We thank you for joining us for NETSTREIT's First Quarter 2021 Earnings Conference Call. In addition to the press release distributed yesterday after market close, we posted a supplemental package and an updated investor presentation.

Both can be found in the Investor Relations section of the company's website at www.NETSTREIT.com.

On today's call, management's remarks and answers to your questions may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ from those discussed today.

For more information about these risk factors, we encourage you to review our Form 10-K for the year ended December 31, 2020, and other SEC filings.

All forward-looking statements are made as of the date hereof, and NETSTREIT assumes no obligation to update any forward-looking statements in the future. In addition, certain financial information presented on this call includes non-GAAP financial measures.

Please refer to our earnings release and supplemental package for definition, GAAP reconciliation and an explanation of why we believe such non-GAAP financial measures are useful to investors.

Today's conference call is hosted by NETSTREIT's Chief Executive Officer, Mark Manheimer; and Chief Financial Officer, Andy Blocher. They will make some prepared remarks, and then we will open the call for your questions.

Now I will turn the call over to Mark.

Good morning, everyone, and thank you for joining us today for NETSTREIT's First Quarter 2021 Earnings Call. We are pleased to be here with you today.

I'll start with our portfolio metrics and recent acquisitions activity, and then take a moment to discuss our pipeline and continued focus on external growth in light of our recent transformative equity raise. Andy will then provide more detail on our first quarter results and balance sheet.

We will also update you on our expanded outlook, including AFFO guidance for 2021. We will then open the call for questions at the end of our prepared remarks.

As of March 31, 2021, our portfolio contained 235 leases, comprising of 4.4 million square feet in 39 States with a diversified tenant roster of 60 tenants in 23 industries. Our weighted average lease term is 10.1 years.

We are 100% occupied with no lease expirations until 2023, and less than 2% of ABR expiring before 2025.

Based on ABR, our tenancy is 70% investment grade, with an additional 11% classified as investment-grade profile, and 89% of our industry exposure is what we refer to as defensive.

We continue to focus on well-positioned tenants, who have strong balance sheets and great access to capital and on physical locations that are integral to the tenant's ability to generate cash flow.

Finally, let me remind you that we do not own or intend to own theater, health club or early childhood education tenants, as these tenants typically have weaker credit profiles and real estate that is often cost prohibitive to efficiently adapt to other use.

Our strategic approach to portfolio construction has resulted in strong collections through COVID. Through this April, we have collected 100% of rents for each of the past 8 months.

This steady operational performance has allowed us to focus on our external growth plan.

In the first quarter, all of our acquisitions were either with investment-grade tenants or with tenants with investment-grade profiles. We completed $88.2 million of acquisitions at an initial cash capitalization rate of 6.7% and a weighted average lease term of 8.8 years.

Subsequent to quarter end, we extended 2 of these leases that increased the weighted average lease term from 8.8 years to 9.6 years, with an impact of only 6 basis points to the quarter's going in cash cap rate.

We also provided $1.3 million of funding towards an estimated $4.4 million development project for an investment-grade tenant that is expected to be completed in the next few quarters.

We also acquired 2 more O'Reilly's auto part stores in New England at a 6.9% cap rate with more than 10.5 years of lease term as an add-on transaction to a portfolio done in 2020.

These are good examples of our ability to extend leases as part of our acquisitions and grow our opportunity set through providing development capital for our target tenants. Our multipronged acquisitions approach allows us to shift through a broad opportunity set and pursue where we see the best risk-adjusted returns with the highest quality tenants in all retail throughout the country.

The different approaches have allowed us to add several new tenants to our portfolio, including Marshalls, Natural Grocers, Ross Stores and Wawa. As we look ahead, our pipeline continues to grow in size, and we are excited about our ability to execute on our external growth strategy.

Earlier in the month, we raised our acquisitions guidance to $360 million from $320 million. And to fund that effort, we subsequently completed a transformational well oversubscribed equity offering that allowed us to reload our balance sheet with approximately $194 million of additional dry pattern.

We view this offering as a milestone for NETSTREIT, given its expected impact on our future growth. We continue to review a wide breadth of opportunities, including investments in stabilized assets, blended and extend opportunities, sale-leaseback transactions and development projects.

We will continue to target the same industries and a similar mix of investment-grade and high-quality tenants that currently make up our portfolio. We do expect to continue to grow the portfolio, but we are also focused on diversification as well as enhancing the overall quality of our portfolio.

