Agree Realty Corporation Stock

Good morning, and welcome to the Agree Realty Third Quarter 2026 Earnings Call. [Operator Instructions] Note this event is being recorded. I would now like to turn the conference over to Reuben Treatman, Senior Director of Corporate Finance. Please go ahead, Reuben.

Thank you. Good morning, everyone, and thank you for joining us for Agree Realty's Third Quarter 2026 Earnings Call. Before turning the call over to Joey and Peter to discuss our results for the quarter, let me first run through the cautionary language. Please note that during this call, we will make certain statements that may be considered forward-looking under federal securities law including statements related to our updated 2026 guidance and outlook for 2027.

Our actual results may differ significantly from the matters discussed in any forward-looking statements for a number of reasons. Please see yesterday's earnings release and our SEC filings, including our latest annual report on Form 10-K for a discussion of various and uncertainties underlying our forward-looking statements. In addition, we discuss non-GAAP financial measures including core funds from operations or core FFO, adjusted funds from operations or AFFO, net debt to enterprise value, fixed charge coverage ratio and pro forma net debt to recurring EBITDA. Reconciliations of our historical non-GAAP financial measures to the most directly comparable GAAP measures can be found in our earnings release, website and SEC filings.

I'll now turn the call over to Joey.

Thanks, Reuben. Good morning, and thank you all for joining us today. I'm pleased to report another strong quarter of performance, reflecting our disciplined execution of our operating strategy. We invested in high-quality opportunities across all 3 external growth platforms while our best-in-class portfolio remained at a company record 99.8% occupied. I want to start by directly hitting the elephant in the room, the dynamic and changing macroeconomic environment, which has increased our spot cost of capital.

I've had the privilege to lead this company through the launch of our acquisition platform on the heels of the great financial crisis as well as through the pandemic in which we doubled in size and reshaped the complexion of our portfolio. I intend to do the same here on our terms and at our price, and we will emerge from this period stronger than before. Disruption is advantageous in a fragmented noninstitutionalized market such as ours in many ways. Our relationships, balance sheet, 3 growth verticals and myriad of capabilities are poised to further validate our leading market position.

3 years ago, we introduced our do-nothing scenario to demonstrate the durability of our earnings algorithm during a period of uncertainty. Our position today is tremendously stronger, while the underlying earnings durability remains unchanged. Most importantly, we have learned from 2023. We have moved decisively as the macro began to shift this time around. While we've $1.1 billion of attractive capital this year, including forward equity at approximately $75 per share and a recently completed 10-year unsecured bond offering at just under 5.4%, we are in no rush to deploy yesteryear's pricing.

We have deliberately reduced our 2026 investment volume guidance to approximately $1.6 billion by culling lower yield opportunities and aggressively repricing our pipeline. Today, we sit on a $2 billion war chest, pro forma net debt to recurring EBITDA of just 3.9x and no material debt maturities until 2028. Our best-in-class retail portfolio with highly durable cash flows and limited lease rollover in conjunction with our fortress balance sheet provide for a meaningful competitive advantage. That foundation positions us to generate the mid-single AFFO growth per share and double-digit operational returns in 2027 that we've consistently delivered over the past few years.

We expect to do so without sacrificing our balance sheet strength or investment criteria, prudently deploying capital while adding cap rates higher, preserving our dry powder and leaning further into recycling capital. We can achieve similar levels of earnings rough with less capital deployment at higher cap rates. We have already begun that shift. Acquisition cap rates expanded by 30 basis points this quarter to 7.3% and we will expand them materially further in the fourth quarter as we lean into our capabilities and prioritize value creation over volume. This past quarter, we invested a total of approximately $360 million in 94 high-quality retail net lease properties, including the acquisition of 68 assets for approximately $310 million.

The property acquired during the quarter are leased to leading operators and sectors, including auto parts, tire and auto service, home improvement, grocery and warehouse clubs. Notable acquisitions during the quarter included a Walmart Supercenter in Virginia, a new vegas wholesale in the economic center of Western Massachusetts, a portfolio of group -- 2 Hobby Lobbies, 5 Lowe's as well as ground leases to Lowe's and Home Depot in Connecticut and Minnesota, respectively. The acquired properties had a weighted average cap rate of 7.3%. As mentioned, this represents a 30 basis point expansion quarter-over-quarter. The weighted average lease term was 14.5 years and investment-grade retailers accounted for over 52% of the annualized base rent acquired.

During the third quarter, we broke ground on 6 developments, representing total anticipated costs of $57 million. This included 4 new 7-Eleven projects, which now total 12 7-Eleven commenced in our development platform. Additionally, working in conjunction with the price retailer, we acquired a former furniture store located in a dominant power center in Philadelphia for an exciting redevelopment to be completed in early 2027. Seven projects were completed in the quarter, representing a company record of over $82 million in total costs.

For perspective, this exceeds the total cost of all projects completed in 2024. Completed projects included 3 7-Elevens and several Burlington and Ross locations. Construction continued on 8 projects during the quarter with aggregate anticipated costs of $88 million. Through September 30, we have commenced projects totaling approximately $163 million, nearly doubling the achieved in the prior period. We continue to make progress to our medium-term objective of $250 million in annual development and developer funding platform commencements. This progress reflects the strength of our best-in-class team and platforms which provide the country's leading retailers with a one-stop shop to execute on their growth objectives.

In total, we had 26 projects that are either completed or under construction during the first 9 months of the year representing a company record of over $255 million of committed capital. Through the first 9 months of the year across all 3 platforms, we've invested approximately $1.3 billion and 261 retail net lease properties spanning 42 states in the District of Columbia across 29 retail sectors. Moving on to the disposition front. We sold 11 properties during the quarter for gross proceeds of approximately $27 million at a weighted average cap rate of 6.5%, 80 basis points inside the cap rate on acquisitions completed during the period. The dispositions consisted primarily of 5 franchise-operated Taco Bell locations, 2 Goodyears and 2 Advance Auto Parts stores.

None of the dispositions carried an investment-grade credit rating and the assets had a weighted average rerating lease term of approximately 7.6 years. For the year, we now anticipate total disposition volume of $100 million to $150 million, a material increase from our prior range of $50 million to $100 million. We are and we will continue to pursue additional opportunities to recycle capital via strong demand from 1031 and bold appreciation buyers on an accretive basis. Our asset management team continues to address upcoming lease maturities. We executed new leases, extensions or options on over 860,000 square feet of GLA during the third quarter with a recapture rate of approximately 106%, the highest level in 6 quarters.

Through the first 9 months of the year, we executed new leases, extensions or options on 2.5 million square feet of gross leasable area at a recapture rate of more than 105%. Only 11 leases, representing 20 basis points of annualized base rent remains scheduled to mature this year. At quarter end, our best-in-class portfolio is approaching 2,900 properties spanning all 50 states in the District of Columbia. Our investment-grade exposure stood at approximately 65% of annualized base rents. Our portfolio includes 270 ground leases, comprising 10% of annualized base rents which have embedded exposure of approximately 85%.

With that, I'll hand the call over to Peter to discuss our financial results for the quarter.

Thank you, Joey. Starting with the balance sheet, we had a very active quarter of over $825 million of debt and equity capital reshadow, bringing this figure to nearly $1.5 billion year-to-date. In September, we completed a $400 million public bond offering of 5.65% senior unsecured notes due in 2026. The offering priced at a spread of 90 basis points, the tightest level achieved for a 10-year public bond offering in the company's history.

In connection with the offering, we returned $300 million of forward-starting swap agreements and received more than $90 million of proceeds. Those proceeds reduced the all-in interest rate on the notes by nearly 50 basis points from yield to maturity to a rate of 5.36%. Over the past 6 years, we have generated more than $82 million of net proceeds from our hedging program, relating into nearly $8 million of annual interest savings. We view that as a direct result of our disciplined and proactive hedging policy. Our approach has been to avoid just-in-time financing, which has provided better visibility into our medium-term cost of capital and has created meaningful value for shareholders over time.

During the quarter, we settled approximately 5.7 million shares of existing forward equity for net proceeds of over $425 million. At period end, we had approximately 8.8 million shares of outstanding forward equity, representing anticipated net proceeds of over $657 million. At quarter end, total liquidity stood at approximately $2 billion, including cash on hand, outstanding forward equity and full availability on our revolving credit facility. In addition, we anticipate free cash flow after the dividend to exceed $140 million this year, a more than 10% year-over-year increase. Pro forma for the settlement of all outstanding forward equity, net debt to recurring EBITDA was approximately 3.9x, reflecting our conservative and well-positioned balance sheet.

Excluding unsettled forward equity, net debt to recurring EBITDA was 4.8x, a decline of 0.4 of a turn from the prior quarter. Net debt to enterprise value was approximately 29%, while our fixed charge coverage ratio, including the preferred dividend, remained very healthy at 4.1x. Net -- short-term are floating rate borrowings at quarter end and we continue to have no material debt charges until 2028. Our balance sheet remains exceptionally well positioned, providing ample liquidity and flexibility to strategically allocate capital and remain disciplined in our investment approach.

Put simply, we are and can afford to be judicious in how and when we deploy our capital. Our consistent and reliable earnings growth continues to support a growing and well-covered dividend. During the third quarter, we declared monthly cash dividends of $0.267 per common share for July, August and September. The monthly dividend equates to an annualized dividend of over $3.20 per share and represents a 4.3% year-over-year increase. Our dividend is very well covered with a payout ratio of approximately 69% of AFFO per share for the third quarter.

Subsequent to quarter end, we announced a monthly cash dividend of $0.271 per common share for October. The monthly dividend equates to an annualized dividend of over $3.25 per share and represents a 3.4% year-over-year increase. Moving on to earnings. Core FFO and AFFO per share reached $1.15 for the third quarter, representing a 4.9% increase from the same quarter last year. We have increased the full year 2026 AFFO per share guidance to a range $4.58 to $4.59 implying year-over-year growth of nearly 6% at the midpoint. The increase in our earnings guidance is driven by the continued strong performance of our portfolio and lower assumed treasury stock method dilution for the year. These benefits are partly offset by a decrease in net investment activity of $100 at the midpoint, a steeper SOFR curve for short-term borrowings and elevated debt deal cost in the third quarter as we adjusted to a new pricing paradigm.

Our guidance has been updated to include an assumption of 15 basis points of credit and occupancy loss for the year, down from 25 basis points previously. As a reminder, our definition of credit and occupancy losses fully loaded encompassing not only credit events, but downtime due to a tenant vacating at lease maturity unrelated to credit issues and other partial or nonpayments for any reason. It also includes all operating and tax expenses that ADC is responsible for paying while the space is vacant and additional loss rental revenue. Year-to-date, we've experienced a 9 basis points of fully loaded credit and occupancy loss.

With that, I'd like to turn the call back over to Joey.

Thank you, Peter. Operator, at this time, let's open it up for questions. .

[Operator Instructions] Your first question comes from the line of Richard Hightower with Barclays.

As far as the behavior in the private market for net lease transaction goes nowadays, I mean, give us a little more color on what you're seeing from other buyers, other buyer pools, competitors? And then maybe talk about how tax motivations and just kind of general year-end fourth quarter seasonality, how do you expect that to play out broadly even if Agree per se is not participating at the same level that we would have thought even 60 or 90 days ago.

Yes. In terms of private buyer pools or other acquirers in the space, I really can't speak to their behavior. As I mentioned in the prepared remarks, we have been decisive. We've learned from 2023 from the volatility. We understand that our balance sheet and our cost of capital that we have historically raised here is probably our greatest asset. So I can't speak to other buyers or buyer pools, we're really focused.

In terms of tax motivated behavior -- we have seen a significant rise in -- purchased for bonus depreciation purchasers. You'll see us lean into dispositions, as we mentioned, to those types of purchasers. 1031 acquirers still remain fickle. But obviously, we've increased our disposition activity and guidance here. And I think they will continue into next year.

That's helpful. And I guess my second question, just to go to development in DFP. I think you've got maybe a little over a dozen projects currently expected to deliver through -- towards the end of next year, I guess. Just help us understand. I know you said there's about a $200 million kind of annual target for that sort of spend. Help us understand the cadence of run rate spend and rent commencement and earnings contribution? Just how does that sort of flow through the model on a stabilized kind of run rate basis from here?

Yes, I'll let Peter get into the details of the numbers. The one thing I'd point out is we have really leaned into our development in our developer funding platform starting approximately 18 months, call it, 6, 7 quarters ago and set that target with 2 purposes. One, to diversify our external growth sources, right? Our uses of capital. And then two, to balance out our relationships with retailers to provide a one-off really differentiated solution. Those have obviously come to fruition. As I said on the last call, subject to entitlements and permitting, we could hit that $250 million number this year. We're obviously well on the way as you can see through 3 quarters.

Peter, I'll let you get into the specifics.

Sure. Rich, just to hit on the modeling impacts or how we should think about revenue coming online. We have disclosure in our supplemental on Page 35 that lays out our development in DFP projects and the anticipated quarter of delivery. We announced projects once construction commences. And then on that table, we lay out the intimate quarter of delivery and total project costs for each quarter. So I would think about revenue recognition beginning when the project is delivered. And using that table as a guide for future projects coming online for those that have been announced. .

Your next question comes from the line of Michael Goldsmith with UBS.

You highlighted a spot WACC of 6.8% in your presentation, acquisition costs -- or acquisition cap rates moved up 30 basis points to 7.3%. So it's a 50 basis point spread, and you expect cap rates to continue to move higher. I think you said materially in the fourth quarter. So I guess like how far away are you right now from kind of I know you used that traffic light analogy, but like where are you right now? And do you think you can be in that green zone kind of heading out into the -- during the fourth quarter and into 2027.

I appreciate the question. We put our spot cost of capital in there because we always want to be transparent. Again, we're not using unburdened free cash flow. We're not using dispositions. But I think we've got to back up and let's recap for a second to write up the conversation. We have 0 short-term borrowings, again, 0 short-term borrowings. We have a war chest of nearly $2 billion that we raised at yesteryear's pricing, which is in that same slide, including a 10-year bond that was effectively 10 basis points wide of where the treasuries due to our proactive hedging policy at 5.37%.

We can invest approximately $2 billion until we're 5x levered while the majority of our peers are sitting at 5.5x plus. We have no debt maturities until 2028. Yes, we said cap rates will expand in the fourth quarter. Let's assume 25 basis points on top of our Q3 expansion of 30 basis points that we already saw. I'll add, we'll add another $200 million that we'll dispose in probably in the near term, extending into Q4 into Q1 -- half primarily to those bonus depreciation buyers.

So we're really deploying really cheap capital that we deployed at yesteryear's pricing at the largest spreads we ever have and driving cap rates higher to make those spreads even larger. So our spot cost of capital is if we raise capital today. But again, our balance sheet is sitting at 3.8x levered. If we did nothing, which we're not going to do, we've been very in the no deducting scenario. We have 3% growth next year, add it all up, and there's really no material change in our earnings algorithm and hence, why I talked about mid-single-digit AFFO growth in 2027, double-digit total shareholder returns. It's pretty it's pretty simple math. So the spot cost of capital is to highlight if we raise capital today.

But let's not forget we raised almost $2 billion of capital at yesteryear's pricing, which we're going to be disciplined and drive cap rates higher and drive the largest spread that we've had, frankly, since COVID.

Got it. And Joe, you're right, you talked about still achieving that mid-single-digit AFFO growth per share and double-digit operational returns next year. So how much of that is a function of the environment or maybe you can kind of qualify like how much does the environment need to improve in order to achieve that versus your do-nothing scenario of 3%?

There is no do-nothing scenario for us in 2027. That's a baseline that we're just using that we learn from in 2023 and 2024. When we entered 2024 and we talked about a do-nothing scenario, we were 4.7x levered. So we said we are going to proactively engage and discuss a do-nothing scenario. That is not an option for us. We have a $2 billion war chest that was raised at yesteryear's pricing. We are going to deploy it, disciplined and decisively at cap rates that we are going to continue to push on. We don't need any -- that assumes 0 changes in the short end, the long end of the curve, our stock price, anything, again, that capital is raised. It's in the bank. It's priced. The equity is at $75, the 10-year treasury, our 10-year unsecured debt was at 5.37%. .

So we -- that includes standard credit loss assumptions for 2027. No change in the curve, no change in our stock price. We're not guessing on where the economy is going to go in 2027. That is our earnings algorithm. So I think the focus on our spot cost of capital, which we want to clearly delineate because we want to be transparent in our deck relative to our historically raised cost of capital, which we have in the same page, column are very different things, right? Again, we're sitting here with a $2 billion war chest, $2 billion in capital to deploy until we approach 5x levered at the upper end of our guidance with the majority of our peers sitting at 5.5x plus already.

Your next question comes from the line of Nick Joseph with Citigroup.

Joe, you talked about the 30 basis points quarter-over-quarter increase in cap rates in the third quarter. I think you just mentioned an expectation of 25 basis points in the fourth quarter. Does that -- or would you expect further expansion in the first half of '27, assuming that rates stabilize at current levels?

I wish I knew. Honestly, we are focused on time and place right now. We reacted very quickly to the meteoric rise in the 10-year. We repriced our pipeline. We called our pipeline very aggressively. Again, and as you'll see that rise in our Q4 cap rates. We haven't even begun sourcing for 2027. We're not assuming in the model, which I just talked about and any further extension of cap rates. .

We're going to keep pushing. The key here is that we can create value across all 3 external growth platforms, whether it's working with retailers, we were in Walmart, we were in T.J. Maxx in Framingham, Massachusetts last week, working with our retail partners, creating value across all 3 platforms. Where cap rates go, what's the next true social post, I have no idea for 2027. All I know is we are going to be disciplined and deploy capital and material spreads to drive that earnings algorithm.

Sounds good. And then you're in over 30 different retail sectors. What areas are you seeing cap rate expansion the most? Where are you seeing the stickiness? And then on the go forward, if there's any you call out that you could see more expansion in or stability?

I don't think it's truly I'll call it, sectoral driven. I think it's more price point-driven. So obviously, negative leverage doesn't help for private purchasers out there or public purchasers today given where the 10-year treasury is. And so we've seen some stickiness in cap rates and lower price point assets. I think as you climb that price point ladder, actually it dwindles down to institutional buyers that have the capital and the cost of capital to make those transactions work. .

So we could see some rise in our average transaction size, possibly, I'm not foreshadowing Q4 by any means. But we could see that in 2027 if the fallouts remain equal. And so I think price point driven. Obviously, there are tenants that are distressed that are not trading. And then the congress of that is the Big Beautiful Bill bonus depreciation buyers that are really just tax motivated. So I can't think of a sector that is recently in the no-go or no fly territory, but I think there are tenants that obviously have challenges getting moved.

Your next question comes from the line of Jana Galan with Bank of America.

I appreciate the comments on value creation over volume and the cap rates and acquisitions in 4Q trending higher. Just curious, again, if you could just provide any expectations on how long it takes cap rates to reset for your more investment-grade tenant base, maybe looking at prior cycles of this type of interest rate volatility.

Yes. I would tell you, I think it's a misnomer that IG takes longer than non-IG to reset. I think these are all just narratives, frankly, that are false. So Q1 investment grade, this is just acquisition activity for us. At 59%. Q2 was 73% plus, Q3 was down to 52.1%. Q4, we'll pop back up. I'll tell you now.

Again, these numbers are solely for acquisitions. They don't include development or DFP. Add in our development and DFP activity in Q3 is approximately nearly 60% investment grade. But again, as I've been consistent, I think investment grade alone is the wrong focus. It's an output of what we do. Walgreens was investment grade, everyone remembers, we called that. Tractor Supply wasn't investment grade, we called that. Hobby Lobby, Gerber Collision, Publix, Wegmans, Ulta, Aldi, Boot Barn and a whole bunch of other tremendous retailers, preeminent retailers in this country have no rating. And so we can play the Shell IG game, and we can say run on Moody's RiskCalc and not use some random threshold or score, ADC score and say, inclusive of Shadow IG3, we would be 65%, which include Five Below and Hobby Lobby and Ulta.

Our entire portfolio, we ran through the Moody's RiskCalc is 76% investment grade. But again, I can't emphasize enough. Aldi is probably my favorite grocer in the country today. Hobby Lobby is the preeminent craft and hobby retailer. We did a sale leaseback, obviously, and acquired a number of more of them this quarter. Ulta carries no debt. They are the preeminent retailer in this country. And then some of the best grocers in the country outside of Ulta, Publix, Wegmans, these retailers don't carry debt and they're not investment grade.

That doesn't preclude our investment in them. And frankly, it doesn't even factor into our decision because we know the quality of their business and their balance sheet. So the IG, non-IG disparity, shadow IG, I think it's -- let's look at -- let's see through that and look at the quality of the individual retailers, the underlying real estate and then the complexion of the overall portfolio and the diversity within it.

