W. P. Carey Inc. Stock

Hello, and welcome to W. P. Carey's Second Quarter 2026 Earnings Conference Call. My name is Diego, and I will be your operator today. [Operator Instructions] Please note that today's event is being recorded. [Operator Instructions]

I will now turn today's program over to Peter Sands, Head of Investor Relations. Mr. Sands, please go ahead.

Good morning, everyone, and thank you for joining us for our 2026 Second Quarter Earnings Call. Before we begin, I need to remind everyone that some of the statements made on this call are not historic facts and may be deemed forward-looking statements. Factors that could cause actual results to differ materially from W. P. Carey's expectations are provided in our SEC filings. An online replay of this conference call will be made available in the Investor Relations section of our website at wpcarey.com, where it will be archived for approximately 1 year and where you can also find copies of our investor presentations and other related materials.

And with that, I'll hand the call over to W. P. Carey's Chief Executive Officer, Jason Fox.

Thanks, Peter, and good morning, everyone. The strong momentum we established last year has continued over the first half of this year, driven by execution across both investments and capital markets. And I'm pleased to say we're once again raising our full year outlook for both investment volume and AFFO per share. This morning, I'll focus primarily on our investment activity, which remained strong over the first 2 quarters and how we're particularly well positioned from a capital perspective to continue investing over the second half of the year. I'll also touch upon how we've substantially mitigated the risks associated with Hellweg. Our CFO, Toni Sanzone, will take you through our results, balance sheet, and guidance and our Head of Asset Management, Brooks Gordon, joins us to answer your questions.

Starting with our investment activity. The transaction environment during the second quarter remained largely unchanged from the first, both in the U.S. and Europe. And to date, we've not experienced any noticeable impact on transaction activity from the ongoing tensions in the Middle East. Cap rates on our closed deals were a little higher during the second quarter versus the first, but that was mostly a function of the timing of specific deal closings rather than any change in market conditions. We expect cap rates for the full year to average in the mid- to low 7% range, consistent with our view at the start of the year. The vast majority of the investments we closed during the second quarter were warehouse and industrial properties with the mix between the U.S. and Europe broadly in line with our long-run average. We completed a little over $700 million of investments during the second quarter, which brings our investment volume year-to-date to $1.3 billion at a weighted average initial cash cap rate of 7.4%.

Factoring in rent escalations and an average lease term of 18 years on new investments, this translates to an average yield over 9%, which remains one of the highest in the net lease sector and continues to provide an attractive spread to our cost of capital. The largest transaction we completed during the second quarter was the $400 million sale leaseback with GardenCore, which is a leading U.S. manufacturer of lawn and garden consumables and now ranks as our fourth largest tenant. The portfolio comprises 43 manufacturing, packaging and IOS facilities across 24 states, which are under a 20-year triple net master lease with fixed rent escalations. This transaction was compelling for several reasons, including the defensive nature of the underlying business, the mission-critical nature of the real estate and the attractive rent growth it provides over a long lease term.

Looking ahead, our near-term pipeline currently includes several hundred million dollars of investments at various stages of completion. In addition, we have $133 million of capital projects delivering over the second half of this year, part of 10 projects we're currently working on that will add approximately $300 million to our investment volume over the next 18 months, supported by our Carey Tenant Solutions initiative. I'm pleased to say that the strong pace of investment activity so far this year has enabled us to raise our guidance range for full year investment volume to between $1.7 billion and $2.1 billion. While deal closings could slow somewhat during the summer, which is fairly typical, especially in Europe, and it's too early to have clear visibility into the fourth quarter, our pipeline remains active, and we believe we're well positioned to be in the top half of our guidance range, particularly if fourth quarter activity is in line with recent years.

Our overall AFFO growth continues to benefit from our sector-leading rent growth. Given the high proportion of ABR generated by leases with rent escalations tied to CPI, we remain uniquely positioned to benefit from the inflationary pressure stemming from higher energy prices. And we expect to see those tailwinds increasingly flow through to rents over the second half of the year and trend even higher in 2027. Turning to capital markets. Our investment activity continues to be supported by well-executed capital markets transactions with nearly $900 million of forward equity sold and approximately $1.5 billion of bonds issued so far this year. With the forward equity we sold during the second quarter, we ended the first half of the year with nearly $700 million available for settlement. And in early July, we completed a U.S. bond issuance that addressed our only remaining 2026 bond maturity.

Our balance sheet is in excellent shape with ample liquidity, leverage at the low end of our target range and no near-term debt maturities. We have comfortably prefunded our anticipated investment activity through the end of 2026 with the flexibility to continue deploying capital well into 2027 without needing to access the capital markets. And that's before considering the approximately $300 million of annual retained cash flow we generate as well as additional accretive disposition opportunities.

Looking further ahead, our Lineage shares could also be another source of equity capital beginning in late 2027. Lastly, regarding Hellweg, we proactively reduced our exposure over the past 2 years from 35 stores to 16 through lease terminations, re-leasing activity and asset sales. Importantly, Hellweg's recent insolvency filing may help accelerate the process of taking back the remaining stores and bringing the situation to a close. Our remaining gross exposure is now just 90 basis points of ABR, with Hellweg no longer a top 20 tenant. We already have springing leases in place on half of the stores at rents comparable to what Hellweg was paying. And for the remainder, we're in active discussions with potential tenants and buyers and expect to have lease agreements or asset sales lined up by year-end. The bottom line is that Hellweg has a negligible impact on our 2026 earnings outlook, which is clearly reflected in our decision to raise AFFO guidance this quarter.

So let me pause there and hand the call over to Toni to discuss our results, balance sheet and guidance in more detail.

Thanks, Jason, and good morning, everyone. Starting with earnings. AFFO per share for the 2026 second quarter was $1.34, up $0.06 or 4.7% year-over-year. Investment activity continues to be the primary driver of our growth, having closed over $3 billion of accretive investments since the first quarter of 2025, including the $1.3 billion we've completed so far this year. Our second quarter results are also benefiting from the timing of elevated other lease-related income, which was previously anticipated, minimal rent disruption and a one-time tax benefit, all of which I will cover in more detail shortly. Looking ahead, we've raised and narrowed our guidance range for full year AFFO per share to between $5.19 and $5.27, which increases the midpoint by $0.02 and implies 5.2% year-over-year growth. Our guidance raise is driven by a combination of factors. In addition to higher lease revenues, reflecting stronger net investment activity, the beginning of higher CPI flowing through our leases as well as a more favorable outlook for potential rent loss, we also now expect lower property and tax expenses.

Partly offsetting those benefits is the impact of the forward equity we settled during the second quarter, which also had the effect of reducing leverage to the low end of our target range. As Jason discussed, our revised guidance assumes higher investment volume totaling between $1.7 billion and $2.1 billion for the year, up from our previous range of $1.5 billion to $2 billion. During the second quarter, we completed dispositions totaling $84 million, bringing the total proceeds from dispositions over the first half of the year to $246 million. Based on our current visibility, we've narrowed and lowered our disposition volume range for the full year to total between $350 million and $550 million, down from our initial range of $250 million to $750 million.

Moving to our portfolio. Rent increases also contributed to our results with contractual same-store rent growth of 2.6% year-over-year, driven by the continued strength of both our CPI-linked and fixed rent escalations. CPI-linked increases, which represent 49% of our same-store leases, averaged 2.7% for the quarter as we are beginning to see the impacts of higher inflation flow through our lease revenue. Fixed rent escalations, which represent 48% of our same-store leases averaged 2.5%, in part due to our ability to achieve higher fixed rent increases over recent years. The new investments we've closed year-to-date, just over half had fixed increases, averaging 2.6%. Looking ahead, we expect contractual same-store rent growth to trend marginally higher in the second half of the year as certain multiyear fixed rent escalations and higher inflation-linked increases flow through lease revenues.

Our expectation for contractual same-store rent growth for the 2026 full year has increased to 2.6% and is expected to trend higher in 2027 based on current inflation expectations, both in the U.S. and Europe. Comprehensive same-store rent growth for the quarter was 20 basis points, with approximately 90 basis points of the variance to contractual growth attributable to a rent recovery in the prior year period. The remaining variance primarily reflects uncollected June rent from Hellweg, along with the impact of vacancy and leasing activity. As a reminder, one-time items or properties moving in or out of the same-store pool can cause this metric to move around from one period to the next. Based on our current visibility, we expect comprehensive same-store growth to average between 1% and 1.5% for the full year, depending on the timing of leasing activity and dispositions as well as the amount of rent loss that materializes.

We're lowering our estimate of potential rent loss from tenant credit events to between $7 million and $10 million or about 40 to 60 basis points of ABR, down from our prior estimate of $8 million to $12 million. Through the end of June, rent loss across the entire portfolio, including Hellweg, has been minimal, totaling $1.7 million, which factors in certain rent recoveries. Hellweg did not make its June rent payment totaling approximately $1.2 million, but has since paid its July rent in full as they work through the insolvency process. While Hellweg may make additional rent payments throughout this process, our updated rent loss assumption assumes that we receive no additional rent from Hellweg this year and that we recognize the full benefit of the 3-month bank guarantees, resulting in a net rent loss of approximately $3 million from Hellweg in 2026.

Overall, our portfolio continues to perform well and portfolio occupancy at the end of the second quarter was 98.5%, up 40 basis points from the first quarter, driven mainly by the disposition of vacant properties. Moving on to other lease-related income, which totaled $11.2 million for the second quarter. This was in line with our expectations and brought the total for the first half of the year to $21.7 million, including termination payments, deferred maintenance and other lease-related settlements as we continue to proactively manage our portfolio. Certain payments were more material in the first half of the year, and we, therefore, expect the total for this line item to decline over the remaining 2 quarters. For the full year, we continue to expect other lease-related income to total in the low to mid-$30 million range.

That brings me to expenses and nonoperating income. G&A expense totaled $25.9 million for the second quarter, bringing the total for the first half of the year to $53.3 million. For the full year, we continue to expect G&A to total between $103 million and $106 million, unchanged from our previous range. Non-reimbursed property expenses totaled $15.2 million for the second quarter and $29.8 million for the first half of the year, including approximately $2.1 million of demolition costs related to redevelopment work. With greater visibility into the timing of redevelopment work, re-leasing activity and lower vacant asset carrying costs, we're reducing our full year estimate for property expenses to between $54 million and $58 million. Tax expense on an AFFO basis, which primarily reflects our current taxes on our international assets, totaled $10.5 million for the second quarter and included a one-time tax benefit that was not anticipated in our initial guidance.

Accordingly, we're lowering our full year guidance assumption for tax expense by $2 million to between $43 million and $47 million. Nonoperating income totaled $4.2 million for the second quarter, which we view as a reasonable quarterly run rate for the remainder of the year. This line item primarily reflects the $2.9 million quarterly dividend on our equity stake in Lineage, along with interest income on cash deposits and realized gains and losses on foreign currency hedges. As a reminder, while changes in FX rates may impact realized hedging gains and losses, those impacts are generally offset by changes in foreign-denominated revenues and expenses, resulting in no material impact to AFFO.

Moving now to our balance sheet. As Jason touched upon, we've remained active in the capital markets this year, enabling us to stay well ahead of our capital needs, including funding our projected investment activity and prepaying our October bond maturity. During the second quarter, we sold 5.3 million shares on a forward basis, representing gross proceeds totaling $392 million at an average price of $74.32 per share. We also settled 5.1 million shares under forward sale agreements for net proceeds totaling $345 million. As a result, we ended the quarter with 9.9 million shares remaining to be settled, representing anticipated net proceeds of $691 million. Our capital markets activity, together with our $2 billion credit facility, which was largely undrawn at the end of the quarter, saw us end the quarter with substantial liquidity totaling approximately $2.7 billion.

We, therefore, continue to have ample runway to fund investment volume above the top end of our current guidance range as well as into 2027. We've also continued to proactively manage our debt maturity profile. At the end of June, we priced the issuance of $350 million of 10-year U.S. dollar bonds with a coupon rate of 5.2%, which settled in early July. Proceeds will be used to prepay our October bond maturity with no associated prepayment costs. As a result, we have no debt maturities remaining this year with our next maturity being the EUR 500 million euro-denominated bonds due in April of 2027. The weighted average interest rate on our debt remained low during the second quarter, averaging 3.2%, which is expected to increase marginally over the second half of the year, reflecting our recent bond refinancing.

For leverage, net debt to adjusted EBITDA ended the quarter at 5.1x, inclusive of unsettled forward equity. Excluding the impact of unsettled forward equity, net debt to adjusted EBITDA was 5.5x, which is at the low end of our target range of mid- to high 5x and down from 5.7x at the end of the first quarter. Lastly, regarding our dividend. In June, we raised our quarterly dividend 4.4% year-over-year to $0.94 per share, maintaining a healthy payout ratio of just over 70%. At our current share price, that provides an attractive annualized dividend yield close to 5%.

And with that, I'll hand the call back to Jason.

Thanks, Toni. A few final comments. Overall, first half of the year has reflected a continuation of the momentum we established in 2025. Deal volume has remained strong, while our cap rates and average yields on new deals remain compelling relative to our cost of capital. The balance sheet is in a very strong position with all maturities in 2026 fully addressed and leverage now sitting at the low end of our target range. Significant forward equity has already been raised, enabling us to fund deals accretively well into 2027. And our portfolio is set up to further benefit from inflation through our CPI-based leases. Our expectations for earnings in 2026 continue to trend higher despite the headlines from Hellweg. We don't believe the recent stock performance relative to peers is fully reflecting how well we've executed. We also believe we will continue to be positioned towards the top end of the sector on both AFFO growth and total return, factoring in our dividend yield.

With that, I'll hand the call back to the operator for questions.

[Operator Instructions] And our first question comes from Spenser Glimcher with Green Street Advisors.

Can you guys just walk us through your capital allocation priority list just as it relates to build-to-suits, expansions and wholly owned acquisitions? I'm just trying to understand where you guys are seeing the best returns today.

Yes, sure. Spenser, I mean it's really, I would say, across those categories. I wouldn't say that there is a priority in any of those. It's more about where do we see the best deal opportunities and the right return dynamics. I mean I think we're active on all fronts. We've done $1.3 billion of total deal volume for the year, and that includes sale leasebacks, includes buying existing leases. We've had deliveries of build-to-suits as well as expansions within there. So it's across the board.

I think when we think about Carey Tenant Solutions where the build-to-suit and expansion component of our asset management team. I mean those are typically some of the highest quality deals because they're captive. So to the extent we can generate more opportunities there, I think that would certainly be welcome, but it won't be at the expense of doing deals in other areas of our target market.

Okay. That's really helpful. And then you guys continue to source a lot of industrial deals abroad. I was just curious if you could provide some color on the state of that property sector in Europe. I know it spans different countries, but just broadly speaking, if there's anything you can share on competition for those assets, demand for capital from a client's perspective or pricing?

Yes, sure. I mean competition, I would say Europe has historically always been less crowded from a competitive standpoint. We're seeing I would say more or some more U.S. companies pop up there for competition. And maybe it's worth noting that entering Europe and doing it well is probably easier said than done. We've been on the ground there now and investing for almost 3 decades. We have 50 people spread across our London and Amsterdam offices. We have a lot of deep relationships across the market. I think we have a very good brand and track record. We do know the markets well. We have Europeans that are operating the platform across Europe for us.

So we do have our advantages, and there is more competition maybe than there was 5 years ago, but it's a big fragmented market. Activity levels have been increasing over the past year, 1.5 years. So I think we do see good opportunities for more deal volume there. And look, there's a lot of different markets there. That's part of the challenge of covering it well and having experience. So they're each -- obviously, there's overlap there in terms of fundamentals, but it does vary from market to market.

Your next question comes from Jamie Feldman with Wells Fargo.

I'm sitting in for John Kilichowski today. So I guess, for this quarter, we saw the straight-line rent adjustment step down without a commensurate move in GAAP rent revenue. Can you tell us what's driving that?

Well, the GAAP rent revenue did move down in relation to these specific adjustments and what you saw there. There are certainly other movements in growth that we saw in terms of our rental increases. But I think when you're specifically talking about the straight-line rent add-back, we did see an acceleration of straight-line rent associated with 2 separate transactions on the leasing side. So we assigned 2 leases where there's no impact on the cash side, cash rent continues, and we write off the straight-line rent balances for accounting purposes and reset those. So there's really no net impact on AFFO there. There's a lowering of the GAAP revenue and a reduction in the add-back.

Okay. And was there any type of termination activity that might have impacted it? Or no, pretty clean this quarter?

No. I mean we have some rent recovery in there as well as kind of our normal recurring rent growth, but I think it's all part of the general growth for the year.

Okay. And then on the investment front, can you talk a little bit more about the cap rates you're getting across difference between U.S. and Europe? And then maybe even a broader question, just the investment landscape. It just seems like there's more capital coming into commercial real estate, debt markets are tightening up. Any thoughts just on the competitive landscape and if you think that will put any more pressure on your ability to hit some of your numbers?

I mean, look...

Find other opportunities? Sorry about that.

Yes. I mean the U.S. net lease market has always been competitive. We have had some new entrants over the last couple of years. Some of the big asset managers have formed some funds, many of which are nontraded. So that's likely put some pressure on cap rates, but it's hard to quantify. And I wouldn't say it's been overly impactful on us, certainly the type of deals that we target. We've continued to generate substantial deal volume at what we think are very attractive pricing and spreads, irrespective of competition. So yes, more competition, but I don't think it's been all that impactful as of late.

In terms of cap rates, we continue to transact across a wide range of cap rates with expectations that will average somewhere in the mid- to low 7s for the year, which is similar to where at least our expectations when we started the year. So I would say, overall, cap rates have been fairly stable, and that's despite having treasuries moving meaningfully since the beginning of the year, up and down for that matter. And look, if the treasuries stay in the 4.6%, 4.7% ZIP code and let's also see what the Fed does today, I could see cap rates begin to adjust higher at some point. But as I just mentioned, there are some competitive pressures that may limit or offset that.

But we're in good shape. We raised a lot of capital already that can get us through 2026 and well into 2027. So we feel quite comfortable we can continue to deploy capital in that mid- to low 7s range. And maybe last point is we frequently remind people that, that's one metric that we look at, but we also want to make sure that everyone is focused on our bump structures and lease terms, which when you factor that into mid- to low 7 cap rates, that equates to an average yield in the 9s, which we believe is among the strongest or highest in the net lease sector, and that's an important metric as well.

If I could just throw in a quick follow-up. So with higher rates, I mean, how are you thinking about just underwriting assumptions and exit cap rates? And how are you just changing your view of the world as you put capital to work?

Yes. I mean, certainly, if we have higher rates, and we think that's going to flow through to cap rates ultimately, there's not always perfect correlation there. But over long periods of time, that should do that. Yes, then I would expect in our underwriting models, we would flow some of that increase in cap rates into the exits that we assume.

And we're generally quite conservative on residual values in how we look at transactions and model them. So I think we're building in pretty good cushions for residual values at whatever point in time, we feel like we want to model an exit.

Your next question comes from Mitch Germain with Citizens Bank.

Jason, it's been a couple of quarters in a row where you've had some pretty sizable sale leaseback activity. You're pretty positive about the state of your pipeline. Are you seeing a recurrence of these kind of bulkier transactions and the continuation you see that happening?

I mean, the majority of our deals fall within, call it, the $25 million to $100 million size range with the average probably around $50 million. But we do consistently see larger deals. They're part of a regular deal flow in any given year. I think we can expect a bid on a number of these larger sale-leasebacks, call it, $200 million, $300 million or even larger deals.

And as you noted, this year, we have completed several larger transactions, including the $400 million GardenCore deal I mentioned earlier. So -- and I think thats important. We're one of the largest net lease REITs. So one of the benefits of our scale is that we can do some larger deals in this part of our business, and I would expect that to continue. I mean, some of it is going to be dependent on what's out in the market. But when they're there, we're going to be quite competitive.

Great. And then maybe one for Toni Anne. Can you provide the building blocks that -- of the one-time items in 2Q that should be eliminated when we're thinking about 3Q earnings?

Sure. Yes. I'll kind of recap there. I think maybe I'll just start by saying that really despite there being some variability in certain of the items from quarter-to-quarter, we are expecting strong overall AFFO growth for the year, above 5%, and that's really coming from our core growth, investing and within the portfolio.

There are a few factors that impact first half versus second half comparisons, and the largest of which is the other lease-related income which I mentioned. Fluctuations in this item are expected from quarter-to-quarter, so we don't really view this as any kind of deceleration in growth. The first half, we had about $22 million of other lease-related income. We're expecting the total for that line item for the year to be in the low to mid-$30 million range, which really implies a drop off in Q3 and Q4.

In addition to that, we'll see the impact of the timing of our capital markets activity. So with interest expense expected to increase with the refinancing of maturing bonds this year, that will come through in the third quarter and towards the second half of the year. And then I think lastly, on the rent loss side, I mentioned on my remarks that year-to-date, we've incurred about $1.7 million of rent disruption. That includes Hellweg's June rent payment and some recoveries in the second quarter.

We have lowered our overall rent loss range [ to ] $7 million to $10 million for the full year. So that implies that our guidance assumes we see the majority of that being used in the third and fourth quarters. We did highlight our expected losses from Hellweg. That's our most material exposure. So there is likely some conservatism in that in our revised range as we approach the latter part of the year, but that's a little bit more of the timing difference. So those are really 3 of the largest factors that are going to contribute to that change.

Great. If I could just add. Just what was the one-time tax benefit? What was that, $2 million, I believe? Or no, it was a little bit...

Well, we reduced guidance by about $2 million on that line item. I think the impact is a little over $1 million in the quarter, specific to that. And it's really just the application of net operating loss that we were able to utilize against some current income on an international asset. So not really recurring in nature, but it helps and benefits us for AFFO this year.

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

Congrats on a great second quarter. Curious, just following up on the potential rent loss estimates. Curious if there's any specific industries, regions, anything to kind of call out on how you're kind of being conservative but thinking about potential issues? Or is it all kind of idiosyncratic kind of one-offs?

I think you covered that? Or go ahead, Toni. You can jump in.

Yes. I think the rent loss in general, maybe just to recap here, I highlighted our expected losses from Hellweg or really maximum loss we expect this year could be around $3 million of rent. So that's $3 million of the $7 million to $10 million in our range.

I mean outside of that, there's no real themes across any industries. I would say we have a small handful of tenants that have some partial rent disruption. I don't think there's any themes, Brooks, worth highlighting, but I think we're still viewing some conservatism into the back half of the year, as I mentioned. So that's more about the macro environment and less about anything specific we're seeing in our asset tenant base. There haven't really been any new material rent disruptions in the existing portfolio.

Yes. Nothing to add to that. And credit watch broadly is very stable. No really new adds, and some has come off, so that's coming in a bit. And so that's reflected as well in our lowering net rent loss assumption.

Your next question comes from Jason Wayne with Barclays.

You said that CPI-linked escalators are more customary on European assets. So just wondering, like, what's the blended growth, kind of, CPI growth there that you're assuming on your leases?

In terms of new transactions that we're originating or I'm not sure if we disclosed this or if it's in our stuff, the breakout between Europe and U.S. and the expectations around same-store?

Yes. Kind of both of those.

Yes. Maybe I'll start with the first one, and Toni, if you have the information on the second one. I mean on new deals, yes, it is more customary in Europe to have CPI increases. And we've mentioned this before, since the spike in inflation a couple of years back, CPI has generally gotten a little bit more difficult to get, especially in the U.S. But in Europe, maybe there's some discussions or negotiation around that as well. But that said, so far this year, about half of our deals closed to date have included CPI-based leases. A lot of that is driven by an increase in European deals and our larger Canadian deal at the beginning of the year was also a CPI-based transaction.

The pipeline also has a fair amount of CPI. I think it's close to half as well. Again, a function of doing some more deals in Europe. And we've talked about this as well. When we're not getting CPI-linked increases, we're seeing the effects of higher inflation on our ability to negotiate higher fixed increases. So historically, those have averaged, call it, around 2% per year.

And more recently, over the last 4 or 5 years, they are 50 to 100 basis points higher than that. For example, our 2026 closed deals that have fixed increases, those averaged around 2.6% per year. I think the pipeline is maybe even slightly higher than that. So inflation is kind of flowing through in -- through both components of our leases.

And on the existing portfolio, I'd just add that, again, about half of them being CPI-based. I think we're weighted more towards about 70% of international leases are CPI-based, where it's about 30% of those bumps are from the U.S. And so we're seeing the trends go up in both areas, both domestically and internationally. I'd say, since the start of the year, we've seen the international CPI increase about 100 basis points from our initial projections. U.S. CPI is maybe just shy of that, around 90 basis points. But again, that will all start to flow through in the back half of this year and more meaningfully as we get into the start of 2027, just given the lag in our leases and the timing in which the escalations are computed.

