Netstreit Corp

NYSE:NTST

Earnings Call Analysis

Q2 Earnings Reflect Resilient Acquisition Strategy and Fraud Incident Impact

In Q2, NETSTREIT Corp. reported a net loss of $2.3 million, influenced by a $2.8 million fraud loss. Despite this, Core FFO grew by over 6% to $23.4 million. Gross investment activity amounted to $116 million with a 7.5% yield, focusing on sale-leaseback transactions. Total expenses decreased, with G&A down 8%. The company holds $569 million in liquidity and maintains leverage below its target range. The guidance for 2024 AFFO per share remains at $1.25 to $1.28. A quarterly dividend of $0.21 per share was confirmed, marking a 2.4% increase.

A Solid Quarter with Strategic Growth

NETSTREIT Corp. reported a steady second quarter with an impressive $116 million in gross investment activity, generating a blended cash yield of 7.5%. A significant portion of these acquisitions were sale-leaseback transactions, which allowed the company to benefit from attractive risk-adjusted returns. The average remaining lease term for these acquisitions is notable at 16.7 years, indicating long-term stability. The addition of Life Time Fitness as a new top tenant highlights a focus on premium assets that have proven resilient in the current economic landscape.

Financial Performance and Earnings Guidance

For the second quarter, NETSTREIT reported a net loss of $2.3 million, equating to $0.03 per diluted share. However, the Core Funds from Operations (FFO) came in at $23.4 million ($0.31 per share), while the Adjusted Funds from Operations (AFFO) were $23.8 million ($0.32 per share), reflecting a 6% increase year-over-year. The company is maintaining its AFFO per share guidance for 2024 at between $1.25 and $1.28, alongside expectations that cash G&A will range from $13.5 million to $14.5 million.

Robust Balance Sheet and Liquidity Position

The balance sheet remains solid with total adjusted net debt at $464 million, a weighted average debt maturity of 3.6 years, and an interest rate of 4.43%. Importantly, there are no debts maturing until January 2027, providing significant stability. The company ended the quarter with liquidity of $569 million, comprising $14 million in cash, $302 million available on its revolving credit facility, and $254 million from unsettled forward equity.

Managing Tenant Risks and Portfolio Diversification

The company reported minimal exposure to potentially distressed tenants, particularly Walgreens and Big Lots. With Walgreens, NETSTREIT has only one lease expiring before 2029, a high-performing asset. For Big Lots, which is closing more than 10% of its stores, NETSTREIT has one location on that list but is confident in its ability to re-tenant the site. The rent for this location is notably low at $5.29 per foot, providing room for higher rents in the future. The company's strategy focuses on diversifying its portfolio with tenants from defensive industries.

Challenges and Fraud Incident Response

During the quarter, NETSTREIT experienced a fraudulent event that resulted in a loss of $2.8 million. The company reacted quickly by blocking access to the compromised account and conducting an investigation. Management believes that appropriate steps have been taken to prevent such incidents going forward, reassuring investors about the integrity of operations.

Dividend and Payout Ratios

On July 23, NETSTREIT declared a quarterly cash dividend of $0.21 per share, a 2.4% increase from the previous quarter. The dividend will be paid on September 13 to shareholders of record as of September 3, and reflects an AFFO payout ratio of 66% for the second quarter, signaling prudent capital management.

Future Outlook and Market Position

NETSTREIT expects to maintain a steady acquisition pace driven by selective opportunities. Despite significant industry headwinds, the company aims to continue delivering stable returns while focusing on enhancing its tenant base and real estate quality. The anticipated earnings per share growth of 2-3% aligns with NETSTREIT's ongoing investment strategies, particularly in the sale-leaseback space.

Earnings Call Transcript 2024-Q2

[Operator]

Greetings, and welcome to the NETSTREIT Corp. Second Quarter 2024 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Amy An. Thank you. You may begin.

