S-11/A 1 a2242136zs-11a.htm S-11/A

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TABLE OF CONTENTS
NETSTREIT CORP. INDEX TO FINANCIAL STATEMENTS

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As filed with the Securities and Exchange Commission on August 5, 2020

Registration No. 333-239918


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


AMENDMENT NO. 1
TO

FORM S-11
FOR REGISTRATION UNDER THE
SECURITIES ACT OF 1933 OF SECURITIES
OF CERTAIN REAL ESTATE COMPANIES


NETSTREIT Corp.
(Exact name of Registrant as specified in governing instruments)


5910 N. Central Expressway
Suite 1600
Dallas, Texas 75206
972-200-7100
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices)


Mark Manheimer
President and Chief Executive Officer
NETSTREIT Corp.
5910 N. Central Expressway
Suite 1600
Dallas, Texas 75206
972-200-7100
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)


Copies to:

Christina T. Roupas
Courtney M.W. Tygesson
Winston & Strawn LLP
35 West Wacker Drive
Chicago, IL 60601
312-558-5600
312-558-5700 (Facsimile)

Approximate date of commencement of proposed sale to the public:
As soon as practicable after this registration statement becomes effective.

             If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box.    ý

             If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

             If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

             If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

             If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box.    o

             Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 o   Accelerated filer o   Non-accelerated filer o   Smaller reporting company ý

Emerging growth company ý

             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 7(a)(2)(B) of the Securities Act.    ý


CALCULATION OF REGISTRATION FEE

               
 
Title of Securities
Being Registered

  Amount to be registered
  Proposed maximum
offering price
per share

  Proposed maximum
aggregate offering
price(1)

  Amount of
registration fee(2)

 

Common Stock, $0.001 par value per share

  15,788,056   $21.00   $331,549,176   $43,035.08

 

(1)
Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(a) under the Securities Act of 1933, as amended.

(2)
Includes $1,298 previously paid.

             The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date or dates as the Commission, acting pursuant to said Section 8(a), may determine.

   


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The information in this preliminary prospectus is not complete and may be changed. The selling stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to Completion, dated August 5, 2020

PRELIMINARY PROSPECTUS

LOGO

NETSTREIT CORP.
15,788,056 SHARES OF COMMON STOCK


This prospectus relates to the offer and sale from time to time of up to 15,788,056 shares of NETSTREIT Corp., a Maryland corporation, common stock, $0.01 par value per share, by the selling stockholders identified in this prospectus or in supplements to this prospectus. See "Selling Stockholders." This prospectus does not necessarily mean that the selling stockholders will offer or sell those shares. We cannot predict when or in what amounts the selling stockholders may sell any of the shares offered by this prospectus. The prices at which the selling stockholders may sell the shares will be determined by the prevailing market price for the shares or in negotiated transactions. We are filing the registration statement pursuant to contractual obligations that exist with the selling stockholders.

We are not offering for sale any of the shares of our common stock included in this prospectus. We will not receive any of the proceeds from the sales of shares of common stock by the selling stockholders, but we have agreed to pay expenses relating to registering the shares.

Prior to the date of this prospectus, there was no public market for our common stock. Because all of the shares offered under this prospectus are being offered by the selling stockholders, we cannot currently determine the price or prices at which our shares may be sold under this prospectus.

We have been approved to list our common stock on the New York Stock Exchange ("NYSE"), subject to official notice of issuance, under the symbol "NTST."

We are an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012, and will be subject to reduced public company reporting requirements.

We believe that we have been organized in conformity with the requirements for qualification and taxation as a real estate investment trust ("REIT") under the U.S. federal income tax laws, commencing with our short taxable year ended December 31, 2019, and we expect to satisfy the requirements for qualification and taxation as a REIT under the U.S. federal income tax laws for our taxable year ending December 31, 2020 and subsequent taxable years. To assist us in qualifying as a REIT, among other reasons, our charter generally limits beneficial ownership of our common stock by any person to no more than 9.8% in value or number of shares, whichever is more restrictive, of our outstanding common stock or of any class or series of our preferred stock, or more than 9.8% of the aggregate value of all our outstanding stock. Our charter contains various other restrictions on the ownership and transfer of shares of our stock. See "Description of Our Capital Stock – Restrictions on Ownership and Transfer."

Investing in our common stock involves risks. You should read the section titled "Risk Factors" beginning on page 28 for a discussion of certain risk factors that you should consider before investing in our common stock.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

   

The date of this prospectus is                            , 2020


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          Neither we nor the selling stockholders have authorized anyone to provide any information or to make any representation other than as contained in this prospectus. We and the selling stockholders take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We and the selling stockholders are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. The information contained in this prospectus and any free-writing prospectus prepared by us is current only as of the respective date of such document or as of another date specified therein. Our business, financial condition, results of operations and prospects may have changed since those dates.


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Prospectus Summary

    1  

Risk Factors

    28  

Forward-Looking Statements

    59  

Use of Proceeds

    61  

Distribution Policy

    62  

Unaudited Pro Forma Consolidated Financial Statements

    63  

Selected Historical Financial Data

    73  

Management's Discussion and Analysis of Financial Condition and Results of Operations

    76  

Market Opportunity

    95  

Our Business and Properties

    102  

Management

    117  

Executive Compensation

    127  

Certain Relationships and Related Party Transactions

    135  

Selling Stockholders

    137  

Security Ownership of Certain Beneficial Owners and Management

    160  

Structure and Formation of our Company

    162  

Policies with Respect to Certain Activities

    167  

Description of Our Capital Stock

    171  

Certain Provisions of Maryland Law and Our Charter and Bylaws

    179  

Description of The Partnership Agreement of Our Operating Partnership

    185  

Shares Eligible for Future Sale

    190  

U.S. Federal Income Tax Considerations

    193  

ERISA Considerations

    214  

Plan of Distribution

    219  

Legal Matters

    222  

Experts

    222  

Where You Can Find More Information

    222  

Index to Financial Statements

    F-1  

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GLOSSARY

          In this prospectus, unless the context otherwise requires or indicates:

    "1031 Exchange" means a tax-deferred exchange under Section 1031 of the Code, in which we reinvest the proceeds from the sale of real property in a new real property acquisition on a tax-deferred basis;

    "144A Registration Rights Agreement" means that certain registration rights agreement, dated as of December 23, 2019, between NETSTREIT and Stifel, as the initial purchaser/placement agent for the benefit of the investors in the private offering and their direct and indirect transferees;

    "ABR" means annualized base rent. ABR is calculated by multiplying (i) cash rental payments (a) for the month ending July 31, 2020 (or, if applicable, the next full month's cash rent contractually due in the case of rent abatements, rent deferrals and recently acquired properties, other than properties under development) for leases in place as of July 31, 2020, plus (b) for properties under development, the first full month's permanent cash rent contractually due after the development period by (ii) 12;

    "Adjusted EBITDAre" means adjusted earnings before interest, taxes, depreciation and amortization, which is a non-GAAP measure that has the meaning set forth in "Management's Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP Financial Measures;"

    "AFFO" means adjusted funds from operations, which is a non-GAAP measure that has the meaning defined in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures;"

    a "blend-and-extend" acquisition means the purchase of a single-tenant commercial property with an existing short-term lease (i.e., one to five years remaining on the lease term) where we negotiate with the tenant a new long-term lease of at least 10 years, blending the tenant's existing rental rate with a newly negotiated rental rate;

    a "build-to-suit" transaction means the development of a single-tenant commercial property built to the specifications of the future tenant, financed by us and occupied by the tenant pursuant to a long-term lease at the end of the development stage;

    "Capview" means Capview Partners, LLC;

    "Cash NOI" means cash net operating income, which is a non-GAAP measure that has the meaning set forth in "Management's Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP Financial Measures;"

    "Class A OP units" means Class A units of limited partnership of our operating partnership, as described under "Description of the Partnership Agreement of Our Operating Partnership;"

    "Class B OP units" means Class B units of limited partnership of our operating partnership, as described under "Description of the Partnership Agreement of Our Operating Partnership;"

    the "Code" means the Internal Revenue Code of 1986, as amended;

    the "Company," "our company," "we," "our," and "us" means NETSTREIT and its consolidated subsidiaries, including the operating partnership;

    "continuing investors" means the former holders of limited partnership interests in our predecessor who now hold OP units in our operating partnership;

    "Core FFO" means core funds from operations, which is a non-GAAP measure that has the meaning defined in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures;"

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    "Continuing Investor Registration Rights Agreement" means that certain registration rights agreement, dated as of December 23, 2019, by and among NETSTREIT and each of the Holders (as defined therein) from time to time party thereto;

    "Credit Facility" means our senior credit facility consisting of our Term Loan and our Revolver;

    "CVS" means CVS Pharmacy;

    "DK" means Davidson Kempner Capital Management;

    a "double-net" lease means a lease in which the tenant is responsible for materially all property expenses, including property taxes and insurance, but excluding property maintenance and repairs;

    "EB Arrow" means EB Arrow Holdings, LLC;

    "EBA EverSTAR" means EBA EverSTAR, LLC, an affiliate of EB Arrow;

    "Exchange Act" means the Securities Exchange Act of 1934, as amended;

    "FFO" means funds from operations, which is a non-GAAP measure that has the meaning set forth in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures;"

    "formation transactions" means the series of transactions described in this prospectus that were consummated prior to and in connection with the private offering, as described under "Prospectus Summary—Structure and Formation of Our Company—The Formation Transactions;"

    "initial public offering" means the initial public offering of our common stock;

    "Investor Group" means Tilden Park, DK and Long Pond;

    "Investor Rights Agreement" means that certain investor rights agreement, dated as of December 19, 2019, between the Investor Group and the Company;

    "investment grade rating" means a credit rating of Baa3 (Moody's Investors Service), BBB– (S&P Global Ratings) or NAIC2 (National Association of Insurance Commissioners) or higher;

    "IRS" means the Internal Revenue Service;

    "JOBS Act" means the Jumpstart Our Business Startups Act of 2012, as amended;

    "Long Pond" means Long Pond Capital;

    "MGCL" means Maryland General Corporation Law;

    "National Securities Exchange" means the NYSE, the NYSE American, the Nasdaq Global Select Market or any other similar national securities exchange;

    "NAV" means net asset value;

    "NETSTREIT" means NETSTREIT Corp., a Maryland corporation;

    "NETSTREIT TRS" means NETSTREIT Management TRS, LLC, a Delaware limited liability company;

    "NOI" means net operating income, which is a non-GAAP financial measure that has the meaning set forth in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures;"

    "occupied" means subject to a lease agreement under which the tenant is required to pay rent;

    "Omnibus Incentive Plan" means the NETSTREIT Corp. 2019 Omnibus Incentive Compenstion Plan;

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    "OP units" means common units of limited partnership interest in our operating partnership, including Class A OP Units and Class B OP Units;

    "operating partnership" means NETSTREIT L.P., a Delaware limited partnership;

    "our portfolio" means the portfolio of 163 properties that we own as of July 31, 2020;

    "predecessor" means EverSTAR Income & Value Fund V, LP, our accounting predecessor;

    "private offering" means the private offering of 11,797,645 shares of our common stock, 8,860,760 of which were issued on December 23, 2019 and 2,936,885 of which were issued on February 6, 2020 following the exercise in full of the initial purchaser's over-allotment option, pursuant to which we raised aggregate net proceeds of $220.1 million (after deducting initial purchaser's discount and placement fees);

    "property" means a property leased, or available for lease, to a single tenant;

    "Registration Rights Agreements" means the Continuing Investor Registration Rights Agreement and the 144A Registration Rights Agreement;

    "rent abatement" means an agreement by the Company and a tenant to suspend rent payments for a period of time without corresponding repayment of the suspended payments;

    "rent deferral" means an agreement by the Company and a tenant to defer the payment of contractually due rent to a later period;

    a "reverse build-to-suit" transaction means the acquisition of a build-to-suit single-tenant commercial property from the developer in which we serve as the take out financing and execute, as part of the transaction, a long-term lease with the tenant occupying the property immediately following its development;

    "Revolver" means our $250.0 million senior secured revolving credit facility;

    "RSUs" means restricted stock units;

    a "sale-leaseback" transaction means the sale of a single-tenant commercial property from a business operator in exchange for the simultaneous execution of a long-term lease of the property back to the seller;

    "Sarbanes-Oxley Act" means Sarbanes-Oxley Act of 2002, as amended;

    "SEC" means the Securities and Exchange Commission;

    "Securities Act" means the Securities Act of 1933, as amended;

    "selling stockholders" means those stockholders named under "Selling Stockholders" in this prospectus and in supplements to this prospectus;

    "Series A Preferred Stock" means our 12.0% Series A Cumulative Non-Voting Preferred Stock, par value $0.01 per share;

    "shadow rating" means a metric developed by the Company to assess the creditworthiness of a tenant based on a review of corporate level financial information and assessment of business risks. A shadow rating does not constitute a published credit rating and lacks the extensive company participation that is typically involved when a rating agency publishes a rating and, accordingly, may not be as indicative of creditworthiness as a rating published by Moody's, S&P, or another nationally recognized statistical rating organization;

    a "triple-net" lease means a lease in which the tenant generally is responsible for materially all property operating expenses, including property taxes, insurance and property maintenance and

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      repairs; however, as is common for triple-net leases, the landlord may be responsible for maintenance of the roof and parking lot;

    "Stifel" means Stifel, Nicolaus & Company, Incorporated;

    "TRS" means taxable REIT subsidiary;

    "Term Loan" means our $175.0 million senior secured term loan;

    "Tilden Park" means Tilden Park Capital Management;

    "UPREIT" means umbrella partnership REIT; and

    "WALT" means weighted average remaining lease term.


INITIAL PUBLIC OFFERING

          The Company is pursuing an initial public offering of its common stock and plans to list its common stock on the New York Stock Exchange under the symbol "NTST." We expect that the registration statement relating to our initial public offering will become effective concurrently with the registration statement of which this prospectus forms a part. As the terms of our initial public offering will not be final at the time this registration statement becomes effective, unless the context otherwise requires or indicates, the number of shares and other related information contained in this prospectus does not reflect the consummation of our initial public offering.


OUR PORTFOLIO DATA

          Unless the context otherwise requires or indicates, all portfolio data contained in this prospectus reflects properties owned by us on July 31, 2020 and is provided as of such date. However, ABR as of such date does not take into account rent abatement or rent deferral. For those properties that had rent abated for July 2020, we have substituted the amount of the next contractually due rental payment (which, in some cases, is different than the base rent previously in effect) in place of rental payments for the month ending July 31, 2020 to calculate ABR. As of July 31, 2020, seven properties comprising 0.4% of ABR have rent abatement for July 2020 and four properties comprising 0.1% of ABR have rent abatement for August 2020. The Company has not agreed to any rent abatement after August 2020. With respect to rent deferrals, tenants generally will be required to repay the deferred rental amounts ratably over the balance of the lease term. For those properties that had rent deferred for July 2020, we have substituted the next contractually due rental payment in place of rental payments for the month ending July 31, 2020 to calculate ABR. As of July 31, 2020, two properties comprising 0.1% of ABR have rent deferral for July 2020. The Company has not agreed to any rent deferral after July 2020. In addition, with respect to properties under development, we calculate ABR using the first full month's permanent cash rent contractually due after the development period.


INDUSTRY AND MARKET DATA

          We use market data and industry forecasts throughout this prospectus, and in particular in the sections titled "Prospectus Summary," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Market Opportunity" and "Our Business and Properties." Unless otherwise indicated, we derived such information from the market study prepared for us by Rosen Consulting Group ("RCG"), a nationally-recognized real estate consulting firm. Such information is included in this prospectus in reliance on RCG's authority as an expert on such matters. We have paid RCG a fee of $62,500 for such services. In addition, we have obtained certain market and industry data from publicly available industry publications. These sources generally state that the information they provide has been obtained from sources believed to be reliable, but that the accuracy and completeness of the information are not guaranteed. The industry forecasts and projections are based on historical market data and the preparers' experience in the industry, and there is no assurance that any of the projected amounts will

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be achieved. We believe that the market and industry research others have performed are reliable, but we have not independently verified this information.


BASIS OF PRESENTATION

          On December 23, 2019, we completed our formation transactions pursuant to which, among other things, our predecessor was merged with and into our operating partnership. The financial statements for the year ended December 31, 2018 and the period from January 1, 2019 to December 22, 2019 included in this prospectus are those of our predecessor. The financial statements for the periods from December 23, 2019 to December 31, 2019 and thereafter included in this prospectus are those of the Company.

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Prospectus Summary

          This summary highlights selected information contained elsewhere in this prospectus, but it does not contain all of the information that you may consider important in making your investment decision. Before deciding to invest in our common stock, you should carefully read the entire prospectus including, in particular, "Risk Factors" and the consolidated financial statements and related notes included elsewhere in this prospectus. The following summary is qualified in its entirety by the more detailed information and financial statements and notes thereto included elsewhere in this prospectus.

          Unless the context otherwise requires, references in this prospectus to "we," "our," "us" and "our company" refer to our predecessor for the periods prior to the completion of our formation transactions, which occurred on December 23, 2019, and, for periods after the completion of our formation transactions, NETSTREIT Corp., a Maryland corporation, and its subsidiaries, including NETSTREIT, L.P., a Delaware limited partnership, which we refer to in this prospectus as "our operating partnership." See "Glossary" for certain defined terms used in this prospectus.


NETSTREIT Corp.

          We are an 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 growth and diversification strategy focuses on tenants in industries where a physical location is critical to the generation of sales and profits, with a focus on necessity goods and essential services in the retail sector, including discount stores, grocers, drug stores and pharmacies, home improvement, automotive service and quick-service restaurants, which we refer to as defensive retail industries. We believe these characteristics make our tenants' businesses e-commerce resistant and resilient through all economic cycles. The majority of our portfolio is comprised of properties leased to tenants operating in these defensive retail industries, with 88.5% of our ABR stemming from necessity, discount and/or service-oriented industries. We generally target properties with a purchase price between $1 million and $10 million, a segment of the market that we believe is undercapitalized and where we can maintain a consistent pipeline of relatively small assets to acquire on attractive terms without the threat of broad competition. We also selectively review larger properties with a purchase price in excess of $10 million, which we typically lease to investment grade tenants like Walmart and Home Depot, when we believe the acquisition will be accretive to the quality of our portfolio. The average purchase price of a property in our portfolio is $3.2 million, and our leases typically have initial lease terms of at least 10 years and contain two or more options for the tenant to extend the lease term, most often for additional five-year periods. Approximately 64.0% of our ABR is from investment grade credit rated tenants, which historically have exhibited a strong track record of making scheduled rental payments, showing resilience during times of economic downturn. We believe that our multi-faceted acquisition strategy, combined with our disciplined underwriting approach, highlighted by a dual focus on tenant credit and real estate fundamentals, and supported by a conservative, flexible balance sheet to enable accretive growth from the outset, will allow us to maximize stockholder value while generating attractive risk-adjusted returns with an emphasis on stable rental revenue.

          Our diversified portfolio consists of 163 single-tenant retail net leased properties spanning 34 states, with tenants representing 53 different brands or concepts across 23 retail sectors. Our portfolio generates ABR of $34.5 million and is 100% occupied, with a WALT of 11.2 years and consisting of approximately 64.0% investment grade tenants by ABR, which we believe provides us with a strong, stable source of recurring cash flow from which to grow our portfolio. None of our tenants represent more than 12.7% of our portfolio by ABR, and our top 10 largest tenants represent in aggregate 56.8% of our ABR. Our top 10 tenants are 7-Eleven, Walmart, CVS, Ollie's Bargain Outlet, Lowe's, Advance Auto Parts, Dollar General, Walgreens, Home Depot and Kohl's. More than 91% of the leases in our portfolio are triple-net, with the remaining leases double-net. As a result of this net lease structure, we do not expect to incur significant capital expenditures relating to our portfolio.

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Our Competitive Strengths

          We believe the following competitive strengths distinguish us from our competitors and allow us to compete effectively in the single-tenant retail net leased property market.

    Favorable Exposure to Investment Grade Credit Rated and Other High-Quality Tenants.  Our portfolio provides high-quality leases and ABR. Approximately 64.0% of our ABR is from investment grade credit rated tenants, which historically have exhibited a strong track record of making scheduled rental payments, showing resilience during times of economic downturn. An additional 6.5% of our ABR is derived from tenants that have conservative high-quality balance sheets with investment grade credit metrics (e.g., more than $1.0 billion in annual sales and a debt to adjusted EBITDA ratio of less than 2.0x) but have not pursued or received a rating (i.e., high-quality unrated tenants).

    Investment Strategy that Benefits From a Fragmented, Underserved Market Segment.  The current market for retail net leased properties is fragmented and decentralized. Between 2017 and 2019, private, non-institutional buyers accounted for 58.6% of this market by volume and, in 2019, 53.8% of retail net lease transactions had a purchase price between $2.5 million and $5 million. The relatively small transaction size of retail net lease properties, combined with the locations of many of these properties outside of primary markets, can be a deterrent for larger, institutional buyers that seek to deploy greater amounts of capital in larger markets and assets that generate greater ABR per property. We generally focus on properties with a purchase price between $1 million and $10 million and our ABR per property is approximately $211,397. We believe this low per property ABR concentration increases our revenue diversification. We also believe our focus on smaller properties, a segment of the market that we believe is undercapitalized, will allow us to maintain a consistent pipeline of relatively small assets to acquire on attractive terms without the threat of broad competition.

    Seasoned Leadership with a Proven Track Record of Cultivating and Expanding Publicly Traded REIT Businesses. Our Chief Executive Officer, Mark Manheimer, has 14 years of experience underwriting, acquiring, leasing, financing, managing and disposing of net leased properties, with a track record of growing net lease businesses to significant scale. Prior to joining EB Arrow as the Chief Investment Officer of its net lease portfolio, Mr. Manheimer served on the investment committee of Spirit Realty Capital, Inc. (NYSE: SRC) ("Spirit"), overseeing the acquisition of more than 1,500 properties and leading the effort to restructure the master lease of Spirit's largest tenant. Mr. Manheimer played a critical role in Spirit's September 2012 initial public offering and shortly thereafter led Spirit's due diligence and reverse due diligence efforts as part of a merger with Cole Credit Property Trust II, doubling the size of the company. We believe Mr. Manheimer's reputation, in-depth market knowledge and extensive network of long-standing relationships with retailers, brokers, intermediaries, private equity firms and others in the net lease industry will provide us with an ongoing pipeline of both marketed and off-market investment opportunities. In addition, our Chief Financial Officer, Andrew Blocher, leads our conservative balance sheet and capitalization strategy and manages our liabilities, capital raising, financial reporting and investor relations activities. Mr. Blocher has over 20 years of experience in financial reporting, debt and equity financing, investor relations, capital allocation, corporate governance and strategy for publicly traded REITs, including five years serving as the Chief Financial Officer of First Potomac Realty Trust (NYSE: FPO) and four years serving as Chief Financial Officer and an additional seven years serving in a capital markets and investor relations role at Federal Realty Investment Trust (NYSE: FRT). We believe Mr. Blocher's deep relationships with the investment banking and institutional investor communities will assist us in future capital raising activities as we grow our portfolio.

    Disciplined Underwriting and Active Portfolio Management Strategy.  We believe our conservative underwriting criteria will allow us to purchase properties below replacement cost and

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      with below market rents, providing significant long-term opportunities for growth at an attractive basis. Our management team focuses primarily on securing long-term leases with investment grade credit rated tenants and creditworthy tenants without an investment grade rating. We focus on tenants in industries where a physical location is critical to the generation of sales and profits, with a focus on necessity goods and essential services in the retail sector, including discount stores, grocers, drug stores and pharmacies, home improvement, automotive service and quick-service restaurants. We believe these characteristics make our tenants' businesses e-commerce resistant and resilient through all economic cycles. In evaluating a property for acquisition, we utilize our three-part underwriting and risk management strategy with an emphasis on credit and real estate that includes:

      Tenant Credit Underwriting:  review corporate level financial information, assess business risks and review investment rating or establish a "shadow rating" using our proprietary credit modeling process for unrated tenants;

      Real Estate Valuation:  review the underlying key real estate metrics of each property, including location and demographics that will support both tenant financial health, including market rents, and a market for alternative use, re-leasing or redevelopment, when necessary; and

      Unit-Level Profitability:  analyze unit-level profitability and cost variability to analyze rent coverage and determine whether a tenant would maintain rent coverage of at least 2.0x.

    High Quality, Defensive and Diversified Portfolio.  Our portfolio consists of 163 single-tenant net leased properties that are diversified by tenant, industry and geography, including 53 different brands or concepts, across 23 retail sectors in 34 states. The majority of our portfolio is comprised of properties leased to tenants operating in defensive retail industries, with 88.5% of our ABR stemming from necessity, discount and/or service-oriented industries. Our portfolio is 100% occupied and generates ABR of $34.5 million, with a WALT of 11.2 years, which we believe provides us with a strong, stable source of recurring cash flows from which to grow our portfolio. Further, approximately 64.0% of the tenants in our portfolio are corporations with investment grade credit ratings, which historically have exhibited a strong track record of making scheduled rental payments and demonstrating defensive, consistent performance through multiple cycles. Our current strategy targets a scaled portfolio that, over time, will:

    derive no more than (i) 5% of its ABR from any single tenant or property, (ii) 15% of its ABR from any single retail sector, (iii) 15% of its ABR from any single state and (iv) 50% of its ABR from its top 10 tenants;

    be primarily leased to tenants operating in businesses we believe to be e-commerce resistant and resilient through all economic cycles;

    have more than 60% of its tenants with an investment grade credit rating; and

    have a WALT of greater than 10 years.

    Proven Ability to Efficiently Deploy Capital Utilizing Proprietary Sourcing Channels to Achieve Scale. Our ability to efficiently deploy capital is a direct result of our management team's extensive network of industry relationships, which we utilized to source a robust pipeline of attractive marketed and off-market investment opportunities through which we have deployed capital raised in the private offering, acquiring 72 single-tenant retail net leased properties with an aggregate purchase price of $264.0 million since December 2019. We believe our relationship-based sourcing strategy will continue to generate a sustainable pipeline of opportunities to drive growth and achieve scale through the efficient deployment of capital raised in our initial public offering. While our general and administrative expenses will continue to rise in some measure as our portfolio grows, we expect that such expenses as a percentage of our portfolio will decrease

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      over time following our initial public offering, due to efficiencies and economies of scale. With our smaller asset base relative to other public REITs that focus on acquiring net leased real estate, we believe that superior growth can be achieved through manageable acquisition volume. As of July 31, we were party to purchase and sale agreements and non-binding letters of intent for the acquisition of a total of 53 properties with an aggregate expected purchase price of approximately $142.6 million. See "— Pending Investment Activity."


Our Business and Growth Strategies

          Our objective is to maximize stockholder value by generating attractive risk-adjusted returns through owning, managing and growing a diversified portfolio of commercially desirable properties. We intend to pursue our objective through the following business and growth strategies.