Finally, we expect that cap rates and lease terms will be generally consistent with what you've seen from us over the past few quarters. We are truly excited by the opportunity ahead of us as we know that execution on our external growth effort should result in extremely attractive earnings per share growth given our size.

As I mentioned previously, but bears repeating, our track record of 100% rent collections for the past 8 months means that we have not been distracted by chasing rents or workouts with problem tenants. We remain focused and have diligently built a strong pipeline of acquisitions.

Over the past 16 months, we have raised over $600 million of equity capital in 3 separate transactions with our 144A offering, our IPO and our most recent follow-on. We have historically deployed each capital raise efficiently and accretively.

With the completion of our recent follow-on offering, we remain laser-focused on growth. We will continue to keep you updated on our progress.

I'll now turn the call over to Andy to discuss the balance sheet and our capital markets activities. Andy?

Thanks, Mark, and thank you for your time with us this morning. Let me begin with our results for the first quarter 2021.

Yesterday in our press release, we recorded net income of $0.02, core FFO of $0.22 and AFFO of $0.23 per diluted share for the first quarter. Please note that these per share results reflect the -- the acquisitions completed during the first quarter for an average in only 13 days during the quarter.

As of March 31, 2021, the in-place portfolio is generating $48 million of annualized base rent , or ABR, which reflects the effect of acquisitions completed in the first quarter.

Turning to our balance sheet and capital markets activity. As of March 31, we had $13.7 million of cash and $13 million drawn on our $250 million revolving line of credit.

We have no debt maturities until the maturity of our revolver in December 2023, which is subject to a 1-year extension option, which would match the December 2024 maturity of our fully drawn $175 million term loan. Our net debt to annualized adjusted EBITDA ratio was 4.7x that quarter.

Subsequent to quarter end, we completed our first follow-on offering. The offering saw significant oversubscription by investors, which resulted in the upsizing of the offering by 20%.

We raised $194.3 million in proceeds net of operating expenses, including the exercise in full of the underwriters option to purchase additional shares. We view this equity raise as a pivotal moment for the company as this will serve to further fund our growth.

In addition, this will take us through to our 1-year anniversary since our IPO last August, at which point, we expect we will further expand the capital choices available to us. We intend to utilize the proceeds for acquisitions and to repay our revolver.

Pro forma for the offering at March 31, 2021, we would have $195 million of cash and a fully undrawn $250 million revolver. We would like to thank our entire bank group for their support and execution.

We're also very proud of our entire team for their hard work that positioned us for this milestone offering.

With respect to dividends, earlier this week, the Board declared a $0.20 regular quarterly cash dividend to be payable on June 15 to shareholders of record on June 1, reflecting an annualized dividend rate of $0.80 per share.

Now let me take a few minutes to discuss our outlook. We are introducing full year 2021 AFFO guidance in the range of $0.95 to $0.99.

This guidance reflects the impact of a recent follow-on offering and as previously disclosed, we now expect to complete $360 million of acquisitions this year net of disposition, up from our original guidance of $320 million.

We still see this as back-end weighted in each quarter and cap rates consistent with our recent activity. We continue to expect our G&A to be in the range of $11 million to $12 million with additional noncash compensation expense of $3 million to $4 million.

We expect our cash interest expense, including unused line of credit fees of $3 million to $3.5 million and an additional $600,000 of noncash deferred financing fee amortization. We expect to incur state and franchise taxes in the range of $200,000 to $300,000.

And lastly, we expect fully diluted weighted average shares outstanding to be in the range of 38 million to 39 million for the year.

To wrap up, we're very pleased with our strong first quarter activity. But beyond that, we believe our recent equity offering was a very key step in our progress as we seek to achieve certain important public company milestones, such as index and investment-grade ratings that will have a meaningful impact on our cost of capital.

We take our role as stewards of our investors' equity capital very seriously, and we are focused on execution. We thank our shareholders for their support.

This concludes our prepared remarks. We will now open the line for questions.

Operator?

I was wondering if you could comment on the activity so far in Q2. I think you highlighted some stuff on the operating perspective in terms of what was under contract and LOI.

Is there anything notable that's different from what you disclosed a few weeks ago there?

No. I don't think that there's too much difference than what we disclosed, but we have continued to add to the pipeline.