[Amy An, executive]

Thank you for joining us for NETSTREIT's second quarter 2024 earnings conference call. In addition to the press release distributed yesterday after market close, we posted a supplemental package and an updated investor presentation. Both can be found in the Investor Relations section of the company's website at www.netstreit.com.

On today's call, management's remarks and answers to your questions may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ from those discussed today. For more information about these risk factors, we encourage you to review our Form 10-K for the year ended December 31, 2023, 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 of our non-GAAP measures, reconciliations to the most comparable GAAP measure, 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, Dan Donlan. They will make some prepared remarks, and then we will open the call for your questions.

Now I'll turn the call over to Mark. Mark?

[Mark Manheimer, executive]

Thank you, Amy, and thank you all for joining us this morning on our second quarter 2024 earnings call.

We had a steady second quarter completing over $116 million of gross investment activity at a blended cash yield of 7.5%. A larger portion of our acquisitions this quarter were sale-leaseback transactions as we have seen more attractive risk-adjusted returns from our opportunity set in that area. Due to the difference in sourcing channels this quarter, our acquisitions had an attractive rent growth profile with longer lease terms at 16.7 years average remaining lease term.

We have a new top 10 tenant this quarter after 2 property additions with Life Time Fitness, a premier health club provider whose operations have proven resilient in the current economic climate due to the changed focus on the more affluent customer. This direct sale-leaseback was part of a larger package, which allowed us to select the 2 best assets from the group at highly attractive price points.

One of the assets is a former United States Tennis Association locations in the northern suburbs of Atlanta, which has been expanded and upgraded by Life Time over the past few years. The other asset is another infill location in Austin, Texas, which consistently performs as 1 of the top 5 most profitable locations in the Life Time chain.

While we have seen a number of sale-leaseback opportunities with Life Time over the past few years, this was the first opportunity that gave us access to some of their most attractive real estate at accretive cap rates in an appropriate basis. We may selectively add to this tenant concentration if we can continue to acquire top-performing assets at favorable pricing with a reasonable basis.

On the development front, we commenced rent on 6 projects, totaling $12 million. Our current development pipeline consists of 12 projects with a total estimated cost of $39.6 million, which includes estimated remaining funding of $12 million.

Moving on to dispositions. We continue to execute on strategic asset sales to recycle capital into investments with longer leases and better rent escalations, and decreasing our exposure to certain tenants. We completed 6 dispositions in the quarter for total proceeds of $13 million at a blended cash yield of 6.8%.

At quarter-end, our portfolio consisted of 649 investments, with an ABR of $148 million. Our 90 tenants operate in 26 industries across 45 states, with 83% of our portfolio leased to investment grade or investment grade profile tenants. Our weighted average lease term remaining on the portfolio is 9.5 years, with less than 4% of leases expiring through 2026.

As we look to further improve the diversity of our portfolio, we will continue to explore all acquisition sourcing channels where we can get the best risk-adjusted returns, including sale-leaseback opportunities that give us access to well-located real estate where the tenant generates significant cash flows at a very high rent coverage.

While having a large number of publicly-traded companies in our portfolio has created headline noise for us most recently, we believe the economic impact to our cash flow generation should be negligible over the long term. As a reminder, we do not only rely on corporate credit of our tenants but also the unit level performance of our assets and the quality of our real estate collateral.

The 2 most topical tenants in the news have been Walgreens and Big Lots. As it relates to Walgreens, we have just 1 lease expiring before 2029, and it is a high-performing asset with de minimis renewal risk. As mentioned in the past, we maintain an ongoing and constructive dialogue with Walgreens, which allows us to proactively asset-manage our stores in real time. That said, we continue to believe we own some of the better performing stores, which should limit our downside risk.

With regard to Big Lots, they recently announced the closure of more than 10% of their stores. We have 1 location on that list. And based on our assessment of the market, we are confident in our ability to re-tenant the location with potential upside in rent. The remainder of our Big Lots stores generate better-than-average foot traffic with rents that we believe are at or below market with attractive real estate fundamentals.

As we look out to the remaining half of the year, we are focused on further enhancing our portfolio diversification with tenants that have strong management teams and operate in defensive industries.