    Differentiated, Multi-faceted Investment Strategy to Drive Growth.  We intend to grow our portfolio by acquiring properties occupied by high-credit quality tenants operating in defensive industries focused on necessity retail goods and essential services. In addition to acquiring single-tenant net leased retail properties subject to an existing stabilized long term lease, we intend to grow our portfolio through a multi-faceted investment strategy, which includes "blend and extend" acquisitions, build-to-suit transactions, reverse build-to-suit transactions and sale-leaseback transactions. Each of these types of transactions or acquisitions offers unique benefits to our business.

    Existing stabilized leases:  In existing stabilized lease transactions, we acquire single-tenant net leased operating assets subject to an existing long-term lease through our relationships with current owners, our extensive brokerage network or our developer relationships.

    Blend-and-extend:  In blend-and-extend acquisitions, we acquire a single-tenant commercial property with an existing short-term lease, then extend the lease term to at least ten years. Blend-and-extend acquisitions allow us to acquire properties at a lower basis and get long-term site commitments from tenants.

    Build-to-suit:  In build-to-suit transactions, we secure development financing for a single-tenant commercial property pursuant to executing a long-term lease. Build-to-suit transactions allow us to leverage our extensive developer relationships to partner on opportunities.

    Reverse build-to-suit:  In reverse build-to-suit transactions, the tenant acts as the developer and constructs the property with the project financed by the landlord. Both build-to-suit and reverse build-to-suit transactions allow us to acquire the property at lower cost in exchange for long lease terms and higher entry capitalization rates.

    Sale-leaseback:  Sale-leaseback transactions allow us to acquire a single-tenant commercial property used by the seller with a simultaneous long-term lease of the property back to the seller. In sale-leaseback transactions, we are able to set rents at sustainable levels and get long-term site commitments from tenants.

      We believe this multi-faceted investment strategy will provide us with greater flexibility to opportunistically build our portfolio and differentiate us from other public REITs pursuing a more limited investment strategy.

    Relationship-Based Investment Sourcing.  Mr. Manheimer has been active in the single-tenant net lease industry for 14 years, serving as Head of Sale-Leaseback Acquisitions for Cole Real Estate Investments, Inc. (formerly known as Cole Credit Property Trust III, Inc. ("Cole")) and Executive Vice President — Head of Asset Management for Spirit. Mr. Manheimer's extensive experience has allowed him to develop a broad network of long-standing relationships with retailers, brokers, intermediaries, private equity firms and others in the net lease industry, which

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      we believe will provide us with an ongoing pipeline of both marketed and off-market investment opportunities. We also anticipate leveraging our extensive developer relationships to partner on build-to-suit and reverse build-to-suit transactions.

    Structure and Manage Portfolio with Disciplined Underwriting and Risk Management Processes.  We seek to build a scaled portfolio with stable rental revenue and maximize the long-term return on our investments by implementing our disciplined underwriting and risk management processes. Our portfolio is focused on tenants operating in industries that are e-commerce resistant and resilient through all economic cycles and with attractive credit characteristics and stable operating cash flows. We seek to enter into leases with terms of at least ten years and, when acquiring properties, look for opportunities to acquire short-term leases with a long-term extension in place at the time of closing. In addition, we seek acquisition opportunities that enhance the tenant, industry and geographic diversification of our portfolio and actively monitor and manage our existing investments to reduce the risks associated with adverse developments affecting particular tenants, industries or regions. Finally, we use our active portfolio management strategy to (i) regularly review each of our properties for changes in unit performance, tenant credit and local real estate conditions, (ii) identify properties that do not meet our disciplined underwriting strategy, diversification objectives or risk management criteria, including rent coverage ratios below 2.0x or likelihood of non-renewal upon lease expiration, and (iii) opportunistically dispose of those properties and reinvest the proceeds in 1031 Exchanges that will generate higher returns, enhance the credit quality of our real estate portfolio or extend our average remaining lease term. Since June 2018, we have disposed of 35 properties totaling $100.1 million in aggregate sales price and improved portfolio performance by diversifying tenant concentration and improving key metrics such as tenant credit quality, WALT and geographic diversity.

    Maintain a Conservatively Leveraged Capital Structure.  We seek to maintain a capital structure that provides us with flexibility to manage our business and scale our platform through targeted acquisitions, while allowing us to service our debt requirements and generate appropriate risk-adjusted returns. As of June 30, 2020, we had no borrowings under our $250.0 million Revolver. See "Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Credit Facility." We will target a conservative net debt to EBITDA leverage ratio of 4.5x to 5.5x at scale to best position the Company for growth, and we intend to capitalize on our leading origination, underwriting, financing, documentation and property processes to improve our efficiency. As we scale, we anticipate having access to the investment grade debt and equity capital markets to maintain a prudent balance between debt and equity financing.

    Achieve Sustainable Dividend Growth Well-Covered by Cash Flow.  We seek to make investments that generate strong current income as a result of the difference, or spread, between the rate we earn on our assets and the rate we pay on our liabilities (primarily our long-term debt). We intend to augment that income with internal growth (i) from cash generated from the 0.93% weighted average annual escalation of base rent, based on contractual rent escalation provisions in our leases specifying a fixed rate of rent increase and (ii) through a target dividend payout ratio that will permit some free cash flow reinvestment. We believe this will enable strong dividend growth without relying exclusively on future common stock issuances to fund new portfolio investments. Additionally, our WALT of 11.2 years and superior underwriting and portfolio monitoring capabilities, which reduce default losses, are intended to make our cash flows highly stable.

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    Smaller Net Lease Acquisitions Allow for Superior Portfolio Growth.  We generally focus on properties with a purchase price between $1 million and $10 million and our ABR per property is approximately $211,397. We believe this is a segment of the market that is undercapitalized and in which we can achieve superior growth through consistent acquisition volume. Moreover, our platform is scalable, and we expect to leverage our capabilities to improve our efficiency and processes to achieve attractive risk-based growth.


Our Real Estate Portfolio

          Since the initial closing of the private offering, we have acquired 72 single-tenant retail net lease properties with an aggregate purchase price of $264.0 million. Our diversified portfolio consists of 163 single-tenant retail net leased properties spanning 34 states, with tenants representing 53 different brands or concepts across 23 retail sectors. Our portfolio consists of 3.1 million square feet and is 100% occupied.


Property Map

GRAPHIC

          Our portfolio generates ABR of $34.5 million. Our portfolio has a WALT of 11.2 years and consists of approximately 64.0% and 6.5% of investment grade tenants and high-quality unrated tenants, respectively, by ABR. None of our tenants represent more than 12.7% of our portfolio by ABR, and our top 10 largest tenants represent in aggregate 56.8% of our ABR. Nine of our top 10 tenants are publicly traded companies and nine have investment grade credit ratings, in addition to Ollie's Bargain Outlet, a high-quality unrated tenant.

          7-Eleven (Baa1 (Moody's); AA- (S&P)). 7-Eleven is the world's largest convenience retailer. Based in Irving, Texas, 7-Eleven operates, franchises and/or licenses more than 70,000 stores in 17 countries, including 11,800 stores in North America.

          Walmart (Aa2 (Moody's); AA (S&P); NYSE: WMT). Founded in 1945 and headquartered in Bentonville, Arkansas, Walmart provides the opportunity to shop in retail stores and through e-commerce.

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Walmart has approximately 11,500 stores under 56 banners in 27 countries and e-commerce websites in 10 countries.

          CVS (Baa2 (Moody's); BBB (S&P); NYSE: CVS). CVS is the nation's premier health innovation company helping people on their path to better health. Headquartered in Woonsocket, Rhode Island, CVS operates more than 9,900 retail locations in 49 states, the District of Columbia and Puerto Rico.

          Ollie's Bargain Outlet (unrated; NASDAQ: OLLI). Founded in 1982 and headquartered in Harrisburg, Pennsylvania, Ollie's Bargain Outlet is a highly differentiated and fast-growing, extreme value retailer of brand name merchandise at drastically reduced prices. Ollie's Bargain Outlet operates approximately 360 stores in 25 states.

          Lowe's (Baa1 (Moody's); BBB+ (S&P); NYSE: LOW). Lowe's is a FORTUNE 50 home improvement company in the United States, Canada and Mexico that was founded in 1946. Lowe's operates or services more than 2,220 home improvement and hardware stores and is headquartered in Mooresville, North Carolina.

          Advance Auto Parts (Baa2 (Moody's); BBB- (S&P); NYSE: AAP). Advance Auto Parts is a leading automotive aftermarket parts provider in North America that serves both professional installer and do-it-yourself customers. As of April 18, 2020, Advance operated 4,843 stores and 168 Worldpac branches in the United States, Canada, Puerto Rico and the U.S. Virgin Islands. The Company also serves 1,258 independently owned Carquest branded stores across these locations in addition to Mexico, the Bahamas, Turks and Caicos and British Virgin Islands. Advance Auto Parts was founded in 1932 and is headquartered in Raleigh, North Carolina.

          Dollar General (Baa2 (Moody's); BBB (S&P); NYSE: DG). Dollar General offers products that are frequently used and replenished, such as food, snacks, health and beauty aids, cleaning supplies, basic apparel, housewares and seasonal items at low prices in convenient neighborhood locations since 1939. Dollar General operates 16,500 stores in 46 states and is headquartered in Goodlettsville, Tennessee.

          Walgreens (Baa2 (Moody's); BBB (S&P); NASDAQ: WBA). Walgreens is a global leader in retail and wholesale pharmacy that was founded in 1901 and is headquartered in Deerfield, Illinois. Walgreens has a presence in more than 25 countries and has more than 18,750 stores.

          Home Depot (A2 (Moody's); A (S&P); NYSE: HD). Home Depot is the world's largest home improvement retailer, with approximately 2,300 stores in the United States, Canada and Mexico. Home Depot was founded in 1978 and headquartered in Atlanta, Georgia.

          Kohl's (Baa2 (Moody's); BBB– (S&P); NYSE: KSS). Kohl's is a leading omnichannel retailer. Additionally, in July 2019, all Kohl's locations began accepting free, convenient, unpackaged returns for Amazon customers. Founded in 1988, Kohl's operates more than 1,100 stores across 49 states and is headquartered in Menomonee Falls, Wisconsin.

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Diversification by Industry, Tenant and Geography
with Concentration in Necessity, Discount and/or Service Industries

          The majority of our portfolio is comprised of properties leased to tenants operating in defensive retail industries, with 88.5% of our ABR stemming from necessity, discount and/or service-oriented industries. Necessity-based industries are those that are considered essential by consumers and include sectors such as drug stores, grocers and home improvement. Discount retailers offer a low price point and consist of off-price and dollar stores. Service-oriented industries consist of retailers that provide services rather than goods, including, for example, tire and auto services and quick service restaurants.

          The following chart illustrates the percentage of our ABR attributable to defensive retail industries.

GRAPHIC

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          The breakdown of our necessity-based retail, discount-focused, service-oriented and other, non-defensive retail industries by percentage of ABR is set forth below.

Retail Industries
  Percentage(1)  

Necessity-Based Retail

       

Home Improvement

    13.8 %

Drug Stores & Pharmacies

    10.0 %

General Retail

    7.9 %

Auto Parts

    4.7 %

Farm Supplies

    2.3 %

Grocery

    2.2 %

Banking

    1.9 %

Healthcare

    1.9 %

Total Necessity-Based

    44.5 %

Service-Oriented Industry

       

Convenience Stores

    14.0 %

Quick-Service Restaurants

    6.9 %

Casual Dining

    3.7 %

Automotive Service

    2.3 %

Total Service-Oriented

    26.9 %

Discount-Focused Industry

       

Discount Retail

    11.0 %

Dollar Stores

    6.1 %

Total Discount-Focused

    17.1 %

Defensive Retail Industries

    88.5 %

Other, Non-Defensive

       

Furniture Stores

    2.5 %

RV Sales

    2.0 %

Sporting Goods

    2.0 %

Apparel

    1.5 %

Arts & Crafts

    1.2 %

Telecommunications

    1.0 %

Gift, Novelty & Souvenir Shops

    0.6 %

Home Furnishings

    0.4 %

Equipment Rental & Leasing

    0.3 %

Total Other, Non-Defensive

    11.5 %

Total, All Industries

    100 %

(1)
Certain figures in this table may not foot due to rounding.
    Diversification by Industry.  Our tenants' business brands and concepts are diversified across 23 industries, with no one industry representing more than 14.0% of our portfolio by ABR.

    Diversification by Tenant.  Our 163 properties are operated by our 53 tenants, each representing a distinct brand or concept, with no one tenant representing more than 12.7% of our portfolio by ABR.

    Diversification by Geography.  Our 163 property locations are spread across 34 states, with no one state representing more than 20.5% of our portfolio by ABR.

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Our Underwriting Philosophy

          We continue to thoughtfully curate a high-quality portfolio by adhering to the following strict underwriting criteria:

    Defensive Tenants in Necessity-Based, E-Commerce Resistant and Recession-Resilient Industries.  We focus on maintaining a healthy mix of necessity goods and essential service retail assets, which include discount stores, grocers, drug stores and pharmacies, home improvement, automotive service and quick-service restaurants. The majority of our portfolio is comprised of properties leased to tenants operating in defensive retail industries, with 88.5% of our ABR stemming from necessity, discount and/or service-oriented industries. Conversely, we have not invested, and do not intend to invest, in experience-based businesses, such as entertainment, movie theaters, and health and fitness, as these types of assets are not traditionally considered essential and are more susceptible to recessionary pressures, as evidenced by widespread closures across these categories during the novel coronavirus ("COVID-19") pandemic.

    Resilient, Cycle-Tested Investment Grade Tenants with Durable Cash Flows.  We strive to maintain a portfolio in which at least 60% of our ABR is derived from investment grade tenants, which historically have exhibited a strong track record of making scheduled rental payments. We expect that the remainder of our portfolio will be comprised of (i) high-quality tenants with investment grade credit metrics that have not received an investment rating (i.e., high-quality unrated tenants), such as Ollie's Bargain Outlet, (ii) tenants with sub-investment grade ratings of Ba3 (Moody's) and BB- (S&P) or higher with strong performance metrics, such as a rent coverage ratio greater than 2.0x and (iii) tenants with sub-investment grade credit characteristics of Ba3 (Moody's) and BB- (S&P) or higher that have not received an investment rating but have strong performance metrics, such as rent coverage greater than 2.0x (together with high-quality unrated tenants, "unrated tenants"). We may sell properties leased to unrated tenants from time to time to achieve or maintain a portfolio in which at least 60% of our ABR is derived from investment grade tenants.

    Granular Assets in Highly Fragmented, Undercapitalized Market Segment.  We generally aim to acquire properties with a purchase price between $1 million and $10 million, a segment of the market that we believe is undercapitalized and where we can acquire relatively small assets on attractive terms. The average purchase price of a property in our portfolio is $3.2 million.

    Long Term Net Leases.  Our goal is to maintain an overall portfolio WALT of at least 10.0 years. Our portfolio has a WALT of 11.2 years and average contractual rent growth of approximately 0.93%, based on contractual rent escalation provisions in our leases specifying a fixed rate of rent increase.

    Attractive Basis.  We seek to achieve embedded upside through below-market rents and completing acquisitions at prices below replacement costs.

    Diversification by Industry, Tenant and Geography.  Our current strategy targets a scaled portfolio that, over time, will derive no more than (i) 5% of its ABR from any single tenant or property, (ii) 15% of its ABR from any single retail sector, (iii) 15% of its ABR from any single state and (iv) 50% of its ABR from its top 10 tenants. We may sell properties from time to time to achieve or maintain our targeted diversification of ABR by industry, tenant and geography.


Overview of Our Leases

          Our leases typically have initial lease terms of at least 10 years and contain two or more options for the tenant to extend the lease term, most often for additional five-year periods. More than 91% of the leases in our portfolio are triple-net, with the remaining leases double-net. Given that approximately 64.0% of our tenants have an investment grade credit rating, a limited number of our leases contain a rent escalation provision over the term of the lease. The leases in our portfolio provide for an average

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0.93% increase in ABR. Our lease turnover through 2024 is 1.4% of ABR (assuming no exercise of contractual extension options). As we expand our portfolio, we will seek to include rent escalation provisions as part of our leases with unrated and sub-investment grade tenants. We currently lease properties on an individual basis, but we may implement master lease structures as appropriate going forward, pursuant to which we will lease multiple properties to a single tenant on an all-or-none basis.

          The leases in our portfolio have a WALT of 11.2 years, with no lease expiring prior to April 2022. The following chart illustrates the ABR of our portfolio attributable to leases expiring during the specified periods (assuming no exercise of contractual extension options).

Lease Expiration Year
  ABR
($ in 000's)
  % of
ABR(1)
  Number of
Properties
 

2020

             

2021

             

2022

    112.2     0.3 %   1  

2023

    354.8     1.0 %   4  

2024

             

2025

    1,456.2     4.2 %   5  

2026

    1,705.2     4.9 %   6  

2027

    2,176.1     6.3 %   8  

2028

    2,745.9     8.0 %   19  

2029

    2,136.8     6.2 %   13  

2030 and thereafter

    23,770.6     69.0 %   107  

Total

  $ 34,457.7     100.0 %   163  

(1)
Certain figures in this table may not foot due to rounding.


Market Opportunity

Net Lease Market Overview

          The outlook for the net lease market continues to be positive for the following reasons:

    Net lease properties are often mission-critical to tenants that rely on physical locations for the sale of necessity goods and essential services;

    Net lease properties have historically generated consistent and stable rent growth across economic cycles relative to other property types;

    The long term nature of net leases and their pass-through rent structure can mitigate some risks associated with economic downturns and the effects of inflation on operating expenses;

    There is substantial investment opportunity in the net lease real estate market given the $1.5 trillion to more than $2.0 trillion of commercial real estate owned by corporate owner-occupiers; and

    Net lease investors have expanded the investment opportunities in the net lease real estate market through the development of build-to-suit single-tenant properties and the acquisition of build-to-suit single-tenant properties from developers.

Characteristics of Net Lease Properties

          Relative to other commercial property types, net lease properties generally feature stable rents with minimal property management responsibilities or operating expenses and inflation mitigation measures embedded in many net lease contracts. Net leases typically have longer lease terms than gross leases. The initial term of a net lease is often more than 10 years, with options to extend the lease, and in some

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cases can be 20 to 25 years or more. With its predictable cash flows paid at regular intervals, the net lease structure exhibits similar characteristics to interest-bearing corporate bonds.

          Through varying types of economic cycles, net lease real estate rents are typically more stable than those of other commercial property types. During the recession in 2008 and 2009, when the average rent declined in many commercial real estate sectors, the average rent growth for net lease real estate remained positive.


U.S. Average Change in Rent(1)

GRAPHIC


    Source: PwC Real Estate Investor Survey, RCG.

(1)
Based on information through the first quarter of 2020.

Importance of Tenant Underwriting and Real Estate Location

          As net leases generally have longer terms than gross leases, including extension options, many net leases can span multiple economic cycles, minimizing retenanting risk. If a net lease tenant vacates, the property reverts to the landlord and may hold residual value depending upon the location, quality and other characteristics of the property. Net lease properties are often key sites that are mission-critical to a tenant's core business. The mission-critical nature of these sites may also contribute to tenants prioritizing the payment of rent during the economic slowdowns or shutdowns. The importance of each location often means that tenants are committed for the longer term, helping to minimize some of the vacancy risk associated with commercial real estate.

          The financial strength of a tenant, as well as the long-term outlook for the tenant's industry, can potentially reduce risks from economic or real estate downturns. Tenants with stronger corporate balance sheets may be less likely to default on rent payments, ask for rent relief and rent concessions, or shutter locations, helping to minimize vacancy risk or the risk of not collecting rent. Corporate credit ratings for tenants can be instrumental in helping owners of net lease properties underwrite the risk of a tenant, similar to how they help corporate bond investors assess the risk or creditworthiness of an issuer.

          Notwithstanding economic restrictions related to COVID-19, including economic lockdowns and stay-at-home ordinances, rent collection levels for net lease retail tenants were higher than shopping center and mall rent collection levels. With many essential services establishments, such as pharmacies and food service, occupying net lease real estate, many tenants remained in operation throughout the economic shutdowns which allowed these tenants to continue to meet rent obligations. In addition, investment grade tenants with stronger balance sheets were also better positioned to make on-time rent payments. Within the free standing retail segment, which is comprised of primarily net lease retail real estate, 70.1% of tenants paid rent in May compared with only 47.7% of shopping center tenants, according to the National Association of Real Estate Investment Trusts (NAREIT). By June, with most local

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economies reopening, the rent collection level for free standing retail real estate surpassed April and May levels.

Net Lease Investment Market

          The net lease real estate market is highly fragmented and undercapitalized, creating significant opportunities for well-capitalized investors with market knowledge, sector expertise and deal-sourcing capabilities. A large number of net lease properties are located in secondary and tertiary markets, and in many cases the property values are less than $10 million, a size that may deter large institutional investors from competing for assets. The pandemic-induced recession may cause liquidity issues and financial stress for certain undercapitalized investors, which may in turn push them to sell their properties. The lack of competition from institutional capital and the fragmented nature of the net lease sector provide opportunities for well-capitalized and experienced investors to gain scale, act as consolidators and continue to institutionalize the net lease sector.

          The unique attributes of net lease real estate, and the low interest rate environment of recent years have led to strong investor appetite for net lease properties. Despite the decrease in investment activity during the pandemic-induced recession, the stability of net lease real estate may attract additional capital to the sector, potentially driving a quicker recovery in single-tenant sales volume. The passive income stream generated by net lease properties and the typically smaller asset values make for attractive assets in like-kind exchange transactions. Also known as 1031 exchanges, these transactions have timing deadlines that can, at times, continue to drive transaction volume even in economic downturns. In recent years, the volume of like-kind exchanges were stable, potentially highlighting the continued level of transaction activity for this type of product.

          The strong investment interest in net lease real estate in recent years drove cap rates for single-tenant properties to historical lows. While the single-tenant property cap rate remained low, the spread to corporate bond yields remained relatively wide. Through December 2019, the single-tenant cap rate to BBB corporate bond yield spread increased to 287 basis points, compared with the long-term average since 2001 of 187 basis points. In early 2020, with corporate bond yields falling, the spread widened to 320 basis points; however, recent increases in corporate bond yields reduced the spread to 278 basis points in May, yet the spread remained greater than the long-term average. As net lease real estate can offer stable income streams with characteristics similar to those of income yielding bonds, the wide spread between corporate bond yields and the stable cap rate highlights the potential opportunity for attractive risk-adjusted returns.

GRAPHIC

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Retail Market Overview

Retail Market and Online Trends

          Since 2009, online sales have increased at a faster pace than overall retail sales, underscoring the shift in some categories towards online retailers. Notwithstanding their faster growth, online sales account for a relatively small portion of total retail sales, or approximately 11.8% in the first quarter of 2020, according to the Census Bureau.

          While online sales have taken some sales away from physical storefronts, many retailers have adapted by utilizing multiple sales channels to sell goods to consumers. As consumers continue to seek more apparel, home goods, electronics, and other purchases through online channels, the retail landscape will continue to adapt to changing consumer habits. Retailers with integrated sales channels and strong financial resources are typically better able to respond to changes in consumer preferences, an ability highlighted by essential services during the pandemic crisis. Many of these essential retailers, often occupying net lease real estate, were able to adapt integrated sales channels to allow consumers to purchase goods online and pick up items at local stores. Omnichannel retailers, particularly those with strong corporate balance sheets and those that can adapt quickly, will be better poised to become the retailers of choice in the future. Some retail categories, such as discount stores, grocers, drug stores and pharmacies, home improvement, automotive service and quick-service restaurants, have business models that are harder to replicate online and are therefore more insulated from online competition.

Consumer Behavior During COVID-19 Pandemic

          Consumer needs and behavior during the recent economic shutdown induced by COVID-19 have highlighted the relative resilience of tenants that operate businesses that rely on physical locations for the sale of necessity goods and essential services, including discount stores, grocers, drug stores and pharmacies, as well as the need for access to online purchases, curbside pickup, drive-throughs and home delivery services.


Our Portfolio Evolution

          Our predecessor owned a net lease property portfolio consisting of 114 properties and 1.6 million total building square feet across 30 states that was 98.7% occupied. As of June 30, 2018, the occupied properties generated $22.4 million of ABR, with the top five tenants being CVS (9.9% of ABR), Shopko (8.6% of ABR), Dollar General (7.7% of ABR), Walgreens (7.0% of ABR), and Lowe's (6.3% of ABR).

          In advance of the private offering, we selectively disposed of 33 properties from June 30, 2018 to December 22, 2019 that did not meet our investment criteria and/or targeted portfolio metrics. Of those 33 properties, three properties were vacant, four were properties with tenants in less e-commerce resistant industries, four had remaining lease terms of 5.7 years or less, and three were Shopko properties. We also acquired 12 properties, executed six blend-and-extend leases, and retired $85.6 million of debt prior to the private offering from June 30, 2018 to December 22, 2019. On December 23, 2019, just prior to the private offering, our portfolio (the "Pre-144A Portfolio") consisted of 93 properties and 1.4 million total building square feet across 28 states. Our Pre-144A Portfolio generated $17.8 million of ABR as of December 2019, with the top five tenants being CVS (11.9% of ABR), Dollar General (8.9% of ABR), Lowe's (7.9% of ABR), Walgreens (7.5% of ABR), and Kohl's (6.4% of ABR).

          Since the initial closing of the private offering, we have completed two property dispositions with an aggregate net sales price of approximately $10.4 million and acquired 72 properties and 1.7 million total square feet across 22 states with a WALT of 11.6 years, for an aggregate purchase price of $264.0 million. Of the 72 properties that we acquired, 24 were properties with tenants in the automotive service and auto parts industries and 11 were properties with tenants in the discount store industry. We also executed three blend-and-extend leases since the initial closing of the private offering. Additionally,

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in connection with a number of COVID-19 related rent abatements, we were able to successfully negotiate additional lease term with nine of our tenants. Our portfolio consists of approximately 64.0% investment grade tenants, with the remaining tenants consisting of unrated tenants and sub-investment grade tenants with strong performance metrics. Among our recent acquisitions are seven Ollie's Bargain Outlet stores, a high-quality unrated tenant, consisting of 256,326 total square feet with a WALT of 9.6 years and purchased for an aggregate price of $26.1 million.


Pending Investment Activity

          Our management team has leveraged its extensive network of industry relationships to establish a robust pipeline of acquisition opportunities that consists of 128 properties with an aggregate expected purchase price of approximately $506.5 million as of July 31, 2020. This acquisition pipeline includes (i) nine properties with an aggregate expected purchase price of approximately $10.2 million that are under contract and (ii) 44 properties with an aggregate expected purchase price of approximately $132.4 million that are the subject of non-binding letters of intent, each as more fully described below. The remainder of our acquisition pipeline consists of 75 properties with an aggregate expected purchase price of approximately $363.9 million, for which we have delivered a non-binding letter of intent for execution by the seller but which has not yet been executed. Purchase prices for the properties that are not yet subject to fully executed, non-binding letters of intent are estimated based on preliminary discussions with sellers or our internal assessment of the values of such properties. We are in varying stages of negotiation and have not completed our due diligence process with the sellers of these properties. As a result, there can be no assurance that these acquisitions will be completed on the terms described above or at all.