I feel pretty good about where we are for the quarter. Obviously, we increased our guidance at the end of the first quarter.

I feel like we're on track to be able to -- I feel pretty good about that for the year. Our line of sight, obviously, is only kind of 75 to maybe 90 days out.

And so with what we're seeing now, not even just with what's in the portfolio, but the types of opportunities that we're seeing.

As we mentioned in the prepared remarks, we have got a multi-pronged approach, whether that be sale-leaseback or blend and extends or development, and some of those take a little bit more time.

The public companies are really kind of -- have a few of those types of transactions done that you get a lot of repeat business. So seeing a little bit more on the development side as well as kind of on the blend and extend side.

So feeling pretty good about the volume and quality and pricing that we're seeing for the second quarter.

Okay. And so pricing is pretty consistent over the last 3 months.

I mean, we tend to get questions as to the fact that you guys are able to get a little bit higher yield than some of your closest competitors? And maybe you can just kind of remind us what you guys are doing that may be a bit different than peers to kind of achieve that a little bit higher yields on acquisitions?

Yes. No, it's a good question.

We get asked that question quite a bit by investors. And I think it has a lot to do with our size being a smaller public REIT, not needing to go out and acquire several hundred million dollars of properties every single quarter.

We really try to build out a bell curve of what opportunities fit our criteria that we really want in the portfolio and then what assets are most inefficiently priced and really kind of build out that bell curve, chop off the -- and kind of the left side of the bell curve there and try to buy the most inefficiently priced assets. And only needing to go out and buy $360 million net of dispositions per year allows us to be a little bit more surgical with the assets that we are -- that we take into the portfolio.

Okay. I appreciate that.

And then if I could just ask one for Andy. It sounds like you'll probably put the ATM in place later this year, and I'm just curious how do you view kind of ATM funding versus overnight follow-ons?

And how should we kind of think about that heading into next year?

Yes. Thanks, Nate.

Yes. I mean, look, I think that based on the level of acquisitions that we're going to be executing, certainly, as we look out over time.

ATM, based on our current liquidity, average daily trading volumes that we're seeing would not -- we would not be able to be solely relying on the ATM. So I think it's just like everything else that we do.

I think it will be a balance.

To me the benefits that it provides is better match funding, right? So we're not sitting with as we are right now, $195 million worth of cash on the balance sheet.

But yes, I think just similar to what everything that we're trying to do at NETSTREIT, it's just going to be a balance.

So now that Biden appears to actually be going after 1031 exchanges on property tax gains over $500,000 and given your comments that most of your competition seems to fall into that category, how do you expect the potential rollback of that perk to impact the business?

Yes. It's a good question.

And I think there's still a lot of wood to chop for that to become law. But that being said, you're right.

Most of our competition are 1031 type buyers, smaller family offices and individuals. So we're not really competing much with the larger institutions.

So I think it would be reasonable to assume that if they get through all of the loopholes that they're going to have to get to remove this loophole, I think you could expect to start to see pricing increase. I do think that you will get a pretty big fight from lobbyist and the various different [indiscernible] before that becomes law.

But yes, I mean, I think it helps us a little bit on the acquisition side with pricing with less competition. And then fortunately, we aren't selling many assets, didn't selling anything in this quarter and really took a deeper knife to the portfolio before we raised money as a private company.

So we don't really need to go out and sell many assets, but it certainly is a helpful avenue to be able to sell into -- in the event that you want to call some of the assets out of the portfolio and sell into a deeper 1031 private market.

And how much of your acquisitions are sourced from 1031 sellers?

Not very many. When you really kind of look at what we're acquiring, there's a lot of deals that we're working with developers.

There's a lot of kind of where we're taking a piece of a shopping center and we partner with a shopping center buyer. So those are mostly going to be more institutional-type sellers.

So it's really a pretty small percentage of what we're acquiring. But I think kind of what you're getting at is there could be a decrease in volume if -- just in total numbers of transactions, which I think is true.

But certainly if you listen to some of our peers and that sell a lot more assets than certainly that we do, and that's really only about 25%, 30% of what they sell is into the 1031 market. So I think it will have an impact on total transaction volume, but I think maybe we'll be a little bit less impacted than maybe some of our peers.

Okay. And just last one from me.