Got it. And then just on dispositions guidance, are any -- are you still planning on filling any noncore assets this year? Or is that just more of a long-term kind of option for you?

Brooks, do you want to cover that?

Yes. So the dispositions guidance, we refined this quarter, but still has a fair degree of flexibility for the back half of the year. The breakdown is roughly 1/3 noncore, maybe 2/3 is more risk mitigation and vacancy cleanup. On the noncore side, as you recall, we sold the final chunk of operating storage earlier this year. And we also sold our only Asian asset in Japan in Q2 for a great price. So those are both what we would consider noncore. So yes to that question.

Your next question comes from Smedes Rose with Citibank.

We were just wondering about the implied investment volume, your range through the second half. Just the low end seems particularly conservative. And I was just wondering, is there anything in particular that you are thinking sort of could happen that would drive that sort of market slowdown in investment activity? Or are you just trying to be somewhat conservative at the low end?

Yes. There's no read-through in kind of the low end of the guidance to what we're seeing in terms of activity. I mean we continue to take a measured approach to how we view guidance. If you recall back in February, we talked about our initial guidance as a starting point. And increased it by $250 million at the midpoint in April and by another $150 million today. And so as we get more visibility into the back half of the year and specifically the fourth quarter, we will review and potentially refine it at that point in time.

But activity levels are still robust for us. Again, we don't have a lot of visibility in that fourth quarter, and we can't quite predict exactly what will happen. But if the environment continues as we see it today, yes, I wouldn't expect that low end to come into play, and it's probably more the top half of the guidance range, if I had to guess right now.

Okay. And then we're just -- we're looking at the real estate impairment charges, looks like they've kind of gone up sequentially for several quarters now and a pretty big kind of step up for this quarter. Is that just related to assets potentially for sale? Or is there anything going on there that you can speak to?

Yes. I'd say the marks this quarter are really more disposition related. There are a couple of larger ones this quarter. The first one relates to our one remaining student housing operating property in the U.K. We are evaluating that for a potential sale later this year, maybe early next year. And current pricing indications are lower than our current carrying value, which triggers the impairment.

I will say that although it is the mark on the carrying value, we do still expect at that sale price that the asset sale would be marginally accretive from a cap rate perspective relative to where we could reinvest the proceeds. So generally net neutral to positive from an AFFO perspective. The balance is really, I think, related more to Hellweg. We have some impairments on a few of the properties in the portfolio that again, reducing them to their expected selling prices, we expect to sell those assets. So those are really the material drivers this quarter and importantly, no AFFO impact and no concerns within the broader portfolio.

Your next question comes from John Kim with BMO Capital Markets.

On your updated rent loss guidance for the year, $3 million of which is attributed to Hellweg net of the bank guarantees. Given they unexpectedly paid rent in June, what is the likelihood in your view that they will make further rent payments this year? And also in your guidance, is Cornerstone part of that rent loss? They were called out as being on your watch list last quarter.

Yes, I can cover that, and then Brooks can add any color. I think in terms of the overall rent loss for Hellweg, you're right, $3 million assumes they don't pay rent from August on. They did pay July, they didn't pay June. They have indicated that they are likely to continue paying rent. It's hard for us to say with liquidity and where they are in the insolvency process, whether and how long that continues. So this could be a conservative position based on where we sit now. Their rent is a little over $1.2 million a month. And as I mentioned, we do have the benefit of the bank guarantees assumed in the back half of the year covering about 3 months of lost rent there. So there could be some upside if they continue to pay rent, and there's less of a loss on Hellweg.

In terms of Cornerstone, again, we have a generally more broad view in terms of the remaining rent loss reserve. Cornerstone specifically, while we expect that they could go through some kind of a restructuring on the balance sheet, we do expect that they would continue paying rent. So we don't have a specific component there, but generally, if there were any rent disruption, we should be covered.

Okay. And then I wanted to ask about your stake in Lineage and your latest views on using that as a funding source when your lockup period ends next year. I realize it's a noncore holding, but when you look at consensus estimates, the DPS growth is expected to grow or exceed 3% annually, which is pretty attractive, and it is a taxable event for you when you sell. So where does selling Lineage shares? Where does that fall in terms of priority as a source of capital?

Yes. I mean, we expect that in the second half of the year and maybe it's more towards the late part of the second half of the year that we'll have the ability to consider selling Lineage at that point in time. I don't think we're going to take a view on the direction of the stock price and where it could go. I mean, tax is certainly something we think about. We do have a gain because we've invested very early when we helped seed the company with some sale-leasebacks over 10 years ago at this point in time. So there will be some gains.

But we'll be able to manage those. This is not a huge investment. It's a couple of hundred million at this point in time, and the gains will be manageable. So I don't think that's a -- really a big consideration that will affect timing. So I think overall, over a several quarter period, my guess is that we'll use it as a liquidity source for us.

And it will be accretive. I mean, they pay a dividend yield that's inside of -- by a couple of hundred basis points where we would reinvest it into core net lease for us. So that will be a positive source of capital.

Your next question comes from Anthony Paolone with JPMorgan.

Can you talk about just your deal pipeline and activity levels in some of your newer areas or focal points like retail, healthcare and some of the build-to-suit work that you'll pursue?

Yes, sure. I mean, I'll start with retail. I think we're making progress there. We had -- I think it was about 20 -- a little over 20%, maybe 22% of deal volume last year came from retail. This year, year-to-date deal volume is about 24%. And we do have some smaller retail deals in our pipeline right now.

It's a big market. The net lease, retail is the biggest market within net lease. So we've hope that over time, we can increase that, and that can be really additive to our deal volume. I think sometimes the challenge is, the initial cap rates are generally in the right ZIP code for us, but bump structures tend to be a little lighter than what we would target. But I do think we can take some market share, and we are finding good deals there.

Healthcare is another area that we think that we can do a couple of hundred million dollars of deal in the healthcare industry. That will be additive as well. I mean, it's a big opportunity set. While it's competitive, we should be able to find some deals there, and we have. It's diverse. We do like the long-term dynamics of growing an aging population.

I think mostly, we've been focusing on IRFs or inpatient rehab facilities. We did, call it, a couple of hundred million dollars of that last year, maybe a little under $200 million. And we've added to that some this year. It's going to be more opportunistic in that space, though.

I'm trying to think what else. In terms of the build-to-suits and expansions under Carey Tenant Solutions, historically, we've generally done about $200 million a year or that's been under construction. Right now, we're at about $300 million of construction projects in process. I mentioned earlier that about $133 million of those are still expected to deliver this year, with the bulk of the remainder in next year.

So all these areas are contributing. If you think about it, if we can add a couple of hundred million dollars in each of those categories, that will help us move from maybe a deal volume target of $2 billion is something that can be above that, which will obviously all help and flowing through to our growth on an annual basis.

Okay. And then just my second question. I know you don't have any real debt maturities, but you do have equity. And so if you were going to pair equity with debt, like where would you look in the debt market right now? Like where would cost be? And what would be your most favored sort of market, duration, et cetera?

Yes. I mean, right now, the euro denominated debt, that's around 100 basis points tighter than where we can issue debt in the U.S. So that's our most attractively priced debt capital. I think there's lots of factors for us to consider including capital needs and pricing, as I just mentioned, but also market conditions, what our deal pipeline looks like. Those are all things that we consider in terms of which currency we would elect to issue in.

I think, generally speaking, we repay bonds in the same currencies as the expiring bond. But I think the bottom line is we have lots of flexibility there when we look to raise capital, whether it's on the equity side or the types of debt we want to issue.

Your next question comes from Greg McGinniss with Scotiabank.

Given the $690 million forward equity remaining, do you anticipate needing to use overnights going forward? Or you just support the acquisition pipeline funding utilizing a similar equity rate strategy as Q2?

I think over the past couple of quarters, as you just mentioned, you saw us raise equity both through the ATM as well as a larger marketed issuance. I think both are options. I think whenever we feel like it's a good time to be in the market. I think we are covered for this year and probably well into next year as well, but we still can be opportunistic with equity and flexible on how we think about the types of equity that we raise. So it's going forward in the future, I guess it's going to be a combination of both of those, and we'll kind of evaluate our needs as we go.

Okay. And then just looking at the remaining operating assets. We appreciate the color on the student housing facility in the U.K., which sounds like it might be sold this year. Is there any update on the potential hotel redevelopments in sales?

Brooks, do you want to cover that?

Sure. Yes, as a reminder, we own 4 operating hotels. One is a Hilton in Minneapolis. We'll sell that when the time is right, potentially into next year. On the Marriott, which you're referring to, we have 3 operating Marriotts, 2 of those likely pivot to sale potentially later in this year, but maybe into next year. The one which we are targeting for redevelopment is adjacent to the Newark Airport. Targeting Q1 of '27 likely for a project to start there, but we remain -- retain a lot of flexibility there. The hotel will keep operating as we assess kind of market dynamics there. So all those, in one shape or fashion, will come out of the system likely over the next 12 to 18 months. .

And then can you give any details in terms of like the size of that potential redevelopment? Invested dollars, expected yield?

I think it's premature to provide specific details on that development. But it certainly -- it will hit our disclosure when we kick that off.

Your next question comes from Jim Kammert with Evercore ISI.

Fully appreciate that Carey spent years sort of exiting, let's call it, the fund management business with the CPA funds. I'm curious what's your strategic appetite today to sort of reengage in the fund management or third-party assets given your scale, your global reach, your differentiated asset access. There's a lot of money looking to get into the net lease. And just curious what your thoughts are about becoming more of a fund manager.

Yes. I mean we did exit that years ago. Our view is that for public net lease REIT, simplicity, there's certainly benefits to that. I think those who we've seen get into that business typically have much larger scale, which means that their growth needs may be higher and the public equity markets may not be able to support as much funding that's required to hit deal volume targets. I mean we're a large top 20 REIT, but we're not at that scale yet. We feel very comfortable that we can continue to funding our investments with the mix of equity and debt. And I don't think that, that's something that we would consider in the near term. Long term, I wouldn't say that it would be off the table, but it's not on our radar right now at all.

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

You had 3 new tenants join the top 25 in the quarter. You talked about GardenCore in the prepared comments, but then you also have Rocky Vista and Kesko Senukai. I may have butchered that, but can you just go through those other 2 tenants?

Yes, sure. Let me start with Senukai. Yes, not a new investment per se there. They're an existing tenant. That investment -- the original investment was held in a JV. And the JV fund structure owning those assets was maturing. So we took over 100% control of those assets by buying out our partners, which is not unusual for a majority owner to consolidate and buy out minority partners at the end there. So that was the reason for that increase.

As for the tenant, they're a dominant DIY retailer in the Baltics. They're backed by a company called Kesko, which is a Finland-based company and one of the largest retailers in Northern Europe. They're publicly traded. I think have a market cap of around $10 billion, they're sizable. They're not explicit guarantor for the tenant Kesko, but it's always good to have a deep-pocketed backstop there.

The other one that you mentioned, Rocky Vista, that is a for-profit medical school, and we did an expansion for them. Very good tenant. They're filling a much needed demand for more pathways for higher supply doctors in certain regions. So a very good company that we've backed now for a number of years.

Okay. Got it. And then looking at Apotex, obviously, your second largest tenant. There was this announcement about potential generic drug tariffs. I know 2028 is a long time from now and these tariff threats kind of come and go. Sorry, there's construction in the building. Not sure if you can hear that. How do you think your assets would be positioned if that were to actually happen, the potential tariffs on generic drugs?

Yes. And maybe that's -- part of your question is like most announcements on tariffs, it's very uncertain how this will play out and whether there'll be any for that matter or what happens with some of the uncertainty now around the USMCA trade agreement. But I think even in a scenario where Apotex stopped serving the U.S. market or moves in some of their production into the U.S., we're confident in the mission-critical nature of our assets. They are also infill Toronto, which is one of the better industrial markets in North America.

And the company itself, Apotex, they're very important to the Canadian healthcare system. They provide a very large percentage of the generic drugs that are used across Canada. So I think we feel pretty good about that investment regardless of any impacts of -- that tariffs may have on their ability to sell into the U.S.

It's probably also worth noting, we did that deal about 3 years ago. And since that time, the company has gone public, now has an equity market cap of around $6 billion, total enterprise value of around $8 billion. It was a strong credit when we did the deal originally, but it's now gotten bigger. It's gotten more profitable, has access to the public market capital. There's more disclosure now that it's a public company, and leverage is down. So all positives for the credit. And again, I think we feel quite good in their ability to continue to pay our rent, and that's going to be a good investment for us.

[Operator Instructions] Your next question comes from Michael Goldsmith with UBS.

You noted that CPI tailwind should flow through the second half of 2026 and into 2027. Just based on today's inflation expectations, where do you think contractual same-store rent growth can ultimately stabilize?

Yes, stabilize is probably a longer-term question. I would say if we're looking into 2027, we're seeing same-store on a contractual basis probably trend upwards towards the mid to high 2% range, even approaching 3%. And we'd probably start to see that in the first quarter where we have about 40% of our leases escalating at that time.

So longer term, I think we're seeing stabilization is even landing at higher rate than it was previously, both internationally and domestically. So again, that will help support longer-term growth, but it's hard to say exactly where that lands. It certainly moves from period to period.

Got it. And as a follow-up, we've touched on a lot today. But just given the commentary around higher CPI rent growth, a favorable transaction market, steady cap rates and substantial prefunded capital, is it fair to think that 2027 AFFO growth could compare favorably with 2026? Or are there any offsets and investors should be considering?

I think too early to get into 2027, Michael. Could try, but we'll -- I think as we get towards the end of the year, we'll probably have some trends that could carry over to next year. And obviously, we'll issue guidance in all likelihood on our Q4 call in February.

So nothing specific about 2027. I will say that we are having a strong year from a deal volume perspective, and that certainly will help drive growth going into next year. Toni mentioned same-store growth is trending higher, so that's a positive as well. Like everyone in the REIT industry, there are always -- there's refinancing headwinds given where rates have gone over the last number of years. So that's something to consider. But I think overall, we feel good about the story.

Jason, maybe asking in a different way, what would be the 1 or 2 factors that we should be watching that could interrupt the momentum that you're seeing?

I mean I don't think there's anything specific right now. I mean I think the interest rate headwinds on refinancing, again, that's going to be a question for all REITs. That's in front of us. You can look at our maturities, which I think, Toni, do we just have one next year? Is that right?

We do. We have 1 Eurobond in April of '27.

Yes. So it won't be overly substantial, but there's probably some leakage there. And then I think you just got to keep an eye on the big drivers of our growth, which tends to be deal volume, same-store and credit watch or credit loss, I should say. Those are 3 inputs that we provide guidance around and likely have the biggest impact on growth. And I would say those are trending well for us.

At this time, I am not showing any further questions. I'll now hand the call back to Mr. Sands.

Thanks, Diego, and thanks, everyone, for your interest in W. P. Carey. If anyone has additional questions, please call Investor Relations directly on (212) 492-1110. And that concludes today's call. You may now disconnect.

Good morning. Thank you all for joining us. My name is John Kilichowski. I'm the lead analyst at Wells Fargo for net lease REITs. And today, I'm joined by Jason Fox, CEO of W. P. Carey; and Jeremiah Gregory, Head of Strategy for W. P. Carey.

So gentlemen, thank you very much for joining us. Today, during any point during this conversation, please feel free to raise your hand. We'll call on you for Q&A or you could just wait to the end of prepared questions so we can get to you as well.

So just to get started here, on your last earnings call, you raised your 2026 AFFO per share guidance to $15 -- or excuse me, $5.16.

$15 would be good.

Heck of a year. And since then, you've announced another $400 million of investments. Can you talk a little bit about how the year is progressing and the key drivers behind your guidance raise?

Yes, sure. I mean there are really 2 main drivers for that earnings increase, and they're high-quality drivers. I mean, number one is the strength of our investment activity. I think we are ahead of schedule and in volume, so ahead of pace and deal size. Importantly, with good cap rates and interesting spreads that will flow through. That did allow us to raise our full year investment volume guidance about $250 million at the midpoint.

So we're now at $1.5 billion to $2 billion is the assumption for deal volume for this year. So that was one of the drivers. I think the other main driver is the more favorable outlook that we have for our estimated or maybe it's a better put assumed rent loss that's embedded into our guidance. We've taken the tactic where we've assumed a cushion on credit loss to start the year one that I may view as being conservative with the idea being that it can accommodate a wide range of scenarios that aren't entirely visible at the beginning of the year. And then as we have more visibility into the year and see actual outcomes, we can refine that range, which is what we did.

So we lowered it from $10 million to $15 million to $8 million to $12 million, which is about 50 to 75 basis points of ABR. And again, we think that, that can accommodate a wide range of scenarios for this year and ones we think could be conservative as well. I think if you look at us historically, we've been in the 30 to 50 basis point range for credit loss as a percentage of ABR. And I think there's certainly a pathway where we could be back in that range at the end of this year, like we were last year.

So in the press release announcing the $400 million transaction with GardenCore, you also noted that you currently have visibility into about $1.5 billion of investment volume, which already puts you at the low end of your full year guidance of $1.5 billion to $2 billion. Can you talk a little bit about the GardenCore acquisition as well as the momentum you're seeing in the transaction environment and where you're seeing the most compelling opportunities, both in terms of property type, whether it be industrial warehouse, retail as well as region?

Yes, sure. And for those that follow us know that many, if not most of the transactions we complete are sale leasebacks where we're buying corporate-owned real estate from companies and leasing back to them over long periods of time and the sale leaseback is a source of capital.

Sometimes that's directly with companies. Sometimes that's in conjunction with larger transactions. This particular deal that we closed in May, it was a $400 million sale leaseback for 43 manufacturing properties spread across the eastern half of the U.S. was done with a company called GardenCore, which is one of the largest U.S. manufacturers of kind of lawn and garden consumables. Think about bagged mulch, bagged soil, lime products and other rocks that you may find at Lowe's or Home Depot or Walmart for that matter. High-quality company, very strong tenant base, been around for a long time, either the #1 or #2 market share in their product lines that I mentioned earlier. Triple net lease, 20-year term.

I think importantly, this deal was done in conjunction with the carve-out of this business from a much larger company that a private equity firm, Pacific Avenue Capital purchased. We were a big source of their acquisition financing, which in those scenarios, our counterparty, our partner on this deal, they're most focused on execution. So I think that's reflected in pricing and structure. So good transaction for us, $400 million is going to be one of our top tenants now. you think about it as production lines plus laydown yards or iOS, industrial outdoor storage space is kind of the format of these properties.

In terms of the deal volume that you mentioned, we had talked about being with that transaction, $1.1 billion of deals completed year-to-date with visibility into another $400 million. About half of that are construction projects, build-to-suits or expansions that we're doing within our portfolio that will deliver this year. The other half is, call it, kind of the pipeline and I would say, advanced stage pipeline where much of that will close over the coming weeks or the next month or 2 as well. So I think the trajectory is good. You mentioned our guidance range of $1.5 billion to $2 billion we obviously have visibility to the lower end of that range. I think to the extent we continue to see opportunities that make sense for us, the top end of that guidance range is probably in play, but I think it's difficult to predict at this point.

We don't have really visibility into what we're going to transact in the second half of the year and particularly the fourth quarter, which tends to be the largest for us. I mean I'm happy to go into some details on kind of what we've been buying and what the pipeline looks like. Predominantly is industrial. That's -- it's a mix of both manufacturing and warehouse. That's kind of reflected in the deals we closed in Q1, about 60% of them were in that category and about 3/4 of that were warehouse properties. I think once you add in the $400 million GardenCore portfolio, that equates to about 3/4 of our year-to-date deal volume is in the industrial space, which has always been a core part of our investment target.

Great. I'll get a little closer to the microphone. We also did some retail in Canada, which we're happy to talk about as well. And I would say the pipeline looking forward is going to be more weighted towards industrial as well. And then in terms of geography, I think those that follow us know that we are diversified across geographies as well with a platform based in Europe. About 1/3 of our ABR is based in Europe. And so that's a source of good deal volume for us. Europe continues to show good opportunities for us, especially over the last year, we've seen it ramp up. I think year-to-date, about 1/3 of the deals have been in Europe. The pipeline is probably closer to half right now. So activities are increasing there. One of the big benefits of targeting Europe is our borrowing costs are quite low there relative to the U.S., yet cap rates are in a similar ZIP code. So we're generating wider spreads there and which flow through to earnings growth for us.

So speaking of different geographies, a meaningful proportion of your 1Q investment volume was in Canada through the Go Auto acquisition. Can you talk through your history and the opportunity for investing in that market and how deals and cap rates there compare to the U.S. and Europe?

Yes, sure. So we've been investing in Canada for probably several decades at this point in time. I wouldn't say it was in scale for most of that period of time. Many of the deals we had done in Canada were part of multi-country sale leasebacks, where there was a portion of the deal was based in the U.S. and some of it was in Canada. Many of those were U.S.-based companies. And I would say the bulk of those deals were U.S. dollar denominated, both the U.S. piece as well as the Canadian piece since these were U.S.-based companies.

Over the last couple of years, we've had more focus there. We have a person on our -- a Canadian on our investment team that spends a decent amount of time sourcing deals north of the border. We did a large deal with a company called Apotex a couple of years ago, the largest generic drug producer in Canada. And then most recently, we did a large car dealership portfolio called Go Auto with high-quality real estate, very strong locations, a concentration in the Greater Vancouver market, which is going to be between that and Toronto are the 2 strongest markets within Canada. These deals were Canadian dollar-denominated since these were Canadian companies. So it allows us to add some Canadian-denominated debt into our balance sheet as well. But I think overall, you asked about cap rates. I think cap rates are similar to the U.S., maybe slightly tighter. Our borrowing costs are better there or cheaper. So we are able to generate wider spreads.

You answered my next question, so I'll move along. So you've previously mentioned capital projects becoming a larger proportion of your investment volume, particularly given the launch of your Carey Tenant Solutions platform. What percentage of annual deal volume do you see that becoming in '27 and '28?

Yes. Carey tenant solutions is something that we've been placing more emphasis on recently, and that was really the catalyst to rebrand something that we've done for a long time. We've been doing build-to-suits and expansions within our portfolio and redevelopments for that matter for the better part of a couple of decades. Typically -- we typically have, call it, $200 million on average that would deliver per year.

I think this new emphasis on this where we are kind of systemizing and doing a more kind of holistic approach to our tenants and others that can bring opportunities to us, the tenant reps, corporations that may be growing, more systematic outreach that we think can generate more of this. One of the benefits of scale and we're one of the larger net lease companies is we have a dedicated project management team on staff that oversees these type of projects, very capable, and we think that these construction projects are some of the best deals we can do.

I think build-to-suits and expansions, effectively leases in place, but there's also opportunities to work with our tenants on buildings that may be in very strong locations with buildings that are showing some obsolescence and we can redevelop those into A-plus buildings in strong locations. We think there's opportunities to do that as well. So when you think about it, we've done $200 million of this on average historically.

Could we see a pathway to doing maybe $300 or $350 million per year, which is additive to the deal volume. I think that's kind of the goal ultimately.

Now maybe back to some of your earlier comments on the investment volume guidance. Given the strong pace on investments year-to-date, is there a potential for further raise in that volume guidance?

Yes. I mean, similar to the commentary I had around tenant credit and our assumptions for guidance around credit loss, we take a similar approach to deal volume. We started the year with -- I'm sorry, with $1.25 billion to $1.75 billion, a number that still supported an earnings growth that was in the low 4s, which we think was attractive relative to many of our peers with the idea that as we saw or had more visibility into our transaction pipeline and closed deals that we would adjust that volume as we've gone, and we have. We've increased it to $1.5 billion to $2 billion.

As I mentioned earlier, up about $250 million at the midpoint. I think that we are trending towards the top end of the guidance without providing any full updates, but there is -- we're kind of ahead of pace from where we started the year. And this is a similar approach we took the last year. I think last year, we completed $2.1 billion for the year at very attractive cap rates and very attractive spreads to our funding cost, and we would expect to do something similar this year.

Could you talk about the geographical composition of what those numbers would be?

In terms of.

Just the guidance range as you look at the low and the high end, if you think about the U.S., Canada...

Yes. I mean we're agnostic to where we're investing. I think overall, within our portfolio, we have targets to be roughly split 2/3 North America with the bulk of that being in the U.S. and the remaining 1/3 in Europe. But I think on any given quarter or given year, it really is dependent on opportunities.