Properties Under Contract

          As of July 31, we were party to three purchase and sale agreements relating to the acquisition of nine properties with an aggregate purchase price of $10.2 million and a WALT of 8.6 years. In connection with these acquisitions, we expect to enter into or assume leases with ABR of $0.7 million. While we regard the completion of these pending acquisitions to be probable, these transactions are subject to customary closing conditions, including the completion of due diligence, and there can be no assurance that these acquisitions will be completed on the terms described above or at all.


Properties Under Letter of Intent

          As of July 31, we were party to 14 non-binding letters of intent relating to the acquisition of 44 properties with an aggregate expected purchase price of approximately $132.4 million and a WALT of 9.9 years. These acquisitions are subject to negotiation and execution of definitive agreements and, if entered into, will be subject to customary closing conditions, including the completion of due diligence. As a result, we do not deem any of these potential acquisitions probable at this time and there can be no assurance that these acquisitions will be completed on the terms described above or at all.


Pending Dispositions

          As of June 30, 2020, we had three properties held for sale that contribute $0.4 million to ABR. Dispositions are a component of our active portfolio management. As of July 31, we were party to a purchase and sale agreement relating to the disposition of one property for an aggregate sales price of $1.9 million, which is subject to customary closing conditions, including the completion of due diligence. In addition, as of July 31, 2020, we were party to non-binding letters of intent relating to the disposition of seven properties for an aggregate sales price of $18.8 million, which are subject to customary closing conditions, including the completion of due diligence. We do not deem any of these potential dispositions probable at this time and there can be no assurances that these dispositions will be completed on the terms described above or at all.

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Summary Risk Factors

          An investment in our common stock involves various risks, and prospective investors are urged to carefully consider the matters discussed under "Risk Factors" prior to making an investment in our common stock. The following is a list of some of these risks.

    We are subject to risks related to commercial real estate ownership that could reduce the value of our properties.

    Global market and economic conditions may materially and adversely affect us and our tenants.

    The COVID-19 pandemic has had, and another pandemic in the future could have, repercussions across regional and global economies and financial markets and could also have material adverse effects on some of our tenants' ability to pay rent and on our ability to successfully operate and our financial condition, results of operations and cash flows.

    Our business is dependent upon our tenants successfully operating their businesses and their failure to do so could materially and adversely affect us.

    Our assessment that certain businesses provide necessity goods or essential services and are, thus, e-commerce resistant and recession-resilient, may prove to be incorrect, and changes in macroeconomic trends may adversely affect our tenants, either of which could impair our tenants' ability to make rental payments to us and materially and adversely affect us.

    A substantial number of our properties are leased to unrated and sub-investment grade tenants and the tools we use to determine the creditworthiness of our tenants may not be accurate.

    Our portfolio has geographic market concentrations that make us especially susceptible to adverse developments in those geographic markets. We are also subject to risks related to tenant concentration, and an adverse development with respect to a large tenant could materially and adversely affect us.

    We face significant competition for tenants, which may decrease or prevent increases of the occupancy and rental rates of our properties, and competition for acquisitions may reduce the number of acquisitions we are able to complete and increase the costs of these acquisitions.

    We may be unable to renew leases, lease vacant space or re-let space on favorable terms or at all as leases expire, which could materially and adversely affect us, including our financial condition, results of operations, cash flow, cash available for distribution and our ability to service our debt obligations.

    We may not complete the acquisition of properties in our acquisition pipeline.

    Loss of our key personnel with long-standing business relationships could materially impair our ability to operate successfully.

    We may become subject to litigation, which could materially and adversely affect us.

    Our level of indebtedness could materially and adversely affect our financial position, including reducing funds available for other business purposes and reducing our operational flexibility.

    We expect to have approximately $175.0 million of indebtedness outstanding following completion of our initial public offering and after application of the net proceeds from our initial public offering, which may expose us to the risk of default under our debt obligations and may include covenants that restrict our ability to pay distributions to our stockholders.

    We are subject to interest rate risks, including that if interest rates rise faster or interest expense increases in greater amounts than any rent escalations under our leases, and we may not generate sufficient cash to make distributions to our stockholders, to finance new investments and to meet our debt obligations as they come due.

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    The ability of our stockholders to control our policies and effect a change of control of our company is limited by certain provisions of our charter and bylaws and by Maryland law.

    Conflicts of interest could arise in the future between the interests of our stockholders and the interests of holders of OP units, which may impede business decisions that could benefit our stockholders.

    Our failure to qualify or maintain our qualification as a REIT would reduce the amount of funds we have available for distribution and limit our ability to make distributions to our stockholders.

    Complying with REIT requirements may cause us to forego otherwise attractive opportunities or liquidate otherwise attractive investments.

    We are an "emerging growth company" and we cannot be certain if the reduced disclosure requirements applicable to an emerging growth companies will make shares of our common stock less attractive to investors.

    There has been no public market for our common stock prior to our initial public offering and an active trading market may not develop or be sustained or be liquid following our initial public offering, which may cause the market price of our common stock to decline significantly and make it difficult for investors to sell their shares.


Structure and Formation of Our Company

Our Company

          We were formed as a Maryland corporation on October 11, 2019 and commenced operations in December 2019 upon the consummation of the formation transactions. Our predecessor, which merged with our operating partnership as part of the formation transactions, was a private investment fund that was sponsored by Capview in which EB Arrow, a real estate investment platform specializing in retail property investment with $1.6 billion in assets under management, owned a controlling interest. We are structured as an UPREIT, meaning that we own our properties and conduct our business through our operating partnership, directly or through limited partnerships, limited liability companies or other subsidiaries, as described below under "— Our Operating Partnership." NETSTREIT GP, LLC, a wholly-owned subsidiary, is the sole general partner of our operating partnership and we own approximately 72.6% of the limited partnership interests in our operating partnership. Our board of directors oversees our business and affairs and, through NETSTREIT GP, LLC, the business and affairs of our operating partnership.

          On December 23, 2019, we issued and sold 8,860,760 shares of our common stock in the private offering at a price of $19.75 per share, to various institutional investors, accredited investors and offshore investors, in reliance upon exemptions from registration provided by Rule 144A and Regulation S under the Securities Act and pursuant to Regulation D under the Securities Act. On February 6, 2020, we issued and sold an additional 2,936,885 shares of our common stock in the private offering pursuant to the exercise in full of the initial purchaser's over-allotment option. We received approximately $220.1 million of net proceeds (after deducting initial purchaser's discount and placement fees) from the private offering, which we contributed to our operating partnership in exchange for 11,797,645 Class A OP units.

          To assist us in maintaining our status as a REIT, on January 27, 2020, we issued and sold 125 shares of our 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 at our 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, no redemption premium. We intend to redeem all 125 outstanding shares of Series A Preferred Stock upon the completion of our initial public offering.

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Our Operating Partnership

          Substantially all of our assets are indirectly held by, and our operations are conducted through, our operating partnership. Our operating partnership has two classes of OP units, Class A OP units and Class B OP units. The Class A OP units and Class B OP units have identical rights and preferences, except that the Class A OP units are, and the Class B OP units are not, entitled to receive Special Stock Dividends (as defined under "Description of Our Capital Stock — Restrictions on Ownership and Transfer") and the Class A OP units and the Class B OP units have different registration rights pursuant to the Continuing Investor Registration Rights Agreement. We hold Class A OP units for each outstanding share of our common stock, subject to certain adjustments. In connection with our formation transactions, our operating partnership issued Class A OP Units to limited partners of our predecessor who were unaffiliated with EB Arrow and Class B OP units to (i) EBA EverSTAR, in connection with the internalization of the Company's management, (ii) an affiliate of EB Arrow, in its capacity as a limited partner of our predecessor and (iii) Mr. Manheimer, in his capacity as a limited partner of our predecessor, as described in more detail below.

          Our interest in our operating partnership generally entitles us to share in cash distributions from, and in the profits and losses of, our operating partnership in proportion to our percentage ownership. As the parent of the sole general partner of our operating partnership, we have the exclusive power under the partnership agreement of our operating partnership to manage and conduct its business and affairs, subject to certain limited approval and voting rights of the limited partners, which are described more fully in "Description of the Partnership Agreement of Our Operating Partnership."


The Formation Transactions

          In connection with the private offering, we consummated the following formation transactions:

    We formed our operating partnership, NETSTREIT, L.P., as a Delaware limited partnership and the general partner of the operating partnership, NETSTREIT GP, LLC, as a Delaware limited liability company. We contributed the net proceeds of the private offering to the operating partnership in exchange for 11,797,645 Class A OP units.

    In December 2019, upon the initial closing of the private offering, our predecessor was merged (the "Merger") with and into our operating partnership, with the operating partnership surviving, and the continuing investors receiving an aggregate of 3,652,149 Class A OP units, other than Mr. Manheimer, who received 8,884 Class B OP units, and an affiliate of EB Arrow, which received 287,234 Class B OP units.

    Our operating partnership formed NETSTREIT TRS and we jointly elected with NETSTREIT TRS for NETSTREIT TRS to be treated as a taxable REIT subsidiary under the Code for U.S. federal income tax purposes.

    In December 2019, upon the initial closing of the private offering, our operating partnership entered into a contribution agreement with EBA EverSTAR to internalize our management infrastructure, whereby EBA EverSTAR contributed 100% of the membership interests in EBA EverSTAR Management, LLC, a Texas limited liability company, to our 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 (the "Manager"). A 0.01% interest in the Manager was issued to NETSTREIT TRS.

    Affiliates of each of the members of the Investor Group collectively purchased 8,202,529 shares of our common stock in the private offering, or approximately 69.5% of our common stock.

    In December 2019, upon the initial closing of the private offering, we entered into the 144A Registration Rights Agreement with Stifel for the benefit of the purchasers of shares of common

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      stock we sold in the private offering, including the Investor Group, and their direct and indirect transferees. See "Description of Our Capital Stock — Registration Rights — 144A Registration Rights Agreement."

    In connection with the Merger, we entered into the Continuing Investor Registration Rights Agreement with the continuing investors. The Continuing Investor Registration Rights Agreement provides for the registration of the shares of common stock that are issuable upon the redemption of the continuing investors' OP units and that are issuable to holders of Class A OP units as Special Stock Dividends if we do not satisfy our registration obligations by certain deadlines. See "Description of Our Capital Stock — Registration Rights — Continuing Investor Registration Rights Agreement."

    In December 2019, upon the initial closing of the private offering, we entered into a tax protection agreement with certain limited partners of our predecessor pursuant to which we have agreed to indemnify such limited partners against certain tax liabilities upon the sale, transfer, conveyance or other taxable disposition of any of the nine properties currently leased to CVS. We estimate that, if all of the assets subject to the tax protection agreement were sold in a taxable transaction immediately after our initial public offering, the amount of our indemnification obligations under the tax protection agreement (based on current tax rates and the valuation of our assets based on an assumed initial public offering price of $20.00 per share) would be approximately $6.2 million. The indemnification obligation is structured as an interest-free loan that is repayable upon the sale of all or substantially all of the operating partnership's assets or the liquidation of the operating partnership. If any of the applicable properties are sold in a 1031 Exchange, no indemnification obligations will exist. The tax protection agreement is the continuation of an obligation of our predecessor agreed to as part of the acquisition of the nine properties currently leased to CVS.

    In December 2019, upon the initial closing of the private offering, we entered into a facilities agreement with a wholly owned subsidiary of EB Arrow, pursuant to which we licensed a portion of EB Arrow's office space for our Dallas, Texas headquarters and agreed to use commercially reasonable efforts to cooperate regarding certain shared services, including human resources, information technology and administrative/executive assistants. See "Certain Relationships and Related Party Transactions — Facilities Agreement with EB Arrow."

    In December 2019, upon the initial closing of the private offering, we entered into the $175.0 million Term Loan and the $250.0 million Revolver, the proceeds of which were used to pay off our prior credit agreement. As of June 30, 2020, we had no borrowings under our $250.0 million Revolver. See "Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Credit Facility.


Benefits to Related Persons

          The completion of the private offering and the formation transactions resulted in material benefits to our senior management team, our directors and our continuing investors, including the following:

    Our directors and executive officers beneficially own less than 1.0% of our common stock on a fully diluted basis, assuming all OP units are redeemed for shares of our common stock on a one-for-one basis.

    Affiliates of EB Arrow own Class B OP units representing approximately 6.3% of our common stock on a fully diluted basis assuming such Class B OP units are redeemed for shares of our common stock on a one-for-one basis.

    Our continuing investors, other than affiliates of EB Arrow and Mr. Manheimer, own Class A OP units representing approximately 23.6% of our common stock on a fully diluted basis assuming such Class A OP units are redeemed for shares of our common stock on a one-for-one basis.

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    The Investor Group collectively owns approximately 69.5% of our common stock.

    As a result of the formation transactions, we, affiliates of EB Arrow and the continuing investors are the limited partners in our operating partnership. On or after the date on which this Resale Shelf Registration Statement (as defined under "— 144A Registration Rights Agreement and Selling Stockholders") becomes effective and our common stock is listed on a National Securities Exchange (as defined under "— 144A Registration Rights Agreement and Selling Stockholders"), but in no event earlier than December 23, 2020, subject to any contractual lock-up restrictions under agreements with Stifel or other underwriters in our initial public offering, each limited partner of our operating partnership will have the right to require our operating partnership to redeem part or all of its OP units for cash, based upon the value of an equivalent number of shares of our common stock at the time of the redemption, or, at our election, shares of our common stock on a one-for-one basis, subject to certain adjustments and the restrictions on ownership and transfer of our stock set forth in our charter and described under the section entitled "Description of Our Capital Stock — Restrictions on Ownership and Transfer."

    We entered into the 144A Registration Rights Agreement with Stifel for the benefit of the purchasers of shares of common stock sold in the private offering and their direct and indirect transferees, including the Investor Group.

    Affiliates of EB Arrow and Mr. Manheimer are parties to the Continuing Investor Registration Rights Agreement, which provides for the registration of the shares of common stock that are issuable upon the redemption of the continuing investors' OP units.

    We entered into employment agreements with Mark Manheimer, our Chief Executive Officer, and Andrew Blocher, our Chief Financial Officer, providing for salary, bonus and other benefits, including certain payments and benefits upon a termination of employment under certain circumstances and the issuance of equity awards as described under "Management — Employment Agreements."

    We entered into the Investor Rights Agreement with the Investor Group, which became effective in December 2019 and will terminate upon the completion of our initial public offering and the appointment of two replacement directors (subject to approval by Tilden Park or the Investor Group, as applicable, such approval not to be unreasonably withheld, conditioned or delayed). See "Certain Relationships and Related Party Transactions — Investor Rights Agreement."

    We appointed Todd Minnis, the Chief Executive Officer of EB Arrow, as the Chairman of our board of directors.

    In connection with the private offering, we granted an aggregate of 251,896 RSUs, subject to certain forfeiture restrictions, to our executive officers and non-employee directors pursuant to our Omnibus Incentive Plan (as defined under "Executive Compensation — Omnibus Incentive Plan").

    We have entered into indemnification agreements with our directors and executive officers providing for the indemnification by us to the maximum extent permitted under Maryland law for liabilities and expenses incurred as a result of actions brought, or threatened to be brought, against such persons by reason of their capacities with us and our subsidiaries. See "Management — Limitations on Liabilities and Indemnification of Directors and Officers."

    We entered into the tax protection agreement and the facilities agreement described above.

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Our Structure

          The following diagram depicts our ownership structure following the formation transactions and the private offering and prior to the completion of our initial public offering.

GRAPHIC


(1)
Excludes affiliates of EB Arrow and Mr. Manheimer

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Restrictions on Ownership and Transfer of Our Common Stock

          Due to limitations on the concentration of ownership of REIT stock imposed by the Code, among other reasons, our charter generally prohibits any person from actually, beneficially or constructively owning more than 9.8% in value or number of shares, whichever is more restrictive, of our outstanding common stock or of any class or series of our preferred stock, or more than 9.8% of the aggregate value of all our outstanding stock. We refer to these restrictions as the "ownership limit." Our charter permits our board of directors, in its sole and absolute discretion, to exempt a person, prospectively or retroactively, from the ownership limit if, among other conditions, the person's ownership of our stock in excess of the ownership limit would not cause us to fail to qualify as a REIT. Our charter contains certain other limits on beneficial and constructive ownership and transfer of our stock. See "Description of Our Capital Stock — Restrictions on Ownership and Transfer."


Our Tax Status

          We will elect to be treated and to qualify as a REIT for U.S. federal income tax purposes beginning with our short taxable year ended December 31, 2019 upon the filing of our U.S. federal income tax return for such taxable year. We believe that we are organized and have operated in 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. To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we annually distribute at least 90% of our taxable income to our stockholders, computed without regard to the dividends paid deduction and excluding our net capital gain, plus 90% of our net income after tax from foreclosure property (if any), minus the sum of various items of excess non-cash income.

          In any year in which we qualify as a REIT, we generally will not be subject to U.S. federal income tax on that portion of our taxable income or capital gain that is distributed to stockholders. If we lose our REIT status, and the statutory relief provisions of the Code do not apply, we will be subject to entity-level income tax on our taxable income at regular U.S. federal corporate income tax rates. Even if we qualify as a REIT, we will be subject to certain U.S. federal, state and local taxes on our income and property and on taxable income that we do not distribute to our stockholders. In addition, NETSTREIT TRS will be subject to U.S. federal, state and local income tax on its taxable income. See "U.S. Federal Income Tax Considerations."


Distribution Policy

          The Code generally requires that a REIT distribute annually at least 90% of its REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gains, and imposes tax on any taxable income retained by a REIT, including capital gains. To satisfy the requirements for qualification as a REIT and generally not be subject to U.S. federal income and excise tax, we intend to make regular quarterly distributions of all or substantially all of our REIT taxable income to holders of our common stock out of assets legally available for such purposes. Any distributions made to our stockholders by us will be authorized and determined by our board of trustees in its sole discretion out of funds legally available therefor and will be dependent upon a number of factors, including our actual or anticipated financial condition, results of operations, cash flows and capital requirements, debt service requirements, financing covenants, restrictions under applicable law and other factors.

          We intend to pay cash distributions to our common stockholders out of assets legally available for distribution. Any distributions will be authorized at the sole discretion of our board of directors, and their form, timing and amount, if any, will depend upon a number of factors, including our actual and projected results of operations, FFO, Core FFO, AFFO, liquidity, cash flows and financial condition, the revenue we actually receive from our properties, our operating expenses, our debt service requirements,

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our capital expenditures, prohibitions and other limitations under our financing arrangements, our REIT taxable income, the annual REIT distribution requirements, applicable law and such other factors as our board of directors deems relevant. See "Distribution Policy."


Registration Rights Agreements

          Pursuant to the Registration Rights Agreements, we have agreed, among other things, to use our commercially reasonable efforts to cause this registration statement (the "Resale Shelf Registration Statement") registering the Registrable Shares (as defined in the Registration Rights Agreements) that are not sold by the selling stockholders in our initial public offering to be declared effective as soon as practicable, but in no event later than September 30, 2020 (the "Resale Registration Effectiveness Deadline"); provided, that, if we are using and continue to use commercially reasonable efforts to complete our initial public offering by September 30, 2020, then this Resale Shelf Registration Statement must become effective and our common stock must be listed on a National Securities Exchange upon the earlier to occur of (i) 60 days after the closing of our initial public offering and (ii) November 30, 2020 (the "Extended Resale Registration Effectiveness Deadline"). See "Description of Our Capital Stock — Registration Rights." We are filing the Resale Shelf Registration Statement of which this prospectus forms a part pursuant to the contractual obligations described above.


Emerging Growth Company Status

          We are an "emerging growth company," as defined in the JOBS Act. We are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not "emerging growth companies." These exemptions include not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We have not yet made a decision as to whether we will take advantage of any or all of these exemptions in the future. If we do take advantage of any of these exemptions, we do not know if some investors will find shares of our common stock less attractive as a result. The result may be a less active trading market for shares of our common stock and the price of our common stock may be more volatile.

          In addition, the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. However, we have chosen to "opt out" of this extended transition period, and, as a result, we will comply with new or revised accounting standards on the relevant dates on or before which adoption of such standards is required for all public companies that are not emerging growth companies. Our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

          We will remain an emerging growth company until the earliest to occur of (i) the last day of the fiscal year during which our total annual revenue equals or exceeds $1.07 billion (subject to adjustment for inflation), (ii) the last day of the fiscal year following the fifth anniversary of our initial public offering, (iii) the date on which we have, during the previous three year period, issued more than $1.0 billion in non-convertible debt or (iv) the date on which we are deemed to be a "large accelerated filer" under the Exchange Act.


Company Information

          Our principal executive office is located at 5910 N. Central Expressway, Suite 1600, Dallas, Texas 75206. Our telephone number is 972-200-7100. Our website address is www.NETSTREIT.com. The information on, or otherwise accessible through, our website does not constitute a part of this prospectus.

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The Offering

Common Stock Offered by the Selling Stockholders   15,788,056 shares

Common Stock Outstanding

 

15,788,056 shares(1)

Use of Proceeds

 

We will not receive any proceeds from the sale of shares of our common stock by the selling stockholders.

NYSE Symbol

 

"NTST"

Ownership and Transfer Restrictions

 

To assist us in qualifying as a REIT, among other purposes, our charter generally limits beneficial ownership by any person to no more than 9.8% in value or number of shares, whichever is more restrictive, of our outstanding common stock or of any class or series of our preferred stock, or more than 9.8% of the aggregate value of all our outstanding stock. We have granted a waiver to each of Tilden Park, DK and Long Pond to each own up to 30.6% of the outstanding shares of our common stock. Our charter contains certain other limits on beneficial and constructive ownership and transfer of shares of our stock. See "Description of Our Capital Stock—Restrictions on Ownership and Transfer."

Risk Factors

 

Investing in our common stock involves a high degree of risk. For a discussion of factors you should consider before making an investment, see "Risk Factors" beginning on page 28.

(1)
Includes 3,990,411 shares of common stock issuable in exchange for OP units tendered for redemption by the selling stockholders. There can be no assurance that the selling stockholders will sell any or all of the shares of common stock registered pursuant to the registration statement of which this prospectus forms a part. Excludes (i) an aggregate of 290,865 shares of our common stock that we may issue upon redemption of outstanding OP units on a one-for-one basis (subject to certain adjustments), (ii) 249,997 shares of our common stock underlying outstanding RSUs that we have granted to our non-employee directors and executive officers pursuant to our Omnibus Incentive Plan and (iii) 1,137,267 shares of our common stock reserved for future issuance under our Omnibus Incentive Plan (which does not give effect to the RSUs discussed in (ii) above).

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Summary Historical and Pro Forma Financial Data

          On December 23, 2019, we completed our formation transactions pursuant to which, among other things, our predecessor was merged with and into our operating partnership. The summary consolidated statements of operations data presented below for the year ended December 31, 2018 and the period from January 1, 2019 to December 22, 2019 relate to our predecessor and are derived from the audited consolidated financial statements that are included in this prospectus. The summary consolidated statement of operations data for the period from December 23, 2019 to December 31, 2019 and the consolidated balance sheet data as of December 31, 2019 relate to the Company and are derived from the audited consolidated financial statements that are included in this prospectus.

          The summary consolidated statement of operations data presented below for the six months ended June 30, 2019 relate to our predecessor and are derived from the unaudited historical condensed consolidated financial statements that are included in this prospectus. The summary consolidated statement of operations data for the six months ended June 30, 2020 and the consolidated balance sheet data as of June 30, 2020 relate to the Company and are derived from the unaudited condensed consolidated financial statements that are included in this prospectus. The unaudited interim financial and operating data have been prepared in accordance with U.S. GAAP on the same basis as its audited financial statements and related notes included elsewhere in this prospectus and, in the opinion of management, reflect all adjustments consisting only of normal recurring adjustments that management considers necessary to state fairly the financial information as of and for the periods presented. The historical consolidated financial data included below and set forth elsewhere in this prospectus are not necessarily indicative of our future performance, and results for any interim period are not necessarily indicative of the results for any full year.

          The pro forma summary consolidated statement of operations data for the year ended December 31, 2019 and for the six months ended June 30, 2020 are derived from the unaudited pro forma consolidated financial statements included in this prospectus and assume the completion as of January 1, 2019 of (i) the private offering and formation transactions, including the exercise of the initial purchaser's option to purchase additional shares in connection with the private offering, (ii) our initial public offering and the use of proceeds therefrom and (iii) our completed and probable 2020 acquisitions as described in "Unaudited Pro Forma Consolidated Financial Statements." The pro forma summary consolidated balance sheet data as of June 30, 2020 is derived from the unaudited pro forma consolidated financial statements included in this prospectus and assumes the completion as of June 30, 2020 of (i) our initial public offering and the use of proceeds therefrom and (ii) our completed and probable 2020 acquisitions occuring after June 30, 2020, as described in "Unaudited Pro Forma Consolidated Financial Statements." Our pro forma financial information is not necessarily indicative of what our actual financial position and results of operations would have been as of the date and for the periods indicated, nor does it purport to represent our future financial position or results of operations.

          You should read the following summary historical and pro forma financial and other data together with "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Our

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Business and Properties" and the consolidated financial statements and related notes appearing elsewhere in this prospectus.

 
Company  
Predecessor Company  
Predecessor
 
Pro Forma Historical  
Historical Pro Forma Historical  
Historical Historical
 
Six
months
ended
June 30,
2020
Six
months
ended
June 30,
2020
 
Six
months
ended
June 30,
2019
Year
ended
December 31,
2019
Period from
December 23
through
December 31,
2019
 
Period from
January 1
through
December 22,
2019
Year
ended
December 31,
2018
(in thousands, except share and per share data)
(Unaudited)
(Unaudited)
 
(Unaudited)
(Unaudited)
 
 
 
 

Operating Data:

                 

Revenue:

                 

Rental revenue (including reimbursable)

$ 19,664 $ 12,625   $ 11,417 $ 39,077 $ 513   $ 19,805 $ 23,828

Expenses:

                 

Property — operating

1,011 719   560 2,292 52   1,113 1,731

General and administrative

6,945 5,460   2,032 8,157 51   4,090 3,792

Depreciation and amortization

9,377 5,462   5,405 18,355 195   10,422 12,880

Interest

2,797 2,797   5,900 6,908 173   10,712 11,004

Provision for impairment

1,410 1,410   3,429 4,047   7,186 15,721

Total expenses

21,540 15,848   17,326 39,759 471   33,523 45,128

Gain on sale of real estate

1,016 1,016   4,099   5,646 1,003

Gain from forfeited earnest deposit

250 250    

Net income (loss)

(610 ) (1,957 )   (1,810 ) (682 ) 42   (8,072 ) (20,297 )

Less: Net income attributable to non-controlling interests

(167 ) (536 )   (187 ) (14 )  

Net income (loss) attributable to NETSTREIT Corp.

