Agree Realty Corporation Aktie

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

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

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

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

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

I'll now turn the call over to Joey.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Peter, thank you, and take it away.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Correct.

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

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

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

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

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

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

Our next question comes from Linda Tsai at Jefferies.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

I'll now turn the call over to Joey.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

To Walmart, specifically? .

Just anyone.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

I'll now turn the call over to Joey.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

We'll move next to Michael Goldsmith at UBS.

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

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

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

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

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

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

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

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

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

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

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

We'll move next to Jim Kammert at Evercore.

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

No, that's correct, Jim.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Our next question comes from Wes Golladay at Baird.

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

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

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

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

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

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

We'll go next to Rich Hightower at Barclays.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Good morning, and welcome to the Agree Realty Second Quarter 2025 conference call. [Operator Instructions] And note, this event is being recorded.

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

Thank you. Good morning, everyone, and thank you for joining us for Agree Realty's Second Quarter 2025 Earnings Call. Before turning the call over to Joe and Peter to discuss our results for the quarter, let me first run through our cautionary language. Please note that during this call, we will make certain statements that may be considered forward-looking under federal securities laws, including statements related to our updated 2025 guidance.

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

I'll now turn the call over to Joey.

Thanks, Reuben, and thank you all for joining us this morning. I am extremely pleased with our performance during the first half of the year, having invested over $725 million across our 3 external growth platforms, while further solidifying what we believe to be the preeminent retail portfolio in the country. The $725 million plus invested year-to-date represents a more than twofold increase relative to the first half of last year. All 3 of our external growth platforms have broad and expansive pipelines and we'll see acceleration in the third quarter. Hence, we are raising our full year investment volume guidance once again to an updated range of $1.4 billion to $1.6 billion. The midpoint of this range represents a 58% increase over total investment volume for last year.

Most exciting is not the defensive nature of our portfolio or balance sheet in a dynamic world. It is now our dominant market position, driven by a best-in-class team that executes on hundreds of transactions annually across our 3 growth platforms. This value proposition is unparalleled. And when combined with our internal asset management platform and deep retailer relationships has built a differentiated and unmatched company. It has been 15 years in the making since this vision was outlined in our one-page operating strategy. December of 2009 to be exact. And I'm delighted to say that it has been realized. I am confident that these factors will drive an increased earnings algorithm in the coming years without moving up the risk curve in any manner. We continue to expand our war chest during the quarter, now having raised over $1 billion of capital year-to-date with $1.3 billion of outstanding forward equity. With over $2.3 billion in total liquidity, no material debt maturities until 2028 and pro forma net debt to recurring EBITDA of just 3.1x at quarter end, our balance sheet remains best-in-class and is positioned to support our growth well into next year.

To support this growth, we've continued to scale our team, enhance our systems and refine our processes, building a well-oiled machine and widening our competitive moat. We've added over 20 new team members year-to-date across the organization, increasing the scale of our horizontally integrated platform to support current activities as well as growth for years to come. We have driven industry-leading efficiencies with the deployment of additional systems, including AI and machine learning tools as well as enhanced integrations and streamlined workflows. Additionally, we have commenced the next iteration of ARC, which will come online next year. We've already started to reap these benefits in 2025 as we're raising our full year AFFO per share guidance by $0.02 at the midpoint to a new range of $4.29 to $4.32. This represents over 4% growth at the midpoint and demonstrates our ability to provide consistent and reliable earnings growth without deviating from our investment strategy.

Peter will provide further details on the guidance range and its key input shortly. We continue to see the biggest and best retailers take market share, which acts as a tailwind to all 3 of our external growth platforms. Even in today's uncertain macro environment, we are seeing the highest level of retailer demand for new brick-and-mortar locations since the great financial crisis. Nearly every retailer in our sandbox is focused on adding net new stores, underscoring the critical role that retail net lease assets play in an omnichannel retail world and as outlined in our previous commentary in white papers.

Moving on to the second quarter in detail. We invested over $350 million in 110 properties across all 3 platforms. This includes $328 million of acquisition volume across 91 high-quality retail net lease assets. Notable acquisitions during the quarter included a sale leaseback with the leading national auto parts retailer, a one-off Walmart supercenter in Ohio and a $75 million grocery-dominated portfolio, representing one of our largest non-sale leaseback transactions since the inception of our acquisition platform in 2010. This unique opportunity was owned by an elderly woman and was sourced through 18 months of working an off-market opportunity. These differentiated examples underscore the strength of our platform and its ability to source differentiated opportunities in a substantial and highly fragmented space. The acquired properties had a weighted average cap rate of 7.1% and a weighted average lease term of 12.2 years.

Over 53% of base rent acquired was derived from investment-grade retailers, and we continue to add to our ground lease portfolio during the quarter. We anticipate selling a few lower-yield noncore assets from the aforementioned $75 million grocery-dominated portfolio, which will include both acquisition cap rate and investment-grade percentage for the quarter post disposition. Although we only commenced one project in our development and DSP platforms during the quarter, don't be fooled, we continue to see increased activity and have a deep pipeline. We anticipate announcing several projects in the quarters ahead, while construction continued on 14 projects during the quarter with aggregate anticipated costs of over $90 million. We wrapped up 4 projects during the quarter, representing aggregate investment of over $13 million. These projects were the leading retail partners, including TJX, Burlington, 7-Eleven, Boot Barn, Starbucks, Gerber Collision and Sunbelt Rentals.