And then maybe just congratulations on the 106% recapture rate. Curious if in this kind of more inflationary environment, you think that, that could trend higher? And maybe if you have a view of how below market your rents are.

That trend is really driven by escalations that are contractually driven in options, right? We have very minimal lease rollover as we highlighted. Those have mark-to-market opportunities. I can't quantify it for you at this time. But that's really driven by the stability of our portfolio, the contractual options embedded, approximately the 1% internal growth through same-store NOI that we're receiving every single year, and you'll see that number come up and down subject to what options are being exercised in any quarter. .

Your next question comes from the line of Ronald Kamdem with Morgan Stanley.

Just going back to the conversation on the sort of the acquisition environment, and I think your comments about sort of a cap rate or cap rate rising from here. I was just curious if you could just dig in a little bit deeper in terms of the competition for deals that you're seeing out there and who's getting stronger, who's getting weaker would be helpful.

Yes, Ron, I think overall, competition is less because capital is more expensive and constrained. Again, we don't compete with institutional purchasers generally. We're competing in a very fragmented space here that is primarily owned by individuals, and we're out there looking for value and creating value and hand-in-hand with our retailers. So I would assume that overall bids will go down as cap rates stabilize and try to move up and ultimately hopefully stabilize at some point. But we're not seeing any -- obviously not seeing any increase in competition. That's for sure.

And then just a quick follow-up on the DFP, that $250 million run rate in this environment. Could that potentially even be more opportunity if other capital sources are strained? Or how should we think about that?

Certainly. But the transactions also, they have the hurdle. They have to make sense. But yes, I think construction financing and ultimate end financing, long-term financing or dispositions could be more problematic for developers. And DFP, we could see a rise in that activity, and we're exploring a number of options there. .

Your next question comes from the line of Brad Heffern with RBC Capital Markets.

On the development front, do higher rates, the higher rate environment, does that change anything in terms of just the relative attractiveness either for you or for the counterparties? I would think from a pricing standpoint, you're able to dictate that more, but I don't know if there's any difference in terms of how counterparties look at the offering in a higher rate environment.

Yes, I think it could possibly give us the ability to push on return on cost in a higher rate environment, but we have -- look, we enter into those transactions with a significant margin and the product type that we're developing ultimately has significant value and terminal value because, one, the Big Beautiful Bill for these gas stations, obviously, the bonus depreciation purchasers. .

But we enter in with a larger margin of, obviously, I'll call it, safety and spread or return on invested capital due to that development platform. But could it give us the opportunity to push those returns even higher? Certainly possible.

Okay. Got it. And then, Peter, you talked about the debt deal fees. I'm assuming that was a headwind to guidance above the reduction in acquisition volumes. Is there any number you can put around that in terms of what the impact was for the third quarter? And then should we expect to see any more of that in the fourth quarter? Or is that all done at this point, assuming rates stay where they are?

Yes. In terms of the impact from elevated debt deal costs in the third quarter, that contributed close to roughly $0.01 in terms of a decrease in AFFO per share in the third quarter. Debt runs through general and administrative expenses on our income statement. So you can see that line item was elevated in Q3. I would expect some normalization in G&A and debt deal costs as we move to the fourth quarter. .

Your next question comes from the line of Eric Borden with BMO Capital Markets.

Joey, you've been clear that you don't want to move up the risk curve. Just curious how much of the 30 basis point increase in cap rates in this quarter reflects true repricing versus mix? And then when you talk about another potential 25 basis points of cap rate expansion in the fourth quarter, is that on a comparable risk profile?

Yes. Simply put, yes. We will not move up the risk curve. We have constructed this portfolio over the last 16 years that we believe is a preeminent retail portfolio in the country, and we will not move up the risk curve. We're not -- we will stay retail focused on the largest retailers in the United States and continue to partner with them on their growth strategies as well as existing stores. .

The repricing in the fourth quarter was a function of -- I'll tie it back to the debt deal cost that Peter just to discussed. It was -- for us, it was a take it or leave it effectively. We will kill a deal if it didn't hit a certain threshold for us. You saw those debt deal costs run through Q3. You won't see that again in Q4. And then if the seller was willing to move along with the 10-year treasury, and we were -- as well as our stock price, we were willing to transact. But for us, it effectively became a take it or leave it.

Great. And then just on the disposition front, you've given the accretive spread between the dispositions and the acquisitions yields this quarter. How much room is there to lean further into recycling? Is there a meaningful pool of noncore assets that you could increase the monetization without compromising the quality of the portfolio?

Certainly. And I think the biggest opportunity there is with the bonus depreciation purchasers. And obviously, we're very active in the C-store space where that bonus depreciation is applicable. So we will look to recycle at a couple of hundred, 175 to 200 basis point spreads in Q4 and into 2027. .

Your next question comes from the line of Alec Feygin with Baird.

Just on the development side, do you expect that the mix of investments is likely to shift towards development versus regular acquisitions?

No, I don't -- I mean the mix in terms of percentage of capital allocation will ultimately depend on -- we have a pretty good visibility into our development pipeline will ultimately depend on ultimate acquisition volumes, which we don't have visibility. If acquisition volumes trend down, development could be a larger percentage. But again, with limited foresight into the ultimate denominator, including acquisitions for 2027, it's difficult to answer that question. .

Your next question comes from the line of Upal Rana with KeyBanc Capital Markets.

Joey, you mentioned you can deploy $1.9 billion and still get to 5x leverage. Is that sort of the intention to potentially lever up to 5x? Or was that you had a scenario?

Our stated leverage target is 4 to 5x. We obviously have a $2 billion war chest and just putting that in the context of the overall balance sheet, right? And so I think we'll always be looking at capital sources, whether it was a preferred at 4.25 back in the heyday or whether it's common equity through ATM. We will always maintain a fortress balance sheet and liquidity profile. But I think on a -- when you look on a relative basis, our balance sheet has a significant firepower. .

Okay. Great. That was helpful. And then the 3Q investment activity had an average WALT of over 14 years versus 10 or 11 years in the quarters prior. Was that a result of just mix? Or were you seeing the ability to ask for higher WALT given the current environment?

No, that was specifically mix. There was the Gerber Collision transactions, brand-new Hobby Lobbies, one in Apple Valley, California, that was 15 years. So just mix, a new BJ's and Hobby Lobby in Springfield, Massachusetts, again, just mix. .

Your next question comes from the line of Rob Stevenson with Huntington.

Joey, given that some of the development DFP deals that have yet to break ground might have been put under contract in the past, how quickly are you able to readjust the yield on new deals if you're looking at 50 to 60 basis points of acquisition cap rate expansion in the back half of this year?

Subject to the project and the stage of the project, we're able to adjust pretty quickly. Obviously, there's multiple levers there. There's the underlying land cost. There's rents with the retailer. But we don't really -- given the margin that we're developing at the margin of safety relative to our cost of capital and relative to ultimate terminal values if we disposed as we talked about with the Big Beautiful Bill Build purchasers, I don't think there's a need to necessarily reprice those transactions.

Okay. And then have you -- given the term, have you seen any material difference in the level of cap rate expansion or the availability of the product in ground leases today versus just fee simple assets?

No, you'll see a significant component of ground leases in Q4. Most of the ground lease stuff that we do acquire, either sellers aren't even familiar with the ground leases or they're short term and working hand-in-hand with the retail, there really isn't a threat to pull through ground leases versus turnkey leases. They're really -- it's all a mixed bag.

Your next question comes from the line of Jim Kammert with Evercore ISI.

Lots have been covered here. Just one quick housekeeping item. Looking at the Q, Peter, there's no hedging in place for the '28 maturities. Is that correct? .

Correct. As we think about the '28 debt maturities, those are fixed rate offerings. And currently, there are no hedges in place for prospective debt issuances. .

Your next question comes from the line of Michael Gorman with BTIG.

Joey, you mentioned taking a closer look at the retailers and your track record there is certainly very strong. And then you mentioned some of your favorites in the grocery space, Aldi Publix, Wegmans, obviously makes sense. I'm curious if you have any thoughts on some of the more traditional mainline grocers that maybe had some negative headlines around them recently? And just kind of how you're thinking about the grocery space that somehow seems to be getting even more competitive than it's been in recent years.

Yes. I would refer everyone to the white paper on our website from what, 12, 18 months ago, Peter, about the grocery space. I pushed back pretty vehemently about the narrative of grocery-anchored shopping centers being the general safe haven in retail real estate for years now. The grocery space ultimately is a 2% margin business, and we see those margins contracting while they move to advertising revenue alternative sources.

And again, 3 of the largest grocers in the country or retailers that sell groceries, I should say, aren't grocers, right? Walmart, the largest, Amazon and Costco. And so we have always been very clear that we will only invest in those market leaders. Sometimes they are regional leaders. And I think our white paper lays out that thesis, and we'll continue to execute upon that thesis. But we have seen -- as you mentioned, we have seen pressures there. There is price transparency in the grocery space, like all retail spaces today.

Basket sizes are going down even in the face of gas prices going up. Consumers are being much more discerning about what they acquire. Obviously, we have a number of grocers who are going through their overall pricing strategy right now and have been very public about it and saying we have to compete on price. So our thesis has always been and to invest in differentiated grocers that are the regional leaders, H-E-B, Wegmans, Publix, Market Basket, the national grocers that are price leaders, Walmart Neighborhood Market, Aldi, Kroger, and we will continue to execute in that manner. And we've been very clear. B minus, C grocers are suspect at best in a 2% margin business today. And I think we're going to see continued challenges amongst those lower-tier grocers.

Your next question comes from the line of Jamie Feldman with Wells Fargo.

You've got Connor on here with Jamie. Maybe from a higher level, can you talk us through any lessons learned from the last significant move in the 10-year like in 2023? And how does that influence your capital allocation strategy over the next 12 to 18 months?

Yes. It's a great question, Connor. We emphasize here always constantly improving. I'll tell you my personal lessons learned from the 2023 rapid rise in the 10-year north of 5% was we did not move quickly and decisively enough. We continue to acquire and deploy our most precious asset, our balance sheet, utilize that balance sheet capacity at spot pricing instead of waiting. And that I'll call it lack of discipline, and I'll take the full accountability for that.

That lack of discipline had our balance sheet then in a position which I did not want to deploy incremental capital without knowing what came next. This time coming in with $2 billion of liquidity and the balance sheet at 3.8x levered, we moved immediately. And it was aggressive. I'll be frank. It was an aggressive move. You saw the debt deals run through. I talked about how it was a take it or leave it approach. We reduced our investment guide. We focus -- we're again focused on value over volume. I think the volume game in net lease is over, which I'm excited about because we are value creators ultimately.

But I think in 2023, really looking back, hope of normalization or stabilization probably encouraged me to stay the course on our existing pipeline. This time around, we said go immediately when we saw that meteoric rise in the 10-year treasury and the correlating stock price depreciation. And so it was a very different tactic for us. We are going to preserve our most -- again, we're going to preserve our most precious asset. That's our balance sheet liquidity. We're going to deploy it at larger spreads, and we have been decisive about it, as you can see with the rise in cap rates, the rising cap rates in Q4, I talked about for us, and we will be patient and disciplined.

That's super helpful. And sorry if this has been talked about already, but I think you mentioned last time you were going in a do nothing scenario was in 2024 around kind of 4.7x leverage. Your investor presentation shows you haven't been above 4.5 since 2018. So should we maybe think about that 4.5x sort of as a soft maximum for your leverage?

I wouldn't think of it as a maximum. Our stated range is 4 to 5x. We're obviously nowhere near $2 billion, including free cash flow approximately to get to the do-nothing scenario. That do nothing scenario, once again, is 3% growth. We're not going to do nothing. Look, we will be nimble, flexible. We will be opportunistic, obviously. But the most important thing there is we are not in that position, and we want to emphasize that here.

There are no further questions at this time. I will now turn the call back to Joey Agree for closing remarks.

Well, thank you, everybody, for joining us this morning, and we look forward to seeing you during the upcoming conferences and best of luck through the remainder of earnings season. Thanks again. .

This concludes today's call. Thank you for attending. You may now disconnect.

Good morning, and welcome to the Agree Realty Second Quarter 2026 Earnings Call. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Note this event is being recorded. I would now like to turn the conference over to Reuben Treatman, Senior Director of Corporate Finance. Please go ahead, Rubin.

Thank you. Good morning, everyone, and thank you for joining us for Agree Realty's Second Quarter 2026 Earnings Call. Before turning the call over to Joey and Peter to discuss our results for the quarter, let me first run through the cautionary language. Please note that during this call, we will make certain statements that may be considered forward-looking under federal securities law including statements related to our updated 2026 guidance.

Our actual results may differ significantly from the matters discussed in any forward-looking statements for a number of reasons. Please see yesterday's earnings release and our SEC filings, including our latest annual report on Form 10-K for a discussion of various risks and uncertainties underlying our forward-looking statements. In addition, we discuss non-GAAP financial measures, including core funds from operations or core FFO, adjusted funds from operations, or AFFO, net debt to enterprise value fixed charge coverage ratio and pro forma net debt to recurring EBITDA.

Reconciliations of our historical non-GAAP financial measures to the most directly comparable GAAP measures can be found in our earnings release, website and SEC filings.

I'll now turn the call over to Joey. .

Thanks, Reuben, and thank you all for joining us this morning. I'm extremely pleased with our performance during the second quarter, which represents a significant milestone in our company's history. During the quarter, we invested a company record of over $500 million across our 3 external growth platforms. .

While the numbers are quite impressive, the combination of real estate attributes, credit composition and lease term similarly represent the highest quality quarter in our company's history. All 3 of our external growth platforms have broad and expansive pipelines, enabling us to once again raise our full year investment volume guidance to an updated range of $1.6 billion to $1.8 billion.

The midpoint of this range surpasses last year's investment activity and represents a 24% increase over our initial investment volume guidance provided at the beginning of the year. Based on our increased investment activities and the performance of our portfolio year-to-date, we're raising our full year AFFO per share guidance by $0.02 at the midpoint to a new range of $4.57 to $4.59.

This translates to nearly 6% AFFO per share growth at the midpoint and underscores what is long differentiated ADC. Our ability to compound consistent, reliable earnings growth while maintaining unwavering discipline to our investment and balance sheet strategies. Peter will provide further details on the guidance range and its input shortly.

That said, the underappreciated, and I believe more compelling story is the unique market position that we have now established. Over time, we have built durable competitive moats, deep retailer relationships and an internal asset management platform that delivers a full suite of solutions to our partners.

These advantages have created a differentiated business that has been over 15 years in the making. As I've said many times, spread investing is quite simple, constructing a retail net lease leader with multiple growth frontiers wholly focused on a distinct sandbox to the country's best retailers was the ultimate goal. We are supporting this growth by continuing to invest in the people, processes and technology that underpin our platform.

That commitment to constant improvement has long been part of our DNA. Today is reflected in how we are leveraging AI across the organization to improve decision-making, streamline workflows and accelerate transaction execution. While we are already benefiting from meaningful efficiencies -- we believe the longer-term opportunity is even greater as AI becomes increasingly embedded throughout our platform.

Combined with enhanced integration to the next iteration of ARC coming online later this year, these investments will further strengthen our operating leverage. Moving on to the second quarter in detail, we invested a company record of over $0.5 billion in 102 properties across our 3 platforms. This includes $451 million of acquisitions across 82 retail net lease assets, the highest level of quarterly activity since the depths of COVID.

The properties acquired during the quarter are leased to leading operators in the auto parts, home improvement, grocery, farm and role supply and convenience store sectors. Notable acquisitions during the quarter included 3 Walmart supercenter ground leases in Missouri, Ohio and Wisconsin, a Walmart Neighborhood Market in Oregon, a portfolio of BP-branded travel centers and a Home Depot ground lease to New Hampshire.

The acquired properties had a weighted average cap rate of 7% and a weighted average lease term of 11.2 years. Approximately 13.5% of annualized base rents acquired were derived ground lease assets while investment-grade retailers accounted for over 73% of the annualized base rents acquired.

During the second quarter, our development in DFP platforms continue to scale and set a company record for construction to start volume. Five projects broke ground with total anticipated costs of approximately $88 million, including our 7-Elevens currently under construction as well as 3 rows for West locations to Burlingtons and 3 TJX concepts.

Through June 30, we have commenced more than $105 million of projects, over 3x the level achieved in the prior period. underscoring our continued progress toward our medium-term objective of $250 million of annual development and developer funding platform, convinced. In total, we had 20 projects either completed or under construction during the first half of the year, representing a company record of approximately $200 million of committed capital.

We anticipate development and DFP spend to materially progress in coming quarters. Construction continued on 10 projects during the quarter with aggregate anticipated cost of over $83 million. These projects include Burlington, Sunbelt Rentals and Ross.

One project of Sunbelt Rentals in Missouri was completed during the quarter for just over $6 million. As foreshadowed in our prior white papers, we continue to believe deeply and invest heavily in both the off-price and large-format convenience store sectors.

Today, we are amongst the largest owners of both in the country and have a significant pipeline of additional opportunities. On the disposition front, we sold 14 properties during the quarter for gross proceeds of approximately $30 million at a weighted average cap rate of 7%.

Dispositions were primarily comprised of 3 Goodyear locations and for Advance Auto Parts stores as we continue to cull our portfolio of lower-performing or attractive 1031 opportunities. I would note that none of the dispositions were of investment-grade credit and a limited term remaining of approximately 6.9 years. Our asset management team continues to address the upcoming lease maturities. We executed new leases, extensions or options on approximately 760,000 square feet of gross leasable area during the second quarter with a recapture rate of approximately 105%.

This included a Sam's Club in Maryland and a Walmart Supercenter in Georgia. In the first half of the year, we executed new leases, extensions or options and approximately 1.6 million square feet of gross leasable area with a recapture rate of approximately 105%. We are in excellent position for the remainder of the year with just 18 leases or 40 basis points of annualized base rents maturing, which is down by over 100 basis points from the start of the year.

Given the progress achieved year-to-date, our occupancy ticked up up 10 basis points sequentially to match another company record of 99.8%. At quarter end, our best-in-class portfolio stood at 2,825 properties, spanning all 50 states in the District of Columbia. The portfolio includes 268 ground leases comprising over 10% of annualized base rents our investment-grade exposure stood at nearly 2/3 of our portfolio.

With that, I'll hand the call over to Peter to discuss our financial results for the quarter.

Thank you, Joey. Starting with earnings, core FFO per share was $1.13 for the second quarter, which represents a 7.5% increase compared to the second quarter of last year. AFFO per share was $1.14 for the quarter, representing a 7.4% year-over-year increase. As Joey highlighted, we have updated our full year 2026 earnings outlook to reflect a very strong first half of the year.

We raised our full year AFFO per share guidance to a new range of $4.57 to $4.59, which is a $0.02 increase at the midpoint and implies year-over-year growth of nearly 6%. The increase in our earnings guidance is driven by higher investment activity as well as the continued strong performance of our portfolio.

Our guidance has been updated to include an assumption of 25 basis points of credit and occupancy loss for the year, which is at the low end of our prior range of 25 to 50 basis points. As a reminder, our definition of credit and occupancy loss is fully loaded, incumbency not only credit events, but downtime due to a tenant vacating at lease maturity unrelated to credit issues and other partial or nonpayments for any reason.

It also includes all operating and tax expenses that ADC is responsible for paying while a space is vacant in addition to lost rental revenue. The supplemental that we introduced last quarter breaks out these components. Year-to-date, we've experienced 10 basis points of fully loaded credit and occupancy loss.

Moving on to the balance sheet. Total capital markets activity year-to-date is over $1 billion. During the quarter, we sold approximately 400,000 shares of forward equity for net proceeds of approximately $31 million. We also settled approximately 4.3 million shares of existing forward equity for net proceeds of almost $315 million.

From a debt perspective, we drew down the remaining $100 million on our $350 million 5.5 year delayed draw term loan which is swapped at a fixed rate of approximately 4%. We also took further steps to hedge against interest rate volatility entering into another $50 million of forward starting swaps during the quarter.

In total, we now have $300 million of forward starting swaps, effectively fixing the base rate for a contemplated 10-year unsecured debt issuance at roughly 4.1%. Over the past 5 years, we have received approximately $63 million of net proceeds from our proactive hedging activity, resulting in annual interest savings of over $6 million.

This excludes the $300 million of outstanding forward starting swaps that are currently in the money. Those swaps together with approximately $1.1 billion of outstanding forward equity represent approximately $1.4 billion of hedged capital providing meaningful visibility into our medium-term cost of capital during a period of macro uncertainty.

At quarter end, total liquidity stood at approximately $1.9 billion, including cash on hand forward equity as well as over $750 million available on our revolving credit facility, which is net of amounts outstanding on our commercial paper program at quarter end. In addition, we anticipate free cash flow after the dividend to exceed $140 million this year, a more than 10% year-over-year increase.