I think this year, maybe coincidentally, the pipeline plus the deals that have closed are roughly in that 2/3, 1/3 split, 2/3 North America, 1/3 in Europe. But we are seeing good opportunities in Europe, and I think there's better spread opportunities there. So to the extent there's more deals there and we can overweight at this point in time towards Europe relative to our portfolio allocation, I think we'll be open to that.

And then also kind of going back to an earlier comment you made on tenant credit. Your portfolio appears to have continued to perform so far this year. And on your last earnings call, you lowered your rent loss assumption to $8 million to $12 million from $10 million to $15 million. What were the main factors enabling you to bring this down?

Yes. I mean it's -- I think it's quite simple. We have better visibility into more of the year. And I've talked about the range of scenarios that we think that our initial guidance could accommodate. Those have tightened. We think that there are a narrow group of scenarios that could lead to credit loss. We're seeing a macro environment that certainly has headlines on a day-to-day basis and swings in oil prices that flows through to the indices and rates.

But I think overall, within our portfolio, if you think about how we're constructed, we generally have large companies, 80-plus percent of our ABRs with companies that have more than $0.5 billion of sales. Large companies tend to be able to absorb some of the impacts of either higher inflation or increased energy costs I think the thing to watch, and this is what we read about all the time is the consumer and how stretched the consumer is getting from oil prices and other increases. We don't have a lot of exposure to consumer-oriented businesses in the U.S., certainly relative to many of our U.S. retail peers, where whether it's casual dining or family entertainment or other areas like that, our exposure is more towards larger industrial companies that we think can absorb changes in economic conditions. And I think that's reflected in our credit loss assumptions.

Does lowering your Hellweg exposure factor into this?

Yes. I mean, certainly, I mean, again, those who have followed us for a couple of years have heard us talk about Hellweg on a regular basis. They're a large DIY retailer in Germany that we restructured 2.5 years ago, and we continue to update the market on their health and our exposure to them. The goal here has primarily been to continue to decrease our exposure. We've taken them out of our top 10 list through asset sales as well as proactive lease terminations. We think they'll be out of our top 25 by the end of this quarter and in all likelihood out of our top 50 by the end of this year. And where we've been successful terminating some leases, we have alternative DIY or home improvement operators, think of a Lowe's or a Home Depot in Germany that can replace them. And we've done that at or around the same rents that Hellweg has been paying.

So these are good real estate. And to the extent we can diversify our exposure away from Hellweg, I think that's a positive, and we've been doing that. And look, I think that's one of the drivers here of lowering our guidance. We started the year kind of assuming a wide range of scenarios with Hellweg and they continue to pay us rent, which is a good thing.

And Cornerstone was mentioned on the earnings call as well. Anything to note there?

Yes. Cornerstone, I mean, in -- the goal is to provide as much transparency as we can around credit events within our portfolio. Cornerstone is a large building supply company, about $5 billion in sales. They are not a top 25 tenant. They're probably somewhere in our top 50. We have about 60 basis points of our ABR leased to them. The message that we talked about is that they are overlevered. We can expect a restructuring in all likelihood at some point this year, we think. And we want to deliver the message that we own critical operating assets for the company. It's a large company.

They will restructure, and we think they need our properties, which means they're going to continue to pay our rent with really no disruption. And that's kind of the bottom line here is some distress on the balance sheet side, but no impact to our rents. And maybe that's a theme. I mean we think about in how we structure transactions really focusing on downside protection. It's not often that we have credit events, but we think about and structure deals as if we could. One of the main things that we look for are critical -- the critical nature of assets that we own relative to the company's overall operations, and we have critical operating assets and there are restructurings, we tend to fare quite well, which we will.

Beyond those 2 tenants, are there any others that we should be aware of?

No. I mean, beyond that, you'd have to go down to 20 to 25 basis points in terms of scale. So it's kind of de minimis. We have a portfolio of 1,700 properties, over 400 tenants. So there's always going to be some tenant that we're looking at. We're in the business of taking risk. but there's nothing of scale or of significance that would be impactful to earnings. And certainly, nothing that's not well covered by this credit loss assumption built into our guidance.

Maybe if we could pivot to the internal growth of the business. W. P. Carey has a high proportion of leases with rent bumps tied to inflation. And given the potential inflationary impact of the Iran conflict is having on energy prices, can you just remind us how your portfolio is positioned from a rent growth standpoint?

Yes, about half, maybe slightly above half of our portfolio by ABR has rents, leases indexed to inflation. So I think we have what I would view as positive exposure to inflation. It's probably a little bit higher proportion of our European ABR has inflation. It's more customary in those markets to structure deals with inflation-based increases. I think the point is to the extent we see higher inflation and it's correlated with higher interest rates, which typically is, we do have some offsets to anything that may flow on the interest rate side. And I think that's a bit unique to us. And when we don't have inflation increases, we do have strong fixed increases that typically average in the mid-2s.

And this is one area that I think is quite unique to W. P. Carey. A big portion of our growth of our earnings growth is generated through same-store internal growth as we put it, which is a bit different than many, if not most, of our net lease peers who are more -- maybe exclusively or certainly more weighted towards growing through external investments, which you have less control over. I look at internal growth, that portion of our earnings growth is being more certain with more visibility and therefore, higher quality and having inflation as well as our fixed increase is a big part of that.

Are you still able to get inflation-linked bumps on your new investments? And how should we think about that mix going forward?

Yes. In Europe, as I mentioned, it's more customary. So I think those are part of the transactions. I would say what has changed, and again, we're structuring sale leaseback. So there's -- all the elements are certainly the economics of a transaction are part of the negotiation and the bumps are a big part of that. And so yes, I think in Europe, we still are getting CPI where there is more of a negotiation, it might be around instituting caps into the equation.

And I think when we're open and willing to include a cap in our CPI lease, we tend to get floors as well. Think about caps in the 4% to 5% range and floors in the 1% to 2% range. So we feel well protected. I may argue over a 20-year lease, that 2% floor may come into play more often than the 5% cap. So we think all in all, these are still strong leases. And even with caps, they are -- they give good inflation protection. I think the U.S., it's been -- it's less customary, and so it's more of a negotiation. We still are getting deals. In fact, the Go Auto deal in Canada, that was a CPI base increase there. And again, when we're not getting CPI, it's flowing through to higher fixed rent increases. Historically, if you kind of look back 5, 10 years ago, most new deals with fixed increases were more -- probably in and around 2% on average. More recently, it's been 2.5% to 3.5%. Some of that is the environment. Some of that is the increased focus on industrial assets where market rents tend to have -- grow at a higher pace, and our bumps tend to reflect that.

Now just pivoting to the balance sheet. Based on the capital you've raised thus far, you've effectively prefunded your investments for 2026. How are you thinking about funding going forward?

Yes. Jeremiah, do you want to talk through that?

Yes. I mean, like you said, we've kind of addressed most of our needs this year already. We did a large bond raise and an equity raise in the first quarter. So we're in a good position and really most of our needs are addressed. But just to talk it through, in terms of the equity, we're sitting as of the end of the first quarter on approximately $650 million of forward equity. And so that, we believe, can take us through the rest of this year in terms of the -- our guidance range on investments or even through the high end of our guidance range.

In addition to the equity, we also have free cash flow and a handful of dispositions, which we can talk about, if that's helpful. In terms of debt, we would expect to continue to fund our debt capital needs with a mix of U.S. dollar and euro-denominated unsecured debt. All else equal, we have a bias when a refinancing comes up, we're just going to keep it in the same currency. So the only additional maturity we have this year is a USD 350 million maturity that's in October. That's a very small amount of refinancing for us. We have an almost fully undrawn $2 billion revolver. So there's no question about the liquidity to take out that bond maturity. But I think in all likelihood, we'll find a window of opportunity here sometime in the second half of the year to do another bond issuance and take that out in USD.

Could you talk more about dispositions as a lever here?

Yes. I mean, like I said, we do have a guidance range of $250 million to $750 million for potential dispositions. I think that range is intentionally wide. We were part of what we were signaling to the market is that we have the flexibility if we feel like there's good opportunities to do more dispositions and to have that be a source of capital. I think where we sit today with the forward equity we've raised with the bond issuance we've already done, I think we're more likely to be in the lower half of that range.

If you see us going into the higher half of the range, I think it just means that there's really just great opportunities for dispositions that we want to take advantage of. And all of that will just serve to, I think, further kind of bolster our position or extend the runway that we have to make investments on a leverage-neutral basis into perhaps well into 2027.

Are there any assets in particular that you're thinking of or subsets that we can think of on the disposition front?

Yes. It's really the story on the disposition side. I mean, those of you who follow us know that in recent years, we've gone through some larger disposition programs we addressed -- we got out of office and we're selling some office several years ago. Last year, a part of our story was liquidating the operating self-storage assets we have on the balance sheet. So the headline is that there's no major disposition program like some of these ones we've done in the past, nothing that we're looking at this year and really nothing that we could see in the foreseeable future that we'd be targeting.

So the dispositions we do today, they're more one-off dispositions, single assets. There are still a handful of one-off assets that we think can be good accretive sources of capital. And also, I guess, even though they're small, serve a bit of a strategic purpose. This year, we did sell -- we had one asset left in Asia. This was a legacy investment we made when we were in the fund management business years ago and looking at assets in that region. So this was our last asset in Asia. It was in Japan. We sold it. So it was only $30 million or $40 million. It simplifies our story a bit. It was an accretive source of capital. We have a single student housing asset left. That's one that we'll target for disposition.

Again, it's probably a $40 million or $50 million asset. So none of these assets by themselves are meaningful, but that would be accretive as well and again, help with the story. And then we have several hotel operating assets. For those of you, again, who have followed us, we had a net lease with Marriott, very long-term lease, and that lease matured recently. When it matured, those assets converted effectively to assets that were managed by Marriott instead of leased to Marriott. So we now own the hotels. Marriott manages -- these are Courtyard by Marriott brands. So we've sold most of those. We have 3 left. Those are redevelopment opportunities for us, one that we may do ourselves, the other 2 probably to sell for sale to developers. So I guess it's all to say the main point, there's no major kind of programmatic asset disposition going on anymore, but there are kind of one-off deals that we think are -- makes sense to sell and that we think will be a good source of capital.

And maybe if we could just wrap up with valuation here. At the end of your last earnings call, you mentioned that you continue to execute and expect your stock multiple to expand further. What is the case for further expansion of WPC's multiple?

Yes. I mean, look, I appreciate the question as always, because you probably won't have any CEO up here, ever think they're fairly valued, and I'll fall into that category. I mean, look, but I think our story is quite interesting right now if you kind of look at over the last number of years, this point in time, in particular, we've had a number of strategic initiatives over the last, call it, 8 or 9 years during the time that I've been in the seat. We've wound down our fund management business and many of those funds were net lease that we acquired onto our balance sheet.

Jeremiah mentioned that we exited office through a spin and asset sale program 3 years ago at this point in time. And most recently, we sold down operating storage assets, very strong business, but maybe not necessarily one that fits perfectly within the net lease portfolio. And those were very attractive dispositions kind of in and around 6 caps that allowed us to reinvest in net lease. So where we sit today, if you look -- maybe go back 1 year, 2025 is the first base year in which we've had a clean story after all these strategic initiatives. And I think the results speak for themselves. We put up record deal volume, which was over $2 billion, earnings growth at just under 6%.

And I think we're set up very well to continue that progress into 2026. Investment activity is strong. We mentioned where we are deal volume to date. We've mentioned raising our guidance there. We're very well positioned from a funding perspective. Jeremiah had just gone through this. We think we can fund through the top end of our deal volume without having to get into the capital markets at all. I think we can maintain an opportunistic stance, but we're well funded to fund any needs or foreseeable needs for this year. And then our portfolio continues to perform, both from a credit perspective with continuing lowered assumptions around credit loss and of course, the same-store growth within our portfolio is a meaningful component of our growth that many of our peers don't have.

So when you kind of combine those factors there, I think we have a profile that we think can generate mid-single-digit earnings growth on a go-forward basis when combined with a dividend yield that's in and around 5%, that gets you to a low double-digit total shareholder return before any multiple expansion that we think is going to be attractive to net lease investors. And of course, in net lease, once you get the cost of capital and you get into this -- the flywheel spinning and you're into the algorithm, you can really grow. And we have a long history of acquiring and structuring net lease assets, and we think we're really well suited for growth going forward.

And we have about a minute left if there's any questions from the audience.

Do you have a target leverage ratio?

Yes, go ahead, Jeremiah.

Yes. We target mid- to high 5s on net debt to EBITDA. That's -- we also look at debt to gross assets, call it, low 40s. So we've been operating in that zone really for a long period of time. That's probably been our target for the last 5 to 10 years. And we expect to stay there. If there's any bias, it maybe to the lower end, we think REITs in general get the best cost of capital by running conservative balance sheets, but we think the target is appropriate and conservative for our profile.

Yes, maybe first in the front and second behind.

Appreciate the specifically higher prices [indiscernible]

Yes, nothing discernible or thematic. I mean we mentioned that we generally focus on large companies and some of that may be impacting their margins and kind of the equity values of these companies, but not their ability to pay rent at this point in time. And you think about it, we went through a case study of this a couple of years ago when Russia invaded the Ukraine, and we saw a spike in energy prices and gas prices in particular at that point in time. And I think we made that we made it through that scenario relatively unscathed relative to those pressures.

One more question in the back.

One of the Japanese [indiscernible]

No. We -- as Jeremiah mentioned, we exited the Japanese market. We had one asset, legacy asset from 15 years ago that we finally sold. So we're out of the business and focused on Europe and North America.

I was thinking about corporate funding [indiscernible]

Yes. The short answer is we wouldn't do that. I mean when we do go into these other debt markets, it's reflecting the business platforms that we have there. So we're not just sort of going around the world kind of arbing currencies. We're those markets and blend into lower cost of debt, and we can even overweight in those currencies. That's part of our hedging approach. But we wouldn't go do Japanese yen without having a business there. And we have no expectation. We just exited, so we don't expect to in that market.

Well, Jason, Jeremiah, thank you very much for joining us and telling us the W. P. Carey story, and thank you all for coming.

Yes. Thanks, everyone.

Hello, and welcome to W. P. Carey's First Quarter 2026 Earnings Conference Call. My name is Diego, and I will be your operator today. [Operator Instructions] Please note that today's event is being recorded. [Operator Instructions]

I will now turn the program over to Peter Sands, Head of Investor Relations. Mr. Sands, please go ahead.

Good morning, everyone, and thank you for joining us for our 2026 First Quarter Earnings Call. Before we begin, I need to remind everyone that some of the statements made on this call are not historic facts and may be deemed forward-looking statements.

Factors that could cause actual results to differ materially from W. P. Carey's expectations are provided in our SEC filings. An online replay of this conference call will be made available in the Investor Relations section of our website at wpcarey.com, where it will be archived for approximately 1 year and where you can also find copies of our investor presentations and other related materials.

And with that, I'll hand the call over to W. P. Carey's Chief Executive Officer, Jason Fox.

Thanks, Peter. Good morning, everyone. I'm pleased to say we've started the year with continued strong execution across the business, particularly in our investment activity and capital raising, building on the foundation we've established for attractive, sustainable growth.

Given our performance to date, we're raising our full year guidance for both investment volume and AFFO per share, reflecting the investments we've completed to date, the strength of our pipeline and a more favorable outlook for estimated rent loss. This morning, I'll briefly recap some of the highlights from the quarter, focusing on our investment activity.

Toni Sanzone, our CFO, will then take you through the details behind our results, balance sheet and guidance. And we're joined by Brooks Gordon, our Head of Asset Management, to help answer your questions. Starting with our investment activity.

So far this year, we've completed investments totaling approximately $680 million. Our pipeline remains very strong with over $0.5 billion of deals currently at advanced stages, including the sale leaseback of a large industrial portfolio that's in the final stages of closing. That gives us clear visibility into well over $1 billion of investments. Importantly, we've continued to see strong momentum in our deal flow with no noticeable impact on transaction activity to date from recent geopolitical tensions.

Given our activity and outlook, we've raised our guidance range for full year investment volume by $250 million to between $1.5 billion and $2 billion. Factoring in what we've already closed, our current pipeline and the capital projects we have delivering this year resulted in an average cap rate of approximately 7.5%. And for the full year, we expect to remain around that level. We continue to transact across a range of cap rates and the deals we've closed year-to-date have generally skewed toward the low end of our target range and below where our pipeline is pricing with closed transactions averaging 7.2%. This largely reflects timing as it includes some of what we expect to be our tightest cap rate deals over the first half of the year.

I'd also highlight that our investment activity to start the year has been mostly weighted towards Europe and Canada, where we secured lower cost debt during the quarter, including a 2 tranche Eurobond offering at a 3.5% average coupon and a Canadian dollar term loan at just over 3%, helping maintain attractive spreads to our going-in cap rates. We also continue to originate deals with fixed rent bumps averaging in the high 2% range or with CPI-based rent escalations.

As a result, we're still achieving average yields of around 9% over long lease terms. During the first quarter, we allocated the majority of our capital to warehouse and industrial properties, which accounted for approximately 60% of investment volume. Retail represented the remaining 40%, driven largely by the sale leaseback that we completed with Go Auto for a portfolio of auto dealerships with strong site-level coverage concentrated in the Greater Vancouver area. Go Auto is the second largest automotive dealership group in Canada, and now ranks among W.P. Carey's top 25 largest tenants by ABR.

We completed 4 capital projects during the quarter, totaling $68 million, which are included in our year-to-date investment volume and added a handful of small projects scheduled to deliver later this year. In total, we have 11 capital projects totaling approximately $280 million, delivering over the next 12 months. These projects are generating cap rates incrementally higher than both our year-to-date investments and our full year expectations, providing attractive risk-adjusted returns.

As I've discussed on prior calls, these projects, particularly the expansions, frequently deliver above-market yields while also extending lease terms and enhancing the strategic importance of the assets involved. Given the size of our portfolio and our long history in this area, further supported by our recent Carey tenant solutions initiative, we believe we're well positioned to expand this highly attractive proprietary source of deal flow.

Our internal growth also remains strong and continues to trend higher on new investments. And if inflationary pressures from higher energy prices persist, our portfolio is uniquely positioned to benefit given the high proportion of ABR with rent escalations tied to CPI. Lastly, turning to our sources of capital. Our investment activity continues to be supported by well-executed capital raising, driven by the debt issuance and forward equity sales we completed in February.

In addition to further strengthening our balance sheet, these actions have effectively prefunded our investment needs for 2026. We've also locked in attractive pricing and meaningfully reduced our exposure to potential further capital markets volatility this year. As a result, we're confident we can continue deploying capital throughout 2026.

As a reminder, we also expect to generate around $300 million of retained cash flow this year, providing an additional source of equity capital. And while additional asset sales are not a core part of our funding strategy, we continue to have the flexibility to pursue additional accretive dispositions at attractive cap rates, if needed.

Let me pause there and hand the call over to Toni to discuss our results, balance sheet and guidance in more detail.

Thanks, Jason, and good morning, everyone. Starting with earnings. AFFO per share was $1.30 for the first quarter, which represented a $0.13 or 11.1% increase compared to the first quarter of last year.

Accretive investment activity continues to drive our year-over-year growth, having closed $2.8 billion of investments since the start of 2025 at accretive cap rates and healthy spreads to our funding sources. As Jason mentioned, given the pace and volume of our investment activity to start the year as well as the strength of our pipeline, we've raised our expectations for both full year investment volume and AFFO per share.

As outlined in our earnings release, we've increased our investment volume guidance to a range of $1.5 billion to $2 billion, which together with lower estimated potential rent loss, results in an aggregate $0.03 increase to our AFFO per share guidance at the midpoint. For 2026, we therefore currently expect AFFO per share to total between $5.16 and $5.26, implying 4.8% growth at the midpoint.

Turning to our portfolio, starting with dispositions. First quarter asset sales generated gross proceeds totaling $163 million. This included the sale of the 11 remaining operating self-storage properties in our portfolio for $75 million. With that, we've now completed our exit from operating self-storage, further simplifying our business and generating aggregate proceeds of approximately $860 million at an average cap rate just below 6%, which we've recycled accretively into higher-yielding investments.

Contractual same-store rent growth for the quarter was 2.4% year-over-year with both fixed and CPI-linked rent escalations averaging 2.4%. For the full year, we continue to expect contractual same-store rent growth to average in the mid-2% range. We continue to achieve strong rent escalations on our new investments. About 3/4 of our investment volume during the first quarter had leases with rent increases tied to CPI, while the other 1/4 had fixed rent escalations averaging 2.8% annually.

Comprehensive same-store rent growth for the quarter, which takes into account the impacts of re-leasing, rent collections, vacancies and lease restructurings was 1%, with the variance to contractual driven largely by the impact of vacancy during the quarter. Given the nature of this metric, comprehensive same-store rent growth can vary from period to period, often due to onetime items or properties moving in and out of the same-store pool. Historically, our comprehensive same-store rent growth has trailed contractual by approximately 100 basis points on average, and we believe that's a reasonable estimate for the portfolio over the long term.

Portfolio occupancy at the end of the first quarter was 98.1%, up slightly from the fourth quarter and is expected to improve further as we continue to re-tenant or dispose of vacant assets. Our portfolio continues to perform well with no new material changes in credit throughout the portfolio so far this year. We've therefore, lowered the potential rent loss assumption embedded in our AFFO guidance to between $8 million and $12 million or about 50 to 75 basis points of ABR, down from our prior estimate of $10 million to $15 million. And based on what we see today, we would still characterize our revised assumption as conservative.

Our first quarter re-leasing activity resulted in the overall recapture of 103% of prior rents on 1.4% of portfolio ABR and added just over 5 years of weighted average lease term. Other lease-related income for the first quarter was $10.5 million, in line with our expectations and includes termination income related to redevelopment work that commenced this quarter. Based on our current visibility, we expect other lease-related income for the second quarter to be in line with the first quarter and to total in the low to mid-$30 million range for the full year as we continue to proactively manage our portfolio. Non-reimbursed property expenses totaled $14.6 million for the quarter, which includes approximately $1.2 million of demolition costs related to redevelopment work, as we discussed on our last call.

We expect to incur additional demolition costs in the second quarter which would increase non-reimbursed property expenses further before resuming to a more normalized run rate in the back half of the year. For the full year, we continue to expect non-reimbursed property expenses to total between $56 million and $60 million. G&A expense totaled $27.3 million for the first quarter, in line with our expectations since the first quarter tends to be the highest of the year for G&A given the timing of payroll taxes. For the full year, we continue to expect G&A to total between $103 million and $106 million, with the second quarter resuming a more regular run rate.

Moving to our balance sheet. We were very active in the capital markets during the first quarter, accessing close to $2 billion of capital across a variety of sources, taking proactive steps to further strengthen our balance sheet and ensure we're well positioned to fund our projected investment activity. In February, we issued EUR 1 billion of senior unsecured notes, comprising 2 EUR 500 million tranches, with coupon rates of 3.25% on a long 5-year maturity and 3.75% on a long 9-year maturity. We executed during a particularly attractive window with proceeds used to address our April Eurobond maturity, which we repaid in March to retire our EUR 215 million term loan and to increase our overall liquidity to support externally driven growth.

In March, we amended our credit agreement, replacing the euro term loan I just mentioned with a new Canadian dollar term loan at a current all-in rate of approximately 3.1% with proceeds used to fund our Canadian investment activity. At the same time, we were able to improve our overall revolver pricing grid by 5 basis points at all levels, incrementally lowering our cost of debt.

We also successfully executed in the equity markets during the quarter, selling 6.9 million shares on a forward basis, representing total gross proceeds of $497 million. This, combined with the forward equity we sold under our ATM program in the second half of 2025, gives us enough runway to execute investment volume above the top end of our current guidance range.

At the end of the first quarter, we settled 3.45 million shares under forward sale agreements for net proceeds totaling $247 million, leaving us with 9.7 million shares remaining to be settled, representing anticipated net proceeds of $653 million as of the end of March. Driven by our capital markets activity, we ended the first quarter with substantial liquidity totaling approximately $2.8 billion, including availability on our credit facility, cash on hand and unsettled forward equity.

Our remaining debt maturities this year are minimal, primarily comprising the $350 million of U.S. bonds we have maturing in October. The weighted average interest rate on our debt remains low at 3.1% for the first quarter and is expected to remain in the low to mid-3% range for the full year after taking into account our recent bond issuances. Net debt to adjusted EBITDA ended the quarter at 5.3x, inclusive of unsettled forward equity. Excluding the impact of unsettled forward equity, net debt to adjusted EBITDA was 5.7x, down from 5.9x at year-end and well within our target range of mid- to high 5x.

