Greetings, and welcome to the NETSTREIT Corp third quarter 2020 earnings call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Randy Haugh, Senior Vice President of Finance. Please proceed.
We thank you for joining us for NETSTREIT's third quarter 2020 earnings conference call. In addition to the press release distributed yesterday after market close, we posted a supplemental package and an updated investor presentation in the investors, events, and presentations section of the company's website at www.netstreit.com. On today's call, management's remarks and answers to your questions may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ from those discussed today. For more information about these risk factors, we encourage you to review our prospectus dated August 13th, 2020, and our other SEC filings. All forward-looking statements are made as of the date hereof, and NETSTREIT assumes no obligation to update any forward-looking statements in the future.
In addition, certain financial information presented on this call includes non-GAAP financial measures. Please refer to our earnings release and supplemental package for definitions, GAAP reconciliations, and an explanation of why we believe such non-GAAP financial measures are useful to investors. Today's conference call is hosted by NETSTREIT's Chief Executive Officer, Mark Manheimer, and Chief Financial Officer, Andy Blocher. They will make some prepared remarks, and then we will open the call for your questions. Now, I will turn the call over to Mark.
Good morning, everyone, and thank you for joining us today for NETSTREIT's inaugural quarterly earnings call. We hope this call finds you and your families well, and we are pleased to be here with you today. While we met with many investors during our IPO marketing efforts over the past several months, let me begin with a brief overview of NETSTREIT. I will discuss our acquisition and external growth activity and close with a word on our commitment to you, our shareholders. Andy will provide more detail on our quarterly results, balance sheet, and fourth quarter outlook. We will then open the call for questions.
Leading up to our formation transactions in December 2019 and every day since then, we have been focused on creating a high quality, diversified, and defensive net lease retail portfolio with a conservatively capitalized balance sheet and scalable platform to support accretive and consistent long-term cash flow growth. While this is NETSTREIT's first conference call as a publicly traded company, Andy and I have lengthy track records within the net lease business and at publicly traded REITs and have surrounded ourselves with a seasoned leadership team to support our future growth and our commitment to success as a public company. I couldn't be more proud of the success of our 19 team members that got us to where we are today. Let me take a moment to briefly discuss our history.
Our predecessor was a private real estate fund, which owned a net lease portfolio valued at approximately $350 million by asset value, consisting of approximately 50% investment grade rated tenants. Prior to our formation transactions, that portfolio was then culled down to reduce exposure to certain tenants and sectors that we did not feel were desirable long term. In December 2019 and into January 2020, we raised $220 million of capital from institutional investors via a private Rule 144A offering and internalized our management team and other formation transactions, forming NETSTREIT. We also concurrently closed on a new term loan and revolver to refinance our outstanding debt and fund future growth. We then completed our IPO, raising an additional $227 million in August and September of 2020.
Today, our portfolio contains 189 single-tenant properties comprising 3.4 million sq ft in 37 states with a diversified tenant roster of 53 tenants in 24 industries. Our weighted average lease term is 11.1 years, and we are 100% occupied with no lease expirations until 2022 and only 1.4% of leases expiring before 2025. Based on our ABR, our tenancy is 68% investment grade, with an additional 6.4% classified as high quality unrated, and 90% of our industry exposure is what we refer to as defensive. These tenants operate in industries where their physical location is critical to the generation of sales and profits, where they focus on necessity goods and essential services, including discount stores, grocers, drugstores, pharmacies, home improvement, automotive service, and quick service restaurants.
This high-quality tenancy creates bond-like leases with high-quality rent collections in times of disruption, including what we have most recently seen in 2020. While we certainly cannot take credit for having predicted the COVID-19 pandemic, we designed our portfolio and balance sheet strategy for long-term stability and strength before the pandemic was even contemplated. We have long believed that retail will continue to evolve, both in ways that we can predict and in ways that we cannot. With that backdrop, we have been, and continue to be, focused on retailers and industries that are well protected from threats that we can anticipate, such as e-commerce pressures, but also have balance sheet strength and access to capital to be able to reinvest in their businesses and adapt with the changing retail landscape.
