Q3 2024 Agree Realty Corp Earnings Call

Yeah.

Operator: Good morning and welcome to the Agree Realty 3rd quarter 2024 conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.

Speaker Change: Good morning, and welcome to the third quarter 'twenty 'twenty four conference call all participants will be in listen only mode.

Speaker Change: She didn't need assistance. Please signal conference specialist by pressing the Starkey followed by Seattle.

Operator: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touchtone phone. To withdraw your question, please press star, then two. Please limit yourself to two questions during this call. Note that this event is being recorded.

Speaker Change: After todays presentation, there will be an opportunity to ask questions.

Speaker Change: I ask a question you May press Star then one on your Touchtone phone.

Speaker Change: She was Jai a question. Please press Star then.

Speaker Change: Thank you.

Speaker Change: Limit yourself to two questions during this call.

Speaker Change: Note that this event is being recorded.

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

Speaker Change: I would now let's turn the conference over to Robyn Friedman Senior director of corporate Finance. Please go ahead with it.

Reuben Goldman Treatman: Thank you. Good morning, everyone, and thank you for joining us for Agree Realty's 3rd quarter 2024 earnings call.

Robyn Friedman: Thank you good morning, everyone and thank you for joining us for acre Realty's third quarter 'twenty 'twenty four earnings call before turning the call over to Joanne Peter to discuss our results for the quarter. Let me first run through the cautionary language. Please note that during this call. We will make certain statements that may be considered forward looking under federal Securities law.

Reuben Goldman Treatman: Before turning the call over to Joey and Peter to discuss our results for the quarter, let me first run through the cautionary language. Please note that during this call we will make certain statements that may be considered forward-looking under federal securities law, including statements related to our updated 2024 guidance. Our actual results may differ significantly from the matters discussed in any forward-looking statements for a number of reasons.

Including statements related to our updated 2024 guidance our actual results may differ significantly from the matters discussed in any forward looking statements for a number of reasons.

Reuben Goldman Treatman: Please see yesterday's Ernie's release and our SEC filings, including our latest annual report on Form 10-K, for discussion of various risks and uncertainties underlying our forward-looking statements.

Robyn Friedman: You 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 F. L. Adjusted funds from operations or <unk>.

Reuben Treatman: In addition, we discussed non-GAAP financial measures including core funds from operations or core FFO, adjusted funds from operations, or AFFO, and net debt to recurring EBITDA. Reconciliation of our historical non-GAAP financial measures to the most directly comparable GAAP measures can be found in our Ernie's release, website, and SEC filings.

Robyn Friedman: So our net debt to recurring EBITDA reconciliations of 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.

Joey: I'll now turn the call over to Joey. Thanks, Reuben, and thank you all for joining us this morning. Before running through our standard update, I'd like to take a step back to provide our perspective on the current state of the market and how we have taken steps to proactively fortify our balance sheet and portfolio in this dynamic environment. As the markets have re-adjusted the changing expectations around inflation employment, our cost of capital has improved significantly. We've been able to capitalize on this shift, bolstering our fortress balance sheet during the quarter with nearly 470 million of forward equity raised VRATM program.

Thanks, Erin and thank you all for joining us this morning before walking through our standard update I'd like to take a step back to provide our perspective on the current state of the market and we have taken steps to proactively fortify our balance sheet and portfolio in this dynamic environment.

Robyn Friedman: As the markets and readjusted, the changing expectations around inflation and employments, our cost of capital has improved significantly.

Robyn Friedman: We've been able to capitalize on this shift bolstering our fortress balance sheet during the quarter with nearly $470 million of forward equity raised via our ATM program.

Joey: This brings our total outstanding forward equity to approximately 725 million, with total liquidity approaching 2 billion dollars. We now enjoy significant runway to execute on our growing pipeline into 2025 without any equity capital needs. At quarter end, leverage stood at just 3.6 times pro net debt to recurring EBITDA. During the quarter, S&P upgraded our credit rating to triple B plus while recognizing the strengths of our balance sheet and high quality nature of our portfolio. We continue to maintain a high level of discipline in our underwriting process. This patient approach is paid off as we've been able to capitalize on distress sellers while leveraging our asymmetric data sets and relationships to identify unique opportunities.