Lastly, on our dividend. In March, we increased our quarterly dividend 4.5% year-over-year to $0.93 per share, maintaining a healthy payout ratio of 72%. Based on our current stock price, that equates to an attractive annualized dividend yield of over 5%. We expect our dividend to continue to grow in line with our AFFO growth while maintaining a conservative payout ratio.

And with that, I'll hand the call back to Jason.

Thanks, Toni. In closing, we're pleased with our performance year-to-date, driven by the continued momentum in our investment activity, the strength of our pipeline and our capital markets execution, all of which position us well to continue executing going forward. As we look ahead, we remain confident we're on track to deliver double-digit total shareholder returns again in 2026, and that's before any multiple expansion.

Our projected earnings growth compares favorably across the net lease sector. And over time, we would expect that to be further reflected in our trading multiple. That concludes our prepared remarks.

So I'll pass the call back to the operator for questions.

[Operator Instructions] Your first question comes from Michael Goldsmith with UBS.

First, you have 1/3 of the portfolio in Europe, you continue to acquire there. Are you seeing any impact of the portfolio? Or is there any worry that you have just given some of these global macro events and also just the conflict in Iran. Is that having any impact on your portfolio in Europe?

No. I guess there's a little bit more potential for uncertainty in Europe, given higher energy prices there, but it hasn't impacted us. And if you think about our portfolio, it's diversified. We mainly have very large companies that can ride through the different cycles, and we've shown that in the past. So there's not big concerns there. We feel good about the portfolio. We haven't seen anything yet. I think that's certainly something I could say definitively.

And my follow-up question is, you said in the prepared remarks, you've effectively prefunded your investment needs for 2026. I guess like how are you thinking about just funding going forward? Or do you sit back and just kind of wait to see what comes to you would be opportunistic with your fundraising? Or is this the time where you can be a little bit more aggressive, start to prefund '27? And then if the volumes continue to pick up in '26, it gives you the position to be more aggressive. Just trying to get an understanding of your thoughts in the funding environment and what's next there.

Yes. I mean we're sitting on $650 million of forward equity right now that's left to be settled. We have lots of liquidity, as you pointed out. In terms of more equity, I would say if there's good opportunities to get ahead of our needs for 2027 and raise more equity, I think we'll always consider that. But we're certainly comfortable where we are today and a lot of it will depend on the investment opportunity set and what that looks like. That's probably going to be the biggest driver. But Bottom line is we really don't have any visible needs right now, so we can be -- I think you're words we're opportunistic.

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

This is Dan on for Jana. Could you please provide any updates on the Carey Tenant Solutions platform?

Yes, sure. I mean we talked about this in some detail on last quarter's call, and these are the types of construction projects that we've been doing for quite some time, dating back several decades. They include build-to-suits and expansions and redevelopments. And the reason why we've been more deliberate about talking about it is just to make sure that people understand that this is part of our business, and it's maybe another part of our business that we think we can grow. And part of the branding around it is to formalize it and maybe be a little bit more holistic in our outreach to our tenants. If you look at historically what we've done, it's probably been around $200 million per year. That will vary from year-to-year, but that's probably a decent average. And we think that can perhaps get bigger.

And one of the benefits of being a large REIT like we are, we have built up a very capable in-house project management team. And so that's a real competitive advantage. And what we found in our outreach to tenants and when we can offer them various development services and other solutions that, that can lead to follow-on deals. Currently, and we provide a lot of detail on our supp around this. We have about $280 million of projects in process and about $180 million of that $280 million will complete this year. And beyond that, there's a really active pipeline of potential projects that we would expect to move along over the coming quarters.

And then also with the self-storage operating asset dispositions now completed, what additional assets are you targeting to meet your full year disposition guidance? And any plans on the other 5 operating assets?

Brooks, do you want to take that?

Sure. As Toni mentioned, we maintain a pretty flexible disposition strategy for the year, this early in the year, a range between $250 million and $750 million. And so we really value that flexibility. In terms of other operating assets, we have a few hotels and one student housing property that we are evaluating for dispositions, potentially in the back half of this year, but also potentially into next year. So it's something we're looking at. But again, we've maintained a lot of flexibility from a liquidity and capital perspective. So that will really -- investment pipeline will help drive kind of where we land in that range.

Your next question comes from Anthony Paolone with JPMorgan.

Can you talk about the investment pipeline and what the geographic skew looks like at the moment? And also the property type kind of buckets where you're seeing more or less and just where the dispersion around that mid-7s cap rate resides?

Yes, sure. I mean the pipeline remains strong. I mentioned earlier that includes kind of over $0.5 billion of identified transactions, some of which are in advanced stages. And it includes one larger sale leaseback of a sizable industrial portfolio in the U.S. that should close over the next couple of weeks. And then we mentioned also that we have around $180 million of capital projects that are scheduled to complete this year. So that's all part of the visibility into the deal volume that we have this year.

In terms of geography, Europe continues to ramp. I think of the deals closed, year-to-date, about half of those were in Europe. A deal in Poland, Raben was the largest. Another 30% of that was in Canada, and the remainder was in the U.S. But yes, but for Europe, we see a continuation of the increased activity that we started seeing in the second half of last year. But that doesn't mean that U.S. is slowing. I think the pipeline is roughly back in line with our ABR mix. It's about 2/3 in the U.S. and 1/3 in Europe right now. And then property types, I think this is a consistent theme for us. We continue to see interesting opportunities in industrial, and that's both manufacturing and warehouse. Year-to-date, about 60% were industrial and 2/3 of that were warehouse.

And then we also saw a pickup in retail. A lot of that was driven by the Go Auto deal that we talked about earlier. And then the pipeline is more heavily weighted towards industrial, that's probably 80% right now. But there's a lot of opportunities at the top of the funnel that will come in as well.

Okay. And then just second question. You all have historically had a strong tie-in with private equity. And I was wondering if you've seen sort of some of the challenges on the private credit side have any implications on your deal pipeline, either making sale-leaseback more attractive or just generally having any impact on your tenant base?

Yes. Let me start on the deal impact. I mean I think our expectations are that potentially sale-leasebacks could become a more interesting opportunity for some of the private equity-backed companies that maybe if there's a void with private capital to the extent underwriting or capital flows tighten up there. I wouldn't say that's a theme we're seeing right now, but certainly, it's a possibility that, that emerges more.

Brooks, I don't know if you're seeing anything within our portfolio related to private credit.

No, we haven't seen really discernible specific impacts. It's something we'll continue to watch out for, but that hasn't been a factor as of yet.

Your next question comes from Smedes Rose with Citi.

I wanted to ask you just a little bit about in the past, you've spoken about leaning into retail more. You obviously completed some in Canada this quarter. I just wanted to ask you, how do you think about kind of the rent escalators in that segment versus maybe in other asset classes?

Yes, sure. I mean there is a difference. I think market standards for retail tend to be lighter bumps than what we're able to negotiate in industrial and warehouse. I think that makes sense. I think the warehouse market generally has grown substantially over the last couple of years in terms of rent growth and a lot of the bumps we put into our leases are meant to be a proxy for market rent. And the rents for warehouses or manufacturing plants for industrial companies tend not to be a big part of their cost inputs, whereas retail rent typically is their biggest expense.

So there's more of a focus on that. And I think that's why historically, you've seen flatter leases. I think where we target, which is sub-investment-grade retail, bump structures are probably in the -- on average, maybe the 1.5% to 2% range compared to industrial, where we're seeing probably more like 2.5%, 3% or even above that. I think once you get into investment-grade retail, which we view as the commodity segment of net lease and tend not to participate in that all that much. Those leases tend to be even flatter. And really the only way to differentiate yourself when investing there is through pricing.

So that's kind of the -- there's meaningful differences there, I think, between the 2 in terms of bump structures.

And then I guess I just wanted to ask you, too. I mean, you mentioned some tighter cap rate spread deals, I think you're looking at in the first half of '26. I mean, does that pertain to the larger kind of industrial type portfolios that you're looking at? Or is it more for one-off opportunities? Or maybe just commentary around kind of the pricing across like larger deals versus smaller deals?

Yes. It's not related to larger or smaller deals. And really, the reference to the tighter cap rates were -- was to the deals that we've closed year-to-date. It's about $680 million. Those deals blended towards the lower end of our target range, 7.2%. And my expectation is that those will be some of the tighter cap rate deals we closed this quarter. Those also, I think maybe it's important to note, and we talked about this earlier, that the bulk of those deals were done in Europe and Canada, where our borrowing costs are meaningfully cheaper than that in the U.S.

So despite the lower cap rate, we did see attractive spreads on those deals. And then I think the other half of this is our pipeline in addition to our capital investment projects delivering this year, those are more in the upper end of our target range, which helps us to blend to the mid-7s for the year. So I think overall, it feels like cap rates have been relatively stable for the year despite the macro volatility. Hard to predict, of course, what's going to happen in the second half of the year. But because we transact across a wide range of cap rates, sometimes the timing or the mix will create some dispersion there, but I don't think it's any read-through to any market trends or specific geographies or asset classes.

Your next question comes from Ryan Caviola with Green Street Advisors.

Just a quick one on onshoring. Obviously, this trend should be helpful for the in-place industrial portfolio. Do you think those tailwinds will lead to more competition and bidding trends with new buyers interested in industrial net lease? And would this lead to a continued focus on industrial acquisitions in Europe? Or do you see it just being an overall benefit for all buyers in that space?

Yes. I think it's the latter. I think that to the extent there is more onshoring or reshoring. I think we stand, certainly within our portfolio, stand to benefit substantially. We're one of the larger owners of industrial properties, especially manufacturing, and to the extent it increases demand on the types of buildings that we own. We think that's good for rent growth. We think that's good for the criticality factor that we tend to underwrite in the buildings that we own.

Could it attract more competition? Perhaps. I mean if a particular end of the market becomes more attractive, I think you could see some capital flows in there. But it's a big market, and I think the positives certainly would outweigh any kind of increased competitive cash flow or capital flows.

And then on the -- just the mix between new deals in terms of embedding in inflation-based increases in the lease or focusing on higher fixed escalators. Can you just update us on where that stands and if this has any differences, whether it be by country or industry?

Yes, sure. I mean since the spike in inflation 4 or 5 years back, the CPI-based leases have gotten to be a little bit more difficult to negotiate into new deals. I mean that's, I guess, particularly in the U.S. In 2025, last year, about 1/4 of our deals had CPI-linked increases. But so far this year, it's actually the opposite. It's about 3/4 of deals closed to date were CPI-based. And I think to your point, I think that's a function of geography more than anything else.

Europe leases, it's still customary to have inflation-based increases embedded in there. And so year-to-date, as we mentioned, there's been -- more of our deals have been in Europe. I think the Go Auto deal in Canada -- that's also a CPI-based increase negotiated in there, something that we certainly value having that inflation hedge built into our portfolio, and it's important to get. But when we don't get inflation-based increases, the effects of higher inflation have still kind of flowed through to our fixed increases, where historically, our average fixed increase is probably closer to 2%, whereas the last 3 or 4 years, we're probably 50 to 100 basis points above that on new deals with fixed increases.

So we're still seeing some of the benefits there. And it's probably a good reminder of the -- and we talked about this a lot about the differentiation of our portfolio compared to many of our net lease peers where we have substantial internal growth built into our model as opposed to just relying on spread investing and external growth.

Your next question comes from Mitch Germain with Citizens Bank.

So Jason, just following up on that topic, is it more standard to have a CPI-based lease in Europe versus kind of what the acceptable rate is here in the U.S.?

Yes it is. It's definitely more standard and more customary in Europe. I think that we've always made it part of our model to the extent we can in the U.S., and this dates back to we've been around for 50-something years at this point in time. And a lot of this dates back to the '80s on the themes of trying to create an inflation hedge within a fixed income type stream that net lease can sometimes be, and we think we've done a good job of that.

Got you. And clearly, there's a lot of momentum in the business. I'm curious, though, if you're seeing some of the buyers that for the last couple of years have been on the sidelines reemerge? And is any real change in the competitive balance within the investment sales markets?

Yes. I mean the net lease market has always been competitive, and that's especially in the U.S. I would say there have been some new entrants over the last couple of years. It's a lot of the names that we read about, some of the big asset managers have acquired other platforms. And I mean, one of the things that we've observed and we've heard this from some bankers as well, is it doesn't necessarily mean there's new kind of incrementally new players in the business, many of them have just changed brands from being independent to be part of a big asset manager.

Regardless, it doesn't feel like it's been all that impactful and I think ultimately, the results speak for themselves as we continue to generate substantial deal volume at attractive pricing and spreads, and that's irrespective of competition. And I think beyond pricing, I mean, we have a lot of competitive advantages. We've been doing this for a long time. Experience and execution really matter, especially when we're focused on more complex sale leasebacks. And I think our track record and reputation in the market are something that helps differentiate us. So it all seems manageable. And again, it's not showing up in the numbers, that's for sure.

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

I just understand that the spread between contractual and comprehensive growth can fluctuate from quarter-to-quarter. And over the long term, the average spread has been around 100 basis points. But just curious what your expectation is for this -- for that spread for the remainder of the year as it sounded like you may have some vacancies to address.

Toni, do you want to take that?

Sure. Yes. I think you covered kind of the highlights there. I think as we mentioned, the contractual side, we're expecting around mid-2% growth from our contractual base lease escalations. And then on the comprehensive side, again, factoring in vacancy is probably the biggest impact we see over the course of this year. As you mentioned, it does move around from quarter-to-quarter. That can be collecting rents, recovery of rent in any one period, we could see that move.

I think the 100 basis points, it's a good round number we use in terms of kind of our historical average, but really is a good estimate over the long term. I think factoring that in, we could certainly see the range for this year being between 1% and 2% on the comprehensive side, but it really does depend on how soon we address vacant asset dispositions and like I said, timing of things like rent recoveries.

Okay. That's helpful. And then Jason, just going back to your comments around your well-capitalized European tenant base, who can absorb oil shocks and supply chain volatility. But do you have any exposure to maybe less capitalized tenants or tenant categories with higher sensitivity to commodity price swings? And how are you underwriting or monitoring that risk today?

Yes. Brooks, do you want to take that? It's kind of, I guess, a broad question, but...

Yes. I mean I think the key point in there is what Jason mentioned is that the broad diversification, long-term leases and high criticality. I mean we transact with businesses of all sizes from the biggest in the world to smaller companies. The bulk of our companies by large margin are large, well-capitalized companies and that remains true in Europe as well.

So our overall view of oil shock is it's a risk we need to monitor very closely. But we haven't thus far seen direct impacts. It's something we'll pay very close attention to. But again, our portfolio is really constructed intentionally to absorb any types of shocks or headwinds, and we've seen that a number of times over the decades. So we're confident in that. And I think that diversification really is key there.

Your next question comes from Jim Kammert with Evercore ISI.

Jason or team, are you willing to provide a little bit of color on terms of financial data regarding, say, Raben and Go Auto, both from their website look to be pretty substantial companies, but I think they're both privately owned, if I'm not mistaken. I'm just curious if you can provide a little sort of financial flare or color around the size and the -- give scope of those companies.

Yes, sure. They are private companies. So I think we are under some restrictions in terms of talking about financial details. With Go Auto, we talked about earlier that they're the second largest auto dealership platform in Canada. They're diversified across pretty much all the OEMs or the brands, and they have a proven track record of growth over many years at this point in time. I think sales for them are greater than $3 billion. I think Raben, also a large company, they are a Dutch company, but one of the largest 3PL operators in Poland. I don't think we can talk about kind of revenue or EBITDA, but they're one of the market leaders in the Poland market from a 3PL standpoint.

That's helpful. And then sort of derivative of the first question, it seems like you've knocked out a growing list. I mean, Life Time, and we just talked about Raben and Go Auto kind of $200 million-plus transactions. Is that just happenstance? Or is there some message to read into that in terms of your investing efficiency and where you're spending your time on the external side?

Yes, sure. I mean, look, it's -- I guess I would say the majority of our deals typically fall within the, call it, $25 million to $100 million deal size range. Average transaction is maybe around $50 million, perhaps a little bit bigger than that. But we do consistently see larger deals. They're part of our regular deal flow. On any given year, we would expect on a bid on a number of these larger sale leasebacks, call it, 200, 300 or even larger deals.

You mentioned Go Auto and Raben and last year, Life Time. So we do tend to complete several of these larger deals each year. And I just mentioned earlier that we have one larger sale leaseback in the pipeline, an industrial deal in the U.S. that should close over the next week or 2. So yes, so it's part of the deal flow. And look, we're one of the largest net lease REITs. So I think one of the benefits of our scale is that we can do larger deals in the other regular part of our business.

And your next question comes from John Kilichowski with Wells Fargo.

My first one is just on the new credit loss guide. I know last quarter, you talked about there wasn't any maybe specific items that you were looking into. Is there anything now this quarter that you have some sense of this is where credit is going to turn out? Or is the 8% to 12% number still more of an open-ended space just for things that may come up in the rest of the year?

Toni, do you want to just touch on kind of the range and how that's changed? And then maybe Brooks, you can just give a little bit of color on credit watch.

Yes, I'd say it's more the latter. I would say we've not really seen any material credit change in the portfolio since the start of the year, and that's really amongst our watch list and more broadly. So really, with 4 months of good rent collections behind us and our current view of the tenants, we did feel comfortable bringing down the range. The range is still larger than our typical historical losses. But again, that's more about being prudent in this uncertain macro environment and then really ensuring we're covered in any number of scenarios rather than anything that we're seeing currently in the portfolio.

Yes. And then just on credit watch and credit quality generally, as Toni mentioned, it's pretty stable. As you noted, we lowered the rent loss assumption range, which is sort of the most direct tool we can offer you there. Watch list came down slightly as well. Some color commentary on the watch list is Hellweg remains the biggest exposure there. It's about 1% by ABR and coming down quite quickly. We're on track to have that out of our top 25 in the first half or around midyear, I should say.

The only other tenants to note is Cornerstone, which is about 60 basis points of ABR. They're largest exterior building products manufacturer, a very large company, over $5 billion in revenue. They've been on watch, we expect they'll restructure at some point. Their balance sheet is over-levered, but we own very critical real estate, don't expect any impact there. But that's the only one of size. The rest of the credit watch list is really diversified and much smaller tenants.

Okay. That's helpful. And then on the second one, earlier, you gave some helpful color around some operating assets that you may consider selling the rest of the year. I was just hoping if you can give maybe some idea of the buckets of capital that you're considering selling. And then maybe to add on to that, the cap rates that you think you could blend to for the rest of the year.

Brooks, do you want to take that?

Yes. So as I -- yes. So again, as I mentioned, it's a little difficult to pin down with precision because we are maintaining a lot of flexibility there in the disposition plan. Roughly at the midpoint, you can kind of view it as a split in 2 buckets. The first is noncore kind of accretive exit. Those are primarily operating properties. The final tranche of storage was the biggest piece of that. We're evaluating one student housing property and several hotels for the second half. Too early to determine exactly timing on those.

A few other noncore opportunities, including we exited recently post quarter, our only remaining Asian asset for a very good price. So that's kind of your first bucket. The balance is kind of your risk mitigation and vacancy that's transactions such as the JOANN, former JOANN warehouse we sold, which we -- I think we discussed last call, that sold at a very attractive cap rate, mid-5s cap rate on the prior rent. Also some Hellweg we've been exiting and a few warehouse assets.

So from a pricing perspective, again, tricky to pin it down with precision. I'd say that first bucket would be kind of in your mid-6s cap rate range. It really depends exactly on what closes, but in that universe. On the second bucket, harder to pin down at this point in the year. But considering that there's some vacancy embedded in that, it's going to be a nice earnings tailwind in any event. So hopefully, that helps you color perspective but a bit premature to nail it down.

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

Jason, how are you thinking about geographic diversity and density in certain countries in Europe? With Poland now is your #1 international exposure following the Raben acquisition, do you expect to see further increase in exposure there? Or is there a limit at a country or regional level that you think is best for the portfolio?

Yes. I mean there's no specific cap or maximum exposure. But I think we're certainly very mindful of diversification at the same time, given our scale, it would take some meaningful sized poles transactions to really move the needle there. We've been investing in Poland for a long time now. It's over 2 decades, and it's really become a core piece of the broader European net lease market.

I think people that don't follow Europe as closely, you may not know it, but it's the sixth largest economy in the EU. It's also top 20 economy globally. It's one of the fastest growing economies in the EU as well. Projected growth is about 3.3% this year. So yes, it's an attractive market for us. I mean the bulk of what we own there supports supply chains for large multinational companies, both manufacturing and logistics assets that it kind of serves as a low-cost manufacturing and distribution hub into Western Europe. So yes, a good market for us. I think we'll stay active there, but we're certainly mindful that it's become about 5% of our portfolio. It's not a huge exposure, but we certainly keep an eye on that.

That's helpful. And then with visibility into over $1 billion of deals at this point of the year, do you see investment guidance as conservative? Or is there some expectation for deals to slow into year-end?

I mean, look, we're confident that we'll continue generating higher deal volume throughout the year as we did last year. I think from a guidance perspective, and we did this last year, we want to take a measured approach. I think last year, that led to a series of increases, and that's kind of the preference going forward.

Last quarter, our initial guidance, we talked about that as a starting point. And obviously, we just increased that by $250 million at the midpoint. And the expectation is as we progress through the year and get more visibility into the back half of the year, we'll refine that range and hopefully raise it further. And we're off to a good start. You mentioned the $1 billion of visibility, and that includes almost $700 million of closed investments to date.

So I think the elements are there for us to have another strong year. And I think we'll kind of reflect that in our guidance as appropriate and as the year progresses.

Your next question comes from Jason Wayne with Barclays.

Just looking at the lease expiration schedule kind of quarter-over-quarter, lease expirations came down as a percentage of ABR this year and next year. I guess how much of that is due to looking at upcoming maturities proactively versus just changes in the portfolio?

Brooks, do you want to take that?

Yes. So as you noted, we've been making a lot of progress on lease expirations. I'd say that cadence is pretty normal for us. The track record over the past 10 or so years has been very good on rent recapture around 100% and very low TIs. So you can kind of see that flowing through our disclosure numbers there.

In other cases we're -- we've noted a few assets where we're looking to re-lease. So we're working through those. That's part of it as well. From a lease expiration outlook perspective, 2026 is very manageable. It's about 1.8% by ABR. That's coming down pretty quickly. And so we're making good progress on that. We have a couple of nonrenewals expected in Q4. These are really high-quality warehouses, below market rents.

So we're optimistic that we're going to be able to push rents higher on those, but those are sort of towards the end of the year, so not impactful to 2026. In 2027, we've got about 3.5% expiring. That's actually come down a little bit subsequently as well from some renewals we've achieved post quarter. Manageable year. One item to note is we have the expiration of the final tranche of net-leased Marriotts in 2025, that's around $5 million of ABR. We'll exit those in due course. But important to note, there's coverage there. So there's no earnings impact, but that's something we'll look to address in 2027. But all in all, making good progress on the lease expirations and those assets that do have some nonrenewal, we're quite optimistic about our ability to push rent higher there.

Thank you. At this time, I am not showing any further questions. I'll now hand the call back to Mr. Sands.

Great. Thank you, and thank you, everyone, for your interest in W. P. Carey. If there are additional questions, please call Investor Relations directly on (212) 492-1110. And that concludes today's call. You may now disconnect.

All right. Welcome to Citi's 2026 Global Property CEO Conference. I'm Smedes Rose of Citi Research. We're pleased to have with us W. P. Carey and CEO, Jason Fox. This session is for Citi clients only and disclosures have been made available at the corporate access desk. To ask a question, you can raise your hand or go to liveqa.com and enter code GPC26 and submit questions.

Jason, I'll turn it over to you to introduce your company and team, provide any opening remarks and then tell the audience the top reasons an investors should buy your stock, and then we'll open it up to Q&A.

Yes. Thanks for having us, as always, and thanks for joining us for this Q&A session. With me to my left is Peter Sands, who heads up Investor Relations for us. And to my right is Jeremiah Gregory who is our Head of Strategy and Capital Markets. So W. P. Carey, we are a net lease REIT that has a diversified model across geographies and property types. We have about a $16 billion equity market cap, call it, $25 billion enterprise value and have been around for over 50 years.

In terms of the reasons to buy us right now, I think first and foremost, we're seeing continued strength in our investment activity, which lays the foundation for attractive, sustainable growth going forward. We had a record year for deal volume in 2025, including a very strong Q4, and that momentum has carried over into 2025. So that's number one.