We are also focused on acquiring real estate that is fungible and attractive to other retail uses and at a basis that we can continue to replicate cash flows in a downside scenario. Additionally, given our portfolio was recently constructed, NETSTREIT has not had to work through legacy tenants and/or struggling categories that may have felt an outsized impact from the pandemic. Proof of this is in our cash rent collections, which have been strong and consistent, with 100% cash rent collections in both September and October. Andy will provide further details momentarily. With respect to external growth, we are committed to disciplined acquisitions and focus on underwriting underlying tenant credit, locations with fungible real estate with strong market fundamentals, and locations that provide strong cash flows to the parent tenant.
The single-tenant retail net lease sector is large and highly liquid. We believe we can bring our deep industry relationships to bear as we seek to execute on our pipeline of acquisition opportunities. We were able to continue to execute through market disruption during COVID, with $327 million of acquisitions completed in 2020 through the end of the third quarter. For the third quarter, we completed $103 million of acquisitions at an initial cash capitalization rate of 6.5%. These acquisitions had a weighted average remaining lease term of 10.9 years, 100% of the properties are occupied by investment grade rated tenants. We would note that $15 million of this activity was originally targeted to close in the fourth quarter. We were able to accelerate these closings to September 30th.
In July, we acquired a Walmart Supercenter and a Sam's Club in Tupelo, Mississippi, at an initial cap rate of 6.6% and a remaining lease term of 12 years. There, we provided a solution to the seller by partnering with a shopping center buyer who concurrently purchased the remainder of the center, and as a result, we were able to increase our exposure to what we believe is a blue-chip defensive tenant. In August, we acquired a portfolio of seven well-located and strong-performing O'Reilly Auto Parts New England locations with more than 11 years of remaining lease term at a 6.9% initial cash cap rate. From a transparency perspective, note that when we discuss cap rates on acquisitions, NETSTREIT will provide cash cap rates on total acquisition costs.
We completed one disposition in the third quarter at a sales price of $1.9 million, a casual dining restaurant that we felt could have trouble competing in the future and wanted to eliminate that exposure from our portfolio. Casual dining is not a sector that we plan on adding to in the portfolio, and we continue to reduce that small exposure in the portfolio through dispositions over time. As we look ahead, we are targeting an average of $80 million or more of acquisitions per quarter, or $160 million for the last two quarters of 2020. While 100% of our third quarter acquisitions were investment-grade, over time, we intend to target an appropriate balance for our risk tolerance and growth objectives. We expect that approximately 70% of our investment activity will be with investment-grade tenants.
The balance will be with non-investment grade tenants at a slightly higher yield, including high-quality unrated tenants and selectively targeted sub-investment grade tenants where we have a high level of confidence in the tenant's industry, the retailer's management team, the trajectory of that retailer's business, as well as the quality of the real estate we are acquiring. Before I turn the call over to Andy, I'd like to make a few comments regarding the philosophy with which we approach our business. When we embarked on our IPO, we met with many of you through our marketing process, and we were humbled by the strong institutional support we received when we finalized our order book. We recognize that you are entrusting us with your capital, and we want you to know that you can count on us.
We are committed to providing clear, straightforward disclosures, remaining accessible to investors and analysts, and finally, to fulfill our obligations as corporate citizens by establishing a strong ESG program. Regarding ESG, we are committed to creating a strong internal culture that promotes inclusion and employee well-being and are pleased with the initial steps we have taken to date. Finally, we are proud of our shareholder-friendly corporate governance structure, including our diverse majority independent board. I'll now turn the call over to Andy. Andy?
Thanks, Mark. Thank you everyone for joining us on our call today. I'm incredibly happy to be joining you as CFO of NETSTREIT. As Mark noted earlier, and we discussed frequently during our IPO process, we are committed to building and maintaining a conservative capital structure and providing transparency with respect to our business. We believe that these initiatives, when coupled with successfully executing our business strategy, will build shareholder confidence and over time, support a competitive cost to capital. Let me begin with our results for the quarter. Yesterday in our press release, we reported a net loss of $0.11, core FFO of $0.15, and AFFO of $0.21 per share. As of September 30th, 2020, the NETSTREIT portfolio contributed $38.9 million of annualized base rent or ABR after giving effect to acquisitions and dispositions completed in the quarter.