Robyn Friedman: This brings our total outstanding forward equity to approximately $725 million with total liquidity approaching $2 billion. We now enjoy significant runway to execute on our growing pipeline into 2025 without any equity capital needs.

Robyn Friedman: At quarter end leverage stood at just 3.6 times pro forma net debt to recurring EBITDA.

Robyn Friedman: During the quarter S&P upgraded our credit rating to Triple B, plus while recognizing the strength of our balance sheet and high quality nature of our portfolio.

Robyn Friedman: We continue to maintain a high level of discipline in our underwriting process. This patient approach has paid off and we paid off as we've been able to capitalize that distressed sellers, while leveraging our asymmetric datasets and relationships to identify unique opportunities.

Joey: Our teams continued efforts to create value and identify these opportunities, combined with our improved cost of capital, have opened up a larger opportunity set and resulted in accelerated deal flow. Given these market dynamics and our well-positioned balance sheet, we are increasing our acquisition guidance to approximately $850 million for the full year. With that said, we will continue to be disciplined capital allocators and maintain our stringent real estate quality underwriting standards. Our portfolio and pipeline remained balanced with a variety of differentiated opportunities. Given our liquidity profile, balance sheet, and the portfolio's performance, we have raised the lower end of our AFFO for share guidance to a range of $4.12 to $4.14 for the year.

Robyn Friedman: Our team's continued efforts to create value and identify these opportunities combined with our improved cost of capital have opened up a larger opportunity set and resulted in accelerated deal flow.

Robyn Friedman: Given these market dynamics and our well positioned balance sheet, we are increasing our acquisition guidance to approximately $850 million for the full year.

With that said, we will continue to be disciplined capital allocators and maintain our stringent real estate quality underwriting standards.

Robyn Friedman: Our portfolio and pipeline remain bandwidth with a variety of differentiated opportunities.

Given our liquidity profile balance sheet and the portfolios performance. We have raised the lower end of our <unk> per share guidance to a range of $4 12 to $4.14 for the year.

Joey: This represents approximately 4.6 year-over-year growth at the midpoint.

Robyn Friedman: This represents approximately $4 six year over year growth at the midpoint.

Joey: Peter will provide more details on our guidance momentarily. Turning to our three external growth platforms, during the third quarter we invested approximately $237 million in 93 high-quality retail and at least properties across our three external growth platforms. This includes the acquisition of 66 assets for over $215 million. The properties acquired during the third quarter are at least leading operators, operating in the sectors including general merchandise, warehouse clubs, home improvement, auto parks, tire and auto service, as well as grocery stores. During the quarter, we executed on the array of transactions, including the acquisition of three high-performing Walmart and Sam's Club stores, located in Elmsford and Kingston, New York, as well as Anderson, South Carolina, further expanding upon our relationship with the largest retailer in the US.

Robyn Friedman: Peter will provide more details on our guidance momentarily.

Robyn Friedman: Turning to our three external growth platforms. During the third quarter, we invested approximately $237 million and 93 high quality retail net lease properties across our three external growth platforms.

Robyn Friedman: This includes the acquisition of 66 assets for over $215 million the properties.

Robyn Friedman: Acquired during the third quarter are leased to leading operators operating in this sectors, including general merchandise warehouse clubs home improvement auto parts tire and auto service as well as grocery stores.

Robyn Friedman: During the quarter, we executed an array of transactions, including the acquisition of three high performing Walmart and Sam's club stores located in Elmsford, and Kingston, New York as well as Anderson South Carolina further expanding upon our relationship with the largest retailer in the U S.

Joey: Also included in the quarter were select off-market sell-leasebacks with relationship tenants with whom we continue to enjoy a strong partnership. The acquired properties had a weighted average cap rate of 7.5%, a 60 basis point increase year-over-year, and a weighted average lease term of 9.8 years. Investment grade retailers accounted for over 60% of the annualized base rent acquired. As a reminder, we did not impute credit ratings for non-rated issuers. Through the first nine months of the year, we've invested nearly $580 million across 176 retail and at least properties spanning 40 states and 26 retail sectors. Approximately $525 million of our investment activities originated from our acquisition platform.