Pro forma for the settlement of all outstanding forward equity, our net debt to recurring EBITDA was approximately 3.7x, as we continue to maintain a conservative and well-positioned balance sheet. Excluding the impact of unsettled forward equity, our net debt to recurring EBITDA was 5.2x.

Our net debt to enterprise value was approximately 29% and and our fixed charge coverage ratio, which includes the preferred dividend remains very healthy at 4.1x. Our only floating rate exposure remains short-term borrowings, and we continue to have no material debt maturities until 2028. Our balance sheet is extremely well positioned to fund our growth in the next year as we've locked in an attractive cost of capital with an expansive opportunity set across all 3 external growth platforms.

Our consistent and reliable earnings growth continues to support a growing and well-covered dividend. During the second quarter, we increased our monthly cash dividend to $0.267 per common share for April, May and June. The monthly dividend equates to an annualized dividend of over $3.20 per share and represents a 4.3% year-over-year increase. Our dividend is very well covered with a payout ratio of 70% of AFFO per share for the second quarter. Subsequent to quarter end, we announced a monthly cash dividend of $0.267 per common share for July. The monthly dividend also equates to an annualized dividend of over $3.20 per share and represents a 4.3% year-over-year increase. With that, I'd like to turn the call back over to Joey.

Thanks, Peter. Operator, at this time, let's open it up for questions. .

We will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Michael Goldsmith with UBS.

You had robust acquisition volume in the first quarter and now again in the second quarter. just with acquisition activity accelerating across the net lease sector, are you seeing any changes in the bidding behavior for the transactions you're pursuing, particularly maybe the larger portfolios or investment-grade assets? .

Michael, no material change as we've seen. Again, cap rates have effectively been within a band for going on 3 years now. So we haven't seen any material changes, any new entrants to the competitive set, I think we'll continue to execute as you would anticipate, and we have through the first half of the 6 months of this year.

So we don't anticipate any changes. We'll see and continue to monitor, obviously, the 10-year treasury with it being elevated at 4.7%, but no anticipated material changes.

And just maybe more specifically here, right, the quality of the acquisitions improved over 73% came from an investment grade this quarter, up from 60%-ish last quarter, cap rates remaining the same. So what's allowing you to acquire higher credit assets without sacrificing yield? Is that something expect to persist? And are you seeing any broader change in transaction opportunities across the net lease market.

I appreciate the question. It's due to our team, the depth of relationships we have, the -- the asymmetrical opportunities that we pursue with our retail partners. I'd remind everybody that we're not imputing any investment-grade ratings here. Hobby Lobby, we continue to show is unrated Alta public Boot Barn and other leading operators in their respective spaces. But I think what you're seeing is the result of the depth of our team, the strength of our team. And then when we talk about all the time, all 3 platforms creating value across the relationships for the top retail partners in the country.

Your next question comes from the line of Smedes Rose with Citi. .

This is actually Nick Ceron for Smedes. Could you just walk us through the BP transaction and some of the rationale behind that and what makes travel centers of interest for Agree? .

Sure, Nick. We have the BP transaction was approximately $75 million. These are large-format travel centers with BP North America credit guaranteeing an A- rated credit. I talked in the prepared remarks how we continue to pursue large format C-stores as well as off-price. We put out white papers on both spaces. These are tremendous opportunities for us with great participants in both sectors, and we'll continue to work across all 3 platforms to to execute on opportunities to add into our portfolio. So again, these are large-format BP travel centers, typically interstates, located on major interstates, exit ramps that have long-term leases with significant escalations. .

And then the second 1 is on the ground leases. You guys have been leaning more into those. And so I guess, can you just walk us through maybe what makes those attractive on a risk-adjusted return perspective.

Yes. Look, I wouldn't say we've been leaning in. Again, what we do is a function of what we are able to uncover through all of our -- all of our efforts across our platforms. This quarter, obviously, our ground lease exposure was elevated. I think we have some significant ground lease exposure coming in the second half of this year in the pipeline already. we've talked, we also put a white paper out and nothing in life is free except the building on a ground lease, if they ever leave.

And so our ground lease portfolio is sitting in over 10% of the overall portfolio, we think is extremely unique. It is high credit. It is -- again, the tenant has built the building at their own expense. We own the land if they were to leave for any reason, it reverts to free for us. So just again, to compare and contrast these to leaseholds, we own the fee simple interest in the land here.

If the tenant were to leave, it's not on our books. The building, excuse me, is not on our books. We're not taking any depreciation, then we will own the building free and clear, and we've demonstrated in the investor deck case studies where we've recaptured the building and then had significant markup of the rent. So my favorite risk-adjusted returns in the overall net lease sector, we'll continue to pursue opportunities across our 3 platforms, and we'll continue to execute on.

Your next question comes from the line of John Kilechowski with Wells Fargo.

Good morning. First question is just on the DFP and development pipelines growing. Joy, is that from just more effort on your end and more emphasis on those investment lines? Or is there something about this environment that's creating more opportunity for you all? .

John, we've told everybody we're going to -- we are going to pick up our efforts going back 18 months approximately, that we were going to pick up our efforts given our capabilities with our retail partners to both develop as well as use our developer funding platform, and we're seeing those efforts come to fruition. So 7-Elevens, #7 and 8 have both commenced construction.

Obviously, we're extremely active in the off-price space. We're getting outsized returns with superior credit -- and most importantly, I think we are creating that full-service value proposition, a true real estate investor in the net lease space, as I mentioned, not just a spread investor.

And so we're -- all 3 platforms are firing on all cylinders. Most importantly, again, is that full-service value proposition to the biggest and best retailers in the country. And so our discussions are comprehensive when we talk about new stores, net new stores or opportunities for retailers. We can develop them. We can buy them on a sale leaseback, we can acquire them from third parties. We can do early extensions, all different types of permutations of transactional activity, which really separates us from our peers.

Got it. And then on the credit loss side, a very impressive performance this quarter. I'm curious how this has impacted your guide and the expectations from here on out, really, what's kind of on the watch list today? Where are concerns -- are you seeing like the run rate of this portfolio continue to trend down in terms of what average credit and occupancy loss should look like?

Sure, John, it's Peter. In terms of our credit loss guide, as you alluded to, we've brought that down our assumption for credit loss and our guide to 25 basis points from a prior range of 25 to 50 basis points -- through the first half of the year, we had just 10 basis points of fully loaded credit and occupancy loss and only 6 basis points in the second quarter.

So the portfolio has performed exceptionally well here in the first half of the year. Occupancy, as we noted, matches a company record at 99.8%. As we think about the 25 basis points of credit loss in our guide, that's relatively aligned with our longer-term average in terms of the credit loss that we've seen in our portfolio on an annual basis. But looking at the back half of the year, there's no material exposure or tenants that we've identified that would drive a significant acceleration in credit loss in Q3 or Q4.

I think the watch list today is in a really good spot. It's lower than it was a year ago or 2 years ago. The biggest piece we really have is a few AMCs in the portfolio, but they were upgraded by S&P earlier this week. They've raised a good amount of equity capital here recently. There seems to be some box office momentum this year, which is contributing to the upgrade.

So I think the portfolio is in a really good spot as we look ahead to 2016 and beyond.

Your next question comes from the line of Jim Kammet with Evercore.

Joey, I think you kind of answered it. But when you think about and you're achieving this partnership relationship with your retailers, you're not really seeking any sort of ancillary fee streams or anything like that. This is more about partnering and getting greater market share. It's not really an economic immediate kind of gain. I guess I'm just trying to understand what you really extract from that. .

Correct Jim. There's no ancillary fee streams that we're receiving or would, frankly, anticipate receiving I think, again, our ability to sit down with the largest retailers in the country, which we do quite frequently and deploy all the myriad of capabilities that we have is wholly distinct. They have private developers that aren't multibillion-dollar organizations that have $1.8 billion who develop for them with financing challenges or right, capital stack challenges.

There's public and private institutions that can acquire and then there's ADC that can do both. And so that differentiated strategy that we have been pursuing and is now accelerated across all 3 platforms is extremely appreciated by our retail partners now. You pair that with an active asset management platform with our tremendous team here in Asset Management, who is on call and ready at any time, given any challenges at a property, and we're a very unique partner for retailers, it's 1 on one.

Your next question comes from the line of Spencer Glimcher with Green Street.

So you guys commenced 5 projects in the quarter for roughly $90 million. I'm just curious, as you continue to grow and expanding asset base, do you think that there's a path to larger format or multi-tenant development that would like you to deploy more capital at 1 time? .

Yes, Spencer. Obviously, the 7-Eleven projects, these are turnkey developments. They average approximately $10 million to $12 million ballpark project. And then some of the off-price stuff we're more than open to doing 2 or more concepts. And so whether that is TJX concepts, call it a HomeGoods and Marshalls or whether at Burlington and Ross or Burlington and TJ and Boot Bard or another 10 in our sandbox. We're more than open to executing on those as well, and we'll continue to.

Okay. Great. And then just on the investment pipeline, as you look at the back half of the year, can you talk about what we should expect to see in terms of the composition of future acquisitions or capital deployment as it relates to your 3 different growth verticals .

Yes. In terms of asset composition, you won't see any surprises for us. We're not going to go up the risk curve. We're not going to do private equity back sale leasebacks. Our sandbox is pretty fixed. Obviously, we monitor that. There are new entrants from time to time or will lay off an exposure. But our pipeline across all 3 platforms is extremely strong. .

It's growing. We're really focused for sourcing acquisitions for Q4 right now, but we have a couple of dozen projects through development in DFP going through the process as well here. So we will see a continued accelerated activity through Q3 and Q4. Obviously, that's subject to diligence in timing, but there is no shortage of opportunities here for us right now.

Your next question comes from the line of Eric Borden with BMO.

Great. Ground leases were a large part of the portfolio in the investment volume this quarter. Just curious how large do you ultimately see the ground lease portfolio becoming as a percent of the percentage of the business. .

Eric, it's hovered around that double-digit 10% and 11% mark now. for a number of quarters, actually a number of years. We continue -- again, this isn't a concerted effort to go out. It's not a separate channel for us. Oftentimes, owners don't know if they have a ground lease or a turnkey lease. And so -- we continue to uncover those opportunities through our external activities. We'll continue to execute that on them. I'll tell you, there is an elevated ground lease exposure in the back half of the year currently through some unique opportunities. .

But we will continue to find them at what rate, what gold there really is no ultimate goal. Our ultimate goal here is to assemble the highest-quality retail portfolio in the country that is growing at the tune of approximately 400 properties per year right now and continue to drive outsized AFFO to our shareholders while maintaining a fortress balance sheet. That's the ultimate goal to come in the form of a turnkey or a ground lease, we're pretty agnostic.

Appreciate that. My next 1 is for Peter, just on the cadence of the funding sources you have about $425 million of forward equity contracts maturing in October. And then in your prepared remarks, you also noted that there's some potential for some 10-year unsecured paper that you could potentially issue. Just kind of curious what you're thinking about in terms of the different funding sources and the cadence of those sources throughout the back half of the year? .

Yes. I mean, I think first and foremost, we're in a great position today with $1.9 billion of liquidity, including the $1.1 billion of outstanding forward equity. And so I think we have plenty of flexibility and optionality as we think about capital raising here in the back half of the year. As you mentioned, we do have about $425 million of forward equity that currently matures in the back half of this year.

We can always choose to extend those contracts if we see fit, but I do think there's a good chance subject to uses, capital alternatives and other factors that those shares are settled in the back half of the year. And then to your point, we have $300 million of forward starting swaps in place, which has taken a lot of the base rate risk for a future 10-year debt issuance off of the table. And I think we'll continue to evaluate the appropriate of an issuance throughout the back half of the year. But -- we're not in a rush here given all the capital that we have available to us and can afford to pick our spot.

Your next question comes from the line of Rob Stevenson with Huntington. .

Joey, how should we be thinking about your expense growth over the next couple of years versus today? You've done a good job bringing the G&A down as a percentage of revenues. You talked in your prepared remarks about a bunch of tech and AI initiatives. How much more of an opportunity is there for you guys to limit growth on the expense side as a triple net company? .

I think there's a tremendous opportunity. We talked about it in the prepared remarks, but also I would even back up, we have built to scale. And so we're approximately 100 team members here today -- you combine that with lean-based processes and with systems that are constantly improving.

There are tremendous opportunities for efficiency. Our COO, Nicole would have been really runs that side of this business and does a tremendous job. And so we are leveraging a lot of different tools, many created now in-house from a systems perspective. We are getting better every single day, and we think we're going to continue to see a compression of G&A as a percent of revenues, undoubtedly.

And so there's tremendous efficiencies. Look, this is approximately 100% organization that just did over 100 transactions again in a quarter. And we've got room and capacity to continue to do more. We will add select head count our preferred method to add head count to team members to this organization is bring them in young, train them, let them grow, lead them flourish and then watch them and support their professional development. But we are in a tremendous position right now, and I'm excited about the initiatives that we mentioned in the prepared calls, including ARC 3-point to come online later this year.

Okay. And then, Peter, just back to the capital standpoint. Given the steeper yield curve, where is your most attractive source? And what's the pricing on a debt perspective for you guys if you did anything in the back half of the year? .

Yes, including the swaps that we have in place, the $300 million reported certain swaps that contemplate a 10-year issuance, we could probably issue 10-year debt in the low 5s today. I think given we have those swaps in place, that's taking a lot of the base rate risk off of the table. And the fact that we've now fully drawn down our $350 million term loan, a public unsecured offering is the most attractive longer-term debt option as we look forward here. .

Your next question comes from the line of Ronald Kamdem with Morgan Stanley. .

Great. Just wanted to follow up on the longer-term target of $250 million for development in DFP and so forth. Just could you just double-click a little bit in terms of -- is that existing tenants? How much of that is new tenants? Sort of what -- how you guys are going about scaling that opportunity? .

No new tenants that we don't currently own in the portfolio, new tenants that we'll be developing for selectively, certainly, that $250 million goal, which we said about 18 months ago, was a 3-year goal. There's a 50-50 shot we hit it this year, subject to just diligence and timing. And so we are ahead of schedule, and then we will set a new goal -- but our development in our developer funding platform continue to ramp.

We've got a great team in place. We've got great relationships that continue to produce opportunities. We have new geographic territories that we're working on a preferred basis for retailers, and we continue to demonstrate our value proposition to retailers. So -- we're excited to continue to grow it. We haven't had any new entrants to it. Would we look at it, most certainly. But I wouldn't anticipate anybody that we don't currently own. That's tough to find to the portfolio over 2,850 properties today.

Got it. Makes sense. And then just coming back to the record sort of investments quarter, specifically on the acquisition front. I think we just talk a little bit more about the competition and the cap rate trends. I think you said you haven't seen sort of much changes so far. But just sort of curious, as rates have moved a little bit, if that's impacting anything? .

The rate movement is obviously volatile. The most recent move has been near term. We haven't seen any consequences or cascading impacts from that yet. We'll see where the rate environment goes and what comes out in truth social later today or this weekend. But I would tell you that our space, we have not seen much change in terms of competition. We enjoy competition. It makes us better. It sharpens our edge. That's our theme for the year, sharpening our edge. And at the end of the day, we are confident that in any type of situation if we want to get something we can win it. And so we will continue to execute. We'll be selective. But when we choose to move, we move quickly and we move aggressively. .

There are no further questions at this time. I will now turn the call back to Joey Agree for closing remarks. .

Well, thank you, everyone, for joining us this morning. We look forward to seeing you in the near future and enjoy the rest of your summer. Thank you. .

This concludes today's call. Thank you for attending. You may now disconnect.

Good morning, and welcome to the Agree Realty First Quarter 2026 Conference Call. [Operator Instructions] Note this event is being recorded.

At this time, I would like to turn the conference over to Reuben Treatman, Senior Director of Corporate Finance. Please go ahead.

Thank you. Good morning, everyone, and thank you for joining us for Agree Realty's First Quarter 2026 Earnings Call.

Before turning the call over to Joey and Peter to discuss our results for the quarter, let me first run through the cautionary language. Please note that during this call, we will make certain statements that may be considered forward-looking under federal securities laws, including statements related to our updated 2026 guidance. Our actual results may differ significantly from the matters discussed in any forward-looking statements for a number of reasons. Please see yesterday's earnings release and our SEC filings, including our latest annual report on Form 10-K for a discussion of various risks and uncertainties underlying our forward-looking statements.

In addition, we discuss non-GAAP financial measures, including core funds from operations or core FFO, adjusted funds from operations or AFFO and pro forma net debt to recurring EBITDA. Reconciliations of our historical non-GAAP financial measures to the most directly comparable GAAP measures can be found in our earnings release, website and SEC filings.

I'll now turn the call over to Joey.

Thank you, Reuben, and thank you all for joining us this morning. I'm extremely pleased with our performance to start the year as we have continued to execute on all fronts.

During the quarter, we invested nearly $425 million across our 3 external growth platforms, while further strengthening our market-leading portfolio. The $403 million of acquisitions completed during the period represents our largest quarterly acquisition volume since 2022 as we continue to source superior risk-adjusted opportunities.

While the macro backdrop remains highly unpredictable, we have never been better positioned. During the quarter, we raised approximately $660 million of forward equity through our ATM. We now enjoy $2.3 billion of total liquidity and more than $1.6 billion of hedged capital, including a company record $1.4 billion of outstanding forward equity.

At quarter end, pro forma net debt to recurring EBITDA was just 3.2x, giving us meaningful flexibility to execute regardless of capital markets volatility. As a reminder, we have no material debt maturities until 2028.

We have married this fortress balance sheet with the highest quality retail portfolio in the country that only continues to improve. In a K-shaped economy, our industry-leading tenants stay poised to leverage their scale and value propositions to drive further share gains. We are consistently seeing leading retailers with the balance sheet and operating discipline winning across cycles and expanding their brick-and-mortar footprints.

Our pipeline across all 3 external growth platforms is robust, yet our approach remains unchanged. We will stay consistent within our established investment parameters without compromising our underwriting standards. While our investment in earnings guidance remain unchanged, I would note that we have increased our treasury stock method dilution in anticipation of an elevated stock price and as well as the additional forward equity raise during the quarter. We'll continue to provide updates as the year progresses, and Peter will provide additional details on our guidance and input shortly.

Turning to our external growth activity. We had an active start to the year, leveraging our unique market positioning and deep relationships with retail partners to uncover opportunities across all 3 platforms. During the first quarter, we invested nearly $425 million in 100 properties across these 3 platforms.

Of note, during the quarter, we executed a sale leaseback with Hobby Lobby on their corporately owned stores. As we've discussed on prior earnings calls, Hobby Lobby is privately owned, has a balance sheet and stands as a clear market leader in the craft and hobby space. They are a terrific operator and partner. As a reminder, we do not impute investment-grade or shadow investment-grade ratings in our IG percentage.

Additional acquisitions during the quarter included a Home Depot, 5 bound leases in Pennsylvania and Maryland, a portfolio of 11 Sherwin-Williams stores, several Aldis and 3 Walmarts located in Georgia and South Carolina. The acquired properties at a weighted average cap rate of 7.1% and a weighted average lease term of 11.3 years. Nearly 60% of base rents acquired was derived from investment-grade retailers, and we continue to add to our portfolio during the quarter.

As previously discussed, we continue to see increased activity across our development and developer funding platform. During the first quarter, we convinced 2 new development or DFP projects with total anticipated cost of approximately $18 million. Construction continued on 9 projects during the quarter with aggregate and anticipated cost of approximately $71 million.

We completed 4 projects during the quarter, representing a total investment of approximately $23 million. Our development in DFP pipelines continue to grow significantly, and we expect development in DFP activity to meaningfully ramp in the second and third quarters, including several additional projects that commenced subsequent to quarter end.

Moving on to dispositions. We sold 7 properties during the quarter for total gross proceeds of approximately $11 million at a weighted average cap rate of 6.8%. This activity included both the Jiffy Lube and Dutch Brothers that were loaded in the grocery portfolio acquisition last year. We sold these assets approximately 300 basis points inside of where we acquired them less than 1 year ago, highlighting our ability to opportunistically recycle capital and harvest value across our portfolio.

Our asset management team continues to do an excellent job proactively addressing upcoming lease maturities. We executed new leases, extensions or options on over 876,000 square feet of gross leasable area during the first quarter with a recapture rate of over 104%. This included a Walmart Supercenter in Whitewater, Wisconsin and a Home Depot in Orange, Connecticut.

We remain well positioned for the remainder of the year with just 29 leases or 90 basis points of annualized base rent maturing, which is down 60 basis points quarter-over-quarter and 260 basis points year-over-year. We ended the quarter with pharmacy exposure at 3.5% of annualized base rent, and it now falls outside of our top 10 sectors, a meaningful milestone given that pharmacy once exceeded 40% of our portfolio.