From a collections perspective, we're pleased to report that prior to giving any consideration to deferral or abatement arrangements granted as a result of COVID-19, we collected 100% of September rent payments, bringing total third quarter rent collections to 98.1%. This is a slight increase from our previous disclosure, as our only tenant being recognized on a cash basis paid their September rent shortly following our published business update, bringing them current through the third quarter. On a related note, based on the payment history of our tenants, we currently have zero bad debt reserves and recognized zero bad debt in the quarter or year to date. Finally, as Mark mentioned, for the month of October, we also received 100% of cash rents.
With respect to deferrals and abatements, the $108,000 of rent abatements granted in the third quarter were generally conditioned on lease extensions which averaged approximately one and three quarter years of additional term for each month of abated rent. Year to date, we granted under $750,000 of rent abatements, generally conditioned on lease extensions, which average approximately 1.4 years of additional term for each month of abated rent. With respect to deferrals, we deferred $261,000 of rent year to date, of which $75,000 has been repaid, leaving a net rent deferral balance of $186,000 at quarter end. The remaining deferred balance will be repaid over the lifetime of the leases, and therefore, we expect the quarterly impact on our business as we collect the deferrals to be very small, with $4,000 in the third quarter.
As demonstrated by our 100% rent collections in September and October, we provided no deferrals or abatements after August. We currently have eight assets classified as held for sale and took $363,000 of impairments in the third quarter to bring our GAAP net book value from two of those eight assets, including our single asset being recognized on a cash basis, in line with the anticipated net proceeds from those sales. A couple of items resulting from our successful IPO impacted our financial statements in the third quarter. We had $0.9 million of expenses in the third quarter and $2.2 million year to date related to 144A and IPO-related transaction costs. These costs largely reflect consultant services as we staffed up pre-IPO to put appropriate public company processes and reporting in place.
In addition, we recognized $1.8 million of non-cash compensation expense from two sources in the quarter. The first is $1.7 million resulting from a catch-up related to $4.8 million of performance-based equity awards at the time of the 144A with a shelf registration performance criterion. The nature of that performance criteria didn't allow us to recognize any expense until the performance criteria was met. As a result, a significant catch-up was recognized in the quarter. An additional $74,000 was recognized from the $3.1 million time-based awards granted to employees and board members at the time of the IPO. These awards will be recognized on a straight line basis over their three to five -year lives. The transaction expenses and the non-cash equity compensation catch-up resulted in the largest non-recurring adjustments to our key financial measures in the third quarter.
Turning to our capital markets activity. On August 13th, 2020, we completed our IPO and including the overallotment option in September, issued just under 14 million common shares at $18 per share, generating net proceeds of approximately $227.3 million after deducting the underwriting discount and offering expenses. In connection with the IPO, we repaid the $50 million outstanding balance on the company's revolving line of credit and retired the outstanding Series A preferred shares with the remaining proceeds utilized to fund future acquisitions and for general corporate purposes. In September, the company completed a $175 million LIBOR swap to hedge floating rate exposure on the entire balance of the company's term loan at an effective rate of 21 basis points through the maturity of the term loan in December 2024.
As of September 30th, we had $137 million of cash and remain fully undrawn on our $250 million revolving line of credit. We have no debt maturities until the maturity of our revolver in December 2023, which is subject to a one-year extension option. Our net debt to annualized adjusted EBITDA ratio is 1.4x , well below our 4.5x-5.5x long-term target. With respect to dividends, in August, we declared an inaugural cash dividend on our common stock of $0.10 per share for the IPO stub period in the third quarter of 2020. The dividend amount was prorated to reflect the period of time from the IPO to quarter end.
Yesterday, with our earnings release, the board declared a $0.20 regular cash dividend to be payable in December, reflecting an annualized dividend rate of $0.80 per share. Before I turn it back over to Mark, let me just take a few minutes to discuss our outlook on a couple of fourth quarter items and provide some forward-looking perspective. First, as Mark mentioned, consistent with our average expected post-IPO acquisition volumes of $80 million per quarter, and after giving consideration to the $15 million of fourth quarter acquisitions that we accelerated to September 30th, we expect to complete at least an additional $65 million of acquisitions in the fourth quarter, bringing our total 2020 acquisition volumes to approximately $400 million.