Robyn Friedman: Also included in the quarter were select off market sale leasebacks with relationship tenants with whom we continue to enjoy a strong partnership.

Robyn Friedman: The acquired properties had a weighted average cap rate of seven 5%, a 60 basis point increase year over year and our weighted average lease term of nine eight years.

<unk> grade retailers accounted for over 60% of the annualized base rent acquired.

Robyn Friedman: As a reminder, we do not impute credit ratings for non rated issuers.

Through the first nine months of the year, we've invested nearly $580 million across 176 retail net lease properties spanning 40 states in 26 retail sectors.

Robyn Friedman: Approximately $525 million of the of our investment activities originated from our acquisition platform.

Joey: I anticipate that the upcoming quarter will be our most active of the year. During a third quarter, we commence eight development and develop our funding platform projects representing total committed capital of approximately $34 million, while completing six projects with total costs of $19 million. In total, we had 33 projects either completed or under construction during the first nine months of the year, representing 135 million dollars of committed capital, inclusive of the approximately 88 million deployed through September 30th. Our pipeline for both of these platforms continues to grow significantly, mirroring our efforts to solve the continued challenges that both our retail partners and merchant developers have in bringing new stores to fruition.

Robyn Friedman: I anticipate that the upcoming quarter will be our most active of the year.

Robyn Friedman: During the third quarter, we commenced eight development and developer funding platform projects, representing total committed capital of approximately $34 million, while completing six projects with total cost of $19 million.

Robyn Friedman: In total we have 33 projects either completed or under construction during the first nine months of the year, representing $135 million of committed capital inclusive of the approximately $88 million deployed through September 30th.

Our pipeline for both of these platforms continues to grow significantly mirroring our efforts to solve the continued challenges that both our retail partners and merchant developers have in bringing new stores to fruition.

Joey: On the asset management front, we executed new leases, extensions, or options, and approximately 785,000 square feet of gross leaseable area during the quarter, including a 211,000 square foot wall marked Subaru 7 or Ohio. And it's 70,000 square foot Marshalls and Home Goods into Caucus, New Jersey. As a result of our asset management team's efforts, our 2024 lease fraternities now stand at just three leases representing less than ten basis points of annualized-based rents. During the quarter, we also opportunistically disposed of two properties for total gross proceeds of over $7 million with a weighted average cap rate of 5.8%. Both of these non-core dispositions were Florida-based assets which continued to command a strong bid from 1031 capital.

Robyn Friedman: On the asset management front, we executed new leases extensions or options on approximately 785000 square feet of gross leasable area during the quarter, including a 211000 square foot Walmart Supercenter in Ohio, and a 70000 square foot Marshalls at Homegoods in Secaucus, New Jersey.

Robyn Friedman: As a result of our asset management team's efforts our 2024 lease maturities now stand at just three leases representing less than 10 basis points of annualized base rents.

Robyn Friedman: During the quarter, we also opportunistically dispose of two properties for total gross proceeds of over $7 million with a weighted average cap rate of five 8%.

Robyn Friedman: Both of these noncore dispositions were Florida based assets, which continue to command a strong bid from $10 31 capital.

Joey: Given the questions that we've received, I want to address the status of our existing big lot stores post filing for Chapter 11 bankruptcy. As discussed before, we have limited bid lots exposure with less than 40 basis points of annualized-based rent as of quarter-end, paying just over six hours per square foot on average, which would provide upside in the event of rejection given our confidence in the underlying real estate. Only two of our stores have been rejected today, but NASA's Virginia in Grand Rapids, Michigan. We purchased an incessal lease at auction, effectively terminating it, and have executed a letter of intent with a leading operator in the discount retail space with an anticipated recapture of over 150% on net effective rent.

Speaker Change: Given the questions that we've received I wanted to address the status of our existing big lots stores post filing for chapter 11 bankruptcy.

Speaker Change: As discussed before we have limited big lots exposure with less than 40 basis points of annualized base rent as of quarter end paying just over $6 per square foot on average, which should provide upside in the event of rejection given our confidence in the underlying real estate.

Speaker Change: Only two of our stores have had rejected to date Manassas, Virginia in Grand Rapids, Michigan.