In total, we had 25 projects either completed or under construction during the first half of the year, representing $140 million of committed capital, including $98 million of costs incurred through June 30. We anticipate development spend to be up at least 50% year-over-year as both platforms continue to ramp. Our asset management team continues to address upcoming lease maturities. We executed new leases, extensions or options on approximately 950,000 square feet of gross leasable area during the quarter. This included a Walmart Supercenter in Ohio, a Best Buy in California and 5 geographically diverse leases with the TJX companies.

In the first half of the year, we executed new leases, extensions or options at 1.5 million square feet of GLA with recapture rates of approximately 104%. And Notable examples in recent quarters include the releasing of our former Big Lots in Manassas, Virginia and Cedar Park, Texas with net effective recapture rates of almost 170% and 150%, respectively as well as the releasing of our former Party City in Port Arthur, Texas, with a net effective recapture rate of 115%, demonstrating our emphasis on fungible boxes in dominant retail corridors. At quarter end, our best-in-class portfolio surpassed 2,500 properties spanning all 50 states. The portfolio includes 232 ground leases, comprising over 10% of annualized base rents.

Our investment-grade exposure stood at 68%, and occupancy rebound post the retenanting of the former Big Lots by 40 basis points to 99.6%. Dispositions remain limited However, our only at home located in Provo, Utah across from a new target is currently under contract to sell a nonrefundable at a 7 cap. We purchased the at Home as a pure real estate play in 2016 and have had interest in the site from multiple retailers and prospective purchasers. The disposition cap rate of 7% is nearly 50 basis points inside of where we acquired the asset, and we anticipate realizing an unlevered IRR of approximately 9% upon closing this quarter. Although At Home recently exercised a 5-year option, and the lease is anticipated to be confirmed in bankruptcy. I'm confident that At Home will ultimately suffer the same fate as Party City, JOANN and Rite Aid and ultimately liquidate.

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

Thank you, Joey. Starting with the balance sheet. We had a very active quarter with over $800 million of debt and equity capital raised bringing total capital markets activity year-to-date to over $1 billion. We raised approximately $415 million of forward equity in the quarter via our ATM program and a 5.2 million share overnight offering in April. In May, we completed a $400 million public bond offering comprised of 5.6% senior unsecured notes due in 2035. In connection with the offering, we terminated forward starting swap agreements of $325 million, receiving almost $14 million upon termination and reducing our all-in rate to 5.35%.

During the quarter, we also settled close to 700,000 shares of forward equity for net proceeds of approximately $41 million. As of June 30, we had approximately 17.5 million shares remaining to be settled under existing forward sale agreements for anticipated net proceeds of $1.3 billion. At quarter end, total liquidity stood at $2.3 billion, including cash on hand, forward equity as well as $1 billion of availability on our revolving credit facility, which is net of amounts outstanding on our commercial paper program at quarter end. Pro forma for the settlement of all outstanding forward equity, our net debt to recurring EBITDA was approximately 3.1x, representing the lowest level since Q4 of 2022.

Excluding the impact of unsettled forward equity, our net debt to recurring EBITDA was 5.2x. Our total debt to enterprise value was approximately 28%, and our fixed charge coverage ratio, which includes the preferred dividend remains very healthy at 4.2x. Our only floating rate exposure remains short-term borrowings, and we continue to have no material debt maturities until 2028. Our balance sheet is extremely well positioned to fund our growth into next year as we've locked in an attractive cost of capital which helps provide visibility into the acceleration in our multiyear earnings algorithm, as Joey mentioned.

Core FFO per share was $1.05 for the second quarter, which represents a 1.3% increase compared to the second quarter of last year. AFFO per share was $1.06 for the quarter, representing a 1.7% year-over-year increase. As Joey highlighted, we have updated our full year 2025 earnings outlook to reflect the strong first half to the year. We raised both the lower and upper end of our full year AFFO per share guidance by $0.02 to a new range of $4.29 to $4.32, which implies year-over-year growth of over 4% at the midpoint. The increase in our earnings guidance is largely driven by higher investment activity as evidenced by our increased investment guidance as well as a lower assumption for treasury stock method dilution. As a reminder, if ADC stock trades above the net price of our outstanding forward equity offerings, the dilutive impact of unsettled shares must be included in our share count in accordance with the treasury stock method. Our stock is trading at lower levels than in late April, and if it continues to trade near current levels, we anticipate that treasury stock method dilution will have an impact of roughly $0.01 on full year 2025 AFFO per share.

That said, the impact could be higher if our stock moves materially above current levels as was evident in last quarter's guidance or if we were to issue additional forward equity. Our guidance has been updated to include an assumption of 25 basis points of credit loss at the high end of our AFFO per share range and 50 basis points of credit loss at the low end of the range. I want to reiterate that our definition of credit loss is fully loaded. It encompasses not only credit events, but downtime due to a tenant vacating at lease maturity unrelated to credit issues and other partial earn on payments for any and all reasons. It also includes any operating and tax expense that ADC is responsible for paying while a space is vacant in addition to lost rental revenue. We believe this is an important distinction versus narrower definitions of credit loss used by some of our peers as we're looking to provide a more comprehensive picture of not only credit events, but overall economic loss for modeling purposes.