(443 ) (1,421 )   (1,810 ) (495 ) 28   (8,072 ) (20,297 )

Less: Cumulative preferred stock dividend

6 6    

Net income (loss) attributable to common stockholders

$ (449 ) $ (1,427 )   $ (1,810 ) $ (495 ) $ 28   $ (8,072 ) $ (20,297 )

Amounts available to common stockholders per common share:

                 

Net income, basic and diluted

$ (0.03 ) $ (0.13 )   NA $ (0.03 ) $   NA NA

Weighted average common shares outstanding:

                 

Basic

14,588,510 11,105,709   NA 14,588,510 8,860,760   NA NA

Diluted

14,588,510 11,105,709   NA 14,588,510 8,860,760   NA NA

Statement of Cash Flow Data:

                 

Net cash provided by (used in):

                 

Operating activities

NA $ 1,796   $ 3,622 NA $ 89   $ 5,989 $ 8,902

Investing activities

NA (216,186 )   57,301 NA (167,844 )   75,934 (22,054 )

Financing activities

NA 53,056   (61,184 ) NA 337,074   (82,317 ) 10,438

Other Data:

                 

FFO(1)

9,010 $ 3,748   $ 2,925 21,243 $ 230   $ 3,890 $ 7,301

Core FFO(1)

9,718 4,456   2,925 21,243 230   3,890 7,301

AFFO(1)

9,534 3,611   4,197 22,842 231   6,514 8,262

EBITDA(1)

11,143 6,180   9,876 23,842 412   13,625 4,434

EBITDAre(1)

11,537 6,574   9,206 27,889 412   15,165 19,152

Adjusted EBITDAre(1)

12,175 6,252   9,598 29,681 397   16,202 18,466

NOI(1)

18,653 11,906   10,857 36,785 461   18,692 22,097

Cash NOI(1)

17,215 10,754   11,630 34,896 448   20,292 22,258

(1)
FFO, Core FFO, AFFO, EBITDA, EBITDAre, Adjusted EBITDAre, NOI and Cash NOI are non-GAAP financial measures. See "Management's Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP Financial Measures" for definitions of these measures and a reconciliation to net income (loss), the most comparable GAAP measure.

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Pro Forma Historical
 
As of
June 30,
2020
As of
June 30,
2020
As of
December 31,
2019
(In thousands)
(unaudited)
(unaudited)
 

Balance Sheet Data:

     

Total real estate, at cost

$ 460,711 $ 423,474 $ 224,053

Real estate held for investment, net

456,837 419,600 223,921

Cash, cash equivalents and restricted cash

251,358 7,985 169,319

Total assets

785,332 496,977 433,922

Total liabilities

198,106 191,845 181,490

Total shareholders' equity

505,575 217,769 164,533

Noncontrolling interests

81,651 87,363 87,899

Total equity

587,226 305,132 252,432

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RISK FACTORS

          An investment in our common stock involves a high degree of risk. You should carefully consider the following material risks, as well as the other information contained in this prospectus, before making an investment in our company. If any of the following risks actually occur, our business, prospects, financial condition, results of operations and/or cash flow could be materially and adversely affected. In such an event, the trading price of our common stock could decline and you could lose part or all of your investment. Some statements in this prospectus, including statements in the following risk factors, constitute forward-looking statements. Please refer to the section of this prospectus entitled "Forward-Looking Statements."

Risks Related to Our Business and Properties

We are subject to risks related to commercial real estate ownership that could reduce the value of our properties.

          Our core business is the ownership of single-tenant, retail commercial real estate subject to long-term net leases. Accordingly, our performance is subject to risks incident to the ownership of commercial real estate, including:

    inability to collect rents from tenants due to financial hardship, including bankruptcy;

    changes in local real estate conditions in the markets in which we operate, including the availability and demand for single-tenant, retail commercial real estate space;

    changes in consumer trends and preferences that affect the demand for products and services offered by our tenants;

    inability to lease or sell properties upon expiration or termination of existing leases;

    environmental risks, including the presence of hazardous or toxic substances or materials on our properties;

    the subjectivity of real estate valuations and changes in such valuations over time;

    the illiquid nature of real estate compared to most other financial assets;

    changes in laws and governmental regulations, including those governing real estate usage and zoning;

    changes in interest rates and the availability of financing; and

    changes in the general economic and business climate.

          The occurrence of any of the risks described above may cause the value of our real estate to decline, which could materially and adversely affect us.

Global market and economic conditions may materially and adversely affect us and our tenants.

          Changes in global or national economic conditions, such as a global economic and financial market downturn, including as a result of COVID-19 (as discussed below) or another pandemic in the future, may cause, among other things, a tightening in the credit markets, lower levels of liquidity, increases in the rate of default and bankruptcy, and lower consumer and business spending, which could materially and adversely affect us. Potential consequences of changes in economic and financial conditions include:

    changes in the performance of our tenants, which may result in lower rent and lower recoverable expenses than the tenant can afford to pay and tenant defaults under the lease;

    current or potential tenants may delay or postpone entering into long-term leases with us;

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    the ability to borrow on terms and conditions that we find to be acceptable, which could reduce our ability to pursue acquisition opportunities or increase future interest expense; and

    the recognition of impairment charges on or reduced values of our properties, which may adversely affect our results of operations or limit our ability to dispose of assets at attractive prices and may reduce the availability of buyer financing.

          We are also limited in our ability to reduce costs to offset the results of a prolonged or severe economic downturn given certain fixed costs and commitments associated with our operations. Accordingly, a decline in economic conditions could materially and adversely affect us.

The current pandemic of COVID-19 and the future outbreak of other highly infectious or contagious diseases could materially and adversely impact or disrupt our financial condition, results of operations, cash flows and performance.

          Since being reported in December 2019, COVID-19 has spread globally, including to every state in the United States. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020, the United States declared a national emergency with respect to COVID-19.

          The COVID-19 pandemic has had, and another pandemic in the future could have, repercussions across regional and global economies and financial markets. The outbreak of COVID-19 in many countries, including the United States, has significantly adversely impacted global economic activity and has contributed to significant volatility and negative pressure in financial markets. The global impact of the outbreak has been rapidly evolving and, as cases of COVID-19 have continued to be identified in additional countries, many countries, including the United States, have reacted by instituting quarantines, mandating business and school closures and restricting travel.

          Certain states and cities, including where we own properties and where our principal place of business is located, have also reacted by instituting quarantines, restrictions on travel, "shelter in place" rules, restrictions on types of business that may continue to operate, and/or restrictions on the types of construction projects that may continue. We cannot predict if additional states and cities will implement similar restrictions or when restrictions currently in place will expire. As a result, the COVID-19 pandemic is negatively impacting almost every industry directly or indirectly, including industries in which we and our tenants operate. A number of our tenants across various industries have announced temporary closures of their locations and requested rent deferral or rent abatement during this pandemic. As of July 31, 2020, we have received payment of approximately 88.5%, 86.1%, 86.5% and 94.3% of contractual base rent, based on lease agreements in place prior to provision of any rent relief as a result of COVID-19, billed for April, May, June and July 2020, respectively (such percentages reflect leases in place for the full applicable month). We have provided rent deferral to approximately 7.5% of our properties, which represents a deferral of cash rent of approximately 0.6% of our total ABR, generally for three months and to be repaid ratably over the remaining lease term. We have provided rent abatement to approximately 9.4% of our properties, which represents an abatement of cash rent of approximately 2.1% of our total ABR, generally for two to four months, in exchange for additional lease term, generally longer than the abated period. With respect to the approximately 2.7% of ABR impacted by rent concessions, nine sectors were impacted, with sporting goods, quick service restaurants and furniture stores accounting for approximately half of the abated or deferred ABR. Our cash flows and financial condition for the remainder of 2020 may be impacted by such concessions, however we do not expect our overall rental income to be materially impacted. We have completed rent relief agreements on all but one property, which represents 0.1% of our total ABR, that has requested rent relief. We are currently evaluating the impact of deferrals or other accommodations for such property, but there can be no assurance that we will reach a mutually acceptable agreement in the near term or at all. Through July 31, 2020, all tenants with rent relief agreements in place paid in accordance with the terms of their new lease agreements.

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          In addition, the majority of our employees based at our headquarters are currently working remotely. The effects of an extended period of remote work arrangements, could strain our business continuity plans, introduce operational risk, including but not limited to cybersecurity risks, and impair our ability to manage our business. The COVID-19 pandemic, or a future pandemic, could also have material and adverse effects on our ability to successfully operate and on our financial condition, results of operations and cash flows due to, among other factors:

    a complete or partial closure of, or other operational issues at, one or more of our properties resulting from government or tenant action;

    the reduced economic activity severely impacts our tenants' businesses, financial condition and liquidity and may cause one or more of our tenants to be unable to meet their obligations to us in full, or at all, or to otherwise seek modifications of such obligations;

    the reduced economic activity could result in a prolonged recession, which could negatively impact consumer discretionary spending;

    difficulty accessing debt and equity capital on attractive terms, or at all, impacts to our credit ratings, and a severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions may affect our access to capital necessary to fund business operations or address maturing liabilities on a timely basis and our tenants' ability to fund their business operations and meet their obligations to us;

    the financial impact of the COVID-19 pandemic could negatively impact our future compliance with financial covenants of our Credit Facility and other debt agreements and result in a default and potentially an acceleration of indebtedness, which non-compliance could negatively impact our ability to make additional borrowings under our Revolver and pay dividends;

    any impairment in value of our tangible or intangible assets which could be recorded as a result of a weaker economic conditions;

    a general decline in business activity and demand for real estate transactions could adversely affect our ability or desire to grow our portfolio of properties;

    a deterioration in our or our tenants' ability to operate in affected areas or delays in the supply of products or services to us or our tenants from vendors that are needed for our or our tenants' efficient operations could adversely affect our operations and those of our tenants; and

    the potential negative impact on the health of our personnel, particularly if a significant number of them are infected or otherwise impacted, could result in a deterioration in our ability to ensure business continuity during this disruption.

          The extent to which the COVID-19 pandemic impacts our operations and those of our tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. Additional closures by our tenants of their locations and early terminations by our tenants of their leases could reduce our cash flows, which could impact our ability to continue paying dividends to our stockholders at expected levels or at all.

          The rapid development and fluidity of this situation precludes any prediction as to the full adverse impact of the COVID-19 pandemic. Nevertheless, the COVID-19 pandemic presents material uncertainty and risk with respect to our financial condition, results of operations, cash flows and performance.

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Our business is dependent upon our tenants successfully operating their businesses and their failure to do so could materially and adversely affect us.

          Each of our properties is leased by a single tenant. Therefore, we believe that the success of our investments is materially dependent on the financial stability of our tenants. The success of any one of our tenants is dependent on its individual business and its industry, which could be adversely affected by poor management, global market and economic conditions in general, changes in consumer trends and preferences that decrease demand for a tenant's products or services or other factors over which neither they nor we have control. Our portfolio includes properties leased to single tenants that operate in multiple locations, which means we own numerous properties leased by the same entity (or related group of entities), including 7-Eleven, Walmart, CVS, Ollie's Bargain Outlet, Lowe's, Advance Auto Parts, Dollar General, Walgreens, Home Depot and Kohl's. To the extent we finance numerous properties operated by one entity (or related group of entities), the general failure of that single entity (or related group of entities) or a loss or significant decline in its business could materially and adversely affect us.

          At any given time, any tenant may experience a downturn in its business that may weaken its operating results or the overall financial condition of individual properties or its business as a whole. As a result, a tenant may delay lease commencement, fail to make rental payments when due, decline to extend a lease upon its expiration, become insolvent or declare bankruptcy. We depend on our tenants to operate the properties we own in a manner that generates revenues sufficient to allow them to meet their obligations to us, including their obligations to pay rent, maintain certain insurance coverage and pay real estate taxes. The ability of our tenants to fulfill their obligations under our leases may depend, in part, upon the overall profitability of their operations. Cash flow generated by certain tenant businesses may not be sufficient for a tenant to meet its obligations to us. We could be materially and adversely affected if a number of our tenants were unable to meet their obligations to us.

Single-tenant leases involve significant risks of tenant default.

          Our strategy focuses primarily on investing in single-tenant, retail commercial real estate subject to long-term net leases across the United States. The financial failure of, or default in payment by, a single tenant under its lease is likely to cause a significant or complete reduction in our rental revenue from that property and a reduction in the value of the property. We may also experience difficulty or a significant delay in re-leasing or selling such property. This risk will be magnified if we decide to lease multiple properties to a single tenant under a master lease. A tenant failure or default under a master lease could reduce or eliminate rental revenue from multiple properties and reduce the value of such properties. In addition, we would be responsible for all of the operating costs of a property following a vacancy at a single-tenant building. Because our properties have generally been built to suit a particular tenant's specific needs, we may also incur significant costs to make the leased premises ready for another tenant.

Our assessment that certain businesses provide necessity goods or essential services and are, thus, e-commerce resistant and recession-resilient, may prove to be incorrect, and changes in macroeconomic trends may adversely affect our tenants, either of which could impair our tenants' ability to make rental payments to us and materially and adversely affect us.

          We primarily invest in properties leased to tenants in industries where a physical location is critical to the generation of sales and profits, such as discount stores, drug stores and pharmacies, home improvement, automotive service and quick-service restaurants with a focus on necessity goods and essential services in the retail sector, including discount stores, grocers, drug stores and pharmacies, home improvement, automotive service and quick-service restaurants. We believe these characteristics make our tenants' businesses e-commerce resistant and resilient through all economic cycles. While we believe this to be the case, businesses previously thought to be internet resistant, such as the retail grocery industry, have proven to be susceptible to competition from e-commerce. Technology and business conditions, particularly in the retail industry, are rapidly changing, and our tenants may be

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adversely affected by technological innovation, changing consumer preferences and competition from non-traditional sources. To the extent our tenants face increased competition from non-traditional competitors, such as internet vendors, some of which may have different business models and larger profit margins, their businesses could suffer. There can be no assurance that our tenants will be successful in the face of any new competition, and a deterioration in our tenants' businesses could impair their ability to meet their lease obligations to us and materially and adversely affect us.

A substantial number of our properties are leased to unrated tenants and the tools we use to determine the creditworthiness of our tenants may not be accurate.

          Approximately 36% of our properties are leased to unrated and sub-investment grade tenants that we determine, through our disciplined underwriting and risk management strategy, to be creditworthy. In evaluating a property for acquisition, we utilize our three-part underwriting and risk management strategy with an emphasis on credit and real estate that includes (i) reviewing corporate level financial information, assessing business risks and reviewing investment rating or establishing a "shadow rating" using our proprietary credit modeling process for unrated tenants, (ii) reviewing the underlying key real estate metrics of each property, including location and demographics that will support both tenant financial health, including market rents, and a market for alternative use, re-leasing or redevelopment, when necessary, and (iii) analyzing unit-level profitability and cost variability to analyze rent coverage and determine whether a tenant would maintain rent coverage of at least 2.0x. A shadow rating does not constitute a published credit rating and lacks the extensive company participation that is typically involved when a rating agency publishes a rating; accordingly, a shadow rating may not be as indicative of creditworthiness as a rating published by Moody's, S&P, or another nationally recognized statistical rating organization. Our calculations of shadow ratings and rent coverage ratios are based on financial information provided to us by our tenants and prospective tenants without independent verification on our part, and we must assume the appropriateness of estimates and judgments that were made by the party preparing the financial information. If our measurement of credit quality proves to be inaccurate, we may be subject to defaults, and investors may view our cash flows as less stable.

Our portfolio has geographic market concentrations that make us especially susceptible to adverse developments in those geographic markets.

          In addition to general, regional, national and international economic conditions, our operating performance is impacted by the economic conditions of the specific geographic markets in which we have concentrations of properties. Our portfolio includes substantial holdings in Texas (20.5%) and Georgia (8.7%) Mississippi (6.7%) and Illinois (5.1%) based on ABR. In addition, a significant portion of our portfolio holdings (based on ABR) were located in the South (60.7%) and Midwest (25.9%) regions of the United States (as defined by the U.S. Census Bureau). This geographic concentration could adversely affect our operating performance if conditions become less favorable in any of the regions, states or markets within such states in which we have a concentration of properties. We cannot assure you that any of our markets will grow, not experience adverse developments or that underlying real estate fundamentals will be favorable to owners and operators of service-oriented or experience-based properties. Our operations may also be affected if competing properties are built in our markets. A downturn in the economy in the states or regions in which we have a concentration of properties, or markets within such states or regions, could adversely affect our tenants operating businesses in those states, impair their ability to pay rent to us and materially and adversely affect us.

We are subject to risks related to tenant concentration, and an adverse development with respect to a large tenant could materially and adversely affect us.

          The top four tenants in our portfolio — 7-Eleven, Walmart, CVS and Ollie's Bargain Outlet — contributed 12.7%, 7.9%, 6.1% and 5.2%, respectively, of our ABR. As a result, our financial performance

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depends significantly on the revenues generated from these tenants and, in turn, their financial condition. Although our strategy targets a scaled portfolio that, over time, will increase tenant diversification, our portfolio has four tenants that individually contribute more than five percent of our ABR. In the future, we may experience additional tenant and industry concentrations. In the event that one of these tenants, or another tenant that occupies a significant portion of our properties or whose lease payments represent a significant portion of our rental revenue, were to experience financial weakness or file for bankruptcy, it could have a material adverse effect on us.

We may be unable to renew leases, lease vacant space or re-lease space as leases expire on favorable terms or at all.

          Our results of operations depend on our ability to continue to strategically lease space in our properties, including renewing expiring leases, leasing vacant space and re-leasing space in properties where leases are expiring, optimizing our tenant mix or leasing properties on more economically favorable terms. Leases representing 0.3% of the ABR of our portfolio are scheduled to expire during 2022 (the first year in which lease expirations will occur following the consummation of our initial public offering). Current tenants may decline, or may not have the financial resources available, to renew current leases and we cannot assure you that leases that are renewed will have terms that are as economically favorable to us as the expiring lease terms. If tenants do not renew the leases as they expire, we will have to find new tenants to lease our properties and there is no guarantee that we will be able to find new tenants, that our properties will be re-leased at rental rates equal to or above the current average rental rates or that substantial rent abatements, tenant improvement allowances, early termination rights or below-market renewal options or other tenant inducements will not be offered to attract new tenants. We may experience significant costs in connection with re-leasing a significant number of our properties, which could materially and adversely affect us.

Some of our tenants operate under franchise or license agreements, which, if terminated or not renewed prior to the expiration of their leases with us, would likely impair their ability to pay us rent.

          Of the ABR of our portfolio, 21.1% is operated by tenants under franchise or license agreements. Generally, franchise agreements have terms that end earlier than the respective expiration dates of the related leases. In addition, a tenant's rights as a franchisee or licensee typically may be terminated and the tenant may be precluded from competing with the franchisor or licensor upon termination. Usually, we have no notice or cure rights with respect to such a termination and have no rights to assignment of any such franchise agreement. This may have an adverse effect on our ability to mitigate losses arising from a default on any of our leases. A franchisor's or licensor's termination or refusal to renew a franchise or license agreement would likely have a material adverse effect on the ability of the tenant to make payments under its lease, which could materially and adversely affect us.

The bankruptcy or insolvency of any of our tenants could result in the termination of such tenant's lease and material losses to us.

          The occurrence of a tenant bankruptcy or insolvency could diminish the income we receive from that tenant's lease or leases or force us to "take back" a property as a result of a default or a rejection of a lease by a tenant in bankruptcy. If a tenant becomes bankrupt or insolvent, federal law may prohibit us from evicting such tenant based solely upon such bankruptcy or insolvency. In addition, a bankrupt or insolvent tenant may be authorized to reject and terminate its lease or leases with us. Any claims against such bankrupt tenant for unpaid future rent would be subject to statutory limitations that would likely result in our receipt of rental revenues that are substantially less than the contractually specified rent we are owed under the lease or leases. In addition, any claim we have for unpaid past rent, if any, may not be paid in full. We may also be unable to re-lease a terminated or rejected space or to re-lease

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it on comparable or more favorable terms. As a result, tenant bankruptcies may materially and adversely affect us.

Property vacancies could result in significant capital expenditures.

          Our portfolio is 100% occupied. The loss of a tenant, either through lease expiration or tenant bankruptcy or insolvency, may require us to spend significant amounts of capital to renovate the property before it is suitable for a new tenant and cause us to incur significant costs. Many of the leases we enter into or acquire are for properties that are specially suited to the particular business of our tenants. Because these properties have been designed or physically modified for a particular tenant, if the current lease is terminated or not renewed, we may be required to renovate the property at substantial costs, decrease the rent we charge or provide other concessions in order to lease the property to another tenant. In addition, in the event we are required to sell the property, we may have difficulty selling it to a party other than the tenant due to the special purpose for which the property may have been designed or modified. This potential illiquidity may limit our ability to quickly modify our portfolio in response to changes in economic or other conditions, including tenant demand. These limitations may materially and adversely affect us.

We may be unable to identify and complete acquisitions of suitable properties, which may impede our growth, and our future acquisitions may not yield the returns we expect.

          Our ability to expand through acquisitions requires us to identify and complete acquisitions or investment opportunities that are compatible with our growth strategy and to successfully integrate newly acquired properties into our portfolio. We continually evaluate investment opportunities and may acquire properties when strategic opportunities exist. Our ability to acquire properties on favorable terms and successfully operate them may be constrained by the following significant risks:

    we face competition from other real estate investors with significant capital, including REITs and institutional investment funds, which may be able to accept more risk than we can prudently manage, including risks associated with paying higher acquisition prices;

    we face competition from other potential acquirers which may significantly increase the purchase price for a property we acquire, which could reduce our growth prospects;

    we may incur significant costs and divert management attention in connection with evaluating and negotiating potential acquisitions, including ones that we are subsequently unable to complete;

    we may acquire properties that are not accretive to our results upon acquisition, and we may be unsuccessful in managing and leasing such properties in accordance with our expectations;

    our cash flow from an acquired property may be insufficient to meet our required principal and interest payments with respect to debt used to finance the acquisition of such property;

    we may discover unexpected items, such as unknown liabilities, during our due diligence investigation of a potential acquisition or other customary closing conditions may not be satisfied, causing us to abandon an investment opportunity after incurring expenses related thereto;

    we may fail to obtain financing for an acquisition on favorable terms or at all;

    we may spend more than budgeted amounts to make necessary improvements or renovations to acquired properties;

    market conditions may result in higher than expected vacancy rates and lower than expected rental rates; or

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    we may acquire properties subject to liabilities and without any recourse, or with only limited recourse, with respect to unknown liabilities such as liabilities for clean-up of unknown environmental contamination not identified in Phase I environmental site assessment reports or otherwise through due diligence, claims by tenants, vendors or other persons dealing with the former owners of the properties, liabilities incurred in the ordinary course of business and claims for indemnification by general partners, directors, officers and others indemnified by the former owners of the properties.

          If any of these risks are realized, we may be materially and adversely affected.

We may not acquire the properties that we evaluate in our pipeline.

          Throughout this prospectus, we refer to our pipeline of potential acquisition opportunities. In addition to properties that are subject to purchase agreements, we are often party to non-binding letters of intent. Additionally, we actively seek to identify and negotiate with respect to potential properties that we may consider purchasing in the future. Generally, our purchase agreements contain several closing conditions. Transactions may fail to close for a variety of reasons, including the discovery of previously unknown liabilities or other items uncovered during our diligence process.

          Similarly, we may never execute binding purchase agreements with respect to properties that are currently subject to non-binding letters of intent, and properties with respect to which we are negotiating may never lead to the execution of any letter of intent or purchase agreement. For many other reasons, we may not ultimately acquire the properties currently in our pipeline. Accordingly, you should not place undue reliance on the concept of a pipeline as we have discussed in this prospectus.

We may not be able to successfully execute our acquisition or development strategies.

          We may not be able to implement our investment strategies successfully. Additionally, we cannot assure you that our portfolio of properties will expand at all, or if it will expand at any specified rate or to any specified size. In addition, investment in additional real estate assets is subject to a number of risks. Because we expect to invest in markets other than the ones in which our current properties are located or properties which may be leased to tenants other than those to which we have historically leased properties, we will also be subject to the risks associated with investment in new markets, new lines of trade, new brands or concepts or with new tenants that may be relatively unfamiliar to our management team.

          While we do not intend to act as a developer, we may selectively provide development financing for build to suit projects. Development is subject to, without limitation, risks relating to the availability and timely receipt of zoning and other regulatory approvals and the cost and timely completion of construction (including risks from factors beyond our control, such as weather or labor conditions or material shortages). These risks could result in substantial unanticipated delays or expenses and, under certain circumstances, could prevent completion of development activities once undertaken or provide a tenant the opportunity to reduce rent or terminate a lease. Any of these situations may delay or eliminate proceeds or cash flows we expect from build to suit projects, which could have an adverse effect on our financial condition.

Illiquidity of real estate investments could significantly impede our ability to respond to adverse changes in the performance of our properties and harm our financial condition.

          The real estate investments made, and expected to be made, by us are relatively difficult to sell quickly. As a result, our ability to promptly sell one or more properties in our portfolio in response to changing economic, financial or investment conditions is limited. Return of capital and realization of gains, if any, from an investment generally will occur upon disposition or refinancing of the underlying property. We may be unable to realize our investment objective by sale, other disposition or refinancing at attractive prices within any given period of time or may otherwise be unable to complete any exit

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strategy. In particular, these risks could arise from weakness in or even the lack of an established market for a property, changes in the financial condition or prospects of prospective purchasers, changes in national or international economic conditions and changes in laws, regulations or fiscal policies of the jurisdiction in which the property is located.

          In addition, the Code imposes restrictions on a REIT's ability to dispose of properties that are not applicable to other types of real estate companies. In particular, the tax laws applicable to REITs effectively require that we hold our properties for investment, rather than primarily for sale in the ordinary course of business, which may cause us to forgo or defer sales of properties that otherwise would be in our best interest. Therefore, we may not be able to alter our portfolio in response to economic or other conditions promptly or on favorable terms, which may materially and adversely affect us.

We face significant competition for tenants, which may decrease or prevent increases of the occupancy and rental rates of our properties, and competition for acquisitions may reduce the number of acquisitions we are able to complete and increase the costs of these acquisitions.

          We compete with numerous developers, owners and operators of properties, many of which own properties similar to ours in the same markets in which our properties are located. If our competitors offer space at rental rates below current market rates, or below the rental rates we currently charge our tenants, we may lose existing or potential tenants and we may be pressured to reduce our rental rates or to offer more substantial rent abatements, tenant improvements, early termination rights or below-market renewal options in order to retain tenants when our leases expire. Competition for tenants could decrease or prevent increases of the occupancy and rental rates of our properties, which could materially and adversely affect us.

          We also face competition for acquisitions of real property from investors, including traded and non-traded public REITs, private equity investors and institutional investment funds, some of which have greater financial resources than we do, a greater ability to borrow funds to acquire properties and the ability to accept more risk than we can prudently manage. This competition may increase the demand for the types of properties in which we typically invest and, therefore, reduce the number of suitable investment opportunities available to us and increase the prices paid for such acquisition properties. This competition will increase if investments in real estate become more attractive relative to other types of investments. Accordingly, competition for the acquisition of real property could materially and adversely affect us.

Inflation may materially and adversely affect us and our tenants.