Before I hand the call over to Dan, I want to discuss the fraud incident that occurred during the quarter. The company was the victim of a criminal scheme involving a business e-mail compromise of an employee that led to 2 fraudulent transfers totaling $3.3 million to a third party impersonating one of our development partners. The result was a $2.8 million loss net of insurance recoveries.

When we learned of the issue, we took immediate action, including blocking access to the compromised account and launching a review with the assistance of third-party experts. Our investigation has determined this isolated event poses no further threat to the company or its partners, and we believe we have taken the appropriate steps to prevent this from occurring again.

With that, I'll hand the call to Dan to go over our second quarter financials, and then open up the call for your questions.

[Daniel Donlan, executive]

Thank you, Mark. Looking at our second quarter earnings, we reported a net loss of $2.3 million or $0.03 per diluted share. Core FFO for the second quarter was $23.4 million or $0.31 per diluted share. And AFFO was $23.8 million or $0.32 per diluted share, which was an over 6% increase versus last year.

Turning to the expense front. Total recurring G&A declined 8% year-over-year to $4.6 million, while recurring cash G&A declined 13% year-over-year to $3.3 million. In addition, with our total recurring G&A representing 12% of total revenues in the quarter versus 16% of total revenues in the prior year quarter, our G&A continues to steadily rationalize relative to our revenue base.

Turning to the balance sheet. Our total adjusted net debt, which includes the impact of all forward equity as of quarter-end, was $464 million. Our weighted average debt maturity is 3.6 years and our weighted average interest rate is 4.43%. Including extension options, which can be exercised at our discretion, we have no debt maturing until January 2027.

During the quarter, we sold 1.6 million shares, all on a forward basis, from our ATM program for a net equity value of $29 million. At quarter-end, our liquidity was $569 million, which consisted of $14 million of cash on hand, $302 million available on our revolving credit facility, and $254 million of unsettled forward equity.

Turning to leverage. Our adjusted net debt to annualized adjusted EBITDAre was 3.4x at quarter-end, which remains well below our targeted leverage range of 4.5 to 5.5x.

Moving on to guidance. We are maintaining our 2024 AFFO per share guidance of $1.25 to $1.28. We also continue to expect cash G&A to range between $13.5 million and $14.5 million, which is exclusive of transaction costs and onetime severance payments.

Lastly, on July 23, the Board declared a quarterly cash dividend of $0.21 per share, which represents a 2.4% increase from the prior quarter. The dividend will be payable on September 13 to shareholders of record as of September 3. Based on the dividend amount, our AFFO payout ratio for the second quarter was 66%.

With that, operator, we will now open the line for questions.

[Operator]

[Operator Instructions] The first question is from Wes Golladay with Baird.

[Wesley Golladay, analyst]

Can you talk about what categories are in the acquisition pipeline and the held-for-sale assets?

[Mark Manheimer, executive]

Yes, sure. So it's a pretty big mix of different types of transactions that we're looking at. There are some sale-leasebacks, still some -- we're finishing up some more developments, so we have a handful of Dollar stores left to close. But quick-service restaurants, Tractor Supply, kind of pretty typical from what you've seen in the past.

[Wesley Golladay, analyst]

Okay. And then when you go back to the Big Lots comment, you mentioned potential upside in rent. I know you have a low rent overall for the Big Lots. Can you talk about where the rent is for the asset that was, I guess, closed? And are you looking for term income, and any CapEx needed?

[Mark Manheimer, executive]

Yes, sure. So the rent on that location is $5.29 a foot. So pretty low rent, pretty attractive real estate. And it has not closed yet. They just -- they came out with a closure list indicating 149 stores that will close. That is on that list. So they are likely to going to start some going-out-of-business sales, et cetera. So that's going to take a little bit of time. And then we would just look to re-tenant the asset in the event that we take it back if they file bankruptcy at some point in time.