Anchored by assets, which is our Walgreens on the corner of the Diag and the University of Michigan campus and our CVS on Granite avenue, we are confident in the real estate and performance of our remaining pharmacy assets. As of quarter end, our best-in-class portfolio comprised 2,756 properties spanning all 50 states. The portfolio included 261 ground leases, comprising over 10% of annualized base rent. Our investment-grade exposure stood at over 65% and occupancy is strong at 99.7%, up 50 basis points year-over-year.

Before I hand the call over to Peter, I'd like to thank and complement the tremendous work he and his team did on the creation of our inaugural supplement. We have taken feedback from a number of constituents and created a first-class document that provides investors and analysts with a thorough picture of our portfolio and financials.

Peter, thank you, and take it away.

Thank you, Joey. Starting with the balance sheet. We were very active in the capital markets during the first quarter, selling 8.7 million shares of forward equity via our ATM program for anticipated net proceeds of approximately $658 million. This represents yet another company record for equity raised in the quarter and underscores our ability to raise equity at scale via our ATM and in a cost-efficient manner. At quarter end, we had approximately 18.4 million shares of outstanding forward equity, which are anticipated to raise net proceeds of approximately $1.4 billion upon settlement. Additionally, during the period, we drew $250 million on our previously announced $350 million delayed draw term loan.

As a reminder, we entered into forward starting swaps to fix SOFR through maturity in 2031 and inclusive of those swaps, the term loan bears interest at a fixed rate of 4.02%. We also took further steps to hedge against interest rate volatility, entering into $50 million of forward starting swaps during the quarter. In total, we now have $250 million of forward starting swaps, effectively fixing the base rate for a contemplated 10-year unsecured debt issuance at roughly 4.1%, combined with the approximately $1.4 billion of outstanding forward equity. We have over $1.6 billion of hedge capital, which provides critical visibility into our intermediate cost of capital, particularly amidst recent geopolitical and macro uncertainty.

At quarter end, we had liquidity of approximately $2.3 billion, including the aforementioned forward equity availability on our revolving credit facility, term loan and cash on hand. Pro forma for the settlement of all outstanding forward equity, our net debt to recurring EBITDA was approximately 3.2x. Our total debt to enterprise value is under 29%, and our fixed charge coverage ratio, which includes the preferred dividend remains very healthy at 4.2x.

Our sole short-term or floating rate exposure was comprised of outstanding commercial paper borrowings at quarter end. And as Joey mentioned, we continue to have no material debt maturities until 2028. Our balance sheet is extremely well positioned to execute on our robust investment activity across all 3 external growth platforms.

Moving to earnings. Core FFO per share was $1.13 for the first quarter which represents an 8.1% increase compared to the first quarter of last year. AFFO per share was $1.14 for the quarter, representing a 7.9% year-over-year increase, which is the highest quarterly AFFO per share growth achieved since the second quarter of 2022. As Joey noted, we are reiterating our full year 2026 AFFO per share guidance of $4.54 to $4.58, which implies approximately 5.4% year-over-year growth at the midpoint. We provide parameters on several other inputs in our earnings release, including investment and disposition volume, general and administrative expenses, non-reimbursable real estate expenses as well as income tax and other tax expenses.

Our current guidance also includes anticipated treasury stock method dilution related to our outstanding forward equity. Provided that our stock continues to trade around current levels, we anticipate that treasury stock method dilution will have an impact of $0.02 to $0.04 on full year 2026 AFFO per share. This is up from approximately $0.01 in our prior guidance due to both the higher share price and more forward equity outstanding. As always, the impact could be higher or lower if our stock price moved significantly above or below current levels.

During the quarter, we recorded approximately $2.4 million of percentage rent, up from $1.6 million in the first quarter of last year. Roughly 1/3 of the increase was driven by strong same-store sales performance across this group of leases as we have actively targeted leases with potential percentage rent upside. The remainder reflects a timing shift as certain tenants that have historically paid percentage rent in Q2 contributed in Q1 of this year.

Our growing and well-covered dividend continues to be supported by our consistent and durable earnings growth. During the first quarter, we declared monthly cash dividends of $0.262 per common share for January, February and March. The monthly dividend equates to an annualized dividend of over $3.14 per share and represents a 3.6% year-over-year increase. Our dividend is very well covered with a payout ratio of 69% of AFFO per share for the first quarter. We anticipate having over $140 million in free cash flow after the dividend this year, an increase of over 10% from last year. This provides us another source of cost-efficient capital while maintaining a healthy and growing dividend.

Subsequent to quarter end, we announced an increased monthly cash dividend of $0.267 per common share for April. This represents a 4.3% year-over-year increase and equates to an annualized dividend of over $3.20 per share. Our inaugural financial supplement this quarter includes several non-GAAP financial metrics and key performance indicators, including our recapture rate, credit and occupancy loss and same-store rent growth. The enhanced disclosures are intended to provide better visibility into our operations and highlight the high-quality nature of our tenancy and portfolio, reflecting our best-in-class execution. We also hope the supplement serves as a one-stop resource that centralizes the key information needed to understand the performance and drivers of our business.

With that, I'd like to turn the call back over to Joey.

Thank you, Peter. Operator, at this time, let's open it up for questions.

[Operator Instructions] We'll take our first question from Jana Galan at Bank of America.

Joey, if you could just follow up on the investment guidance. I know it's already been raised once this year, but with $1.6 billion of hedged capital already raised, just curious if you could kind of expand on the pace or the size of the different pipelines for the platform?

Sure. So our pipeline, as I mentioned in the prepared remarks, across all 3 platforms is very strong. There are 2 things that will determine frankly, our pace into Q2. Number one is just the macro environment here. Obviously, we have a significant amount of uncertainty that seems to change by the hour. And then two, at our election, which transactions we decide to pursue. So we have a number of transactions across all 3 platforms that are under contract or under a letter of intent going through the diligence period but all 3 pipelines are extremely strong.

And maybe just following up on the kind of macro uncertainty, rates moving around, does this cause any kind of delay in your partner's decision-making or wanting to kind of pause on any type of big plans.

No. This is totally unilateral on our side here. We have pipelines that are extensive across all 3 platforms. I just didn't think it was appropriate to raise investment guidance at this time in the midst of a war with JD Vance sitting on the runway.

We'll go next to Michael Goldsmith at UBS Financial.

You now have a record $1.4 billion of forward equity outstanding. Can you walk us through a bit about the timing of physical settlement relative to acquisition funding and how you're thinking about using the forward versus term loans or other forces?

Sure. Michael, this is Peter. To your point, we still have $100 million of capacity on our delayed draw term loan. That's at a fixed rate of roughly 4% given the swaps that we entered into. So given the attractive rate there, I think that's likely the first option we look to when we decide to term out some of our short-term variable rate debt. Beyond that, to your point, we have roughly [ 4 million ] shares of outstanding forward equity. As disclosed in our new supplemental, the contract for about 8 million of those shares matures at some point this year. And while we can always extend the contract, if needed, I think there's a good chance that we settle those shares at or prior to maturity given our anticipated uses. So I would expect that those 8 million shares are likely settled at some point in 2026.

And then lastly, we have the $250 million of forward starting swaps in place that have effectively fixed the base rate for us on a future 10-year issuance at 4.1%. And so with those swaps in place, we'll evaluate the appropriateness of an issuance later this year. But we're not in a rush to do anything given the term loan we have the capacity there, plus the forward equity. And I think, most importantly, with $2.3 billion of liquidity from multiple sources. We have plenty of flexibility, optionality here.

And then Joey, you talked in the prepared remarks about Hobby Lobby and how you've been partnering with them. Can you just talk a little bit more about what makes this particular tenant attractive? And just how you view the outlook for the craft base going forward?

Sure. Hobby Lobby is clearly the far and away leader in the craft and hobby space out of respect for the Green family and our confidentiality, I won't go into their financials, but they are an extremely strong company here. The Green family as well as Hobby Lobby as an entity literally 0 or no debt -- net debt to EBITDA, net debt basis here. So we're talking about a leading operator here if they pursued a rating would be a high investment-grade operator. They effectively put Joanne out of business. They're a market leader here. They had limited stores on their balance sheet. Most of their assets are leased. They wanted to eliminate the real estate from the balance sheet and the management responsibilities that is entitled and had with owning those assets. And so this was a unique transaction for us. They're a tremendous operator, a tremendous partner. They're extremely methodical in their growth plans, and we are thrilled to complete this transaction with them.

We'll take our next question from Smedes Rose at Citi.

I guess I wanted to ask you a little bit more. I mean I think the answer is probably no here because you mentioned that you're meaningfully ramping up your development pipeline in the second and third quarters. But I just don't have the knowledge of construction enough, I guess, to know, but you're not seeing any increases in kind of pricing or due to what's going on in the Middle East or any kind of hesitancy on the part of tenants maybe to kind of pause interest at this point given sort of a more fluid macro backdrop? Or I mean it sounds like the answer is no, but I'm just curious as to maybe why.

Yes. No, it's a great question, Smedes. We're seeing absolutely no hesitancy on the part of tenants as world events unfold here. Could that be possible? Sure. But what we're seeing is the exact opposite in the middle of the conflict in the Middle East has not changed the perspective of brick-and-mortar retailers. And as we mentioned on prior calls, if you look at just the announced store openings for the biggest and best retailers in this country, they have all come to the recognition that the store is the hub of an omnichannel world. It is not a spoke and so they are all opening new stores, some at voracious paces here to reduce last mile delivery costs and be efficient.

And so we have not seen any slowdown from any of the tenants that we're working with. In fact, we've seen some acceleration. As I mentioned in the prepared remarks, we have commenced several projects subsequent to quarter close, and we will be closing on additional projects later this week and next week.

In terms of costs, the projects that we close on have guaranteed maximum price bids. They have GMP contracts in place from general contractors. I'll remind everybody, we're not speculating on land. We're mobilizing and commencing right after close. We aren't speculating on small tenant space here. These are build-to-suit projects or ground lease projects for the leading operators in the country that are signed, stealed and delivered at the time we close. And so we have not seen any material cost creep yet. The team here, the construction team, led by Jeff does a tremendous job budgeting these projects in advance, and then we work with general contractors to the bid process prior to close.

Okay. And then I wanted to ask you, obviously, we all saw a 7-Eleven announcement to close a bunch of stores, I mean first of all, do you think any of your stores might be impacted? And given some of your leaning into convenience stores in a way, some of the reasons that they're closing some of those stores seems like it's going to support some of your white papers that you guys have written around this space. So just curious, any just near-term concerns around your portfolio specifically and anything it might tell you about kind of where convenience stores are going.

Absolutely 0 concerns. We have no stores closing in our portfolio, and I appreciate you referencing the white paper. I ask everyone to take a look at it on our home page. 7-Eleven is closing the stores that have roller hotdogs and Slurpees. That's the bottom line. The -- and they're constructing and we are developing on their behalf, large-format convenience stores that have food and beverage offerings that are extensive, aligned with where the convenience store space. And so 7-Eleven is just a proxy here for the broader gas station convenience store space.

The days of the 1,800 square foot get cigarettes and gum and a couple of coolers and gas are gone. That was the gas station. If you think back 10, 15 years ago, they also had an auto bay. They probably blocked that up to add a little bit more square footage to sell in-store products. Today, the gas station is moving to the convenience store model, whether it's 7-Eleven or Sheets or Wawa, we acquired a number of assets this quarter and led their development entry into the state of Florida over a decade ago. These operators are taking meaningful share across sectors and the evolution of the business is happening before our eyes.

And so again, the pump, while it produces significant revenue doesn't produce the EBITDA that the inside source sale does. That is F&B, food and beverage, primarily breakfast and lunch, liquid gold, coffee, and affordable meals and convenience items that also take from the front end of the pharmacy for consumers. And so this is going to be a multiyear evolution, and we're going to continue to see the 2,000 square foot -- 1,200 to 2,000 square foot "gas stations" go away.

Michigan, we're at the heart of this right now with Sheets and Quick Trip and 7-Eleven Speedway and operators expanding across the state while the legacy gas stations are frankly put out of business. Now this takes time, like any transition of any retail sector. But effectively, it's sweeping the country. And so it's a tremendous opportunity for us. You see us our activity here through all 3 platforms. But it's truly the evolution of a business model into a highly successful operator that has significant margin in food, beverage and in-store components.

We'll go next to John Kilichowski at Wells Fargo.

Joey, that was very helpful on the 7-Eleven breakdown. I guess, if you wouldn't mind, maybe just talking about the rest of the portfolio, what's in guide from a credit loss perspective. And if there's anything else in there that you're looking at that may be has forecasted that you have some expected closures or if all of that is just precautionary?

No, no anticipated closures, all precautionary. We give our guide. We try to narrow it down during the year. The supplement does a great job of bucketing what we call credit loss, whether it's expirations or actual or credit loss at tenant defaulting falling out of -- entering vacancy, rejecting a lease shows that historical trend. We don't anticipate anything material in the portfolio this year. We're watching 1 to 2 -- a couple of assets, but really, that's about it. Peter, anything to add?

No, I think you hit it, just to hit on the numbers quickly, John. In the supplement, we disclosed 14 basis points of both credit and occupancy loss during the first quarter. Our AFFO per share guidance for the year still assumes 25 to 50 basis points of credit and occupancy loss. So there is an implied acceleration in Q2 through Q4 there. At this point in the year, we thought it was prudent to leave that range as is. But as Joey said, the portfolio is continuing to perform well.

Got it. And then the second one for me is just yields and deployment time line on development DFP, Lider 1Q, I know in opening remarks, you mentioned some scale in 2Q and 3Q. I guess my question is, we've highlighted $250 million as sort of a medium-term target. Is that still a realistic target for this year? And then maybe above and beyond that. Is there the opportunity to scale above that? Like would it be surprising for us to see a number well north of $250 million a year or is there a reason from a risk perspective why your initial remarks sort of capped that target is like a 250 number?

So we said about -- I said about 18 months ago, our intermediate target that was approximately 3 years, was to put $250 million in commencements in the ground per year. There's a chance we hit it this year. Again, Q1 is generally light just because if you get into the northern half of the country, you get weather related, you're not going to commence a project with frost in the ground. Q1 is generally light will be significantly larger and Q3 is shaping up to be along the same lines of Q2. Now these projects are generally subject to entitlements and municipal the government authorities approving approvals there. But we are on track to hit that intermediate goal of $250 million in the ground. The team is doing a tremendous job working with the biggest retailers in the country and the best developers in the country on the DFP side. And we're very excited about our pipeline there.

We'll move next to Upal Rana at KeyBanc Capital Markets.

On the competition and seller behavior side, you mentioned people are not pulling back due to the macro volatility, but are you seeing any change in behavior due to the volatility in the 10-year, just wondering if you're seeing any increased deal flow in the past month or so that could positively impact 2Q investment volumes.

Upal, nothing that I could say is causal. We've said with the 10-year between 4 and 5, it seems like the world has been accustomed to the base rate purportedly for the entire world, the 10-year UST vacillating by 10%, 15%, up and down. We haven't seen anything causal. I'll tell you, we see more and more opportunities. Our funnel is bigger than it's ever been across all 3 platforms. We don't see increased competition. I wouldn't tell you we haven't seen a notable decrease in competition. Really, nothing's changed since coming out of 2024 and our do-nothing scenario.

And so the only thing that I can point to is the performance, the size, the scope, the depth and the experience of this team and then our relationships within the market, highlighted in the supplemental just the retailer relationship-driven transaction.

Okay. Great. That was helpful. And then acquisitions of investment-grade-rated tenants has come down again this quarter. I'm just curious, outside of IG credit ratings, is there something else in the lease economics that we should -- that you're acquiring that is a sign of higher quality that we should be considering?

No, let's clarify why investment grade came down this quarter. We don't impute a credit rating to Hobby Lobby, privately held company by the Green family. So that's the biggest piece of this year. We're talking about, again, the largest craft and hobbies retailers, a multibillion dollar revenue operator that is far and away the leader in the crafts and hobby space that is privately owned by one family. So that is the driver.

And I'll reiterate, investment grade is an output for us. We have tremendous operators in our portfolio that we don't impute shadow investment-grade ratings, too, but publics Chick-fil-A, ALDI, Wegmans, Hobby Lobby, again, so that is an output. In order for us to call an operator, an investment-grade operator, they have to be rated by a major agency and therefore, have the outstanding debt. Alta is not an investment-grade company, but I believe they don't have any debt, correct, Peter?

Correct.

They don't have any outstanding debt. So we have debt free, multibillion-dollar public and private operators in our portfolio. If you want to impute shadow investment-grade ratings, to our portfolio, we'd be at 80%. Then add on the ground lease exposure, which doesn't have any sub-investment grade. And I would tell you the safety of those assets is even greater than investment-grade assets, and we'd probably be at 85%, 87%. So it's an output to what we do. Our focus is on the biggest and best operators, the best real estate opportunities across the country, leveraging all 3 platforms, whether or not they have an investment-grade rated balance sheet or carry any debt is really, again, just a secondary here.

We'll take our next question from Rich Hightower at Barclays.

Joey, I want to go back to a comment you made in the prepared comments, you sold some grocery store assets with a pretty quick turnaround versus where you bought the assets at a lower cap rate versus the purchase price, so is there any movement specifically in grocery assets versus nongrocery, any sort of bifurcation in cap rate trends? Because obviously, we all saw sort of the headline number didn't really change in terms of what you bought quarter-on-quarter. Just help us understand any movement there.

Yes. Just to clarify, Rich, we did not sell the grocery assets. The grocery portfolio that we bought had outlets that were leased to Jiffy Lube as well as Dutch Brothers that we disposed approximately 300 basis points inside of where we bought the grocery-anchored portfolio, inclusive of those assets. We have no interest in owning 1,000 square foot Dutch brothers that trades in the low 5s or a quick lube that the 1,200 square feet that has no residual value in the [indiscernible] either. So we quickly moved, we closed those in a TRS and then quickly move to recycle those assets, accretive to the overall transaction, and we'll redeploy those proceeds accretively into better real estate and we think better credit.

Okay. Appreciate the clarification there. I guess, secondly, maybe there's nothing to read into this, but you did mention better percentage rents in the first quarter, part of which, not all of which, but part of which was due to obviously better sales at those particular properties. Is there anything to read into that in terms of strength of the consumer, a particular type of consumer relative to the aggregate just as we see sort of other indicators maybe softening given everything else going on in the world.

It's such a small handful of assets. It's the biggest retailers in the country. We're talking about 5 or 6 properties that contributed -- 2 that contributed the vast majority of that percent rent. I think it's aligned with our thesis and what we're seeing in terms of the K-shaped economy, but I would be hesitant to draw broader conclusions from it, just because of this year of limited number of properties. But we are seeing through non-percentage rent but through anecdotal conversations and also through other data here, and look, you're seeing it as well through the public reporters, the Walmarts and the TJXs of the world are thriving, right? The trade-down effect is real. In the middle-income consumer, the $125,000 median household income, plus/minus is trading down. And we're seeing that through multiple data points, both public and private. I think the percent rent falls in line with it. That's the only conclusion I would rather.

Our next question comes from Linda Tsai at Jefferies.

Two questions. In your investor deck, you highlight avoiding private equity ownership, do you have a sense of what percentage of your tenants are owned by private equity and how it's trended over time in your portfolio?

So Linda, we added some new disclosure to our supplemental that highlights ownership type and I would just call out in that disclosure, 77% based on ABR of our portfolio today is publicly traded. There's -- the remainder of that is private companies, but that is broken down into a few buckets. Those could be privately held companies. We talked about Hobby Lobby owned by David Green, they could be nonprofit companies, ESOPs or some other form of private ownership. So there is a small component of private equity within that private bucket, but it isn't a significant component of the portfolio today for us.

And then just one for Joey, you always have a clear idea of the state of retail. I guess you said the consumer is trading down and that's been happening for quite some time. But are you seeing sectors where the consumer really is pulling back completely? And then any tenant sectors where you'd be more concerned, just broadly speaking, not necessarily in your portfolio?

Yes, not within our portfolio, but I think if we watch the casual dining space, we're seeing with the some of the quick service restaurants, all the guys that sell bowls for $18, $22, I don't know, I don't get to them very often. It's the discretionary options where people have the ability to trade out and that goes across really all sectors. So whether it's basic goods and services here, basic things like grocery. I mean, I drove by the Costco gas station 2 days ago and the line was about 25 cars deep for fuel. And so we are continuously seeing that trade-down effect now pinched by gasoline prices as well and exacerbated by gasoline prices and prices at the pump. So I think it's across all luxury experience discretionary sectors and then also trading down in the necessity-based stuff for things like groceries.

Next, we'll go to Eric Borden at BMO Capital Markets.

Joey, just curious how cap rates are trending to start the year between investment grade and non-investment grade tenants. Are you seeing any meaningful changes in the spread between the 2, just given the macro uncertainty here?