          Increased inflation could have a negative impact on variable rate debt we currently have or that we may incur in the future. During times when inflation is greater than the increases in rent provided by many of our leases, rent increases will not keep up with the rate of inflation. Increased costs may have an adverse impact on our tenants if increases in their operating expenses exceed increases in revenue, which may adversely affect the tenants' ability to pay rent owed to us.

Our growth depends on external sources of capital that are outside of our control and may not be available to us on commercially reasonable terms or at all.

          In order to qualify as a REIT, we are required under the Code, among other things, to distribute annually at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gain. In addition, we will be subject to income tax at the corporate rate to the extent that we distribute less than 100% of our REIT taxable income, determined without regard to the dividends paid deduction and including any net capital gain. Because of these distribution requirements, we may not be able to fund future capital needs, including any necessary acquisition financing, from operating cash flow. Consequently, we may rely on third-party sources to

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fund our capital needs, and we may not be able to obtain financing on favorable terms or at all. Any additional debt we incur will increase our leverage and likelihood of default. Our access to third-party sources of capital depends, in part, on:

    general market conditions;

    the market's perception of our growth potential;

    our current debt levels;

    our current and expected future earnings;

    our cash flow and cash distributions; and

    the price per share of our common stock.

          If we cannot obtain capital from third-party sources, we may not be able to acquire properties when strategic opportunities exist, meet the capital and operating needs of our existing properties, satisfy our debt service obligations or make the cash distributions to our stockholders necessary to qualify as a REIT.

Failure to hedge effectively against interest rate changes may materially and adversely affect us.

          While we currently do not hedge our exposure to interest rate volatility, we may choose to do so in the future. Should we seek to hedge our interest rate exposure, we may choose to use interest rate swaps, caps or derivative instruments. However, these arrangements involve risks and may not be effective in reducing our exposure to interest rate changes. In addition, the counterparties to any hedging arrangements we enter into in the future may not honor their obligations. Failure to hedge effectively against changes in interest rates relating to the interest expense of our future floating-rate borrowings may materially and adversely affect us.

Loss of our key personnel with long-standing business relationships could materially impair our ability to operate successfully.

          Our continued success and our ability to manage anticipated future growth depend, in large part, upon the efforts of key personnel, particularly our Chief Executive Officer, Mark Manheimer and, our Chief Financial Officer, Andrew Blocher, who have extensive market knowledge and relationships, and exercise substantial influence over our operational, financing, acquisition and disposition activity. Messrs. Manheimer and Blocher also have industry reputations that attract business and investment opportunities, and assist us in negotiations with lenders, existing and potential tenants and industry personnel.

          Many of our other key executive personnel also have extensive experience and strong reputations in the real estate industry and have been instrumental in setting our strategic direction, operating our business, identifying, recruiting and training key personnel and arranging necessary financing. In particular, the extent and nature of the relationships that these individuals have developed with financial institutions and existing and prospective tenants is critically important to the success of our business. We cannot guarantee the continued employment of any of our senior management team, who may choose to leave our company for any number of reasons, such as other business opportunities, differing views on our strategic direction or other personal reasons. The loss of services of one or more members of our senior management team, or our inability to attract and retain highly qualified personnel, could adversely affect our business, diminish our investment opportunities and weaken our relationships with lenders, business partners, existing and prospective tenants and industry personnel, which could materially and adversely affect us.

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Any material failure, weakness, interruption or breach in security of our information systems could prevent us from effectively operating our business.

          We rely on information systems across our operations and corporate functions, including finance and accounting, and depend on such systems to ensure payment of obligations, collection of cash, data warehousing to support analytics, and other various processes and procedures. Our ability to efficiently manage our business depends significantly on the reliability and capacity of these systems. The failure of these systems to operate effectively, maintenance problems, upgrading or transitioning to new platforms, or a breach in security of these systems, such as in the event of cyber-attacks, could result in the theft of intellectual property, personal information or personal property, damage to our reputation and third-party claims, as well as reduced efficiency in our operations and in the accuracy of our internal and external financial reporting. A failure or weakness in our information systems could materially and adversely affect us, and the remediation of any such problems could result in significant unplanned expenditures.

We may become subject to litigation, which could materially and adversely affect us.

          In the future we may become subject to litigation, including claims relating to our operations, securities offerings and otherwise in the ordinary course of business. Some of these claims may result in significant defense costs and potentially significant judgments against us, some of which are not, or cannot be, insured against. We generally intend to vigorously defend ourselves. However, we cannot be certain of the ultimate outcomes of any claims that may arise in the future. Resolution of these types of matters against us may result in our having to pay significant fines, judgments, or settlements, which, if uninsured, or if the fines, judgments, and settlements exceed insured levels, could adversely impact our earnings and cash flows, thereby materially and adversely affecting us. Certain litigation or the resolution of certain litigation may affect the availability or cost of some of our insurance coverage, which could materially and adversely impact us, expose us to increased risks that would be uninsured, and materially and adversely impact our ability to attract or retain directors and officers.

Certain provisions of our leases or loan agreements may be unenforceable.

          Our rights and obligations with respect to our leases and loan agreements are governed by written agreements. A court could determine that one or more provisions of such an agreement are unenforceable, such as a particular remedy, a master lease covenant, a loan prepayment provision or a provision governing our security interest in the underlying collateral of a borrower or lessee. We could be adversely impacted if this were to happen with respect to an asset or group of assets.

Material weaknesses or a failure to maintain an effective system of internal control over financial reporting could adversely affect our ability to present accurately our financial statements and could materially and adversely affect us, including our business, reputation, results of operations, financial condition or liquidity.

          A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. We will rely on our internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. More broadly, effective internal control over financial reporting is a necessary component of our program to seek to prevent, and to detect any, fraud. Furthermore, as we grow, our business will likely become more complex, and we may require significantly more resources to develop and maintain effective controls. Designing and implementing an effective system of internal control over financial reporting is a continuous effort that requires significant resources, including the expenditure of a significant amount of time by senior members of our management team.

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          In connection with the audit of the consolidated financial statements as of and for the periods ended December 31, 2019, our independent registered public accounting firm identified a material weakness. The identified material weakness related to our process for reviewing significant assumptions used by valuation specialists in purchase price allocations for acquisitions of real estate. We have developed a plan to remediate this material weakness, which includes performing valuations contemporaneously with the completion of acquisitions and implementing procedures designed to strengthen our internal controls. If the remedial measures we implement are insufficient to address the identified material weakness or are not implemented effectively, or additional deficiencies arise in the future, material misstatements in our interim or annual financial statements may occur in the future. Among other things, any un-remediated material weaknesses could result in material post-closing adjustments in or restatements of future financial statements. In addition, as a private company, neither we nor our independent registered public accounting firm has performed an evaluation of internal controls over financial reporting for us or the predecessor during any period.

          In connection with our ongoing monitoring of our internal control over financial reporting or audits of our financial statements, we or our auditors may identify additional material weaknesses. Any failure to maintain effective internal control over financial reporting or to timely effect any necessary improvements to such controls could materially and adversely affect us. Additionally, ineffective internal control over financial reporting could also adversely affect our ability to prevent or detect fraud, harm our reputation and cause investors to lose confidence in our reported financial information.

          During the second quarter of 2020, management implemented various internal controls to support the review and evaluation of property acquisitions and has remediated the material weakness.

The costs of compliance with or liabilities related to environmental laws may materially and adversely affect us.

          The properties we own or have owned in the past may subject us to known and unknown environmental liabilities. Under various federal, state and local laws and regulations relating to the environment, as a current or former owner or operator of real property, we may be jointly and strictly liable for costs and damages resulting from the presence or release of hazardous or toxic substances, waste or petroleum products at, on, in, under or migrating from such property, including costs to investigate or clean up such contamination and liability for personal injury, property damage or harm to natural resources. We may face liability regardless of our knowledge of the contamination, the timing of the contamination, the cause of the contamination or the party responsible for the contamination of the property.

          There may be environmental liabilities associated with our properties of which we are unaware. We typically obtain Phase I environmental site assessments on the properties that we finance or acquire. The Phase I environmental site assessments are limited in scope and therefore may not reveal all environmental conditions affecting a property. Therefore, there could be undiscovered environmental liabilities on the properties we own. If environmental contamination exists on our properties, we could be subject to strict, joint and/or several liability for the contamination by virtue of our ownership interest. Some of our properties may contain asbestos-containing materials, or ACM. Environmental laws govern the presence, maintenance and removal of ACM and such laws may impose fines, penalties, or other obligations for failure to comply with these requirements or expose us to third-party liability (e.g., liability for personal injury associated with exposure to asbestos). Environmental laws also apply to other activities that can occur on a property, such as storage of petroleum products or other hazardous or toxic substances, including polychlorinated biphenyls air emissions, water discharges, vapor intrusion risks from any underlying contamination, and exposure to lead-based paint or radon gas. Such laws may impose fines and penalties for violations, and may require permits or other governmental approvals to be obtained for the operation of a business involving such activities.

          The known or potential presence of hazardous substances on a property may adversely affect our ability to sell, lease or improve the property or to borrow using the property as collateral. In addition,

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environmental laws may create liens on contaminated properties in favor of the government for damages and costs it incurs to address such contamination. Moreover, if contamination is discovered on our properties, environmental laws may impose restrictions on the manner in which they may be used or businesses may be operated, and these restrictions may require substantial expenditures.

          In addition, although our leases generally require our tenants to operate in compliance with all applicable laws and to indemnify us against any environmental liabilities arising from a tenant's activities on the property, we could be subject to strict, joint and several liability by virtue of our ownership interest. We cannot be sure that our tenants will, or will be able to, satisfy their indemnification obligations, if any, under our leases. Furthermore, the discovery of environmental liabilities on any of our properties could lead to significant remediation costs or to other liabilities or obligations attributable to the tenant of that property, or could result in material interference with the ability of our tenants to operate their businesses as currently operated. Noncompliance with environmental laws or discovery of environmental liabilities could each individually or collectively affect such tenant's ability to make payments to us, including rental payments and, where applicable, indemnification payments.

          Our environmental liabilities may include property and natural resources damage, personal injury, investigation and clean-up costs, among other potential environmental liabilities. These costs could be substantial. Although we may obtain insurance for environmental liability for certain properties that are deemed to warrant coverage, our insurance may be insufficient to address any particular environmental situation and we may be unable to continue to obtain insurance for environmental matters, at a reasonable cost or at all, in the future. If our environmental liability insurance is inadequate, we may become subject to material losses for environmental liabilities. Our ability to receive the benefits of any environmental liability insurance policy that we may obtain will depend on the financial stability of our insurance company and the position it takes with respect to our insurance policies. If we were to become subject to significant environmental liabilities, we could be materially and adversely affected.

Our properties may contain or develop harmful mold, which could lead to liability for adverse health effects and costs of remediation.

          When excessive moisture accumulates in buildings or on building materials, or moisture otherwise occurs within a building or building materials, mold growth may occur, particularly if the moisture problem remains undiscovered or is not addressed over a period of time. Some molds may be toxic and produce airborne toxins or irritants. Concern about indoor exposure to mold has been increasing, as exposure to mold may cause a variety of adverse health effects and symptoms, including allergic or other reactions. As a result, should our tenants or their employees or customers be exposed to mold at any of our properties we could be required to undertake a costly remediation program to contain or remove the mold from the affected property. In addition, exposure to mold by our tenants or others could subject us to liability if property damage or health concerns arise. If we were to become subject to significant mold-related liabilities, we could be materially and adversely affected.

Natural disasters, medical pandemics, terrorist attacks, other acts of violence or war, or other unexpected events could materially and adversely impact us.

          Natural disasters, medical pandemics, terrorist attacks, other acts of violence or war or other unexpected events could materially interrupt our business operations (or those of our tenants), cause consumer confidence and spending to decrease or result in increased volatility in the U.S. and worldwide financial markets and economy. They also could result in or prolong an economic recession in the United States. Any of these occurrences could materially and adversely affect us.

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Insurance on our properties may not adequately cover all losses and uninsured losses could materially and adversely affect us.

          Our tenants generally are required to maintain liability and property insurance coverage for the properties they lease from us pursuant to triple or double-net leases. These leases generally require our tenants to name us (and any of our lenders that have a mortgage on the property leased by the tenant) as additional insureds on their liability policies and additional named insured and/or loss payee (or mortgagee, in the case of our lenders) on their property policies. Depending on the location of the property, losses of a catastrophic nature, such as those caused by earthquakes and floods, may be covered by insurance policies that are held by our tenant with limitations such as large deductibles or co-payments that a tenant may not be able to meet. In addition, losses of a catastrophic nature, such as those caused by wind/hail, hurricanes, terrorism or acts of war, may be uninsurable or not economically insurable. In the event there is damage to our properties that is not covered by insurance and such properties are subject to recourse indebtedness, we will continue to be liable for the indebtedness, even if these properties are irreparably damaged.

          Inflation, changes in building codes and ordinances, environmental considerations, and other factors, including terrorism or acts of war, may make any insurance proceeds we receive insufficient to repair or replace a property if it is damaged or destroyed. In that situation, the insurance proceeds received may not be adequate to restore our economic position with respect to the affected real property. Furthermore, in the event we experience a substantial or comprehensive loss of one of our properties, we may not be able to rebuild such property to its existing specifications without significant capital expenditures which may exceed any amounts received pursuant to insurance policies, as reconstruction or improvement of such a property would likely require significant upgrades to meet zoning and building code requirements. The loss of our capital investment in or anticipated future returns from our properties due to material uninsured losses could materially and adversely affect us.

Climate change may adversely affect our business.

          Climate change may cause extreme weather and changes in precipitation and temperature, all of which may result in physical damage or a decrease in demand for our properties located in the areas affected by these conditions. Should the impact of climate change be material in nature or occur for lengthy periods of time, our financial condition or results of operations would be adversely affected. In addition, changes in federal and state legislation and regulation on climate change could result in increased capital expenditures to improve the energy efficiency of our existing properties in order to comply with such regulations.

Compliance with the Americans with Disabilities Act and fire, safety and other regulations may require us to make unanticipated expenditures that materially and adversely affect us.

          Our properties are subject to the Americans with Disabilities Act, or ADA. Under the ADA, all public accommodations must meet federal requirements related to access and use by disabled persons. Compliance with the ADA requirements could require removal of access barriers and non-compliance could result in imposition of fines by the U.S. government or an award of damages to private litigants, or both. While our tenants are obligated by law to comply with the ADA and typically obligated under our leases to cover costs associated with compliance, if required changes involve greater expenditures than anticipated, or if the changes must be made on a more accelerated basis than anticipated, the ability of our tenants to cover costs could be adversely affected. We could be required to expend our own funds to comply with the provisions of the ADA, which could materially and adversely affect us.

          In addition, we are required to operate our properties in compliance with fire and safety regulations, building codes and other land use regulations, as they may be adopted by governmental agencies and bodies and become applicable to our properties. We may be required to make substantial capital expenditures to comply with those requirements and may be required to obtain approvals from various

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authorities with respect to our properties, including prior to acquiring a property or when undertaking renovations of any of our existing properties. There can be no assurance that existing laws and regulatory policies will not adversely affect us or the timing or cost of any future acquisitions or renovations, or that additional regulations will not be adopted that increase such delays or result in additional costs. Additionally, failure to comply with any of these requirements could result in the imposition of fines by governmental authorities or awards of damages to private litigants. While we intend to only acquire properties that we believe are currently in substantial compliance with all regulatory requirements, these requirements may change and new requirements may be imposed which would require significant unanticipated expenditures by us and could materially and adversely affect us.

In the future, we may choose to acquire properties or portfolios of properties through tax deferred contribution transactions, which could result in stockholder dilution and limit our ability to sell such assets.

          In the future we may acquire properties or portfolios of properties through tax deferred contribution transactions in exchange for OP units, which may result in stockholder dilution. This acquisition structure may have the effect of, among other things, reducing the amount of tax depreciation we could deduct over the tax life of the acquired properties, and may require that we agree to protect the contributors' ability to defer recognition of taxable gain through restrictions on our ability to dispose of the acquired properties and/or the allocation of partnership debt to the contributors to maintain their tax bases. These restrictions could limit our ability to sell an asset at a time, or on terms, that would be favorable absent such restrictions.

We may experience a decline in the fair value of our assets, which may have a material impact on our financial condition, liquidity and results of operations and adversely impact the market value of our common stock.

          A decline in the fair market value of our assets may require us to recognize an other-than-temporary impairment against such assets under GAAP if we were to determine that we do not have the ability and intent to hold any assets in unrealized loss positions to maturity or for a period of time sufficient to allow for recovery to the amortized cost of such assets. In such event, we would recognize unrealized losses through earnings and write down the amortized cost of such assets to a new cost basis, based on the fair value of such assets on the date they are considered to be other-than-temporarily impaired. Such impairment charges reflect non-cash losses at the time of recognition; subsequent disposition or sale of such assets could further affect our future losses or gains, as they are based on the difference between the sale price received and adjusted amortized cost of such assets at the time of sale, which may adversely affect our financial condition, liquidity and results of operations.

The form, timing and/or amount of dividend distributions in future periods may vary and be affected by economic and other considerations.

          The form, timing and/or amount of dividend distributions will be authorized at the discretion of our board of directors and will depend on actual cash from operations, our financial condition, capital requirements, the annual distribution requirements applicable to REITs under the Code and other factors as our board of directors may consider relevant. See "Distribution Policy."

Risks Related to Our Indebtedness

Our level of indebtedness could materially and adversely affect our financial position, including reducing funds available for other business purposes and reducing our operational flexibility.

          As of June 30, 2020, we had no borrowings under our $250.0 million Revolver. Payments of principal and interest on borrowings may leave us with insufficient cash resources to meet our cash

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needs or make the distributions to our common stockholders currently contemplated or necessary to qualify as a REIT. Our level of debt and the limitations imposed on us by our debt agreements could have significant adverse consequences, including the following:

    our cash flow may be insufficient to meet our required principal and interest payments;

    cash interest expense and financial covenants relating to our indebtedness may limit or eliminate our ability to make distributions to our common stockholders;

    we may be unable to borrow additional funds as needed or on favorable terms, which could, among other things, adversely affect our ability to capitalize upon investment opportunities or meet operational needs;

    we may be unable to refinance our indebtedness at maturity or the refinancing terms may be less favorable than the terms of our original indebtedness;

    because a portion of our debt bears interest at variable rates, increases in interest rates could increase our interest expense;

    we may be unable to hedge floating rate debt, counterparties may fail to honor their obligations under any hedge agreements we enter into, such agreements may not effectively hedge interest rate fluctuation risk, and, upon the expiration of any hedge agreements we enter into, we would be exposed to then-existing market rates of interest and future interest rate volatility;

    we may be forced to dispose of properties, possibly on unfavorable terms or in violation of certain covenants to which we may be subject;

    we may default on our obligations and the lenders or mortgagees may foreclose on our properties or our interests in the entities that own the properties that secure their loans and receive an assignment of rents and leases;

    we may be restricted from accessing some of our excess cash flow after debt service if certain of our tenants fail to meet certain financial performance metric thresholds;

    we may violate restrictive covenants in our loan documents, which would entitle the lenders to accelerate our debt obligations; and

    our default under any loan with cross default provisions could result in a default on other indebtedness.

          The occurrence of any of these events could materially and adversely affect us. Furthermore, foreclosures could create taxable income without accompanying cash proceeds, which could hinder our ability to meet the REIT distribution requirements imposed by the Code.

Market conditions could adversely affect our ability to refinance existing indebtedness or obtain additional financing for growth on acceptable terms or at all, which could materially and adversely affect us.

          Credit markets may experience significant price volatility, displacement and liquidity disruptions, including the bankruptcy, insolvency or restructuring of certain financial institutions. Such circumstances could materially impact liquidity in the financial markets, making financing terms for borrowers less attractive, and potentially result in the unavailability of various types of debt financing. As a result, we may be unable to obtain debt financing on favorable terms or at all or fully refinance maturing indebtedness with new indebtedness. Reductions in our available borrowing capacity or inability to obtain credit, including under the Credit Facility, when required or when business conditions warrant could materially and adversely affect us.

          Furthermore, if prevailing interest rates or other factors at the time of refinancing result in higher interest rates upon refinancing, then the interest expense relating to that refinanced indebtedness would

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increase. Higher interest rates on newly incurred debt may negatively impact us as well. If interest rates increase, our interest costs and overall costs of capital will increase, which could materially and adversely affect us and our ability to make distributions to our stockholders.

Our debt financing agreements, including the Credit Facility, contain or may contain restrictions and covenants which may limit our ability to enter into or obtain funding for certain transactions, operate our business or make distributions to our common stockholders.

          The Credit Facility and other debt agreements we may enter into in the future contain or may contain financial and other covenants with which we are or will be required to comply and that limit or will limit our ability to operate our business. These covenants, as well as any additional covenants to which we may be subject in the future because of additional borrowings, could cause us to have to forego investment opportunities, reduce or eliminate distributions to our common stockholders or obtain financing that is more expensive than financing we could obtain if we were not subject to the covenants. In addition, the agreements governing our borrowings may have cross default provisions, which provide that a default under one of our debt financing agreements would lead to a default on all of our debt financing agreements.

          The covenants and other restrictions under our debt agreements may affect, among other things, our ability to:

    incur indebtedness;

    create liens on assets;

    cause our subsidiaries to distribute cash to us to fund distributions to stockholders or to otherwise use in our business;

    sell or substitute assets;

    modify certain terms of our leases;

    manage our cash flows; and

    make distributions to equity holders, including our common stockholders.

          Additionally, these restrictions may adversely affect our operating and financial flexibility and may limit our ability to respond to changes in our business or competitive environment, all of which may materially and adversely affect us.

Risks Related to Our Organizational Structure

The interests of EB Arrow and the Chairman of our Board may differ from our interests or those of our other stockholders.

          Todd Minnis, the Chairman of our Board, is the Chief Executive Officer of EB Arrow, which beneficially owns Class B OP units representing approximately 6.3% of our common stock on a fully diluted basis. EB Arrow and its affiliates engage in a broad spectrum of activities, including investments in real estate. In the ordinary course of their business activities, EB Arrow and its affiliates may engage in activities where their interests conflict with our interests or those of our stockholders. Our charter provides that, for so long as EB Arrow and its affiliates collectively own at least 1% of the outstanding shares of our common stock and the outstanding OP units, to the maximum extent permitted by Maryland law, none of EB Arrow, its affiliates, any of their representatives and any of our directors that is an employee or affiliate of EB Arrow will have any duty to refrain from engaging, directly or indirectly, in the same business activities or similar business activities or lines of business in which we operate or directly or indirectly doing business with any of our clients, customers or suppliers, and that EB Arrow and its affiliates may pursue business opportunities that may be complementary to our business, other than business opportunities that any such person becomes aware of as a direct result of

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his or her capacity as a director or officer, and, as a result, those business opportunities may not be available to us. See "Certain Provisions of Maryland Law and of Our Charter and Bylaws — Corporate Opportunities."

The Investor Group will have substantial influence over our business, and its interests may differ from our interests or those of our other stockholders.

          The Investor Group beneficially owns approximately 69.5% of our outstanding common stock. As a result, the Investor Group will have significant influence in the election of our directors, who will in turn elect our executive officers, set our management policies and exercise overall supervision and control over us and our subsidiaries. The interests of the Investor Group may differ from the interests of our other stockholders, and the Investor Group's significant stockholdings may limit other stockholders' ability to influence corporate matters. The concentration of ownership and voting power of the Investor Group may also delay, defer or even prevent an acquisition by a third party or other change of control of our company and may make some transactions more difficult or impossible without the support of the Investor Group, even if such events are in the best interests of our other stockholders. As a result of the Investor Group's influence, we may take actions that our other stockholders do not view as beneficial, which may adversely affect our results of operations and financial condition and cause the value of your investment in us to decline.

Our charter contains certain restrictions on ownership and transfer of our stock that may delay, defer or prevent a change of control transaction, even if such a change in control may be in your interest, and as a result may depress the market price of our common stock.

          Our charter contains various provisions that are intended to assist us to qualify as a REIT, among other reasons, and, subject to certain exceptions, authorizes our directors to take such actions as are necessary or appropriate to qualify as a REIT. For example, our charter prohibits the actual, beneficial or constructive ownership by any person of more than 9.8% in value or in number of shares, whichever is more restrictive, of the outstanding shares of our common stock or of any class or series of our preferred stock, or more than 9.8% in value of the aggregate of the outstanding shares of all classes and series of our stock. Our board of directors, in its sole and absolute discretion, may exempt a person, prospectively or retroactively, from these ownership limits if certain conditions are satisfied. See "Description of Our Capital Stock — Restrictions on Ownership and Transfer." The restrictions on ownership and transfer of our stock may, among other things:

    discourage a tender offer or other transactions or a change in management or of control that might involve a premium price for our common stock or that our stockholders otherwise believe to be in their best interests; or

    result in the transfer of shares acquired in excess of the restrictions to a trust for the benefit of one or more charitable beneficiaries and, as a result, the forfeiture by the acquirer of the benefits of owning the additional shares.

We could increase or decrease the number of authorized shares of stock, classify and reclassify unissued stock and issue stock without stockholder approval.

          Our board of directors, without stockholder approval, has the power to amend our charter to increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that we are authorized to issue, to authorize us to issue authorized but unissued shares of our common stock or preferred stock and to classify or reclassify any unissued shares of our common stock or preferred stock into one or more classes or series of stock and to set the terms of such newly classified or reclassified shares. See "Description of Our Capital Stock — Common Stock" and "— Preferred Stock." As a result, we may issue one or more classes or series of common stock or preferred stock with preferences, conversion or other rights, voting powers, restrictions, limitations as to

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dividends or other distributions, qualifications or terms or conditions of redemption that are senior to, or otherwise conflict with, the rights of our common stockholders. Although our board of directors has no such intention at the present time, it could establish a class or series of common stock or preferred stock that could, depending on the terms of such class or series, delay, defer or prevent a transaction or a change of control that might involve a premium price for our common stock or otherwise be in the best interest of our stockholders.

Our bylaws designate the Circuit Court for Baltimore City, Maryland as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders and provide that claims relating to causes of action under the Securities Act may only be brought in federal district courts, which could limit stockholders' ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

          Our bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Circuit Court for Baltimore City, Maryland, or, if that court does not have jurisdiction, the United States District Court for the District of Maryland, Northern Division, will be the sole and exclusive forum for (a) any Internal Corporate Claim, as such term is defined in the MGCL, (b) any derivative action or proceeding brought on our behalf (other than actions arising under federal securities laws), (c) any action asserting a claim of breach of any duty owed by any of our directors, officers or other employees to us or to our stockholders, (d) any action asserting a claim against us or any of our directors, officers or other employees arising pursuant to any provision of the MGCL or our charter or bylaws or (e) any other action asserting a claim against us or any of our directors, officers or other employees that is governed by the internal affairs doctrine. This provision does not cover claims made by stockholders pursuant to the securities laws of the United States, or any rules or regulations promulgated thereunder. In addition, our bylaws also provide that, unless we consent in writing to an alternative forum, the federal district courts of the United States are, to the fullest extent permitted by law, the sole and exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act.

Termination of the employment agreements with certain members of our management team could be costly.