But there's still 7 years of lease term on there. So if they were to reject the lease, we would get some -- we'd get a lease termination payment, and then we would look to re-tenant the asset. But we've already been out in the market talking to some tenants as well as a broker that's pretty familiar with the location, and there's already some interest in that location.

[Wesley Golladay, analyst]

Okay. And then Stop & Shop has been in the news. How do you feel about your exposure there? And are there any other tenants on your watch list?

[Mark Manheimer, executive]

Yes, sure. So yes, Stop & Shop, we've got 2 locations, which is a little bit less than 2% of revenues. I think they announced 32 closures that they're going to be going through. None of ours are affected by that, and we don't really see any risk to our locations.

We have 1 in Beekman, New York that is currently getting extended and they're taking their 5-year option, and then 1 in Somers, New York as well, that's one of their top-performing assets that has some term on it. So I really don't see any risk associated with that tenant. And then of course, Big Lots, we certainly are paying attention to what's going on with them.

[Operator]

The next question is from Smedes Rose with Citi.

[Bennett Rose, analyst]

I just wanted to ask you a little bit just about overall acquisition activity. Because I guess, at least relative to our expectations, we were surprised the pace of activity slowed kind of sequentially. And it seemed -- I just had a square of some of your remarks in the first quarter where you kind of thought activity would be in line or ahead, and I'm just kind of wondering maybe what were some of the dynamics that you saw during the quarter that caused overall activity to slow. And just wondering if you could maybe provide an update on what you've seen or kind of your pipeline thus far in the third quarter.

[Mark Manheimer, executive]

Yes, sure. And I think the pace has been pretty similar. I think maybe slowed down a little bit on the margin. But we've just been very selective in terms of what assets we're willing to take into the portfolio and just trying to be prudent with the capital that we've raised back in January. But I would expect us to have a similar pace that we did last year this year as kind of -- as we look out for the next 60, 90 days.

[Bennett Rose, analyst]

Okay. And then could you just maybe talk a little bit more about the Life Time assets? I mean obviously, brought the overall investment grade profile of your investments down. Would you expect over time that that's going to move back into the low to mid-80% of your total investment activity or...

[Mark Manheimer, executive]

Yes. I mean I think we're maybe a little bit less dogmatic about whether something is investment grade or not investment grade or investment grade profile. We're kind of looking at not only the corporate credit, what industry that tenant's in, what headwinds or tailwinds that might be affecting that individual tenant or that industry, how profitable the locations are.

And then, of course, in the event that we ever have to take a property back, like you're seeing with Big Lots, that we're going to be able to backfill that location and replace the rent. So it's kind of a lot of different factors that kind of go into what we're looking at buying.

Right now, we're seeing more on the sale-leaseback side, which is going to be typically some investment grade profile, some sub-investment grade occasionally, an investment grade tenant. There's kind of a large transaction out in the market right now that's with an investment grade tenant.

And so I think it really had more to do with our sourcing channels, where we were getting the best risk-adjusted returns last year, which was we did a lot of blend-and-extends 2 years ago. And then last year, we're doing more on the development side. Those just happened to be more with investment grade tenants.

And so from the time of our IPO, we came out and said we'll use it as a guidepost for investors, saying we'll be between 60% and 70% actual investment grade, which we've kind of kept to that. We kind of creeped over 70% there for a little while. But I think we're likely to stay somewhere around that range.

[Operator]

The next question is from Haendel St. Juste with Mizuho.

[Ravi Vaidya, analyst]

This is Ravi Vaidya on the line for Haendel. What's the bad debt reserve that's currently embedded in your guide right now? And why not raise the guide at this point given that it seems that you're above pace from an acquisition standpoint versus last year?

[Daniel Donlan, executive]

Ravi, good question. On the credit loss, as we started the year, we said at the low end of guidance, we were modeling 100 basis points, and at the high end of guidance we were modeling basically nothing. As we've gotten through 6 months, we're now modeling 50 basis points at the low end, and essentially nothing at the high end.