We haven't seen any change in cap rates in, I would tell you, the past 18 to 20 months. Again, the volatility even with the 10-year treasury really hasn't driven it. We're still nowhere near peak transactional activity coming out of COVID or before COVID. There's still limited 1031 or private buyer competition out there on a relative basis. So we really haven't seen any real material moves in cap rates here. The low price point stuff, the Jiffy Lubes and the Dutch bothers, those trade extremely aggressively. Those are to the 1031 buyers. But if you look at just the inventory out there even for Starbucks and things like that, there's a significant amount of inventory that's stale out there because of the lack of a bid the buyer pool. But we really haven't seen any material change here almost to 2 years.

That's helpful. And then just on the forward equity, just given the increasing dilutive impact in the TSM as your share price rises, would you consider a more balanced approach to equity issuance between forward equity and traditional or do you believe it's more prudent to keep the forward equity book falls given the current macro side or some of that going off?

We'll continue to look at all alternatives. Obviously, our balance sheet is in a fortress position. But I think when we first issued forward equity and came up within the net new space, the goal was to get an intermediate perspective on our cost of capital. So volatility could give us the decision-making real-time basis, whether we do something or not because we liked it in relative to the environment, not because we had to fund it just in time, right? And so inherently, we think the forward equity construct, and I think has adopted now by all or the vast majority of our peers takes a just-in-time financing business and then gives you that intermediate cost of capital to truly operate looking forward months and quarters in advance. Now we'll look at all opportunities to raise and source capital that are efficient and fit within context of our balance sheet and so why wouldn't rule anything out on a go-forward basis. But sitting here with $1.4 billion of forward equity and $2.3 billion of liquidity, it's not something that's top of mind for us.

And we'll move next to Ronald Kamdem at Morgan Stanley.

Great. Two quick ones. Thanks for the disclosure on the supplemental. Just comparing the acquisitions versus the DFP -- developer in the DFP platform, just remind us what the spread on yields are that you're getting on the DFP side developer and the DFP side. And also, I think you mentioned earlier that competition is actually easing on the acquisition front. Maybe can you just talk a little bit more about like which of those platforms is more competitive and you're better positioned?

Ron, so we've always talked about development subject to the timing and scope of the project, whether it's a retrofit or a ground-up development, right, that's going to range anywhere from 9 to 18 months. Those projects being significantly wide 75 to 150 basis points where we can buy a like-kind asset. Developer funding platform is generally ranging from 6 to 12 months. That will be tighter just given the time horizon. Again, we're targeting the same tenant through all 3 external growth platforms. The only difference here is time. And so it is just time and pricing that duration risk. And so that's where we drive that spread from. But we're not targeting different types of assets or credits here. It's all within our sandbox. We're not doing anything on a speculative basis across all 3 platforms. So we're seeing significant activity across all 3 platforms at appropriate spreads, and we're going to continue to build that pipeline and we'll demonstrate it in Q2.

Helpful. And then just a quick one on the -- so I'm looking at the recapture rates and same-store rent growth on the supplement. Is that -- is the $1.6 billion is some of that sort of volatility from quarter-to-quarter. Is that all the percentage rents? Or is there something else going on? There seems to be some seasonality to the same-store rent growth.

Yes. In terms of some of the seasonality you see in same-store rent growth, Ron, you're right, that percentage rent is included in Q1. And so that's driving a portion of the seasonality. But if you look at that over a longer time series as well, that seasonality is going to be driven by the underlying lease structure of our portfolio. And we disclosed in the supplemental about 91% of our leases have fixed rental escalators. Those are typically rental escalators taking place every 5 years, ranging from 5% to 10%. And so when those escalators hit, it's going to drive some variability in same-store rent growth. But what we've seen over the trailing 8 quarters, and it's consistent with what we've seen historically is same-store rent growth just north of 1%, with very little falling out, as you can see from our credit loss and occupancy loss disclosure.

And that concludes our Q&A session. I will now turn the conference back over to Joey Agree for closing remarks.

Well, thank you all for joining us this morning, and we look forward to seeing everyone at the upcoming conferences and appreciate your time. Thanks, again.

And this concludes today's conference call. Thank you for your participation. You may now disconnect.

Good morning, and welcome to the Agree Realty Fourth Quarter 2025 Conference Call. [Operator Instructions] Note, this event is being recorded.

I would now like to turn the conference over to Reuben Treatman, Senior Director of Corporate Finance. Please go ahead, Reuben.

Thank you. Good morning, everyone, and thank you for joining us for Agree Realty's Fourth Quarter 2025 Earnings Call. Before turning the call over to Joey and Peter to discuss our results for the quarter, let me first run through the cautionary language.

Please note that during this call, we will make certain statements that may be considered forward-looking under federal securities laws, including statements related to our 2026 guidance. Our actual results may differ significantly from the matters discussed in any forward-looking statements for a number of reasons. Please see yesterday's earnings release and our SEC filings, including our latest annual report on Form 10-K for a discussion of various risks and uncertainties underlying our forward-looking statements.

In addition, we discuss non-GAAP financial measures, including core funds from operations or core FFO, adjusted funds from operations or AFFO, and net debt to recurring EBITDA. Reconciliations of our historical non-GAAP financial measures to the most directly comparable GAAP measures can be found in our earnings release, website and SEC filings.

I'll now turn the call over to Joey.

Thanks, Reuben, and thank you all for joining us this morning. 2025 represented yet another year of consistent execution for our growing company. In a dynamic macro environment, we remain disciplined continued investing in our future and delivered over 4.5% AFFO per share growth. The $1.55 billion invested across our 3 investment platforms was the second highest total in company history representing more than 60% year-over-year growth. As demonstrated by our 2026 guidance, the fundamentals supporting our outlook are very strong. Our portfolio has never been better positioned the depth and strength of our team is exceptional, and our balance sheet is in tremendous shape.

We have commenced numerous IT undertakings, including the construction of the next iteration of ARC and continue to drive efficiencies through systematic process improvement. These initiatives will support bottom line growth this year and beyond, driven by ongoing efficiency gains and a material reduction in G&A as a percentage of revenue. During the course of the year, we once again proactively fortified our balance sheet raising roughly $1.5 billion in capital. We concluded 2025 with over $2 billion of liquidity, including over $715 million of outstanding forward equity. With no material debt maturities until 2028, our balance sheet is in tremendous position to execute on our 2026 investment guidance and provide significant flexibility.

At year-end, pro forma net debt to recurring EBITDA stood at just 3.8x, enabling us to execute on the high end of our 2026 investment guidance without incremental equity while staying within our targeted leverage range of 4 to 5x. Our pipeline has expanded significantly over the past month and now represents over $0.5 billion and provides us confidence in increasing our 2026 investment guidance to a range of $1.4 billion to $1.6 billion. Our updated investment guidance represents approximately a 10% increase from our prior range and the high end of the range is slightly above our 2025 investment activity. With yesterday's release, we have initiated full year AFFO per share guidance of $4.54 to $4.58.

At the midpoint, this represents 5.4% year-over-year growth and 2-year stack growth of 10%. When combined with our current dividend yield, this implies a total operational return of our target of approximately 10%. We Combined with the fortress balance sheet, best-in-class portfolio and historic track record of execution, we believe that ADC offers one of the most compelling value propositions in the REIT sector.

Turning to our 3 external growth platforms, our partnerships across the real estate spectrum have never been stronger or more productive. Today, Agree Realty is the preferred one-stop shop for the country's largest retailers. These partnerships are translating into actionable opportunities, including one-off acquisitions, sale leasebacks, blend and extend transactions, programmatic development and high-quality DFP projects. As a result, all 3 external growth platforms are accelerating and seeing increasing transactional opportunities.

Moving on to recap last year. During the fourth quarter, we invested approximately $377 million in 94 high-quality retail net lease properties across our 3 external growth platforms. This included the acquisition of 94 assets for over $347 million. The properties acquired during the quarter leased to leading operators in home improvement, auto parts, grocery store, farm and rule supply convenient store and tire and auto service sectors. Fourth quarter investment activity was a very high quality, evidenced by the largest quarterly percentage of ground lease acquisitions since 2021 at over 18%.

Notable transactions included 3 geographically diverse ground leases leased to Lowe's as well as the Home Depot and Michigan paying under $5 per square foot in rent. The acquired properties had a weighted average cap rate of 7.1% and a weighted average lease term of 9.6 years. Investment-grade retailers accounted for nearly 2/3 of the annualized base rent acquired. For the full year 2025, we invested nearly $1.6 billion in 338 retail net lease properties spanning 41 states, over $1.4 billion of our investment activities originated from the acquisition platform. The acquisitions were completed at a weighted average cap rate of 7.2% and had a weighted average lease term of 11.5 years, with roughly 2/3 of rents coming from investment-grade retailers.

As a reminder, we do not impute credit ratings for nonrated retailers. Our development in DFP platforms had a record year with 34 projects either completed or under construction representing approximately $225 million of committed capital. We're continuing to see increased activity across both these platforms as we partner with retailers and developers to execute on their store growth plans. During the fourth quarter, we commenced 4 new development and DSP projects with total anticipated cost of approximately $35 million. The new projects are with leading retailers, including Boot Barn, Burlington, Five Below, Ross Dress for Less, Alta and 7-Eleven. Construction continued during the quarter on 9 projects with anticipated costs totaling approximately $59 million. Lastly, we completed construction on 3 projects during the quarter with total cost of $29 million.

On the asset management front, we executed new leases, extensions or options and over 640,000 square feet of gross lease area during the fourth quarter, including a Walmart Supercenter in Rochester, New York and Lowe's in Roland Park, Kansas. For the full year 2025, we executed new leases, extensions or options on approximately 3 million square feet of GLA with a recapture rate of 104%. We are very well positioned for 2026 with only 52 leases or 1.5% of annualized base rents maturing. During the past year, we disposed 22 properties for gross proceeds of just over $44 million at a weighted average cap rate of 6.9%. This includes 9 properties that were sold for $20 million during the fourth quarter at a weighted average cap rate of 6.4%.

Our capital recycling efforts will continue to focus on select noncore assets as well as opportunistic dispositions. At year-end, our best-in-class portfolio is approaching 2,700 properties in tidal 50 states. The portfolio includes 251 ground leases, representing over 2% of annualized base rents. Our investment grade exposure at year-end stood at nearly 67% occupancy increased to 99.7% and reflecting a 50 basis point improvement since the first quarter of the year. Lastly, I want to recognize Peter and his team for their exceptional work in 2025. We achieved an A- rating from Fitch and successfully launched our commercial paper program. both milestones that will deliver meaningful savings and long-term benefits to our cost of capital.

With that, I'll hand it over to Peter, and then we can open up for questions.

Thank you, Joey. Starting with the balance sheet. We had a very active year in the capital markets, raising approximately $1.5 billion of long-term capital, including roughly $715 million of forward equity, a $400 million bond offering and closing on a $350 million term loan. Additionally, we established a $625 million commercial paper program became one of only 19 U.S. REITs with a commercial paper program. This has become our preferred source of short-term capital, enabling us to issue approximately $28 billion of notes during the year and generate over $1 million in savings compared to borrowings on our revolving credit facility. During the fourth quarter, we sold 1.5 million shares of forward equity via our ATM program for anticipated net proceeds of approximately $109 million. We also settled 5.9 million shares of forward equity receiving proceeds of over $428 million.

At year-end, we had approximately 9.6 million shares of outstanding forward equity, which are anticipated to raise net proceeds of $716 million upon settlement. During the quarter, we closed on the previously announced $350 million 5.5-year term loan. Prior to closing the term loan, we entered in the $350 million of forward starting swaps to fix SOFR until maturity. Including the impact of those swaps, the interest rate on the term loan is fixed at 4.02%. The term loan fits well into our debt maturity schedule and demonstrates continued strong support from our banking partners.

To date, no amounts have been drawn under the term loan, which has a 12-month delay draw feature. We also entered into $200 million of forward starting swaps during the year, effectively fixing the base rate for a future 10-year unsecured debt issuance and approximately 4.1%. This is consistent with our proactive hedging strategy and combined with our outstanding forward equity, provides over $915 million of hedged capital to fund investment activity in 2026. As of December 31, we have over $2 billion of liquidity, including approximately $1.3 billion of availability under our revolving credit facility and term loan. The previously mentioned outstanding forward equity and cash on hand. Pro forma for the settlement of our outstanding forward equity, net debt to recurring EBITDA was approximately 3.8x at year-end.

Excluding the impact of unsettled forward equity, our net debt to recurring EBITDA was 4.9x. Our total debt to enterprise value was approximately 27%, while our fixed charge coverage ratio, which includes principal amortization in the preferred dividend, was very healthy at 4.2x. Our floating rate exposure remained minimal with approximately $321 million of outstanding commercial paper borrowings at year-end. And as Joey mentioned, we have no material debt maturities until 2028. We are in an excellent position to execute on our increased investment guidance this year without having to raise any additional equity capital. The strength of our fortress balance sheet was further validated by the A- issuer rating that we received from Fitch in August. The rating makes us 1 of only 13 publicly listed U.S. REITs to carry an A- credit rating equivalent or better.

This achievement reflects the prudent, disciplined way we continue to grow the company and stands as a testament to more than 15 years of thoughtful portfolio of construction and disciplined capital allocation. Over that period, we have invested nearly $11 billion in best-in-class retailers while maintaining a preeminent balance sheet and consistently leading the way in capital markets execution. Moving to earnings. Core FFO per share was $1.10 for the fourth quarter and $4.28 for full year 2025. The representing 7.3% and 5.1% year-over-year increases, respectively. AFFO per share was $1.11 for the fourth quarter, representing a 6.5% year-over-year increase. For the full year, AFFO per share was $4.33, which reflects the high end of our guidance range and 4.6% year-over-year growth. As Joey mentioned, our initial AFFO per share guidance of $4.54 to $4.58 for 2026, represents approximately 5.4% year-over-year growth at the midpoint, which would be our highest earnings growth since 2022.

We provide parameters on several other inputs in our earnings release, including investment in disposition volume, general and administrative expenses, nonreimbursable real estate expenses, income and other tax expenses as well as treasury stock method dilution. Our guidance for treasury stock method dilution relates to our outstanding forward equity. As a reminder, if ADC stock trades above the net price of our outstanding forward equity offerings, the dilutive impact of unsettled shares must be included in our share count in accordance with the treasury stock method. Provided that our stock continues to trade near current levels, we anticipate that treasury stock method dilution will have an impact of approximately $0.01 on full year 2026 AFFO per share. That said, the impact could be higher if our stock price moved significantly above current levels.

Our accelerating earnings growth supports a growing and well-covered dividend. During the fourth quarter, we declared monthly cash dividends of $0.262 per common share for each of October, November and December. The monthly dividend equates to an annualized dividend of over $3.14 per share and represents a 3.6% year-over-year increase. Our dividend is very well covered with a payout ratio of 71% of AFFO per share for the fourth quarter.

With that, I'd like to turn the call back over to Joey.

Thank you, Peter. Operator, at this time, let's open it up for questions.

[Operator Instructions] Our first question will come from the line of Michael Goldsmith with UBS.

This is Amy [indiscernible] with Michael. I was hoping to start -- we could dig in a little bit on the increase in the 2026 investment guidance, just 30 days after providing the initial guide. How was this increase split across the platforms? And were there any large transactions identified? Or is this more of an increase in one-off opportunities?

Since the initial release in January, we've secured a number of transactions, including a couple of sale-leaseback transactions that will close in Q1 and Q2, respectively, as well as some single credit portfolio transactions on the acquisition side. From the development DFP side, we just have more confidence, frankly, in those projects commencing in Q1 and subsequently also in Q2. So all 3 platforms have seen accelerated activity. I would note that the increase after approximately 30 days in the investment guidance is primarily due to those sale-leaseback transactions in the so credit portfolio. .

Great. And then on the noncore asset sales, you highlighted dispositions of some retailers that I think we were expecting and some that we weren't maybe Family Dollar, a fitness operator, a good year store. What makes some of these tenants more right for capital recycling than others?

Yes. So capital recycling, as I mentioned in our prepared remarks, the portfolio is in tremendous shape. There's opportunistic sales that were taking place in Florida, California and Texas on good years, as you noted, we pared back Advanced Auto Parts exposure as well. And so you'll see us continue to pare back exposure to retailers that we don't either have full confidence in on a go-forward basis, select noncore assets with I would say the predominance of our disposition activity this year will just be valuations that are driven by the 1031 market or the beautiful bill where we don't see the value of the asset matching our prospective purchasers. .

Our next question will come from the line of Jana Galan with Bank of America.

I was hoping you can maybe talk to you about the cap rate on acquisitions where you kind of see that trending? And then any other maybe there is cap rate stability, but anything changing on the escalators, lease terms or options at expiration when you're speaking with your different retailers?

Don't see anything materially changing on the cap rate front. Obviously, at the beginning of the year, we have won a complete but pretty -- our Q1 pipeline is effectively filled at this point, no material cap rate deviations. Obviously, we won't move up the we won't change our parameters and move up the risk spectrum. So no change there. Also, I think that rent escalators have been embedded with the historic inflation that we've seen post pandemic, and we haven't seen any reversal of that trend or increase in that trend in terms of size of escalators or frequencies. I think most tenants have agreed today that escalators of 7.5% to 10% every 5 years are appropriate, given just the inflation that we're seeing currently and as well as historically on a cut basis. .

And then can you just share some information with us on construction costs. We're hearing those are increasing?

But they certainly aren't going down in the 100 years if you'll capacity the past 100 years, while commercial rental rates have peaks and valleys, construction costs just continue to migrate upwards. And so we're seeing construction costs that are fairly in line with last year. We've looked to altered engineering and alternative mechanisms to reduce those costs in conjunction with our retailers. Those costs are embedded, obviously, in our development budgets. They certainly aren't going down. As I mentioned, the typical junior box in this country today is approximately $160 per square foot vertical cost.

That's an off-price retailer today. Pre-pandemic, those were $95 per square foot. Obviously, a constrained labor environment doesn't help that tariffs don't help that. Since we've been able to look at sourcing domestically and like I said, other alternatives here to try to reduce those costs, different construction methodologies, reducing labor when appropriate, using some prefabricated materials and [indiscernible], our construction team have worked diligently with our retailers to value engineer any buildings.

Our next question will come from the line of Smedes Rose with Citigroup.

It's Nick [indiscernible] Smedes. Just on the sale leaseback, is that more timing driven that you've seen those deals come through? Or are you seeing more interest broadly from corporates on that structure?

Yes. Nick, it's a great question. It's really just frankly specific. We haven't seen a multitude of sale leasebacks coming to market, certainly not within our sandbox. There are 2 that we will execute on in Q1 and Q2. Q1 will have the larger sale leaseback. A core tenet of our -- is a relationship tenant of ours who we're very fond have been very close to an existing top 20 tenant of ours. So haven't seen an increase in the sale leaseback velocity, but 2 tenants that we have historical relationships with we'll execute on here in the first 2 quarters of the year.

That's helpful. And then you mentioned kind of the potential for G&A savings with some of the efficiencies. How does that look medium and longer term versus where you are today as a percentage of revenue?

So last year, we were very clear that it was an investment year for us coming off of 2024, when we started with the do-nothing scenario. We had effectively net new -- 0 net new team members incremental to the team. Last year, we added almost 25 team members through the organization. We're approaching 100, as I mentioned in the prepared remarks, and we're in a [indiscernible] position to continue to execute with depth across all areas and functional areas of the organization. At the same time, we continue to benefit from our IT improvement. The team here has done really a terrific job. I mentioned, we're working on the ARC 3.0 next iteration of ARC.

We put a Microsoft backbone in place and have a number of projects that the team is executing on for data efficiency and access, which will continue to make us faster and more efficient. We're utilizing AI, as we mentioned for higher calls for the last 3.5 years for lease underwriting checklist. We've deployed AI for lease extraction. We anticipate deploying artificial intelligence for purchase agreement draft and other form documentation this year. And so I would anticipate that approximately 30-plus basis points of G&A savings relative to total revenues. And so I think we'll continue to see that on a go-forward basis.

On top of that, as Peter mentioned, we're seeing just from our size, scale, obviously, obtaining the A- credit rating $1 million in savings from the commercial paper program. And so our size and scale now is giving us access to different tools, different capital raising short-term capital in this case, let's say, $1 million, so almost $0.01 last year, subject to the curve and obviously, the commercial paper program that can move up and move down. but we just have more tools, frankly, at our disposable to drive savings. And so this year, I would anticipate single-digit hires. And I think we are we're in a tremendous position to execute across all facets of the business on a go-forward basis and continue to benefit from those efficiencies.

Our next question will come from the line of Spenser Glimcher with Green Street.

On the 4 DSPs commenced in the quarter, are you guys able to share if these are one-off projects for these tenants? Or are they part of larger store count expansion for the retailers? Just trying to give a sense if there will be opportunity for more projects alongside these retailers.