Number two, we're very well positioned from a funding perspective. with over $900 million of unsettled equity forwards. So our 2026 investment volume is effectively prefunded and really we have prefunded into 2027 in all likelihood. Three, our portfolio continues to have one of the best rent growth profiles in the net lease sector and likely contributes close to half of our expected earnings growth.

So that derisks our growth profile relative to someone who's focused solely on acquisitions. And then lastly, we do think there's upside in our stock, and really, there's 2 reasons for that. One is our earnings guidance, our AFFO guidance. We view as conservative and as a starting point, particularly with our assumptions around 2026 deal volume and potential credit loss. And then lastly, while our stock has been on a good run, it still trades at a multiple that's at a discount to some of our net lease peers that have similar growth profile. So we think there's an opportunity to compress that delta.

Okay. Great. Okay. That's a good opening commentary. So maybe we can just talk about a little bit on those. I mean I think the first question is always, you had mentioned on your fourth quarter call and even in third quarter last year about momentum in the acquisitions outlook, you activity was elevated last year. I remember I asked on your fourth quarter call, it seemed like your outlook was sort of conservative this year. So maybe just talk about deal flow, the pipeline, kind of what you're seeing. Let's talk about U.S. versus Europe, just kind of some broad picture and then we can drill down a little more.

Yes, sure. Yes. I mean, look, deal activity is quite active right now. And in the U.S., that's been the case now for, call it, 5 or 6 quarters. And that's for the sector. A lot of that is driven by stability in rates. That's one of the key ingredients and increased investment activity in the net lease space. And for us, if you look back over the past 5 quarters to the fourth quarter of 2024, we've done over $3 billion of investments during that time period. And if you think about what's changed, I mean, a big part of the catalyst here is that 2025 was for all practical purposes, our first clean year in a number of years after having gone through a series of strategic changes from simplifying the model to net lease -- [ pure-play ] net lease REIT, no longer with an investment management platform.

Obviously, we spun an office portfolio out. So 2025 is kind of the reset year for us, a clean year from which we can fully utilize the platform that we've developed over many decades. And I think that's kind of showing in the level of activity that we've seen.

Okay. And then as you think about kind of your outlook, maybe just kind of remind us kind of what you're seeing maybe on the watch list, what's embedded into your guidance? And kind of how does that compare to prior year?

Yes. Jeremiah, do you want to talk kind of watchlist credit loss?

Sure. I think the first, I think, point we would make is just where we started the year in guidance in terms of potential credit loss cushion from lost rents. We started with $10 million to $15 million baked into our guidance. And so that assumes if that were to happen, we would still achieve the 4.2% growth that's kind of the midpoint of our AFFO guidance. So I think we would say a reasonably conservative starting point that can allow for some unexpected unforeseen events on the tenant credit side and still achieving this 4.2% growth.

I think if as the year goes on, tenants are paying rent, there are no unforeseen or major unforeseen outcomes on the tenant credit side, then I think we'd look as the year goes on to tighten up that estimate. And hopefully, that would be able to flow through to perhaps even better growth than the 4.8% we're showing.

What does the $10 million to $15 million equate to as a percent of rent? I think that's normally how your peers quote it. So just to make it kind of easily comparable.

Yes, I think that's -- I want to say that's like 60 to 90 bps.

Say again?

60 to 90.

60 to 90 bps.

And I think if you look at where we ended last year, it was roughly $6 million of -- that flowed through that lost rent number. That was approximately 40 bps last year. So ended last year, I guess, below the low end of the range that we're starting this year with.

I mean, Smedes, one of the kind of themes, if you look at our guidance, and we characterized it on the earnings call as with conservative inputs, and it's similar to the approach we took last year. We started off with a lower deal volume number and a bigger credit loss. And as the year went we had better visibility into the middle part and the end of the year, we were able to refine that and raise the deal volume and we meaningfully brought down the credit loss assumption. That's the kind of expectation that we're starting this year. And despite having conservative deal volume, $1.5 billion at the midpoint relative to the $2.1 billion we did last year and the credit loss assumption that Jeremiah just went through.

Despite that, we're still able to generate our base case assumption of 4.2% growth at the midpoint, which is probably better than many of our peers. So we think there's upside there. And again, as we get better visibility into the middle part of the year, I think there's an expectation that we'll refine that and hopefully raise it as well.

Okay. So -- yes, so 2 kind of potential sources of upside: One, less credit loss; two, more acquisition activity. I guess that partly also depends on when that's made during the year, right, because it might be more important for '27, depending on when you acquire stuff this year.

Yes, I think that's fair.

Can you talk a little bit about pricing and how you're thinking about your investing spreads? I mean your cost of capital is obviously much improved over the last year. I assume that makes accretion better for you, but maybe just -- maybe touch on pricing and the spreads that you think you're investing at?

Yes, sure. I mean it's always a pretty wide range of cap rates that we target. I would say, generally speaking, and this is similar to last year, we're targeting across the 7s. In 2025, our weighted average cap rate for the year was 7.6%. And I think importantly, that included bumps that were in the contractual increases that were in the mid- to high 2s.

So when factoring in the bump structure, you get to an average yield that's going to be in the low to mid-9s. So pretty substantial spreads we were able to generate last year. That compares to kind of our funding cost of around 6%. And we talked about that a lot of where we were selling self-storage and other assets last year as our primary funding source for the year.

I think this year, the expectation is that, that cap rates, I think, broadly for real estate, probably more specifically for net lease could come in a little bit. When you look at where [ 10-year ] treasury has gone, it's been pretty range bound in the kind of 4% to 4.25% for much of this year. And then more recently, it's been at the lower end of that range. That tends to lead to a little bit of cap rate compression, and it's hard to predict exactly how much will take place throughout the year.

Our expectation, maybe our assumptions are probably in the 10, 20, 30 basis points. So instead of achieving what's probably mid-7s for this year, we're probably expecting something closer to low to mid-7s. And when you look at how -- and you referenced our cost of capital getting stronger. When you look at where our stock price has gone, what our implied cap rate is, where we raised our recent equity offerings, we think that we can probably generate wider spreads than we did last because our cost of capital has come in. So it's a good environment for us to invest. I think that we want to put capital to work, and we think we'll have success in doing that.

And you mentioned one of the things that could drive cap rates down a little bit is, obviously, the 10-year is an important component for everyone to think about. But what do you see kind of on the competition side? Is that Steady Eddie? Or do you see more, less? And what -- is it such a big industry?

U.S. net lease has always been quite competitive. There are 27 net lease public REITs alone that target U.S. net lease. Most of them target U.S. retail, which is an area that we do want to do deals in. We do have a team that focuses on U.S. retail in the net lease space. But it's not, I would say, a core part of what we've always done. It's more opportunistic. So there's much more competition in U.S. retail.

It tends to come from the public REITs. It tends to come from those looking at especially the investment-grade credits in the retail. You also have a pretty substantial [ 10 31 ] bid that can compress cap rates there. So for that reason, I would say we're more active in the industrial side over the last, call it, 5 years, probably something close to 3/4 of our deal volume has been industrial.

Most of that is sourced through sale leasebacks. We're able to differentiate ourselves from many of our competitors. So it's less impactful there. I think in that space, we have seen maybe incrementally some of the private capital coming in. You hear about the big asset managers that are expanding into net lease. They generally are acquiring other platforms. I think Elm Tree is now BlackRock. Fundamental is now Starwood. That doesn't mean that there's more net lease investing or more competition or more changing kind of the names of the brands of these competitors or players in this space.

So we haven't seen it impact us. I think if you look backward, $3 billion of deals over the last 5 quarters would indicate that it hasn't had a big impact to us. The fact that we're able to continue to generate cap rates in the mid-7s, I think it's also a good evidence that it hasn't impacted us. Hard to predict exactly how active these different investors will get, but we've competed in net lease for a long, long time. And we do have our advantages, especially given our liquidity position and our ability to do complex transactions and write big cash checks.

And what kind of percent of your deals within industrial are coming from, I guess, existing clients versus...

It's a good question. It's probably close to half. And when I think of existing clients, I put it in a couple of categories, certainly existing tenants. We have opportunities to do follow-on deals with existing tenants, and we have a clear built-in advantage there. We also tend to do some transactions with private equity sponsors. So while it may not be the same company when we work with the same sponsor and we can replicate documents and there's a comfort level, there's a big benefit as well.

I think the biggest part of what we do, maybe the lowest hanging fruit for us is when we expand buildings that our tenants currently occupy, those are also proprietary deals that are follow-on, and we're doing more and more of those.

Okay. I wanted to ask you, I feel like last year, you did a little more retail as part of your acquisition volume. You talked about just wanting to have more retail exposure in general. I think, is sort of a percentage of your portfolio. I guess could you maybe talk about where you are in terms of percentage exposure kind of where you want to be? And within that, correct me if I'm wrong, but I think of retail as having less embedded bumps relative to industrial. So does this slow your potential kind of organic growth, if you will, if you have more retail exposure?

Yes, maybe I'll start with the last part of that question. Yes, I mean that's part of what the more crowded U.S. retail space creates is deals that tend to have a little bit lower bumps. They tend to have a little less structure. They tend to have lower starting cap rates as well, generally speaking. And that's the -- it's the efficiency of that market with more competition. So we do have a team that targets U.S. retail.

We currently have is 22% of our portfolio by ABR. More of that is based in Europe than it is the U.S., but we'd like to do more in the U.S. I think the caveat is we want to maintain discipline around pricing. We think that we can find more opportunistic deals that fit the profile that we typically see with the industrial deals. I think the Life Time Fitness deal that we did at the end of the year is probably a good example to that. I mean Life Time is an existing tenant of ours. We know them well.

And that counts as retail, right?

That counts as retail. I mean for us, retail is pretty broad, and we have pretty big food groups and industrial, we do break down into warehouse and manufacturing. Retail is going to encompass pretty much anything that has an individual user component to it, like a Life time Fitness. So that is under retail. That was a deal where, again, we've done deals with them in the past. The seller of that portfolio is someone that we know well. It was a fund that was looking to generate liquidity for their investors by year-end and make a distribution.

So had a quick closing time frame. In fact, it's [ ex W. P. Carey ] people who run that fund, and we have bought assets from them before. So we were an easy partner for them to generate a sale in a short period of time. And Life Time is a company that we like to credit. They're the best -- one of the best, if not the best, high-end fitness operator in the U.S., public company, $6 billion to $7 billion market cap. In the particular portfolio we bought, strong assets, low rents, meaningfully below replacement costs, locations in affluent markets and coverages that are better than their typical store.

So we think we got a really strong subset, and that gave us some conviction there. I think that -- maybe the point here is that when we're investing in retail in the U.S., it's going to be more opportunistic. We'd like it to be a bigger piece. If we can generate an incremental $100 million to $200 million of U.S. retail in any given year, along with a couple of other areas that we think we can increase deal volume, that's additive. And we think that will help us get to the $2 billion-plus mark on a year-on-year basis to help us drive earnings growth.

Okay. And so just sticking with retail for a moment. So you talked about Life Time Fitness. What about like the dollar stores, which are kind of a big part of a lot of the other public REITs. And I know you've made some investing there. So how do you think about that?

Yes, we did. We -- if you look at the public net lease REITs, most of them have dollar stores in their top 10 or the top 5 for that matter. August of, I think, 2024 now, I believe, when Dollar General kind of hit their low point, we thought that was an opportune time to buy in low point from the credit standpoint. Their sales has slowed and their stock price had traded off and it's better to buy low than it is to buy high. So we were able to buy when others weren't. And I think we aggregated close to $200 million over about a 6-month period and at cap rates that were mid-7s, I think those are now trading probably in and around 7%.

So we think that we got them at a good yield. We do think that Dollar General is the strongest of the 3 dollar store operators. They have the commonality in their name that they're dollar-oriented stores, but their business models are all very different. Dollar General tends to be more nondiscretionary spend, a lot of grocery, a lot of consumables. Very little of their product are exports from China and other overseas places. So it's a credit that we spent time on and looked at over the years and found an opportunity to add some to our portfolio. They're a big tenant of ours. They're top 25. They're not a top 10 tenant. I think we can be opportunistic if we see more deals that we like, but we think it's a good additive to our tenant mix.

You mentioned in your opening remarks that you trade a multiple below some of your net lease peers as there's a lot of them in the space. What do you think investors are concerned about that's driving that multiple down? Or what do you think investors are misunderstanding that you think needs to be clarified?

It's a question that we address with our investors when we leave them. I think the primary hurdle that we talk to our investors about is, can we generate recurring deal volume that can lead to consistent growth? And I mentioned it earlier, 2025 was the reset year for us after close to a decade of resetting the business, exiting the investment management platform, exiting office space, going through COVID. And obviously, we had a credit issue with one of our German tenants, which we're happy to give you updates on that.

So I think that our diversified platform, the infrastructure we have in place, the long history of executing on difficult transactions, having scale that allows us to have a lot of flexibility around how we fund deals and that's the capital markets. I think there's a lot of things that we can point to. And part of it is the show-me story. I mean we've done $3 billion of deals in the last 5 quarters. Our pipeline to start the year, I think we're probably ahead of pace for our guidance, and we would expect 2026 to be another very strong year.

And when you think about how we can generate deal volume, I think there's a lot of pathways for us to get to those numbers. And it's not just about deal volume, obviously, it's about how does it flow through to earnings growth. This year, and I mentioned this, our 4.2% growth at the midpoint of our initial guidance is conservative. We do that -- expect that to get higher. Our target is to get to mid-single digits. And when you combine that with a dividend yield that's in and around 5%, that can generate a double-digit total shareholder return before any multiple expansion.

We think that's a level that will attract investors. And we've started to see it. I mean we're up 30% last year, one of the top-performing REITs in the sector. We still think there's a couple of turns of multiples to go once we can continue to prove out our story and maybe that will take a little bit more time, but there is upside here.

Do you think having a lot of operating assets in the portfolio for a while was a drag on your multiple? Or do you think people sort of didn't care because they understood that you'd ultimately be selling them or how?

Yes. I mean, look, back when there was big same-store growth in self-storage specifically, I think it was viewed positively. But I think memories are short, and there has been volatility over the last 2 years where NOI growth was flat to negative. I think simplifying the story is helpful. That's been a theme of what we've done over the last number of years, simplifying the asset base, simplifying how the different pathways that we earn revenue and certainly reducing our operating exposure to, at this point, a negligible level. I think that's going to be helpful. I think that's additive.

We have a question from the audience. I'll just read to you. How do you see your competitive advantage evolving amidst the heightened competition in the market and expected impact on profit margins?

And what was the last part of that?

The expected impact on profit margins.

I mean, look, the last part is probably pretty easy. I mean net lease is very high margin. There's very little variable cost in our business, and our G&A load is what it is. We have a platform in the U.S. and in Europe. And I think we can do multiple billions of dollars of new deals with really not adding any G&A. I think AI can help that as well, some technology investments, which we're happy to get into as well. So how do we differentiate ourselves? I mean, we have a model that's proven. We have access to capital that allows us to be confident and comfortable in how we target investments and a reputation that I think is very well known across the net lease industry.

So I think down about execution. We have -- again, the setup is there for us. And I think we see a transaction market that's quite constructive, and I think you'll continue to see us outpace our peers in terms of deal volume and growth.

Okay. You mentioned AI. So that is a topic that we are definitely required to ask you about this year. I want to ask you kind of 2 pieces. The first is using AI internally at a corporate level to maybe help curb your growth in costs? And do you think that SG&A as a percent of revenues or a percent of gross asset value with some of measuring it these days can come down or flatten out? So that's part one. Let's talk about maybe just how you're using it sort of internally.

Yes. I mean we mentioned on our recent earnings call that as part of the couple of million dollars of increase in our G&A, we are increasing investments in technology. A lot of that is around AI initiatives. And to your point, the goal is to create kind of long-term processes that will help us scale more efficiently. A lot of this would be in kind of the typical business processes or portfolio monitoring streamlining or automating certain accounting tasks, asset management tasks like compiling tenant financials, things along those lines.

We think that those are probably the lowest hanging fruit from an operational standpoint. But ultimately, we'd like to incorporate other areas that can help us grow. Maybe it's in underwriting models, looking at -- we have 50-plus years of history. We have 1,700 properties, lots of data that can be very valuable. So I think the starting point for us in addition to all these efficiencies to find ways to -- and we're using AI tools to help structure our data that's more usable and can be more predictive going forward.

Yes. That was kind of, I guess, sort of my part 2, in terms of identifying opportunities, do you think AI can be helpful to you in terms of underwriting a potential deal essentially?

Yes. I mean there's opportunities for that. Again, we have 53 years of history. We know outcomes on deals. We have thousands of investment kitting memos and many of those deals have gone full circle. So those are data that we think can be really useful. I think the expectation is that we can partner with vendors that we've used previously and help generate some tools that can help us be more predictive in underwriting.

I think in deal sourcing as well, that's a big part of net lease is how effectively can you source deals? Can you find off-market opportunities? Can you generate some alpha and some incremental yield. And we're starting to utilize some tools that will allow us to better screen tenant needs, earnings calls, Ks, various public disclosures, scrubbing data, and we think that will be effective as well.

It's one of the benefits of having scale. I mean having a big balance sheet, being one of the largest in net lease we can spend some dollars and spread it across a very large asset base, and we think it could be pretty additive. And certainly, we think that a lot of the spend that we will do will offset that with future savings on...

Okay. I mean do you think it's one of the things that within public net lease world that this will be like a distinguishing factor when we look back, let's say, 5 years from now, where like they were early on the curve? Or is this sort of -- is everyone doing the same thing? Or kind of -- is there a way for you to differentiate yourself, I guess, relative to?

I would expect those with scale are going to be able to point to some tools that have been really beneficial. I think those without scale are probably going to rely more on off-the-shelf products that you can buy, subscription models that will be helpful. We'll do some of those, too. Those will make a lot of sense in some of the efficiency. But I think the -- some of the things that allow us to be smarter in how we do business and can move the needle more, I think those with scale will be more impactful. I mean, look, net lease is not multifamily when there's a big property and operational aspect. I mean, by nature, net lease is there's no property level management. I mean we asset manage but we're not on the ground on a daily basis. So I think for that reason, you're going to see probably some other sectors have more impacts, multifamily, maybe retail, others that are probably more pronounced. But from a net lease perspective, I would expect us to be one of the leaders.

I feel like the carry tenant solutions platform has got a little bit more sort of a branding edge to it. I think you've had it for a while, but it seems like it's been highlighted a little more. It's also something that other net lease companies highlight the ability to work with developers, bring capital, go on balance sheet if need be, buyout commitments. So is that kind of what the tenant solutions is? And is it just a part of so you can be sort of like a one-stop shopping?

Yes. I mean look, you mentioned it. We've done this for a long time. We've been very active in the build-to-suit space probably for the last 25 to 30 years. I mean one of the observations that we've had is that a number of our peers in the net lease space have gotten a lot of mileage by talking about the build-to-suit opportunities and -- so for us, we think we're quite good at it. We have a lot of experience. Again, the theme -- one of the themes I keep on talking about is scale is beneficial. Because we have scale, we have a built-out project management team that oversees our projects, whether they're build-to-suits or expansions or redevelopments or at end of lease property condition assessments on our properties, lots of different things they do.

So the branding of Carey tenant solutions is for us to be a little bit more proactive, a little bit more systematic in how we approach this, both for branding to our investors so they can become more aware of what we do and what our capabilities are, but maybe more impactful to our tenants with an outreach that's, again, more programmatic, and we think there's a lot of low-hanging fruit there. A big part of our investments are follow-on investments with our tenant base. And to the extent we have more tools that we can put in front of them, we think that's going to be incremental. I mean, historically, build-to-suits and expansions and redevelopments have probably been about $200 million of annual deal flow, call it, 10% to 15% in any given year.

We think we can move that up by $100 million or $200 million, and that can be additive, help sustain deal volume. And we think we can do that by generating some really interesting opportunities, especially if they're generated through our existing tenant base.

What sort of time frame do you think you can grow it by that amount?

I mean, these tend to be chunkier deals. So it's probably going to be a bit lumpy in how they get added. I mean, I'd like -- right now, we have, what, Peter, $240 million of construction in progress. I think we've already had some delivered this year. There's a pipeline beyond that. I mean there's no reason why this couldn't start over the next 12 to 18 months to get into that territory. There's been years we've probably been that high but I'd like to see it on a more consistent basis.

And is that mostly U.S. focused? Or do you do that internationally?

It is more weighted towards the U.S. We do have a team in Europe. We'll do build-to-suits over there. In fact, we're doing some expansions over there right now as well. I would say it probably is a similar kind of allocation to our ABRs, probably 2/3, 1/3.

So this year, you think about 2/3 U.S., 1/3 Europe or international?

In terms of the build-to-suit and construction projects.

Actually, I was switching back to acquisitions, sorry.

Yes. I mean, historically, I would say our targets are roughly 2/3, 1/3, 2/3 North America, the vast majority of that is in the U.S. and 1/3 in Europe. On any given year, it can certainly fluctuate, but those are our long-term targets. The last, call it, 5 years, we've probably been overallocating in the U.S., maybe it's 75% of what we've done has been U.S. based. And if I look at what we've done that change in Europe second half of last year, Q4 got more active. Year-to-date, we've done about $300 million deals through our earnings call 2 weeks ago. About 2/3 of that was in Europe. The pipeline right now is about 50-50 between North America and Europe. So we're seeing more opportunity over there.

And that's good because we tend to generate wider spreads in Europe, and it's been slow for a bunch of years. There was more dislocation there. Credit markets through real estate. Interest rates were more volatile, and we've finally seen some stability over there, and that is resulting in some increased transaction activity.

And is this a newer structure in Europe? Or has it been around a long time, sale leaseback, just in general.

Yes. Look, it's well known now, but it certainly is newer than the U.S. I mean Bill Carey, who founded W. P. Carey kind of pioneered the sale leaseback space in the '70s and '80s. We started our European office in the late '90s and spent most of the first decade over there educating the market. So it's become more mainstream, but there still is, I would say, a bigger opportunity set there in terms of owner-occupied corporate real estate, maybe 60% in Europe compared to probably 25% or 30% of all the corporate real estate is owner-occupied.

So there's still an educational standpoint, but we're mostly past that. I think the good news is it's also less mature from a competitive standpoint. So we're seeing -- we see less competition. The deal opportunity is a little bit less efficient. So there's some pricing power that we have, and I think that's reflected in the wider spreads.

And just one last question on that. As a U.S.-based REIT and the REIT tax code is basically for North U.S.-based assets. I mean, is there any -- are there tax considerations as you continue to invest more in Europe to make it more difficult to bring back money or the tax rate go up or...

No. We have structures in place that account for all of that, and it's pretty efficient. I mean each country has its own -- in Europe has its own tax structure that we're very mindful of and have a lot of experience optimizing in terms of the structure. But there's no -- at least as of right now, that could change. There's no impacts on U.S. regulatory changes that could impact the return of capital to the U.S.

Okay. And then just before we start wrapping up, the Hellweg obviously was a tenant that you've taken down your exposure to over the last year or so. Kind of what's the kind of latest on that and kind of just updates on that plan [indiscernible]

kind of a multiyear plan, right, to reduce exposure.

Yes. I mean the very brief version is that we've continued to reduce our exposure there. So they -- since we restructured their rent, which was the end of 2023, early 2024, I mean that was a restructuring that all the landlords had to agree to it as part of a broader restructuring where their lenders also agreed in the owner, which is -- it's privately owned, but it's not private equity, it's family-owned. Everyone agreed to that restructuring at the time. They've been current on rent since.

We -- our assessment is it continues to be sort of a challenged operator, a difficult operating environment. We haven't seen them recover as much as we'd like or improve as much as we like on the operations. So what we've been doing is reducing exposure through, in some cases, negotiating directly with them, terminating some of their leases and putting in stronger operators. And some of those assets, we've generally found that we can put stronger operators in at or around the rents we were charging Hellweg, so basically market rents in this portfolio. And then in some cases, we've been selling assets. And the net result of all of that is they've gone down to our #17 tenant. They're just about 1%, maybe a little bit above 1% of ABR now.

We expect that to continue to come down probably below the top 25, perhaps as soon as the first part of this year, but certainly during the course of the year. And so at that point, less than 75 basis points of rent. And so I think that our goal here was to box the risk for our investors. So even if they continue to stay current, but even if something were to happen there, we think that this is a risk that is substantially mitigated in our portfolio and hopefully, would not have any meaningful impact on the share price.