As far as the decision not to raise guidance, with 5 months left in the year, we were comfortable leaving the midpoint at $1.265, mainly because with almost 15 million shares unsettled through our forward sale agreements, the dilution associated with those, depending on our stock price, can have a meaningful impact on the share count and, therefore, our earnings per share.

So we just wanted to see a couple more months of trading as well as a couple of more months of activity before revisiting our guidance in October.

[Ravi Vaidya, analyst]

Got it. That's helpful. Just one more here. Would you say that your acquisition strategy has shifted? Is there now more of a focus on experiential real estate rather than the Dollar stores and pharmacies that currently make up a large part of the portfolio?

[Mark Manheimer, executive]

No, I wouldn't say that our strategy has really shifted at all. In fact, we looked at a number of Life Time Fitness sale-leasebacks over the past, call it, 3 or 4 years. Those traded -- 1 traded at a 5.9% and the other traded in the 6s. So we just felt like the pricing was a little bit more aggressive and the assets didn't perform quite as well as the assets that we're able to get here.

So this was just a unique opportunity, I think, to grow with a tenant that we think is a very strong tenant with a very high-quality real estate. And yes, I mean the Austin location consistently generates top 5 cash flows across their entire chain.

And then the Atlanta asset is somewhat unique in that it's just in the Peachtree corner suburb just north of Atlanta. We acquired that for about $800,000 an acre. And it is zones that you could convert it to residential. So even if we ever took that asset back, we would actually make money on that asset.

So somewhat unique characteristics about that transaction. But we are always looking at the quality of the real estate, the unit-level performance as well as the corporate credit, and felt like that fits very well within our portfolio. We were just priced out on the last several transactions with Life Time in the past.

[Operator]

The next question comes from Greg McGinniss with Scotiabank.

[Greg McGinniss, analyst]

What do you think has changed at Life Time or on the demand side for those assets if the boxes are now pricing at an attractive basis for you? And are there other non-IG operators that you're now looking to pursue, so we might see the historical bias towards investment grade or equivalent acquisitions start to shift?

[Mark Manheimer, executive]

Yes. I mean I would say what has changed with Life Time is really just what has changed across the entire market. Obviously, interest rates have an impact there. But there's just such little competition out in the market versus where we were 2, 3 years ago where there was private equity, there was a lot of 1031 buyers, some large family offices that could write really big checks. Most of those are completely sidelined.

So you have a handful of public REITs that are still active, but I think that is really the demand side has kind of fallen off with not as many buyers on the competition side. So I think that's really what's driving the situation with Life Time.

Yes, I mean, I think we're always looking for new tenants or open to sale-leaseback opportunities. We're open to really every different channel that we acquire assets through. And right now, it does seem to be that the sale-leaseback channel is a little bit more attractive, where we're getting very high-quality real estate at a very low basis with high rent coverage, with tenants that are growing that we think have blue skies ahead of them.

So certainly looking at a number of those types of opportunities. But then we're also looking at a lot of grocery store transactions and other investment grade type tenants that you've seen us acquire in the past.

[Greg McGinniss, analyst]

Okay. And on those Life Times, are you getting P&Ls on those? And can you disclose the rent coverage?

[Mark Manheimer, executive]

We do get unit-level coverage. I'll just say that they are very high.

[Greg McGinniss, analyst]

Okay. And one more just on the balance sheet. So given the increasing expectations, we'll see, hopefully, that debt costs are coming down with rate cuts, how are you thinking about the $150 million accordion remaining on the term loan versus just issuing a new loan? And if you were to tap the accordion, do you plan on swapping that?

[Daniel Donlan, executive]

Yes. Greg, we would look at doing both. It kind of just depends on where bank demand is. The 5-year swap rate today is around 380 basis points. Our spread over that swap rate is about 125 basis points. So all in, you're looking at very low 5%.

I don't think we're looking at doing anything though on that front until we get out to 2025. Our credit facility comes due in August of 2026, and typically, you start to look to recast that and look at the rest of your term loan debt at the same time. So that's probably an early 2025 event.