With the LIBOR hedge in place and with current cash balances exceeding our fourth quarter acquisition expectations, we would expect no incremental borrowings under our revolver and resulting fourth quarter interest expense, including $300,000 of quarterly deferred financing fee amortization and undrawn fees, to be approximately $1 million. We expect our fourth quarter cash G&A to better approximate our forward-looking run rate of $11 million-$12 million annually, combined with an additional $3 million of non-cash compensation expense annually. As discussed during our IPO process, we believe this amount reflects the appropriate staffing to execute our business strategy and to effectively run as a public company. We would expect increases to G&A over time to be marginal as we grow. Approximately 10 basis points on the incremental acquisition volumes should be a pretty good estimate.
Finally, consistent with the board's dividend declaration, we're targeting an $0.80 annualized dividend rate for the near term, with dividend growth expected once we stabilize at a 65%-75% AFFO payout. I'll turn the call back over to Mark.
Thanks, Andy, and thank you all for joining us today. As we prepared for our IPO in August, we made sure that we not only had high-quality assets and the right portfolio in place to successfully enter the public markets, but the best people and platform as well. To that end, I am very proud of our portfolio's performance amid a pandemic, no less, as well as our team. Andy and I are very grateful to them for their hard work and dedication. We would also like to thank our board for their valued advice and counsel. We look forward to growing this business and speaking with you all each quarter to update you on our progress. This concludes our prepared remarks. We will now open the line for questions. Operator?
Thank you. At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants, using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Your first question comes from the line of Nate Crossett with Berenberg. Please proceed with your question.
Hey, good morning, guys.
Morning.
Thanks for the color on the call so far. I wanted to get your commentary just on the activity so far in October and what it looks like for the next two months. Sounds like $65 million is at least baked in. Is that a conservative estimate? I'm just curious if you're seeing any more deal activity because of the upcoming election and potential for tax code changes.
Yeah, no, thanks, Nate. Yeah. So far this quarter, we've been targeting $80 million per quarter since the third and fourth quarter, and we did pull forward in the neighborhood of $15 million of transactions to September 30th that we had initially targeted for the fourth quarter. That being said, we still have a pretty robust pipeline, and it really will come down to timing on some of the transactions. We continue to see similar deal flow that we saw coming into the IPO that we discussed on the roadshow with our investors. Actually very happy about what the pipeline looks like for the fourth quarter. We should get a couple of new names in the portfolio that I think people will certainly like the tenant lineup, that we think should close. A few of these could slip into January.
We're hopeful that we can get in a similar number here in the fourth quarter. I guess, another thing of note, our 100% investment-grade acquisitions for the third quarter, it's probably the first and only time that you'll see 100% acquisitions be all investment grade. The mix of what we're looking at buying is probably more in the 70% range of investment grade. Of course, that can kind of shift around depending on what closes in December or January. Certainly, kind of adding a little bit more to that high-quality, non-rated bucket, which is, as we define of more than $1 billion of revenues and less than 2x , debt to EBITDA. Kind of a tenancy that would have an investment-grade rating if they were to go out and get a rating. Really feeling pretty good about the pipeline today.
Okay, thanks. That's helpful. Maybe you guys can just also touch on competition and pricing. Has there been any changes that you've seen since the IPO? Obviously, you guys are targeting concepts that are highly sought after, so I'm just curious kind of what you're seeing on the ground.
Yeah. Not really. When we think about the other institutional investors, most of them have a different credit profile that they're really chasing. Most of our competition continues to be really kind of your mom-and-pop 1031-type investor. We haven't really seen too much of a change. Maybe we'll see after Tuesday if the results come in and that changes people, and how aggressive they want to get. Even with the 1031, I would anticipate there's certainly a lot of strong lobbyists out there, and regardless of how the election turns out, I would imagine that's gonna take some time. I'd be surprised if there's just a massive rush for people to get some 1031s in. We'll certainly be monitoring that.
Okay. Just last question quickly, if I can. eight assets that are held for sale, I'm just curious what's in that mix. Is there any common theme in there?
Yeah. I'll stop short of giving exactly what they are just because we're relying on third parties to close on those, so it's a little bit out of our control. I think what you'll see is the big focus for us is going to be on monitoring risk in the portfolio. In most cases, it's going to be kind of getting out ahead of some potential credit risk. We are looking at decreasing our exposure specifically to casual dining, and maybe to a lesser extent, our bank exposure over time. I would expect to see a little bit of that. Then, we do have a number one tenant that has a little bit of an outsized exposure in the portfolio, so there could be a little bit of that mixed in there.