I know you mentioned that you expect kind of volumes and cap rates to remain the same in the acquisition pipeline. But as we start to move past the impacts on restrictions of the pandemic, have you started to see any changes in cap rates or desirability that may make you -- that may make certain tenants or sectors more or less attractive to you?

No. We definitely are seeing a lot more transactions happen in areas that we're less focused.

So I think that's healthy for the overall market. I think there is some casual dining and sectors that we're not focused on starting to loosen up a little bit.

So you're seeing some of those transactions happen.

But we were -- even before the pandemic, this has always been the strategy of the company is really focusing on essential-type retailers and also retailers that have very strong balance sheets, very strong access to capital and are in sectors that are working in retail. We continue to think that there's going to be a lot of change in retail.

There was a lot of change pre-pandemic. Obviously, post-pandemic, that was expedited quite a bit.

And I think it's really important in retail as that continues to evolve to not only be in sectors that are somewhat cushioned from what's happening in e-commerce, but then also when there is inevitable change in retail to have the capital to be able to reinvest in your business and adapt to that change.

And so that was really the thesis going into -- starting the company and raising capital as a private company going back to 2019, that did not change through the pandemic. We really want to be a source of very consistent cash flows for investors.

We're not going to go chase yield and really try to adapt to our investment thesis based on changes that are going to be cyclical. We're viewing these as very long-term investments.

And there's going to be cyclicality and there's going to be change. And we want to be very well positioned for that change when it comes.

This is [indiscernible] on the line for Todd Thomas. I wanted to ask, as a result of recent migration trends, are there certain markets that you're trying to strengthen your position in or trying to expand into?

Not really. I mean, I do think that you -- we are seeing more opportunity where there is population growth.

So I think over time, you'll likely see us have more of a concentration in the sunbelt areas of the country. But we're really viewing the real estate -- pretty similar to how retailers look at it on a market-by-market basis or do the demographics support, not only the use that we're jumping into, but then also various other uses in the event that we take a property back.

And they're just are more healthy growing markets in the Southeast and the Southwest and the sunbelt area.

So I think on the margin, you'll see us increase exposure there. But I think over time, we're likely to be in all the lower 48 on a very market-by-market specific underwriting.

Okay. And can you comment on development opportunities, whether you see more opportunity there and expect to see more development and sale-leaseback opportunities in the future?

Yes. No.

We are seeing more opportunities in development. That was a real focus for our acquisition team.

I think they've done a great job of going out and trying to source those types of opportunities.

When we were first getting going and initially publicly had a few of those opportunities, they really do take a lot of nurturing those relationships to get them going. And then you really get a lot of repeat business once you do a few.

And now we're starting to get a lot more traction with a lot of those repeat sellers. So we're very encouraged by that.

So I do think you'll see a little bit of an uptick on the margin as it relates to development.

We've always been somewhat not a sale-leaseback, but thinking that that's probably not going to be an area that we're going to have a lot of success. Usually, there's a -- those are cash-driven events, where you might have a private equity firm buying a retailer and trying to pull as much cash out of the real estate as they can and write a smaller equity checks.

That's not a great equation for us and how we look at corporate credit.

So we have not really focused too much on that, but we are seeing even more opportunity there. In fact, part of our pipeline does have a sale-leaseback in there with an investment-grade retailer that's looking to really grow.

So I think you are seeing a little bit more opportunity with investment-grade and high-quality retailers, mainly because they're the ones that are growing and some of them like to use the real estate as an avenue for funding their growth.

Can you remind us on how you plan on managing leverage going forward? What are -- I'm sorry, yes.

What are the current drivers? And is there anything preventing you from operating at a higher level?

Well, right now, we're at 0. But yes, I mean look, when Mark and I were building out the story, we really tried to draw on our experience.

Our targeted leverage is 4.5 to 5.5x. We think that that's a reasonable level, right?

So from our perspective, could we -- the portfolio could certainly support higher leverage. But within the public company space, we believe that 4.5 to 5.5x is an appropriate leverage range for our company.

Got it. And then how is your investment sourcing pipeline broken out?

Does it loosely mirror your 70% IG, 11% IG like? I'm just wondering if there's a ratio of how much you have to source in order to execute in those categories?

Yes. No, we're not beholding to really much of that, although with our focus on what gets through investment committee.

We're going to be between 2/3 and 3/4, it's been remarkably consistent for the investment-grade bucket. We would like to continue to grow the investment-grade profile bucket a little bit more, and we've been doing a little bit more of that over the past couple of quarters and think that -- we're looking forward to the pipeline.

