of 0.10%, plus a margin ranging from 0.80% to 1.60%, based on the ~~total available facility,~~Company’s Investment Grade Rating, or 0.25% of the unused facility if usage does not exceed 50%. Loans from the Revolver are generally restricted if, among other things, the proposed usage of the proceeds from the loan do not meet certain criteria as outlined(ii) a Base Rate (as defined in the Credit ~~Facility Agreement, if an event~~Agreement), plus a margin ranging from 0.00% to 0.60%, based on the Company’s Investment Grade Rating and (B) in the case of ~~default exists, or if the requested loan will create an event of default. Loans from~~ the Revolver ~~may not exceed~~either (i) SOFR, plus a SOFR adjustment of 0.10%, plus a margin ranging from 0.725% to 1.40%, based on the ~~total revolving commitments.~~Company’s Investment Grade Rating, or (ii) a Base Rate (as defined in the Credit Agreement), plus a margin ranging from 0.00% to 0.40%, based on the Company’s Investment Grade Rating.

~~During the second quarter,~~Additionally, the Company ~~entered into~~will incur a facility fee based on the total commitment amount of $400.0 million under the Revolver. Prior to the date the Company obtains an ~~amendment~~Investment Grade Rating, the applicable facility fee will range from 0.15% to 0.30% based on the Company’s consolidated total leverage ratio. After the date the Company obtains an Investment Grade Rating, the applicable facility fee will range from 0.125% to 0.30% based on the Company’s Investment Grade Rating.

The Credit Facility also contains a sustainability-linked pricing component pursuant to which the Company will receive interest rate reductions up to 0.025% based on its performance against a sustainability performance target focused on the portion of the Company’s annualized base rent attributable to tenants with commitments or quantifiable targets for reduced greenhouse gas emission in accordance with the standards of the Science Based Targets initiative (“SBTi”).

The Company has fully hedged the 2028 Term Loan with an all-in interest rate of 3.88%. Interest is payable monthly or at the end of the applicable interest period in arrears on any outstanding borrowings. The interest rate hedge is further described in “Note 7 – Derivative Financial Instruments.”

In connection with the Credit Facility, ~~to amend and redefine its debt covenant calculations. The~~the Company incurred ~~and capitalized less than $0.1~~$3.8 million of deferred financing costs ~~relating to this amendment,~~ which ~~has been pro-rated~~were allocated between the Revolver and 2028 Term Loan in the amounts of $2.4 million and $1.3 million, respectively. Additionally, $0.5 million of unamortized deferred financing costs associated with the Company’s previous revolving credit facility were reclassed to the ~~Term Loan and Revolver based on their respective borrowing capacities.~~

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

2027 Term Loan ~~deferred financing~~

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

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

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

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Mortgage Note Payable

As of June 30, 2023, the Company had total gross mortgage indebtedness of $8.4 million, which was collateralized by related real estate and a tenant’s lease with an aggregate net book value of $12.9 million. The Company incurred debt issuance costs of ~~$1.1~~less than $0.1 million and recorded a debt discount of $0.6 million, both of which ~~$1.0 million and $1.1 million is unamortized at September 30, 2020 and December 31, 2019, respectively, is included within Term Loan,~~are recorded as a reduction of the principal balance in mortgage note payable, net onin the Company’s condensed consolidated balance sheets. ~~Revolver deferred financing costs of $1.6 million, of which $1.3 million and $1.6 million is unamortized at September 30, 2020 and December 31, 2019, respectively, is included within other assets~~The mortgage note matures on ~~the condensed consolidated balance sheets.~~November 1, 2027, but may be repaid in full beginning August 2027.

~~Total deferred financing costs amortized~~Debt Maturities

Payments on the 2027 Term Loan and ~~Revolver~~the 2028 Term Loan are interest only through maturity. As of June 30, 2023, scheduled debt maturities, including balloon payments, are as follows (in thousands):


	Scheduled Principal		Balloon Payment (1)		Total
Remainder of 2023	$	92	$	—	$	92
2024	162		—		162
2025	170		—		170
2026	178		281,000		281,178
2027	170		7,663		7,833
Thereafter	—		200,000		200,000
Total	$	772	$	488,663	$	489,435

(1) Does not assume the exercise of any extension options available to the Company.

Interest Expense

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Revolving credit facilities (1)	$	2,567	$	818	$	3,716	$	1,296
Term loans (2)	2,668		593		5,168		1,184
Mortgage note payable	100		—		193		—
Non-cash:
Amortization of deferred financing costs	186		101		371		201
Amortization of debt discount, net	150		56		301		113
Capitalized interest	(150)		(46)		(284)		(103)
Total interest expense, net	$	5,521	$	1,522	$	9,465	$	2,691

(1) Includes facility fees and non-utilization fees of approximately $0.2 million and less than $0.1 million for the three ~~and nine~~ months ended ~~September~~June 30, ~~2020 were $0.2~~2023 and 2022, respectively, and facility fees of $0.3 million and ~~$0.5~~$0.1 million for the six months ended June 30, 2023 and 2022, respectively. ~~This is~~

(2) Includes the effects of interest rate hedges in place as of such date.

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

~~Total deferred financing costs amortized on~~During the ~~Predecessor’s debt facilities for the~~ three ~~and nine~~ months ended ~~September~~June 30, ~~2019 were $0.3 million~~2023 and ~~$0.8 million, respectively. This is included in interest expense on the Predecessor’s condensed consolidated statements of operations and comprehensive loss.~~

~~As of September 30, 2020, and December 31, 2019, the Term Loan~~2022, term loans had ~~an effective interest rate of 1.46% and 3.28%, respectively, which is reflective of the interest rate hedge as described in "Note 7 - Derivative Financial Instruments."~~

~~The~~a weighted average interest rate, onexclusive of amortization of deferred financing costs and the ~~Term Loan was 2.17% for~~effects of interest rate hedges, of 6.41% and 1.94%, respectively. During the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2023 and 2022, term loans had a weighted average interest rate, exclusive of amortization of deferred financing costs and the effects of interest rate hedges, of 6.09% and 1.63%, respectively.

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~~The Company incurred interest expense in connection with~~During the ~~Term Loan for the~~ three ~~and nine~~ months ended ~~September~~June 30, ~~2020 of $0.6 million~~2023 and ~~$2.9 million, respectively.~~

~~The Predecessor incurred interest expense of $2.2 million and $7.6 million in connection with its debt facilities for~~2022, the ~~three and nine months ended September 30, 2019, respectively.~~

The fair value of the Company’s Term Loan is determined based on the expected future payments discounted at risk-adjusted rates. The Company assessed that the carrying value materially approximates the estimated fair value of the Term Loan at September 30, 2020 and December 31, 2019.

~~The~~ Company incurred interest expense on ~~the Revolver for the three and nine months ended September 30, 2020 of $0.1 million,~~revolving credit facilities with a weighted average interest rate, exclusive of ~~1.53%. As~~amortization of ~~September~~deferred financing costs and facility fees, of 5.94% and 2.08%, respectively. During the six months ended June 30, ~~2020~~2023 and ~~December 31, 2019,~~2022, the Company ~~had 0 borrowings under the Revolver. The Company also~~ incurred interest expense ~~in connection~~on revolving credit facilities with ~~unused capacity~~a weighted average interest rate, exclusive of amortization of deferred financing costs and facility fees, of 5.92% and 1.78%, respectively.

The estimated fair values of the Company’s term loans have been derived based on market observable inputs such as interest rates and discounted cash flow analysis using estimates of the amount and timing of future cash flows. These measurements are classified as Level 2 within the fair value hierarchy. Refer to “Note 2 - Summary of Significant Accounting Policies” for ~~the three and nine months ended September 30, 2020 of $0.1 million and $0.4 million, respectively.~~additional detail on fair value measurements.

The Company was in compliance with all of its debt covenants as of ~~September~~June 30, ~~2020~~2023 and expects to be in compliance for the ~~following~~ twelve-month ~~period.~~period ending December 31, 2023.

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Note 7 – Derivative Financial Instruments

The Company uses interest rate derivative contracts to manage its exposure to changes in interest rates on its variable rate debt. These derivatives are considered cash flow hedges and are recorded on a gross basis at fair value. Assessments of hedge effectiveness are performed quarterly using either a qualitative or quantitative approach. The Company recognizes the entire change in the fair value in Accumulated Other Comprehensive ~~Loss ("AOCL"~~Income (“AOCI”) and the change is reflected as cash flow hedge changes in fair value in the supplemental disclosures of non-cash investing and financing activities in the condensed consolidated ~~statement~~statements of cash flows.

Effective September ~~28, 2020,~~1, 2022, such derivatives were ~~used~~initiated to hedge the variable cash flows associated with the 2028 Term Loan. The interest rate for the variable rate 2028 Term Loan is based on the hedged fixed rate of 2.63% compared to the variable 2028 Term Loan one-month SOFR rate as of June 30, 2023 of 5.16%, plus a SOFR adjustment of 0.10% and applicable margin of 1.15%. The maturity dates of the interest rate swaps coincide with the maturity date of the 2028 Term Loan.

In anticipation of the settlement of the 2024 Term Loan, the Company converted and extended the existing cash flow hedges with an aggregate notional amount of $150.0 million to cover the base rate associated with the new 2027 Term Loan of $175.0 million. The remaining $25.0 million remained hedged under the original cash flow hedge with a maturity date of December 23, 2024. Subsequent to June 30, 2023, the Company entered into a $25.0 million cash flow hedge through the extended maturity date of the 2027 Term Loan of January 15, 2027.

Effective June 30, 2023, the Company had a hedged fixed rate of 0.12% compared to the variable 2027 Term Loan SOFR rate as of June 30, 2023 of 5.05%, plus a SOFR adjustment of 0.10% and applicable margin of 1.15%. This hedged fixed rate of 0.12% is effective through November 27, 2023, and then adjusts to 1.87%, plus a SOFR adjustment of 0.10% and applicable margin of 1.15% through December 23, 2024, and 2.40%, plus a SOFR adjustment of 0.10% and applicable margin of 1.15% thereafter through the fully extended maturity of the 2027 Term Loan of January 2027.

Amounts will subsequently be reclassified to earnings when the hedged item affects earnings. The Company does not enter into derivative contracts for speculative or trading purposes and does not have derivative netting arrangements.

The Company is exposed to credit risk in the event of non-performance by its derivative counterparties. The Company evaluates counterparty credit risk through monitoring the creditworthiness of counterparties, which includes review of debt ratings and financial performance. To mitigate credit risk, the Company enters into agreements with counterparties it considers credit-worthy, such as large financial institutions with favorable credit ratings.

The Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk (in thousands, except number of instruments):


		Number of Instruments		Notional					Number of Instruments		Notional
Interest Rate Derivatives	Interest Rate Derivatives	September 30, 2020	December 31, 2019	September 30, 2020		December 31, 2019		Interest Rate Derivatives	June 30, 2023	December 31, 2022	June 30, 2023		December 31, 2022
Interest rate swaps	Interest rate swaps	4	0	$	175,000	$	0	Interest rate swaps	10	7	$	525,000	$	375,000

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The following table presents the fair value of the Company's derivative financial instruments as well as their classification on the condensed consolidated balance sheets as of ~~September~~June 30, ~~2020~~2023 and December 31, ~~2019~~2022 (in thousands):


		Derivative Assets					Derivative Liabilities						Derivative Assets
			Fair Value at					Fair Value at						Fair Value at
Derivatives Designated as Hedging Instruments:	Derivatives Designated as Hedging Instruments:	Balance Sheet Location	September 30, 2020		December 31, 2019		Balance Sheet Location	September 30, 2020		December 31, 2019		Derivatives Designated as Hedging Instruments:	Balance Sheet Location	June 30, 2023		December 31, 2022
Interest rate swaps	Interest rate swaps	Other assets, net	$	0	$	0	Accounts payable, accrued expenses and other liabilities	$	128	$	0	Interest rate swaps	Other assets, net	$	24,476	$	24,067
Total			$	0	$	0		$	128	$	0

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The following table presents the effect of the Company's interest rate swaps on the condensed consolidated statements of operations and comprehensive ~~loss~~income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2023 and ~~2019~~2022 (in thousands):

Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion) Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) Total Amount of Interest Expense, Net, Presented in the Consolidated Statements of Operations and Comprehensive Loss
Derivatives in Cash Flow Hedging Relationships 2020 2019 2020 2019 2020 2019
For the Three Months Ended September 30
Interest Rate Products $ (129) $ 0 Interest expense, net $ (1) $ 0 $ (1,018) $ (2,449)
Total $ (129) $ 0 $ (1) $ 0 $ (1,018) $ (2,449)
For the Nine Months Ended September 30
Interest Rate Products $ (129) $ 55 Interest expense, net $ (1) $ 55 $ (3,815) $ (8,349)
Total $ (129) $ 55 $ (1) $ 55 $ (3,815) $ (8,349)


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


Derivatives in Cash Flow Hedging Relationships	2023		2022			2023		2022
For the Three Months Ended June 30
Interest Rate Products	$	9,714	$	1,591	Interest expense, net	$	3,326	$	253

For the Six Months Ended June 30
Interest Rate Products	$	6,572	$	7,779	Interest expense, net	$	6,163	$	230

The Company did not exclude any amounts from the assessment of hedge effectiveness for the three and six months ended June 30, 2023 and 2022. During the next twelve months, the Company estimates that an additional $18.4 million will be reclassified as a decrease to interest expense.

The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves.

To comply with the provisions of ASC 820, the Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.

Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of ~~September~~June 30, ~~2020,~~2023, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

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The table below presents the Company’s derivative ~~liabilities~~assets measured at fair value on a recurring basis as of ~~September~~June 30, ~~2020,~~2023 and December 31, 2022, aggregated by the level in the fair value hierarchy within which those measurements fall (in thousands):

Level 1 Level 2 Level 3 Total Fair Value
September 30, 2020
Liabilities
Derivative liabilities $ 0 $ 128 $ 0 $ 128


	Fair Value Hierarchy Level
Description	Level 1		Level 2		Level 3		Total Fair Value
June 30, 2023
Derivative assets	$	—	$	24,476	$	—	$	24,476

December 31, 2022
Derivative assets	$	—	$	24,067	$	—	$	24,067

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

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


		September 30, 2020		December 31, 2019			June 30, 2023		December 31, 2022
Earnest money deposit		$	1,143	$	1,100
Deferred financing costs, net		1,299		1,552
Accounts receivable, net	Accounts receivable, net	1,276		625		Accounts receivable, net	$	9,698	$	7,167
Deferred rent receivable	Deferred rent receivable	1,406		15		Deferred rent receivable	6,586		5,629
Other assets		882		12
Prepaid assets						Prepaid assets	3,548		3,864
Earnest money deposits						Earnest money deposits	1,251		185
Fair value of interest rate swaps						Fair value of interest rate swaps	24,476		24,067
Deferred offering costs						Deferred offering costs	809		796
Deferred financing costs, net						Deferred financing costs, net	2,313		2,685
Right-of-use asset						Right-of-use asset	4,052		4,235
Leasehold improvements and other corporate assets, net						Leasehold improvements and other corporate assets, net	1,855		1,969
Interest receivable						Interest receivable	664		256
Other assets, net						Other assets, net	1,256		1,204
		$	6,006	$	3,304		$	56,508	$	52,057

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


		September 30, 2020		December 31, 2019			June 30, 2023		December 31, 2022
Accrued expenses	Accrued expenses	$	1,777	$	438	Accrued expenses	$	8,689	$	5,745
Accrued bonus	Accrued bonus	1,296		0		Accrued bonus	1,030		1,305
Prepaid rent	Prepaid rent	1,183		607		Prepaid rent	4,177		2,937
Operating lease liability						Operating lease liability	5,304		5,464
Accrued interest						Accrued interest	2,667		1,782
Deferred rent						Deferred rent	2,517		1,756
Accounts payable	Accounts payable	404		1,165		Accounts payable	2,792		1,394
Other liabilities	Other liabilities	290		506		Other liabilities	1,888		2,157
		$	4,950	$	2,716		$	29,064	$	22,540

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

~~Common Stock~~ATM Program

~~Total~~On September 1, 2021, the Company entered into a $250.0 million at-the-market equity program (the “ATM Program”) through which, from time to time, it may sell shares of its common stock in registered transactions. The Company has issued shares of common stock in connection with the ATM Program for the periods presented as follows:

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•In June 2023, the Company issued 1,364,815 shares of common stock at a weighted average price of $17.53 per share for net proceeds of approximately $23.4 million, net of sales commissions and offering costs of $0.3 million. The Company contributed the net proceeds to the Operating Partnership in exchange for 1,364,815 Class A OP Units.

•In March 2023, the Company issued 146,745 shares of common stock at a weighted average price of $20.22 per share for net proceeds of approximately $2.9 million, net of sales commissions and offering costs of less than $0.1 million. The Company contributed the net proceeds to the Operating Partnership in exchange for 146,745 Class A OP Units.

•In March 2022, the Company issued 163,774 shares of common stock at a weighted average price of $22.08 per share for net proceeds of approximately $3.5 million, net of sales commissions and offering costs of less than $0.1 million. The Company contributed the net proceeds to the Operating Partnership in exchange for 163,774 Class A OP Units.

As of June 30, 2023, the Company has $127.3 million remaining gross proceeds available for future issuances of shares of common stock under the ATM Program.

August 2022 Follow-On Offering

On August 8, 2022, the Company completed a registered public offering of 9,000,000 shares of its common stock at a public offering price of $20.20 per share, which excluded an over-allotment option to the underwriters to purchase up to an additional 1,350,000 shares, which was exercised in full on August 10, 2022. In connection with the offering, the Company entered into forward sale agreements for 10,350,000 shares of its common stock. The Company did not initially receive any proceeds from the ~~Company's initial public offering was $227.3~~sales of shares of common stock by the forward purchasers upon registration of the offering. On March 30, 2023, the Company partially physically settled 2,612,736 shares of common stock at a price of $20.20 per share in accordance with the forward sale agreements. The Company received net proceeds from the settlement of $50.0 million, ~~which is~~ net of underwriting discounts and offering costs of ~~$18.9~~$2.8 million. The ~~initial~~Company contributed the net proceeds to the Operating Partnership in exchange for 2,612,736 Class A OP Units. On June 28, 2023, the Company physically settled 4,763,320 shares of common stock at a price of $20.20 per share in accordance with the forward sale agreements. The Company received net proceeds from the settlement of $91.1 million, net of underwriting discounts and offering costs of $5.1 million. The Company contributed the net proceeds to the Operating Partnership in exchange for 4,763,320 Class A OP Units.

As of June 30, 2023, the Company fully physically settled the forward sale agreements (by the delivery of shares of common stock).

January 2022 Follow-On Offering

On January 13, 2022, the Company completed a registered public offering ~~resulted in~~of 10,350,000 shares of its common stock at a public offering price of $22.25 per share. In connection with the ~~issuance~~offering, the Company entered into forward sale agreements for 10,350,000 shares of ~~13,681,561 shares of~~its common stock.

On June 23, 2022, the Company settled 2,397,035 shares of common stock at a price of $22.25 per share in accordance with the forward sale agreements. The ~~Company's initial public~~Company received net proceeds from the offering ~~also resulted~~of $50.0 million, net of underwriting discounts and offering costs of $3.3 million. The Company contributed the net proceeds to the Operating Partnership in ~~the non-controlling interest conversion of 255,236 of operating partnership units into common stock.~~exchange for 2,397,035 Class A OP Units.

~~Preferred Equity~~On March 30, 2022, the Company settled 3,440,962 shares of common stock at a price of $22.25 per share in accordance with the forward sale agreements. The Company received net proceeds from the settlement of $72.0 million, net of underwriting discounts and offering costs of $4.6 million. The Company contributed the net proceeds to the Operating Partnership in exchange for 3,440,962 Class A OP Units.

~~The~~As of December 31, 2022, the Company ~~redeemed all 125 outstanding~~fully physically settled the forward sale agreements (by the delivery of shares of ~~Series A Preferred~~common stock).

Surrendered Shares on Vested Stock ~~upon~~Unit Awards

During the ~~completion~~six months ended June 30, 2023 and 2022, portions of restricted stock unit awards (“RSUs”) granted to certain of the ~~initial public offering~~Company’s officers, directors, and employees vested. The vesting of these awards, granted pursuant to the NETSTREIT Corp.

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2019 Omnibus Incentive Plan (the “Omnibus Incentive Plan”), resulted in ~~August 2020~~federal and state income tax liabilities for the recipients. During the six months ended June 30, 2023 and 2022, as permitted by the terms of the Omnibus Incentive Plan and the award grants, certain executive officers and employees elected to surrender a total of 18 thousand and 17 thousand RSUs, respectively both valued at approximately ~~$0.1 million. As~~$0.4 million, solely to pay the associated statutory tax withholding. The surrendered RSUs are included in the row entitled “repurchase of ~~September 30, 2020, there are 0~~ shares of ~~preferred stock outstanding.~~common stock” on the condensed consolidated statements of cash flows.

Dividends

~~The~~During the six months ended June 30, 2023, the Company declared and paid ~~a cash dividend of $0.10~~the following common stock dividends (in thousands, except per share ~~for the third quarter of 2020. The dividend totaled $2.8 million and was paid on September 25, 2020 to shareholders of record as of September 15, 2020.~~data):

~~Non-controlling Interest~~


Six Months Ended June 30, 2023
Declaration Date	Dividend Per Share		Record Date	Total Amount		Payment Date
February 21, 2023	$	0.20	March 15, 2023	$	11,650	March 30, 2023
April 25, 2023	0.20		June 1, 2023	12,173		June 15, 2023
	$	0.40		$	23,823

~~Non-controlling interest~~


Six Months Ended June 30, 2022
Declaration Date	Dividend Per Share		Record Date	Total Amount		Payment Date
February 22, 2022	$	0.20	March 15, 2022	$	8,888	March 30, 2022
April 26, 2022	0.20		June 1, 2022	9,588		June 15, 2022
	$	0.40		$	18,476

The holders of OP Units are entitled to an equal distribution per each OP Unit held as of each record date. Accordingly, during the six months ended June 30, 2023 and 2022, the Operating Partnership paid distributions of $0.2 million and $0.2 million, respectively, to holders of OP Units.

Noncontrolling Interests

Noncontrolling interests represent ~~non-controlling~~noncontrolling holders of OP Units in the Operating Partnership. OP Units are convertible into common stock as the OP Units may be redeemed for cash or, at the Company’s election, exchanged for shares of the Company’s common stock on a one-for-one basis. As of ~~September~~June 30, ~~2020~~2023 and December 31, ~~2019, non-controlling interest represents 14.0%~~2022, noncontrolling interests represented 0.8% and ~~33.4%~~0.9%, ~~respectively.~~

~~Effective with~~respectively, of OP Units. During the ~~Company's initial public offering, 13,681,561 OP Units were issued to the Company in exchange for $227.3 million~~three months ended June 30, 2023 and ~~255,268 of~~2022, OP Unit holders ~~converted their~~redeemed 0 and 22,265 OP units, respectively, into shares of common stock on a one-for-one basis. During the six months ended June 30, 2023 and 2022, OP Unit holders redeemed 5,694 and 47,894 OP units, respectively, into shares of ~~the Company.~~common stock on a one-for-one basis.

Note 10 – ~~Stock Based~~Stock-Based Compensation

Under the ~~NETSTREIT Corp. 2019~~ Omnibus Incentive ~~Compensation~~ Plan, ~~(the “Omnibus Incentive Plan”), which became effective on December 23, 2019,~~ 2,094,976 shares of common stock are reserved for issuance. The Omnibus Incentive Plan provides for the grant of stock options, stock appreciation rights, restricted shares, ~~restricted stock units,~~RSUs, long-term incentive plan units, dividend equivalent rights, and other share-based, share-related or cash-based awards, including performance-based awards, to employees, directors and consultants, with each grant evidenced by an award agreement providing the terms of the award. The Omnibus Incentive Plan is administered by the Compensation Committee of the Board of Directors.

As of ~~September~~June 30, ~~2020,~~2023, the only stock-based compensation granted by the Company were RSUs. The total amount of stock-based compensation costs recognized in general and administrative expense in the accompanying condensed consolidated statements of operations and comprehensive income was $1.3 million for both the three months ended June 30, 2023 and 2022. Stock-based compensation expense was $2.3 million for both the six months ended June 30, 2023 and 2022. All awards of unvested restricted stock ~~units.~~units are expected to fully vest over the next one to four years.

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~~Performance and Service Based Restricted Stock Units~~Performance-Based RSUs (effectiveness of Initial Public Offering)

Pursuant to the Omnibus Incentive Plan, the Company made performance-based ~~restricted stock unit grants~~RSUs to certain employees and non-employee directors. The performance condition required the Company to effectively file a shelf registration statement. Up until the point of filing the registration statement, performance was not deemed probable and accordingly, no ~~restricted stock units~~RSUs had the capability of vesting and no stock-based compensation expense was recorded. As a result of the Company's initial public offering in August 2020, the performance condition was satisfied and the Company recorded a stock-based compensation expense catch-up adjustment of $1.4 million. The vesting terms of these grants are specific to the individual grant and vest in equal annual installments over the next ~~three~~ ~~to five~~two years.

The following table summarizes ~~performance and service based restricted stock unit~~performance-based RSU activity for the period ended ~~September~~June 30, ~~2020:~~2023:


		Shares	Weighted Average Grant Date Fair Value per Share			Shares	Weighted Average Grant Date Fair Value per Share
Unvested restricted stock grants outstanding as of December 31, 2019		168,353	$	19.75
Unvested RSU grants outstanding as of December 31, 2022					Unvested RSU grants outstanding as of December 31, 2022	61,391	$	19.75
Granted during the period	Granted during the period	85,441	19.75		Granted during the period	—	—
Forfeited during the period	Forfeited during the period	(11,391)	19.75		Forfeited during the period	—	—
Vested during the period	Vested during the period	0	0		Vested during the period	—	—
Unvested restricted stock grants outstanding as of September 30, 2020		242,403	$	19.75
Unvested RSU grants outstanding as of June 30, 2023					Unvested RSU grants outstanding as of June 30, 2023	61,391	$	19.75

For both the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2023, the Company recognized ~~$1.7~~$0.1 million in stock-based compensation ~~expense. NaN stock-based compensation~~ expense ~~was recognized in 2019. These amounts are included in general and administrative expenses in the accompanying condensed consolidated statements of operations and comprehensive loss.~~associated with performance-based RSUs. As of ~~September~~June 30, ~~2020~~2023 and December 31, ~~2019,~~2022, the remaining unamortized stock-based compensation expense totaled ~~$3.1~~$0.3 million and ~~$3.3~~$0.4 million, ~~respectively.~~respectively, and as of June 30, 2023, these awards are expected to be recognized over a remaining weighted average period of 1.2 years. These units are subject to graded vesting and ~~amortization~~stock-based compensation expense is recognized ratably over the requisite service period for each vesting tranche ~~over~~in the ~~service period of each applicable~~ award.

The ~~weighted average~~ grant date fair value of unvested ~~restricted units~~RSUs is calculated as the per share price ~~determined~~ in the ~~Private Offering.~~private offering that closed on December 23, 2019.

~~Service Based Restricted Stock Units~~Service-Based RSUs

Pursuant to the Omnibus Incentive Plan, the Company has made service-based ~~restricted stock unit~~RSU grants to certain employees and non-employee ~~directors in connection with the initial public offering.~~directors. The vesting terms of these grants are specific to the individual grant and vest in equal annual installments over the next ~~three~~one to ~~five~~four years.