Speaker Change: We purchased the Manassas lease at auction effectively terminating it and have executed a letter of intent with a leading operator of the discount retail space with an anticipated recapture of over 150% of net effective rent.

Joey: We were negotiating multiple letters of intent for our Grand Rapids, Michigan location, which had resulted in a strong recapture rate as well. We look forward to providing further updates in the coming quarters on our progress, driving value VR.

We were negotiating multiple letters of intent for our Grand Rapids, Michigan location, which had resulted in strong recapture rate as well.

We look forward to providing further updates in the coming quarters on our progress driving value via our leasing capabilities.

Joey: We are releasing capabilities. Similar to Bed Bath and Beyond, Big Lots is another example of our ability to recapture embedded value within the portfolio when credit issues infrequently arise. This is our testament, is a testament to our discipline, bottoms up real estate underwriting approach and proactive asset management efforts. Our best-in-class portfolio now spans over 2,270 properties across all 49 continental United States, including 223 ground leases comprising nearly 11% of annualized-based rents. Our investment grade exposure at quarter-end stood at 67.5%, and occupancy remains strong at 99.6%.

Speaker Change: Similar to bed Bath <unk> beyond Big lots is another example of our ability to recapture embedded value within the portfolio when credit issues in frequently arise.

Speaker Change: This is our Testament is a testament to our disciplined bottoms up real estate underwriting approach and proactive asset management efforts.

Speaker Change: Our best in class portfolio now spans over 270 properties across all 49, Continental United States, including 223 ground leases comprising nearly 11% of annualized base rents.

Speaker Change: Our investment grade exposure at quarter end stood at 67, 5% and occupancy remains strong at 99, 6% with that I'll hand, the call over to Peter then we can open it up for questions.

Peter: With that, I'll hand the call over to Peter, and then we can open it up for questions. Thank you, Joey. Starting with the balance sheet, we had a very active quarter in the capital markets, raising nearly $470 million of forward equity and upsizing our revolving credit facility to $1.25 billion. In July, as Joey mentioned, S&P upgraded our issue of rating to triple B plus from triple B with a stable outlook. The improved investment grade credit rating is a testament to the strength of our balance sheet and reflects the thoughtful and disciplined manner in which we've grown the company.

Peter: Thank you Joey starting with the balance sheet, we had a very active quarter in the capital markets raising nearly $470 million of forward equity and upsizing, our revolving credit facility to $1 25 billion.

Peter: In July as Joey mentioned.

Peter: <unk> upgraded our issuer rating to triple B flat from Triple B with a stable outlook.

The improved investment grade credit rating is a testament to the strength of our balance sheet and reflects the thoughtful and disciplined manner in which we have grown the company since achieving our initial rating over four years ago. We've tripled the size of our best in class retail portfolio, while simultaneously, increasing our investment grade concentration and deleveraging our fortress balance sheet.

Peter: Since achieving our initial rating over four years ago, we've tripled the size of our best-in-class retail portfolio while simultaneously increasing our investment grade concentration and de-leveraging our fortress balance sheet. We also entered into $200 million of forward starting swaps during the quarter, effectively fixing the base rate for a contemplated 10-year unsecured debt issuance at approximately 3.7%. Combined with our outstanding forward equity, this provides us with $925 million of hedge capital to fund investment activity into 2025. During the quarter, we sold over 6.6 million shares of forward equity, VRATM program, raising net proceeds of approximately $470 million.

Peter: We also entered into $200 million of forward starting swaps during the quarter effectively fixing the base rate for contemplated tenure unsecured debt issuance at approximately three 7%.

Peter: Combined with our outstanding forward equity this provides us with $925 million of hedged capital to fund investment activity into 2025.

Peter: During the quarter, we sold over $6 6 million shares of forward equity via our ATM program, raising net proceeds of approximately $470 million.

Peter: As of September 30th, we had approximately 10.8 million shares remaining to be settled under existing forward sale agreements, which are anticipated to raise net proceeds of $725 million upon settlement. Additionally, as previously announced, we retraced our revolving credit facility, increasing commitments from $1 billion to $1.25 billion. The facility includes an accordion option that allows us to request additional lender commitments up to a total of $2 billion. We also extended the term of the facility to 2029, including extension options, and reduced our borrowing cost by five basis points based on our current credit ratings in leverage ratio.