There's certainly more of those types of assets that we'll be acquiring. We view that as very similar risk with maybe a little bit more returns.

So we'd certainly like to grow that.

And then on the margin, we'll look at BB- to BB+, sub investment-grade bucket where we really like the operator. There are one or 2 of those types of opportunities in there.

But really not doing much in the fourth bucket of your non-investment-grade profile, kind of smaller operator without a rating.

Now that being said, I think quick service restaurants has been maybe the one sector where we may look to push on that a little bit just because we think those assets are incredibly fundable, incredibly resilient in various different economic cycles and have really proven out over the past couple of cycles.

So I think you may see some of that over time. There's not really much of that in the pipeline right now, but we are starting to see a little bit more opportunity there as well.

And just one last one. Given recently raised net investment volume, can you discuss how your acquisition team has evolved over the past year?

And what do you think they are capable of in terms of how much can they actually deliver in terms of volume?

Yes. No, I think, significantly more than what we're doing.

Right now, we're very focused on pricing and really trying to cut off that side of the bell curve of what's the most inefficiently priced assets. I think we can maybe eat a little bit more into that bell curve.

I think you'd see a little bit of degradation on cap rate, maybe 10, 20 basis points at the most.

If we were to double the amount of acquisitions that we're doing, I think the team has really bought into our approach and has really been very creative in terms of how we've gotten in front of a lot of opportunities. And then, like I mentioned earlier, a lot of the development side and doing some blend and extends with some retailers now that we've done a couple, everyone is pretty comfortable with the process and kind of what the lease amendments need to look like if it's a blend and extend.

And so the repeat business there, I think, should get easier over time and certainly starting to see that in the pipeline. But I think with the team that we currently have, I think, doubling our acquisitions volume is pretty achievable.

If we were to double, I think we may look to maybe add a little bit more help on the closing side and asset management side. So maybe one person on each side there.

But I think we're -- we really built the business for scale at the senior levels and the acquisitions team to really be able to scale the business without adding much G&A.

So really happy with the progress that the acquisitions team has made in developing relationships and really getting into more and more repeat business because I think that's going to be more and more important as we grow the portfolio.

So as you become a bigger company and acquirer, what kind of benefits do you think you can see in terms of deal access or visibility? I know you guys have a long history of doing this anyway, regardless of the size of the company, but just curious what kind of benefits you might see?

Yes. No, it's a good question.

It's something that we anticipated happening maybe a little bit more gradually over time as we build out relationships and you really build out the reputation and people think of you a little bit more if they're looking to sell something. And that's come a little bit more quickly than I probably would have thought.

We're still not going to be very competitive for the much larger portfolio. We've seen a number of those types of opportunities come our way.

But those are typically going to be very broadly marketed and very competitive, and we're just not going to get there in pricing in almost all of those situations.

So I don't -- we're going to -- I don't think much will change other than as we continue to build out relationships and get more and more repeat business, I think that kind of feeds on itself. But I think we're a long ways away from really competing on the larger transactions.

So how would you describe the deals that you're looking at today? Like how much is the repeat business that are kind of directly done with tenants versus more broadly brokered type of deals?

And is there actually the pricing benefit?

Yes. No, I mean, it's -- certainly we've seen a lot of peers get into what's brokered, what's not brokered.

All of ours kind of have an element of it being in the gray area. So take, for instance, if we're buying a blend and extend opportunity, we find a shorter-term lease and then we -- that's widely marketed, but it's a shorter-term lease, well that doesn't have as much interest from a lot of buyers.

We'll tie that up and then go back to our retail relationship and get that lease extended before we close or right after we close. And so those -- that to me is a situation where we've created our own deal.

So technically, I guess there's a broker involve. And so we don't really think of it that way.

But that being said, there's some element of repeat business in almost everything that we're buying, maybe 80% of what we're buying in the second quarter.

So if you were able to double your acquisition volumes at some point in the future, what do you anticipate would be the mix of equity versus debt funding for acquisitions going forward?

I'm sorry, Katy. Can you say that again?

Sure. Can you hear me?

Yes, I can hear you.

Okay. So I just asked, if you were able to double your acquisition volumes in the future, what do you anticipate would be the mix of equity versus debt funding going forward?