The following table summarizes ~~service based restricted stock unit~~service-based RSU activity for the period ended ~~September~~June 30, ~~2020:~~2023:


		Shares	Weighted Average Grant Date Fair Value per Share			Shares	Weighted Average Grant Date Fair Value per Share
Unvested restricted stock grants outstanding as of December 31, 2019		0	$	0
Unvested RSU grants outstanding as of December 31, 2022					Unvested RSU grants outstanding as of December 31, 2022	247,079	$	19.86
Granted during the period	Granted during the period	169,793	18.00		Granted during the period	160,152	19.83
Forfeited during the period	Forfeited during the period	0	0		Forfeited during the period	(678)	20.19
Vested during the period	Vested during the period	0	0		Vested during the period	(84,844)	20.40
Unvested restricted stock grants outstanding as of September 30, 2020		169,793	$	18.00

Unvested RSU grants outstanding as of June 30, 2023					Unvested RSU grants outstanding as of June 30, 2023	321,709	$	19.70

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2023, the Company recognized ~~less than $0.1~~$0.7 million and $1.3 million, respectively, in stock-based compensation ~~expense. NaN stock-based compensation~~ expense ~~was recognized in 2019. These amounts are included in general and administrative expenses in the accompanying condensed consolidated statements of operations and comprehensive loss.~~associated with service-based RSUs. As of ~~September~~June 30, ~~2020,~~2023 and December 31, 2022, the remaining unamortized stock-based compensation expense totaled $4.8 million and $3.0 ~~million. There was 0 unamortized stock-based~~million, respectively, and as of June 30, 2023, these awards are expected to be recognized over a remaining weighted average period of 2.1 years. Stock-based compensation expense ~~as of the end of December 31, 2019. Amortization~~ is recognized on a straight-line basis over the total requisite service period ~~of each applicable~~for the entire award.

The ~~weighted average~~ grant date fair value of ~~service based~~service-based unvested ~~restricted units~~RSUs is calculated as the per share price determined in the initial public ~~offering.~~offering for awards granted in 2020, and as the per share price of the Company’s stock on the date of grant for those granted in years subsequent to 2020.

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Performance-Based RSUs (total shareholder return)

Pursuant to the Omnibus Incentive Plan, the Company has made market-based RSU grants to certain employees. These grants are subject to the participant’s continued service over a three year period with 40% of the award based on the Company’s total shareholder return (“TSR”) as compared to the TSR of identified peer companies and 60% of the award based on total absolute TSR over the cumulative three-year period. The performance period of these grants runs through March 8, 2024, February 28, 2025, and February 28, 2026. Grant date fair value of the market-based share awards was calculated using the Monte Carlo simulation model, which incorporated stock price volatility of the Company and each of the Company’s peers and other variables over the performance period. Significant inputs for the current period calculation were expected volatility of the Company of 29.0% and expected volatility of the Company's peers, ranging from 32.2% to 102.8%, with an average volatility of 46.7% and a risk-free interest rate of 4.46%. The fair value per share on the grant date specific to the target TSR relative to the Company’s peers was $24.13 and the target absolute TSR was $20.15 for a weighted average grant date fair value of $21.57 per share. Stock-based compensation expense associated with unvested market-based share awards is recognized on a straight-line basis over the minimum required service period, which is three years.

The following table summarizes market-based RSU activity for the period ended June 30, 2023:


	Shares	Weighted Average Grant Date Fair Value per Share
Unvested RSU grants outstanding as of December 31, 2022	177,350	$	19.83
Granted during the period	81,751	21.57
Forfeited during the period	—	—
Vested during the period	—	—
Unvested RSU grants outstanding as of June 30, 2023	259,101	$	20.38

For the three and six months ended June 30, 2023, the Company recognized $0.4 million and $0.8 million, respectively, in stock-based compensation expense associated with market-based RSUs. As of June 30, 2023 and December 31, 2022, the remaining unamortized stock-based compensation expense totaled $2.9 million and $2.0 million, respectively, and as of June 30, 2023, these awards are expected to be recognized over a remaining weighted average period of 2.1 years.

Alignment of Interest Program

During March 2021, the Company adopted the Alignment of Interest Program (the “Program”), which allows employees to elect to receive a portion of their annual bonus in unvested RSUs in the first quarter of the following year that would then vest over a four-year service period beginning in the period that the bonus relates. The Program is deemed to be a liability-classified award (accounted for as an equity-classified award as the service date precedes the grant date and the award would otherwise be classified as equity on grant date), which will be fair-valued and accrued over the applicable service period. The total estimated fair value of the elections made for 2023 under the Program was approximately $0.4 million. The award will be remeasured to fair value each reporting period until the unvested RSUs are granted. For both the three and six months ended June 30, 2023, the Company recognized approximately $0.1 million in stock-based compensation expense associated with these awards. Previous awards under the Program that have been granted are included within service-based RSUs above.

Note 11 – Earnings Per Share

~~The table below provides~~Net (loss) income per common share has been computed pursuant to the guidance in the FASB ASC Topic 260, Earnings per Share. Basic earnings per share is computed by dividing net ~~loss and~~(loss) income attributable to common stockholders by the weighted-average number of ~~weighted average~~ common shares outstanding for the period. Diluted earnings per share is similarly calculated except that the denominator is increased by using the treasury stock method to determine the potential dilutive effect of the Company’s outstanding unvested RSUs and ~~common share equivalents used~~unsettled shares under open forward equity contracts and using the if-converted method to determine the potential dilutive effect of the OP Units. The Company has noncontrolling interests in the ~~computations~~form of ~~“basic” net loss per share~~OP Units which are convertible into common stock and ~~"dilutive" net loss per share~~represent potentially dilutive securities, as the OP Units may be redeemed for cash or, at the ~~three and nine months ended September 30, 2020.~~

Company’s election, exchanged for shares of the Company’s common stock on a one-for-one basis.

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(in thousands, except share and per share data) Three Months Ended September 30, 2020 Nine Months Ended September 30, 2020
Numerator:
Net loss from continuing operations $ (2,341) $ (4,298)
Net loss from continuing operations, attributable to noncontrolling interest 263 799
Cumulative preferred stock dividends and redemption premium (36) (42)
Net loss from continuing operations attributable to common shares, basic and diluted $ (2,114) $ (3,541)
Denominator:
Weighted average common shares outstanding, basic 18,825,389 13,771,457
Effect of dilutive shares for diluted net income per common share 0 0
Weighted average common shares outstanding, diluted 18,825,389 13,771,457
Net loss available to common shareholders per common share, basic and diluted $ (0.11) $ (0.26)
The following table is a reconciliation of the numerator and denominator used in the computation of basic and diluted net (loss) income per common share for the three and six months ended June 30, 2023 and 2022.


	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands, except share and per share data)	2023		2022		2023		2022
Numerator:
Net (loss) income	$	(792)	$	2,010	$	689	$	3,976
Net loss (income) attributable to noncontrolling interest	1		(23)		(8)		(47)
Net (loss) income attributable to common shares, basic	(791)		1,987		681		3,929
Net (loss) income attributable to noncontrolling interest	(1)		23		8		47
Net (loss) income attributable to common shares, diluted	$	(792)	$	2,010	$	689	$	3,976

Denominator:
Weighted average common shares outstanding, basic	61,043,531		48,140,041		59,600,630		46,279,122
Effect of dilutive shares for diluted net income per common share:
OP Units	—		527,539		509,588		539,054
Unvested RSUs	—		235,295		164,322		264,784
Unsettled shares under open forward equity contracts	—		48,958		20,194		194,508
Weighted average common shares outstanding, diluted	61,043,531		48,951,833		60,294,734		47,277,468

Net (loss) income available to common stockholders per common share, basic	$	(0.01)	$	0.04	$	0.01	$	0.08
Net (loss) income available to common stockholders per common share, diluted	$	(0.01)	$	0.04	$	0.01	$	0.08

For the three ~~and nine~~ months ended ~~September~~June 30, ~~2020,~~2023, diluted net loss per common share ~~attributable to common shareholders excludes approximately 24,302 and 8,101 weighted average~~does not assume the conversion of 507,773 OP Units or 152,785 unvested ~~restricted shares, respectively,~~RSUs as ~~these shares are anti-dilutive.~~such conversion would be antidilutive.

~~In addition, the Company has non-controlling interest in the form of operating partnership units which are convertible into common stock.~~ As of ~~September~~June 30, ~~2020~~2023 and December 31, ~~2019,~~2022, there were ~~4,193,751~~507,773 and ~~4,449,019~~513,467 of OP Units outstanding, respectively.

~~Subsequent to September 30, 2020, 2,244,702 of OP Units converted into shares of common stock on a one-for-one basis.~~

Note 12 – Commitments and Contingencies

Litigation and Regulatory Matters

In the ordinary course of business, from time to time, the Company may be subject to litigation, claims and regulatory matters, none of which are currently outstanding, which the Company believes could have, individually or in the aggregate, a material adverse effect on its business, financial condition or results of operations, liquidity or cash flows.

Environmental Matters

The Company is subject to environmental regulations related to the ownership of real estate. The cost of complying with the environmental regulations was not material to the ~~Company or Predecessor’s~~Company’s results of operations for any of the periods presented. The Company is not aware of any environmental condition on any of its properties that is likely to have a material adverse effect on the condensed consolidated financial statements when the fair value of such liability can be reasonably estimated and is required to be recognized.

Commitments

~~At September~~In the normal course of business, the Company enters into various types of commitments to purchase real estate properties or fund development projects. These commitments are generally subject to the Company’s customary due diligence process and, accordingly, a number of specific conditions must be met before the Company is obligated or receives an option to purchase the properties. As of June 30, ~~2020,~~2023, the Company had tenant improvement allowance commitments totaling approximately $4.1 million, all of which is expected to be funded over the next two years. Additionally, as of June 30, 2023, the Company had

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commitments to fund 23 properties under development totaling $27.9 million, which is expected to be funded over the next twelve months.

In August 2021, the Company entered into a lease agreement on a new corporate office space, which is classified as an operating lease. The Company began operating out of the new office in February 2022. The lease has a remaining noncancellable term of 9.1 years that expires on July 31, 2032 and is renewable at the Company’s option for two additional periods of five years. Future minimum base rental payments under the lease are outlined in “Note 3 – Leases.” Annual rent expense, excluding operating expenses, is approximately $0.5 million during the initial term.

As of June 30, 2023, the Company did not have any other material commitments for re-leasing costs, recurring capital expenditures, non-recurring building improvements, or similar types of costs.

~~Note 13 – Related-Party Transactions~~

~~The Company did not enter into any related-party transactions during the three and nine months ended September 30, 2020.~~

~~The Predecessor’s fees paid and accrued to the benefit of related parties for the three and nine months ended September 30, 2019 are as follows (amounts in thousands):~~

Entity Transaction Type For the Three Months Ended September 30, 2019 For the Nine Months Ended September 30, 2019
EverSTAR IVF V GP, LLC Asset management fees $ 693 $ 2,162
EBA EverSTAR, LLC Disposition fees 154 840
EBA EverSTAR, LLC Acquisition fees 0 18

Note 1413 – Subsequent Events

~~Subsequent~~The Company has evaluated all events ~~have been evaluated~~that occurred subsequent to June 30, 2023 through ~~October 29, 2020,~~ the date on which these condensed consolidated financial statements were ~~issued:~~

~~Acquisition and Disposition~~issued to determine whether any of ~~Real Estate~~

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~~Subsequent to September 30, 2020,~~these events required disclosure in the ~~Company acquired 5 properties for a total purchase price, including transaction costs, of $8.8 million.~~

In addition, the Company disposed of 2 properties classified as held for sale as of September 30, 2020 for a total sales price, net of disposal costs, of $4.4 million with a net gain on sale of assets of $1.1 million.

~~OP Unit Conversions to Common Stock~~

~~There were 2,244,702 OP Units that converted into shares of common stock on a one-for-one basis subsequent to September 30, 2020.~~financial statements.

Common Stock Dividend

On ~~October 27, 2020,~~July 24, 2023, the Company's Board of Directors declared a cash dividend of ~~$0.20~~$0.205 per share for the ~~fourth~~third quarter of ~~2020.~~2023. The dividend will be paid on ~~December~~September 15, ~~2020~~2023 to ~~shareholders~~stockholders of record on ~~December~~September 1, ~~2020.~~2023.

Revolver Activity

In July 2023, the Company repaid $106.0 million under the Revolver.

2029 Term Loan

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

The interest rate applicable to the 2029 Term Loan is determined by the Company’s Investment Grade Rating. Prior to the date the Company obtains an Investment Grade Rating (as defined in the 2029 Term Loan Agreement), interest shall accrue at either (i) SOFR, plus a margin ranging from 1.15% to 1.60% or (ii) Base Rate (as defined in the 2029 Term Loan Agreement), plus a margin ranging from 0.15% to 0.60%, in each case based on the Company’s consolidated total leverage ratio. After the date the Company obtains an Investment Grade Rating, interest shall accrue at either (i) SOFR, plus a margin ranging from 0.80% to 1.60% or (ii) Base Rate, plus a margin ranging from 0.00% to 0.60%, in each case based on the Company’s Investment Grade Rating. The Company has hedged the entire $250.0 million of the 2029 Term Loan at an all-in fixed interest rate of 4.99%, through January 2029, which consists of the fixed rate SOFR swap of 3.74%, plus a credit spread adjustment of 0.10% and, at current leverage levels, a borrowing spread of 1.15%. Interest is payable monthly or at the end of the applicable interest period in arrears on any outstanding borrowings.

The 2029 Term Loan also contains sustainability-linked pricing component pursuant to which the Company will receive interest rate reductions up to 0.025% based on its performance against a sustainability performance target focused on the portion of the Company’s annualized based rent attributable to tenants with commitments or quantifiable targets for reduced GHG emission is accordance with the standards of the SBTi.