Our growing and well-covered dividend continues to be supported by our consistent and reliable earnings growth. During the second quarter, we declared monthly cash dividends of $0.256 per common share for April, May and June. The monthly dividend equates to an annualized dividend of over $3.07 per share and represents a 2.4% year-over-year increase. Our dividend is very well covered with a payout ratio of 72% of AFFO per share for the second quarter. We anticipate approximately $120 million in free cash flow after the dividend this year, up over 15% from last year. This provides us with another source of cost-efficient capital to fund our growth while maintaining a growing and well-covered dividend. Subsequent to quarter end, we announced a monthly cash dividend of $0.256 per common share for July. The monthly dividend also equates to an annualized dividend of over $3.07 per share and represents a 2.4% year-over-year increase.

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

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

[Operator Instructions] Your first question comes from the line of Linda Tsai from Jefferies.

Can you give us some color about your ATM activity in 2Q and overall timing given your overnight equity [indiscernible] .

Linda, you're breaking up a little bit, but I think you asked about the ATM activity during the quarter, correct?

Yes, give your overnight [indiscernible].

Got it. Yes. The ATM activity during the quarter all predated the overnight offering in April. During the overnight offering at post commencement of launch, I promised investors that we would be inactive in the capital markets, and we were fully funded, and we held that promise.

And then I think you said acquisition cap rates would expand going forward. What's the magnitude and any highlights on the tenants you're targeting?

No new tenants that we're targeting. We're going to stay within our sandbox. I would anticipate Q3 -- again, we just started sourcing for Q4, but Q3 acquisitions to be similar to the first quarter, but larger in volume.

Just one last one. Just given all the macro headline volatility, how are you thinking about retailer and consumer health right now? Do you have a view of whether it's improved or deteriorated year-to-date?

Well, I think consumer health has undoubtably deteriorated, at least consumer sentiment. We've seen those numbers swing. I think this number -- this morning's jobs report most likely affirms that conclusion. Ultimately, this interest to the benefit of our portfolio, which is focused on core, durable, goods and necessity-based retailers that are biggest in the country. And that has been our focus, will continue to be our focus. We will stay away from experiential -- we'll stay away from discretionary and we're going to buy things as you see in this quarter, whether it's auto parts or in grocery or tire and auto service, that continue to be required by consumers to live their daily lives from the biggest and best operators that can offer the lowest price. And we're seeing that throughout retailer earnings report. The biggest and best operators here are going to continue to gain market share. And simultaneously, we're going to continue to gain market share.

Do you think retailer health is improving, though, overall?

We'll see how retailer health is. I think you're going to see small retailer. I think the Big Beautiful Bill and what we're seeing going on in Washington ultimately is going to impact and tariffs are ultimately going to impact the smaller retailers -- smaller retailers that have to deal with tariff pass-throughs here, right, on goods that they're selling or components of the goods they're selling are going to be -- have to either take margin or pass on and price themselves out. And so at the end of the day, the bigger retailers with the larger balance sheets, not dissimilar from a recessionary type environment, predicting recession, but not dissimilar, the bigger retailers with the bigger balance sheets are going to be able to have choices and alternatives, but in terms of passing through incremental costs and inflationary cost to consumers due to tariffs or to eat margin or better negotiating leverage with their ultimate suppliers. And that is just -- that's a fact. This bill and the tariffs hurt main street, right? They help large retailers such as Walmart and Kroger and the biggest and best operators in the country.

Your next question comes from the line of Ki Bin Kim with Truist Securities.

So looking out at the investment landscape, Joey, can you just talk about some of the opportunities that you see maybe in particular, the DFP business for developments? And maybe you could just touch on volume, quality and pricing, things like that.

So the opportunities, as I mentioned in the prepared remarks, this is the most excited that I've personally been since COVID. It's the culmination of 15 years of a vision in the net lease space, everyone loves to focus only on acquisition volumes. Our acquisition volume will be strong. Our third quarter pipeline is very significant. But in terms of development in our DFP business, we're going to break ground on a minimum of $100 million in projects before year-end. It's over 10 projects that's geographically diversified with some of the country's largest retailers coming behind that is a significant shadow pipeline.

And I'll say this was the vision that we laid out 15 years ago prior to the inception of the acquisition platform when we were still a micro cap. And it was become -- it was to be a real estate company in the net lease space and not what everyone in the space refers to a simple spread investor. Anybody can do that to different degrees of success ultimately. -- frankly, I'm not interested in being part of that crew. I grew up on a real estate site. This company is a real estate company. And what you're going to see is all 3 external growth platforms pipeline scale. The results of those pipelines being scaled and the culmination of that vision to be a full-service real estate company, the biggest retailers in the country.

And can you remind us what is the type of margin or spread that you're earning on the development versus an equivalent acquisition yield?

Sure. All subject to duration and scope of the project. And so we benchmark those yields against where we can buy a like-kind asset at pricing today, not where comps are, but where we could purchase it. If we're going to take an existing building and retrofit it for a tenant, and they're going to commence paying rent in 120 days from rent commencement, that could be 50 basis points wide of where we'll acquire such an asset. If it's an 18-month entitlement process and there's significant obstacles and hurdles that we're going to overcome or true organic development, that can be as wide as 150 basis points. So again, duration and scope internal allocation of time and overhead are critical there. So we're doing all different types of projects. You will see in the second half of this year, round up projects, retrofit projects. Many of them are $10 million plus, and we are very close to commencement or have commenced post June 30.