Yes. I mean, look, I think that if you kind of do the math and you assume the impact on NOI associated potential increase in G&A, what that means from an EBITDA perspective, rough math, it probably looks like something like 2/3 equity, 1/3 debt.

Rough numbers.

Okay. Great.

And then can you just update us on how you're thinking about the timing of acquisitions throughout the remainder of this year to get a sense for the potential ramp in AFFO throughout the year?

Yes. Sure.

I mean I think we're going to be pretty consistent. We did about $90 million in the first quarter with no dispositions.

We may have a few dispositions here in the second quarter with a little bit more acquisitions. So I think we'll likely be pretty consistent with around $90 million net of dispositions each quarter.

Yes. And Katy, one thing that -- Katy, one thing, just while we have you.

We did note that, on average, in the first quarter acquisitions, those acquisitions were only on the balance sheet for 13 days in the quarter, right? So when we talk about back-end loading, we're certainly working to try to improve that.

But based on the size of that company, that could have a meaningful impact to absolute AFFO in any given quarter and for the year.

Maybe just sticking with you, Andy, on that last question. When you layer in the oversubscribed equity offering, where does that leave your expectation for debt funding?

I guess, that has the sourcing changed? You're now a bigger company, the size, pricing, how did that really transform how you're looking at your pricing, probably just from the debt side?

Yes, Todd. I mean, from a -- from the debt side, I don't know that it had a material impact.

As we talked about previously like we've got the fully drawn $175 million term loan outstanding as of right this moment, we have 0 balance on the $250 million credit facility. Obviously, the term loan is fully hedged through its maturity date in December of 2024.

So I think it will be a bit before we start kind of generating significant debt that we can term out through private placements, so on and so forth. I think that's probably 12 to 18 months into the future.

Based on our conversations with the banks, we think that there are a number of things that both the insurance companies or the principal players in the private placement market and also the rating agencies would be positive about what we do, which is, obviously, our focus on high-quality investment grade and investment-grade profile tenants. So we think that those are net positives.

And the negatives, as we see it is we need to continue to improve our diversification -- and we continue to improve our diversification and continue to get bigger, right? So I don't know that there's been a bit of material change.

We were -- last time we talked, we were talking, I think, 7-year private placements in kind of the high 2s and kind of in the low 3s. But I think that those are still pretty good points for people to be thinking about.

Got it. And probably for Mark, when you're looking at the cap rate on the quarter, can you bifurcate, if you can, with the investment-grade properties went for collectively?

If you had a 6, 7 average cap rate, what is the investment-grade go for? And then, I guess, the other 1/3 that was either below investment-grade or not rated?

Yes. I mean there's not a huge difference.

There's maybe a 30 or 40 basis point difference. The only assets that we acquired in the quarter were either investment-grade or investment-grade profile.

So there's maybe a 30, 40 basis point difference on average between those 2 buckets.

Okay. Got it.

Last one, when you look at the average lease term, it's not that far off from your average, but you're inside of 9 years now. How short did you go on any leases, maybe just kind of speak to your appetite for anything in the short to medium-term category?

Yes, sure. And we did extend a couple of leases here in April.

So that ended up being more like 9.6 years than 8.8. But that being said, we will look at some shorter-term leases where we have -- in fact, there is one, in particular, that was about 2 or 3.

And so that was one where we had a conversation with a tenant. They're committed to the site long term.

It reports sales where they perform very well and the rents are below market.

A, that they are likely to stay there long term; and B, even if they dont', that we're -- that we'd be able to reposition the box and potentially increase the rent. So those are situations where we'll do shorter term leases.

And then -- yes, I mean, so 9.6, probably a little bit shorter than what we typically would like. I do think you can expect -- I can only speak to the second quarter.

I do expect that to be a little bit longer-term on average for the quarter.

Mark, you talked about some of your acquisition strategy working with shopping center owners for potential parcels of their centers. Obviously, we saw some pretty visible transactions in the public space about a quarter ago.

Are you seeing increased interest from shopping center owners to look at their properties for potential -- I don't know if I want to call it breakup value, but to look at potentially unlocking value in their centers?

Yes. I think we've seen a little bit more interest from the sellers.

And quite frankly, we're seeing more interest from the buyers of multi-tenant retail. So you've seen some cap rate compression there, and you're starting to see a lot of those buyers come back.