They are not one-off projects. There will be, I think, a significant opportunity for us. What we're seeing is retailer and many of these are publicly issued statements retailer expansion with the desire that is greater or greater than any time since the prior to the GFC. So if we look across the board, Home Depot, Walmart, Kroger, keep going, tractor supply O'Reilly, all the off-price operators have realized in a 21st century omnichannel world, their store base is critical. And so absent construction costs getting in the way, of project feasibility here. We're going to continue to see that. I would anticipate us breaking ground on 10-plus projects over the course of the first and second quarter. .

And so we're excited about both the development pipeline. We've announced 3711 Speedway projects last year. We will continue to execute those on the -- in the first and second quarter of this year as well as some significant DFP projects where we'll step in and financing, the developer and knowing them upon completion.

Okay. Great. And then just on the ground lease market. Maybe first on the transactions that you've executed on recently. Are there purchase options on any of those at the end of the lease? And then just maybe more broadly, if you're able to share any color on the ground lease market in general, just in terms of opportunity set and/or pricing that you're seeing?

Yes. No purchase options at the end of the lease that I can think of that's very atypical. The ground lease market per se isn't really a market. I mean oftentimes, sellers aren't even frankly cognizant of the ground lease structure and look at it as a net lease transaction. We did one unique transaction, I would say, during the quarter in Flanders, New Jersey, which had a number of ground leases driven by a Lowe's ground lease, as I mentioned, in the prepared remarks. There's also a ground lease to Panda Express there, a ground lease to Wells Fargo, a ground lease to Wendy's there.

So a number of ground leases, all pads to that Lowe's Obviously, 18% was elevated in Q4, driven by that. The other lows I mentioned as well as the Home Depot, about 20 minutes from here. We'll have more ground lease opportunities in Q1. But I think thinking of it as a market is pretty challenging. Many times, we're working with retailers on early extensions through short term, either retail or directed. And so it's a unique seller pool all the way from institutions to mom-and-pop owners here.

Our next question comes from the line of John Kulikoski with Wells Fargo.

Great. This is actually [ Jamie Feldman ] here [indiscernible] for John. So how much of the high end of your investment guidance range, the $1.6 billion is dictated by the available forward equity you always already have versus what you think the true opportunity set could be this year?

None of it is driven. I mean, I would say they're really separate. Peter, feel free to chime in. But I think we're confident in the uses with the $1.4 billion to $1.6 billion. As we mentioned, in the prepared remarks, we can stay under our targeted leverage range of 4 to 5x, really excluding dispositions. We anticipate having significant free cash flow after the dividend, even increasing the dividend this year. And obviously, with $700 million plus outstanding of forward equity, we're in tremendous shape.

Yes. Jamie, just to echo Joey's comments, we have over $2 billion of total liquidity, but thinking about it from a leverage perspective, we have $1.6 billion of buying power without having to raise any additional equity and we can end the year at the high end of our stated leverage range of 4x to 5x while executing really on the high end of our investment guidance range. And so we're very well positioned for this year from a balance sheet perspective. given that liquidity and outstanding forward equity, but I think that's really only one factor as we think about setting guidance.

Okay. So if I heard you right, you really feel strongly 1.6 is kind of the max of what you see out there?

Definitely not. I think it is our guide at this time. We have no visibility outside of development into Q3 or Q4. We started commencing sourcing Q2 acquisitions 15 days ago. What I can tell you is there's $0.5 billion in the pipeline, as I mentioned, that we are very confident in, and we'll continue to source across all 3 platforms and update the market and everybody on this call as we continue to see activity. but no visibility outside of development and a couple of DFP projects beyond, let's call it, [indiscernible] now.

Okay. And then secondly, I think we had expected yields to compress more than they have. Any thoughts on why you think that hasn't been happening given there is more competition in the space. And then the developer funding program, do you think that's better as a low -- in a low rate regime or a higher rate regime as we think about you growing that business?

So in terms of competition, we haven't seen any increase in competition due to the private capital that's entered the space. I think everyone on the call is familiar with the numerous different sleeves and operations that have launched. These -- our typical transaction is $4 million to $5 million. 20 people touch it from letter of intent and our underwriting letter of intent execution to close. We're a horizontally integrated machine that's closing 2 transactions per day. It's high touch, frankly. We are working with retailers to extend deals, to identify dealers. We're working directly with developers.

We overcome obstacles and hurdles that are, again, high touch real estate exercises, not just sale leasebacks with middle market credits. And so it's a very different business and the preponderance of capital that has entered the space is chasing. In terms of our DFP platform, I think what's really driving -- the increased activity is on our own efforts. Those are critical. But two, we already touched on construction costs today. And so with vertical construction costs primarily vertical, I should say, penciling these projects is extremely challenging. You combine that with the availability and the cost of capital, as you mentioned, driven by the tenure, which drives equity returns to fill any gaps or potential [indiscernible] these projects are very difficult to pencil for private developers. And so our developer funding platform provides a unique solution to finance the entire project and owner upon completion really taking the risk off the developer unless they load their budget.

And then it comes out of, frankly, their profit payment. And so we're entering with a fixed return. We're providing our -- not only our balance sheet as well as an exit, but our relationships with retailers, many of which we have form leases and very strong relationships with, so we can expedite or accelerate that project. And so we see that looking pretty stable, and our goal is to continue to ramp it.

Okay. But I guess the question on just why yields have been so sticky? Are you saying because you haven't seen that much competition? Or is there anything else we should be thinking about?

I think the 10-year is obviously traded within a band, right? We've seen the 10-year trade within a band. There's no material increase in competition in the sandbox that we are operating in. And so we really haven't seen anything deviate over the past, call it, a year plus here now. .

Our next question will come from the line of Brad Heffern with RBC Capital Markets.

You've had the medium-term goal of $250 million in development investment commitments per year. Do you think this will be the year that you see that number? And does that represent a steady state? Or should we expect a higher goal at some point?

We're always raising goals here. We are able to scale as we talked about on prior questions. I'm hesitant to say this will be the year because due to third-party timing, that's retailer approvals, municipal approvals, access approvals, often from DOTs and counties. I think this will be a continued year of growth for us. Our pipeline is large. The timing of those projects is subject to third parties but our pipeline continues to grow across development well developed funding platform with projects in all stages from the shadow pipeline to breaking ground as we speak. .

Okay. Got it. And then, Peter, can you talk about what the assumed credit losses and guidance and where you ended up in 2025 as well?

Sure. In terms of our AFFO per share guidance for 2026, we're assuming at the high end of that guidance range 25 basis points of credit loss, which is relatively in line with where we ended up for 2025. I believe we're at 28 basis points to be exact. And then at the low end of our AFFO per share guidance range for 2026, we're assuming 50 basis points of credit loss for the year. So overall, the portfolio continues to be in great shape, but it was 99.7% occupied as of year-end and is performing well. We're not seeing any significant changes to our watch list or any new entrants that are material from an exposure perspective and anticipate the portfolio should continue to perform well in 2016. .

Our next question comes from the line of Alec Feygin with Baird.

So you just mentioned -- talked about how the development and DFP pipelines are growing. I'm curious now that you're -- as you said, last year, a full seat real estate platform, how has that maybe changed conversations or seeing other retailers that you haven't worked with come to you seeking out your full suite of capabilities?

No, it's a timely question. The team was down with a number of retailers yesterday that we are working with currently and aren't working with currently across all 3 platforms. I think most importantly, it provides a holistic conversation with retailers. I would add our asset management platform. And so everything we manage is internally property managed, lease administrated internally taxes, insurance, any ancillary responsibilities, the ability to sit down with any retailer in the country and provide an entrepreneurial platform that can execute across all phases of the life cycle of a transaction from net new development to extensions of short-term leases to sale leasebacks is just a unique value proposition that is one of one.

And so you combine the entrepreneurial DNA of a real estate company of a private real estate company with a $12 billion, $13 billion balance sheet of an A- rated company that is a publicly traded REIT with significant liquidity, access and a premier cost of capital. and opportunities will arise. And so we continue to maintain dialogue with retailers grow those relationships that are existing. We're always talking to retailers about net new projects and launching a vertical with the in conjunction with our standard acquisition third-party activities.

Next question will come from the line of Paul Rana with KeyBanc Capital Markets.

Great. On the forward equity, you've got $700 million remaining to deploy. Is there any timing when you need to settle those shares? You've done some significant forward offerings during 1Q last year and April last year. So just wondering if there's any timing related to those shares settling and expectations when you need to deploy that capital.

We have a lot of flexibility in terms of settling the $75 million plus of outstanding forward equity. I think the earliest tranche matures in June of this year, the latest tranche matures in May of 2027. And so we have a lot of flexibility in terms of when we sell those shares. I think it's fair to assume that most of those shares get settled at some point and in 2026, subject obviously to uses and other capital sources, but we have a good amount of flexibility in terms of when we decide to settle those shares and receive the proceeds.

Okay. Great. That was helpful. And then just given we're halfway through 1Q already and you've already increased your investment guidance almost 10%. Could you share any preliminary 1Q or even 2Q visibility you're seeing on investment activity?

Yes. As I mentioned, there will be a sale leaseback in there with the existing top 20 tenant of ours in the first quarter. The second quarter, we'll have a sale lease with another top 20 tenant. There are -- 2 or 3 single credit portfolios, one with the largest retailer in the world from a third-party seller, another with the leading paint manufacturer and retailer in the world. Those are primary drivers, I would say in there and then one-off transactions on the acquisition front there typical of everything we do. .

Our next question will come from the line of Mitch Germain with Citizens Bank.

Joe, you've been pretty good at predicting retail trends and I'm curious if there's like a tenant or maybe a sector that you think could become a bigger piece of the portfolio on a go-forward basis.

Yes. I'm going to hesitate to we've talked about Boot Barn, we talked about our increased exposure there. We foreshadowed Gerber Collision. We foreshadow tractor supply. Obviously, we're extremely acquisitive with off-price that TJX concepts Burlington, Ross, there are tenants that we're always looking at that are, I would tell you on the periphery of our sandbox or potentially even on the cusp of entering that sand back. I'm hesitant to mention them because as soon as we start, frankly, targeting them, it seems that we get some copycats out there that then start chasing those credits. And so there are always tenants that we're looking at.

We've been pretty outward with 5 below in terms of developing, acquiring. So there's always tenants on the outside of that sandbox that are making their way in. I think we'll hold off disclosing them until they are actually in our table.

Our next question comes from the line of Eric Borden with BMO Capital Markets.

Joe, CVS performance appears to be improving. Have the CVS' recent initiatives begin to show up in the performance metrics within your portfolio? And how does your exposure compared to their broader store base?

Yes, look, we've got a tremendous relationship with CVS. I would note that pharmacy exposure at 12/31 was down 3.6% in totality. Again, that's in as versus in 2010, when we launched the acquisition platform of being 43% Walgreens exposure. There's a case study in the deck about that that's very de minimis for us now. Our focus with CVS is acquiring high-performing stores where the -- frankly, the fixed cost, the rents make sense, the days of dualing suburban pharmacies on opposing corners we believe, is over. ground leases, super high-performing stores and then stores that have an extremely good rental basis and are productive. And so we're not interested in the suburban $400,000 per year pharmacy, it's 14,000 feet on 2 acres.

Those are readily available on the market for anyone who wants to roll back the clock 10, 15 years. We're more interested in the pharmacies that are either on a ground lease or paying a couple of hundred thousand dollars in rent or have outperformance 24-hour operations or early extensions with our tenants there. And so we're -- it's a very selective acquisition process for us. It's a very informed acquisition process for us. We'll make select additions to the portfolio, but it's not a focus for us. You will not see any material growth in our pharmacy exposure for CVS exposure at this time.

Great. And then just on the quick service restaurant side, I noticed that the exposure increased to 2.3% of ABR. Can you just discuss the types of tenants you're targeting today, whether more QSR assets are coming to market? And how does the brand coverage within this segment compared to the overall portfolio?

Yes, be frank, we're not targeting the sector. As I mentioned earlier, these are generally ground leases, and that's what you saw in Q4. So the Flanders outlets, the Panda Express, the Wendy's, we acquired an olive garden ground lease with a Darden guarantee during the quarter. restaurants, McDonald's ground lease. So I would tell you, restaurants for us, we will continue to stay away from outside of the ground lease structure or a very unique opportunity, not a focus for us, especially in today's economy.

And then more importantly, when we look at the ability of the box and the rents per square foot, we just don't see the residual values there to mark-to-market. And so restaurants will be in the perimeter. If we do -- if you see us acquire a restaurant or any such single-purpose type structure or fit out, it will generally be on a ground lease.

Our next question comes from the line of Omotayo Okusanya with Deutsche Bank.

This is Sam on for Tayo. I was wondering if the exposure to lower income consumers present some sort of downside risk, particularly around categories such as dollar stores, off-price retail, or discount stores? And like what are you guys doing to mitigate this risk?

I think it's -- on last call, I said we are the trade down effect -- what we're seeing in 2026 is just the steepening of the case. The theme in 2024, and I don't want to get -- this is about affordability and I'll put it in quotes, the theme of 2024 and 2025 was the low income consumer and the challenges they were having. The theme of 2026, and hopefully, it gets resolved, but I don't see any resolution in the near term is the middle-income consumer. We have dual working parent households in this country costs are increasing, whether it's automobiles, health insurance, residential costs, right, calving across the board.

Inflation, the cumulative inflation that we've seen since the pandemic has been devastating for these families. And so if you look at the print of the targets of the world, and you juxtapose that against the prints of the Walmarts of the world and the dollar stores of the world, the trade-down effect is [indiscernible] you can see those consumers looking for 4 bargains, 4 discounts. You see it, frankly, in the size of the basket size, the ticket size and the frequency of the trips. You see 5 below retailers like 5 below, really we're thriving in this environment. Dollar General performing extremely well; and Walmart, frankly, kicking gas crossing $1 trillion equity cap. And so you'll continue to see us focus on those retailers that cater to that consumer. We avoid luxury. We avoid experiential. We avoid fun. It's goods and services that are necessity-based. And if they're not the lowest priced operator, they have a unique value proposition. And so that's our focus. It has been our focus. I think it inures to our benefit of what we're seeing out there given the portfolio composition that you see, obviously, in our materials.

Our next question comes from the line of Linda Tsai with Jefferies.

Earnings growth was over 4.5% in '25, and you're guiding to midpoint to 5.4% in '26. Do you view this 4.5% to 5.5% earnings growth cadence is a sustainable state?

We've been very clear for a month that our earnings algorithm would kick in this year. We drove 4% or 4.5% AFFO growth per share last year after only deploying $950 million approximately in 2024 and while investing and dealing with the big lots, bankruptcy imaginations. And so we were very clear that our earnings algorithm would kick in this year. We have no upcoming material debt maturities, and so where all systems go. Let's be clear, across all 3 external growth platforms as well as from a balance sheet perspective. And so our goal has consistently been to deliver 10% operational returns we will deliver 10% 2 years back to AFFO growth, whether it's last year or this year, this year, next year.

We've been very clear about that while maintaining a defensive posture from a portfolio position maintaining our strict underwriting criteria and a fortress balance sheet.

And then in terms of new-to-market comers, not sure if you track it this way, but what percentage of ABR came from new to market in '25? And would you expect to increase your exposure to these customers in '26?

New to market, meaning new to our portfolio. Peter, I can't take a one new tenant to the portfolio that we added. Can you?

No, we did. It would have been in a pretty de minimis way.

Yes, extremely de minimis. We took on a bank ground lease, I think, $80,000 or $100,000 as an outlet to one of the lows that we acquired. So it would be an ancillary small piece, but really no new tenants or new entrants of any substance at all in the portfolio in 2025. .

Just one last one, if I could. So Walmart is 5.6% of your ABR, obviously, gold standard in terms of tenant credit, but any feeling to which you'd be comfortable with any specific tenant exposure?

To Walmart, specifically? .

Just anyone.

Look, Walmart is the only tenant as you mentioned, over 5% of the portfolio. We've thought that was a great line for a while was breached by different operators within the space. We also look at 10% as a great threshold for sector, line of trade, grocery is just over 10%. We feel very comfortable there. I'm happy to add more Walmart exposure on a percentage basis as we go forward. We're always working on Walmart transactions, frankly across our platforms. There are Walmart in our pipeline right now.

So as a percentage basis, we feel very good with where Walmart is. I mean they are also our top 3 or top 4 ground lease tenant in the portfolio, net actually in terms of ground lease ABR. And so we're very confident in our Walmart exposure. The company continues to perform tremendously. And so we're comfortable. I think at the peak during COVID, it went off almost up to 9, Peter, correct me if I'm wrong, went up to 9%. I wouldn't anticipate that occurring, but we'll certainly pursue Walmart transactions aggressively.

Our next question comes from the line of Rich Hightower with Barclays.

I want to go back to -- I think it was Jamie Seldon's question just on sizing sort of the forward equity component of the total sources. And so is the gating factor there at any given time related to the deal pipeline? Is it market impact on the share issuance? Is it something else? Just what would prevent you from taking $70-something million in ATM -- I'm sorry, in the forward unsettled shares today to $1 billion, $1.5 billion or something like that?

When I get the confluence of factors, most importantly is ultimately uses right? Do we have the uses of that capital? Obviously, we have the liquidity and the balance sheet tolerance, the full flexibility to do whatever we want. The most important thing is to have that flexibility and never raise any type of capital. We want to continue to be opportunistic. But I think ultimately, it sources. So with no material debt maturity or uses excuse me, ultimately with no material debt maturities in all of the capital that we raised effectively going towards net new investment activity, we'll monitor those -- the pipelines across all 3 verticals. But I think that's the driver. Peter. Anything else you want to add?

No, I agree with that. I think staying ahead of our uses is ultimately most important and that will allow us to continue to be opportunistic in terms of how and when we raise capital. And today, with over $2 billion of liquidity and $1.3 billion of buying power, as I referenced earlier, we are well ahead of our uses and well positioned for the year. .

And I guess just to follow up on that. I mean, is it a safe signal for the rest of us, I guess, on this side of the phone call, that every quarter or so as you're kind of issuing forward shares, is that a signal that the pipeline is indeed sort of growing above and beyond the current target? Or is that not really the right way to interpret some of those movements?

We'll look at all capital sources. I hope we get back to the day where we can issue a perpetual preferred for a quarter. We'll look at all capital sources, see how they fit within our capital stack. Last year was the first year in a number of years with the 5.5-year delayed draw term loan. We have a full suite, obviously, access to all 4 quadrants of longer-term capital Short term, we have the line of credit, the commercial paper program, significant free cash flow as well as dispositions, which we anticipate ramping a little bit this year. So it's -- there's really no direct causation. Are they correlative? Sure. I would say it's correlative as we see our investment pipeline grow further it's wholly possible that we'll add incremental equity to fund that, subject to other capital sources and obviously, the respective cost of those capital sources.

But look, we have it at the forefront of capital raising in the net lease space, and I would argue read them today, utilizing forward equity first in 2018 on a regular way and then subsequently off of the -- and so we anticipate continuing, obviously, in an external growth business to be raising capital. We have swaps in place, as Peter mentioned, to tap the unsecured long-term unsecured bond market this year as well. And as the year progresses, we'll look at all, obviously, the sources and the uses and continue to match them to create an A- balance sheet that's on par with our expectations.

That's helpful. If I could sneak in one more, just on development and DSP. Just maybe help us understand where kind of across America, this sort of development is taking place because I think otherwise, retail, commercial real estate obviously is being underdeveloped more broadly, but you guys are finding these sort of pockets. I mean is it infill, is it redevelopment of sort of existing underperforming real estate? Is it greenfield kind of associated with new residential development in different places? Just what does that composition look like?

Interesting question. Look, the constraint today and net new retail development is not desired from retailers. It is cost project feasibility driven by the vertical construction costs primarily. And so we are operating from the West Coast to the East Coast, all the way down south. There are tertiary markets, there are primary markets. There are redevelopments of existing structures, splitting up larger boxes into junior boxes. There's ground-up projects. that have tips or outlets or extreme land bases to support it. It's highly diversified. It's hard corners for C-stores, it is exit ramps for C stores, larger commercial fueling locations that provide for diesel.

And so if you look at the C-store sector today and the growth of the regionals and the nationals, the off-price sector, their voracious appetite to grow, whether it's TJX banners, Ross to or Burlington's desire to get to 1,000 stores. And then the big box space, Lowe's, Home Depot, as I mentioned, Walmart, Costco, Kroger even announcing net new stores. We see the tremendous appetite to grow, again, get the permutation correct in an omnichannel world. I would tell you all retailers have recognized that free shipping and then a 40% return rate does not work. And so they're trying to get stores in place to get our but to the store to pick things up and if it is delivered to deliver from the store fulfill that last mile or 2 in the most efficient way possible, whether that's tertiary or primary.

And so there's tremendous appetite for growth. Again, most of these retailers are public. They're out there with their stated store goals. We can -- we're in a really unique position to fulfill that appetite with our 3 vertical external growth platform.

Our next question will come from the line of Ronald Kamdem with Morgan Stanley.