And that takes us out. So thank you very much. Appreciate your time.

Thank you, everyone.

Hello, and welcome to W. P. Carey's Fourth Quarter and Full Year 2025 Earnings Conference Call. My name is Diego, and I will be your operator today. All lines have been placed on mute to prevent any background noise. Please note that today's event is being recorded. After today's prepared remarks, we will be taking questions via the phone line. Instructions on how to do so will be given at the appropriate time.

I will now turn today's program over to Peter Sands, Head of Investor Relations. Mr. Sands, please go ahead.

Hello, everyone, and thank you for joining us today for our 2025 fourth quarter earnings call. Before we begin, I would like to remind everyone that some of the statements made on this call are not historic facts and may be deemed forward-looking statements.

Factors that could cause actual results to differ materially from W. P. Carey's expectations are provided in our SEC filings. An online replay of this conference call will be made available in the Investor Relations section of our website at wpcarey.com, where it will be archived for approximately 1 year and where you can also find copies of our investor presentations and other related materials.

And with that, let me hand the call over to W. P. Carey's Chief Executive Officer, Jason Fox.

Thanks, Peter. Good afternoon, everyone, and thank you for joining us. 2025 was a standout year for W. P. Carey, reflecting successful execution across our business producing strong performance for the year and laying the foundation for attractive, sustainable growth that supports long-term value creation.

The 5.7% AFFO growth we generated for the year was among the best in the net lease industry, reflecting our record investment activity, sector-leading rent growth and strong portfolio performance. The dividends we paid, combined with the appreciation of our stock price, provided our shareholders with a total return of 25% for the year, placing us in the top tier of publicly traded REITs.

Looking ahead, we're confident with the momentum we established in 2025 will carry into this year. Our deal flow remains strong, we have access to multiple forms of accretive capital. We expect incrementally higher contractual rent growth compared to last year and stable credit quality within our portfolio.

Our competitive advantage on investment spreads should also continue to differentiate us. Our average yields and IRRs are among the highest of the public net lease REITs, reflecting both the strength of our rent bumps and the long duration of our leases. When combined with our lower average cost of debt aided by access to euro-denominated financing, we believe we're exceptionally well positioned to drive industry-leading AFFO growth in 2026 and beyond.

On this call, I'll briefly recap 2025 and expand on how we're positioned to continue delivering attractive growth. I'm joined by Toni Sanzone, our CFO, who will review the key details behind our results, balance sheet and guidance; and Brooks Gordon, our Head of Asset Management, to take your questions.

Starting with our investment activity. We finished the year at the top end of our guidance range, closing record annual investment volume totaling $2.1 billion, representing substantial growth over our initial guidance and demonstrating our ability to source and close a high volume of transactions in a competitive market. Throughout 2025, we put capital to work at attractive spreads relative to the pricing we achieved on our asset sales as well as to our overall cost of capital.

Our investments carried a weighted average initial cash cap rate of 7.6% for the year, translating into an average yield just above 9% over long-term leases averaging 17 years. In contrast, the occupied assets we sold, traded at cap rates averaging 6%, generating an average spread of about 150 basis points and creating significant value as we recycled capital from noncore asset sales to higher-yielding net lease investments.

We allocated the most capital to warehouse and industrial, which accounted for 68% of our full year investment volume and found additional compelling opportunities in retail, which represented 22%. Geographically, 26% of our 2025 investment volume was in Europe and 74% was in North America, the vast majority of which was in the U.S.

Importantly, we finished the year with continued strong momentum, completing $625 million of investments during the fourth quarter. Among them, was our $322 million investment in a portfolio of high-quality Life Time Fitness facilities, which significantly expanded our relationship with that tenant, making it our third largest by ABR.

One of the compelling aspects of our business model that continue to stand out in 2025 was our industry-leading rent growth. Even with inflation remaining below the peak levels of the recent years, we generated among the best internal growth in the net lease sector driving a meaningful share of our overall AFFO growth independent of our transaction activity. We expect this to continue in 2026, supported by the strength of our fixed rent escalations.

Turning to our sources of capital. As mentioned, our 2025 investment activity was supported by disciplined capital raising, funding new transactions primarily with sales of noncore operating assets. This approach enabled us to both accretively recycle capital and further simplify our portfolio mix, effectively exiting the operating self-storage business.

During the year, we also successfully refinanced our euro-denominated term loan, locking in an attractive all-in rate below 3%, further demonstrating the advantages of having access to euro denominated debt and multiple forms of capital. And midyear, we achieved [ an execution ] on our 5-year U.S. bond issuance, giving us additional funding flexibility.

Furthermore, during the second half of the year, we utilized our ATM program to sell forward equity, getting ahead of our 2026 needs. And so looking ahead to 2026, we remain very well positioned to sustain a high level of investment activity and deliver attractive AFFO growth.

Following the strong fourth quarter, we've already closed approximately $312 million of new investments year-to-date, and we currently have a sizable investment pipeline with several hundred million dollars of transactions at various stages of completion.

In addition, our year-to-date investment volume includes roughly $50 million of completed capital projects with another $290 million underway and scheduled to deliver over the next 12 to 18 months. We remain just as active, if not more active than other net lease REITs in build-to-suits, expansions and redevelopment projects. These are capabilities we've built over many years and view as a meaningful competitive strength. Now further supported by our recently launched Carey Tenant Solutions platform.

Historically, we've generally maintained a pipeline of around $200 million of such projects, which typically deliver above-market yields, extend lease terms and enhance the strategic importance of the assets involved, creating highly attractive proprietary deal flow that leverages and strengthens our tenant relationships. We see significant opportunity to lean further into these capabilities with our Carey Tenant Solutions platform, positioning us to do even more going forward, alongside other initiatives, such as our expansion in U.S. retail.

With all these factors in mind, we're confident in our ability to continue generating higher investment volumes than we have historically as we demonstrated in 2025. At the same time, we're mindful that it's still early in the year. So we're starting with an initial investment volume guidance range of $1.25 billion to $1.75 billion.

As we move through the year and gain more visibility into the second half, we expect to refine and potentially raise that range as we did in 2025. We also foresee cap rates being incrementally lower this year. Based on our current pipeline, we're anticipating going in cash cap rates in the mid-to-low 7% range compared to 2025's weighted average of 7.6%.

The momentum we're generating on the investment side of the business is supported by our strong funding position. Having already accounted for the vast majority of our anticipated 2026 equity needs. The more than $400 million of forward equity we sold in 2025 remains available for settlement with an active ATM program in place enabling us to issue additional forward equity as needed.

We also anticipate generating close to $300 million of retained cash flow this year, providing an additional source of equity capital. And importantly, with the option to pursue additional accretive disposition opportunities, potentially taking us over the top end of our initial disposition guidance range should we choose to do so, enabling us to continue driving AFFO growth.

Accordingly, we have ample flexibility to fund additional investments above the top end of our initial acquisition guidance range, regardless of equity capital market conditions. Let me pause there and hand the call over to Toni to discuss our results balance sheet and guidance in more detail.

Thanks, Jason, and good afternoon, everyone. Our fourth quarter and full year results demonstrate a strong consistent pace of investment activity throughout 2025 at attractive spreads coupled with sector-leading internal rent growth from our portfolio.

I'll walk through the details of those results, starting with AFFO. AFFO per share for the fourth quarter was $1.27 representing a 5% increase over the prior-year fourth quarter. For the full year, AFFO totaled $4.97 per share, representing 5.7% year-over-year growth and coming in just above the midpoint of our guidance range.

As Jason mentioned, the record investment volume we completed came in just above the top end of our guidance range at an average spread of just over 150 basis points to our dispositions, which will continue to benefit our earnings in 2026 as the full year impact flows through our results.

During the fourth quarter, we continued to fund our investment activity accretively through opportunistic dispositions selling 44 properties for gross proceeds totaling $507 million, bringing full year disposition volume to $1.5 billion, the vast majority of which was sales of non-core assets.

Our 2025 dispositions included sales of 63 self-storage operating properties for gross proceeds totaling approximately $785 million, leaving us with 11 such properties at year-end, which we're currently in the process of selling and hope to complete in the first half of the year.

Turning to our portfolio growth. Contractual same-store rent growth remained strong, averaging 2.4%, both for the fourth quarter and the full year on a year-over-year basis. CPI-linked rent escalations averaged 2.6% for the year, which comprise about half of our ABR, while fixed increases, which make up the other half, averaged 2.1% for the year.

We continue to see fixed increases in new investments trend higher than the averages in our existing portfolio, which will support sustained higher levels of internal growth even as CPI is moderating. About 3/4 of our 2025 investment volume had leases with Fixed rent escalations averaging 2.5%. For 2026, we anticipate the contractual same-store rent growth will trend slightly higher than it did in 2025 although still averaging in the mid-2% range for the full year.

Comprehensive same-store rent growth for the quarter was 70 basis points, which moderated from the first half of the year as anticipated, driven by the impact of a prior year fourth quarter rent recovery as well as higher vacancy over the back half of 2025. On a full year basis, comprehensive same-store averaged 2.8%, in line with our contractual same-store growth after taking into account the impacts of re-leasing, rent collections, vacancies and lease restructurings.

Our portfolio continued to perform well throughout 2025, with minimal rent disruption. As previously announced, rent loss from tenant credit events totaled $6.4 million for 2025 or about 40 basis points of rent, which was well within our conservative assumption of around $10 million earlier in the fourth quarter.

We continued reducing our Hellweg exposure in 2025 through a combination of re-leasing activities and asset sales bringing it down to 1.1% of total ABR by year-end. And we're currently engaged in active transactions that will further reduce our exposure by midyear.

Looking ahead to 2026, we're taking a similar approach to last year, initially assuming a conservative estimate for rent loss from tenant credit totaling $10 million to $15 million or 60 to 90 basis points of expected rent. Importantly, we've not seen any material changes in credit throughout the portfolio since our last earnings call.

As was the case in 2025, we hope to be able to reduce our rent loss estimate as the year progresses, which could provide some upside to our initial AFFO guidance. Portfolio occupancy at the end of the year increased to 98%, up 100 basis points from the end of the third quarter. As we completed vacant asset sales and entered into new leases during the fourth quarter as we had anticipated.

During 2026, we expect portfolio occupancy to remain over 98% through a combination of re-leasing and dispositions. Fourth quarter re-leasing activity resulted in the recapture of 100% of prior rent on 1.3% of ABR and added almost 8 years of weighted average lease term. We saw similar positive results for the full year with about 100% recapture on 5.3% of total portfolio ABR, adding 5.7 years of weighted average lease term.

Other lease-related income for the fourth quarter was $8.1 million, bringing the total for the year to $24.6 million, in line with our expectations. While the timing of these payments can vary from quarter-to-quarter and even from year-to-year they demonstrate our proactive approach to managing our portfolio, often identifying opportunities to maximize the outcome for assets that may be better suited for re-leasing, redevelopment or disposition.

Turning now to our guidance. For 2026, we currently expect to generate AFFO of between $5.13 and $5.23 per share, implying a healthy 4.2% year-over-year growth at the midpoint and which is based on investment volume of between $1.25 billion and $1.75 billion.

Currently, we're assuming 2026 dispositions total between $250 million and $750 million. This includes ordinary course net lease dispositions, notably certain of our vacant assets and a subset of our Hellweg portfolio, as well as the expected sale of our remaining operating self-storage assets.

And as Jason discussed, we've identified additional opportunistic and non-core asset sales, we could execute at attractive cap rates, giving us a great deal of optionality and funding investments accretively. As the year progresses and we have greater visibility, we'll be able to refine that range.

G&A is expected to total between $103 million to $106 million for 2026, which includes additional investments in data and technology initiatives with a focus on expanding AI further into our business processes and portfolio monitoring. We have a highly scalable operating platform and remain keenly focused on driving further long-term efficiencies.

For modeling purposes, just a reminder that our G&A expense runs highest in the first quarter, mainly due to the timing of payroll taxes. We currently expect first quarter G&A to total about $28 million with the balance of the year expected to trend lower and more evenly. Non reimbursed property expenses are expected to total between $56 million and $60 million for 2026, including approximately $6 million of expected demolition costs associated with the planned redevelopment work.

I'll note these incremental costs are expected to mostly occur in the first half of the year and will be more than offset by an associated termination payment, which will be recognized in other lease-related income, since we proactively terminated the in-place lease at these facilities to commence the development work.

Excluding demolition costs, we expect nonreimbursed property expenses to decline as we continue reducing vacancy and the related carrying costs. Including the termination payment related to this redevelopment, other lease-related income is expected to total in the low to mid-$30 million range for 2026 with about $20 million of that total expected to be recognized in the first half of the year.

Tax expense on an AFFO basis, the vast majority of which comprises foreign taxes on our European assets is anticipated to fall between $45 million and $49 million for 2026. With the increase over last year, mainly reflecting growth in our European portfolio. As we've now exited the vast majority of our operating assets, we expect operating NOI to total only about $10 million in 2026, which contemplates the sale of our remaining self-storage properties by the end of the first quarter.

Investment management fees are expected to decline to about $5 million this year, down from $9 million in 2025 as NLOP continues to execute asset sales. Nonoperating income for 2026 is currently estimated to total between $7 million and $11 million, declining from about $17 million in 2025. For 2026, we assume a flat dividend from our equity stake in Lineage of about $11 million as well as lower estimated FX derivative hedging impacts, assuming the euro remains around its current level for the full year.

Given the effectiveness of our hedging strategy, movements in the foreign currency rates are not expected to result in any meaningful impact on our 2026 AFFO. Considering all these factors, we see encouraging momentum heading into the year.

The midpoint of our initial AFFO guidance range implies meaningful year-over-year growth of 4.2%, driven primarily by accretive external growth and continued strong internal growth. And importantly, we're delivering this growth outlook even while initiating guidance with a conservative stance towards both investment volume and credit-related rent loss.

Moving to our balance sheet. In 2025, we demonstrated we have a variety of capital sources to fund our investment activity accretively, and we expect to continue to optimize our funding approach in the coming year, allowing us to execute on a strong pipeline of activity while generating attractive spreads.

We sold 6.3 million shares of forward equity through our ATM program at a weighted average price of $67.53 for gross proceeds totaling $423 million. All of this forward equity remains outstanding, positioning us well to fund our investment activity throughout the year. Our strong investment-grade balance sheet and diversified asset base also gives us the unique opportunity to access attractive debt capital across a variety of markets.

We have 2 bonds maturing in 2026, a EUR 500 million bond in April, and a $350 million U.S. bond in October. Our initial guidance assumes we refinance these bonds with issuances in the same currencies, although we continue to have a wide range of options available to us. Our weighted average interest rate on debt was 3.2% for 2025, which we believe is among the lowest in the net lease sector.

Despite having to refinance our upcoming bond maturities, our weighted average interest rate for 2026 is expected to remain in the low to mid-3% range. Net debt to adjusted EBITDA was 5.6x, inclusive of unsettled forward equity at the end of the year, well within our target range.

Excluding the impact of unsettled equity forwards, net debt to adjusted EBITDA was 5.9x. We expect to continue to manage the balance sheet, maintaining leverage within our target range of mid- to high 5x. We ended the year with liquidity totaling $2.2 billion, including the availability of our credit facility, cash on hand or held for 1031 exchanges and unsettled forward equity.

In December, we increased our quarterly dividend by 4.5% year-over-year to $0.92 per share. Based on our current stock price, that equates to an attractive annualized dividend yield over 5%, which remains well supported with a full year payout ratio of approximately 73%. We expect our dividend to continue to grow in line with our AFFO growth, while maintaining a conservative payout ratio.

And with that, I'll hand the call back to Jason.

Thanks, Toni. 2025 was a successful year that demonstrated the strength of our business model, the quality of our portfolio and the dedication of our team. We executed on our objectives across the company, delivering attractive external and internal growth, maintaining disciplined capital allocation and continuing to strengthen and incrementally optimize our portfolio composition.

We've entered 2026 well prepared to build on that progress. Our investment momentum remains strong, and our initial acquisition guidance for the year is effectively fully funded with the flexibility to execute additional investments without needing to access the equity capital markets.

Through the combination of our internal growth, the spreads we're achieving on new investments and a well-supported dividend. We're confident that we can again deliver attractive double-digit total returns this year before factoring in any expansion to our multiple.

That concludes our prepared remarks, so I'll pass the call back to the operator for questions.

[Operator Instructions] And your first question comes from Jana Galan with Bank of America.

Congratulations on a very successful 2025. Jason, I wanted to follow-up on the strategy of the expansion in U.S. retail. It looks like Life Time Fitness was part of this goal. I'm kind of curious what other categories within retail you're targeting and whether these will be kind of in the form of more larger sale-leaseback opportunities?

Yes, sure. Yes, we're making good progress. In retail, it accounted for about 22% of our deal volume last year, and of course, about 2/3 of that was the lifetime deal. Looking forward to this year, a good chunk of our pipeline is retail. It's probably about half and half right now. Overall, net lease retail is the biggest part of the net lease market, especially in the U.S., and we think it could become a bigger part of our deal volume on an annual basis.

I'd like to build it to maybe 25% even 30% of our annual deal volume. That would include both the U.S. and Europe. When you think about what we're targeting, I mean, we've done deals recently with Dollar General and Life Time, some other fitness. We've done some family entertainment, some grocery, some C-stores in Europe.

I mean, we're kind of looking across the sector and we'll be somewhat opportunistic in the things that we typically look for in generally, what we do in net lease, we're focused on tenant credit and lease term and structure master lease versus individual leases coverage, things like that are all important, and that won't change.

And then maybe also on the Carey Tenant Solutions platform. Maybe just near term, how much above $200 million, should we think about that growing?

Yes, sure. So we've historically, as I mentioned, done about $200 million per year or had active projects, maybe not range at any given point. And we do think that this can become a larger component of the business. Last year, we started a number of new projects, I think, year-to-date, we completed about $50 million of those, and there is another $280 million in construction that will deliver over the next 12 to 18 months.

Some of those new deals were done in conjunction with some recent investments, where we agreed to either a build-to-suit or an expansion as part of that. And then there's other things that we're doing related to our existing portfolio. I mean, mainly, there are some expansions and redevelopments and includes, I think, 2 redevelopments that Toni had referenced earlier as well as an expansion for one of our top tenants.

So it's becoming more of an emphasis for us, and it's hard to predict exactly how big of a component it could be, but I do think we can increase it.

Your next question comes from Greg McGinniss with Scotiabank.

Jason, I appreciate the commentary on the retail side. also hoping you can kind of dig in a bit more on the industrial types of assets that you're finding or looking for cap rates and then kind of U.S. versus Europe.

And if you comment on whether or not Realty Income is becoming more of a competitive -- a company that you're seeing more on deals in Europe as well -- that would be appreciated.

Yes, sure. I mean industrial is still really the core part of our business. We want to keep on adding retail, but industrial is significant. It's probably made up 2/3 to maybe even 3/4 of our deal volume over the last number of years in terms of what types of industrial, it's really a mix between both manufacturing and logistics and we do provide some disclosure on those 2 components.

I think in the past, we've also layered in some food production and processing, which we've always liked. Those tend to be nondiscretionary spend type products, the tenants tend to have a very meaningful investment in these facilities. We also tend to get long lease terms and in many cases, higher yields as well. So that's certainly a component as well.

In terms of cap rates, I mentioned earlier, I think that there's maybe some expectation that could tighten a little bit this year. Last year, our average for the year was 7.6%. We'll continue to target deals in the 7s this year, but I do think they could come in some. So maybe that ends up somewhere in the low to mid-7% range on average for us versus the mid-7s last year, maybe that's 25 basis points of tightening. But it's early in the year, it's kind of hard to predict what will happen over the next 10 months or so.

In terms of Realty Income, I mean, we see them from time to time. I would say more in Europe than we have in the U.S., but they focused a lot of their investing in the U.K., which has not been a country in which we've allocated a lot of capital. We're still doing more of our deals in Continental Europe, and we're doing more of our deals, at least lately in industrial. So we see them from time to time, but Europe is a big market and there's not a lot of competition there generally. So it's -- I wouldn't say it's all that impactful.

And I don't know, if I missed anything else there.

Yes. No. I appreciate that. And just on the potential cap rate tightening, is that just kind of an assumption based on maybe cost to borrow lowering or increased competition? Is it anything that you're seeing today? Or is there just some conservatism that we should be building in there?

Yes. It's really a combination of all of that. I think that to the extent rates come down and stay stable? I mean they've really been range bound in this kind of low-4s for probably the better part of 6 months now. I think a lot of that maybe has flowed through to cap rates, but probably not all of that. Incremental competition, yes, maybe there's some of that, but we haven't seen a lot of it. We hear about new entrants, but we haven't seen it and we haven't seen it to be all that impactful yet.

But I think ultimately, that could be a little bit of a catalyst towards that as well. So yes, and I think overall cost of capital across the sector is probably getting a little stronger too. But we haven't seen a lot of it. I would say our year-to-date deals are still within our target range, maybe at the low end, but I would probably attribute most of that being that the bulk of what we've done year-to-date have been in Europe.

And we can borrow, call it, 100 basis points in euros inside of where we can borrow in dollars. So even if those cap rates are a little bit lower than what we've done historically. I think our spreads are still wider than where we've been. So it's shaping up. It's a good market. We think that we're going to be quite active this year. And I think our spreads are probably are going to be similar to what we did last year.

And your next question comes from John Kim with BMO Capital Markets.

I wanted to ask about Carey Tenant Solutions, which I think is just your branding for build-to-suit. I just want to make sure that was the case. But how do you protect yourself from development risks associated with these type of projects. And I think in the past, you talked about a 25 to 50 basis point premium on build-to-suit versus acquisitions. Is that still the right range to think about?

Yes, sure. Yes, maybe it's helpful just to kind of spend a minute or so high level on Carey Tenant Solutions. I mean we've been quite active on what we call capital investment projects for some time. It's been in our disclosure and our sub for many years at this point in time. And it includes build-to-suit expansions and redevelopments. We're good at these type of investments. We have a lot of experience on the team.

I mentioned that I'd like to see us do more, and I think there's real potential for that. So part of our effort around this is to formalize it, brand it be a bit more holistic in our outreach to our tenants and more proactive in our approach overall. And I think that we can see some increased activity. I mentioned earlier that we historically have seen about $200 million of in-process capital projects. I think that can get bigger and become a more meaningful component of our annual deal volume.

And look, it's also something that investors ask us about. I think there's been some more -- some other REITs that have made it more high profile, and we've been asked about what our capabilities are. So that's kind of the thought process behind our recent launch of Carey Tenant Solutions, what we're calling it.

In terms of development risk, most of what we're doing here are build-to-suits and expansions. There are occasionally really high quality, very attractive redevelopment and it's a real high bar for us to do that type of work. So it's going to be predominantly build-to-suits and expansions, and you can see that in our supplemental that's what the disclosure as well.

So the development risk, typically, you have very strong and large general contractors that provide fixed price contracts. In many cases, on build-to-suits, we'll have guaranteed start -- rent start dates built into the structures. So even if there's delays, we still get our rent. We also have a construction rent kind of built into the budget as well. So we effectively either earn or accrue interest, something for our cost of capital during the construction period. So like I said, we've done this for a really long time. We box the risks.

We have a great team in place that one of the benefits of being as large as we are and having the scale is we can build out a dedicated in-house project management team. They have lots of experience, a lot of connections to local partners and it's a real competitive advantage for us. I think you also asked lastly about our cap rate spreads.

Yes.

Yes. I would say on a build-to-suit, which is more of the market deal, it's probably in the 25 to 50 basis point premium and a lot of that will depend on the length of the build period and maybe the specifics of the deal with basis relative -- construction costs relative to kind of the market basis or where that puts you relative to market rents.

I think on the other end of the spectrum, are these expansions that we do for our tenants, where this is truly proprietary deal flow, it's a captive deal, the tenant can either fund these expansions themselves on property that we own or they can choose to maybe do something outside of what is likely a really critical core facility for them or they can do a deal with us.

And so we have some pricing power, of course, we're very mindful of our tenant relationships, and we want to make sure that there is kind of fairness in how we price it, but we'll typically see on those anywhere from 100 to 200 or 300 basis points of spread depending on the specific project. And it's not just the premium that we benefit from, in many cases, on these expansions and kind of follow-on deals that we do for tenants.

We're also increasing the criticality of the real estate. We're lengthening lease terms. And when those are on master leases with other properties, there's a drag-along effect with other properties as well and also just deepening the tenant relationship to 3D type of transactions. So all those are reasons why we want to lean into this more, especially because we're quite good at it.