          The employment agreements with certain members of our management team provide that if their employment with us terminates under certain circumstances (including in connection with a change in control of our company), we may be required to pay them significant amounts of severance compensation, thereby making it costly to terminate their employment.

Our board of directors may change our investment and financing policies without stockholder approval and we may become more highly leveraged, which may increase our risk of default under our debt obligations.

          Our investment and financing policies are exclusively determined by our board of directors. Accordingly, our stockholders do not control these policies. Further, our organizational documents do not limit the amount or percentage of indebtedness, funded or otherwise, that we may incur. Although we are not required to maintain a particular leverage ratio, we generally intend to target a conservative level of net debt (which includes recourse and non-recourse borrowings and any outstanding preferred stock issuance less unrestricted cash and cash equivalents). Our board of directors may alter or eliminate our current policy on borrowing at any time without stockholder approval. If this policy changes, we could become more highly leveraged, which could result in an increase in our debt service. Higher leverage also increases the risk of default on our obligations. In addition, a change in our investment policies, including the manner in which we allocate our resources across our portfolio or the types of assets in which we seek to invest, may increase our exposure to interest rate risk, real estate market

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fluctuations and liquidity risk. Changes to our policies with regards to the foregoing could materially and adversely affect us.

Our rights and the rights of our stockholders to take action against our directors and officers are limited.

          As permitted by Maryland law, our charter eliminates the liability of our directors and officers to us and our stockholders for money damages to the maximum extent permitted by Maryland law. Therefore, our directors and officers will be subject to monetary liability resulting only from:

    actual receipt of an improper benefit or profit in money, property or services; or

    active and deliberate dishonesty by the director or officer that is established by a final judgment and is being material to the cause of action adjudicated.

As a result, we and our stockholders have rights against our directors and officers that are more limited than might otherwise exist. Accordingly, in the event that actions taken by any of our directors or officers impede the performance of our company, your and our ability to recover damages from such director or officer will be limited. In addition, our charter requires us to indemnify and advance expenses to our directors and officers for actions taken by them in those and certain other capacities to the maximum extent permitted by Maryland law.

We are a holding company with no direct operations and we rely on funds received from our operating partnership to pay liabilities.

          We are a holding company and we conduct substantially all of our operations through our operating partnership. We do not have, apart from an interest in our operating partnership, any independent operations. As a result, we rely on distributions from our operating partnership to pay any dividends and other distributions we might declare on shares of our common stock. We also rely on distributions from our operating partnership to meet any of our obligations, including any tax liability on taxable income allocated to us from our operating partnership. In addition, because we are a holding company, your claims as stockholders will be structurally subordinated to all existing and future liabilities and obligations (whether or not for borrowed money) of our operating partnership and its subsidiaries. Therefore, in the event of our bankruptcy, liquidation or reorganization, our assets and those of our operating partnership and its subsidiaries will be able to satisfy the claims of our stockholders only after all of our and our operating partnership's and its subsidiaries' liabilities and obligations have been paid in full.

          In connection with our future acquisition of properties or otherwise, we may issue units of our operating partnership to third parties. Such issuances would reduce our ownership in our operating partnership. Because you will not directly own units of our operating partnership, you will not have any voting rights with respect to any such issuances or other partnership level activities of our operating partnership.

Conflicts of interest could arise in the future between the interests of our stockholders and the interests of holders of OP units, which may impede business decisions that could benefit our stockholders.

          Conflicts of interest could arise in the future as a result of the relationships between us and our affiliates, on the one hand, and our operating partnership or any future partner thereof, on the other. Our directors and officers have duties to our company under applicable Maryland law in connection with the management of our company. At the same time, one of our wholly-owned subsidiaries, NETSTREIT GP, LLC, as the general partner of our operating partnership, has fiduciary duties and obligations to our operating partnership and its limited partners under Delaware law and the partnership

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agreement of our operating partnership in connection with the management of our operating partnership. The fiduciary duties and obligations of NETSTREIT GP, LLC, as the general partner of our operating partnership, and its limited partners may come into conflict with the duties of our directors and officers to our company.

          Under the terms of the partnership agreement of our operating partnership, if there is a conflict between the interests of our stockholders on one hand and any limited partners on the other, we will endeavor in good faith to resolve the conflict in a manner not adverse to either our stockholders or any limited partners; provided, however, that any conflict that cannot be resolved in a manner not adverse to either our stockholders or any limited partners must be resolved in favor of our stockholders.

          The partnership agreement of our operating partnership requires the general partner to obtain the approval of a majority in interest of the outside limited partners in our operating partnership (which excludes us and our subsidiaries) to transfer any of its or our interest in our operating partnership in connection with certain mergers, consolidations or other combinations of us, or a sale of all or substantially all of our assets.

          The partnership agreement of our operating partnership also provides that the general partner will not be liable to our operating partnership, its partners or any other person bound by the partnership agreement for monetary damages for losses sustained, liabilities incurred or benefits not derived by our operating partnership or any limited partner, except for liability for the general partner's intentional harm or gross negligence. Moreover, the partnership agreement of our operating partnership provides that our operating partnership is required to indemnify the general partner and its members, managers, managing members, officers, employees, agents and designees from and against any and all claims that relate to the operations of our operating partnership, except (i) if the act or omission of the person was material to the matter giving rise to the action and either was committed in bad faith or was the result of active or deliberate dishonesty, (ii) for any transaction for which the indemnified party received an improper personal benefit, in money, property or services or otherwise in violation or breach of any provision of the partnership agreement or (iii) in the case of a criminal proceeding, if the indemnified person had reasonable cause to believe that the act or omission was unlawful.

We may have assumed unknown liabilities in connection with the formation transactions, which, if significant, could adversely affect our business.

          As part of the formation transactions, we acquired indirect interests in the properties and assets of our predecessor, subject to existing liabilities, some of which may have been unknown at the time the private offering was consummated. As part of the formation transactions, our predecessor made limited representations, warranties and covenants to us regarding the contributed assets. Because many liabilities, including tax liabilities, may not have been identified, we may have no recourse for such liabilities. Any unknown or unquantifiable liabilities to which the properties and assets previously owned by our predecessor are subject could adversely affect the value of those properties and as a result adversely affect us.

Risks Related to Our Status as a REIT

Our failure to qualify or maintain our qualification as a REIT for U.S. federal income tax purposes would reduce the amount of funds we have available for distribution and limit our ability to make distributions to our stockholders.

          We believe that our organization and current proposed method of operation has enabled us to meet the requirements for qualification and taxation as a REIT commencing with our short taxable year ended December 31, 2019, and we intend to continue to operate in such a manner. However, we cannot assure you that we will qualify and remain qualified as a REIT. In connection with our initial public offering, we will receive an opinion from Winston & Strawn LLP that we qualified to be taxed as a REIT under the U.S. federal income tax laws for our short taxable year ended December 31, 2019, and our

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organization and current and proposed method of operations will enable us to satisfy the requirements for qualification and taxation as a REIT under the U.S. federal income tax laws for our taxable year ending December 31, 2020 and subsequent taxable years. Investors should be aware that Winston & Strawn LLP's opinion will be based upon customary assumptions, will be conditioned upon certain representations made by us as to factual matters, including representations regarding the nature of our assets and the conduct of our business, and is not binding upon the Internal Revenue Service (the "IRS") or any court and speaks only as of the date issued. In addition, Winston & Strawn LLP's opinion will be based on existing U.S. federal income tax law governing qualification as a REIT, which is subject to change either prospectively or retroactively. Moreover, our qualification and taxation as a REIT depend upon our ability to meet on a continuing basis, through actual annual operating results, certain qualification tests set forth in the U.S. federal tax laws. Winston & Strawn LLP will not review our compliance with those tests on a continuing basis. Accordingly, no assurance can be given that our actual results of operations for any particular taxable year will satisfy such requirements. Winston & Strawn LLP's opinion does not foreclose the possibility that we may have to use one or more of the REIT savings provisions described below, which could require us to pay an excise or penalty tax (which could be material) in order for us to maintain our REIT qualification. For a discussion of the tax consequences of our failure to qualify as a REIT, see "U.S. Federal Income Tax Considerations — Failure to Qualify."

          If we fail to qualify as a REIT in any taxable year, we will face serious tax consequences that will substantially reduce the funds available for distributions to our stockholders because:

    we would not be allowed a deduction for dividends paid to stockholders in computing our taxable income and would be subject to U.S. federal income tax at the corporate rate;

    we could be subject to increased state and local taxes; and

    unless we are entitled to relief under certain U.S. federal income tax laws, we could not re-elect REIT status until the fifth calendar year after the year in which we failed to qualify as a REIT.

          In addition, if we fail to qualify as a REIT, we will no longer be required to make distributions. As a result of all these factors, our failure to qualify as a REIT could impair our ability to expand our business and raise capital, and it would adversely affect the value of our common stock. See "U.S. Federal Income Tax Considerations" for a discussion of material U.S. federal income tax consequences relating to us and our common stock.

          Qualification as a REIT involves the application of highly technical and complex Code provisions for which there are only limited judicial and administrative interpretations. The determination of various factual matters and circumstances not entirely within our control may affect our ability to qualify as a REIT. To qualify as a REIT, we must satisfy a number of requirements, including requirements regarding the ownership of our stock, requirements regarding the composition of our assets and a requirement that certain specified percentages of our gross income in any year must be derived from qualifying sources, such as "rents from real property." Also, we must make distributions to stockholders aggregating annually at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gains. In addition, legislation, new regulations, administrative interpretations or court decisions may materially and adversely affect our investors, our ability to qualify as a REIT for U.S. federal income tax purposes or the desirability of an investment in a REIT relative to other investments.

Even if we qualify as a REIT for U.S. federal income tax purposes, we may be subject to other tax liabilities that reduce our cash flow and our ability to make distributions to you.

          Even if we qualify for taxation as a REIT, we may be subject to certain U.S. federal, state and local income, property and excise taxes on our income or property and, in certain cases, a 100% penalty tax, in the event we sell property as a dealer. In addition, NETSTREIT TRS and any additional TRSs we form

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will be subject to U.S. federal income tax and applicable state and local taxes on their net income. Any of these taxes would reduce our cash available for distribution to you.

Failure to make required distributions would subject us to U.S. federal corporate income tax.

          We intend to continue to operate in a manner so as to qualify as a REIT for U.S. federal income tax purposes. In order to qualify as a REIT, we generally are required to distribute at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gain, each year to our stockholders. To the extent that we satisfy this distribution requirement, but distribute less than 100% of our REIT taxable income, we will be subject to U.S. federal corporate income tax on our undistributed taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we pay out to our stockholders in a calendar year is less than the minimum amount specified under the Code.

If our operating partnership failed to qualify as a partnership for U.S. federal income tax purposes, we would cease to qualify as a REIT.

          We believe that our operating partnership will be treated as a partnership for U.S. federal income tax purposes. As a partnership, our operating partnership generally will not be subject to U.S. federal income tax on its income. Instead, each of its partners, including us, will be allocated, and may be required to pay tax with respect to, its share of our operating partnership's income. We cannot assure you, however, that the IRS will not challenge the status of our operating partnership or any other subsidiary partnership in which we own an interest as a partnership for U.S. federal income tax purposes, or that a court would not sustain such a challenge. If the IRS were successful in treating our operating partnership or any such other subsidiary partnership as an entity taxable as a corporation for U.S. federal income tax purposes, we would fail to meet the gross income tests and certain of the asset tests applicable to REITs and, accordingly, we would likely cease to qualify as a REIT. Also, the failure of our operating partnership or any subsidiary partnerships to qualify as a partnership could cause it to become subject to U.S. federal and state corporate income tax, which would reduce significantly the amount of cash available for debt service and for distribution to its partners, including us.

To maintain our REIT qualification, we may be forced to borrow funds during unfavorable market conditions, and the unavailability of such capital on favorable terms at the desired times, or at all, may cause us to curtail our investment activities and/or to dispose of assets at inopportune times, which could adversely affect our financial condition, results of operations, cash flow and value of our common stock.

          To maintain our qualification as a REIT, we must distribute annually to our stockholders at least 90% of our REIT taxable income (which does not equal net income as calculated in accordance with GAAP), determined without regard to the deduction for dividends paid and excluding net capital gain. We will be subject to U.S. federal income tax on our undistributed REIT taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than the sum of (a) 85% of our ordinary income, (b) 95% of our capital gain net income and (c) 100% of our undistributed income from prior years. To maintain our REIT qualification and avoid the payment of U.S. federal income and excise taxes, we may need to borrow funds to meet the REIT distribution requirements, even if the then-prevailing market conditions are not favorable for these borrowings. These borrowing needs could result from, among other things, differences in timing between the actual receipt of cash and recognition of income for U.S. federal income tax purposes, or the effect of non-deductible capital expenditures, the creation of reserves or required debt or amortization payments. These sources, however, may not be available on favorable terms or at all. Our access to third-party sources of capital depends on a number of factors, including the market's perception of our growth potential, our current debt levels, and our current and potential future earnings. We cannot assure you that we will have access to such capital on favorable terms at the desired times, or at

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all, which may cause us to curtail our investment activities and/or to dispose of assets at inopportune times, and could adversely affect our financial condition, results of operations, cash flow and the value of our common stock. Alternatively, we may make taxable in-kind distributions of our own stock, which may cause our stockholders to be required to pay income taxes with respect to such distributions in excess of any cash they receive, or we may be required to withhold taxes with respect to such distributions in excess of any cash our stockholders receive.

Dividends payable by REITs generally do not qualify for the reduced tax rates available for some dividends.

          Currently, the maximum tax rate applicable to qualified dividend income payable to U.S. stockholders that are individuals, trusts and estates is 20%. Dividends payable by REITs, however, generally are not eligible for this reduced rate. Under the Tax Cuts and Jobs Act (the "TCJA"), however, U.S. stockholders that are individuals, trusts and estates generally may deduct up to 20% of the ordinary dividends (e.g., dividends not designated as capital gain dividends or qualified dividend income) received from a REIT for taxable years beginning after December 31, 2017 and before January 1, 2026. To qualify for this deduction, the U.S. stockholder receiving such dividends must hold the dividend-paying REIT stock for at least 46 days (taking into account certain special holding period rules) of the 91-day period beginning 45 days before the stock becomes ex-dividend and cannot be under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to a position in substantially similar or related property. Although this deduction reduces the effective U.S. federal income tax rate applicable to such dividends paid by REITs (generally to 29.6% assuming the stockholder is subject to the 37% maximum rate), such tax rate is still higher than the tax rate applicable to corporate dividends that constitute qualified dividend income. Accordingly, investors who are individuals, trusts and estates may perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could materially and adversely affect the value of the stock of REITs, including the per share trading price of our common stock.

The share ownership restrictions of the Code for REITs and the 9.8% share ownership limit in our charter may inhibit market activity in shares of our stock and restrict our business combination opportunities.

          In order to qualify as a REIT, five or fewer individuals, as defined in the Code, may not own, actually or constructively, more than 50% in value of our issued and outstanding shares of stock at any time during the last half of each taxable year, other than the first year for which a REIT election is made. Attribution rules in the Code determine if any individual or entity actually or constructively owns shares of our common stock under this requirement. Additionally, at least 100 persons must beneficially own shares of our common stock during at least 335 days of a taxable year for each taxable year, other than the first year for which a REIT election is made. To help ensure that we meet these tests, among other purposes, our charter restricts the acquisition and ownership of shares of our common stock.

          Our charter, with certain exceptions, authorizes our directors to take such actions as are necessary or appropriate to preserve our qualification as a REIT while we so qualify. Unless exempted by our board of directors (prospectively or retroactively), for so long as we qualify as a REIT, our charter prohibits, among other limitations on ownership and transfer of shares of our stock, any person from beneficially or constructively owning (applying certain attribution rules under the Code) more than 9.8% in value or number of shares, whichever is more restrictive, of our outstanding common stock or of any class or series of our preferred stock, or more than 9.8% of the aggregate value of all of our outstanding stock. Our board of directors may not grant an exemption from these restrictions to any proposed transferee whose ownership in excess of the 9.8% ownership limit would result in our failing to qualify as a REIT. The board may grant waivers from the ownership limits for certain stockholders. These waivers may be subject to initial and ongoing conditions designed to protect our status as a REIT. These restrictions on transferability and ownership will not apply, however, if our board of directors determines that it is no longer in our best interest to qualify as a REIT or that compliance with such restriction is no longer required in order for us to so qualify as a REIT.

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          These ownership limits could delay or prevent a transaction or a change in control that might involve a premium price for our common stock or otherwise be in the best interest of the stockholders.

The tax imposed on REITs engaging in "prohibited transactions" may limit our ability to engage in transactions which would be treated as sales for U.S. federal income tax purposes.

          A REIT's net income from prohibited transactions is subject to a 100% penalty tax. In general, prohibited transactions are sales or other dispositions of property, other than foreclosure property, held primarily for sale to customers in the ordinary course of business. Although we do not intend to hold any properties that would be characterized as held for sale to customers in the ordinary course of our business, unless a sale or disposition qualifies under certain statutory safe harbors, such characterization is a factual determination and no guarantee can be given that the IRS would agree with our characterization of our properties or that we will always be able to make use of the available safe harbors. The 100% tax does not apply to gains from the sale of property that is held through a TRS or other taxable corporation, although such income will be subject to tax in the hands of the corporation at regular corporate rates. We intend to structure our activities to avoid the prohibited transaction tax.

If a transaction intended to qualify as a 1031 Exchange is later determined to be taxable, we may face adverse consequences, and if the laws applicable to such transactions are amended or repealed, we may not be able to dispose of properties on a tax-deferred basis.

          We actively manage our portfolio and dispose of properties that do not meet our disciplined underwriting criteria, including rent coverage ratios below 2.0x, or subject us to risks associated with adverse developments affecting particular tenants, industries or regions. In order to avoid potentially significant taxable gains upon the sale of such properties, we intend to dispose of properties in 1031 Exchanges. It is possible that the qualification of a transaction as a 1031 Exchange could be successfully challenged and determined to be currently taxable. In such case, our taxable income and earnings and profits would increase. This could increase the dividend income to our stockholders by reducing any return of capital they received. In some circumstances, we may be required to pay additional dividends or, in lieu of that, corporate income tax, possibly including interest and penalties. In addition, such recharacterization could result in such property sale, and potentially other property sales, being subject to the 100% penalty tax on net income from prohibited transactions. As a result, we may be required to borrow funds in order to pay additional dividends or taxes, and the payment of such taxes could cause us to have less cash available to distribute to our stockholders. In addition, if a 1031 Exchange were later to be determined to be taxable, we may be required to amend our tax returns for the applicable year in question, including any information reports we sent our stockholders. Moreover, it is possible that legislation could be enacted that could modify or repeal the laws with respect to 1031 Exchanges, which could make it more difficult or impossible for us to dispose of properties on a tax deferred basis.

Complying with REIT requirements may limit our ability to hedge our liabilities effectively and may cause us to incur tax liabilities.

          The REIT provisions of the Code substantially limit our ability to hedge our assets and liabilities. Any income from a hedging transaction that we enter into to manage the risk of interest rate changes with respect to borrowings made or to be made to acquire or carry real estate assets, or from certain terminations of such hedging positions, does not constitute "gross income" for purposes of the 75% or 95% gross income tests that apply to REITs, provided that certain identification requirements are met. To the extent that we enter into other types of hedging transactions, the income from those transactions will likely be treated as non-qualifying income for purposes of both of the gross income tests. See "U.S. Federal Income Tax Considerations." As a result of these rules, we may need to limit our use of advantageous hedging techniques or implement those hedges through a TRS. This could increase the cost of our hedging activities because our TRSs would be subject to tax on gains or expose us to

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greater risks associated with changes in interest rates than we would otherwise want to bear. In addition, losses in any TRS in which we own an interest will generally not provide any tax benefit, except that such losses could theoretically be carried forward against future taxable income in such TRS.

Complying with REIT requirements may cause us to forego otherwise attractive opportunities or liquidate otherwise attractive investments.

          To qualify as a REIT, we must continually satisfy tests concerning, among other things, the nature and diversification of our assets, the sources of our income and the amounts we distribute to our stockholders. We may be required to liquidate or forgo otherwise attractive investments in order to satisfy the asset and income tests or to qualify under certain statutory relief provisions. We also may be required to make distributions to stockholders at disadvantageous times or when we do not have funds readily available for distribution. As a result, having to comply with the distribution requirement could cause us to: (i) sell assets in adverse market conditions; (ii) borrow on unfavorable terms; or (iii) distribute amounts that would otherwise be invested in future acquisitions, capital expenditures or repayment of debt. Accordingly, satisfying the REIT requirements could materially and adversely affect us. Moreover, if we are compelled to liquidate our investments to meet any of these asset, income or distribution tests, or to repay obligations to our lenders, we may be unable to comply with one or more of the requirements applicable to REITs or may be subject to a 100% tax on any resulting gain if such sales constitute prohibited transactions.

The ability of the board to revoke our REIT qualification without stockholder approval may cause adverse consequences to our stockholders.

          Our board may revoke or otherwise terminate our REIT election, without the approval of our stockholders, if it determines that it is no longer in our best interest to continue to qualify as a REIT. If we cease to be a REIT, we would not be allowed a deduction for dividends paid to stockholders in computing our taxable income would be subject to U.S. federal income tax at the regular corporate rate and state and local taxes, and would no longer be required to distribute most of our taxable income to our stockholders, which may have adverse consequences on our total return to our stockholders.

Although our use of TRSs may partially mitigate the impact of meeting certain requirements necessary to maintain our qualification as a REIT, there are limits on our ability to own TRSs, and a failure to comply with the limits would jeopardize our REIT qualification and may result in the application of a 100% excise tax.

          A REIT may own up to 100% of the stock of one or more TRSs. A TRS may hold assets and earn income that would not be qualifying assets or income if held or earned directly by a REIT. Both the subsidiary and the REIT must jointly elect to treat the subsidiary as a TRS. A corporation of which a TRS directly or indirectly owns more than 35% of the voting power or value of the stock will automatically be treated as a TRS. Overall, no more than 20% of the value of a REIT's assets may consist of securities of one or more TRSs. In addition, the Code imposes a 100% excise tax on certain transactions between a TRS and its parent REIT that are treated as not being conducted on an arm's-length basis.

          NETSTREIT TRS and any other TRSs that we form will pay U.S. federal, state and local income tax on the TRS' taxable income, and the TRSs' after-tax net income will be available for distribution to us but is not required to be distributed to us. Although we will monitor the aggregate value of the securities of such TRSs and intend to conduct our affairs so that such securities will represent less than 20% of the value of our total assets, there can be no assurance that we will be able to comply with the TRS limitation in all market conditions.

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Legislative or other actions affecting REITs could have a negative effect on our stockholders or us.

          The rules dealing with U.S. federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Department of the Treasury. Changes to the tax laws, with or without retroactive application, could materially and adversely affect our investors or us. We cannot predict how changes in the tax laws might affect our investors or us. New legislation, Treasury regulations, administrative interpretations or court decisions could significantly and negatively affect our ability to qualify as a REIT or the U.S. federal income tax consequences of such qualification, or the U.S. federal income tax consequences of an investment in us. Also, the law relating to the tax treatment of other entities, or an investment in other entities, could change, making an investment in such other entities more attractive relative to an investment in a REIT.

          The tax laws applicable to REITs could be subject to potential amendments and technical corrections, as well as interpretations and implementing regulations by the Treasury and IRS, any of which could lessen or increase the impact of such tax laws. In addition, it is unclear how any changes to the U.S. federal income tax laws will affect state and local taxation, which often uses U.S. federal taxable income as a starting point for computing state and local tax liabilities.

          While some of the changes made by new tax legislation may adversely affect us in one or more reporting periods and prospectively, other changes may be beneficial on a going forward basis.

Risks Related to Ownership of Our Common Stock

There is currently no public market for our common stock, a trading market for our common stock may never develop following our initial public offering and our common stock price may be volatile and could decline substantially following our initial public offering.

          Prior to our initial public offering, there has been no public market for our common stock, and there can be no assurance that an active trading market will develop or be sustained or that shares of our common stock will be resold at or above the initial public offering price. We have been approved to list our common stock on the NYSE, subject to official notice of issuance. If an active market does not develop or is not maintained, the market price of our common stock may decline and you may not be able to sell your shares. Even if an active trading market develops for our common stock subsequent to our initial public offering, the market price of our common stock may be highly volatile and subject to wide fluctuations. Our financial performance, government regulatory action, tax laws, interest rates and market conditions in general could have a significant impact on the future market price of our common stock.

          Some of the factors that could negatively affect or result in fluctuations in the market price of our common stock include:

    actual or anticipated variations in our quarterly operating results;

    increases in market interest rates that lead purchasers of our shares to demand a higher yield;

    changes in market valuations of similar companies;

    adverse market reaction to any increased indebtedness we incur in the future;

    additions or departures of key personnel;

    actions by stockholders;

    speculation in the press or investment community;

    general market, economic and political conditions, including an economic slowdown or dislocation in the global credit markets;

    our operating performance and the performance of other similar companies;

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    negative publicity regarding us specifically or our business lines generally;

    changes in accounting principles; and

    passage of legislation or other regulatory developments that adversely affect us or our industry.

Broad market fluctuations could negatively impact the market price of shares of our common stock.

          The stock market may experience extreme price and volume fluctuations that have affected the market price of many companies in industries similar or related to ours and that have been unrelated to these companies' operating performances. The changes frequently appear to occur without regard to the operating performance of the affected companies. Hence, the price of our common stock could fluctuate based upon factors that have little or nothing to do with us in particular. These broad market fluctuations could reduce the market price of shares of our common stock. Furthermore, our operating results and prospects may be below the expectations of public market analysts and investors or may be lower than those of companies with comparable market capitalizations. Either of these factors could lead to a material decline in the per share trading price of our common stock.

We may be unable to make distributions at expected levels, which could result in a decrease in the market price of our common stock.

          We may be unable to pay our estimated initial annual distribution to stockholders out of cash available for distribution. If sufficient cash is not available for such distribution from our operations, we may have to fund distributions from working capital, borrow to provide funds for such distributions, or reduce the amount of such distributions. To the extent we borrow to fund distributions, our future interest expense would increase, thereby reducing our earnings and cash available for distribution from what they otherwise would have been. If cash available for distribution generated by our assets is less than our current estimate, or if such cash available for distribution decreases in future periods from expected levels, our inability to make the expected distributions could result in a decrease in the market price of our common stock. In the event the underwriters' option to purchase additional shares in our initial public offering is exercised, pending investment of the proceeds therefrom, our ability to pay such distributions out of cash from our operations may be further adversely affected.

          All distributions will be authorized at the discretion of our board of directors and will be based upon, among other factors, our historical and projected results of operations, financial condition, cash flows and liquidity, qualification and maintenance of our REIT qualification and other tax considerations, capital expenditure and other expense obligations, debt covenants, contractual prohibitions or other limitations and applicable law and such other matters as our board of directors may deem relevant from time to time. We may not be able to make distributions in the future, and our inability to make distributions, or to make distributions at expected levels, could result in a decrease in the market price of our common stock.

There are restrictions on ownership and transfer of our common stock.