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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, ~~(the “Securities Act”),~~ 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 ~~prospectus dated August 13, 2020, relating to our initial public offering,~~Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission (the “SEC”) on ~~August 14, 2020~~February 23, 2023, 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. Many of the risks identified ~~herein and in our periodic reports~~ have been and will continue to be heightened as a result of the ongoing ~~and~~ numerous adverse effects arising from the novel coronavirus ~~(COVID-19).~~and instability in macroeconomic conditions. 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~~internally managed real estate company that acquires, owns and manages a diversified portfolio of single-tenant, retail commercial real estate subject to long-term net leases with high credit quality tenants across the United States. ~~Our diversified portfolio consists~~We also invest in property developments and mortgage loans secured by real estate. As of ~~189~~June 30, 2023, we owned or had investments in 525 single-tenant retail net leased properties ~~spanning 37 states, with~~that were diversified by tenant, industry and geography, including 87 different tenants, ~~representing 55 different brands or concepts~~ across 25 retail sectors in 45 states. This excludes 23 ~~retail sectors. Our portfolio generates ABR of $38.9 million and is 100% occupied, with a WALT of 11.1 years and consisting of approximately 68% investment grade~~property developments where rent has yet to commence. We focus on tenants ~~by ABR, which we believe provides us with a strong, stable source of recurring cash flow. Our tenants operate~~ 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 ~~discount stores, grocers,~~home improvement, auto parts, drug stores and pharmacies, ~~home improvement, automotive service~~general retail, grocers, convenience stores, discount stores, and quick-service restaurants, all of which we refer to as defensive retail industries. As of June 30, 2023, our investments generated ABR1 of $116.9 million. Approximately 68% of our ABR is from investment grade2 credit rated tenants and an additional 14% of our ABR is derived from tenants with an investment grade profile3. Exclusive of mortgage loans receivable, our portfolio was 100% occupied with a weighted average remaining lease term (“WALT”) of 9.4 years, which we believe provides us with a strong stable source of recurring cash flow from our portfolio.

(1) Annualized base rent (“ABR”) is annualized base rent as of the most recent quarter end for all leases that commenced, annualized cash interest on mortgage loans receivable, and the cash yield on amounts funded to date on interest-earning construction in process.

(2)We ~~believe these characteristics make our tenants’ businesses e-commerce resistant~~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 ~~resilient through all economic cycles. We~~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.

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August 2022 Follow-On Offering

On August 8, 2022, we completed ~~our initial~~a registered public offering ~~on August 17, 2020 and~~of 9,000,000 shares of our common stock ~~trades~~at a public offering price of $20.20 per share, which excluded an over-allotment option to the underwriters to purchase up to an additional 1,350,000 shares, which was exercised in full on August 10, 2022. In connection with the ~~New York Stock Exchange under~~offering, we entered into forward sale agreements for 10,350,000 shares of its common stock. We did not initially receive any proceeds from the ~~symbol "NTST."~~sales of shares of common stock by the forward purchasers upon registration of the offering.

~~COVID-19~~

On March 30, 2023, we partially physically settled 2,612,736 shares of common stock at a price of $20.20 per share in accordance with the forward sale agreements. We ~~continue to monitor~~received net proceeds from the ~~global outbreak~~settlement of ~~COVID-19~~$50.0 million, net of underwriting discounts and ~~to take steps to mitigate~~offering costs of $2.8 million. On June 28, 2023, we physically settled 4,763,320 shares of common stock at a price of $20.20 per share in accordance with the ~~potential risks to us posed by~~forward sale agreements. We received net proceeds from the ~~pandemic. In addition, we continue to stay in close contact with our tenants~~settlement of $91.1 million, net of underwriting discounts and ~~monitor the timeliness~~offering costs of ~~rental payments and any significant changes in our tenants' businesses. See "Note 2 - Summary of Significant Accounting Policies" to our condensed consolidated financial statements included herein.~~$5.1 million.

~~The Company had received payment~~As of ~~approximately 94.9%, 99.3%, 100.0% and 100.0%~~June 30, 2023, we have fully physically settled the forward sale agreements (by the delivery of ~~contractual base rent, based on lease agreements in place prior to consideration~~shares of any rent relief granted as a result of COVID-19, billed for the months of July, August, September and October 2020, respectively (such percentages reflect leases in place for the full applicable month)common stock).

~~Outlook~~ATM Program

~~We seek~~On September 1, 2021, we entered into a $250.0 million at-the-market equity program (the “ATM Program”) through which, from time to ~~maximize long-term earnings growth~~time, we may sell shares of our common stock in registered transactions. In March 2023, we issued 146,745 shares of common stock at a weighted average price of $20.22 per share for net proceeds of approximately $2.9 million, net of sales commissions and ~~shareholder value primarily through the acquisition~~offering costs of ~~strategically positioned assets throughout the U.S., specifically focusing on properties with tenants which are considered essential businesses. We have deployed $66~~less than $0.1 million. In June 2023, we issued 1,364,815 shares of common stock at a weighted average price of $17.53 per share for net proceeds of approximately $23.4 million, net of ~~the $227.3 million from the Company's initial public~~sales commissions and offering ~~to fund acquisitions through September~~costs of $0.3 million.

As of June 30, ~~2020. In addition,~~2023, we have ~~repaid $50~~$127.3 million remaining gross proceeds available for future issuances of ~~outstanding borrowings~~shares of our common stock under ~~our Revolver as of September 30, 2020. We intend to use~~ the remainder of the net proceeds for general corporate purposes, including the acquisition of properties in our pipeline. We have identified 30 properties for a combined purchase price, including acquisition costs, of $89 million that we expect to purchase prior to December 31, 2020. Of the $89 million identified, we have acquired five properties, or $8.8 million of property assets subsequent to September 30, 2020.ATM Program.

Results of Operations

Overall

~~The Company~~We continued to grow ~~its~~our assets ~~held for~~during the first half of 2023 through the acquisition of properties and investment ~~by increasing its asset base from 94 properties as of December 31, 2019 to 189 properties as of the end of September 30, 2020.~~in mortgage loans receivable. This growth was ~~facilitated by successfully raising equity capital~~financed through the settlement of ~~$219.0~~shares of common stock through our forward sale agreements in an amount of $141.1 million, ~~and $227.3~~the issuance of common stock under the ATM Program in an amount of $26.3 million, the usage of existing cash balances as a result of borrowings on our $400.0 million senior unsecured revolving credit facility (the “Revolver”), and cash flows from operations during the ~~private offerings and initial public offering, respectively, totaling $446.3 million of net capital raises executed by the Company over the last 12 months.~~six months ended June 30, 2023.

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Acquisitions

During the three months ended ~~September~~June 30, ~~2020, the Company~~2023, we acquired ~~30 retail net lease~~28 properties for a total purchase price of $96.2 million, inclusive of $1.0 million of capitalized acquisition ~~costs, of $102.6 million.~~costs. The acquisitions were all accounted for as asset acquisitions. These properties are located in 1312 states with a ~~weighted average lease term~~WALT of approximately ~~10.9~~11.7 years. The underwritten weighted-average capitalization rate on ~~the Company’s third~~our second quarter acquisitions was approximately ~~6.5%~~6.7%.

During the ~~nine~~six months ended ~~September~~June 30, ~~2020, the Company~~2023, we acquired ~~98 retail net lease~~48 properties for a total purchase price of $163.9 million, inclusive of $1.7 million of capitalized acquisition ~~costs, of $327.3 million.~~costs. The acquisitions were all accounted for as asset acquisitions. These properties are located in 2118 states with a ~~weighted average lease term~~WALT of approximately ~~12.1~~10.7 years. The underwritten weighted-average capitalization rate on ~~the Company’s~~our year to date acquisitions was approximately 6.8%.

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Development

As of June 30, 2023, we had 23 property developments under construction. During the three months ended June 30, 2023, we invested $17.7 million in property developments. During the six months ended June 30, 2023, we invested $22.2 million in property developments, including the acquisition of 20 new build-to-suit projects with a combined initial purchase price of $11.9 million. During this period, we completed development on two projects and reclassified approximately $14.8 million from property under development to land, building, and improvements in the accompanying condensed consolidated balance sheets. Rent commenced for the completed developments in the first quarter of 2023. The remaining 23 developments in progress are expected to be substantially completed with rent commencing at various points throughout the next twelve months. The purchase price, including acquisition costs, and subsequent development are included in property under development in the accompanying condensed consolidated balance sheets as of June 30, 2023.

Dispositions

During the three months ended ~~September~~June 30, ~~2020, the Company~~2023, we sold one property for a total sales price, net of disposal costs, of $1.9 million. The Company recognized a gain on sale of $0.1 million. During the nine months ended September 30, 2020, Company sold threetwo properties for a total sales price, net of disposal costs of ~~$11.8 million. The Company recognized~~$3.8 million, recognizing a net gain of $0.6 million on ~~sale~~the sales. During the six months ended June 30, 2023, we sold ten properties for a total sales price, net of ~~$1.1 million.~~disposal costs of $19.3 million, recognizing a net gain of $0.3 million on the sales.

Investment in Mortgage Loans Receivable

On March 3, 2023, we executed a fully collateralized $41.9 million loan receivable with a stated interest rate of 9.55% and scheduled maturity date of March 10, 2026. The loan receivable is collateralized by 46 properties leased by one investment grade tenant. The funds provided under the loan are included in mortgage loans receivable, net in the accompanying condensed consolidated balance sheets as of June 30, 2023.

On March 24, 2023, we executed a fully collateralized $4.1 million loan receivable with an effective interest rate of 8.03% and scheduled maturity date of April 10, 2026. The loan receivable is collateralized by three properties leased by one investment grade tenant. The funds provided under the loan are included in mortgage loans receivable, net in the accompanying condensed consolidated balance sheets as of June 30, 2023.

On May 12, 2023, we executed a fully collateralized $15.5 million loan receivable with an effective interest rate of 7.57% and scheduled maturity date of June 10, 2025. The loan receivable is collateralized by 10 properties leased by one investment grade tenant. The funds provided under the loan are included in mortgage loans receivable, net in the accompanying condensed consolidated balance sheets as of June 30, 2023.

Economic and Financial Environment

The average inflation rate for the six months ended June 30, 2023 was 4.9%. While the Federal Reserve has been continuing to raise interest rates in an effort to lower inflation, the pace at which it may continue to do so is unclear leading to uncertainties in the financing market and a volatile economy.

In the commercial real estate market, property prices generally continue to fluctuate which may impact our investment capitalization rates and operating costs. Likewise, during certain periods, including the current market, the credit markets have experienced significant price volatility, dislocations, and liquidity disruptions, which may impact our access to and cost of capital. We continually monitor the commercial real estate and credit markets carefully and, if required, will make decisions to adjust our business strategy accordingly.

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Three Months Ended ~~September~~June 30, ~~2020~~2023 Compared with Three Months Ended ~~September~~June 30, ~~2019~~2022

The following table sets forth our operating results for the periods indicated (in thousands):


		Successor		Predecessor
		Three Months Ended September 30,
		2020		2019			Three Months Ended June 30,
		(Unaudited)					2023		2022
Revenues	Revenues					Revenues
Rental revenue (including reimbursable)	Rental revenue (including reimbursable)	$	9,652	$	4,786	Rental revenue (including reimbursable)	$	29,707	$	22,048
Interest income on loans receivable						Interest income on loans receivable	1,923		586
Total revenues						Total revenues	31,630		22,634
Operating expenses	Operating expenses					Operating expenses
Property	Property	624		293		Property	3,530		2,685
General and administrative	General and administrative	4,109		956		General and administrative	5,260		4,865
Depreciation and amortization	Depreciation and amortization	4,692		2,660		Depreciation and amortization	15,847		11,751
Provisions for impairment	Provisions for impairment	363		2,839		Provisions for impairment	2,836		1,114
Transaction costs	Transaction costs	1,241		3		Transaction costs	15		488
Total operating expenses	Total operating expenses	11,029		6,751		Total operating expenses	27,488		20,903
Other income (expense)	Other income (expense)					Other income (expense)
Interest expense, net	Interest expense, net	(1,018)		(2,449)		Interest expense, net	(5,521)		(1,522)
Gain on sales of real estate		54		1,674
Gain on forfeited earnest money deposit		—
Total other income (expense)		(964)		(775)
Net loss		$	(2,341)	$	(2,740)
Gain on sales of real estate, net						Gain on sales of real estate, net	615		1,858
Loss on debt extinguishment						Loss on debt extinguishment	(128)		—
Other income						Other income	68		36
Total other (expense) income, net						Total other (expense) income, net	(4,966)		372
Net (loss) income before income taxes						Net (loss) income before income taxes	(824)		2,103
Income tax benefit (expense)						Income tax benefit (expense)	32		(93)
Net (loss) income						Net (loss) income	$	(792)	$	2,010

Revenue. Revenue for the three months ended ~~September~~June 30, ~~2020~~2023 increased by ~~$4.9~~$9.0 million to ~~$9.7~~$31.6 million from ~~$4.8~~$22.6 million for the three months ended June 30, 2022, which is attributed to an increase in the ~~prior period primarily due to the increase in total~~ number of our operating leases and properties ~~which increased from 99 as of the end of September 30, 2019 to 189 as of September 30, 2020.~~securing our mortgage loans. The increase includes ~~an increase in~~additional cash rental ~~income~~receipts of ~~$3.6~~$7.4 million, ~~straight-line rental revenue~~combined with net increases of ~~$0.7 million,~~ property expense ~~reimbursement revenue~~reimbursements of ~~$0.3~~$0.7 million, and an increase of ~~amortization of above and below-market lease~~$1.3 million related ~~intangible assets of $0.3 million.~~to interest income on mortgage loans receivable, offset by a decrease in straight-line rental revenue.

Total Operating Expenses. Total expenses increased ~~63.4%~~by $6.6 million to ~~$11.0~~$27.5 million for the three months ended ~~September~~June 30, ~~2020~~2023 as compared to ~~$6.8~~$20.9 million for the three months ended ~~September~~June 30, ~~2019.~~2022. The increase ~~in operating expenses~~ is primarily attributed to the increase in the number of operating properties, with the most significant increases being depreciation and ~~the completion of the Company's initial public offering in August 2020.~~amortization expense, provisions for impairment, property-specific reimbursable expenses, and payroll costs. Total operating expenses include the following:

•Property Expenses. Property expenses increased ~~$0.3~~$0.8 million to ~~$0.6~~$3.5 million for the three months ended ~~September~~June 30, ~~2020~~2023 from ~~$0.3~~$2.7 million for the three months ended ~~September~~June 30, ~~2019 as a result of the Company's acquisition of new properties in 2020.~~2022. The increase is primarily attributed to the increase in ~~property~~the number of operating ~~expenses is comprised~~properties, including combined net increases of ~~increased~~ reimbursable property expenses of $0.8 million, of which $0.4 million, $0.2 million, and ~~non-reimbursable expenses of $0.1~~$0.2 million ~~during the three months ended September 30, 2020.~~were related to reimbursable property taxes, reimbursable common area maintenance costs, and reimbursable insurance costs, respectively.