This is Jenny on for Ron. The first is, we noticed the weighted average lease term on 4Q acquisition was 9.6 years versus like 10.7 years in Q3. I'm just curious, more broadly, how do you think about lease terms when you underwrite acquisitions? Like what's the right balance between lease duration and returns?

All project-specific or opportunity specific. We'll buy short-term leases when we like the real estate, the mark-to-market we have strong performance feedback. We obviously, the sale leasebacks will have longer-term. Some of my favorite opportunities are pre-inflationary or construction cost inflation opportunities in the junior box space. They're paying $10, $11 per square foot on a short-term deal when mark-to-market is $17, $18, $19, just due to those construction costs I've been talking about on this call. And so you'll see a variety of lease terms. This is a real estate operation here, lease term is one input store performance, underlying real estate fundamentals, access, visibility, fungibility of the box, signage, trap accounts and demographics are all playing a part in that role as well.

So I wouldn't think of Q4 as a static state at all. I think if we dive into the individual transactions, you'll see really what the driver was and really pushed it over through the approval threshold.

Appreciate the comment. The second question is how should we think about the re-leasing spread for investment-grade tenants I see you only have 1.5% of ABR being renewed next year, but how should we think about the releasing spread? .

No difference. 104% has been approved. 104% recapture rate has been pretty static.

Yes. Over the last few years, we've been at 103% or 104% in each year.

It doesn't seem to be moving and the vast majority of our upcoming expirations, which will be handled with favorable outcomes here, we'll I think that blended will fall into the same range. We don't anticipate many of these tenants leaving here. .

Our final question will come from the line of John Kilkowski with Wells Fargo.

It's Jamie again, just with a quick follow-up. The disposition guidance, $25 million to $75 million, I think you had mentioned 1031s and even OBBA being a driver of demand. How are you thinking about that range? And then can you talk more about what's changed and what -- if you might be ramping up that pipeline due to pricing?

Well, I think I haven't heard the acronym. I think the OB VA is a driver there for us. And so we have what I would call not economically rational real estate purchases that are benefiting from accelerated depreciation that they're taking, aren't looking at the real estate fundamentals. And if someone wants to buy a good year with a 5 handle in front of it, we're sellers. I'll be honest. We're big fans of Goodyear where their largest landlord.

We obviously did the sale leaseback with them and took the real estate that they owned on balance sheet and did a sale leaseback at extremely low rents, but they have control of that property through options. We don't see redevelopment potential, there contractual rental increases. So if someone wants to pay something that we don't think makes sense relative to where we can redeploy that capital, we'll do that. So a lot of it is the one big beautiful bill purchasers. Then you have some interesting alcoholic purchasers that seem to traverse Florida. That doesn't seem -- the pricing often doesn't seem to make sense, and we take advantage there. California as well and in Texas as well. in some of these states.

Now you're not going to see -- and then I'll tell you, we'll look at opportunistic sales and larger price point assets as well. And so if we think we can redeploy the capital at a material spread while increasing the credit profile and the real estate fundamentals, the tenant we're going to jump on that opportunity and then overall, it's an accretive transaction for us. So many of these are inbound, not even listed. When you have a portfolio of 2,700 properties. There's always inbound activity. We'll listen. We'll look at those and vet those opportunities and the qualifications of the purchaser. And if appropriate, we're going to strike to drive ultimately accretion.

Okay. But it still sounds like it's more the smaller buyers rather than institutions when you think about the sales?

Yes. Generally, it's the smaller 1031 net lease dominated 1031 purchaser or tax motivated purchaser as you mentioned. Occasionally, there is some institutional inbounds for a variety of reasons. Maybe they own the adjacent property, maybe there's an overall redevelopment that they're trying to execute upon. But the vast majority of transactions, just like the entire space is individual purchases. .

Okay. And then I know it's a small dollar amount, but what are you targeting for cap rates on dispositions?

I would say, [indiscernible] in the 6s, right? Again, we'll continue to pair down. I anticipate advanced auto exposure to a, frankly, a material level and not very material today. There are some good year transactions in the pipeline, which are nonrefundable, which will close in the first quarter or have closed already. I don't see anything different in the second quarter or beyond this time. .

This concludes the question-and-answer session. I'll hand the call back over to Joel Agree for closing remarks.

Well, thank you all for joining us this morning. Good luck to the rest of earnings season, and we look forward to seeing you at the upcoming conferences. I appreciate your time.

This concludes today's call. Thank you for joining. You may now disconnect.

Good morning, and welcome to the Agree Realty Third Quarter 2025 Conference Call. [Operator Instructions] Note, this call is being recorded.

I would now like to turn the conference over to Reuben Treatman, Senior Director of Corporate Finance. Please go ahead, Reuben.

Thank you. Good morning, everyone, and thank you for joining us for Agree Realty's Third Quarter 2025 Earnings Call. Before turning the call over to Joey and Peter to discuss our results for the quarter, let me first run through the cautionary language.

Please note that during this call, we will make certain statements that may be considered forward-looking under federal securities laws, including statements related to our updated 2025 guidance. Our actual results may differ significantly from the matters discussed in any forward-looking statements for a number of reasons. Please see yesterday's earnings release and our SEC filings, including our latest annual report on Form 10-K for a discussion of various risks and uncertainties underlying our forward-looking statements.

In addition, we discuss non-GAAP financial measures, including core funds from operations or core FFO, adjusted funds from operations, or AFFO, and net debt to recurring EBITDA. Reconciliations of our historical non-GAAP financial measures to the most directly comparable GAAP measures can be found in our earnings release, website and SEC filings.

I'll now turn the call over to Joey.

Thanks, Reuben, and thank you all for joining us this morning. I'm pleased to report another very strong quarter at ADC as we further expanded and strengthened what we view to be the nation's leading retail portfolio. The unmatched value proposition of our three-pronged approach continues to drive a compelling opportunity set and expansive pipelines across all platforms. We achieved our largest quarterly investment volume since the depth of COVID 5 years ago, deploying over $450 million across all 3 platforms while maintaining a high level of discipline in our underwriting process.

Given growing pipelines across our 3 external growth platforms, we are increasing our full year 2025 investment guidance to a new range of $1.5 billion to $1.65 billion. At the midpoint, this represents an increase of over 65% above last year's investment volume. This exceptional level of activity demonstrates our ability to efficiently scale our investment platforms while partnering with the best retailers in the country. We will continue to be disciplined capital allocators while maintaining our stringent real estate quality underwriting standards.

Our best-in-class portfolio is paired with a fortress balance sheet that has over $1.9 billion of liquidity and no material debt maturities until 2028. With pro forma net debt to recurring EBITDA of just 3.5x and over $1 billion of forward equity at Wawa, we enjoy significant runway and have prefunded our growth well into next year.

During the quarter, we received an A- issuer rating from Fitch ratings making us one of only 13 publicly listed U.S. REITs with an A- credit rating or better. This was a significant milestone for our growing company and is a testament to over 15 years of disciplined growth and keen portfolio construction having invested over $10 billion during that period while maintaining a preeminent balance sheet and leading the way on capital markets activities.

Given our robust liquidity profile, fortress balance sheet and strong portfolio performance, we are raising our AFFO per share guidance to a new range of $4.31 to $4.33 for the year. The new midpoint represents approximately 4.4% year-over-year growth. Peter will provide more details on our guidance momentarily.

Turning to our 3 external growth platforms. During the third quarter, we invested over $450 million in 110 high-quality retail net lease properties across our 3 platforms. This includes the acquisition of 90 assets for over $400 million. The properties acquired during the quarter are leased to leading operators in home improvement, auto parts, grocery, off-price, farm and rural supply, convenience stores and tire and auto service. The acquisitions had a weighted average cap rate of 7.2% and a weighted average lease term of 10.7 years. Investment-grade retailers account for 70% of the annualized base rent acquired the highest mark so far this year.

Notable transactions during the quarter included a sale leaseback with a relationship tenant in the tire and auto service sector, multiple all these, the high-performing Kroger in Cincinnati, a Sherwin-Williams portfolio, a Home Depot in New York as well as a Walmart Supercenter in Illinois.

For the first 9 months of the year, we've invested nearly $1.2 billion across 257 retail net lease properties spanning 40 states in 29 retail sectors. Approximately $1.1 billion of our investment activities originated for our acquisition platform, with the remainder meeting from our development and developer funding platforms.

During the third quarter, we commenced 5 development or DSD projects with total anticipated cost of approximately $51 million. We are well on our way to commencing over $100 million of projects in the second half of the year, as discussed on last quarter's call.

Through the first 9 months of the year, we've committed approximately $190 million across 30 projects that are either completed or under construction, representing a significant increase in development in DFP spend compared to prior years. We remain confident that we'll achieve our medium-term goal of $250 million comment annually.

In the third quarter alone, we invested a record of approximately $50 million across 20 development and DFP projects representing a twofold increase in capital deployment quarter-over-quarter. These platforms are a growing component of our investment strategy, allowing us to partner with best-in-class retailers and private developers to add high-quality real estate to our portfolio at superior returns that we could achieve via acquisitions.

Of note, during the quarter, we commenced construction on 2 of our first 7-Eleven developments. Located in Michigan and Ohio, we anticipate total costs for the 2 projects will be approximately $18 million. The Ohio location marks our first commercial fueling site for 7-Eleven, a compelling addition to our large-format convenience store portfolio. These projects underscore the strategic depth of our relationship with yet another leading retailer. We're delivering our full complement of capabilities round-up development, developer funding projects as well as acquisitions. I look forward to providing more details as we continue to roll out additional projects in the coming quarters.

On the asset management front, we executed new leases, extensions or options on approximately 860,000 square feet of gross leasable area during the quarter, including a 50,000 square foot T.J. Maxx and HomeGoods combo in Jinjin, Oregon, a 27,000 square foot Burlington in Midland, Texas and 2 Walmarts comprising over 310,000 square feet.

Through the first 9 months of the year, we executed new leases, extensions or options on 2.4 million square feet of gross leasable area with a recapture rate of approximately 104%. We are in an excellent position for the remainder of the year, with just 9 leases or 20 basis points of annualized base rents maturing.

Dispositions this quarter totaled approximately $15 million and included our only at home in Provo, Utah as well as 3 advanced auto parts. The at-home disposition is emblematic of our underlying focus on real estate. The disposition cap rate of approximately 7% is nearly 50 basis points inside of where we acquired the asset, resulting in an unlevered IRR of approximately 9%.

Our best-in-class portfolio now spans over 2,600 properties across all 50 states including 237 ground leases, representing 10% of total annualized base rents. Occupancy for the quarter remained very strong at 99.7%, and our investment-grade exposure remains sector-leading at 67%.

Heading into the fourth quarter, I'm extremely excited to wrap up the year as we head into 2026 in a tremendous position as our earning algorithm kicks into gear.

I'll now hand the call over to Peter, and then we can open it up for questions.

Thank you, Joey. Starting with earnings, core FFO per share for the third quarter of $1.09 was 8.4% higher than the same period last year. AFFO per share for the third quarter increased 7.2% year-over-year to $1.10, which is $0.02 above consensus. A portion of the beat is attributable to lease termination fees which contributed roughly $0.01 to AFFO per share in the quarter.

As Joey highlighted, we have updated our 2025 earnings outlook to reflect our strong performance year-to-date. We raised both the lower and upper end of our full year AFFO per share guidance to a new range of $4.31 to $4.33, which implies year-over-year growth of approximately 4.4% at the midpoint.

Our new guidance range includes an assumption for approximately 25 basis points of credit loss for the year. As a reminder, the treasury stock method impact is included in our diluted share count prior to settlement if ADC stock trades above the net price of our outstanding forward equity offers. The aggregate dilutive impact related to these offerings was fairly de minimis in the third quarter. Our updated guidance range contemplates a minimal treasury stock method dilution in the fourth quarter as well. So that remains subject to how the stock trades for the remainder of the year.

For full year 2025, we still anticipate roughly $0.01 of dilution related to the treasury stock method, largely given the impact recognized in the first half of the year. In the third quarter, we declared monthly cash dividends of $0.256 per share for July, August and September. This represents a 2.4% year-over-year increase. While raising our dividend twice over the past year, we maintain conservative payout ratios for the third quarter of 70% of core FFO per share and AFFO per share, respectively.

Subsequent to quarter end, we again increased our monthly cash dividend to $0.262 per share for October. The monthly dividend reflects an annualized dividend amount of over $3.14 per share or a 3.6% increase over the annualized dividend amount of $3.04 per share from the fourth quarter of last year.

Moving to the balance sheet. As Joey mentioned, in August, we achieved an A- issuer rating from Fitch with a stable outlook. This significant accomplishment is a testament to the strength of our portfolio as well as our balance sheet and reflects a thoughtful and disciplined way we have and will continue to grow the company. The A- rating reduced the interest rate on our 2029 term loan by 5 basis points. In addition, the F1 short-term rating assigned by Fitch translated into a similar pricing improvement for our commercial paper notes.

During the quarter, we settled approximately 3.5 million shares of forward equity for net proceeds of over $250 million. As of September 30, we had approximately 14 million shares remaining to be settled under existing forward sale agreements, which are anticipated to raise net proceeds of over $1 billion upon settlement.

At quarter end, total liquidity stood at $1.9 billion, including cash on hand, forward equity as well as over $850 million of availability on our revolving credit facility, which is net of amounts outstanding on our commercial paper program. Pro forma for the settlement of all outstanding forward equity, our net debt to recurring EBITDA was approximately 3.5x. Excluding the impact of unsettled forward equity, our net debt to recurring EBITDA was 5.1x.

Our total debt to enterprise value was approximately 29%, while our fixed charge coverage ratio, which includes principal amortization and the preferred dividend, remains very healthy at 4.2x. Subsequent to quarter end, we further strengthened our balance sheet, securing commitments for a $350 million 5.5 year delayed draw term loan that will mature in 2031. We anticipate closing later this quarter and have entered into $350 million of forward starting swaps to fix so for [indiscernible] maturity. Including the impact of the swaps, the interest rate on the term loan is fixed at approximately 4% based on our current A- credit rating. The term loan demonstrates continued strong support from our key banking partners and enables us to fill a gap in our debt maturity schedule while achieving opportunistic pricing in today's rate environment.

Upon closing, the term loan will increase our pro forma liquidity to approximately $2.2 billion, and we have now locked in attractively priced equity and debt capital to fund our growth well into 2026.

With that, I'd like to turn the call back over to Joey.

Thank you, Peter. At this time, operator, we'll open it up for questions. .

[Operator Instructions] We'll take our first question from Smedes Rose at Citi.

It's Nick Joseph here Smedes. I appreciate the color around the treasury method for the forward equity. But can you just walk through what's required in terms of the actual timing and settlement just given the upcoming expirations around the forward equity?

Sure, Nick. This is Peter. In terms of our outstanding forward equity, we have about 40 million shares of forward equity outstanding as of the end of the third quarter, roughly 6 million of those shares, the contracts mature on at some point during the fourth quarter. And so we anticipate settling those shares, those 6 million shares at some point during the fourth quarter as those contracts come to maturity. As for the remainder of the outstanding forward equity, we would anticipate settling that at some point in 2026.

That's very helpful. And then just on acquisitions, I understand the visibility is limited, but it does continue to track ahead of expectations. But is there anything on the horizon that you're seeing right now that could slow that pace that you're currently seeing?

Nick, it's Joey. Nothing on the horizon that we see that pace slowing in 2025. Obviously, the 10-year treasury is down to the 395, 396 level, but we haven't seen anything that should slow us down this year.

We'll move next to Michael Goldsmith at UBS.

Yes. First, on the cap rates, the acquisition cap rates actually ticked up in the period, and we keep hearing from others about the pricing landscape and there's a narrative of increased competition. So are you seeing any of that out there? And how have you been able to navigate some of those headwinds that others are seeing?

Yes. As I talked about pretty frequently, Michael, I wouldn't get overly enthralled with the narratives that are out there from different institutional acquirers. We haven't seen any material change in cap rates year-to-date through 9/30 or to frankly today. What we do is differentiated. It's bespoke. We're doing one-off transactions generally short term, blending extends different types of transactions. And the output this quarter was 10 basis points higher than last quarter just because of the composition. So like I said, I wouldn't get carried away in the overall narrative of the largest, most fragmented at least institutionally owned market in commercial real estate that being retail net lease.

And as a follow-up, the fourth quarter implied AFFO per share is consistent with the third quarter. So any reason why that would be kind of flat sequentially or any onetime items that impacted the third quarter or overall impact to the fourth quarter that to expect that to be kind of consistent?

I'll turn it over to Peter, but I don't really see anything. I think the third quarter was fairly front-loaded in terms of acquisition volume. Nothing overly material there, Peter, am I missing anything?

No, Michael, the only thing I would add is just in my prepared remarks, I did mention the term fees received during the third quarter, which contributed to AFFO per share in the third quarter. We typically don't receive much in the way of term fees. We don't have anything contemplated in the fourth quarter. And so as you look at Q4 being roughly flat at the midpoint to Q3, I think the term fees are a contributing factor there. .

Our next question comes from Jana Galan at Bank of America.

Following up on your comments on the growing pipeline for the different external growth platforms. Can you talk to how much is current tenants versus new to portfolio and then kind of where you see cap rates trending for 4Q and potentially into 2026?

No new tenants that I can think of that we don't exist -- on existing in the 2,600 assets. We're staying within our sandbox amongst all 3 external growth platforms. In terms of cap rate trends, we'll see how the macro works out. Again, we haven't seen anything different to date. We don't anticipate any material deviation in Q4. Our Q4 pipeline in terms of acquisitions is very strong. I will say that there's a significant component of ground leases in there in Q4. And then as we've said previously, we anticipate breaking ground at over $100 million in projects in the second half of this year. Obviously, that was approximately $50 million in Q3. I would anticipate a potential acceleration of that as well into Q4 through development and developer funding platform.

And then maybe for Peter, you had mentioned in the guidance, there's 25 basis points of credit loss. Can you just kind of update us where you stand as of third quarter?

Yes. So in the third quarter, we experienced just under that, about 21 basis points of credit loss during the third quarter. To your point, for the year, we're assuming in our guidance range approximately 25 basis points of credit loss. And with only a couple of months left here in the year, at this point, most of that is known or identified at this point. Again, I do want to reiterate, I know we've talked about it on past calls, but how we think about credit loss here. That is a fully loaded number inclusive not only of credit events, but also of any occupancy loss related to re-leasing assets that may not have been tied to a tenant that is in any form of distress or having credit issues.

It also includes not only base rent, but any that's associated with any space that we get back and that we're responsible during a period of downtime. And so a fully loaded number, I think it's different than somehow others in the space think and talk about credit loss and again, 25 basis points is what we anticipate for the year.

We'll move next to Jim Kammert at Evercore.

Joey, maybe I should be listening more carefully. Did you indicate or say that on the re-leasing activity in aggregate, it was a 104% recovery for the quarter? Or did I mishear that?

No, that's correct, Jim.

And is that -- and what -- could you remind what the year-to-date was? Is that...

I can't recall. So we've released 2.4 million square feet of GLA year-to-date with the recap rate of 104%. And through the first 6 months of the year, we were also at 104%. And so that recapture rate has trended pretty steadily around that 104% throughout the year. .

Great. And then obviously, Peter, you mentioned, obviously, you have the new term loan that will be funding here in November probably. There's no -- given you have no unsecured maturities, et cetera, as you say, we just think about it as liquidity and you either put it in cash or just pay down the line. There's no real target use for the funds immediately?

Yes. So we'll close on that term loan in November. We have a 12-month delayed draw feature on that term loan, and so we don't necessarily need to draw down the proceeds right away. We have flexibility there. In terms of when we draw those proceeds down what the intended use is, we do have about $390 million of outstanding commercial paper notes as of the end of the quarter. And so I think the intended use will be to pay down short-term borrowings with any remaining funds used to fund incremental investment activity.

Next, we'll move to Linda Tsai at Jefferies.

With the ground leases being a bigger portion of 4Q acquisitions and 10% of the overall portfolio ABR, any thoughts on how much do you want to grow this piece of the business?

We'd love to continue to grow at window. We're going to do so opportunistically, if we find opportunities that obviously hurdle qualitatively, and quantitatively, we're going to strike. Like I said, there are a number of ground leases, a much higher percentage in Q4 currently. That could change here as we wrap up sourcing for Q4 over the next couple of weeks, but they're just opportunistic sellers here generally that we're finding opportunities, both institutional as well as individual sellers. .

And then I know you said the term fees are always minimal for you always, but would you be okay sharing who the retailer was in 3Q?

Yes, that was 2 advanced auto parts stores that we like the real estate and we are actively working on retenanting those assets. You'll also notice that we divested a few advanced auto parts during the quarter, as I mentioned during the prepared remarks, so just continuing to diversify the portfolio and take advantage of opportunities.