Peter: As of September 30, we had approximately $10 8 million shares remaining to be settled under existing forward sale agreements, which are anticipated to raise net proceeds of $725 million upon settlement.

Peter: Additionally, as previously announced we recast our revolving credit facility, increasing commitments from 1 billion to $1 5 billion.

Peter: The facility includes an accordion option that allows us to request additional lender commitments up to a total of $2 billion.

Peter: We also extended the term of the facility to 2029, including extension options and reduced our borrowing costs by five basis points based on our current credit ratings and leverage ratio.

Peter: As of September 30th, we have north of $1.9 billion of total liquidity, including $1.2 billion of availability on our revolving credit facility, the previously mentioned outstanding forward equity, and cash on hand. Proform up for the settlement of our outstanding forward equity, net debt to recurrent EBITO was approximately 3.6 times, which is down half a turn from last quarter. Exclude in the impact of unsettle forward equity are net debt to recurrent EBITO was 4.9 times. Our total debt to enterprise value was approximately 25 percent, while our fixed charge coverage ratio, which includes principal amortization and the preferred dividend, is very healthy at 4.5 times.

Peter: As of September 30, we have north of $1 $9 billion of total liquidity, including $1 $2 billion of availability on our revolving credit facility. The previously mentioned outstanding forward equity and cash on hand.

Peter: Pro forma for the settlement of our outstanding forward equity net debt to recurring EBITDA was approximately three six times, which is down half a turn from last quarter exclude.

Peter: Excluding the impact of unsettled forward equity our net debt to recurring EBITDA was four nine times.

Peter: Our total debt to enterprise value was approximately 25%, while our fixed charge coverage ratio, which includes principal amortization and the preferred dividend is very healthy at four five times.

Peter: We had the minimize floating rate indebtedness of only $49 million at quarter end, consisting of our revolver balance, and as a reminder, we have no material of that maturity until 2028. We are very well positioned to execute on our pipeline and stay well within our stated leverage range without raising any additional on committed capital. Moving to earnings, Core FFO for the third quarter is $1.1 per share, representing a 2.2% year-over-year increase. AFFO per share for the third quarter increase 2.8% year over year to $1.3. As Joey mentioned, we have increased the lower end of our full year 2024 AFFO per share guidance range to $4.12 to $4.14.

Peter: We had de Minimis floating rate indebtedness of only $49 million at quarter end, consisting of our revolver balance and as a reminder, we have no material debt maturities until 2028.

Peter: We are very well positioned to execute on our pipeline and stay well within our stated leverage range without raising any additional uncommitted capital.

Peter: Moving to earnings core <unk> for the third quarter was $1 <unk> per share representing a two 2% year over year increase.

<unk> per share for the third quarter increased two 8% year over year to $1 <unk>.

Speaker Change: As Joey mentioned, we have increased the lower end of our full year 2024, <unk> per share guidance range to $4 12 to $4 14.

Speaker Change: Representing approximately four 6% year over year growth at the midpoint.

Peter: We provide parameters on several other inputs in our earnings release, including acquisition and disposition volume, general administrative expenses, non-reimbursable real estate expenses, plus income tax and other tax expenses. 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 offerings. The aggregate diluted impact related to these offerings was over a penny in the third quarter. Our updated guidance range to contemplate similar Treasury Stock Method dilution in the fourth quarter if our stock continues to trade near current levels.

Speaker Change: We provide parameters on several other inputs in our earnings release, including acquisition and disposition volume general and administrative expenses non Reimbursable real estate expenses, plus income tax and other tax expenses.

Speaker Change: 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 offerings.

Speaker Change: Aggregate dilutive impact related to these offerings was over a penny in the third quarter.

Speaker Change: Our updated guidance range contemplates similar treasury stock method dilution in the fourth quarter. If our stock continues to trade near current levels under that scenario again, assuming a stock price in line with current levels. We anticipate treasury stock method dilution will have an impact of over <unk> <unk> per share in the fourth quarter.