So it's a little too early to say what we may or may not do. But our preference certainly is to continue to push out our debt maturities throughout the course of the next few years.

[Operator]

The next question comes from Antara with KeyBanc Capital Markets.

[Antara Nag-Chaudhuri, analyst]

I'm assuming you've largely completed 3Q investment pipeline. And I wanted to get your sense of where cap rates and volumes are trending so far. And are you seeing the early indication of where cap rates could shake out for your 4Q pipeline?

[Mark Manheimer, executive]

Yes. Always difficult for us to project too far out. But yes, I mean, I think third quarter, likely to see cap rates -- I think they've really flattened out. So you saw us post a similar cap rate second quarter as we did first quarter. We don't think they're necessarily going up here in the short term, but these things can certainly change pretty quickly.

[Antara Nag-Chaudhuri, analyst]

Okay. Got it. And then could you provide some color on the current in-place rents on the 27 Walgreens that you have? And where do you think the market is at for those properties?

[Mark Manheimer, executive]

Yes. So we're about $21 a foot on average. And I think they're all a little bit different, but I think we're probably slightly above market.

[Operator]

The next question is from the line of Joshua Dennerlein with Bank of America.

[Farrell Granath, analyst]

This is Farrell Granath on behalf of Josh. I just wanted to ask, I guess, in terms of the spread that you're seeing between IG and non-IG, I was curious if you could comment on that and if you're seeing any shift at all in terms of cap rates and pricing.

[Mark Manheimer, executive]

Yes. No, it's a really good question. So historically, what we've seen in the difference between non-investment grade versus investment grade, in what we've acquired, it's really only been a 40 or 50 basis points. So pretty tight.

But what we're currently seeing, and of course, there's a lot of factors that influence cap rates, not just whether it's investment grade or not, but we're seeing that a little bit wider than what we saw over the past 4 years.

[Farrell Granath, analyst]

Great. And I guess also just kind of thinking bigger picture, given the consumer being under pressure, are you seeing this specifically impact the stores in your portfolio? And are you receiving financials for a certain percentage of your portfolio that you've been monitoring?

[Mark Manheimer, executive]

Yes. No, that's a great question. So that's really where you're seeing any level of distress, is the lower-income consumer combined with anything that's discretionary. So where people are getting squeezed with inflation, they're kind of looking at their monthly budget and saying, "To make this work, I can't spend money on the discretionary items, I'm going to have to" -- obviously, you have to buy what you need.

And that's really Big Lots. Their consumer is kind of the mid- to lower-income consumer. A lot of what they sell is discretionary. So you have seen them really struggle since inflation started really kicking in. And that's really the big driver with Walgreens, is that their consumer is looking around the store and saying, "I don't really need to" -- "I don't need to buy a lot of what you have here," and they're pushing back on pricing.

And so you've seen the margins as it relates to Walgreens shrink from 23%, which was pretty steady for a long period of time, down to 18%. And that's heavily inflation driven with the lower-income consumer.

[Operator]

We have a follow-up question. Sorry. The next question comes from Ki Bin Kim with Truist Securities.

[Ki Bin Kim, analyst]

On the Life Time assets, can you just talk about the average age of those assets?

[Mark Manheimer, executive]

Yes. I mean they're fairly new. The one in Atlanta is kind of getting redone. It used to be the United States Tennis Association location. So that's gotten a pretty big makeover, so it's essentially a pretty new building. And then Austin is only a few years old.

[Ki Bin Kim, analyst]

Okay. Great. And on your cost of capital, I mean, obviously, you guys have a great balance sheet and in excellent position. But your equity price isn't quite efficiently priced. How should we think about this going forward? I know you have some runway to continue to buy. But thereafter, how do you think about funding your next round of deals?

[Daniel Donlan, executive]

Yes. Ki Bin, with our leverage at 3.4x, we can execute on our plan for the rest of the year and still end the year at or below the low end of our targeted range of 4.5 to 5.5x. So we do have plenty of run rate, as you know.