•General and Administrative Expenses. General and administrative expenses increased ~~$3.2~~$0.4 million to ~~$4.1~~$5.3 million for the three months ended ~~September~~June 30, ~~2020~~2023 from ~~$1.0~~$4.9 million for the three months ended ~~September~~June 30, ~~2019.~~2022. The increase is primarily due to ~~the additional~~an increase in total headcount resulting in increased payroll ~~expense associated with the internalization~~expenses of ~~management~~$0.2 million and an increase in bonus expenses of $0.2 million. While our general and administrative expenses will continue to ~~support the Company~~rise in some measure as our portfolio grows, we expect that such expenses as a ~~newly public company~~percentage of ~~$1.6 million, an increase~~our portfolio will decrease over time due to efficiencies and economies of ~~restricted-share based expense of $1.8 million, offset by the elimination of the management fee paid to affiliates of~~scale.

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$0.7 million. The Company also incurred increased administrative related expenses of $0.3 million and professional fees of $0.3 million, which includes board fees of $0.1 million and audit fees of $0.1 million during the three months ended September 30, 2020.

•Depreciation and Amortization. Depreciation and amortization expense increased ~~by $2.0~~$4.0 million to $15.8 million for the three months ended ~~September~~June 30, 2020 compared to the prior period. The property portfolio consists of 189 and 99 properties as of September 30, 2020 and September 30, 2019, respectively. The majority of our 2020 acquisitions occurred in the second and third quarter of 2020 and as a result depreciation and amortization expense has increased for the three months ended September 30, 2020.

•~~Provision for Impairment.~~ For the three months ended September 30, 2020, we recorded a provision for impairment of $0.4 million on two properties which were classified as held-for-sale assets at September 30, 2020. For the three months ended September 30, 2019, our predecessor recorded a provision for impairment of $2.8 million on four properties which were classified as held for sale at September 30, 2019.

•~~Transaction costs.~~ ~~Transaction costs increased to $1.2~~2023 from $11.8 million for the three months ended ~~September~~June 30, 2020. These costs include $0.9 million of costs incurred by the Company to facilitate both the private offering and the initial public offering of common stock. Transaction costs also include $0.3 million of expenses incurred for abandoned acquisitions as well as expenses associated with property acquisitions throughout the year.

~~Interest Expense.~~ Interest expense decreased $1.4 million to $1.0 million for the three months ended September 30, 2020 from $2.4 million for the prior period, primarily due to the decrease in our outstanding credit facilities and related interest rates for the three months ended September 30, 2020 compared to those of our predecessor over the comparable period.

~~Gain on Sales of Real Estate.~~ For the three months ended September 30, 2020, we recorded a gain on sales of real estate $0.1 million. For the three months ended September 30, 2019, our predecessor recorded a gain on sales of real estate of $1.7 million. The table below summarizes the properties sold for the periods indicated (in thousands):

Successor Predecessor
Three Months Ended September 30,
2020 2019
(Unaudited)
Number of properties sold 1 5
Sales price, net of disposal cost $ 1,861 $ 11,370
Gain on sales of real estate $ 54 $ 1,674

~~Net Loss.~~ ~~Net loss for the three months ended September 30, 2020 remained consistent with the prior comparative period, as a result of the items set forth above.~~

~~Nine Months Ended September 30, 2020 Compared with Nine Months Ended September 30, 2019~~

~~The following table sets forth our operating results for the periods indicated (in thousands):~~

Successor Predecessor
Nine Months Ended September 30,
2020 2019
(Unaudited)
Revenues
Rental revenue (including reimbursable) $ 22,277 $ 16,203
Operating expenses
Property 1,344 853
General and administrative 7,841 2,915
Depreciation and amortization 10,153 8,065
Provisions for impairment 1,773 6,268
Transaction costs 2,969 76
Total operating expenses 24,080 18,177
Other income (expense)
Interest expense, net (3,815) (8,349)
Gain on sales of real estate 1,070 5,773
Gain on forfeited earnest money deposit 250 —
Total other income (expense) (2,495) (2,576)
Net loss $ (4,298) $ (4,550)

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~~Revenue.~~ Revenue for the nine months ended September 30, 2020 increased by $6.1 million to $22.3 million from $16.2 million in the prior year. This is primarily due to an increase in the real estate portfolio from 99 to 189 properties during the period ended September 30, 2020. The increase includes an increase in rental income of $2.6 million, straight-line rental revenue of $2.1 million, property expense reimbursement revenue of $0.5 million and an increase of amortization of above- and below-market lease related intangibles of $0.9 million.

~~Total Operating Expenses.~~ Total expenses increased by $5.9 million to $24.1 million for the nine months ended September 30, 2020 as compared to $18.2 million for the nine months ended September 30, 2019. The increase in operating expenses is attributed to the increase in the number of operating properties and the completion of the Company's initial public offering in August 2020. Total operating expenses include the following:

•~~Property Expenses.~~ Property expenses increased $0.5 million to $1.3 million for the nine months ended September 30, 2020 from $0.9 million for the nine months ended September 30, 2019. The increase is primarily attributed to the increase in the real estate portfolio from 99 to 189 properties.

•~~General and Administrative Expenses.~~ General and administrative expenses increased $4.9 million to $7.8 million for the nine months ended September 30, 2020 from $2.9 million for the nine months ended September 30, 2019. The increase is primarily due to payroll expense associated with the internalization of management to support the Company as a newly public company of $3.4 million, an increase of restricted-share based expense of $1.8 million, offset by the elimination of management fees of $2.1 million charged to the Company by affiliates. The increase also includes the establishment of office related expenses of $0.6 million and professional and administrative expenses of $1.2 million primarily comprised of audit fees of $0.7 million and board fees of $0.3 million for nine months ended September 30, 2020.

•~~Depreciation and Amortization.~~ ~~Depreciation and amortization expense increased by $2.1 million to $10.2 million for the nine months ended September 30, 2020 from $8.1 million for the nine months ended September 30, 2019.~~2022. The increase in depreciation and amortization is proportionate to the increase in the size of the portfolio over the comparable ~~period.~~period with associated increases

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in building depreciation expense of $2.2 million, in-place lease amortization expense of $1.1 million, and building improvements depreciation expense of $0.8 million.

•~~Provisions~~Provision for Impairment. ~~Provisions for impairment decreased by $4.5 million to $1.8 million for~~For the ~~nine~~three months ended ~~September~~June 30, ~~2020 from $6.3 million for the nine months ended September 30, 2019. For the nine months ended September 30, 2020 and 2019, the~~2023, we recorded provisions for impairment of $2.8 million on six properties, which were classified as held-for-sale as of June 30, 2023. For the three months ended June 30, 2022, we recorded a provision for impairment of $1.1 million on ~~four~~one property which was also sold during the period. These disposals relate to management’s continuous assessment of the Company’s portfolio in an effort to improve returns and ~~seven real estate properties, respectively.~~manage risk exposure.

•Transaction costs. Transaction costs ~~increased~~decreased by $0.5 million to ~~$3.0~~less than $0.1 million for the ~~nine~~three months ended ~~September~~June 30, ~~2020. These costs include $2.2~~2023 from $0.5 million offor the three months ended June 30, 2022, which primarily relates to a decrease in costs incurred ~~by the Company to facilitate both the private offering and the initial public offering of common stock. Transaction costs also include $0.8 million of expenses~~ for abandoned ~~acquisitions as well as expenses associated with property acquisitions throughout the year.~~acquisitions.

Interest Expense. Interest expense ~~decreased~~increased by ~~$4.5~~$4.0 million to ~~$3.8~~$5.5 million for the ~~nine~~three months ended ~~September~~June 30, ~~2020 compared to $8.3~~2023 from $1.5 million for the ~~nine~~three months ended ~~September~~June 30, ~~2019.~~2022. The ~~decrease~~increase is primarily attributed to ~~the decrease in the effective~~an increase of $2.1 million of interest ~~rate and total borrowings outstanding.~~incurred under our $200.0 million senior unsecured term loan (the “2028 Term Loan”), a net increase of $1.6 million under our Revolver primarily as a result of higher interest rates.

Gain on ~~Sales~~sales of ~~Real Estate.~~real estate, net. Net gain on sales of real estate decreased by $1.3 million to $0.6 million for the three months ended June 30, 2023 from $1.9 million for the three months ended June 30, 2022. The table below summarizes the properties sold for the periods indicated (dollars in thousands):


	Three Months Ended June 30,
	2023		2022
Number of properties sold	2		2
Sales price, net of disposal costs	$	3,836	$	9,884
Gain on sales of real estate, net	$	615	$	1,858

Other income. The change in other income is primarily related to $0.1 million of interest income earned on the Company’s cash, cash equivalents and restricted cash balances as presented in the condensed consolidated balance sheets.

Income tax benefit (expense). The income tax benefit incurred for the three months ended June 30, 2023 is attributed to the gross loss of the Company's taxable REIT subsidiary ("TRS") compared to the income tax expense realized by the Company for the gross income earned by the TRS in the prior period.

Net (loss) income. Net (loss) income decreased $2.8 million to a net loss of $0.8 million for the three months ended June 30, 2023 from net income of $2.0 million for the three months ended June 30, 2022. Net (loss) income decreased primarily due to increases in interest expense, depreciation and amortization expense, and provisions for impairment, as well as a decrease in the net gain on sales of real estate, as set forth above. These decreases are offset by increases in additional rental revenues primarily due to the growth in the size of our real estate investment portfolio, including interest income associated with our mortgage loans receivable.

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Six Months Ended June 30, 2023 Compared with Six Months Ended June 30, 2022

The following table sets forth our operating results for the periods indicated (in thousands):


	Six Months Ended June 30,
	2023		2022
Revenues
Rental revenue (including reimbursable)	$	58,180	$	42,970
Interest income on loans receivable	2,901		997
Total revenues	61,081		43,967
Operating expenses
Property	7,467		5,617
General and administrative	10,168		9,057
Depreciation and amortization	30,795		22,730
Provisions for impairment	2,836		1,114
Transaction costs	124		653
Total operating expenses	51,390		39,171
Other income (expense)
Interest expense, net	(9,465)		(2,691)
Gain on sales of real estate, net	296		2,019
Loss on debt extinguishment	(128)		—
Other income	220		36
Total other expense, net	(9,077)		(636)
Net income before income taxes	614		4,160
Income tax benefit (expense)	75		(184)
Net income	$	689	$	3,976

Revenue. Revenue for the six months ended June 30, 2023 increased by $17.1 million to $61.1 million from $44.0 million for the six months ended June 30, 2022 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 $14.4 million, combined with net increases of property expense reimbursements of $1.6 million, and an increase of $1.9 million related to interest income on mortgage loans receivable, offset by a $0.6 million decrease in straight-line rental revenue.

Total Operating Expenses. Total expenses increased by $12.2 million to $51.4 million for the six months ended June 30, 2023 as compared to $39.2 million for the six months ended June 30, 2022. The increase is primarily attributed to the increase in the number of operating properties, with the most significant increases being depreciation and amortization expense, provisions for impairment, property-specific reimbursable expenses, and payroll costs. Total operating expenses include the following:

•Property Expenses. Property expenses increased $1.9 million to $7.5 million for the six months ended June 30, 2023 from $5.6 million for the six months ended June 30, 2022. The increase is primarily attributed to the increase in the number of operating properties, including combined net increases of reimbursable property expenses of $1.7 million, of which $0.6 million, $0.6 million, and $0.5 million were related to reimbursable property taxes, reimbursable common area maintenance costs, and reimbursable insurance costs, respectively.

•General and Administrative Expenses. General and administrative expenses increased $1.1 million to $10.2 million for the six months ended June 30, 2023 from $9.1 million for the six months ended June 30, 2022. The increase is primarily due to an increase in total headcount resulting in increased payroll expenses of $0.7 million and increased bonus expenses of $0.3 million.

•Depreciation and Amortization. Depreciation and amortization expense increased $8.1 million to $30.8 million for the six months ended June 30, 2023 from $22.7 million for the six months ended June 30, 2022. The increase in depreciation and amortization is proportionate to the increase in the size of the portfolio over the comparable period with associated increases in building depreciation expense of $4.3 million, in-place lease amortization expense of $2.2 million, and building improvements depreciation expense of $1.6 million.

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•Provision for Impairment. For the six months ended June 30, 2023, we recorded provisions for impairment of $2.8 million on six properties, which were classified as held-for-sale as of June 30, 2023. For the six months ended June 30, 2022, we recorded a provision for impairment of $1.1 million on one property which was also sold during the period. These disposals relate to management’s continuous assessment of the Company’s portfolio in an effort to improve returns and manage risk exposure.

•Transaction costs. Transaction costs decreased by $0.6 million to $0.1 million for the six months ended June 30, 2023 from $0.7 million for the six months ended June 30, 2022, which primarily relates to a decrease in costs incurred for abandoned acquisitions.

Interest Expense. Interest expense increased by $6.8 million to $9.5 million for the six months ended June 30, 2023 from $2.7 million for the six months ended June 30, 2022. The increase is primarily attributed to an increase of $4.0 million of interest incurred under our 2028 Term Loan and a net increase of $2.2 million under our Revolver, primarily as a result of higher interest rates.

Gain on sales of real estate, net. Net gain on sales of real estate decreased ~~$4.7~~by $1.7 million to ~~$1.1~~$0.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2023 from ~~$5.8~~$2.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2022. The table below summarizes the properties sold for the periods indicated (in thousands):

Successor Predecessor
Nine Months Ended September 30,
2020 2019
(Unaudited)
Number of properties sold 3 24
Sales price, net of disposal cost $ 11,778 $ 70,353
Gain on sales of real estate $ 1,070 $ 5,773


	Six Months Ended June 30,
	2023		2022
Number of properties sold	10		3
Sales price, net of disposal costs	$	19,299	$	12,179
Gain on sales of real estate, net	$	296	$	2,019

Other income. The change in other income is primarily related to $0.2 million of interest income earned on the Company’s cash, cash equivalents and restricted cash balances as presented in the condensed consolidated balance sheets.