Great. And then my second question is on your leverage. You talked about operating at mid- to high 5x leverage. Is that where you think you get the premium multiple for your stock. I'm just wondering how you balance AFFO growth versus having a cleaner balance sheet with more fire power?

Yes, sure. I mean, look, there's no real changes to our leverage targets. We'll continue to operate in the mid-to-high 5s. We're very comfortable with that. But I think you're right, there is a certainly impact on equity multiple based on leverage.

And I think over time, I can see us drifting to the lower end of that range. I wouldn't say there's a specific time line in that. And that should help the equity multiple. But right now, we're very comfortable within that mid- to high 5s range.

And your next question comes from Jason Wayne with Barclays.

Just on the $60 million in dispositions year-to-date. I'm just wondering the cap rate there. And can you give some color on the cap rates that you're assuming on dispositions for the full year?

Yes. Maybe I'll start, and if Brooks has any color he can add. For the full year, our disposition guide is quite wide. As you know, it includes, sorry, another call come in. It includes kind of a normal course dispositions, example would be some Hellweg, but it also includes a meaningful number of assets that we've talked about how we can sell opportunistically at very attractive pricing. This is what I would characterize as noncore, and we've referred to, call it, several hundred million dollars of those deals.

So the average disposition cap rate for the year is very much going to depend on the mix of assets we choose to sell. And there are certainly scenarios that could put us in and around the execution we saw in 2025, especially if we factor in some vacant sales. So we'll dial that in as we execute and as the year continues.

In terms of the $60 million, I mean, it's a small amount, it really probably depends on the exact assets we've disclosed. We tend not to go into that level of detail. I don't know, Brooks, if you have any commentary on broadly, if that's any indication for the rest of the year.

No, I think you've largely hit it. We have closed a few transactions, the largest so far in Q1 was a warehouse property formerly leased to the tenant JOANN, which vacated, we sold that at an extremely attractive price relative to the prior in-place rent. I can't share the specific cap rate, but highly accretive.

Got it. And then just on the noncore deals that you've identified to go above the high end of the guidance range, can you just go into what's still available there?

What's still available there? Yes, sure. I mean it's a mixture of assets? And maybe I'll just kind of rattle off a couple of these are just examples, of course, I mean, we do have a final property in Japan, and given where rates are were there, those tend to sell tight. We have an operating student housing asset, net lease hotel.

And really, there's a number of assets that are leased to tenants who regularly approach us about repurchasing properties. Those tend to be at very aggressive pricing. I think that we can answer the phone on some of those, if we feel a need to do it. And of course, Brook just mentioned, the JOANN's deal, which is very attractive is a sub-6 cap rate based on prior rent for a vacant assets. So good transaction there.

But I think maybe the important note is we have lots of flexibility here. We mentioned earlier that we feel that we prefunded our equity needs for the year and to the extent we need to deal volumes are higher than our initial guidance would suggest we can lean into some of these accretive asset sales, we can also consider equity as well.

We've certainly had a nice run over the last 12 months and equity is a lot more interesting, too. But there's a lot of flexibility. There's no immediate needs though based on our current deal volume guidance. It's fully funded.

And your next question comes from Smedes Rose with Citi.

I wanted to ask about -- a little bit more about your acquisitions outlook for the year. I understand you said that you were coming into the year from a conservative standpoint. But just going back and looking at some of your commentary on your third quarter call, you talked about having the infrastructure in place to support a similar pace of activity you're seeing in the back half of '25 and not seeing anything that would disrupt the pace of activity that you were seeing from a broader kind of macro perspective.

And it seems like this is more than conservative. It seems like a varied market slowdown from what you're seeing and especially in light of what you've already talked about year-to-date. So can you just kind of help me understand a little bit more conservative versus like is there something disruptive that's happening that's slowing down the overall pace? And just trying to get a better sort of handle on that.

Yes. No, there's nothing that we're seeing in the market right now that suggests there could be a slowdown, it's strong, it's constructive, stable interest rates. And look, we're confident in our ability to continue generating high deal volumes. And maybe we were back to what we did in 2025. But if you look back to last year, maybe at the beginning of last year, we took a measured approach to how we view guidance and that led to a series of increases throughout the year. And I think that's our preference going forward.

So you can think about our initial guidance as a starting point and our expectation is that as we progress through the year and get more visibility into the back half of the year, we'll refine that range and hopefully raise it as we did in 2025. But it's worth noting, and Toni mentioned this earlier, that even at the current midpoint of what I think could be characterized as conservative deal volume guidance, we believe we can achieve AFFO growth of over 4%, and that's the very attractive relative to many of our net lease peers.

I think also, just look at where we've started the year. We're off to a good start, a little over $300 million closed already. I mentioned earlier that we have about $200 million of capital projects that were delivered this year and then a sizable near-term pipeline that I would characterize as several hundred million dollars. So we're probably ahead of pace of our initial guidance.

But again, we don't have visibility into the back half of the year to necessarily extrapolate this initial pace out for the full year. So as we get more into the year, we'll continue to review it and hopefully be, indeed, in a position to raise it.

Okay. And you talked a little bit more about you're leaning into more retail. You moved Life Time fitness to your #3 tenant. I was just wondering if you could talk a little bit more about the profile of that tenant. I don't know if you can give kind of coverage levels.

And then just asking because it seems like the fitness world, I don't know, can be subject to maybe a certain amount of kind of fickleness on the part of consumers and things come and go. I realize this is a popular asset class amongst the large net lease companies. But I'm just sort of wondering, if you could talk a little bit about your comfort level of moving them to such a wide position within the portfolio.

Yes, sure. I think first of all, this is not a new tenant for us. We've done deals with them in the past and had -- and because of that, had good access to management during underwriting, both on the credit itself, but also into the specific assets. I mean, we like Life Time as a credit.

They're one of, if not the strongest of the U.S. fitness operators. They're publicly traded, have a $6 billion to $7 billion equity market cap. Had a nice run since their IPO and they've been bringing leverage down as well. So it's a good credit. We bought 10 facilities. These are all well located and affluent and a highly desirable markets near dense retail, very difficult to replicate these locations.

I think our basis is very attractive, well below replacement cost. Low in-place rents and that's both for these locations, but also relative to the rents that Life Time pays on other properties throughout the country. And we also have strong site level coverage. I can't get into the details on the specifics for it, but it's quite strong. And our understanding it's better than the median within their portfolio.

I think the other part about this deal is the seller is a group we know well and have transacted with before on other portfolio deals, and they were exiting a fund and looking to make distributions to their investors by year-end. So that drove a quick close, and we think that dynamic contributed to the better than market economics.

But overall, I think fitness is something that we've done some deals over the last couple of years. But clearly, this is the largest 1 and we do like Life Time. Look, I don't live in the suburbs, I live in the city, if I did, and I live in your Life Time fitness. I'd be a member. I have a number of kids, and these are -- it's a great model. I mean it's a very unique model relative to many of the other fitness operators out there.

These are more like country clubs with outdoor pools and water slides and restaurants and obviously, very large and modern fitness facilities and workout rooms, et cetera.

Your next question comes from Anthony Paolone with JPMorgan.

Yes. Just first 1 on credit loss, the $10 million to $15 million. If I go back to last year at this time, I think the number you gave incorporated a couple of situations that maybe you wanted some room for like True Value perhaps and maybe another one. So just wondering if any of the $10 million to $15 million spoken for at this point or if that's just kind of the number you're giving yourself cushion on?

Setting the range.

Go ahead, sorry. Go ahead Toni.

We're setting the range there really to capture a wide variety of scenarios there. I think there's nothing really specific in the portfolio at the moment. We set this range last year and this year, our objective is really early in the year, taking a broad view so that we have no concerns around any AFFO impact from rent disruption.

And I think that, again, similar to what Jason said on the investment side, our guidance is set at a level where we can achieve over 4% growth even with a range of rent loss at this level. So again, nothing specific. It's probably the only uncertainty out there is in the macro environment.

And it's something that we feel comfortable with at this stage of the game. But I think our goal here is to continue managing the portfolio, seeing the same limited level of disruption that we're seeing now and hopefully be able to reduce that and see some upside to our guidance.

Okay. And then second question is just on the balance sheet. You have 2.25% eurobonds coming up, where do those get refinanced today? And just any other details on how you're thinking about debt refinancing over the course of the year.

Yes, sure. Maybe or. I don't know, if there's anything to add, Toni. But yes, the '26 maturities are very manageable. It's 2 bonds. It's 1 in each market, a Eurobond, and then later in the year, U.S. dollar bond, I think the balance sheet is in great shape. You have access to multiple forms of debt and lots of flexibility right now given our liquidity. So I think our guidance assumes that we replace each bond coming due with unsecured debt probably in the same currency. I think that's what we will do, but we have lots of flexibility.

In terms of where things are pricing, a 10-year Eurobond is probably somewhere in the low-4% range and U.S. is maybe 100 basis points inside of that. Obviously, we'll think about which tenors we want to do and to the extent it's a little bit less than 10 years in Europe, which is maybe more than term. We'll pick up some basis points and get inside of 4% is my guess.

Your next question comes from Jim Kammert with Evercore ISI.

Perhaps just an extension of that last topic. You're obviously have done a very nice job. It's been benefit of the company having a lot of euro debt exposure. But could you remind me, where do you stand in terms of capacity in terms of it's about 2/3 of the overall debt? Can you do a lot more there? Or how do you think about that going forward in terms of the overall debt composition?

Yes. Toni, do you want to take that?

Sure. Yes, I'd say we still have room in our capital structure to issue incremental euro-denominated debt. As Jason mentioned, we have a eurobond that's maturing this year as well. And a big part of our pipeline is denominated in euros. So we'll still have room beyond that. I'd say it still continues to create an effective hedge for us on both on the foreign currency side, and then it's really -- we're benefiting from a lower-cost borrowing there.

So I think you'll continue to see us access those markets, when the time makes sense for us. But overall, we do see that there's really no bright line at the moment. We have some room for additional capital there.

Okay. And then a different question. Obviously, you're not going all in on retail investing assets. But thinking about protecting your above-sector average escalator -- weighted average escalator, can you get industrial-like escalators on C-stores in Europe or fitness centers in the U.S., et cetera? I'm just curious how that blend is incorporated into your numbers?

Yes, certainly. I mean, in Europe, I would say that retail like industrial typically has inflation-based increases. So I think that we'll continue to get that whether we're doing industrial or retail. I think in the U.S., you're right, we've always talked about this, that the bump structures and retail deals tend to be a little bit lower.

I think that it's probably, if we're doing industrial deals in the 2.5% to 3% range, I would say that the retail deals are probably 50 to 100 basis points below that. But it depends on the deal. I mean, I think that sale leasebacks, a lot of times, you can kind of play with the different economics and there's always trade-offs between going in cap rates and what the bump structure is, which is why we're always quick to remind people that it's not just the going in cap rate that matters to -- the cap rate plus the bump structure is important.

And when we're investing in the mid-7s based on a going in cap rate with bumps that are in the mid- to high-2s on average that puts us to average yields in the 9s, which I think is quite attractive. And there'll be a mix of retail in there, but we don't think it's going to be overall impactful.

And your next question comes from Michael Goldsmith with UBS.

You talked about cap rates compressing this year to the mid- to low-7% range versus 7.6% in 2025. So are there specific areas, where you're not seeing that compression and is that -- does that help drive your acquisition strategy? Just trying to understand what the implications of this -- of the cap rate compression is for your acquisition strategy?

Yes. I mean it's a good question, Michael. And we tend to target a diverse set of opportunities. The cap rate ranges tend to be quite wide depending on lots of factors. Certainly, the bumps that I just mentioned on the prior question are a factor in that as well. I would say that the more commodity-driven net lease is going to have the most compression.

And I think that's going to be investment-grade retail is an area that we've seen that and it's not something that we target. I would say, mostly for that reason, is that the cap rates and the bump structures are being driven down more and more there. I think on the other side of that, sale leasebacks, which is maybe our specialty and where a large part of our deal volume is generated from, we're able to maintain, I would say, cap rates that are closer to what we've done historically.

I think there could be a little bit of compression there. But I think we'll have more pricing power around there. And I think you'll continue to see us have a bigger emphasis on sale leasebacks as a means to source the transactions.

And then just as a follow-up, you guys cited roughly 150 basis point spread between dispositions and acquisitions. Is that expected to be -- is that sustainable this year? And just given what you're disposing, is that the right range to think about this? And then does that still make sense in a more competitive net lease environment?

Yes. I mean, sure. I mentioned earlier that our dispo range is quite wide and where we shake out on cap rates is going to depend on what that mix is and what we actually sell. And it's a combination of our normal course dispositions, which this year probably includes some Hellweg among others. It's going to be some of these kind of accretive noncore assets that I listed off earlier and maybe we can probably factor in some vacant assets there as well like the JOANN's asset that I mentioned.

So when you put all that together, we're probably in and around where we were last year. But again, it's really going to depend on the mix. I think where we started last year with spreads, we talked about that we think we can achieve at least 100 basis points, and then we dialed that up through the year, that's probably a reasonable starting point for this year.

I think that cap rates could come down, but our equity price has gotten better to the extent we choose to fund deals with incremental deals above our investment volume with new equity. And I think there's also a number of assets we can lean into with very attractive pricing, if we choose to fund incremental deals through asset sales, but we feel pretty comfortable we could be in the same or similar ballpark to where were last year and that certainly gives us a green light keep on investing and driving earnings growth.

[Operator Instructions] Our next question comes from Ryan Caviola with Green Street Advisors.

There were 4 baking warehouse sales in the fourth quarter, and it sounds like there's a fit after the quarter end. Could you just walk us through the decision on re-tenanting versus disposing of those properties were retenanting opportunities not there? Or is the choice to sell just opportunistic?

Brooks, do you want to take that?

Sure. Yes, we look at vacancy just like we would any new investment. We want to understand what are the forward-looking risk-adjusted returns that we can underwrite to, where those returns are sufficient and attractive on a risk-adjusted basis. We will aggressively lease properties up, when available disposition opportunities make those forward-looking returns insufficient, we won't hesitate to sell and do so quite quickly. So that's really the exercise we pursue.

And so something like a JOANN where an owner occupier needed to own it and could pay a large premium, that's a very easy decision for us on a sale. But elsewhere, we won't hesitate to release properties, where we see a direct path to leasing velocity and ability to underwrite those forward-looking returns.

Appreciate that. And then it was outshined by the lifetime purchase, but there was the health care acquisition with NewEra for $140 million during the quarter. And I also noticed there is an expansion on the capital commitments with the same tenant. Just wanted to see if you could share color on the relationship there? And is health care is a venue you view as attractive going into 2026.

Yes, sure. Yes, I mean we're always looking to expand our opportunity set in health care is an area we've been tracking for a while, and we do have some in-house expertise as well. It's a competitive space, but we do think that there's probably an opportunity to add some deal volume there over time. And it's a diverse sector, lots of segments. I think broadly, it continues to outperform the real estate outperforms, and that's probably supported by long-term dynamics of a growing and aging population.

So I think that what we target in health care, we still want to make sure it fits within our existing net lease framework. It's going to be single tenant. It's going to be long-term leases, typically absolute net -- we're going to focus on strong site level coverage. And of course, we're going to want to partner with reputable operators and creditworthy tenants.

So yes, so an example of what we're targeting is what we recently closed and those are in the inpatient rehab facility space. I think to be clear, we're not looking at acute care hospitals just when I talk about health care more generally. But on the NewEra deals, there's one other we did earlier in the year called Ernest Health as well, which is a large IRF operator at the same time.

These were all kind of somewhat recently developed, well-located, attractive basis, as I mentioned earlier, strong site level coverage and they're good operators. So I think that the IRF model is one that we like, and I think we could do hopefully more of this, and you're right, one of them did come with an expansion as one of the properties is performing quite well with a lot of demand.

And so that's an easy thing to do, if you have the land to expand these properties and get the kind of the operating leverage with additional rooms.

Thank you. And at this time, I'm not showing any further questions. I'll now hand the call back to Mr. Sands.

Great. Thank you, everyone, for your interest in W. P. Carey. If anyone has additional questions, please call Investor Relations directly on 212-492-1110 and that concludes today's call. You may now disconnect.

Hello, and welcome to W. P. Carey's Third Quarter 2025 Earnings Conference Call. My name is Diego, and I will be your operator today. [Operator Instructions]. Please note that today's event is being recorded. [Operator Instructions]. I will now turn today's program over to Peter Sands, Head of Investor Relations. Mr. Sands, please go ahead.

Good morning, everyone, and thank you for joining us this morning for our 2025 third quarter earnings call.

Before we begin, I'd like to remind everyone that some of the statements made on this call are not historic facts and may be deemed forward-looking statements and factors that could cause actual results to differ materially from W. P. Carey's expectations are provided in our SEC filings.

An online replay of this conference call will be made available in the Investor Relations section of our website at wpcarey.com, where it will be archived for approximately 1 year and where you can also find copies of our investor presentations and other related materials.

And with that, I'll pass the call over to Jason Fox, Chief Executive Officer.

Good morning, everyone, and thank you for joining us. Strong momentum we established over the first half of the year has continued in the second half, and we remain ahead of our prior expectations. As a result, we're further raising our full year AFFO guidance resulting in mid-5% year-over-year growth, which we believe will be among the highest in the net lease sector this year.

Our raised guidance is supported by several positive trends within our business. Year-to-date, we completed $1.65 billion of investments at attractive initial cap rates averaging in the mid-7s, primarily with fixed rent escalations averaging in the high 2% range. The strength of our investment activity year-to-date has put us just over the midpoint of prior guidance range. I'm pleased to say we're raising our full year expectations for investment volume to between $1.8 billion and $2.1 billion.

Our sector-leading same-store rent growth continues to be in the mid-2% range and is expected to remain around there or be slightly higher in 2026. The progress we've made funding our investments this year, primarily through asset sales, is expected to continue in the fourth quarter, achieving better than initially expected disposition cap rates and attractive spreads to where we're reinvesting the proceeds.

Our original rent loss assumption, which reflected a degree of caution given the backdrop of broader economic uncertainty earlier in the year proved to be conservative and the performance of our portfolio has enabled us to lower our estimate as the year has progressed and the strength and flexibility of our balance sheet with over $2 billion of liquidity, including our recent forward equity sales provides us with additional flexibility to fund future investments.

This morning, I'll review this progress and our confidence in sustaining that momentum into 2026. Toni Sanzone, our CFO, will focus on our results and guidance raise and touch upon aspects of our portfolio and balance sheet. And as usual, we're joined by our Head of Asset Management, Brooks Gordon, to answer questions.

Starting with the transaction environment and investment volume. Lower interest rate volatility has helped keep net lease cap rates relatively steady this year, and that sense of stability has positively impacted our transaction activity, both in the U.S. and Europe, specially sale leasebacks, which have comprised a large majority of our investments to date.

Our continued strong pace of investment activity, adding close to $660 million of investments during the third quarter and about $170 million so far in the fourth quarter brings our year-to-date investment volume to $1.65 billion at a weighted average initial cap rate of 7.6%.

We continue to structure leases with attractive rent escalations, the significant majority of which were fixed bumps averaging 2.7% for our investments year-to-date. When factoring in rent escalations and a weighted average lease term of 18 years, our average initial cap rates in the mid-7s translate to average yields in the mid-9% range. By transacting at these levels, we continue to generate very attractive spreads to our cost of capital.

Warehouse and industrial represents over 3/4 of our investment volume year-to-date, although we continue to invest in a diverse range of property types. And while the large majority of our investment volume was in the U.S., where we continue to see a significant number of opportunities at attractive spreads, we also continued to grow our investment volume in Europe relative to the last couple of years.

The investment we've made over the last 27 years to steadily build and develop our European platform continues to serve as a key competitive advantage there. Today, our European team consists of over 50 people across our offices in London and Amsterdam, which has built strong broker and developer relationships and has the local expertise necessary to successfully execute across Europe.

Moving to our pipeline and capital projects. Our near-term pipeline remains strong with several hundred million dollars of transactions currently in process at cap rates and weighted average lease terms consistent with where we've been transacting year-to-date. We expect many of those deals to close in the fourth quarter, although some may spill over into next year depending on where they are in the closing process, which would set us up for a strong first quarter.

Our near-term pipeline includes close to $70 million of capital projects scheduled for completion in the fourth quarter. We also have approximately $180 million of additional capital projects underway, the large majority of which will deliver in 2026.

While capital projects are something we've been doing for a long time, it's an area we can allocate more capital to often with higher returns compared to acquiring existing assets. Over time, we've built up a dedicated in-house project management team with deep real estate expertise and strong local connections to development resources. We have a long track record of build-to-suits, expansions, renovations and development projects. Historically, capital projects have averaged around 10% to 15% of our annual investment volume, and we believe we can expand that proportion.

Turning now to our capital sources. Since our last earnings call, we've made further progress with our strategy of funding investments with accretive sales of noncore assets this year, including operating self-storage properties. Currently, we're in the market with the second half of our self-storage portfolio and have closed further sales since quarter end.

We're confident we'll close additional sales during the fourth quarter but we're also maintaining a degree of optionality on the timing and execution of certain storage sub portfolios. And while we expect asset sales to fund our fourth quarter investment activity, the approximately $230 million of forward equity we recently sold gives us additional flexibility as well as enabling us to get ahead of our funding needs for 2026.

So let me pause there and hand the call over to Toni to discuss our results and guidance.

Thanks, Jason. AFFO per share for the third quarter was $1.25, representing a 5.9% increase compared to the third quarter of last year.

Our strong results continue to benefit from both the pace and volume of our investment activity as well as the internal rent growth generated by our portfolio. We've raised and narrowed our full year 2025 AFFO guidance, driven largely by higher investment volume and lower expected rent loss within the portfolio and we currently expect AFFO to total between $4.93 and $4.99 per share for the year, implying 5.5% year-over-year growth at the midpoint.

As Jason mentioned, given the investments we've completed to date and our outlook for the remainder of the year, we raised our expected 2025 investment volume to a range of $1.8 billion to $2.1 billion. As we continue to fund our investment activity this year with proceeds from dispositions of operating and noncore assets, we're also revising our expected disposition volume to total between $1.3 billion and $1.5 billion which has increased to include additional sales of operating self-storage assets. And based on the successful execution we've had to date, we expect to generate overall spreads of approximately 150 basis points between our investments and dispositions for the year.

On the expense side, G&A continues to track in line with our expectations to fall between $99 million and $102 million for the full year. Property expenses are expected to total $51 million to $54 million, with a minimal increase to the lower end of the range. And tax expense is expected to be between $41 million and $44 million, representing a marginal reduction at the midpoint.

Turning now to our portfolio, which continues to generate strong internal growth. Contractual same-store rent growth for the quarter was 2.4% year-over-year. comprised of CPI-linked rent escalations averaging 2.5% for the quarter, while fixed rent increases averaged 2.1%.

For the full year, we expect contractual same-store rent growth to average around 2.5%. Based on current inflation levels and further supported by the higher fixed increases we are achieving on new investments, our contractual same-store growth is expected to remain strong in 2026, likely surpassing the 2.5% growth we expect to see this year.

Comprehensive same-store rent growth for the quarter was 2% year-over-year and is expected to track in line with our contractual rent growth for 2025 and at around 2.5% despite the uptick in vacancy flowing through the back half of the year.

Portfolio occupancy declined to 97% at the end of the third quarter, which we view as temporary in nature and was factored into our earlier guidance. Of the 3% total vacancy at the end of the third quarter, around a quarter has since been resolved or is in the final stages of closing and another half is in process and well underway to being resolved.

Hellweg added minimally to our third quarter vacancy following planned store takebacks in September, and our asset management team continues to further reduce our exposure through re-leasing and dispositions. Hellweg now represents our 14th largest tenant, down from 6 largest a quarter ago, and we expect it to be out of our top 25 next year.

We've experienced minimal rent disruption this year, enabling us to further reduce the rent loss assumption embedded in our guidance to $10 million, down from our prior estimate of between $10 million and $15 million. Currently, we have visibility into total rent loss of about $7 million for the year, representing about 45 basis points of ABR, which includes the downtime on the Hellweg assets we took back.

The balance of our reserve includes ongoing caution towards Hellweg, which remains current on rent, but is still navigating a challenging turnaround, and we hope for that to be conservative with only 2 months of the years remaining. Other lease-related income totaled $3.7 million for the third quarter, down from $9.6 million in the second quarter and is expected to total in the mid-$20 million range for the full year.