Okay, thanks, guys.
Your next question comes from the line of Todd Thomas with KeyBanc. Please proceed with your question.
Hi, thanks. Good morning. Just first question, following up on the investments in terms of pricing, are you seeing any compression in cap rates, or do you feel comfortable that you'll be able to continue to buy in that sort of 6.5%-7% range? Mark, you talked about striking a balance between investment-grade rated tenants and sub IG or non-rated tenants with higher yields. What's the difference in yield like there, and is that added risk being compensated for in the higher yield in this environment?
Yeah, sure. As it relates to the mix outside of investment-grade, keep in mind, we're really targeting very high-quality tenants. It's certainly not a barbell approach of buying a bunch of really high yield assets and then trying to get some quality to kind of blend in cap rates. It's really more, there's a limited universe of tenants that we're very comfortable with that don't happen to not carry an investment-grade rating. Quarter- to- quarter, that can certainly shift. I would expect to see maybe at least through the first nine months of this year and the $327 million that we've closed on in the first nine months of the year, there's been about a 40 basis point difference between kind of that high-quality bucket versus our investment-grade bucket.
Hey, Todd, it's Andy again.
I think I might have missed the first part of your question.
Hey, Todd, it's Andy. If I could just add to that. Just from our perspective, since it's really the first time we're disclosing it as a public company, when we talk about cap rate on acquisitions, just to make sure we're all on the same page, that's cash cap rate on fully loaded acquisition costs.
Okay. That's helpful. In terms of the pipeline and what you're seeing out there and sort of the various channels that you source deals, existing assets, I guess, build to suit, sale-leasebacks. Where's the biggest opportunity today? You mentioned the Walmart acquisition. Is that an area where you continue to see an increase in offerings either from mall REITs or other retail property owners? Is that an area of focus for the company?
Yeah, absolutely. Our acquisition targets, I think, are fairly modest in terms of volume. It allows us to be very selective. We've got about $500 million or $550 million of acquisitions in our pipeline, most of which we will not get there on pricing. We pride ourselves on being extremely creative, really trying to find a situation where our surety of close or whatever we bring to the table is valued. Could be speed to close, could be having the cash already raised, could be a relationship that we have. Certainly, as you mentioned on the Walmart transaction, where we partnered with a Dallas-based shopping center buyer that focuses more on kind of junior boxes and shop space and things that we view as a little bit riskier.
Being able to kind of bring that type of transaction to the seller that solves their entire problem, rather than us just kind of pulling out the credit out of the deal and leaving them in a worse spot to sell the rest of the center. Certainly, we're seeing more and more of those types of opportunities, working more and more with developers, and seeing some more opportunity there as well.
Okay.
Yeah, Todd, once again. Hey, Todd, it's Andy. Just when you think about the idea of whether it's shopping center owners spinning off some of those triple net tenants. Certainly from Mark and my experience, you really need to dig into the details there, whether that's co-tenancy provisions, restricted uses, so on and so forth. The devil's in the details on those deals.
Okay.
We're extraordinarily conservative with how we underwrite those. We're not taking on any co-tenancy risk or restricted use if that's gonna create a problem for us in the future.
Okay, got it. Then just one last question. Andy, in terms of collections, just a little less than 2% not collecting in the quarter. I realize you're at 100% in September and October, but is that all resolved in your view? Do you feel that those tenants and your tenant base in general is on better footing going forward here? Is there some risk that tenants could come back looking for relief or deferrals of some sort? Do you see any risk of that heading further into the fourth quarter?
Yeah, to me.
Andy.
Yeah. Sorry, Mark.
Todd, a lot of that's gonna depend on what the future brings with respect to COVID, so on and so forth. I think that we demonstrated that our portfolio was extremely defensive during the second quarter, based on the collections we showed there and going into the third quarter. Certainly feel like if we're kind of in the current environment, I feel very, very good about collections, not just on the legacy assets, but the assets we've acquired and what it is that we see in the pipeline. Yeah, as good as you can feel in the current environment, we feel that good.