          To assist us in qualifying as a REIT, among other purposes, our charter generally limits beneficial ownership by any person to no more than 9.8% in value or number of shares, whichever is more restrictive, of our outstanding common stock or of any class or series of our preferred stock, or more than 9.8% of the aggregate value of all our outstanding stock. Our charter contains various other restrictions on the ownership and transfer of shares of our stock. See "Description of Our Capital Stock — Restrictions on Ownership and Transfer." As a result, an investor that purchases shares of our common stock in this offering may not be able to readily resell such common stock. For more information, see "Description of Our Capital Stock — Restrictions on Ownership and Transfer."

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Future sales of our common stock or other securities convertible into our common stock could cause the market value of our common stock to decline and could result in dilution of your shares.

          Our board of directors is authorized, to increase the total number of shares of stock that we are authorized to issue and without your approval, to cause us to issue additional shares of our stock or to raise capital through the issuance of preferred stock, options, warrants and other rights on terms and for consideration as our board of directors in its sole discretion may determine. Sales of substantial amounts of our common stock will dilute your ownership and could cause the market price of our common stock to decrease significantly. We cannot predict the effect, if any, of future sales of our common stock, or the availability of our common stock for future sales, on the value of our common stock. Sales of substantial amounts of our common stock, or the perception that such sales could occur, may adversely affect the market price of our common stock.

          In addition, our operating partnership may issue additional OP units to third parties without the consent of our stockholders, which would reduce our ownership percentage in our operating partnership and would have a dilutive effect on the amount of distributions made to us by our operating partnership and, therefore, the amount of distributions we can make to our stockholders. Any such issuances, or the perception of such issuances, could materially and adversely affect the market price of our common stock.

We may be required to pay Special Stock Dividends if we do not satisfy certain obligations under the Registration Rights Agreements, which could cause the market value of our common stock to decline and could result in dilution of your shares.

          If this Resale Shelf Registration Statement is not declared effective by the Resale Registration Effectiveness Deadline or the Extended Resale Registration Effectiveness Deadline, as applicable, we will be required to pay Special Stock Dividends on each outstanding share of our common stock issued in the Private Offering and each Class A OP unit. Special Stock Dividends will accrue at a rate of 8% per annum, based on a value of $19.75 per share (which was the offering price per share in the private offering), or 0.08 shares of common stock per annum, for the number of days during following the Resale Registration Effectiveness Deadline or the Extended Resale Registration Effectiveness Deadline, as applicable, that this Resale Shelf Registration Statement is not declared effective by the SEC. See "Description of Capital Stock — Registration Rights." In the event we are required to issue Special Stock Dividends under the Registration Rights Agreements, such issuances, or the perception of such issuances, could materially and adversely affect the market price of our common stock.

Future offerings of debt securities or preferred stock, which would rank senior to our common stock upon our bankruptcy or liquidation, and future offerings of equity securities that may be senior to our common stock for the purposes of dividend and liquidating distributions, may adversely affect the market price of our common stock.

          In the future, we may attempt to raise additional capital by making offerings of debt securities or additional offerings of equity securities, including preferred stock. Upon bankruptcy or liquidation, holders of our debt securities and shares of preferred stock and lenders with respect to other borrowings will receive a distribution of our available assets prior to the holders of our common stock. Our preferred stock, if issued, could have a preference on liquidating distributions or a preference on dividend payments or both that could limit our ability to pay a dividend or other distribution to the holders of our common stock. Our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control. As a result, we cannot predict or estimate the amount, timing or nature of our future offerings, and purchasers of our common stock in this offering bear the risk of our future offerings reducing the market price of our common stock and diluting their ownership interest in our company.

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A lack of research analyst coverage could materially and adversely affect the trading price and liquidity of our common stock.

          We cannot assure you that research analysts will initiate or maintain research coverage of us or our common stock. Accordingly, it could be the case that research concerning our results of operations or the possible effects on us of significant news or a significant event will not be published or will be published on a delayed basis. A lack of research or the inability of certain research analysts to publish research relating to our results of operations or significant news or a significant event in a timely manner could materially and adversely affect the trading price and liquidity of our common stock.

We are an "emerging growth company," and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make shares of our common stock less attractive to investors.

          We are an "emerging growth company" as defined in the JOBS Act, and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, an extended transition period for complying with new or revised accounting standards and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our common stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. We may take advantage of these reporting exemptions until we are no longer an emerging growth company. We will remain an emerging growth company until the earliest to occur of (i) the last day of the fiscal year during which our total annual revenue equals or exceeds $1.07 billion (subject to adjustment for inflation), (ii) the last day of the fiscal year following the fifth anniversary of our initial public offering, (iii) the date on which we have, during the previous three year period, issued more than $1.0 billion in non-convertible debt or (iv) the date on which we are deemed to be a "large accelerated filer" under the Exchange Act.

We will incur significant new costs as a result of becoming a public company, and such costs may increase when we cease to be an emerging growth company.

          As a public company, we will incur significant legal, accounting, insurance and other expenses that we have not incurred as a private company, including costs associated with public company reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act, the listing requirements of the NYSE and other applicable securities rules and regulations. Compliance with these rules and regulations may significantly increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources. As a result, our executive officers' attention may be diverted from other business concerns, which could adversely affect our business and results of operations. Furthermore, the expenses incurred by public companies generally for reporting and corporate governance purposes have been increasing. We expect compliance with these public reporting requirements and associated rules and regulations to increase expenses, particularly after we are no longer an emerging growth company, although we are currently unable to estimate theses costs with any degree of certainty. We could be an emerging growth company for up to five full fiscal years, although circumstances could cause us to lose that status earlier as discussed above, which could result in our incurring additional costs applicable to public companies that are not emerging growth companies.

          In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming. These laws, regulations and standards are subject to

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varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and our business may be adversely affected.

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FORWARD-LOOKING STATEMENTS

          The information in this prospectus includes "forward-looking statements." All statements, other than statements of historical fact, included in this prospectus regarding, among other things, our strategy, future operations, financial position, projected costs, our acquisition pipeline, prospects, plans and objectives of management are forward-looking statements. When used in this prospectus, the words "could," "believe," "anticipate," "intend," "estimate," "expect," "project" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on our current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements described under the heading "Risk Factors" included in this prospectus. These forward-looking statements are based on management's current belief, based on currently available information, as to the outcome and timing of future events. Our forward-looking statements involve significant risks and uncertainties (some of which are beyond our control) and assumptions that could cause actual results to differ materially from our historical experience and our present expectations or projections. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to:

    general business and economic conditions;

    risks inherent in the real estate business, including tenant defaults, illiquidity of real estate investments, potential liability relating to environmental matters and potential damages from natural disasters;

    the impact of COVID-19 on our business and the global economy;

    the accuracy of our assessment that certain businesses provide necessity goods or essential services and are, thus, e-commerce resistant and recession-resilient;

    accuracy of the tools we use to determine the creditworthiness of our tenants;

    concentration of our business within certain geographic markets and with certain tenants;

    demand for restaurant and retail space;

    ability to renew leases, lease vacant space or re-lease space as existing leases expire or are terminated;

    availability of suitable properties to acquire and our ability to acquire and lease those properties on favorable terms;

    the degree and nature of our competition;

    inflation and interest rate fluctuations;

    access to capital markets;

    availability of qualified personnel and our ability to retain our key management personnel;

    failure, weakness, interruption or breach in security of our information systems;

    effect of litigation against us;

    changes in, or the failure or inability to comply with, applicable law or regulation;

    our failure to generate sufficient cash flows to service our outstanding indebtedness;

    continued volatility and uncertainty in the credit markets and broader financial markets;

    failure to qualify or remain qualified for taxation as a REIT;

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    future sales of our common stock or other securities convertible into our common stock could cause the market value of our common stock to decline and could result in dilution; and

    the other risks identified in this prospectus including, without limitation, those under the headings "Risk Factors," "Our Business and Properties," and "Management's Discussion and Analysis of Financial Condition and Results of Operations."

          These factors are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors also could have material adverse effects on our future results. Our future results will depend upon various other risks and uncertainties, including those described elsewhere in this prospectus under the heading, "Risk Factors." Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. We undertake no obligation to update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise. All forward-looking statements attributable to us are qualified in their entirety by this cautionary statement.

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USE OF PROCEEDS

          We will not receive any proceeds from the sale of shares of our common stock by the selling stockholders. However, we have agreed to pay all expenses relating to the registration of the shares of common stock, other than any brokers' or underwriters' discounts and commissions.

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DISTRIBUTION POLICY

          You should read the following discussion of our cash distribution policy in conjunction with our discussion of "Forward-Looking Statements" and "Risk Factors" for information regarding statements that do not relate strictly to historical or current facts and certain risks to our business. For additional information regarding our historical results of operations, you should refer to the historical financial statements and related notes, in each case, included elsewhere in this prospectus.

          We cannot assure you that we will make quarterly cash distributions to the holders of our common stock. Any distributions will be authorized at the sole discretion of our board of directors, and their form, timing and amount, if any, will depend upon a number of factors, including our actual and projected results of operations, FFO, Core FFO, AFFO, liquidity, cash flows and financial condition, the revenue we actually receive from our properties, our operating expenses, our debt service requirements, our capital expenditures, prohibitions and other limitations under our financing arrangements, our REIT taxable income, the annual REIT distribution requirements, applicable law, including restrictions on distributions under Maryland law, and such other factors as our board of directors deems relevant. For more information regarding risk factors that could materially and adversely affect us and our ability to make cash distributions, see "Risk Factors." If our operations do not generate sufficient cash flow to enable us to pay our intended or required distributions, we may be required either to fund distributions from working capital, borrow or raise equity or to reduce such distributions. In addition, our charter allows us to classify, designate and issue preferred stock that could have a preference on distributions and could limit our ability to make distributions to our stockholders. Additionally, under certain circumstances, agreements relating to our indebtedness could limit our ability to make distributions to our stockholders.

          In order to qualify and maintain our qualification as a REIT, we must distribute annually to our stockholders at least 90% of our REIT taxable income (which does not equal net income as calculated in accordance with GAAP), determined without regard to the deduction for dividends paid and excluding net capital gain. We will be subject to U.S. federal income tax on our undistributed REIT taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than the sum of (a) 85% of our ordinary income, (b) 95% of our capital gain net income and (c) 100% of our undistributed income from prior years. For more information, see "U.S. Federal Income Tax Considerations." We anticipate that our estimated cash available for distribution will be sufficient to enable us to meet the annual distribution requirements applicable to REITs and to avoid or minimize the imposition of corporate and excise taxes. However, under some circumstances, we may be required to make distributions in excess of cash available for distribution in order to meet these distribution requirements or to avoid or minimize the imposition of tax and we may need to borrow funds to make certain distributions.

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NETSTREIT CORP. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

          The following unaudited pro forma consolidated financial statements, prepared in accordance with Article 11 of Regulation S-X, were derived from the historical consolidated financial statements of the Company and are being presented to give effect to the completed and proposed transactions described below.

          The unaudited pro forma consolidated financial statements have been derived by applying pro forma adjustments to the historical consolidated financial statements of the Company and its predecessor presented elsewhere in this prospectus.

          The pro forma adjustments give effect to events that are (1) directly attributable to the transactions referred to below, (2) factually supportable, and (3) with respect to the statement of income (loss), expected to have a continuing impact on us. The adjustments necessary to fairly present the unaudited pro forma consolidated financial statements have been based on available information and assumptions that we believe are reasonable. The adjustments are described in the notes to the unaudited pro forma consolidated financial statements and present how our consolidated financial statements may have appeared had our capital structure reflected the below transactions as of the dates noted below.

Private Offering and Formation Transactions

          On December 23, 2019, we completed the initial closing of the private offering pursuant to which we sold 8,860,760 shares of common stock at $19.75 per share in a private placement under Rule 144A and Regulation D of the Securities Act. On such date, we also completed the formation transactions described below. The Company contributed the net proceeds of $164,504,600 from the initial closing of the private offering to the operating partnership in exchange for 8,860,760 Class A OP units.

          Concurrently with the initial closing of the private offering, we engaged in a series of formation transactions including, but not limited to, the following:

    Merging our predecessor with and into our operating partnership, with our operating partnership surviving the merger, and the continuing investors in the operating partnership receiving an aggregate of 3,652,149 Class A OP units, other than our Chief Executive Officer, who received 8,884 Class B OP units, and an affiliate of our predecessor, which received 287,234 Class B OP units. As part of the merger, we acquired our initial portfolio of 93 single-tenant commercial retail properties from our predecessor for a total purchase price of $256,285,499 paid for in OP Units and in cash. The acquisition was accounted for as an asset acquisition and included $502,692 of incurred acquisition fees.

    The operating partnership entered into a contribution agreement with EBA EverSTAR to internalize our management infrastructure, whereby EBA EverSTAR contributed 100% of the membership interests in EBA EverSTAR Management, LLC, the manager of the predecessor, to our operating partnership in exchange for 500,752 Class B OP Units.

    Concurrently with the consummation of the private offering, we entered into the $175.0 million Term Loan and the $250.0 million Revolver, the proceeds of which were used to pay off our prior credit agreement. As of June 30, 2020, we had no borrowings under our $250.0 million Revolver.

Overallotment Option

          In connection with the private offering we granted the initial purchaser a 45-day option to purchase or place in a private placement up to an additional 2,936,885 shares of common stock at the offering price less the initial purchaser's discount or placement fee to cover additional allotments. On January 30, 2020, the initial purchaser exercised in full its option to purchase the additional shares of our common stock, which was closed on February 6, 2020.

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Preferred Stock Transaction

          To assist us in maintaining our status as a REIT, on January 27, 2020, we issued and sold 125 shares of our 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 at our 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, no redemption premium. We intend to redeem all 125 outstanding shares of Series A Preferred Stock upon the completion of our initial public offering.

Our Initial Public Offering

          In connection with our initial public offering, the following will occur:

    We will sell approximately 15,500,000 shares of our common stock, including 290,865 shares issued to selling stockholders in connection with the redemption of such selling stockholders' OP units, in our initial public offering at the initial public offering price. We have also granted the underwriters an option to purchase up to an additional 2,325,000 shares of our common stock at the initial public offering price, less the underwriting discount, within 30 days after the date of this prospectus. These unaudited pro forma financial statements assume no exercise by the underwriters of their option to purchase additional shares.

    We will contribute the net proceeds from our initial public offering to our operating partnership in exchange for a number of Class A OP units equal to the number of shares of our common stock we issue and sell in our initial public offering.

    Our operating partnership will use the net proceeds received from our initial public offering as described under "Use of Proceeds" and "Capitalization."

    We will redeem all 125 outstanding shares of Series A Preferred Stock.

    We will repay the outstanding borrowings under the $250.0 million Revolver that were drawn to fund specifically identified property acquisitions.

    The total number of shares of our common stock reserved and available for issuance under the Omnibus Incentive Plan will increase to 2.3 million shares of common stock (to be reduced by 402,809 RSUs previously granted to our executive officers and directors and to be granted in connection with the closing of our initial public offering).

2020 Acquisitions

          During the period from January 1, 2020 through July 31, 2020, we completed 71 property acquisitions with an aggregate purchase price, including transaction costs, of $261.5 million, which are included in the unaudited pro forma consolidated financial statements. The unaudited pro forma consolidated financial statements also give effect to seven probable property acquisitions with an aggregate purchase price, including transaction costs, of $5.6 million. The completed and probable acquisitions have been funded through cash and cash equivalents and borrowings on our $250.0 million Revolver, which are included in the unaudited pro forma consolidated financial statements.

          The unaudited pro forma consolidated financial statements as of and for the period ended June 30, 2020 are presented as if (i) our completed and probable acquisitions after June 30, 2020, and (ii) the completion of our initial public offering and the use of proceeds therefrom had all occurred on June 30, 2020 for the unaudited pro forma consolidated balance sheet; and (i) the completion of the private offering and formation transactions, including the initial purchaser's option to purchase additional shares in connection with the private offering, (ii) our completed and probable 2020 acquisitions, and (iii) the completion of our initial public offering and the use of the proceeds therefrom had all occurred on January 1, 2019 for the unaudited pro forma consolidated statements of operations.

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          The unaudited pro forma consolidated financial statements should be read in conjunction with the historical consolidated financial statements of the Company and its predecessor, including the notes thereto, and other financial information and analysis, including the section captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations" presented elsewhere in this prospectus. The unaudited pro forma consolidated financial statements (i) are based on available information and assumptions that we deem reasonable; (ii) are presented for informational purposes only; (iii) do not purport to represent our financial position or results of operations or cash flows that would actually have occurred assuming completion of the transactions described above on the dates specified; and (iv) do not purport to be indicative of our future results of operations or our financial position.

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NETSTREIT CORP. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 2020
(in thousands)

 
   
  Pro Forma Adjustments    
 
 
  Historical
Company
(A)
  Completed
and probable
2020
acquisitions
from July 1, 2020
(B)
  Proceeds
from our
initial public
offering
(C)
  Use of
proceeds
from
our initial
public
offering
(D)
  Company
Pro
Forma
 

ASSETS

                               

Real estate, at cost:

                               

Land

  $ 151,449   $ 15,548   $   $   $ 166,997  

Buildings and improvements

    272,025     21,689             293,714  

Total real estate, at cost

    423,474     37,237             460,711  

Less accumulated depreciation

    (3,874 )               (3,874 )

Real estate held for investment, net

    419,600     37,237             456,837  

Assets held for sale

    10,077                 10,077  

Cash, cash equivalents and restricted cash

    7,985     7,579     285,932     (50,138 )   251,358  

Acquired lease intangible assets, net

    51,736     9,004             60,740  

Other assets, net

    7,579     267     (1,526 )       6,320  

Total assets

  $ 496,977   $ 54,087   $ 284,406   $ (50,138 ) $ 785,332  

LIABILITIES AND EQUITY

                               

Liabilities:

                               

Term loans, net

  $ 173,992   $   $   $   $ 173,992  

Revolving credit facility

        50,000         (50,000 )    

Lease intangible liabilities, net

    13,136     4,087             17,223  

Liabilities related to assets held for sale

    259                 259  

Accounts payable, accrued expenses and other liabilities

    4,458         2,174         6,632  

Total liabilities

    191,845     54,087     2,174     (50,000 )   198,106  

Commitments and contingencies

                               

Equity:

                               

Series A Preferred stock

    104             (104 )    

Shareholders' equity

                               

Common stock

    118         155         273  

Additional paid-in capital

    218,946         287,789     (34 )   506,701  

Deficit

    (1,399 )               (1,399 )

Total shareholders' equity

    217,769         287,944     (138 )   505,575  

Noncontrolling interests

    87,363         (5,712 )       81,651  

Total equity

    305,132         282,232     (138 )   587,226  

Total liabilities and equity

  $ 496,977   $ 54,087   $ 284,406   $ (50,138 ) $ 785,332  

   

See accompanying notes to unaudited pro forma consolidated financial statements

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NETSTREIT CORP. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2020
(in thousands, except share and per share data)

 
   
  Pro Forma Adjustments    
 
 
  Historical
Company
(E)
  Completed
and probable 2020
acquisition
(F)
  Adjustments from
our initial
public offering
(G)
  Company
Pro Forma
 

REVENUE

                         

Rental revenue (including reimbursable)           

  $ 12,625   $ 7,039   $   $ 19,664  

EXPENSES

   
 
   
 
   
 
   
 
 

Property — operating

    719     292         1,011  

General and administrative

    5,460         1,485     6,945  

Depreciation and amortization

    5,462     3,915         9,377  

Interest expense, net

    2,797             2,797  

Provision for impairment

    1,410             1,410  

Total expenses

    15,848     4,207     1,485     21,540  

Gain on sales of real estate

    1,016             1,016  

Gain from forfeited earnest deposit

    250             250  

Net income/(loss)

    (1,957 )   2,832     (1,485 )   (610 )

Less: Net income/(loss) attributable to noncontrolling interests

    (536 )   (776 )   (407 )   (167 )

Net income (loss) attributable to NETSTREIT Corp

    (1,421 )   2,056     (1,078 )   (443 )

Less: Cumulative preferred stock dividends

    6             6  

Net income/(loss) attributable to common shareholders

  $ (1,427 ) $ 2,056   $ (1,078 ) $ (449 )

Amounts available to common shareholders per common share:

                         

Net loss, basic and diluted

                    $ (0.03 )

Weighted average common shares outstanding:

   
 
   
 
   
 
   
 
 

Basic

                      14,588,510 (K)

Diluted

                      14,588,510 (K)

See accompanying notes to unaudited pro forma consolidated financial statements

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NETSTREIT CORP. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2019
(in thousands, except share and per share data)

 
   
   
  Pro Forma Adjustment    
  Pro Forma Adjustments    
 
 
  Historical
Predecessor
(H)
  Historical
Company
(I)
  Private offering and
formation transactions,
including exercise of
overallotment option
(J)
  Company Adjusted (incl.
private offering and
formation transactions,
including exercise of
overallotment option)
  Completed and
probable 2020
acquisitions
(F)
  Adjustments
from our
initial
public offering
(G)
  Company Pro
Forma
 

REVENUE

                                           

Rental revenue (including reimbursable)

  $ 19,805   $ 513   $ (1,373 ) $ 18,945   $ 20,132   $   $ 39,077  

EXPENSES

   
 
   
 
   
 
   
 
   
 
   
 
   
 
 

Property — operating

    1,113     52     (14 )   1,151     1,141         2,292  

General and administrative

    4,090     51         4,141         4,016     8,157  

Depreciation and amortization

    10,422     195     (2,547 )   8,070     10,285         18,355  

Interest

    10,712     173     (3,977 )   6,908             6,908  

Provision for impairment

    7,186         (3,139 )   4,047             4,047  

Total expenses

    33,523     471     (9,677 )   24,317     11,426     4,016     39,759  

Gain on sales of real estate

    5,646         (5,646 )                

Net income (loss)

    (8,072 )   42     2,658     (5,372 )   8,706     (4,016 )   (682 )

Less: Net income (loss) attributable to noncontrolling interests

        (14 )   NA     (1,472 )   (2,385 )   (1,100 )   (187 )

Net income (loss) attributable to common shareholders

  $ (8,072 ) $ 28   $ NA   $ (3,900 ) $ 6,321   $ (2,916 ) $ (495 )

Amounts available to common shareholders per common share:

                                           

Net income (loss), basic and diluted

                                      $ (0.03 )

Weighted average common shares outstanding:

   
 
   
 
   
 
   
 
   
 
   
 
   
 
 

Basic

                                        14,588,510 (K)

Diluted

                                        14,588,510 (K)

See accompanying notes to unaudited pro forma consolidated financial statements

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NETSTREIT CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

Adjustments to the Unaudited Pro Forma Consolidated Balance Sheet

          The adjustments to the unaudited pro forma consolidated balance sheet as of June 30, 2020 are as follows:

(A)
Reflects the audited historical consolidated balance sheet of the Company as of June 30, 2020.

(B)
During the period from July 1, 2020 through July 31, 2020, we completed three property acquisitions with an aggregate purchase price, including transaction costs, of $36.8 million, and entered into a binding purchase and sale agreement for seven property acquisitions, which we have assessed to be probable acquisitions, with an aggregate purchase price, including transaction costs, of $5.6 million. Reflects the allocated purchase price, including capitalized transaction costs, of acquired properties accounted for as asset acquisitions to tangible and identifiable intangible assets or liabilities based on their relative fair values. This preliminary purchase price allocation has been used to prepare pro forma adjustments in the unaudited pro forma consolidated balance sheet and unaudited pro forma consolidated statements of operations. The final purchase price allocation will be determined when we have completed our valuations and calculations. The final allocation could differ materially from the preliminary allocation used in the pro forma adjustments.

    On July 2, 2020 we borrowed $50.0 million on our $250.0 million Revolver to fund our third-quarter property acquisitions. The adjustment assumes the completion of this borrowing and the related acquisitions had occurred on June 30, 2020 for the purposes of the unaudited pro forma consolidated balance sheet.

(C)
Reflects net proceeds from the sale of approximately 15.2 million shares of common stock in our initial public offering, which excludes 0.3 million shares issued to selling stockholders in connection with the redemption of such selling stockholders' OP units, at a public offering price of $20.0 per share, which is the mid-point of the price range set forth on the front cover of this prospectus, net of underwriting discounts and other estimated offering expenses payable by us. The net proceeds from our initial public offering consist of the following (in thousands):

Gross proceeds from our initial public offering

  $ 304,183  

Less: Underwriting discounts

    (18,251 )

Proceeds before offering expenses paid or payable by us

    285,932  

Estimated offering expenses paid or payable by us

    (3,700 )

Net proceeds from our initial public offering

  $ 282,232  
(D)
Reflects the use of proceeds from our initial public offering to: (i) redeem the Series A Preferred Stock for consideration equal to $1,000 per share plus accrued and unpaid dividends and a redemption premium of $100 per share, and (ii) repay outstanding borrowings on our $250.0 million Revolver.

Adjustments to the Unaudited Pro Forma Consolidated Statements of Operations

          The adjustments to the unaudited pro forma consolidated statements of operations for the six months ended June 30, 2020 and the year ended December 31, 2019 are as follows:

(E)
Reflects the unaudited historical consolidated statement of operations of the Company for the six months ended June 30, 2020.

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(F)
During the period from January 1, 2020 to July 31, 2020, we completed 71 property acquisitions with an aggregate purchase price, including transaction costs, of $261.5 million, and entered into a binding purchase and sale agreement for seven property acquisitions, which we have assessed to be probable acquisitions, with an aggregate purchase price, including transaction costs, of $5.6 million. The table below reflects the impact of these completed and probable property acquisitions, including the incremental adjustment to our six months ended June 30, 2020, on the historical consolidated statements of operations, assuming completion of the acquisitions had occurred on January 1, 2019:
 
  For the Six
Months Ended
June 30, 2020
  For the Year Ended
December 31, 2019
 

Rental revenue (including reimbursable)

  $ 7,039   $ 20,132  

Property — operating

    292     1,141  

Depreciation and amortization

    3,915     10,285  

    Rental revenue is based on contractually specified cash base rent for these properties in effect on the date of acquisition, recorded on a straight-line basis, inclusive of any amortization of related above and below-market lease intangibles.

    Property expenses are based on estimated costs accrued in 2020, information obtained during our due diligence process when acquiring the properties, and the contractual terms within the respective leases. It should be noted that the adjustment to property expenses are based on current estimates and may not be indicative of our results of operations had we actually owned these properties from January 1, 2019.

    Depreciation and amortization expense has been calculated on a straight-line basis based on the estimated useful lives of up to 35 years for buildings, up to 15 years for site improvements and the shorter of the remaining lease term or useful life for tenant improvements and, with respect to acquired in-place leases, the remaining terms of the respective leases. We also calculate amortization on our assembled workforce intangible asset on a straight-line basis based on its estimated useful life of 3 years.

    No adjustment is made to reflect interest expense or unutilized fees on the $50.0 million borrowed in and used to fund our third quarter property acquisitions on our $250.0 million Revolver as the net proceeds from our initial public offering will be utilized to repay the outstanding borrowings. For the purposes of the unaudited pro forma consolidated statements of operations, both transactions are assumed to have occurred on January 1, 2019.