Turning to our operating properties. So far this year, we've completed sales of 37 operating self-storage properties and 1 student housing property and converted 4 operating self-storage properties to long-term net leases. Factoring in the additional sales we expect to close before year-end, we estimate operating property NOI for the fourth quarter will total between $7 million and $9 million, reducing further in 2026.

Moving now to our balance sheet and capital markets activity. Our balance sheet remains strong and extremely well positioned to fund our continued growth, further bolstered by our equity and debt capital markets activity this year. Since the start of the third quarter, we sold approximately 3.4 million shares subject to forward sale agreements through our ATM program at a gross weighted average price of $68.5 per share all of which remains outstanding, resulting in gross proceeds of approximately $230 million available to fund future investment activity.

And on the debt side, as previously announced, Early in the third quarter, we enhanced our liquidity position with the opportunistic issuance of USD 400 million bonds priced at a coupon rate of 4.65%, which was used to repay amounts outstanding on our credit facility. Our weighted average interest rate for the quarter was 3.2%, and we continue to believe we have one of the lowest cost of debt in the net lease sector through our mix of U.S. dollar and euro-denominated debt.

Our debt maturities remain very manageable. We have a EUR 500 million bond maturing in April of 2026, and our next U.S. dollar bond maturity isn't until October of next year. We currently expect that we would refinance these bonds with issuances in the same currencies at or near their maturities.

We ended the third quarter with liquidity totaling about $2.1 billion, comprised of availability on our credit facility, cash on hand and held for 1031 exchanges and unsettled forward equity. With dispositions expected to fund investment activity for the remainder of this year, we have a great deal of flexibility in accessing the capital markets.

Taking into account our free cash flow of over $250 million annually, in addition to our unsettled forward equity, we expect to be well ahead of our funding needs for new investments as we enter 2026. Our key leverage metrics remained within our target ranges at quarter end.

Net debt to adjusted EBITDA, inclusive of unsettled equity forwards was 5.8x. Excluding the impact of unsold equity forwards, net debt to adjusted EBITDA was 5.9x. In September, we increased our quarterly dividend by 4% year-over-year to $0.91 per share, equating to an attractive annualized dividend yield of 5.4%. Our dividend continues to be well supported by our earnings growth as we maintain a healthy year-to-date payout ratio at approximately 73% of AFFO per share. And with that, I'll hand the call back to Jason.

Thanks, Toni. In closing, the investment volume we've completed year-to-date and lower rent loss assumption have enabled us to again raise both our full year investment volume and AFFO guidance ranges. We've repeatedly raised our guidance this year and have consistently executed strong investment volume since mid-2024, completing well over $2 billion of new investments over the trailing 12-month period. We have the infrastructure, expertise and team in place to continue performing at these levels.

As we look ahead, we have an active deal pipeline that extends into the first quarter of 2026. We're not seeing anything in the transaction environment that would take us off our current pace of activity. Given where our debt and equity is pricing, we view all the elements as being in place to continue generating double-digit total shareholder returns in 2026. Through a combination of AFFO growth that would put us in the top tier of net lease REITs and our dividend yield. That concludes our prepared remarks. So I'll hand the call back to the operator for questions.

[Operator Instructions] Our first question comes from John Kilichowski with Wells Fargo. John Kilichowski, your line is open. Please go ahead.

You might be on mute, John.

We'll move on to the next question. Our next question comes from Anthony Paolone with JPMorgan.

Now that you guys are rounding the corner on the operating self-storage asset sales, can you maybe give us a sense as to what the menu of noncore and other internally generated capital sources, maybe as we start to think about deal activity next year and maybe perhaps how to help fund it?

Yes, sure. I mean, certainly, when we think about next year, equity is going to be a much bigger picture and part of that story than this year, and we're not currently teeing up a disposition program, anything close to what we did this year. So dispositions should revert back to a more typical run rate.

We do have a couple of operating properties left, but apart from the possibility of some self-storage sales slipping into next year, we should be back at more normalized levels. Disposal will still be a source of incremental capital for us, but it won't be significant like it was this year.

So the expectation is we're kind of back to normal core spread investing, typical the net lease company where issue equity and debt, keep leverage targets in mind and you use it to do deals and generate spreads. So that's kind of the plan going forward.

I think the other thing maybe to note is, and Toni talked about this, that we do have lots of funding flexibility right now looking into 2026. Revolver at a little over $2 billion is mostly undrawn. She referenced, call it, $250 million of free cash flow and then as we talked about earlier, we have gotten a head start on equity needs. We have $230 million of forwards that we recently issued on the ADM. So we're in good shape, and we think we're ahead of the game there for funding for next year.

Okay. And then just a follow-up. Are you seeing any competition or greater competition on deals from some of the private net lease platforms that are out there in any part of your buy box?

Yes. I mean look, the net lease market has always been competitive, especially in the U.S., and we have seen a bit of a pickup in new competition. It's mainly the private equity players, as you mentioned, and they're finding that lease attractive. We really don't think we run into all that much. We don't always have full visibility on who we may be competing with. And that's at least thus far right now.

So I'd imagine we'll see incremental competition that comes up and that likely leads to some pricing pressures, but it feels manageable right now. And we certainly have a cost of capital to allow us to compete on price when needed. So I think that's -- I think it's okay. I think it's also worth keeping in mind that especially on sale leasebacks, experience and track record on execution matter quite a bit. So newer entrants may have a little bit more of a hurdle to cover there and our reputation and kind of history should be a real competitive advantage, too.

Your next question comes from Smedes Rose with Citi.

I wanted to ask you first just a little bit, if you could just give us an update or a reminder I guess on where you are on the Hellweg process in terms of leases that I think you had expected 7 to be terminated by this time of the year and then maybe I think 5 more to go. Is that still kind of the case and maybe where you are on stores that are expected to be sold versus released?

Yes, sure. Brooks, do you want to cover that?

Yes. So first, maybe just a broader status update. As Toni mentioned, they remain current on rent. We've reduced them down to our #14 tenant, and we're making good progress on our plan to reduce that. Specifically to your question, we're taking a number of actions to reduce our exposure there.

We've sold 3 occupied stores in Q3, I expect a couple more over the next few months there. As you mentioned, we took back 7 -- the first 7 of the 12 in total, we're taking back. So of those 7, we signed leases with new operators at 2 and 1 is in process, that should be signed soon or are under contract to sell. Those will close in Q4 and into Q1 and then as I mentioned, we're taking back another 5 in 2026. We signed leases on 3 of those locations, 1 more in process and then 1 will be targeted for sale.

So making very good progress on that strategy and we would look to reduce the exposure on top of that quite quickly. We're targeting out of our top '25 sort of towards the midyear of '26. And we think we have a path to get them out of the top 50 kind of by the end of 2026. So we expect the exposure to come down meaningfully going forward.

Great. And then you mentioned in the fourth quarter, maybe having gone in a little too conservative around rent loss assumptions. And as you just think about next year, any thoughts on how you could sort of maybe assess that? I mean are you concerned about the underlying economy at all that would maybe drive you to be maybe more conservative than you have been historically? Or just any kind of thoughts on how you're thinking about that at this point?

Yes. Brooks, do you want to take that one as well?

Sure. I mean without kind of projecting forward any specific guidance, I think what's important to note is that our broader watch list and kind of credit quality has improved materially over recent quarters. Again, that's driven by resolutions on true value and hard side and the progress we're making on Hellweg. And we continue to closely monitor that turnaround at Hellweg, and we'll continue to have caution there.

That said, our broader credit watch universe has come down meaningfully. So we'll continue to take a conservative and cautious approach there with respect to credit broadly and how specifically but we expect to be able to drive strong earnings growth even net of that.

Your next question comes from Michael Goldsmith with UBS.

This is [ Catherine Graves ] on for Michael. So my first, you've completed the $1.6 billion of investments so far year-to-date. You raised investment guidance. Can you maybe just provide some color on the -- what's currently in your pipeline as far as the incremental volume increase? Anything just in terms of geographic split between Europe and U.S., property-type mix, industrial versus retail and any non cap rates that you're currently seeing in the pipeline as you build for 4Q?

Yes, sure. So near term, currently includes, I would call it, several hundred million dollars of identified transactions, most of them in advanced stages. We think many of those will close in the fourth quarter, although at this time of the year, it's always hard to predict and some may slip into next year, which would set us up for a strong start to '26.

I think on top of that, which you can also factor in and we included in our sub is about $70 million of capital projects that are scheduled to complete this year. These are the build-to-suits and expansions that we regularly do. You probably would also note that we have -- in addition to that $70 million, we have another $180 million that are in construction much of that, probably most of that would close in 2026.

In terms of geographies, I mean, one of the things that we've -- maybe worth noting is more activity in Europe, while year-to-date, North America still makes up about 75% of the deals that we've done. The third quarter, we saw the split closer to 50-50 between North America and Europe.

And I think the themes that we're seeing in Europe are probably similar to those in the U.S., where rate stability has led to a tightening of bid-ask spreads and sellers who may have been on the sidelines for a while now are willing to transact, and that's kind of translated into more activity, and that's both in the U.S. and Europe, but I think it's maybe most notable that we've seen more deal flow in Europe over the last, call it, 1 quarter, 1.5 quarters compared to the prior years.

In terms of property type, we continue to see the best opportunities in industrial, and that includes both manufacturing and warehouse. I think that's reflected in our deals completed to date, and it also makes up the bulk of our pipeline as well.

I think you asked about kind of pricing as well. And we continue to target deals in the 7s, and we've been transacting on average in the 7s, and that's been the case for pretty consistently throughout 2025, and it's also largely where the pipeline is right now.

So cap rates have mostly remained unchanged year-to-date. But as I mentioned earlier, I would expect to see some tightening as we head into 2026, especially if rates kind of stay at the current levels in that 4% zone and certainly increased competition could factor into that as well, but that kind of remains to be seen.

So overall, I think the pricing still works for us very well, and we always want to make sure we remind people that we're achieving kind of mid-7 initial cap rates that equates to an average yield and kind of the 9s which we still believe that's among the highest in the net lease sector and certainly provides really interesting spreads relative to how we're funding these deals.

Got it. Thank you for the comprehensive answer. That's super helpful. And then my second same-store rent growth looks like it ticked up about 10 basis points this quarter. And I know you talked about the expectations for the remainder of the year. But just thinking through the roughly 50% of rent currently tied to CPI. How should we think about the sustainability of that like mid-2% growth if inflation moderate? And then should we also sort of expect in the future to see more fixed rent bumps in future acquisitions going forward?

Yes. Let me take the second question, and maybe Toni can just comment on how we kind of look on a on a kind of go-forward basis of the CPI impacts on our same-store.

In terms of should we continue to expect to see inflation, I think since we saw the inflation spike a couple of years back, it's gotten a little bit more difficult as we're negotiating kind of rent structures and sale leasebacks. It's been a little bit more difficult to get inflation, at least in the U.S.

Year-to-date, it looks like about 1/4 of our deals have CPI-linked increases. And a lot of that is in Europe, and that's where it's still customary to get those increases in Europe, and we would expect to continue to see that. But I think with CPI increases or inflation changes have also impacted is our fixed increases and the levels at which we're able to negotiate those.

I think historically, we've probably been closer to 3% on average. And now we're typically seeing new deals with fixed increases in the maybe 50 to 100 basis points above that. Year-to-date, the deals that we've done have averaged a fixed increase of 2.7% and the pipeline is fairly consistent with that.

So while we're not getting as much inflation on new deals, our same store is still quite strong and it should remain that way. Toni, I don't know if you have any views into moderation of inflation, kind of the timing of our bumps and how that could flow through.

Yes. I think it's helpful to just think through the way that our leases work, and we've mentioned this historically. The CPI-based leases specifically have a bit of a look back. So there they're looking at inflation really in this kind of last quarter of the year, if you will. So we have a pretty reasonable line of sight into what next year same-store could look like, especially just given how many of our leases bump in January or in the first quarter.

So even with CPI stabilizing kind of at its current levels are decreasing slightly, we do still expect our contractual same-store to be even north of where it is this year. And some of that, as I mentioned, is supported by the fixed increases being higher than what they've been historically but also with the expectation that CPI stabilizes. So again, north of 2.5% is our expectation for next year.

Your next question comes from Greg McGinniss with Scotiabank.

My apologies if I missed it, but did you provide the disposition cap rate achieved on the self-storage assets? And do you expect to fully sell out next year, early next year at similar cap rates?

Brooks, do you want to cover that?

Yes. Sure. So we were not going to speak to kind of active transactions. But as we mentioned on our Q2 call, we've thus far transacted just inside of a 6% cap rate on the storage assets. In total, I'd expect it to be right around 6%. Some will be a little higher, some a little lower.

It really depends on exactly the mix this year. And with respect to the full platform, as Jason mentioned, we're in the market with the balance of it, we do retain a bit of flexibility in terms of the exact timing -- I mean what sub-portfolios transact. But over the medium near term, we'll be exiting the full operating storage platform.

Is there any difference in terms of the operations or occupancies of those assets that would lead you to believe that maybe cap rates might be different geography, something like that?

Each sub portfolio is different. And as I mentioned, some will trade a little higher, some will trade a little lower. But on average, we would expect the total self-storage exit to be in and around a 6% cap rate.

Okay. And then I appreciate the color you guys provided on your thoughts on acquisitions. And you've certainly been busy over the last couple of quarters, some guidance Q4 may slow down a little bit, but I'm just trying to clarify whether or not you expect to generally maintain this level of investment pace in 2026.

Yes, sure. Look, it's hard to predict since the macro certainly factors in and at this point, we typically only have visibility out maybe 60 to 90 days. But our intention is certainly to keep the pace and I think you can look at what we've done.

I referenced earlier that if you go back on a trailing 12-month basis, we've been well over $2 billion, and there's not a lot that we're seeing right now that's a catalyst to change that dynamic. And the infrastructure team is in place here with lots of liquidity including meaningful free cash flow, we referenced the equity forwards that we've raised already and improved cost of capital that work. So we should continue to see good activity. We can lean into pricing and kind of feed that net lease growth algorithm. So we do feel good, but it's hard to predict exactly where things will go.

Your next question comes from Mitch Germain with Citizens JMP.

Congrats on the quarter. It seems like operating storage assets are going to be dwindled down. How should we think about the remaining operating properties. I think you still have a couple of hotels, maybe one other student housing asset. Is that -- are those also sale candidates?

Yes. Brooks, do you want to take that?

Yes, you're right. So we own 4 operating hotels. So that includes 3 of the former net lease Marriotts that we still own. One is the Hilton in Minneapolis, we'll sell that when the time is right, that could be in 2026, something we're evaluating. The 3 Marriotts are all slated for either sale or redevelopment. We're evaluating both paths. They're all operating normally in the meantime.

I'd say the first is one in Newark, which we're still -- in our final evaluation phase there, but towards mid-26 would seek to trigger redevelopment into warehouse there. The others are great locations in Irvine and San Diego, but we're being patient there. And then you mentioned we have one remaining student housing property in the U.K., something we're evaluating from a sale perspective, again, that could be a near-term sale candidate, something we're evaluating now.

Great. That's helpful. And then maybe Brooks will have you, the rent recapture on your retail leases a little bit lower than the rest of your portfolio. Is that Hellweg and is that kind of how we should expect the leases that you're looking to release going forward?

No. Actually, this is totally unrelated. These are just 2 AMC theaters. So we only own 4 movie theaters total. We'll bring that number down to 0 as quickly as we can, but it's a very, very small piece of ABR, if you look at the actual contribution there. So we rolled those rents down to keep those theaters open and operating.

Your next question comes from Jason Wayne with Barclays.

Just on the move-outs that led to the sequential drop in occupancy. So those have been known for a few quarters. I know you said that many of those have been resolved or nearly resolved by now. So just wondering kind of the strategy you think about managing occupancy when you're aware of some known vacates.

Yes. So they can pick up a bit Yes, Vacancy did tick up a bit, as Toni mentioned, just to recap, the largest addition or 2 warehouses, formerly to Tesco that we had discussed previously. That's about 50 basis points of occupancy. Also 2 former True Value warehouses for about 45 basis points and a couple of Hellweg for -- or several Hellwegs for about 20 basis points.

All of those are in process of being resolved and should be closing imminently. If you step back and look at our total vacancy, we really do view this as a temporary spike. Of the total, roughly 30% of the vacant square footage has either already closed or is closing imminently. And then another 50% of that is in active negotiations or diligence.

So we'd expect the vacancy rate to get back to a normal place kind of over the next quarter or 1.5 quarters time frame. So periodically, we'll get a bigger building back vacant. We work very proactively to resolve those, and that's why these resolutions are well on their way.

And then yes, just on a couple of debt raises expected next year. Just wondering what kind of pricing you're seeing in the U.S. and Europe right now?

Sure. Yes, we have 2 bonds coming due next year. I think the expectation is that we would probably repay each of those in kind of the same currency. In terms of where we're seeing pricing, I think, in the U.S., you can kind of think of it as low 5s. And in Europe, it's probably maybe 100, 125 basis points below that. So kind of think about it high 3s and around 4% is roughly where they are.

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

I just wanted to talk a little bit more about the cap rate expectation going forward. I know you mentioned you expect maybe some compression just given where the 10-year sits today. But just curious if there's any difference or bifurcation between cap rates in the U.S. versus cap rates in Europe?

Yes, sure. I mean over the last couple of years, cap rates, obviously, it's a pretty wide range depending on a lot of the specifics of the transaction and in Europe geographies matter as well. But I think on average, we've been roughly in line between the U.S. and Europe. Maybe this year, we've seen a little bit of tightening in Europe, attribute that to rates stabilizing a little bit earlier there than over here.

But it's also important to note, and I just mentioned it that we can borrow meaningfully inside of where we can borrow in the U.S. So we're still generating better spreads in Europe. But yes, I think they're roughly in line. Maybe it's 25 basis points delta between the 2.

Okay. Great. And then can you just remind us of your hedging strategy and like how movements in exchange rates impact AFFO per share? And then if you have any thoughts or indications on the impact positively or negatively in 2026?

Sure. Toni, do you want to cover that?

Yes. I think just a big picture in terms of our strategy. We continue to hedge our European cash flows. First, naturally, we do that with our expenses. So if you think about our interest expense is denominated in euro and certain of our other property expenses.

That really reduces our gross AFFO currency exposure to less than 20% of AFFO for the euro before hedging. So if we focus on that, we've implemented a cash flow hedging program beyond that to further reduce our exposure on the vast majority of the remaining net cash flows. So really material movements in the currencies are really not expected to have an impact on positive or negative.

I'd say over the course of this entire year, we saw pretty meaningful movements in the euro and that maybe added about $0.02 to our total AFFO this year, relative to where we started the year from an expectation standpoint. I wouldn't want to go as far as to predict what next year would look like from an FX rate and movements there. I would just say that our strategy should continue to be effective from a hedging standpoint so that we wouldn't see any material movement to the bottom line from an AFFO perspective.

Your next question comes from [ Daniel Byon ] with Bank of America.

I appreciate the update on your potential rent loss forecast. I was wondering if you could touch on how that compares historically for portfolio and whether it's more weighted towards Europe or the U.S.

Brooks, do you want to take that?

Sure. So as Toni mentioned, with respect to rent loss forecast, there's a degree of caution embedded in that. We've continuously brought that down throughout the year. I think in terms of a good way to think about credit loss in any given year, as we've discussed in the past, kind of the spread between our contractual and comprehensive same-store that number will move around, but we expect that on average to be something like 100 basis points for a round number.

We think out of that 100 basis points about 30 to 50 could relate to credit with the balance being the kind of portfolio activity. So that kind of 30-ish basis points is a good kind of average credit loss assumption. And that matches up closely to what our actual data suggests from the last 20-plus years. So that's kind of a good rule of thumb. Again, that's going to move around in any given period, but that has been our history.

With respect to geographic concentration, I don't have that data directly in front of me, but I would expect that to broadly track our overall portfolio ABR allocation of kind of 2/3 U.S.

I guess for my second question, I think you just mentioned the escalators are trending in the high 2s. Which sectors delivered the strongest rent escalations in Q3? And where are you seeing pressure, if any?

Yes. Toni, I don't know if you have any details around that.

This is on the new deals you're referencing?

Correct.

Oh, on new deals? Let me take that out, that you meant just in the same-store growth of the portfolio. I mean most of what we've been doing this year has been industrial, and that's a mix of both manufacturing and warehouse. And I think one of the maybe drivers of our ability to achieve higher negotiated rent bumps within these leases is the fact that it's in an asset class that the market for those assets tend to have higher expected market rent growth compared to say retail, where a lot of those leases, especially with the investment-grade retailers, they tend to be flat.

And if they're not flat, you see them in maybe the 1% to 2% range on average. So yes, there is a bit of a driver behind the mix that more of what we're doing is industrial. So yes, I think that's a theme.

[Operator Instructions]. And our next question comes from [ Ryan Caviola ] with Green Street.

With acquisitions in the quarter across Europe, Canada and Mexico, could you provide any color on international competition? And has any of the private capital that has entered the net lease space competed on international deals? Or do they stay primarily in the U.S.?

Yes, sure. Yes, Europe historically has been less crowded. Certainly, there's not many, if any, pan-European public REITs. So it's more on the private side, and that's what it's been historically. I would say we are seeing a little bit of competition pop up there and much of those are U.S. funds that are looking to kind of enter in Europe.

It's probably worth noting that that's easier said than done. I mean we've been on the ground in investing in Europe over 2.5 decades. I mentioned earlier that we have a team of over 50 people on the ground there across our London and Amsterdam offices. We have deep relationships. We have a very good brand and track record across Europe. We know the various markets well.

We also know to optimize leases and tax structures and have scale and all that stuff matters. So we have our advantages over there. That said, even with a little bit more competition, it's still a big fragmented market. I think activity levels are increasing with more opportunities opening up. So we still feel good about our prospects for more deal volume in Europe.

Appreciate that. And then -- just kind of going back to the U.S. I know there's been more of a focus on industrial and the acquisition front, but I did notice [ Dollar General ] assets have been consistent additions to the portfolio the last few quarters and the net larger deal in the fourth quarter of last year, now they're top [ 2010 ] and could you just update us on that relationship? And how you feel about the Dollar Store space in general and how much you'd like to grow that?

Yes, sure. I mean we do have a relationship with the company itself as a good sized landlord now. Those deals, and I think pretty much all or most [ Dollar General ] deals that are traded in the market come through the development pipeline. So we have relationships with a most of our deals that came through were from developers that you were recently built stores and I think we've been opportunistic there.

[ Dollar General ] took a little bit of a credit hit mid last year when they reported on lower growth expectations and your stock price went down, but we took advantage of that. I think a lot of our peers are pretty full on Dollar General, maybe dollar stores more broadly. So I look at it as opportunistic pricing, and we've been in the layer in a really good credit, good concept, long leases. And so would we do a lot more? I don't know. I mean, they're top 20, now could enter our top 10 at some point perhaps, but it's going to be more opportunistic based on pricing.

And your next question comes from Jim Kammert with Evercore ISI.

Are you able to provide any sort of visibility or details regarding, say, the '26 and '27 lease expirations. I'm just curious about maybe what percentage of that is kind of being actively discussed with the tenants today, if you will, versus I think you run at the last moment?

Yes. Sure, Brooks, do you want to take that?

Yes. So virtually all, if not all, of the 2026 and 2027 expiring ADR is actively being worked on. Our general process is that 3 to 5 years out, we're really engaging with and strategizing and then 3-ish years out, really engaging with tenants. So virtually, all that's active. 2026 is a pretty manageable year to 2.7% of ABR expiring. And so we're working on virtually all of that.

Great. And you can kind of tease out as a related question, just looking at the average ABR per square foot, seems like a little lower in '26 versus '27. But I'm just trying to think about the organic. Is there any tilting towards industrial or retail across those next 2 years or getting too granular here?

Well, both years have reasonably similar breakdown in terms of property types, they're, call it, 60% warehouse and industrial. In 2026, we have a couple of warehouses, which we expect to be able to put new tenants at much higher rents. These are very high-quality warehouses in the [ Lehigh Valley], where rents are, call it, 40% or 50% below market. So we're working on those actively.

The others often tenants have renewal options at continuing rent. So we don't necessarily always get a true mark-to-market opportunity. But so it will be a mix, but I think -- we think it's a very manageable year with some opportunities to push rents.

Thank you. And at this time, I am not showing any further questions. I'll now hand the call back to Mr. Sands.

Thank you. And thank you, everyone, for joining us and your interest in W. P. Carey. If anybody has additional questions, please call Investor Relations directly at (212) 492-1110.

And that concludes today's call. You may now disconnect.