We'll move next to Omotayo Okusanya at Deutsche Bank.

Yes. Good to see you guys firing on all cylinders. The credit rating upgrade, could you just talk a little bit about how you expect that to ultimately impact your cost of debt? Are you certainly 25 bps tighter? Or like how do we kind of think about that as a potency your long-term debt and maybe term loan funding?

Sure. I think with the receipt of the A- rating from Fitch during the quarter, we saw an immediate improvement on our existing 2029 term loan, where we saw 5 basis points of pricing improvement there. We were also active issuing commercial paper during the quarter, and we saw a similar pricing improvement on commercial paper issuance after receiving the A- rating.

As we think about long-term debt issuance in the public markets going forward, I certainly think the A- rate helps. I think it's a validation of the manner in which we've built the company in a very conservative manner, the strength of our balance sheet and our portfolio. And frankly, what we hear from fixed income investors about how they view the credit today. And so I think in time, that will allow us to continue to compress spreads and achieve better pricing in the public unsecured markets when we come back to those markets. But we've seen immediate pricing improvement on our term loan and commercial paper issues this year as well.

That's very helpful. And then on the DFP side, could you just talk a little bit about -- again, you're ramping up pretty nicely. You guys have put out a really good target for that business, which implies a decent amount of growth and demand. I mean probably every other property type, everyone is kind of talking about development is really, really hard, whether it's due to construction costs or what have you. So can you just talk a little bit about what's driving all of a sudden your ability to kind of ramp up that business?

Yes. Just to clarify, when development when we talk about the Speedway projects in the prepared remarks, those are true development projects. We're working hand-in-hand, the team here with 7-Eleven Speedway, everything from site selection to entitlements and permitting, A&E, overseeing construction and turning over. That's true organic development projects, Agree Realty working with 7-Eleven hand-in-glove.

The developer funding platform is really being utilized as a bridge for developers to get projects to complete. And many of the times in the developer funding projects. Usually, we're providing the capital is more of a financial structure. We own the asset upon completion the developers are able to obtain a TIF to help make his numbers work or her numbers work on their side of the equation or we'll retain our lots or ancillary real estate where they see eventual upside. I will note, both pipelines have both platforms -- excuse me, have deep pipe wise, there are some fairly large projects also in both platforms right now that could hit in Q4 or due to entitlement and permitting issues could hit in Q1. That's why we're -- we've got kind of a wide stance there in terms of what we're anticipating, but that number could be well over $100 million or could move into for the back half of this year, as I mentioned, or could move into Q1 really out of our control, third-party municipal and governmental controller.

We'll move next to John Kilichowski at Wells Fargo.

Maybe just starting off, given the distress we've seen in autos this year, I think there was a BK announced this morning for a subprime lender. How do you think about your exposure there? And are there any of those tenants entering watchlist territory for you?

No. I think the subprime lending market actually plays into our thesis on frankly, auto parts, the distress you're seeing in those borrowers. This car every day is a new record for cars on the road. Auto parts, obviously, is a substantial part of our portfolio being #5 in terms of sector concentrations at 6.8% were amongst the O'Reillys and AutoZone's largest landlords and partners, I'll be down in O'Reilly pretty soon with the team here. We continue to work with leading auto parts to operators and then obviously, Gerber Collision as well. But I think that really plays into the hands here. We're not ownerships of -- we're not owning new car dealerships. That's not our business.

And so we're really focused on the age of the cars on the road, the durability of the cars on the road that ultimately the agility of the boxes on the real estate that we're acquiring. So we put a white paper out on that. It's on our website, and I think we stayed aligned with that thesis.

Got it. That's very helpful. And then maybe jumping to the 7-Eleven developments there. Are those discussions for new builds on a one-off basis? Or is there any sort of visibility in a larger opportunity set there where you have some idea what the runway is?

The latter. We're working with 7-Eleven in defined geographic territories and have a pipeline of opportunities behind us.

Next, we'll move to Rob Stevenson at Janney.

Joey, given the spreads on developments over comparable acquisitions and the fact that these already have tenants in place, what's the limiting factor for you today in terms of growing that beyond the sort of $250 million in the external growth story? Is it the construction partners and finding those? Is it targeted tenants in their expansion or just a reluctance to make this too big of a percentage of the balance sheet?

Well, again, we're not doing anything on a speculative basis here. We know our returns and we go into the project here. So we have everything in hand when we are -- when we close, including a guaranteed maximum price. Bid from a general contract or that contract is executed. The only limiting factor is opportunities. I'd love to grow it, commensurate, obviously, with the returns being appropriate, I would love to grow it more. And I think you've seen this material acceleration in these platforms. We hope to continue to materially accelerate it further. And as -- as I talked about, there is a deep pipeline behind this, where we do have visibility. These are projects that generally take 12 to 18 months, not like acquisitions where we turn and burn in 67 days. And so we are working actively through site selection, permitting, entitlements. We've closed projects subsequent to the quarter end, and we will close more projects this quarter, first quarter and second quarter were next year.

Okay. And then in terms of conversations with major tenants, anybody changing or thinking about expanding or shrinking the size of the prototypical boxes, for example, a typical 10,000 square foot tenant wanting to downsize towards 7,500 square feet going forward or upsizing to 15,000. Any sort of material changes to any of your major tenants boxes preferred boxes going forward?

It's a great question. Tenants are always tinkering with their prototypes and square footages for those different prototypes, we got moved to a larger prototype obviously. There's always been nothing material in terms of just quantity of tenants changing prototypical structures.

What we've seen over the last few years, frankly, is more of the BOPUS elements here and the pick up from store, the parking spaces, the drive-thrus, the pickup windows, those are the types of elements we've seen a lot more change than prototypical size.

We'll go next to Spenser Glimcher at Green Street.

Maybe just another one on the development front. In your conversations with these clients, are you getting a sense of future growth appetite beyond these initial projects that are either commenced or in some form of zoning or entitlement? And then if so, how much confidence does this give you in your ability to achieve those annual DFP goals that you outlined, Joey?

What we hear from major tenants and the largest retailers in this country is they want to grow, grow, grow, grow, grow their store base. So I talked about on the last call. There was too much attention in terms of both physical attention, mental attention and capital return to distribution for e-commerce. And what all retailers have now realized the store is the hub of a successful omnichannel operation and not just a spoke. And so whether it's auto parts or off-price, Walmart, Costco, BJ's, Home Depot, Lowe's, all the way down, obviously, to the fast food operations that we're seeing today. C-stores growing voraciously across this country is the continued expansion mode even in the face of tariffs and construction costs and the other macro challenges that are out there. .

Will you repeat the second part of your question, Spenser?

Well, what I was just asking is if you have a sense of their like near-term growth appetite, if that gives you confidence in achieving those annual DFP goals, the few hundred million that you want to put to work in that vertical?

Yes. Look, we were lucky enough to have the president of a major off-price retailer up here to speak to our Board and talk about their growth ambitions with their differentiated banners recently, into the entire real estate team. Yes, that gives me confidence, but also gives me, I think, the most confidence is our capabilities and our team here and the fact that that we can effectuate all 3 growth platforms.

And I'll tell you, I think what we've created here, and I talked about this a little bit on the last call, is a different type of net lease company. And I think it's imperative now that the sell side and the buy side start being discerning about the types of net lease companies. I know it's easy to group companies, obviously, in property types and sectors, but we have companies in the net lease space that are high-yield spread investors. They are sale-leaseback organizations that are global investors across asset classes. And now we have Agree Realty, which is a real estate company that happens to be in the retail net lease space.

And so when we talk about these other 2 platforms and acquisitions is in the focus, obviously, the predominance of the investment capital we'll put to work this year, and I assume next year and the year after, it's not typical spread investing anymore. And I talked about I grew up on a site moving dirt. And the goal was always to create that real estate company in the net lease space. And so we started as a developer. And it's quite ironic. We launched the acquisition platform and we had never acquired a property in 2010.

Development kind of dropped off the radar but it was still a small piece of what we were doing at the time. Today, we're in a position where we can invest and have invested in all 3 platforms, and they are firing on all cylinders. And I think I think it's time for everyone to use, hopefully a different -- I would hope, a different lens when they're viewing net lease companies than just multiple spreads because we had a lot of different types of businesses on operations and frankly, investment philosophies in this space.

And what we're doing today is differentiated. It's been 15 years in the making, as I've talked about in the prepared remarks, and it's here and it's here now. And so we're excited about development. We're excited about developer funding platform. We're excited about acquisition platform. And I'll tell you, retailers are just as excited with us that we can help them grow across all of those different efforts.

Okay. Great. And then maybe just one on the ground lease front. You've recently had a really paper releasing outcome with an existing ground lease. Can you just remind us if you have any other near-term lease maturities? And would you expect to have similar favorable outcomes?

We have a few there, I'll call it, naked leases don't have any actions, nothing overly material -- we have had a vacant Brinker ground lease, Brinker back ground lease sitting out front of a former borders that my father develops, which is now a Walmart neighborhood market, which is shorter term in nature, but nothing overly material in 2026, there will be a significant mark-to-market opportunity. .

We'll go next to Upal Rana at KeyBanc Capital Markets.

I wanted to get your stance on the current consumer environment. Given continued ambiguity on the macro tariffs and softness in the jobs market. And have you noticed any impact starting to creep into any of the industry categories you have exposure to? You already mentioned auto parts earlier, but any other categories that you're seeing any impact?

I think we're seeing positive flow-through for the majority of -- the vast majority of the categories we invested. And so we're not doing entertainment. We're not doing experiential. We're not doing anything fun. We are the trade down. We own the trade down, Walmart, TJX, auto parts, right? So we focus on the trade down. And so we're -- our tenants are the beneficiary is, generally speaking, of that trade-down effect, and it continues to permit, I think, most notably right now, the middle class.

The target customer is shifting to TJX and Walmart. We see that in their prints. And so that middle class customer is trading down to our tenant base. We love Target. I think we own 2 or 3, 3 of them, but we see that customer trading down looking for savings than being a more asserting shopper today.

Great. That was helpful. And then are you seeing impact on the accelerated depreciation policy from the Big Beautiful Bill creeping in as well on the transaction market or the 1031 market?

Not in any spaces we fall maybe in the car wash space, where you get the accelerated depreciation with 1031 or private investors. Maybe on the edges on the C-store space, but nothing overly beautiful. .

We'll take our next question from Eric Borden at BMO Capital Markets.

Just going back to the forward equity contracts, Peter, can you remind us if the forward equity in place has to be settled before the date of expiry? Or can those agreements be rolled forward?

Yes. I think there's certainly the opportunity to go back to the banks or counterparties to extend those contracts if we thought that was the appropriate thing to do. I think for a few reasons, we think it makes sense to settle our upcoming forwards at maturity. First and foremost, it's not like we're going to be sitting in cash when we settle that forward equity. We have $390 million of short-term borrowings outstanding as of quarter end. And obviously, as we continue to invest, that number will grow.

And so I think there's a use of proceeds for the forward equity settlements that we have contemplated here in the fourth quarter. And I think there are other considerations as well when you think about extending those contracts from a rating agency or leverage perspective.

Okay. And then can we just get your early thoughts on the Series A preferred shares that can be redeemed in September of next year?

We think that is a very attractive piece of paper today, and I would not anticipate that, that gets called anytime in the near future given the coupon on it, which was the lowest REIT coupon in history for preferred outside of PSA and then we continue to view that as an attractive piece of paper.

Next, we'll go to Brad Heffern at RBC Capital Markets.

Joey, you talked about cap rates not really changing in a material way. I'm wondering why you think that is. I mean, obviously, we've seen cost of debt come down quite a bit, SOFR is hopefully moving lower and we've heard these anecdotes about increased competition. So were spreads just anomalously narrow before and they're getting back to normal levels now? Or is there something else that you would call out?

Just to clarify, Brad, I'm not predicting cap rates for 2026. I'm just talking about my visibility into 2025 by the time had any visibility into 2026, we'll get a new crew social posts and something will change. So I'm not predicting we just haven't seen any material change in cap rates year-to-date, and I don't expect it in the fourth quarter of 2025.

Obviously, things outside of our control will drive that overall narrative, but we'll continue to try to look for opportunities to push cap rates and obviously, when we transact where we think the appropriate price.

Okay. Got it. And then I know you've had kind of a self-imposed hiatus on new equity issuance since the April offering. And obviously, you have plenty of equity as you sit here today. But I'm curious how you view the attractiveness of equity right now and when you might look to issue again?

I appreciate the self-imposed hiatus, I haven't thought about it that way. When we did that deal, we promised investors, and we stick to our word here, consistency is the third slide in their deck. We told investors we were -- we're not coming back, right? And I mean that's what we've done. We obviously don't need to raise equity at 3.5x levered and about $1.7 billion, Peter in liquidity. Is that correct? .

$1.9 billion or $2.2 billion, including the term loan on the close.

So we obviously don't need to raise any capital. The term loan, as Peter mentioned, the delayed draw feature of that term loan gives us a lot of flexibility. And so when we raised that echo, I guess we did put on a self-imposed hiatus, but I think the most important piece of that was that we stayed true to our word to investors that we were going to constantly be flooding the equity markets with new issuance, whether it will be the ATM or obviously a block or overnight transaction. .

We'll continue to look, obviously, we're an external growth driven company as a net lease REIT. We are growing voraciously. We'll continue to look at all different types of access to sources of capital, but we're in the pole position here. And Peter, we can spend how much until we got to 5x levered?

We could spend approximately $1.5 billion, excluding free cash flow until we get to 5x, we can execute on the high end of our investment guidance range this year without raising any additional equity, and we would end the year at 4x pro forma net debt to EBITDA. So we have plenty of runway, and we're in a great position.

They add in free cash flow next year of over $125 million minimally mean disposition proceeds, and we clearly don't need a $1 and no debt matures.

Look, we maintain full flexibility. I think the most important thing to -- I appreciate, again, the self-imposed hiatus was we want to be consistent with investors so they understand where we're going and what we're doing. This is net lease. It should be predictable.

Our next question comes from Wes Golladay at Baird.

I want to have a question on the true development platform. Are you willing to develop for all your targeted tenants? Or do you have -- do you view some as being a little bit more risk or too complex? .

Interesting question. Complexity certainly would not be an issue. We generally stick direct tangles. Those aren't overly complex. We're not building anything overly -- overly difficult. Yes, I think we would. I can't think off my hand or when we wouldn't develop for, again, all 3 platforms are targeting the same tenant base. And so will we do industrial for those retailers or distribution? No. But will we develop their traditional retail formats? Certainly. I'll tell you, we have been approached to develop in Canada, that's a no. We have been approached in other instances to try new prototypes or concepts? That's generally no as well. We're not interested in 180,000 square foot sporting goods experiential constructs. And so -- but I think I would tell you for 95% of them, yes, we will develop, we will use our developer funding platform, and we will acquire a third-party or sale leaseback.

Next, we'll go to R.J. Milligan at Raymond James. .

Joey, I just wanted to get your higher-level views as we look into '26. Third quarter investment volumes jumped quite a bit. You've got all the growth platforms that are delivering. You've got used debt and equity lined up with the forwards and the term loan. Guidance for this year is about $1.6 billion of investment volume. And so 2 questions. Would you want to do more next year in terms of investment volume? And two, is the gating factor really what's just available on the market? Or is there like a number of incremental investment activity that just doesn't deliver enough so you'd want to smooth it out? I'm just trying to gauge like at what levels of investment volume are you comfortable on a longer-term basis?

A great question, R.J. We have never thought of pacing here. We don't do pacing. We take advantage of opportunities. We turn windows into doors, and then we sprint through them. And so whether it was COVID or whether it was a disruption from a macro perspective or when we launched the acquisition platform, if we find a $5 billion transaction that fits this company's profile from a quality perspective and it provides for accretive spreads and making up the number $5 billion, obviously, we will strike. .

And so I don't think of any gating factor to a qualitative and quantitative hurdles. We have a cost of capital. We now have 93 team members here. We had 90 team members, excuse me. We've hired 23 new team members this year, hence the increase in G&A as a percentage of revenue in the updated guidance. We don't anticipate anything like that. We are built to grow. The only thing that will limit that growth is opportunities, and we will not stretch for them.

We'll go next to Rich Hightower at Barclays.

I guess, Joey, just to continue the line of thinking from the last question. You just talked about it and you've talked about it before sort of increasing the size of the investment team. And so I guess, all else constant, does that -- is it reasonable to think that, that implies you can sort of continue along the pace of acquisitions and other deal volumes that you sort of paced in the third quarter going forward? Or is that not the right way to think about that? .

Well, I think the size and scale of the team is to accommodate all different types of transactions that we're managing, and we don't see that as a constraint, right? Again, it's opportunity dependent. Q4 will be a strong quarter for us. We know that development in DFP looks like going into 2026 for the first half right now, and that looks strong.

But again, we are able to handle 400 discrete transactions. We had 110 transactions, not including dispositions or leasing in Q3 alone, and the team has an incremental capacity. We continue to invest in systems. We are launching ARC 3.0 in 2026. We continue to lean out processes and eliminate waste inefficiencies here and the team continues to get better at all levels, and we've built redundancy in succession. So we're in a great position to take advantage of those opportunities. In terms of how it materializes into numbers and volume that's going to be subject to what we find, the grit determination that we put forth and in context of the overall marketplace.

Okay. That's helpful. And then one just small one. I did notice, I guess, your exposure to Dollar Tree fell quarter-on-quarter. So just maybe talk about the moving parts there. Was that part of the group of assets that was sold? And maybe just talk about how you feel about the Dollar more concept in general kind of relative to everything else that you own, if you don't mind?

Yes, the bulk piece of that is the separation of Family Dollar, obviously from Dollar Tree with that sale. We've also made a couple of dispositions. Dollar stores, I'll note year-over-year have dropped 87 basis points as a component of our portfolio. Similarly, pharmacy has dropped 30 basis points from 4% to 3.7%. We will continue to be extremely discerning. We're not going to increase exposures, especially in a material way to either of those sectors. If we find a unique opportunity, we will strike, but they are certainly not at the top of our list in terms of new investment appetite.

We'll move next to Ronald Kamdem at Morgan Stanley .

Two quick ones. Just going back on tenant health, 25 basis points, I think, baked into the guide, I think that's lower from last quarter. Is that part of the sale of the at home? Just maybe talk through that and just general color of -- I know we've talked to a few tenant groups, so how are you feeling about tenant house today?

To the at-home question, that was an opportunistic sale. We bought that 7 years ago, I think, Peter, correct me if I'm wrong, at 7 years ago, it was a straight real estate play. It was directly across from a mall that was to be redeveloped in a high-growth area. Obviously, Provo, Utah, a signalized intersection with outlet capability to be developed in the future at a very, very low basis, effectively below land basis.

The purchaser of that at a 7 cap is going to do multifamily for BYU, which is just north. And so it obviously worked out for us in terms of the acquisition and disposition. Again, I think that's emblematic of our real estate vision here. We were never -- and we'll never be focused on at home or secondary or tertiary home furniture and accessory retailers. In terms of the 25 basis points, Peter, do you want to add anything to color there? .

Yes. Ron, last quarter, our guidance contemplated 25 basis points of credit loss at the high end FFO per share range and 50 basis points of credit loss at the low end of the range. So we have tightened that up to 25 basis points, and that compares to the 50 basis points of credit loss that we assumed in our initial guidance range going back to February. And so as the portfolio has continued to perform very well, and we haven't realized that higher level of credit loss, we've continued to trim up and bring down our assumption for credit loss for the year. .

Great. And then just back on the cap rate question. I know it's going to ask a bunch of different ways, but maybe can you comment on any sort of larger deals or larger portfolios and what you see in terms of cap rates there?

We'll say we have passed on a couple of larger deals that I'm sure you'll see hit the wires that we didn't think were priced appropriately, most notably sale-leaseback portfolios. We think we can create more value through alternative means, including development. But that's really the only the color I can give. .

And we'll go next to Linda Tsai at Jefferies.

Just a follow-up to an earlier question. Given your investment levels reverting back to historical highs, I just want to confirm, are you growing the investment team? Or is the investment team getting more productive with data technology like ARC?

Both. We have grown the investment team. Again, that's part of the 23 team members that we've added this year. We have grown the investment team all 3 platforms all way down to the analyst level and interns that have become an analyst. And so we feel like we're fully staffed that team. We continue to make IT improvements from the use of AI for lease extraction, lease underwriting checklist, and continue to work on ARC 3.0, but we think that team has been built and we're -- but we'll continue to coach, obviously, approach and develop the younger team members. So we're in position for 2026, and I don't anticipate any material hires there. .

And that concludes our Q&A session. I will now turn the conference back over to Joey Agree for closing remarks.

Well, thank you, everybody, for joining us. We look forward to seeing you in Dallas for any upcoming conferences and go look through the rest of earnings season. Appreciate it. .

And this concludes today's conference call. Thank you for your participation. You may now disconnect.