So some of those situations, quite frankly, have gotten a little bit more competitive. So there's a little bit less of that in the second quarter, although our volume is higher.

There's a little bit less of that, that we're looking to do. But yes, I think that's a strategy that makes sense.

Fortunately, for us, we've got 5 or 6 different groups that we look to partner with. They all have a different approach to what they're looking for.

Some want a little bit more value add and want to put a lot of money into a property to reposition it some or satisfied with clip in the coupon and keeping the cash flow coming, where we're just focused on, a, getting a strong retailer that is otherwise sometimes difficult to get our hands on with a good lease and a location that we think they're going to stay in long term.

But then also the other key piece that we don't talk much about is that the rest of the center needs to be very healthy and needs to continue to be a long-term traffic driver for our tenants at those locations. But yes, I mean, I think there was -- like you mentioned, there was one in particular group coming in more aggressively there.

My take on that is that's really -- they've got one specific approach. There are a lot of shopping centers that trade and get marketed.

So I think it's unlikely that we're going to run into that particular buyer. And I think they're using that as much as an avenue to bring in some net lease assets, which obviously are more and more attractive with the news that you saw yesterday.

But yes, I think that's a strategy that makes sense for us, but we are seeing a little bit more competition for the multi-tenant retail buyer.

So that cap rate compression is making it maybe a little bit more difficult for us to do a lot of volume in that particular -- with that particular strategy, which is, I think, the benefit for us is we've got 5 or 6 different approaches for how we're looking at acquisitions. In some situations, we're going to see a lot in one area and a little bit less in other areas and allows us to continue to fuel the machine and continue to buy accretive opportunities and swift through where we're going to get our best risk-adjusted returns.

Okay. That's helpful.

And then when you're looking at acquisitions with tenants who maybe are in more of an omnichannel space but are doing a good job with it, how do you change your underwriting or as you look at the tenants, are you getting increased visibility in terms of what kind of e-commerce volume is flowing through that specific location?

Are you looking for specific real estate attributes, whether it's clear heights or end caps? So if it's a tenant like maybe, as an example, like a Walmart, are there different things you're looking at to see how critical that location is to their omnichannel strategy?

Yes. No, it's a really good question.

And to me, I think it speaks to the evolution of retail and making sure that we're focusing on that and understanding it. And it's -- and even for Walmart is a good example.

Each market is very different for them, where they need to have kind of more of the buy online and pick up in store, and that's a more critical piece in some markets than it is in others.

Best Buy is certainly one that they've really changed the way that they're thinking about their footprint, how much they need is distribution. And I think the clear heights and things like that matter a little bit less as long as they have the ability to kind of load in the back, but they are reconfiguring their stores quite a bit, Best Buy, in particular.

So they've kind of went from very large that they've been trying to very small, Best Buy, our footprint that was too small. So they've kind of moved back up a little bit, but they don't want to have the really big location.

So really making sure that we're talking to the tenant, understanding that particular location, how do they think about it is as important as it is to not just have one blanket approach to saying, okay, we need to have clear height of 30 feet in the back so they can store a lot of products so that people can pick it up in the store. Sometimes, that isn't the strategy.

There are some areas where they kind of focus on having the hub-and-spoke approach. So really making sure that we're understanding what the strategy is and then also understanding that, that's probably going to change.

And so what can we do with the box in the event that we get it back is a critical piece of our run rate.

Okay. And then one last one.

Andy, I apologize if I missed it. But maybe could you just talk about how the Board is thinking about dividend policy here obviously, I think just looking at the guidance range, you're on track with the current payout for kind of low 80s.

Should we think about, as the company is in its kind of major growth phase that, that payout will trend down or will the dividend growth kind of keep pace with the AFFO growth from here as the company expands?

Yes. So I just think that we've stated throughout our process, whether it was during the 144A of the IPO and the follow-on, kind of 2/3 to 3/4 AFFO payout, right?

We think that, that's the right balance of returning dividends to shareholders, satisfying our [ retax ] obligations, but also making sure that we are retaining free cash flow.

So if you go out over the course of the year, I think that based on the numbers you talked about, we're probably -- the ultimate decision with respect to the dividend is the boards, right? We certainly propose something.

But I would think that we'd be in a position where we should be able to start thinking about potentially increasing the dividend starting in 2022.

Well, thank you, everyone, for joining us today. We look forward to continuing to discuss our progress in the future.

Take care.