Income tax benefit (expense). The income tax benefit incurred for the six months ended June 30, 2023 is attributed to the gross loss of the Company's taxable REIT subsidiary ("TRS") compared to the income tax expense realized by the Company for the gross income earned by the TRS in the prior period.

Net ~~Loss.~~income. Net ~~loss~~income decreased $3.3 million to $0.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020 remained consistent with~~2023 from $4.0 million for the ~~prior comparative period,~~six months ended June 30, 2022. Net income decreased primarily due to increases in interest expense, depreciation and amortization expenses, provisions for impairment, payroll expense, as well as a ~~result~~decrease in the net gain on sales of ~~the items~~real estate, as set forth above. These decreases are offset by increases in additional rental revenues primarily due to the growth in the size of our real estate investment portfolio, including interest income associated with our mortgage loans receivable.

Liquidity and Capital Resources

Our primary capital requirements are to fund property acquisitions and development and investments in mortgage loans receivable and required interest payments, ~~and property acquisitions,~~ as well as working capital needs, operating expenses and capital expenditures. Our capital resources primarily consist of cash from operations, sales of equity securities ~~(including~~and borrowing facilities available to the ~~private offering) and borrowings under our Credit Facility.~~Company. As of ~~September~~June 30, ~~2020,~~2023, we had a $175.0 million outstanding principal amount of the senior unsecured term loan (the “2027 Term Loan”), $200.0 million outstanding principal amount of the 2028 Term Loan, and no$106 million of borrowings outstanding under our Revolver. Additionally, as of June 30, 2023, we had $127.3 million remaining gross proceeds available for future issuances of shares of our common stock under the ATM Program. In addition, subsequent to June 30, 2023, the Company entered into an agreement (“2029 Term Loan Agreement”) related to a $250.0 million ~~Revolver.~~ sustainability linked senior unsecured term loan (the “2029 Term Loan”) which may, subject to the terms of the 2029 Term Loan Agreement, be increased to an amount of up to $400.0 million at the Company’s request.

We believe that the ~~net~~availability of proceeds from future issuances of ~~$227.3 million from~~shares of our ~~initial public offering plus both~~common stock under the ATM Program, coupled with our cash flows from operations and available borrowing capacity under the Revolver and 2029 Term Loan, will be

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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, 2029 Term Loan and issuances of common stock.

Contractual Obligations and Commitments

As of June 30, 2023, our contractual debt obligations primarily include the maturity of our 2027 Term Loan with the scheduled principal payment due on January 15, 2026, the maturity of our 2028 Term Loan with the scheduled principal payment due on February 11, 2028, and repayment of borrowings on our Revolver with a maturity of August 11, 2026. During the six months ended June 30, 2023, we borrowed $221.0 million at a weighted average interest rate of 5.92% and also repaid $228.0 million on our revolving credit facilities.

The following table provides information with respect to our commitments as of June 30, 2023 (in thousands):


	Payment Due by Period
	Total		From July 1, 2023 to December 31, 2023		1 – 3 Years		3 – 5 Years		Thereafter
Contractual Obligations
2027 Term Loan – Principal	$	175,000	$	—	$	—	$	175,000	$	—
2027 Term Loan – Variable interest (1)	13,642		1,496		11,883		263		—
Revolver – Borrowings	106,000		—		—		106,000		—
Revolver – Variable interest	20,281		3,260		13,038		3,983		—
Facility Fee (2)	1,867		300		1,200		367		—
2028 Term Loan – Principal	200,000		—		—		—		200,000
2028 Term Loan – Variable Interest (3)	35,816		3,881		15,522		15,522		891
Mortgage Note – Principal	8,435		92		332		8,011		—
Mortgage Note – Interest	1,613		190		742		681		—
Property developments under contract	27,935		27,935		—		—		—
Tenant Improvement Allowances	4,089		—		4,089		—		—
Corporate office lease obligations	6,172		285		1,253		1,323		3,311
Total	$	600,850	$	37,439	$	48,059	$	311,150	$	204,202

(1) We entered into four interest rate hedges to fix the base interest rate (daily SOFR) on our 2027 Term Loan. Accordingly, the projected interest rate obligations for the variable rate 2027 Term Loan are based on the hedged fixed rate of 0.12% compared to the variable 2027 Term Loan daily SOFR) rate as of June 30, 2023 of 5.05%, plus a SOFR adjustment of 0.10%, plus a margin of 1.15% based on the $175.0 million Term Loan outstanding through the maturity date of January 15, 2026.

(2) We are subject to a facility fee of 0.15% on our Revolver.

(3) Effective August 11, 2022, we entered into three interest rate hedges to fix the base interest rate (one-month 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 one-month SOFR rate as of December 31, 2022 of 5.16%, 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.

In August 2021, we entered into a lease agreement on a new corporate office space, which is classified ass an operating lease. We began operating out of the new office in February 2022. The lease has a remaining noncancellable term of 9.1 years that expires on July 31, 2032 and is renewable at our option for two additional periods of five years. Future minimum base rental payments under the lease are outlined in “Note 3 – Leases.” Annual rent expense, excluding operating expenses, is approximately $0.5 million during the initial term.

Additionally, in the normal course of business, we enter into various types of commitments to purchase real estate properties or fund development projects. These commitments are generally subject to our customary due diligence process and, accordingly, a number of specific conditions must be met before the Company is obligated or receives an option to purchase the properties. As of June 30, 2023, we had commitments to fund properties under development totaling $27.9 million, all of which is expected to be funded over the next twelve months.

2735

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Credit ~~Facility~~

In December 2019, we entered into a senior credit facility consisting of (i) a $175.0 million senior secured Term Loan and (ii) a $250.0 million senior secured Revolver. Wells Fargo Securities, LLC is lead arranger and bookrunner and Wells Fargo Bank, National Association is administrative agent under the Credit Facility (the “Administrative Agent”).

The Term Loan matures on December 23, 2024 and the Revolver matures on December 23, 2023, subject to extension of up to one year. The Credit Facility is secured by a first priority perfected security interest in and lien on all existing and future equity interests of the Company’s direct and indirect subsidiaries of any Eligible Property (as defined in the Credit Facility) owned by the Company or any of the Company’s subsidiaries. The Credit Facility also provides that the Administrative Agent has the option to release the collateral securing the Credit Facility upon delivery of satisfactory evidence from the Company that Collateral Release Requirements (as defined in the Credit Facility) have been met, which requirements include, among others, conditions related to the unencumbered asset value and asset diversification of the Company.

Interest is payable monthly or at the end of the applicable interest period in arrears on any outstanding borrowings. For so long as the Credit Facility is secured, the interest rates under the Credit Facility are based on the Company’s consolidated total leverage ratio, and are determined by (A) in the case of Term Loan either (i) LIBOR, plus a margin ranging from 1.25% to 2.25%, based on the Company’s consolidated total leverage ratio, or (ii) a Base Rate (as defined in the Credit Facility), plus a margin ranging from 0.25% to 1.25%, based on the Company’s consolidated total leverage ratio and (B) in the case of Revolving Loans either (i) LIBOR, plus a margin ranging from 1.35% to 2.30%, based on the Company’s consolidated total leverage ratio, or (ii) a Base Rate (as defined in the Credit Facility), plus a margin ranging from 0.35% to 1.30%, based on the Company’s consolidated total leverage ratio. To the extent the Administrative Agent releases the collateral in connection with the Company’s satisfaction of the Collateral Release Requirements, the interest rates under the Credit Facility will be based on the Company’s consolidated total leverage ratio, and are determined by (A) in the case of Term Loan either (i) LIBOR, plus a margin ranging from 1.15% to 1.60%, based on the Company’s consolidated total leverage ratio, or (ii) a Base Rate (as defined in the Credit Facility), plus a margin ranging from 0.15% to 0.60%, based on the Company’s consolidated total leverage ratio and (B) in the case of Revolving Loans either (i) LIBOR, plus a margin ranging from 1.20% to 1.80%, based on the Company’s consolidated total leverage ratio, or (ii) a Base Rate (as defined in the Credit Facility), plus a margin ranging from 0.20% to 0.80%, based on the Company’s consolidated total leverage ratio.Facilities

~~The Company uses~~See discussion of our debt and interest rate ~~derivative contracts~~hedges included in “Note 6 - Debt” and “Note 7 - Derivative Financial Instruments” of our condensed consolidated financial statements, included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

As of June 30, 2023 and December 31, 2022, we did not have any off-balance sheet arrangements that have had or are reasonably likely to ~~manage its exposure to changes in interest rates~~have a material effect on its variable rate debt. These derivatives are considered cash flow hedges and are recorded on a gross basis at fair value. Effective September 28, 2020, such derivatives were used to hedge the variable cash flows associated with Term Loan above.our financial condition, revenues or expenses, results of operations, liquidity, capital resources or capital expenditures.

Historical Cash Flow Information

~~Nine~~Six Months Ended ~~September~~June 30, ~~2020~~2023 Compared with ~~Nine~~Six Months Ended ~~September~~June 30, ~~2019~~2022


		Successor		Predecessor			Six Months Ended June 30,
		Nine Months Ended September 30,					2023		2022
		2020		2019
(in thousands)		(Unaudited)
(In thousands)						(In thousands)	(Unaudited)
Net cash provided by (used in):	Net cash provided by (used in):					Net cash provided by (used in):
Operating activities	Operating activities	$	5,699	$	5,298	Operating activities	$	34,395	$	22,250
Investing activities	Investing activities	(316,922)		68,671		Investing activities	(226,525)		(289,253)
Financing activities	Financing activities	278,914		(73,047)		Financing activities	134,727		279,250

Cash Flows Provided By Operating Activities. Net cash provided by operating activities increased by ~~$0.4~~$12.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2023 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2022. The increase was largely attributed to the increase in ~~total number~~the size of ~~properties, $4.5 million decrease in~~ the ~~in provision for impairments, offset by the decrease in the realized gain on sale of~~Company’s real estate ~~of $4.7 million and the~~investment portfolio with an increase in ~~stock based compensation expense~~rental receipts of ~~$1.7 million.~~$14.4 million, offset primarily by increases in operating and general and administrative expenses paid associated with our larger portfolio.

Cash Flows Used In Investing Activities. Net cash used in investing activities ~~increased~~decreased by ~~$385.6~~$62.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2023 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2022. The ~~Company~~decrease was primarily due to a decrease in cash spent ~~$327.3 million~~ on ~~the acquisition~~acquisitions of real estate ~~during the nine months ended September 30, 2020 compared~~of $43.4 million, offset by increases in cash spent on investments in mortgage loans receivable of $15.0 million and cash spent on real estate development and improvements of $11.4 million. The remaining decreases were related primarily to ~~$1.2 million during the nine months ended September 30, 2019. Additionally, the Company sold three properties during the nine months ended September 30, 2020 for net proceeds of $11.8~~earnest money deposits, which decreased $38.6 million compared to ~~24 properties sold during~~ the ~~nine months ended September 30, 2019 for net~~prior period, and proceeds from the sale of ~~$70.4 million.~~real estate, which increased $7.1 million compared to the prior period.

Cash Flows Provided By Financing Activities. Net cash provided by financing activities ~~increased~~decreased by ~~$352.0~~$144.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2023 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2022. The ~~increase is~~decrease was primarily attributed to a reduction in net borrowings of $180.0 million under our revolving credit facilities during the ~~private offering~~six months ended June 30, 2023, offset by $41.9 million of more proceeds received in 2023 due to issuances of common stock in connection with our ATM Program and physical settlement of ~~$54.5~~our common stock under the forward sale agreements. Lastly, the decrease is further attributed to $5.3 million ~~and the initial public offering~~ of ~~$227.3 million which occurred~~additional common stock dividends paid during the ~~nine~~six months ended ~~September~~June 30, ~~2020. Additionally, the Company had no net borrowings during the nine months ended September 30, 2020 compared to net borrowings of $68.6 million during the nine months ended September 30, 2019.~~2023.

~~Contractual Obligations and Commitments~~

~~As of September 30, 2020, we had one contractual obligation related to the maturity on our $175.0 million Term Loan with the scheduled principal payment due on December 23, 2024.~~

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~~During 2020, the Company borrowed and repaid $50.0 million on our $250.0 million Revolver at an effective interest rate of 1.53% to fund specifically identified property acquisitions.~~

~~The following table provides information with respect to our commitments as of September 30, 2020 (in thousands):~~

Payment Due by Period
Total From October 1, 2020 to December 31, 2020 1 – 3 years 3 – 5 years
Contractual Obligations
Term Loan – Principal $ 175,000 $ — $ — $ 175,000
Term Loan – Variable interest (1)
10,039 594 7,128 2,317
Unutilized borrowing fees on Revolver (2)
2,031 156 1,875 —
Total $ 187,070 $ 750 $ 9,003 $ 177,317

~~(1)~~Effective September 28, 2020, the Company entered into an interest rate hedge to fix the total Company interest rate on the Company's Term Loan. Accordingly, the projected interest rate obligations for the variable rate Term Loan is based on the hedged fixed rate (one-month) of 0.21% compared to the variable Term Loan one-month LIBOR rate as of September 30, 2020 of 0.14%, plus a margin of 1.15% based on the $175.0 million Term Loan outstanding through the maturity date of December 23, 2024.

~~(2)~~We are subject to a variable unutilized borrowing fee on the unused portion of our $250.0 million Revolver. As of September 30, 2020, we have no borrowings on our $250.0 million Revolver and incurred a fee at 0.25%. This reflects our projected unutilized borrowing fee as if the Revolver has no borrowing through the maturity date of December 23, 2023 at 0.25%.

Income Taxes

~~We will elect~~The Company elected to be treated and to qualify as a REIT for U.S. federal income tax purposes ~~under the Code, commencing~~beginning with ~~our~~its short taxable year ended December 31, ~~2019 upon the filing of our U.S. federal income tax return for such taxable year. As~~2019. To qualify as a REIT, wethe Company must meet certain organizational, income, asset and distribution tests. Accordingly, the Company will generally ~~will~~ not be subject to corporate U.S. federal or state income tax ~~on income~~to the extent that ~~we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to U.S. federal income tax on our~~it makes qualifying distributions of all of its taxable income atto its stockholders and provided it satisfies on a continuing basis, through actual investment and operating results, the ~~regular corporate tax rate. We believe that we are organized~~REIT requirements, including certain asset, income, distribution and ~~have operated in~~share ownership tests. The Company intends to make sufficient distributions during 2023 to receive a manner that has enabled us to qualify to be taxed as a REIT commencing with our short taxable year ended December 31, 2019, and we intend to continue to operate so as to satisfy the requirements for qualification as a REIT for U.S. federal income tax purposes. We must declare and payfull dividends ~~to maintain our status as a REIT and we were required to declare and pay a dividend of $0.2 million relating to our 2019 fiscal period by December 31, 2020. Accordingly, we declared and~~ paid ~~a $0.10 or $2.8 million dividend on September 25, 2020.~~deduction.

We ~~made a joint election with NETSTREIT TRS for it to be treated as a TRS. As~~maintain a TRS ~~NETSTREIT TRS will~~which may be subject to U.S. federal, state, and local income taxes on its taxable income. In general, ~~NETSTREIT~~our TRS may perform services for ~~our~~ tenants of the Company, hold assets that wethe Company cannot hold directly and may engage in any real estate or non-real estate-related business.

~~Our predecessor was not a federal taxable entity~~

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During the three and ~~no provision for~~six months ended June 30, 2023, the Company recognized franchise and other state and local tax expenses which are included in general and administrative and recognized state and federal income ~~taxes was recognized in its consolidated financial information.~~

~~Recent Accounting Pronouncements~~

~~A discussion of new accounting standards and the possible effects of these standards on our condensed consolidated financial statements~~tax expense which is included in ~~"Note 2 - Summary of Significant Accounting Policies" of our~~income tax expense in the accompanying condensed consolidated ~~financial~~ statements ~~included in Part I, Item 1~~ of ~~this Quarterly Report on Form 10-Q.~~operations and comprehensive income.

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 ~~the Company’s~~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 ~~prospectus dated August 13, 2020, related to our initial public offering, filed with the SEC in accordance with Rule 424(b) under the Securities Act, on August 14, 2020,~~year ended December 31, 2022, 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.

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Non-GAAP Financial Measures

Our reported results are presented in accordance with GAAP. We also disclose the following non-GAAP financial measures: ~~FFO,~~Funds From Operations (“FFO”), Core FFO, ~~AFFO,~~Adjusted FFO (“AFFO”), earnings before interest ~~taxes,~~expense, income tax expense, and depreciation and amortization (“EBITDA”), EBITDA further adjusted to exclude gains (or losses) onfrom the sales of depreciable property and real estate impairment losses (“EBITDAre”), Adjusted EBITDAre, further adjusted to exclude straight-line rent, gains from forfeited earnest money deposits, non-recurring public company costs, representing consulting fees that we have incurred in preparing to become a public company and non-cash compensation expense (“Annualized Adjusted EBITDAre,” 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.~~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

~~FFO is~~

The National Association of Real Estate Investment Trusts ("NAREIT"), an industry trade group, has promulgated a widely accepted non-GAAP financial measure ~~defined by NAREIT~~of operating performance known as FFO. Our FFO is net income ~~(computed~~ in accordance with ~~GAAP),~~GAAP, excluding ~~real estate-related expenses including, but not limited to,~~ gains ~~(losses)~~(or losses) resulting from ~~sales, impairment adjustments, and~~dispositions of properties, plus depreciation and amortization and ~~after adjustments for unconsolidated partnerships and joint ventures. Our calculation of FFO is consistent with FFO as defined by NAREIT.~~impairment charges on depreciable real property.

Core FFO is a non-GAAP financial measure defined as FFO adjusted ~~for gains from forfeited earnest money deposits and non-recurring public company costs. We believe the presentation of Core FFO provides investors with a metric~~ to ~~assist in their evaluation of our operating performance across multiple periods because it removes~~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, gain on insurance proceeds, 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, non-cash compensation expense, ~~and~~ 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.

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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;~~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 ~~all of~~ 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 ~~(loss)~~ before allocation to ~~non-controlling~~noncontrolling interests, as computed in accordance with GAAP (in thousands):

Successor Predecessor Successor Predecessor
Three Months Ended
September 30, Nine Months Ended
September 30,
2020 2019 2020 2019
(Unaudited)
Net loss $ (2,341) $ (2,740) $ (4,298) $ (4,550)
Depreciation and amortization of real estate 4,614 2,660 9,926 8,065
Provision for impairment 363 2,839 1,773 6,268
Gain on sale of real estate (54) (1,674) (1,070) (5,773)
FFO $ 2,582 $ 1,085 $ 6,331 $ 4,010
Adjustments:
Gain on forfeited earnest money deposit — — (250) —
144A and IPO transaction costs (1)
891 — 2,170 —
Core FFO $ 3,473 $ 1,085 $ 8,251 $ 4,010
Adjustments:
Straight-line rental revenue (387) 296 (1,417) 688
Amortization of deferred financing costs 157 276 464 775
Amortization of above/below market lease intangibles (219) 105 (340) 486
Non-cash compensation expense 1,753 — 1,753 —
AFFO $ 4,777 $ 1,762 $ 8,711 $ 5,958


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(Unaudited)				(Unaudited)
Net (loss) income	$	(792)	$	2,010	$	689	$	3,976
Depreciation and amortization of real estate	15,769		11,598		30,653		22,460
Provisions for impairment	2,836		1,114		2,836		1,114
Gain on sales of real estate, net	(615)		(1,858)		(296)		(2,019)
FFO	17,198		12,864		33,882		25,531
Adjustments:
Non-recurring executive transition costs, severance and related charges	201		—		214		—
Loss on debt extinguishment and other related costs	223		—		223		—
Gain on insurance proceeds	(35)		(36)		(47)		(36)
Core FFO	17,587		12,828		34,272		25,495
Adjustments:
Straight-line rent adjustments	(151)		(346)		(462)		(872)
Amortization of deferred financing costs	336		157		615		314
Amortization of above/below-market assumed debt	29		—		57		—
Amortization of loan origination costs	28		13		56		31
Amortization of lease-related intangibles	(184)		(166)		(397)		(331)
Capitalized interest expense	(150)		(46)		(284)		(103)
Non-cash compensation expense	1,252		1,298		2,279		2,343
AFFO	$	18,747	$	13,738	$	36,136	$	26,877

~~Table of Contents~~

~~(1)These expenses represent a subset of transaction costs as presented on the condensed consolidated statement of operations and comprehensive loss.~~

EBITDA, EBITDAre, ~~and~~ Adjusted EBITDAre and Annualized Adjusted EBITDAre

We compute EBITDA as earnings before interest expense, income ~~taxes~~tax expense, and depreciation and amortization. In 2017, NAREIT issued a white paper recommending that companies that report EBITDA also report EBITDAre. We compute EBITDAre in accordance with the definition adopted by NAREIT. NAREIT defines EBITDAre as EBITDA (as defined above) excluding gains (or losses) from the sales of depreciable property and impairment charges on depreciable real ~~estate impairment losses.~~property.

Adjusted EBITDAre is a non-GAAP financial measure defined as EBITDAre further adjusted to exclude straight-line rent, ~~gains from forfeited earnest money deposits, non-recurring public company costs, representing consulting fees that we have incurred in preparing to become a public company and~~ non-cash compensation ~~expense.~~expense, non-recurring executive transition costs, severance and related charges, loss on debt extinguishment and other related costs, gain on insurance proceeds, other non-recurring expenses (income), adjustment for construction in process, and adjustment for intraquarter activities. Annualized Adjusted EBITDAre is Adjusted EBITDAre multiplied by four.

We present EBITDA, EBITDAre, Adjusted EBITDAre and Annualized Adjusted EBITDAre 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,

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EBITDAre, Adjusted EBITDAre and Annualized Adjusted EBITDAre as measures of our operating performance and not as measures of liquidity.

EBITDA, EBITDAre, Adjusted EBITDAre and Annualized Adjusted EBITDAre 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, EBITDAre, Adjusted EBITDAre and Annualized Adjusted EBITDAre 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, EBITDAre ~~and~~, Adjusted EBITDAre and Annualized Adjusted EBITDAre for the periods presented to net income ~~(loss)~~ before allocation to ~~non-controlling~~noncontrolling interests, as computed in accordance with GAAP (in thousands):

Successor Predecessor Successor Predecessor
Three Months Ended
September 30, Nine Months Ended
September 30,
2020 2019 2020 2019
(Unaudited)
Net loss $ (2,341) $ (2,740) $ (4,298) $ (4,550)
Depreciation and amortization of real estate 4,614 2,660 9,926 8,065
Amortization of above/below market lease intangibles (219) 105 (340) 486
Non-real estate depreciation and amortization 77 — 228 —
Interest expense, net 1,018 2,449 3,815 8,349
EBITDA $ 3,149 $ 2,474 $ 9,331 $ 12,350
Adjustments:
Provision for impairments 363 2,839 1,773 6,268
Gain on sale of real estate (54) (1,674) (1,070) (5,773)
EBITDAre
$ 3,458 $ 3,639 $ 10,034 $ 12,845
Adjustments:
Straight-line rental revenue (387) 296 (1,417) 688
Gain on forfeited earnest money deposit — — (250) —
144A and IPO transaction costs (1)
891 — 2,170 —
Non-cash compensation expense 1,753 — 1,753 —
Adjusted EBITDAre
$ 5,715 $ 3,935 $ 12,290 $ 13,533


	Three Months Ended June 30,
	2023		2022
	(Unaudited)
Net (loss) income	$	(792)	$	2,010
Depreciation and amortization of real estate	15,769		11,598
Amortization of lease-related intangibles	(184)		(166)
Non-real estate depreciation and amortization	78		153
Interest expense, net	5,521		1,522
Income tax expense (benefit)	(32)		93
Loss on debt extinguishment	128		—
Amortization of loan origination costs	28		13
EBITDA	20,516		15,223
Adjustments:
Provision for impairments	2,836		1,114
Gain on sales of real estate, net	(615)		(1,858)
EBITDAre	22,737		14,479
Adjustments:
Straight-line rent adjustments	(151)		(346)
Loss on debt extinguishment and other related costs	223		—
Non-recurring executive transition costs, severance and related charges	201		—
Gain on insurance proceeds	(35)		(36)
Other non-recurring expenses	242		—
Non-cash compensation expense	1,252		1,298
Adjustment for construction in process (1)	334		189
Adjustment for intraquarter investment activities (2)	817		1,701
Adjusted EBITDAre	$	25,620	$	17,285

Annualized Adjusted EBITDAre (3)	$	102,480
Net Debt / Annualized Adjusted EBITDAre	4.6

(1)~~These expenses represent~~ Adjustment reflects the estimated cash yield on non-interest earning construction in process balances as of period end.

(2) Adjustment assumes all re-leasing activity, investments in and dispositions of real estate, including interest earning development, and interest earning loan activity completed during the three months ended June 30, 2023 and 2022had occurred on April 1, 2023 and April 1, 2022, respectively.

(3) We calculate Annualized Adjusted EBITDAre by multiplying Adjusted EBITDAre by four.

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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 believe excluding cash, cash equivalents and restricted cash available for future investment from our principal amount, all of which could be used to repay debt, provides an estimate of the net contractual amount of borrowed capital to be repaid, which we believe is a ~~subset~~beneficial disclosure to investors and analysts. We further adjust Net Debt by the value of ~~transaction costs~~outstanding forward equity as ~~presented on the condensed consolidated statement~~ of ~~operations~~period end. We believe these adjustments are additional beneficial disclosures to investors and ~~comprehensive loss.~~analysis.

The following table reconciles Total Debt to Net Debt:


	As of June 30, 2023
Total Debt	$	489,435
Cash, cash equivalents and restricted cash	(13,140)
Value of outstanding forward equity (1)	—
Net Debt	$	476,295

(1) There were no unsettled shares under forward equity contracts as of June 30, 2023.

Property-Level NOI, ~~and~~Property-Level Cash NOI,

~~NOI and~~ 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 ~~(loss)~~ (computed in accordance with GAAP), excluding general and administrative expenses, interest expense (or income), income tax expense, transaction costs, depreciation and amortization, gains (or losses) on sales of depreciable property, ~~gain from forfeited earnest money deposits and~~ real estate impairment ~~losses.~~losses, interest income on mortgage loans receivable, loss on debt extinguishment, and other income (or expense). We further adjust Property-Level NOI for non-cash revenue components of straight-line rent and amortization of ~~lease intangibles~~lease-intangibles to derive Property-Level Cash NOI. We ~~believe NOI and~~further adjust Property-Level Cash NOI for intraquarter acquisitions, dispositions and interest-earning 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.

~~Table of Contents~~

Property-Level NOI, ~~and~~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 ~~our NOI and Cash NOI~~ may not be comparable to similarly titled measures of other companies. You should not consider our ~~NOI and Cash NOI~~measures as alternatives to net income or cash flows from operating activities determined in accordance with GAAP.