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

On the development platform, I wanted to ask you kind of what do you think is kind of the -- or is there sort of an upper limit of where the investment there could go? And I guess just bigger picture. I think when people -- one of the reasons you traded at a pretty premium multiple is the sense that you can grow AFFO by at least kind of 4% plus a year. And that's driven by external acquisition opportunities and your spread to the cost of capital. And I'm just wondering, are you sort of suggesting that you'll be shifting more into this development platform over time because you think the spreads are better and you can grow AFFO faster that way? Or is it is just a growing kind of platform concurrent with your, call it, $1.5 billion of acquisition activity? Does that make sense. I'm just trying to figure out like the...

Yes. Yes. No. Many parts. Let's first break it down. First, this is not a capital -- these are not capital allocation. We have a war chest of a balance sheet with $2.3 billion in liquidity and $1.3 billion of forward equity that we built for a reason. Now we will do every deal that hurdles across our investment guidance and internal underwriting standards across all 3 platforms. So again, our Q3 acquisition pipeline, we just started building Q4 is quite significant. There's no material sale leasebacks and they are a regular way. Q4, we'll see, right? But that's grows every day now. We're off to a good start since Monday. Ultimately, we achieved better returns and yields through development and our DFP program. but that will not dissuade us or not deter us from investing in acquisitions. So that is not a capital allocation decision. These are the same tenants that we are targeting and working with our retail partners in the same sandbox. If you look at our earnings algorithm, which I mentioned in the prepared remarks, if you look at our 5-year historical AFFO growth trend, I think that's a good place to start. I'm not sure that all investors realize we're coming off a 2024 investment volume, which was the lowest level since 2019, just over $900 million due to the nature of the capital markets and our stock being in the 50s for approximately, I can't recall the first 6 months of last year. That obviously, that earns through to the following year, this year's earnings where we're at a midpoint of now of over 4%. We made a conscious decision last year to remain disciplined. We started with effectively to do nothing scenario, if people recall, we weren't going to invest inside a 75 basis point margins. We were going to go up the risk curve and invest in real estate or credit that didn't meet our historic underwriting standards. And then additionally, this year, we had to restart with the big last vacancies after the first exit from Chapter 11 failed with Nexus One purchasing the company. So we paused those leasing efforts in anticipation of all of the big lots being affirmed. That deal fell apart that week it was supposed to close. It decreased occupancy during the first half of this year by 40 basis points. You've seen that rebound now to our re-leasing efforts of 99.6% occupancy today at June 30. So I would look at our 5-year earnings algorithm. I think that's a good place to start. It is higher our historic 5-year earnings algorithm, excuse me. I think it is a good place to start -- this is a down year for us to be frank, in terms of AFFO growth. All 3 platforms will contribute to AFFO growth in the future. Obviously, development, if it's 1 of those longer duration projects takes longer to contribute. But again, this is not capital allocation decisions. This is not taking away from acquisitions. This is the envisioned future of having all 3 platforms firing on all cylinders being here and now.

Okay. I would leave it there, but thanks for the incremental [indiscernible] .

[indiscernible], did I miss anything there? Or that was a multipart question, I know.

No, I think it's good. I mean, I guess just on the development platform, I mean, do you see sort of an upper limit of how much you have invested there at what time? $1 billion, $500 million.

What we foreshadowed and set out about 6 months ago was our intermediate. We called it a 3-year goal of putting $250 million in the ground per year. We have obviously made significant strides towards that goal. I will tell you our shadow of the shadow pipeline, we are working with new retailers that could come to fruition and have geographic territories assigned to us. In fact you come to fruition. So I can't tell you about an upper limit. Every time I give a number of the size of the company or what we're able to achieve, frankly, we achieve it. So I don't want to put that out there. My goal when we launched the acquisition platform was to be $1 billion diversified net lease company. So I don't want to put that number out there. I think there is -- we've made considerable investments and we'll open to making more investments in people and processes and systems to continue to expand that. And again, I want to remind everybody, this is not speculative development, right? We are not speculating on land. We're not speculating on vacant space. These are turnkey or ground lease projects that have guaranteed maximum price bids prior to us closing and returns that are effectively fixed. That is our business. It is nonspeculative in nature, and it is a margin of cushion above where we can acquire a like-kind asset.

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

Just to follow up on the development on the DFP as it relates to the earnings algorithm, is the point that the -- when you add in the development and DFP to kind of regulate acquisitions, it provides more consistency, both from like from a magnitude perspective and then also from a stability of that earnings algorithm -- with trying to get -- just trying to understand like a point with the diversification of the different -- of the 3-pronged approach here.

I would think of it quite simply. We have one business that everyone focuses on net lease, one line of business, external growth, acquisitions. And that's what everyone wants to focus on in net lease acquisition volume. Our acquisition volume will be very strong. At the same time, we have been working for years now to build and scale development and then our development funding platform. These are just additives. That's all they are. They are additive, both qualitative, excuse me, and quantitative and they ultimately build out a holistic relationship with retailers that we are a critical real estate partner that we are working along multiple different fronts with them, and we are a differentiated real estate company. That has never been done in the net lease space. again, the spread investors, anyone can do it. We have no interest in being part of that. Our goal, when we created our one-page operating strategy in 2009 over 15 years ago, was to be a differentiated real estate company in the net lease space. I am more than proud to say that this team has now achieved that goal.