Peter: Under that scenario, again, assuming a stock price in line with current levels, we anticipate Treasury Stock Method dilution will have an impact of over one penny on AFFO per share in the fourth quarter. Our guidance further demonstrates their ability to drive consistent earnings growth, which supports a growing and well-covered dividend. During the third quarter, we declared monthly cash dividends of 25 cents per common share for each of July, August, and September. On an annualized basis, the monthly dividends represent a 2.9% increase over the annualized dividend from the third quarter of 2020.

Speaker Change: Our guidance further demonstrates our ability to drive consistent earnings growth, which supports a growing and well covered dividend during the third quarter. We declared monthly cash dividends of <unk> 25 per common share for each of July August and September on an annualized basis. The monthly dividends represent a two 9% increase over the annualized dividend.

Speaker Change: From the third quarter of 2023.

Speaker Change: Our dividend is very well covered with a payout ratio of 73% of <unk> per share for the third quarter.

Speaker Change: Subsequent to quarter end, we increased our monthly cash dividend to <unk> 25, <unk> per common share for October the monthly dividend equates to an annualized dividend of almost $3 <unk> per share and represents a two 4% year over year increase with that I'd like to turn the call back over to Joey.

Joey: Thank you Peter with a robust and growing investment pipeline of nearly $2 billion of liquidity, we are in tremendous position to execute in the fourth quarter and into 2025 at this time, operator, we will open it up for questions.

Speaker Change: Thank you.

Speaker Change: Ladies and gentlemen, we will now begin the question and answer session.

Speaker Change: To ask a question you May Press Star then one on your Touchtone phone.

Speaker Change: Your question. Please press Star then two.

Speaker Change: Ask that you please limit yourself to two questions.

Speaker Change: First question comes from Smedes Rose of Citi. Please go ahead.

Speaker Change: Thanks, It's Nick Joseph here with Smedes.

Speaker Change: Joey just maybe just starting on the cap rate movement.

Speaker Change: 20 basis point sequential decline in the third quarter to $7 510 years, obviously moved back.

Speaker Change: Backup.

Speaker Change: Two four in a quarter right now so.

Speaker Change: Curious your thoughts on where cap rates could move from here, particularly obviously in the fourth quarter, but just the sensitivity to that movement on the tenure.

Speaker Change: Yes, good morning that gets better it's been a pretty wild ride with the 10 year Treasury, obviously with everybody awaiting eagerly awaiting the fed rate cut and then the 10 year doing the opposite obviously on the yield front here.

Speaker Change: So I think what you saw as you mentioned the 20 basis point compression in Q3, we've seen generally speaking about prior to the 10 year elevating in the last let's say 30 days another $60 $55 60 basis points. We saw about a 2025 basis point compression, we will see some compression in our cap rates in Q.

Four but I will tell you that will be focused that only the highest quality opportunities, where we leaned into effectively leveraging our cost of capital I think Q4 will not only be the largest quarter for us of the year as indicated by our guidance, but it will also be the highest quality quarter for us for the year as we move into Q1 now in Q1 sourcing.

Speaker Change: Effectively start this week, it's going to be interesting to see if sellers' expectations in terms of cap rates and.

Speaker Change: And overall asking prices in this environment are going to adjust again, given the 10 year backing up to that four to 544 that you mentioned so it's it has moved very quickly I'll tell you. This market doesn't move as you're well aware in unison, given the fragmented nature and small price point nature.

We'll begin pushing back on cap rates once again here with the with the elevated tenure yield.

Thanks, that's helpful and then just.

Speaker Change: I'm just curious if there's been any changes on the watch list.

Speaker Change: Kind of your thoughts as you talk to tenants on consumer health more broadly.

Speaker Change: No changes to the watch list as I mentioned in the prepared remarks are big last we actually purchased the Manassas, Virginia leased.

Speaker Change: Secondly, terminating at auction and are negotiating a lease there where we have a significant recapture opportunity.

Speaker Change: Look tenants and I'll be on the road as early as next week meeting with a number of tenants tenants in the sectors that we are effectively focused the non discretionary non experiential and of course non luxury space are still eager to grow in those.

Speaker Change: <unk> is in their growth given the liquidity the liquidity in the in the merchant builder market based on the regional and local banks provider a huge opportunity for us to continue to step in those tenants include the general merchants all the way from Walmart down to large format C stores YY kwik trip sheets.