(G)
Represents the adjustments to general and administrative expenses to reflect the following:

    Expected stock-based compensation expense associated with the grant of an aggregate of 249,997 RSUs to our non-employee directors and senior management team. These RSUs vest ratably on each of the first three anniversaries of the grant date for our non-employee directors, and vest ratably on each of the first five anniversaries of the grant date for our senior management team. These RSUs shall only vest upon (i) the effectiveness of the Resale Shelf Registration Statement; (ii) the listing of our common stock on a National Securities Exchange; and (iii) the completion of our initial public offering, which are all assumed to have occurred on January 1, 2019 for the purposes of the unaudited pro forma consolidated statements of operations. We recognize stock compensation expense related to these RSUs when the performance condition, when applicable, is probable of achievement, over the vesting period. The weighted average grant date fair value of these restricted stock units is calculated as the per share price determined in the private offering. Compensation expenses are expected to vest over a weighted average remaining contractual term of 4.3 years.

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      Expected stock-based compensation expense associated with the grant of an aggregate of 152,812 RSUs in connection with the completion of our initial public offering, which for the purposes of the unaudited pro forma consolidated statements of operations is assumed to have occurred on January 1, 2019. We recognize stock compensation expense related to these RSUs on a straight-line basis over the vesting period.

      Estimated expenses associated with being a public company, including directors and officers insurance of $1.0 million.

(H)
Reflects the audited historical consolidated statement of operations of our predecessor for the period from January 1, 2019 to December 22, 2019.

(I)
Reflects the audited historical consolidated statement of operations of the Company for the period from December 23, 2019 to December 31, 2019. We had minimal operations from our formation on October 11, 2019 to December 22, 2019. On December 23, 2019 we completed the private offering and formation transactions described elsewhere in this prospectus.

(J)
Represents the net adjustments required to the historical results of our predecessor to reflect the following:

    For the 30 properties disposed of prior to the formation transactions on December 23, 2019, the following items have been eliminated as they were not acquired by the Company and will not have a continuing impact on our consolidated statement of operations:

      Decrease to rental revenue of $1.2 million, consisting of a decrease of $2.6 million contractually specified cash rent offset by $1.1 million of straight-line rent adjustments, $0.2 million of amortization of above and below-market lease intangibles, and $0.1 million of receivables written-off.

      Depreciation and amortization of $0.2 million.

      Impairment losses of $3.1 million.

      Gain on sales of $5.6 million.

      Directly attributable property expenses that we do not expect to have a continuing impact on the Company.

    For the initial portfolio of 93 properties acquired in the formation transactions, adjustments to reflect the impact of the acquisition had it occurred on January 1, 2019 consist of:

      Decrease to rental revenue of $0.2 million, consisting of a decrease of $0.4 million of straight-line rent adjustments, offset by $0.2 million of amortization of above and below-market lease intangibles based on the fair market value on December 23, 2019, recorded on a straight-line basis over the remaining lease terms.

      Decrease to depreciation and amortization of $2.3 million based on the fair market value on December 23, 2019 recorded on a straight-line basis, up to 35 years for buildings, up to 15 years for site improvements, 3 years for assembled workforce, and with respect to acquired in-place leases, the remaining term of the respective lease.

    Decrease to interest expense of $4.0 million (including amortization of capitalized loan fees and unutilized borrowing fees) as a result of entering into the $175.0 million Term Loan and the $250.0 million Revolver, the proceeds of which were used to pay off our prior credit agreement. Interest expense was calculated assuming our $175.0 million Term Loan and $250.0 million Revolver were obtained on January 1, 2019 and remained at a constant debt level throughout the period. Interest expense may be higher or lower dependent on changes to our outstanding debt. The actual interest rate will depend on market conditions when the debt is issued, and the final composition of the debt structure is determined. A change of one-eighth of a percent to the annual

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    interest rate on our $175.0 million Term Loan would change interest expense on our unaudited consolidated pro forma statement of operations by $0.2 million for the year ended December 31, 2019.

    We have not recorded an adjustment to general and administrative expenses as a result of the completion of the private offering and formation transactions as we believe the historical results appropriately reflect the recurring costs to be incurred by the Company. It should be noted that the unaudited pro forma consolidated statement of operations may not be indicative of our future results of operations because we expect to incur additional non-recurring general and administrative expenses including but not limited to incremental legal, audit, tax, consulting and other compliance-related fees and expenses in order to operate as a public company.

    For the exercise of the overallotment option granted to Stifel, Nicolaus & Company, Incorporated, the impact on the weighted average basic and diluted shares used for the purposes of calculating pro forma earnings per share.

(K)
Represents the total weighted average number of basic and diluted shares used as the denominator in calculating basic and diluted pro forma earnings per share, and is comprised of the following:

    The total number of shares issued and outstanding from the private offering and formation transactions, including the overallotment option granted to Stifel, Nicolaus & Company, Incorporated;

    The sale of shares of common stock in our initial public offering for which the proceeds are used to complete the repayment of outstanding borrowings on our $250.0 million Revolver, and excludes approximately 12.7 million shares of common stock the proceeds from which, as of the date of this prospectus, are not allocated to fund specific future acquisitions, and 2.3 million shares of common stock that may be issued by us upon the exercise of the underwriters' option to purchase additional shares in our initial public offering; and

    0.3 million of shares issued to selling stockholders in connection with the redemption of such selling stockholders' OP units, which for the purposes of the unaudited pro forma consolidated statements of operations is assumed to have occurred on January 1, 2019.

    The table below presents our pro forma basic and diluted earnings per share based on the total weighted average common shares outstanding immediately after the completion of our initial public offering, assuming no exercise by the underwriters of their option to purchase additional shares:

 
  For the Six Months
Ended June 30, 2020
  For the Year
Ended December 31, 2019
 

Amounts available to common shareholders per common share:

             

Net loss, basic and diluted

  $ (0.02 ) $ (0.02 )

Weighted average common shares outstanding:

   
 
   
 
 

Basic

    27,297,645     27,297,645  

Diluted

    27,797,645     27,297,645  

    The table above is provided for illustrative purposes only and may not be indicative of our basic and diluted earnings per share had the total weighted average basic and diluted number of common shares actually been outstanding from January 1, 2019.

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SELECTED HISTORICAL FINANCIAL DATA

          On December 23, 2019, we completed our formation transactions pursuant to which, among other things, our predecessor was merged with and into our operating partnership. The selected consolidated statements of operations data presented below for the year ended December 31, 2018 and the period from January 1, 2019 to December 22, 2019, and the consolidated balance sheet data as of December 31, 2018 relate to our predecessor and are derived from the audited consolidated financial statements that are included in this prospectus. The selected consolidated statement of operations data for the period from December 23, 2019 to December 31, 2019 and the consolidated balance sheet data as of December 31, 2019 relate to the Company and are derived from the audited consolidated financial statements that are included in this prospectus.

          The selected consolidated statement of operations data presented below for the six months ended June 30, 2019 relate to our predecessor and are derived from the unaudited historical condensed consolidated financial statements that are included in this prospectus. The selected consolidated statement of operations data for the six months ended June 30, 2020 and the consolidated balance sheet data as of June 30, 2020 relate to the Company and are derived from the unaudited condensed consolidated financial statements that are included in this prospectus. The unaudited interim financial and operating data, have been prepared in accordance with U.S. GAAP on the same basis as its audited financial statements and related notes included elsewhere in this prospectus and, in the opinion of management, reflect all adjustments consisting only of normal recurring adjustments that management considers necessary to state fairly the financial information as of and for the periods presented. The historical consolidated financial data included below and set forth elsewhere in this prospectus are not necessarily indicative of our future performance, and results for any interim period are not necessarily indicative of the results for any full year.

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          You should read the following selected historical financial data together with "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Our Business and Properties" and the consolidated financial statements and related notes appearing elsewhere in this prospectus.

 
   
   
   
  Company    
  Predecessor  
 
  Company    
  Predecessor    
 
 
   
  Period from
December 23
through
December 31,
2019
   
  Period from
January 1
through
December 22,
2019
   
 
 
  Six months
ended
June 30,
2020
   
  Six months
ended
June 30,
2019
   
  Year ended
December 31,
2018
 
(in thousands, except share and per share data)
  (unaudited)
   
  (unaudited)
   
   
   
   
 

Operating Data:

                                       

Revenue:

                                       

Rental revenue (including reimbursable)

  $ 12,625       $ 11,417   $ 513       $ 19,805   $ 23,828  

Expenses:

                                       

Property—operating

    719         560     52         1,113     1,731  

General and administrative

    5,460         2,032     51         4,090     3,792  

Depreciation and amortization

    5,462         5,405     195         10,422     12,880  

Interest

    2,797         5,900     173         10,712     11,004  

Provision for impairment

    1,410         3,429             7,186     15,721  

Total expenses

    15,848         17,326     471         33,523     45,128  

Gain on sale of real estate

    1,016         4,099             5,646     1,003  

Gain from forfeited earnest deposit

    250                          

Net income (loss)

    (1,957 )       (1,810 )   42         (8,072 )   (20,297 )

Less: Net income attributable to non-controlling interests

    (536 )           (14 )            

Net income (loss) attributable to NETSTREIT Corp.

    (1,421 )       (1,810 )   28         (8,072 )   (20,297 )

Less: cumulative preferred stock dividend

    6                          

Net income (loss) attributable to common stockholders          

  $ (1,427 )     $ (1,810 ) $ 28       $ (8,072 ) $ (20,297 )

Amounts available to common stockholders per common share:

                                       

Net income (loss), basic and diluted

  $ (0.13 )       NA   $         NA     NA  

Weighted average common shares outstanding:

                                       

Basic

    11,105,709         NA     8,860,760         NA     NA  

Diluted

    11,105,709         NA     8,860,760         NA     NA  

Statement of Cash Flow Data:

                                       

Net cash provided by (used in):

                                       

Operating activities

  $ 1,796       $ 3,622   $ 89       $ 5,989   $ 8,902  

Investing activities

    (216,186 )       57,301     (167,844 )       75,934     (22,054 )

Financing activities

    53,056         (61,184 )   337,074         (82,317 )   10,438  

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  Company    
  Predecessor  
 
  As of June 30,
2020
  As of December 31,
2019
   
  As of December 31,
2018
 
(in thousands)
  (unaudited)
   
   
   
 

Balance Sheet Data:

                       

Total real estate, at cost

  $ 423,474   $ 224,053       $ 260,192  

Real estate held for investment, net

    419,600     223,921         237,798  

Cash, cash equivalents and restricted cash

    7,985     169,319         1,950  

Total assets

    496,977     433,922         333,083  

Total liabilities

    191,845     181,490         250,335  

Total shareholders' equity

    217,769     164,533          

Noncontrolling interests

    87,363     87,899          

Partners' capital

                82,748  

Total equity

    305,132     252,432         82,748  

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

          You should read the following discussion of our financial condition and results of operations in conjunction with the more detailed information set forth under the captions "Prospectus Summary — Summary Historical and Pro Forma Financial Information," "Selected Historical Financial Data," and in our audited and unaudited financial statements and the related notes thereto appearing elsewhere in this prospectus. We were incorporated in Maryland in October 2019 and commenced operations upon the completion of our formation transactions on December 23, 2019. Statement of operations data for the period ended December 22, 2019 represents that of our predecessor. To assist with the period to period comparison, we have compared our predecessor's statement of operations data for the year ended December 31, 2018 to our predecessor's results of operations for the period ended December 22, 2019, which does not reflect the consummation of our formation transactions on December 23, 2019 as described in "Unaudited Pro Forma Consolidated Financial Statements." We believe this comparison provides the most meaningful information for investors despite the 2019 period having nine fewer days of operations than the 2018 period.

Overview

          We are an 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 of 163 single-tenant retail net leased properties spanning 34 states, with tenants representing 53 different brands or concepts across 23 retail sectors. Our portfolio generates ABR of $34.5 million and is 100% occupied, with a WALT of 11.2 years and consisting of approximately 64.0% investment grade tenants by ABR, which we believe provides us with a strong, stable source of recurring cash flow from which to grow our portfolio. 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, drug stores and pharmacies, home improvement, automotive service and quick-service restaurants, which we refer to as defensive retail industries. We believe these characteristics make our tenants' businesses e-commerce resistant and resilient through all economic cycles. None of our tenants represent more than 12.7% of our portfolio by ABR, and our top 10 largest tenants represent in aggregate 56.8% of our ABR. Our top 10 tenants are 7-Eleven, Walmart, CVS, Ollie's Bargain Outlet, Lowe's, Advance Auto Parts, Dollar General, Walgreens, Home Depot and Kohl's. More than 91% of the leases in our portfolio are triple-net, with the remaining leases double-net. As a result of this net lease structure, we do not expect to incur significant capital expenditures relating to our portfolio.

          We raised aggregate net proceeds of $220.1 million (after deducting initial purchaser's discount and placement fees) in the private offering, which we have been actively deploying, acquiring 72 single-tenant retail net leased properties with an aggregate purchase price of $264.0 million from December 23, 2019 to July 31, 2020. These acquisitions include three properties acquired for an aggregate purchase price of $36.8 million subsequent to June 30, 2020, which are not reflected in our historical audited and unaudited financial statements and the related notes thereto appearing elsewhere in this prospectus.

          Our management team has leveraged its extensive network of industry relationships to establish a robust pipeline of acquisition opportunities that consists of 128 properties with an aggregate expected purchase price of approximately $506.5 million as of July 31, 2020. This acquisition pipeline includes (i) nine properties with an aggregate expected purchase price of approximately $10.2 million that are under contract and (ii) 44 properties with an aggregate expected purchase price of approximately $132.4 million that are the subject of non-binding letters of intent, each as more fully described below. The remainder of our acquisition pipeline consists of 75 properties with an aggregate expected purchase price of approximately $363.9 million for which we have delivered a non-binding letter of intent for execution by the seller but which has not yet been executed. Purchase prices for the properties that are not yet subject to fully executed, non-binding letters of intent are estimated based on preliminary

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discussions with sellers or our internal assessment of the values of such properties. We are in varying stages of negotiation and have not completed our due diligence process with the sellers of these properties. As a result, there can be no assurance that these acquisitions will be completed on the terms described above or at all.

          In connection with the private offering, our predecessor was merged with and into our operating partnership, and NETSTREIT GP, LLC, a wholly-owned subsidiary, became the sole general partner of our operating partnership. Substantially all of our assets are held by, and substantially all of our operations are conducted through, our operating partnership.

Factors that May Influence Our Operating Results

Rental Revenue

          Our revenues are generated predominantly from receipt of rental revenue. Our ability to grow revenue will depend, to a significant degree, on our ability to acquire additional properties. We primarily focus on opportunities to acquire, own and manage single-tenant, retail commercial real estate subject to long-term net leases with high credit quality tenants. We believe our senior management team's reputation, in-depth market knowledge and extensive network of long-standing relationships with retailers, brokers, intermediaries, private equity firms and others in the net lease industry will provide us with an ongoing pipeline of both marketed and off-market investment opportunities. Given that approximately 64.0% of our tenants have an investment grade credit rating, a limited number of our leases contain a rent escalation provision over the term of the lease. The leases in our portfolio provide for an average 0.93% increase in ABR. As we expand our portfolio, we will continue seeking inclusion of rent escalation provisions as part of our leases with unrated and sub-investment grade tenants.

          The leases in our portfolio have a WALT of 11.2 years, with no lease expiring prior to April 2022. See "Our Business and Properties — Our Real Estate Portfolio." The stability of the rental revenue generated by our properties depends principally on our tenants' ability to pay rent and our ability to collect rents, renew expiring leases or re-lease space upon the expiration or other termination of leases, lease currently vacant properties and maintain or increase rental rates at our leased properties. For sub-investment grade and unrated tenants, we utilize our disciplined underwriting and risk management practices and proprietary credit modeling process to target tenants in e-commerce resistant and recession resilient industries with attractive credit characteristics and stable cash flows. We also evaluate the key real estate metrics of each property, including location and demographics that will support both tenant financial health and a market for alternative use, re-leasing or redevelopment, when necessary. Additionally, we focus on tenants in industries where a physical location is critical to the generation of sales and profits, with a focus on necessity goods and essential services in the retail sector, including discount stores, grocers, drug stores and pharmacies, home improvement, automotive service and quick-service restaurants. We believe these characteristics make our tenants' businesses e-commerce resistant and resilient through all economic cycles. However, adverse economic conditions, particularly those that affect the markets in which our properties are located, or downturns in our tenants' industries could impair our tenants' ability to meet their lease obligations to us and our ability to renew expiring leases or re-lease space. In particular, the bankruptcy of one or more of our tenants could adversely affect our ability to collect rents from such tenant and maintain our portfolio's occupancy.

Our Leases

          We own single-tenant, retail commercial real estate subject to long-term leases with high credit quality tenants across the United States. More than 91% of the leases in our portfolio are triple-net, with the remaining leases double-net. As a result of this net lease structure, we do not expect to incur significant capital expenditures or non-reimbursable property expenses relating to our portfolio. Our leases typically have initial lease terms of at least 10 years and contain two or more options for the tenant to extend the term of the lease, most often for additional five-year periods. Occasionally, we have

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entered into a lease pursuant to which we retain responsibility for the costs of structural repairs and a portion of the maintenance expenses, and while these expenses have not historically resulted in significant costs to us, an increase in costs related to these responsibilities could negatively influence our operating results. Similarly, an increase in the vacancy rate of our portfolio would increase our costs, as we would be responsible for costs that our tenants are currently required to pay. In addition, we currently lease properties on an individual basis, but we may seek to implement master lease structures going forward, pursuant to which we will lease multiple properties to a single tenant on an all-or-none basis.

COVID-19

          On March 11, 2020, the World Health Organization declared that COVID-19 was a pandemic and on March 13, 2020, the United States declared COVID-19 a national emergency. The spread of COVID-19 has caused significant volatility in the United States and international markets and, in many industries, business activity has virtually shut down entirely. There is significant uncertainty around the duration and severity of business disruptions related to COVID-19, as well as its impact on the U.S. and international economies. The extent to which the COVID-19 pandemic impacts the businesses of our tenants, and their ability to continue to make required rental payments, will depend on future developments, which are highly uncertain and cannot be predicted. As a result, we are not yet able to determine the full impact of COVID-19 on our operations and therefore whether any such impact will be material.

          The Company also adopted an optional remote-work policy and other physical distancing policies at its corporate office and 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 financial reporting system, internal controls or disclosure controls and procedures.

          Our operations and cash flows during the six months ended June 30, 2020 were not materially impacted by COVID-19. An assessment of current or identifiable potential financial and operational impacts on our business as of July 31, 2020, related to COVID-19 included:

    Approximately 99.4% properties within our current portfolio are open as of July 31, 2020.

    We have received payment of approximately 88.5%, 86,1%, 86.5% and 94.3% of contractual base rent billed for the months of April, May June and July 2020, respectively (such percentages reflect leases in place for the full applicable month).

    We have provided rent deferral to approximately 7.5% of our properties, which represents a deferral of cash rent, based on lease agreements in place prior to provision of any rent relief as a result of COVID-19, of approximately 0.6% of our total ABR, generally for three months and to be repaid ratably other the remaining lease term. Accordingly, we do not expect our annual rental revenue to be materially impacted by the rent deferrals.

    We have provided rent abatement to approximately 9.4% of our properties, which represents an abatement of cash rent of approximately 2.1% of our total ABR, generally for two to four months, in exchange for additional lease term. The extension of the lease term is generally greater than the abated period, which increases total rents due to us over the revised lease term. We do not expect our annual rental revenue to be materially impacted by rent abated.

    We have completed rent relief agreements on all but one property, which represents 0.1% of our ABR, that has requested rent relief. We are currently evaluating the impact of deferrals or other accommodations for such property. Not all property requests have resulted in concessions being provided, nor will we be forgoing contractual rights under our lease agreements. Through July 31, 2020, all tenants with rent relief agreements in place paid in accordance with the terms of their new lease agreements.

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    We believe certain programs available under the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") may provide tenants with the ability to obtain proceeds from loans provided by the federal government, which could provide liquidity that would allow the tenant to pay its near-term rent. However, no assurances can be given that the tenants will seek to access or will receive funds from these programs or will be able to use the proceeds to pay their rent in the near-term or otherwise.

    We continue our efforts to identify additional acquisition and disposition opportunities despite the uncertainties created by COVID-19 and the impact on the capital markets, the U.S. economy, and our tenants. We believe we have sufficient capital resources to pursue accretive acquisition opportunities for the remainder of 2020.

Interest Expense

          We expect that future changes in interest rates will impact our overall performance, including changes to the interest expense we currently incur on our $175.0 million Term Loan. Additionally, to the extent we incur borrowings under the $250.0 million Revolver, our interest expense will increase. Any changes to our debt structure in the future could materially influence our operating results depending on the terms of any such indebtedness.

General and Administrative Expenses

          We do not expect the general and administrative expenses reflected on the historical statement of operations of our predecessor or those reflected in our unaudited pro forma statement of operations to be reflective of our expected professional and consulting fees, portfolio servicing costs and other general and administrative expenses. As a public company, we estimate our annual general and administrative expenses will be approximately $14.0 million, which amount includes, among other things, $3.0 million to $4.0 million for legal, insurance, accounting and other expenses related to corporate governance, SEC reporting and other compliance matters. In addition, while we expect that our general and administrative expenses will rise in some measure as our portfolio grows, we expect that such expenses as a percentage of our portfolio will decrease over time due to efficiencies and economies of scale.

Impact of Inflation

          Our leases typically contain provisions designed to mitigate the adverse impact of inflation on our results of operations. Since tenants typically are required to pay all property operating expenses, increases in property-level expenses at our leased properties generally do not adversely affect us. However, increased operating expenses at vacant properties and those properties for which we are responsible for maintenance, insurance, utilities and taxes could cause us to incur additional operating expense. Additionally, tenant leases generally provide for rent escalators designed to mitigate the effects of inflation over a lease's term. However, because a portion of our leases do not contain such rent escalators and limit the amount by which rent may increase, any increase in our rental revenue may not keep up with the rate of inflation.

Summary of Critical Accounting Policies and Estimates

          Our accounting policies are determined in accordance with GAAP and are the basis for our discussion and analysis of financial condition and results of operations. The preparation of our financial statements requires us to make estimates and assumptions that are subjective in nature and, as a result, our actual results could differ materially from our estimates. Estimates and assumptions include, among other things, subjective judgments regarding the fair values and useful lives of our properties for depreciation and lease classification purposes, the collectability of receivables and asset impairment analysis. Set forth below are the critical accounting policies that require management's judgment and estimates in the preparation of our consolidated financial statements. This summary should be read in conjunction

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with the more complete discussion of our accounting policies and procedures included in Note 2 to our consolidated financial statements appearing elsewhere in this prospectus.

Real Estate Held for Investment

          Real estate is recorded and stated at cost less any provisions for impairment. Our operating partnership acquired our initial portfolio of 93 properties from our predecessor and, as a result, was initially recorded at the fair value of the operating partnership's ownership interest issued at the date of the private offering. For real property acquired from third parties, such assets are recognized at fair value at the acquisition date.

          We evaluate 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. Our predecessor early adopted ASU 2017-01 effective January 1, 2018. All acquired properties are accounted for as asset acquisitions and transaction costs were capitalized.

          We allocate 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. We estimate 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 our 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, we utilize a number of sources, including real estate valuations prepared by independent valuation firms. We also consider 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, we consider 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.

Impairment of Long-Lived Assets

          We review our properties for impairment whenever indicators of impairment exist. If indicators are present, we will prepare a projection of the undiscounted future cash flows of the property, excluding

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interest charges, and determine if the carrying amount of the real estate is recoverable. When a carrying amount is not recoverable, an impairment loss is recognized to the extent that the carrying amount of the asset exceeds its fair market value. We estimate 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 negotiated selling price, less estimated costs of disposal.

Revenue Recognition and Related Matters

          Our 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. We and our 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.

          In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU No. 2014-09, "Revenue from Contracts with Customers" ("ASU 2014-09"), which was added to the ASC under Topic 606 ("ASC 606"). ASC 606 outlines a single comprehensive model for entities to use in accounting for revenues arising from contracts with customers. As our revenues are primarily generated through leasing arrangements, we elected the lessor practical expedient to report income on one line within our consolidated statement of operations and comprehensive income (loss) from the associated lease for all existing and new leases under ASC 842, our 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.

Recent Accounting Pronouncements

          In May 2014, the FASB issued ASU 2014-09, that outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. ASC 606 is based on the principle that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. As amended by ASU 2015-14, "Revenue from Contracts with Customers: Deferral of the Effective Date" ("ASU 2015-14"), ASC 606 is effective for fiscal years beginning after December 15, 2018. Our predecessor adopted Topic 606 on January 1, 2019, but as the primary revenue stream stems from leasing arrangements and tenant reimbursements, these fall outside the scope of ASC 606. We did not have non-rental related revenue that would need to be considered for ASC 606 assessment.

          In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)" ("ASU 2016-02"), which replaces the existing guidance in Topic 840, "Leases" ("ASC 842"). ASC 842 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. Our predecessor adopted

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ASC 842 on January 1, 2019 utilizing the modified retrospective transition method. Our predecessor elected to recast prior-period comparative information to aggregate prior period tenant reimbursement revenue within rental revenue to conform with the current period presentation within the Statements of Operations and Comprehensive Loss. Our predecessor elected the package of practical expedients available under ASC 842, but did not elect the hindsight practical expedient, thereby not requiring our Predecessor to reassess the lease classification for existing contracts. Accordingly, our predecessor's leases continue to be classified as operating leases as of January 1, 2019. Our predecessor did not make any adjustments to the opening balance of retained earnings upon adoption of the new standard given the nature of the impacts and other transition practical expedients.

          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 for the measurement of credit losses on financial instruments. Specifically, the amendments 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.

          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.

          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 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

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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 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. As all concessions were provided after April 1, 2020, the Company's elections will impact the Company's 2020 consolidated financial statements and interim periods therein commencing after April 1, 2020. The Company's financial statements will not be materially impacted by this guidance and the Company's elections due to concessions taking the form of rent deferrals, with total rents remaining substantially the same. In other instances, this guidance will be inapplicable to the Company, such as when there is a substantial increase in either the Company's rights as the lessor or the obligations of the lessee, including when rent is abated in exchange for an increase in lease term. In such case, the concession is accounted for as a lease modification with straight-line rents remaining substantially the same before and after the modification.

          For additional information refer to Note 14 to our audited consolidated financial statements appearing elsewhere in this prospectus.

Results of Operations

Six Months Ended June 30, 2020 Compared with Six Months Ended June 30, 2019

          The following table sets forth our operating results for the periods indicated.

 
Company  
Predecessor
 
Six months
ended
June 30,
2020
 
Six months
ended
June 30,
2019
(in thousands, except share and per share data)
(unaudited)
 
(unaudited)

Operating Data:

     

Revenue:

     

Rental revenue (including reimbursable)

$ 12,625   $ 11,417

Expenses:

     

Property – operating

719   560

General and administrative

5,460   2,032

Depreciation and amortization

5,462   5,405

Interest

2,797   5,900

Provision for impairment

1,410   3,429