We are going to see in the coming months the fruition of the results of all those efforts.

And just as a follow-up, you've talked a lot in the past about the importance of scale and grocery. Last quarter, you did a sale leaseback of an [indiscernible] backed by Albertsons and now you're taking on more Albertsons with this portfolio deal. So does that kind of put -- like does that reflect a view that Albertsons kind of fits into that the scale that you're looking for in the stability within grocery that you're interested in?

Just one correction. This was our first material. We did not do a sale leaseback. We've never done a sale leaseback with Albertsons. This was our first -- we've one Albertsons, I believe, in the portfolio prior. This was our first transaction with on Albertsons leases. It was from a third-party elderly women in her 80s, out of California, whose family was historically in multifamily development and then 1031 into a net lease assets. The $75 million diversified portfolio had, I believe it was 5 Albertsons, Peter, 5 Albertsons in it. It is aligned with our thesis of investing in the biggest and best grocers in the country. Albertsons is still sub-1% of total rents here, total ABR. Obviously, Albertsons is a BB+ company, the third largest grocer in the country with approximately almost 2,300 stores. As an aside, our peers are investing in small regional and local operators and quoting $1 billion in revenue for a grocer in a 2% business, which has obviously challenges right now because of just consumer sentiment like we've talked about, we're going in the opposite direction once again.

We are building what we think is -- we have built what we think is the best grocery portfolio in the country. Albertsons is a minority piece of that. The stores we acquired had average sales of $740 approximately per square foot, rent to sales below 2%. They are very strong performers. Weighted average lease term of approximately 14 years, and they're paying below $14 per square foot on average. Geographically diversified, Texas, Illinois and Colorado. This is wholly consistent with our white paper on grocery that we're going to invest in the country's largest grocers, again in a 2% business, at the 2% margin business, have the scale and the balance sheet to win on price. Otherwise, we think there's going to be significant fallout in the grocery space from those local operators with only $1 billion in revenue. And look -- do the math, $1 billion in revenue at a 2% business is $20 million in EBITDA. Start doing sale leasebacks and guess what, your lease adjusted leverage in your cash flow starts to deteriorate pretty quickly. And then I mentioned in the prepared remarks, this number -- the depression of IG and then investment grade during the quarter and the yield in the quarter due to the sourcing of the soft market portfolio will ultimately be enhanced through the sale of the Dutch Brothers coffee shops at 5 caps that we'll dispose of that were included in the portfolio, the corporate Jiffy Lube's that were included in the portfolio that are noncore and 1031-like assets that we will dispose. And ultimately, our returns for the quarter and investment grade will be more aligned with this [indiscernible] standards.

Your next question comes from the line of [indiscernible] with Bank of America.

Maybe a question for Peter. On the bad debt in the guidance of 25 to 50 bps, is there anything identified? Or does that just give you some room on the potential that the 0.4 of expirations doesn't renew?

Thanks for the question, Jana. I'd say, through the first half of the year, the credit loss and again, in my prepared remarks, I mentioned that this is a fully loaded credit loss for us, inclusive of not just credit events and lost rental revenue but any other OpEx or expenses that we're responsible for during the downtime of an asset that's vacant for any reason related to credit or otherwise. And in the first half of the year, we realized credit loss relatively in line with the lower end of that 25 to 50 basis point range, so closer to the 25 basis point range. As we look to the back half of this year, I would say that based on known credit issues in the portfolio, we would anticipate operating closer to that 25 basis points or experiencing credit loss closer to that 25 basis points. So at the lower end or the higher end of the range at 50 basis points, that includes unknown credit events or cushion of approximately 20 to 25 basis points.

And as Peter -- let me just chime in. As Peter articulated in the prepared remarks, our definition of credit loss is fully loaded. So credit losses any and all events where a tenant does not pay rent, plus all of the nets being reimbursed not reading reimbursed, excuse me, expense coming out from Agree Realty, right, and then maintaining the building itself during that period of vacancy. So when this building is vacant, you have to temper it, heat and cool it. We don't want mold. We don't want frozen pipes. You got to arm it. You have fire suppression, you have maintenance of that building in order to release it. So it is fully loaded. And so once again, net lease companies have been very creative in their definition of credit loss. Now credit loss is due specifically to a credit event, and then it's pro forma for the lease-up with the footnote 1 and footnote 2. We are not going to go down that road. We are going to give, as Peter said, the true economic impact, 25 basis points to our total revenues for the year. And that is outflows as well as the lack of inflows to make -- this is real estate economic underwriting. This is not putting things into position for investors to have to parse through words and guests in fancy decks.

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

This is Sheryl on for John. Could you provide us an update on your watch list? And what is baked in your guide in terms of going in yields?

Our watch list is very de minimis. At Home was clearly on our watch list. I suggested during the prepared remarks, I fully anticipate the 2 step into bankruptcy like we've seen Chapter 11, the unsecured creditors have no recoveries they emerge like Party City, JOANN, Rite Aid and then there's no ongoing business. And so the unsecured creditors who take equity move their nonrecoveries, then liquidate the company. That's under contract for a 7 flat. We could have worked through that, redeveloped it, frankly, a better use of our time given the aggressive offer we took there. So outside of that, our watch list is very immaterial frankly, at this point. We continue to monitor the couple of movie theaters we have in the portfolio. That's really -- that's it. I mean, we pared that back to 25 basis points, and that was really comprised of big loss this year, right, during the first half of the year.

Yes. I think the watch list to Joey's point, historically, the 2 biggest components there were At Home at Big Lots. And with those now resolved, the remaining credit issues in the portfolio are fairly de minimis one-offs, and there's nothing on the horizon of any material size that we see as imminent in the portfolio continues to perform very well.

That's helpful. And then one quick one on big lots. Can you remind us how many assets were sold or released? And what was the final outcome

Yes, we have 1 or 2 left. One has been approved by we will disclose next quarter by a national retailer, you're all familiar with, that we will release to. Cedar Park, Texas was re-leased to Aldi, as we mentioned in the prepared remarks with a significant lift in net effective rent on a brand-new term. Manassas, Virginia was released with a significant rent increase on a net effective basis. We disclosed that, obviously, in the prepared remarks. We have 1 or 2. We're continuing again to work through, but we will work through those very quickly here.

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

Joey, in the prepared comments, you talked about the highest level of demand for brick-and-mortar locations since the GFC. Obviously, we're still in a pretty uncertain environment, the potential tariff headwinds for retailers. I'm curious why you think that demand is so strong?

Brad, we haven't seen any retailer pull back, and it's not that they won't potentially do so due to the tariff noise, headwinds and the 85 different dates that have been handed out by the White House. We just haven't seen the biggest retailers in this country, and it's aligned with our thesis going back a decade in our white papers. I encourage everyone to look at them. There's 2 drivers here. One is the bigger operators are taking share.

Two, the bigger operators now all realized, and you've probably heard me say before that the store is not a spoke, it's the hub, right? free delivery and free returns same day don't work from an EBITDA perspective. Not unless you got EWS backing it up in cloud computing and advertising revenue and ancillary sources of revenue. But from a selling goods perspective, that doesn't work. And so retailers have all realized that. We have never seen Walmart, Home Depot, Target, Lowe's, all growing their store count. It's all public information out there plus, plus, plus since prior to the great financial crisis. Sam's Club, Costco, you can keep going. All of these retailers invested for, let's call it, a 7-year period in distribution in fulfillment and logistics. And then they realized the investments are great. They make us more efficient, but guess what, we still lose money. We need the customer to get their but in the car and try to get them to pick up those goods from the store rather than delivering them to their house or free because they're accustomed to it now. And if we can get them to the store to pick up those goods or return those goods, which is an absolute disaster, right? I mean those get palleted and sold by the pound of returned goods, we've actually done it as an exercise here from Amazon. Those returned goods -- return them in store and maybe repurchase something else. So we've had a number of retailers speak to the team here. We have more retailers, national retailers, had the real estate departments coming in and speaking to the team here that we're partners with and articulating how those impacts on the business. The other piece to it is, specifically in some in some sectors, let's use auto parts. Auto parts, we have seen the rise of the hub store. We have a white paper on this, I believe as well, Peter, right? The rise of the hub store. The rise of the hub store is to fulfill commercial [indiscernible] auto service, collisions and dealerships demand for a part within 30 minutes. That is impossible from a central distribution facility. So auto parts retailers realize that the standard stores of 7,000 feet can't carry enough SKUs. So they need hub stores of 20 and Mega Hub stores up to 50,000 feet, which are effectively storefronts with warehouses in the back to carry all of the different SKUs and to get that car off of the lift and get that part there within 30 minutes. That's the business.

So we see all of these different areas convenience stores, let's take that. The rise of the large-format convenience stores, which we're obviously very active in. The convenience stores are taking share, not because there's more fuel being pumped in this country, not more cars on the road. Convenience stores are taking share from fast food restaurants. They're taking share from the front end of pharmacies. They're taking share from convenience items. You run in grad milk, you'll overpay instead of go into Walmart, Kroger or Albertsons and navigate 100,000 or 200,000 square foot store. And they're taking share due to their service and offerings, food and beverage for off-premises consumption, primarily breakfast and lunch.

And so there's different drivers here, but it's about convenience, time and EBITDA at the end of the day.

Okay. Maybe one for Peter on the guidance. The implication is a decent sized ramp in AFFO per share in the second half of the year. Is there anything lumpy on the expense side that maybe is driving some of that? Or is that purely just the ramp in acquisition volumes?

No. I think that's largely driven by the ramp in acquisition volume. I also mentioned in my prepared remarks, the treasury stock method dilution and our assumption for roughly $0.01 of impact there for full year 2025. And versus $0.02 last quarter, but there's nothing lumpy from an expense perspective anticipated in the back half of the year.

Our next question comes from the line of Wes Golladay with Baird.

I just want to go back to the comment of $100 million in starts and getting $200 million into the ground. Can you clarify if that was for development or development and funding? And then for these assets you're going to develop, would you plan on owning them afterwards?