Speaker Change: <unk> of the world within the off price retailers as well we've added a number of TJ acts as both through the acquisition as well as our development and DSP pipeline Burlington continues to grow aggressively Ross continues to grow aggressively.

As I indicated on the last call. This is the first time in my career since pre GSC that Walmart target home depot and Lowe's are all looking to do new stores. So in those respective sectors 10 still want to grow effectively and I would attribute that led to the consumer environment and frankly more to the pendulum swinging back.

Speaker Change: From the years of investment in E Commerce, and frankly, neglecting the brick and mortar experience and now tenants realization that to fulfill the true omnichannel future that we're headed toward theyre going to have to continue to invest and that includes adding store storehouse of their fleet.

Peter: for their fleet. Thank you very much.

Speaker Change: Thank you very much.

Peter: Thanks, Vic. Thank you.

Speaker Change: Thanks, Nick.

Speaker Change: Okay. Thank you next question comes from Brad Heffern at RBC capital markets. Please go ahead.

Bradley Heffern: Next question comes from Brad Heffern at RBC Capital Markets. Please go ahead.

Joey: Thanks, Murray, everybody. It sounds like the opportunity set is opened up meaningfully. I'm just curious why you think that is. Is that happening because sellers are more confident and where rates and macro are going? Is it happening because they think pricing is going to get? It's a great question, Brad. I think there's a multitude of reasons here. Amongst them, we've had a reset. We've had a reset, obviously, post COVID and post that little rate environment that we all enjoyed with free money flying around. We've had a reset, which effectively flushed out a lot of buyers in this space and brought sellers and expectations to reality.

Brad Heffern: Thanks, Good morning, everybody. It sounds like the opportunity set is opened up meaningfully I'm. Just curious why you think that is that happening because sellers are more confident in where rates and macro are going.

Brad Heffern: Is it happening because they think pricing is going to get significantly better or is there. Some other reason you would point to.

It's a great question, Brad I think there is a multitude of reasons here amongst them. We've had a reset we've had a reset obviously post COVID-19 and post that low rate environment that we all enjoyed with free money flying around so we've had a reset which effectively flushed out a lot of buyers in this space in <unk>.

Brad Heffern: Brought sellers' expectations.

Brad Heffern: The reality, we've had a reset in terms of the 10 31 capital because of the lack of overall commercial real estate transactional activity and so that number continues to be fractional and I don't think anticipated increasing we've had a reset in our cost of capital obviously with the with the increase in our stock price.

Joey: We've had a reset in terms of the 1031 capital because of the lack of overall commercial real estate transactional activity. And so that number continues to be fractional, and I don't anticipate it increasing. We've had a reset in our cost of capital, obviously, with the increase in our stock price. So our cost of capital makes us obviously more competitive and asset that we want to choose. And then we've had a reset in terms of developers' capability. As I just mentioned, Nick's question, developers' capability to match retail or store growth just because of the challenges in that market.

Brad Heffern: So our cost of capital makes us obviously more.

Brad Heffern: More competitive and assets that we want to choose and then we've had we've had a reset in terms of developers capability as I. Just mentioned next question developer's capability.

Brad Heffern: To match retailer store growth just because of the challenges in that market and so as we discussed in the prepared remarks that I'll say look our interim goal here to medium term is to put $250 million in the ground through development and our developer funding platform on an annual basis, we see a huge opportunity there not only in.

Joey: And so, as we discuss in the prepared remarks, I'll say our interim goal here, the medium term, is to put 250 million dollars in the ground through development and our developer funding platform on an annual basis. We see a huge opportunity there, not only in acquisitions, but also to continue to grow our relationships with our demand box retailers through the production of net new stores form through those two platforms. And so it's a whole different world. There are different participants in this world. We've also seen, obviously, on the public side, different focuses, whether it's international or casinos or experiential or non credit.

Brad Heffern: <unk>, but also to continue to grow our relationships with our with our sandbox retailers through through the production of net new stores for them through those two platforms and so it's a whole different world. There are different participants in this world. We've also seen obviously on the public side different focuses whether it's international.

Brad Heffern: National or casinos or experiential or non credit and so it's a very different paradigm. We're operating in today then.