Yeah. The only thing I would add there is, we cut all of our deals as it relates to COVID back in April and May. Everyone has gone along with those agreements and has paid 100% starting in June. We just haven't had conversations with tenants as it relates to COVID or not paying rent or rent relief or any of those types of situations. Yeah, I think if there's a reemergence of COVID, second wave, whatever you want to call it, I think there is the possibility that we have those types of conversations. In reality, the deals that we did cut, we ended up getting a lot of lease extensions and a lot more value came back to us than what we gave up.
It really showed the commitment to the locations that our tenants have in the areas that were impacted by COVID. Pretty optimistic that we'll continue to collect 100%, but we're certainly open to working with our tenants in the event that the government shuts them down or things outside of their control impact their ability to generate profits.
Todd, just to kind of quantify on what Mark said. I said in my prepared remarks, year to date, we've given just under three-quarters of a million dollars of rent abatement to our tenants. In exchange for that, if you were to quantify what we got with extended term, that equates to about $14.5 million of additional rent payments at the end of the term.
All right, great. That's helpful. Thank you.
Your next question comes from the line of Linda Tsai with Jefferies. Please proceed with your question.
Hi, good morning. The disposition you made this quarter, was that in casual dining? Where do you think cap rates might trend for de-risking these one-off assets going forward?
Sure, Linda. That was a casual dining restaurant. That was probably the one property most impacted by COVID, in Hutchinson, Kansas, a location without a drive-through, without much of a network to really drive Uber Eats or any of those types of platforms. They closed and were unlikely to reopen. We thought with the term on the lease, now is the time where we'd get some value. We felt like if we waited longer, it would be a much uglier situation. It was a way for us to de-risk the portfolio. Certainly, it was something that we did prior to the IPO, at least, we had agreed to that sale, to really try to clean that up to have as clean a portfolio on a go-forward basis. Never say never, keep in mind, we did start out with a $350 million portfolio.
Really culled out the things that we thought were going to be potential problems down the road of about $90 million pulled out of the portfolio, then have really built up most of the portfolio since the initial capital raise back in December and January. Really feeling very good about the portfolio. There may be a one-off situation here or there. We do have the one casual dining restaurant that typically pays about three weeks late, which is what the difference was between our business update on October 1st, where we had 99.5% of rent collected in September, and now that's up to 100%, and it's because they paid. That's one where we may look to move at some point in time.
We just want to make sure that we're maximizing value and getting the best economic outcome that we possibly can in each of those situations.
Thanks. Given increased market interest in investment-grade tenants, what's the best strategy to navigate potentially increased competition and still achieve the cap rates in your targeted range?
Yeah, sure. No, absolutely. Obviously, it's the strategy that we think makes the most sense. As we start to head into maybe a period of uncertainty, there may be more interest there. It's a very fragmented business, very much a relationship business. You take the Walmart example that we talked about earlier. That's very difficult for a private buyer to step in and do if they're not in the business each and every day like we are. We've got $500 million or so in our pipeline, but we just have to cull down the ones that work for us, and it's just such a large fragmented market that we really feel strongly that we'll continue to be able to execute our business plan in the future.
Thanks.
Your next question comes from the line of Katy McConnell with Citi. Please proceed with your question.
Great, thanks. Can you provide some more color around the dead deals that you walked away from this quarter to get a sense for how you're underwriting risk and acquisitions differently today? On the disposition front, would you expect to see similar pricing on the held-for-sale assets versus the 3Q sale?
Yeah, sure. I'll take the first one first. The dead deal cost, that really had to do with a deal that we had cut pre-COVID, and then were able to continue to kick the can on the contract, until the seller eventually didn't allow us to keep kicking the can on that. That had to do with a specific tenant where we were buying a couple of properties, and had a hard deposit back during COVID. The credit really had deteriorated a bit due to COVID, and then they also were undertaking a pretty large capital markets transaction that we felt was going to add leverage to the balance sheet and could potentially add additional risk to that particular acquisition. We elected to walk from that particular transaction. I think that's going to be very abnormal.
It was really a COVID-related type deal. We felt like it was more important for us to not take in assets that could potentially lead to problems down the road than it would be to walk away from a couple hundred thousand dollars. Obviously, something we don't want to do in the future. I think COVID definitely had a lot to do with that. As it relates to dispositions, I would think of the 10.4% cap rate on the one dark casual dining location to be very much an anomaly. As we look at our dispositions in the future, we think the cap rate should be significantly inside of that, depending on what that mix looks like, how many of those are getting out ahead of risk, how many of those are diversification sales, like a 7-Eleven.