But right now, we can achieve spreads just slightly north of 100 basis points, which means we can probably grow earnings year-over-year somewhere around 2% to 3%. I don't think we're in a rush to raise equity, but we're confident that, as we continue to execute our plan, that our cost of equity will start to improve, particularly relative to the peer group given the embedded cash flows that we have and the strength of our portfolio.

But for now, we're being very, very judicious with how we manage our equity capital.

[Operator]

The next question is a follow-up question from Wes Golladay with Baird.

[Wesley Golladay, analyst]

If we were to look at your Walgreens exposure, 5.9% of ABR, how much do you think is at risk of closing, just being dark and pain? And then how much term would you have on those leases? And do you have an estimate of what, I guess, the net value at risk of those Walgreens will be?

[Mark Manheimer, executive]

Yes. I mean always tough to predict what they're going to do. They definitely have mentioned they're taking a look at a large swath of their properties and they're going to try to turn them around. I think it's prudent for them to do portfolio reviews. I think, quite honestly, it's a little bit overdue.

But yes, I mean, we're in constant conversations with Walgreens. And they gave us pretty good insight as to what they're thinking as it relates to their stores, if they're generating positive cash flow, and if they're -- locations that they're committed to long term.

A large number of the transactions that we did with Walgreens, if you recall, were blend-and-extend opportunities, so where we would go out and buy a short-term lease and get it extended before we close. So showing that they are committed to the locations long term. Obviously, things have gotten a little bit worse for them, as we just discussed their margins. So I think that list has probably grown, and with their new CEO, I think, looking at a larger portion of the source, and which I think is fair.

But that being said, we've got 9 years weighted average lease term and locations that generally do pretty well. And we know the location that's coming up in 2028 is one of the better performers in the chain and not something that they're considering. So yes, I mean, I think it could be ratable over time, where we could take a store or 2 over the past -- over the next 6 or 7 years, but it's just not going to have a meaningful impact on earnings.

[Wesley Golladay, analyst]

Okay. And then just one last one on the fraud issue. Is this the last we're going to hear it? Is there anything changing on the internal controls? Or is it just a onetime event and when we get to the third quarter, everything will be just in the rearview?

[Daniel Donlan, executive]

Yes, that's exactly correct. We immediately rectified the situation, reiterated the importance of following our existing processes and how not to deviate from the preset procedures. Secondly, we enhanced our procure-to-pay procedures by adding certain redundancies to the process.

And lastly, this was company-wide, we stressed the importance of remaining vigilant and skeptical of potential fraud in the workplace. So we would 100% would tell you that we believe this is a onetime event and we've done everything we can to prevent it from occurring in the future in our view.

[Operator]

[Operator Instructions] The next question comes from Greg McGinniss with Scotiabank.

[Greg McGinniss, analyst]

Given the 2 Life Times at around $70 million, I guess, we were somewhat surprised by overall acquisition volume this quarter. Were there deals that fell through or pushed out? And what gives you the confidence transaction volume going forward will be in line with what we've seen historically, absent these larger deals? Or are there other higher-ticket assets you're pursuing?

[Mark Manheimer, executive]

Yes. And to be clear, it wasn't $70 million; it was less than that. But yes, I mean, it's pretty normal for us to have quarters where we do a lot of onesie-twosies, small portfolios. And then we've had portfolios larger than that where we -- we did some sale-leasebacks with 7-Eleven in the past, up to a little bit more than $70 million.

So we're just kind of looking at what's our opportunity set, what can we close in the quarter. And then we try to chop off the least efficiently priced assets and get the best risk-adjusted returns we can. And we kind of have an idea of where we sit at all times during the quarter. So we're very comfortable that we can continue the same pace that we have for the past 4 years.

[Operator]

Thank you. There are no further questions at this time. I would like to turn the floor back over to Mark Manheimer for closing comments.

[Mark Manheimer, executive]

Thanks, everybody, for joining us today. I hope you have a great rest of your summer. And we look forward to speaking again in the future.

[Operator]

Thank you. This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation.