NETSTREIT Corp.'s Strategic Use of Forward Sale Agreements: A Model for Capital Flexibility and Long-Term Value Creation in Turbulent Markets

In an era marked by macroeconomic uncertainty and volatile capital markets, public real estate investment trusts (REITs) are under increasing pressure to innovate their capital structures to maintain growth momentum while preserving financial flexibility. For NETSTREIT Corp. (NYSE: NTST), a REIT specializing in single-tenant net lease retail properties, the solution lies in its strategic use of forward sale agreements—a capital-raising tool that has emerged as a linchpin of its growth strategy. By locking in equity proceeds years in advance, NTST is not only shielding itself from market fluctuations but also creating a runway to fund high-conviction investments in a sector poised for resilience.

Forward Sales: A Hedge Against Volatility

Forward sale agreements allow NTST to secure capital at predetermined prices without immediately issuing shares or receiving cash. As of June 30, 2025, the company had $201.6 million in unsettled forward equity under such agreements, with an average price of $17.06 per share. These proceeds, expected to settle by mid-2026, will be used to fund acquisitions, repay debt, and support development projects. This approach offers two critical advantages:
1. Capital Stability: By fixing share prices in advance, NTST mitigates the risk of a stock price decline eroding the value of future capital raises.
2. Debt Discipline: The company maintains a conservative leverage ratio of 4.6x adjusted net debt to EBITDAre, a metric that reflects its commitment to avoiding over-leveraging—a red flag for REITs in a rising rate environment.

The structure also complements NTST's broader debt management strategy. In 2025, the company extended its $175 million 2030 Term Loan A and secured a new $175 million 2030 Term Loan B, both fully hedged against interest rate volatility. These moves provide long-term certainty on financing costs, enabling NTST to focus on deploying capital into high-yield assets rather than scrambling for liquidity.

Fueling Growth in a High-Capex Sector

The proceeds from forward sales and term loans are being directed toward NTST's core strength: acquiring and developing properties with stable, long-term tenants. In H1 2025 alone, the company acquired 41 properties for $174 million, averaging a 7.7% capitalization rate. These assets, often anchored by e-commerce-resistant tenants like Dollar General and Shell, offer predictable cash flows and minimal exposure to cyclical downturns.

Additionally, NTST has committed $6.6 million to property developments and $14.0 million in mortgage loan extensions, signaling confidence in its ability to enhance portfolio value through operational improvements. The use of forward sales ensures that these projects are underwritten with pre-secured capital, reducing the need for last-minute financing at potentially unfavorable terms.

Innovation in Capital Markets

NTST's approach aligns with broader industry trends. Forward sale agreements, once a niche tool, are now a standard feature of at-the-market (ATM) programs for REITs, particularly in volatile environments. These agreements allow companies to time capital deployment to match strategic opportunities, such as repaying high-cost debt or funding acquisitions during market dislocations. For NTST, the recent public offering of 9 million shares through forward sales—managed by BofA Securities and Wells Fargo—exemplifies this innovation. The underwriters' option to purchase an additional 1.35 million shares further underscores the flexibility of the structure.

Experts highlight that forward sales are particularly advantageous for REITs, which must balance the need to raise capital for growth with the obligation to distribute most of their income as dividends. By locking in capital years in advance, NTST ensures it can fund dividends and distributions without relying on short-term debt or equity dilution, preserving shareholder value over the long term.

Risks and Rewards

While forward sales offer clear benefits, they are not without risks. A prolonged decline in NTST's stock price could reduce the realizable value of its forward sales, potentially constraining capital for future investments. However, the company's conservative leverage profile and diversified tenant base provide a buffer against such scenarios. Additionally, NTST's ability to adjust settlement terms—such as opting for net share settlements in down markets—adds another layer of flexibility.

For investors, the key takeaway is NTST's disciplined approach to capital structure. By prioritizing long-term value over short-term gains, the company is positioning itself to capitalize on market dislocations while maintaining financial resilience. This strategy is particularly compelling in a sector where liquidity and tenant credit quality remain top concerns.

Investment Implications

NTST's use of forward sale agreements offers a blueprint for REITs navigating today's uncertain markets. For investors, the company's ability to secure capital at favorable terms and deploy it into high-conviction assets underscores its operational expertise and strategic foresight. While the REIT sector faces headwinds from rising interest rates and shifting tenant dynamics, NTST's focus on defensive properties and proactive capital management positions it as a standout player.

Investment Advice: Investors seeking exposure to a REIT with a balanced approach to growth and risk should consider NTST as a core holding. The company's forward sale strategy and disciplined debt management create a strong foundation for long-term value creation, particularly in a market where liquidity and stability are premium assets. However, monitoring the stock's performance against broader REIT indices and macroeconomic indicators will be crucial to assess its relative strength.

In an environment where innovation in capital structures is the difference between stagnation and growth, NETST's forward-looking approach is a testament to the power of strategic financial engineering. For patient investors, the REIT's disciplined execution and focus on resilience may well pay dividends for years to come.