I would imagine those would be significantly less than the 10.4% cap rate.
Yeah. Just to kind of follow up on that. For everybody else, we had $1.2 million of transaction costs in the quarter. We add back the 144A and IPO-related expenses, as I discussed in my prepared remarks of $900,000. To quantify that's $300,000 of dead deal costs in the quarter. As Mark said, we'd anticipate.
Yeah, we'd anticipate that to be less going forward.
Okay, thanks.
Your next question comes from the line of Todd Stender with Wells Fargo. Please proceed with your question.
Hi, thanks. Just to go back to cap rates. We've been focusing on the cap rate compression direction, really of the peer group. When you look at the stuff you guys have been buying, it's been fairly steady with good investment-grade rated tenants. Where the 10-year Treasury is, it's been fairly range bound, below 1%. Would you say there's a natural floor in cap rates? You've just got to account for some level of risk on top of that risk-free rate. Maybe that accounts for some of the reason why cap rates seem to be pretty steady for you guys.
Yeah, I think that's right, Todd. I think there's generally going to be a floor. When you look at cap rates over time, over the past 20 years, people tend to think that there's a massive correlation to interest rates. There really isn't. I think it certainly There's been some gravity to bring those down over time due to a prolonged low interest rate environment that we've been in. I think the only situations where it really has an impact is sometimes you'll see a very large sale leaseback that could be a structured financing type execution, where some of that secured debt can come into play where someone could get pretty aggressive. Really in kind of the 1031 mom- and- pop smaller transaction market, we don't expect to see massive moves in cap rate, which we really haven't seen over the past 20 years.
It's been extraordinarily stable. I think that's a fair assessment.
Thanks, Mark. Maybe this is for Andy. Obviously, with your proceeds from the IPO still sitting there, you're plenty liquid, debt to EBITDA sub 2x . Where can we probably see you guys tap the capital markets? Would debt come next? Certainly, it's a little premature. Probably have until the second quarter of next year to deploy the IPO proceeds, but maybe how you're thinking about the capital structure?
Yeah, sure, Todd. Thank you. Yeah, plenty liquid. Where we stand right now, we're sitting on $137 million of cash. We've got roughly $30 million worth of assets that are currently held for sale, $250 million undrawn on the credit facility. As you said, plenty liquid for the near term. Our belief was through the 144A and into the IPO and to today is that continued execution of the business plan is going to result in improvements to our overall cost of capital over time. Mark and I are constantly talking about just keep executing, just keep executing. Kind of like Dory in Finding Nemo, where it just keeps swimming. We're in no rush to raise additional equity at this point. Obviously we're constantly evaluating funding alternatives on a go-forward basis.
Just from where we sit right now, I don't think it's in anybody's best interest to start speculating on what type of capital size, timing, or price. Just know that we're really focused on executing the business, got our eyes wide open. Hopefully the markets trust us to make the appropriate decisions at the appropriate time.
That's helpful. Thank you.
As a reminder, if you'd like to ask a question, please press star one on your telephone keypad. As a reminder, if you'd like to ask a question, please press star one on your telephone keypad. One moment while we pull for more questions. Your next question comes from the line of Alexander Pernokas with Bank of America. Please proceed with your question.
Hey, good morning, guys, and congrats on your first quarter as a public company. Just one question. What are your thoughts on providing official guidance with 4Q results for 2021?
Yeah, Alex. Look, it's something that we're regularly thinking about. What we tried to do this quarter was really to give you guys, whether it's on the ABR line, some guidance with respect to acquisitions, interest expense pretty locked in with our what's now fixed rate debt on our term loan. With respect to the dividends and G&A, which are really the biggest drivers there. We will continue to evaluate and try to adhere to best practices as best as we can as we continue to gain greater clarity around the business. If you're asking for are we going to commit to providing AFFO per share guidance for 2021, at this point, I think it's too soon to tell.
To the extent that people feel like we're not giving you the basic building blocks, which I think that we went to great lengths to do this quarter, please feel free to reach out on a one-off basis, and we're happy to discuss.
Got it. Thank you. That's it for me.
Your next question comes from the line of Ki Bin Kim with Truist Securities. Please proceed with your question.
Thanks. Good morning, and congratulations on your IPO. Could you discuss your investment philosophy? I'm sure there's a host of variables that you consider when you buy an asset. What's your pecking order, and if you can just provide some details around that.
Yeah, absolutely. Our first and primary focus is going to be on the corporate credit and making sure that we're going to get rent during the lease term. We think in a world where retail continues to evolve, we think it's extraordinarily important to have a strong management team that has access to capital and the cash that will allow them to continue to reinvest in their business and allow them to adapt to the change that will continue to come. I think that's the one thing that we're sure of, is that there will be change.
Being prepared for that and not having tenants that are continually taking cash out of the business, but rather reinvesting in their business, we think is very important, which happen to be a lot of investment-grade credits and tenants that we focus on that have strong access to capital with lower leverage. The next piece that is very important to us is making sure that we're buying the real estate right. There will be disruption. We hope to get everything right, but probably foolish to think we'll get everything right. Really our backstop is effectively what are we actually buying, and that's, of course, the real estate. What can we do with that real estate? How attractive is that going to be to other uses?
Looking at demographics and traffic counts and ingress, egress signage, and what the other traffic drivers are in the area, we think is very important. Really trying to analyze what happens if we do get it back, what can we do with it? How much money are we going to have to put into the building, if any? What type of rent should we be able to get replacing the rent that we're getting at the time that we initially do an acquisition. We also think it's important to focus on locations that generate positive cash flow for their tenants. Certainly, we've seen that be important as it relates to renewals. That's probably third in the pecking order behind corporate credit and real estate.
Okay. Mark, you and both Andy have had a lot of experience and both worked at public companies in the past. I'm just curious, at NETSTREIT, what kind of corporate culture you're trying to create?
Yeah, absolutely. We think corporate culture is often overlooked, and it's something that we focus on every day, making sure that we've got people that are excited to come to work, like what they're doing, are valued. We think that will continue to drive them to do the best that they can do. I think right now we've got a lot of momentum behind the culture, where people are really excited about what we've accomplished. I think it's going to get harder and harder as we continue to scale the business to make sure that we've got the right people in the right seats, that kind of have that team mentality, that aren't looking to point fingers, but are trying to find solutions to issues as they come up. So far so good.
We feel, obviously, what's been accomplished by our 19 team members to date. You think about we were a smaller private entity less than a year ago, really what we've been able to accomplish on the acquisitions front, asset management front, a very heavy lift on the accounting side. What we've been able to accomplish, I don't think could have been done in a bad culture. You throw COVID-19 in the mix, it really would've been difficult. People have held themselves accountable through this whole process from a lot of working from home. We think that is certainly a testament to the culture that we've built to date.
Yeah.
Thank you.
Ki Bin, I would also say look to the board, right? As Mark and I were looking to build out the board, basically we kind of broke it down to its simplest forms, right? There's the three things that we believe you can make a REIT successful are, not in this order, but the real estate, the balance sheet, and the people, right? I think that what happens is a lot of time, you get a lot of folks on boards who are super focused on the first two, not a lot on the last. We have, I keep calling her our secret weapon, who's Heidi Everett, who is one of our new board members who came on as part of the IPO, who is really, really engaged in culture, morale, employee maximization.
Mark and I very much look forward to working with her in order to make sure that we are getting everything that we can out of our people, and that we are being as responsive as we can to our employees' needs, right? We're 19 employees at this point. The idea that I joke, Mark and I had our first conversation just over a year ago. We've raised two rounds of capital. We got our books and records in place. We were able to report pretty early in the cycle, and feel like we're setting ourselves up for success. You can't do that without the best quality people. We just couldn't be prouder of the team that we have. Hopefully that answers your question.
Yes. Thank you.
Ladies and gentlemen, we have reached the end of the question and answer session, and I would like to turn the call back to Mr. Mark Manheimer for closing remarks.
Well, thank you everybody for joining today. Certainly an exciting day for us with our first call as a public company. Also, we do plan on attending Nareit in a few weeks, and hope we can find some time to discuss our progress. Thanks again, and have a great day.
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.