We do plan [indiscernible] everything [indiscernible] real estate or for sale. Ultimately, we have no intention of selling. We're not doing these projects in a TRS or off balance sheet in any manner. We anticipate again starting over $100 million in projects between June 30 and the end of the year.

Okay. And then you did mention some...

At minimum.

Okay. And you also mentioned another version of ARC coming out next year. Can you elaborate on what's going to be in the latest addition.

Yes. Peter understands technology way more than I do. I drew it on a piece of paper originally. Peter has handled this from there, but I will mention we have now fully built out our IT team here. and we're thrilled with that team and the partners we're working with. Peter, you're way smarter here than I'm.

Sure. Specific to ARC, I think the primary goal of that project is to build ARC on effectively a new backbone or system that will allow for more self-service and more dynamic reporting that can be used across the organization. and will drive efficiencies in that we can manipulate the data more and drive to the decisions that we're trying to make across the organization. I think in addition to ARC, Joe mentioned some of the industry-leading efficiencies that we've gained through the implementation of AI. We implemented AI for lease abstraction about 3 years ago now. And we've been using that tool to abstract hundreds of leases that we onboard each year with a high degree of accuracy that has increased over time. the accuracy and the tool has resulted in significant time savings for the team.

More recently, we've launched an AI tool to complete what we call our lease underwriting checklist which compares our initial underwriting to the lease and confirms there are no significant issues. With that tool, it used to take an attorney roughly 4 hours to complete each one of those, and that's now a matter of seconds. So we've seen hundreds of hours of time savings there, 400-plus hours from that on an annual basis, hundreds of thousands of dollars of savings just from the implementation of that tool. And then looking forward, I think we'll look to combine AI and incorporate more of that into or from a decision-making process moving forward.

So Wes, we ran a test. Our IT team here ran a test looking backwards into deals that were approved in investment committee, and this is far out this component. But I think it should demonstrate the future of what AI is capable of. Our team ran a test the deals that were brought into Investment Committee and what they would be approved with the percentage of approval using AI. They were 90% accurate, and there was just a test. It was a game to see they could replicate investment committee's approval. We're using AI today, as Peter mentioned, for functional tasks and driving efficiencies. I want to take legal costs and cut them in half. That's my goal here. We have a great team and a great external team, but we don't need warriors extracting leases, summarizing leases. We can now do them in 15 seconds using artificial intelligence. That is generative AI learning. And so the new arc, which will be unveiled next year, 3.0, and I look forward to unveiling it will enable our full data warehouse and multiple tools to be layered on in the future.

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

Maybe just to shift gears a little bit on the asset management side of things, I guess, traditionally speaking, one of the trade-offs with very high credit quality in the tenant and low escalators would be -- well, one would be low escalators and two would be relatively short Walt. And so just as you renewing leases and just tell us about any changing parts of the lease structure that might be interesting, especially given just the shortage of good retail space in this country at this point.

Well, the shortage of space due to construction costs in this country, we see and I think the shopping center reporters have demonstrated this, and we've demonstrated with our releasing efforts is the second-generation space that is A, B space is in high demand. That said, C space functional obsolescence is a challenge, single-purpose boxes will always be challenges. I'll take issue with the first statement -- investment -- the portrayal that investment grade has shorter weighted average lease terms and/or less escalators. We have effectively net of credit loss, approximately 100 basis points of internal growth. When you look at the totality of those circumstances, I don't think that is frankly economically true. So anyone can sign a sale leaseback if you're a private operator or a public operator for 30 years, 50 years. Remember, Nick scores had Red Lobster signed 25-year sale leasebacks. Anybody can sign...

Blast from the past.

Blast from the past, I guess what, a lot of this stuff is coming back now into net lease with a lot of the private credit and the private capital that's flowing in. you can sign a sale leaseback on your house. You can have escalators. You can sign a sale-leaseback at anything escalators. You can do it for 50 years. The piece of paper isn't worth what it's printed on though. Ultimately, this is real estate and can the tenant ultimately afford the compounding impacts of those annual escalators that you're going to write into that lease. Sale leasebacks with noncredit tenants are simply financial structures that are akin to a lender is all it is. It is not our business. And when we talk about sale leasebacks being an alternative form of financing for these noncredit small, middle market, private equity sponsored operators or small private operators. It is not an alternative form of financing. There is no other place where you can pull out 100% of the proceeds from the building. If private equity sponsored car wash operator, and I go to a conventional lender.

And I say I want a first mortgage. Maybe they give me 50%, maybe they give me 60%. Then I go and I try to get mezz on that real estate. Maybe if I'm really lucky, I can ramp that to those 2 combined to 75%. Good luck on that, it can be expensive. Who's filling the last 25% in that primary method of financing this real estate? A hard money lender, a bookie. Nobody, right? And so what we see is alternative markets are in alternative markets to finance these assets. And look, what we've seen in spaces like the car wash space, the experiential space, they are primary assets that don't provide for risk-adjusted returns that are ultimately appropriate. If I'm going to finance a full capital stack for any of those types of uses, I want a 14 cap but I want my money out in 6.5 years. And I wouldn't even do it there. I don't think I'd rather just run the business myself but on the equity.

Helpful comments. It'd be fun to get you on another panel with your peers and kind of go at it from multiple directions.