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The following table sets forth a reconciliation of Property-Level NOI, ~~and~~Property-Level Cash NOI, Property-Level Cash NOI - Estimated Run Rate, and Total Cash NOI - Estimated Run Rate for the periods presented (in thousands):

Successor Predecessor Successor Predecessor
Three Months Ended
September 30, Nine Months Ended
September 30,
2020 2019 2020 2019
(Unaudited)
Net loss $ (2,341) $ (2,740) $ (4,298) $ (4,550)
General and administrative 4,109 956 7,841 2,915
Depreciation and amortization 4,692 2,660 10,153 8,065
Provisions for impairment 363 2,839 1,773 6,268
Transaction costs 1,241 3 2,969 76
Interest expense, net 1,018 2,449 3,815 8,349
Gain on sales of real estate (54) (1,674) (1,070) (5,773)
Gain on forfeited earnest money deposit — — (250) —
NOI $ 9,028 $ 4,493 $ 20,933 $ 15,350
Straight-line rental revenue (387) 296 (1,417) 688
Amortization of above/below market lease intangibles (219) 105 (340) 486
Cash NOI $ 8,422 $ 4,894 $ 19,176 $ 16,524


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(Unaudited)				(Unaudited)
Net (loss) income	$	(792)	$	2,010	$	689	$	3,976
General and administrative	5,260		4,865		10,168		9,057
Depreciation and amortization	15,847		11,751		30,795		22,730
Provisions for impairment	2,836		1,114		2,836		1,114
Transaction costs	15		488		124		653
Interest expense, net	5,521		1,522		9,465		2,691
Gain on sales of real estate, net	(615)		(1,858)		(296)		(2,019)
Income tax expense (benefit)	(32)		93		(75)		184
Loss on debt extinguishment	128		—		128		—
Interest income on mortgage loans receivable	(1,923)		(586)		(2,901)		(997)
Other income	(68)		(36)		(220)		(36)
Property-Level NOI	26,177		19,363		50,713		37,353
Straight-line rent adjustments	(151)		(346)		(462)		(872)
Amortization of lease-related intangibles	(184)		(166)		(397)		(331)
Property-Level Cash NOI	$	25,842	$	18,851	$	49,854	$	36,150
Adjustment for intraquarter acquisitions, dispositions and interest earning development (1)	687
Property-Level Cash NOI Estimated Run Rate	26,529
Interest income on mortgage loans receivable	1,923
Adjustments for intraquarter mortgage loan activity (2)	130
Total Cash NOI - Estimated Run Rate	$	28,582

(1) Adjustment assumes all re-leasing activity, investments in and dispositions of real estate, including interest earning development, completed during the three months ended June 30, 2023 had occurred on April 1, 2023.

(2) Adjustment assumes all loan activity completed during the three months ended June 30, 2023 had occurred on April 1, 2023.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our future income, cash flows and fair value relevant to our financial instruments ~~depends~~depend upon prevailing market interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates. Based upon the nature of our operations, the principal market risk to which we are exposed is the risk related to interest rate fluctuations. As of ~~September~~June 30, ~~2020,~~2023, we had total indebtedness of approximately $175.0 million under the 2027 Term Loan, $200.0 million under the 2028 Term Loan, and $106.0 million borrowings under the Revolver, all of which isare floating rate debt with a variable interest rate. For the three and six months ended June 30, 2023, we had average daily outstanding borrowings on our Revolver of $163.0 million and $116.3 million, respectively.

Effective ~~September 28, 2020,~~through the ~~Company~~maturity dates of January 15, 2026 and February 11, 2028, respectively, we entered into an interest rate derivative contracts in order to hedge ~~its~~our market interest ~~risk.~~risk associated with the 2027 Term Loan and the 2028 Term Loan, respectively. The interest rate derivative ~~converts its~~contracts convert the variable rate debt on ~~its Term Loan~~the term loans to a fixed interest rate (as further described in “Note 6 - Debt” in our condensed consolidated financial statements).

Table of ~~0.21%~~Contents

Additionally, we will occasionally fund acquisitions through the use of our Revolver which bears an interest rate determined by either (i) SOFR, plus a SOFR adjustment of 0.10%, plus a margin ranging from 1.00% to 1.45%, based on our consolidated total leverage ratio, or (ii) a Base Rate (as defined in the New Credit Facility), plus a margin ranging from 0.00% to 0.45%, based on our consolidated total leverage ratio. Many factors, including governmental monetary and tax policies, domestic and international economic and political considerations, and other factors that are beyond our control contribute to our interest rate risk. Based on the results of ~~1.25%~~our sensitivity analysis and daily outstanding borrowings on the Revolver during 2023, which assumes a 1% adverse change in the interest rate as of ~~September~~June 30, ~~2020.~~2023, the estimated market risk exposure was approximately $1.2 million.

~~Off-Balance Sheet Arrangements~~

As of September 30, 2020 and December 31, 2019, we did not have any off-balance sheet arrangements that have had or are reasonably likely to have a material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital resources or capital expenditures.

Item 4. Controls and Procedures

Disclosure Controls and Procedures.

At the end of the period covered by this report, the Company conducted an evaluation, under the supervision and with the participation of its principal executive officer and principal financial officer, of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, the Company’s principal executive officer and principal financial officer concluded that its disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.

Changes in Internal Control over Financial Reporting.

During the period covered by this report, there have been no changes in our internal control over financial reporting identified in connection with the evaluation described above that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

3242

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we ~~are~~may be party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of our business. We doare not ~~believe that the results of~~currently subject to any ~~such~~lawsuits, claims, or ~~litigation, individually or in the aggregate, will have a material effect on our business, financial condition or results of operations if determined adversely to us.~~other legal proceedings.

Item 1A. Risk Factors

For a discussion of the most significant factors that may adversely affect us, see the information under the heading “Risk Factors” in our Annual Report on Form 10-K for the ~~prospectus dated August 13, 2020, related to our initial public offering, filed with the SEC in accordance with Rule 424(b) under the Securities Act, on August 14, 2020,~~year ended December 31, 2022, which is accessible on the SEC’s website at www.sec.gov. There have been no material changes to the risk factors disclosed in ~~such prospectus.~~the Annual Report. These risk factors may not describe every risk facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities

~~None.~~

and Use of Proceeds

On August 17, 2020, we completed the initial public offering of our common stock pursuant to a Registration Statement on Form S-11 (File No. 333-239911) (the “Registration Statement”), which was declared effective on August 12, 2020. Under the Registration Statement, we sold 13,681,561 shares of our common stock at a price of $18.00 per share, including 1,436,829 shares issued and sold by us pursuant to the overallotment option granted to the underwriters, for total gross proceeds of approximately $246.3 million. The selling stockholders referenced in the Registration Statement sold 255,268 shares of our common stock for total gross proceeds of approximately $4.6 million. Wells Fargo Securities, LLC, BofA Securities, Inc., Citigroup Global Markets Inc., Stifel, Nicolaus & Company, Incorporated and Jefferies LLC acted as joint book-running managers for the offering. BMO Capital Markets Corp., BTIG, LLC, Capital One Securities, Inc., KeyBanc Capital Markets Inc., Regions Securities LLC, Truist Securities, Inc., Comerica Securities, Inc., Samuel A. Ramirez & Company, Inc. and Scotia Capital (USA) Inc. acted as co-managers for the offering. The offering commenced on August 13, 2020 and did not terminate before all of the securities registered in the Registration Statement were sold.

The proceeds that we received from our initial public offering were approximately $227.3 million, net of the underwriting discounts of approximately $14.8 million and other expenses related to the initial public offering of approximately $4.2 million. All of the underwriting discounts and other expenses were direct or indirect payments to persons other than: (i) our directors, officers or any of their associates; (ii) persons owning ten percent (10%) or more of our common stock; or (iii) our affiliates. The net proceeds from our initial public offering were contributed to our operating partnership in exchange for 13,681,561 Class A units of limited partnership of our operating partnership.

Through September 30, 2020, our operating partnership used the net proceeds as follows: (a) approximately $0.1 million to redeem the outstanding shares of our 12.0% Series A Cumulative Non-Voting Preferred Stock, (b) approximately $50.0 million to repay borrowings under our revolving credit facility that were drawn after June 30, 2020 to fund acquisitions of properties, and (c) $66 million to fund additional acquisitions of properties. We intend to use the remainder of the net proceeds for general corporate purposes, including the acquisition of properties in our pipeline. None of the proceeds were used to make payments to: (i) our directors, officers or any of their associates; (ii) persons owning ten percent (10%) or more of our common stock; or (iii) our affiliates. There has been no material change in the use of proceeds as described in the final prospectus filed with the SEC on August 14, 2020.None.

Company Stock Repurchases

None.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

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Item 6. Exhibits


Exhibit No.		Description
3.1		Articles of Amendment and Restatement of NETSTREIT Corp. (incorporated by reference to Exhibit 3.1 to the Registrant’s Registration Statement on Form S-11 (File No. 333-239911) filed on July 17, 2020).

3.2		Articles of Amendment of NETSTREIT Corp. (incorporated by reference to Exhibit 3.3 to the Registrant's Registration Statement on Form S-11 (File No. 333-239911) filed on July 17, 2020).

~~3.2~~	~~Articles Supplementary of NETSTREIT Corp. (incorporated by reference to Exhibit 3.2 to the Registrant's Registration Statement on Form S-11 (File No. 333-239911) filed on July 17, 2020).~~

3.3		Amended and Restated Bylaws of NETSTREIT Corp. (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed on August 21, 2020).

10.1		Amended and Restated Credit Agreement, dated as of June 15, 2023, between NETSTREIT Corp., NETSTREIT L.P., the several institutions party thereto, as lenders, and Wells Fargo Bank, National Association, as Administrative Agent (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on June 20, 2023).

10.2		Term Loan Agreement, dated as of July 3, 2023, between NETSTREIT Corp., NETSTREIT L.P., the several financial institutions party thereto and Truist Bank, National Association, as Administrative Agent (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on July 7, 2023).

31.1*		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS**		XBRL Instance Document.

101.SCH***		XBRL Taxonomy Extension Schema Document.

101.CAL***		XBRL Taxonomy Extension Calculation Linkbase Document.

101.LAB***		XBRL Taxonomy Extension Label Linkbase Document.

101.PRE***		XBRL Taxonomy Extension Presentation Linkbase Document.

101.DEF***		XBRL Taxonomy Extension Definition Linkbase Document.

104**		Cover Page Interactive Data File.

*Filed herewith.

**Submitted electronically with the report.


*						Filed herewith.
**						The XBRL Instance Document and Cover Page Interactive Data File do not appear in the Interactive Data File because their XBRL tags are embedded within the Inline XBRL document.
***						Submitted electronically with the report.
†						Management contract or compensatory plan or arrangement.

3444

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its

behalf by the undersigned thereunto duly authorized.

NETSTREIT Corp.

~~October 29, 2020~~July 26, 2023

/s/ MARK MANHEIMER

Date

Mark Manheimer

President, Chief Executive Officer, Secretary and Director

(Principal Executive Officer)

~~October 29, 2020~~July 26, 2023

/s/ ~~ANDREW BLOCHER~~DANIEL DONLAN

Date

~~Andrew Blocher~~Daniel Donlan

Chief Financial Officer ~~Treasurer~~ and ~~Secretary~~Treasurer

(Principal Financial Officer)

~~October 29, 2020~~July 26, 2023

/s/ PATRICIA ~~MCBRATNEY~~GIBBS

Date

Patricia ~~McBratney~~Gibbs

Senior Vice President and Chief Accounting Officer

(Principal Accounting Officer)

3545


	Preferred stock			Common stock
	Shares	Par Value		Shares	Par Value		Additional Paid-in Capital		(Deficit)/ Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Shareholders’ Equity		Partners’ Capital		Noncontrolling Interests		Total Equity
Balance at December 31, 2018	—	$	—	—	$	—	$	—	$	—	$	—	$	—	$	82,748	$	—	$	82,748
Partners’ contribution	—	—		—	—		—		—		—		—		537		—		537
Partners’ distribution	—	—		—	—		—		—		—		—		(3,600)		—		(3,600)
Net loss	—	—		—	—		—		—		—		—		(3,076)		—		(3,076)
Other comprehensive income	—	—		—	—		—		—		—		—		24		—		24
Balance at March 31, 2019	—	$	—	—	$	—	$	—	$	—	$	—	$	—	$	76,633	$	—	$	76,633
Partners’ contribution	—	—		—	—		—		—		—		—		—		—		0
Partners’ distribution	—	—		—	—		—		—		—		—		(1,926)		—		(1,926)
Net income	—	—		—	—		—		—		—		—		1,266		—		1,266
Other comprehensive income	—	—		—	—		—		—		—		—		31		—		31
Balance at June 30, 2019	—	$	—	—	$	—	$	—	$	—	$	—	$	—	$	76,004	$	—	$	76,004
Partners’ contribution	—	—		—	—		—		—		—		—		—		—		0
Partners’ distribution	—	—		—	—		—		—		—		—		—		—		0
Net loss	—	—		—	—		—		—		—		—		(2,740)		—		(2,740)
Other comprehensive income	—	—		—	—		—		—		—		—		—		—		0
Balance at September 30, 2019	—	$	—	—	$	—	$	—	$	—	$	—	$	—	$	73,264	$	—	$	73,264


	September 30, 2020		December 31, 2019
Term loan:
Term Loan (due December 23, 2024)	$	175,000	$	175,000
Less: Unamortized discount and debt issuance costs	(952)		(1,087)
	$	174,048	$	173,913


	Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion)				Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)				Total Amount of Interest Expense, Net, Presented in the Consolidated Statements of Operations and Comprehensive Loss


Derivatives in Cash Flow Hedging Relationships	2020		2019			2020		2019		2020		2019
For the Three Months Ended September 30
Interest Rate Products	$	(129)	$	0	Interest expense, net	$	(1)	$	0	$	(1,018)	$	(2,449)
Total	$	(129)	$	0		$	(1)	$	0	$	(1,018)	$	(2,449)
For the Nine Months Ended September 30
Interest Rate Products	$	(129)	$	55	Interest expense, net	$	(1)	$	55	$	(3,815)	$	(8,349)
Total	$	(129)	$	55		$	(1)	$	55	$	(3,815)	$	(8,349)


Entity	Transaction Type	For the Three Months Ended September 30, 2019		For the Nine Months Ended September 30, 2019
EverSTAR IVF V GP, LLC	Asset management fees	$	693	$	2,162
EBA EverSTAR, LLC	Disposition fees	154		840
EBA EverSTAR, LLC	Acquisition fees	0		18


	Payment Due by Period
	Total		From October 1, 2020 to December 31, 2020		1 – 3 years		3 – 5 years
Contractual Obligations
Term Loan – Principal	$	175,000	$	—	$	—	$	175,000
Term Loan – Variable interest (1)	10,039		594		7,128		2,317
Unutilized borrowing fees on Revolver (2)	2,031		156		1,875		—
Total	$	187,070	$	750	$	9,003	$	177,317