Happy to do it. By the way, happy to do so. I think it would be educational for investors. I think comparing and contrasting rather than isolation in earnings calls and in meetings, debating these things is healthy for investors. The siloed nature of what has transpired in our subsector as well as read them generally does not give investors a full picture of and transparency. You combine that with reporting, as I mentioned prior, that has all types of discrepancies and footnotes and pro forma. This is a simple business. The second slide of our deck is consistency. We've done the same thing since we started this acquisition platform in 2010, and I took over operating this company, and we're going to continue to do it, making nuanced arguments. Let's do them on merit -- let's debate the merits and considerations and ultimately let investors decide for themselves. But I will stand here and I will say buying those types of uses as a primary source of real estate financing with a 7 handle in front of it, I do not believe is risk-adjusted appropriate and I'm happy to articulate that further in any form.

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

Joey, just revisiting one more time to ramp in development activity. Would you say you're more likely just planting developer relationships that the retailers had or more strategically are you used to planting more of the in-house development capability at those retailers?

That's an interesting question, Jim. We are definitely supplanting developers that can no longer perform due to capital constraints and volatility. There are also new relationships that we formed. I'm trying to -- some retailers have internal capabilities. We have not seen them give up those internal capabilities, frankly, retailers are trying to scale their internal capabilities to be able to execute on their store growth plans to the Street generally. So it's not supplanting retailer self-development, it is taking share.

That's interesting. And then what would you say -- have you canvassed. All of your retailers said, "Hey, we can do this for you." Or have you still have new tenants that [indiscernible] really an approach and really explain to them [indiscernible] full capabilities? Just meaning how far this could expand for you?

I'd say we have a scorecard and a scoreboard. It is in ARC. I would tell you there are very few. We have -- there better not be more in a few, but there are not many that we haven't talked to. Time and place, economics has to be correct. We have new relationships that will pull through in '27 and then existing relationships always. A lot of it again is time in place, right? We need to -- we're ramping, we need help. You can be a critical partner for us. Our other partners are failing, right? They're not executing on their promises. When you have $2.3 billion in liquidity and you pair that with expertise of a private real estate developer, you have a very unique combination that no one else can offer in terms of value proposition.

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

Just a quick one for me. With the development in DAP pipeline ramping, how are you thinking about construction cost today? And you mentioned building 50 basis points [indiscernible] where you can acquire. So just wondering if construction costs continue to rise, could that potentially eat into your 50 basis points?

I appreciate the question. We've done a full internal comprehensive study of the implications of all of these different types of tariffs led by Jeff Cagle here, our Head of Construction. And then we're very fortunate to have John [indiscernible] the Chairman of Walbridge, one of the biggest contractors in the country and our Board and his team ran also a study of the implications of tariffs in the construction area. We estimate that tariffs and if you look at project cost, generally vertical costs, right, moving dirt doesn't cost, buying, acquiring land, obviously, not yet, isn't tariffed. We're talking about vertical costs, which are approximately 25% to 35% of entire projects. We think the implication in the current tariff environment is maybe 1.5% of total cost. We generally have a contingency of 7% to 10% in projects. So we're not concerned about the is tariff environment right now in projects, but it's certainly something that we'll pay attention to, maybe not daily because we can't monitor and true social daily. But it's certainly something that we'll monitor but no material impact in overall construction costs. Now -- if you look, there's different sourcing that we will -- sourcing methodologies that will change, we'll buy domestic products. Retailers are also who designate different specifications for building components. HVAC units, things like that, while they may have components that are tariff, shift building architectural features and engineering features, structural engineering features even potentially to make it most efficient and continue to drive efficiencies to even bring that 1.5% down.

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

This is Sam on for Tayo. I hope I didn't miss this, but what gave you guys the confidence around increasing your investment outlook given the uncertainty presented by the macro backdrop as well as potential credit risk setting some tariffs.

Outside of sourcing acquisitions for Q4 between now and the, call it, the middle of October, we already know it's there.

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

Two quick ones just on ramping on the development. Maybe can you talk a little more about are the restructures any different from the acquisitions in terms of duration, yield, contracts, just [indiscernible] there.

Yes, Ron, generally, obviously, they are new leases. So these are 10-, 15-, 20-year leases, generally, the fresh-faced terms that are starting standard lease structures, nothing different, either ground leases or generally turnkey leases. The economics, again, will subject to project duration and scope will be 50 to 150 basis points wide of where we could acquire and do acquire the like-kind assets, really no difference there, except the methodology of sourcing, obviously, and then the duration and the return requirements internally here.

Great. And then my second one, Genuine Parts Company adds the top tenant list. Just any color there on maybe the opportunity with them to continue to grow and...

Look, that's NAPA. Obviously, is an investment-grade auto parts retailer, they have made it to the top tenant list. Know -- we're very fond of auto parts, as we discussed and wrote in the white paper, fungible boxes, great business, cars every day, setting a new record on the road. I'm not sure if anyone can be able to afford a car after all these tariffs actually hit. We continue to like the space. We like NAPA, but no plans to materially increase exposure from here.

That concludes our question-and-answer session, and I will now turn the conference back over to Joey for closing comments.

I appreciate everybody's time today. Thank you for joining us. We look forward to seeing you in the near future. And good luck to the rest of verdict season. Thank you.

This concludes today's conference call. Thank you for your participation, and you may now disconnect.