Joey: And so it's a very different paradigm we're operating in today than, I'll call it pre-COVID. Okay, got it. And then if conditions stay similar to this in 2025, similar cost of capital, similar opportunity sets, similar cap rates, you think volumes could go back to the levels that you did and say 2020 to 2022? Yes. And I think we could put more on the ground, as I mentioned, through the other two external growth platforms. And I think we can continue to take market here.

Brad Heffern: Call it pre COVID-19.

Speaker Change: Okay got it and then if conditions stay similar to this in 2025 some of our cost of capital similar opportunities at similar cap rates do you think volumes could go back to the levels that you did in say 2020 to 2022.

Brad Heffern: Yes.

Brad Heffern: And I think we can put more on the ground as I mentioned through the other two external graph growth platforms and I think we can.

Brad Heffern: We can continue to take market share.

Bradley Heffern: Okay, appreciate it. Thanks, Fred.

Speaker Change: Okay I appreciate it.

Speaker Change: Thanks, Brett.

Ronald Kamdem: Thank you. Next question comes from Ronald Camden at Morgan Stanley.

Speaker Change: Thank you next question comes from Ronald Camden at Morgan Stanley. Please go ahead.

Ronald Kamdem: Please go ahead.

Ronald Kamdem: Hey, can you quick one for me? Just on going back to sort of the rampant and activity. Maybe, can you talk about, is it just, you guys are seeing more shares and so for the, you think, the entire market is just a more product out there. And, and again, what do you think is driving that? Well, when it feels like it feels like there more is more product out there. I don't have any quantitative data. Most of the transactions we do aren't marketed listed products out there. I'm sure CoStar, one of the services, can aggregate the total volume on market or transactions available on market relative to, you know, called 6090, 120 days ago.

Ronald Camden: Hey, two quick ones for me just on gone back and sort of the ramp in activity. Maybe can you talk about is it just you guys are seeing more shares and so forth that you think that the entire market is just as more product out there and again, what do you think is driving that.

Speaker Change: While it feels like it feels like there is more product out there I don't have any quantitative data most of the transaction, we do our market listed product out there I'm sure Costar one of the services can aggregate the total volume on market or transactions.

Speaker Change: <unk> market relative to call. It 60, 90, 120 days ago I would attribute our success more just to our value proposition being understood by retailers developers owners and brokers as well.

Joey: I would attribute our success more just to our value proposition being understood by retailers, developers, owners, and brokers as well that the ability for us to move quickly, close quickly, and act decisively has really across all three platforms has really taken hold. And so it's, it's, look, it's a pleasure to watch all three platforms. We've invested in all three, most notably this year, development and developer funding platform. All three platforms firing on all cylinders. If we're working back to the beginning of the year, we started with the do nothing scenario. We're obviously way far from that today.

Speaker Change: The ability for us to move quickly close quickly and act decisively has really across all three platforms has has really taken hold and so it's.

Speaker Change: It's a pleasure to watch all three platforms, we've invested at all three most notably this year development and developer funding platform all three platforms firing on all cylinders.

Speaker Change: Back to the beginning of the year, we started with the do nothing scenario, where obviously wafer from that today.

Joey: And frankly, we're doing a whole hell of a lot.

Speaker Change: And frankly, we're doing a whole hell of a lot.

Ronald Kamdem: Great. And then I know you said no change to the watch list.

Speaker Change: Great and then I know you said no change to the watch list.

Peter: Juan, can you just remind us what bad dad has been here today and what you baked into the guidance and would love just some updated thoughts on whether it's pharmacies or some of the furniture or some of the dollar stores just three months ago. There was a lot of talk about that. Maybe can you just give us some updated thoughts and how you're thinking about those sectors going forward. Thanks.

Speaker Change: One can you just remind us what what bad debt has been year to date and what you baked into the guidance and would love just some updated thoughts on whether its pharmacies or some of the furniture or some other dollar store just three months ago.

Speaker Change: There was a lot of talk about that maybe can you just give us some updated thoughts on how youre thinking about those sectors.

Speaker Change: Going forward. Thanks.

Peter: Yeah, Peter, what a hit for the bad dad for it. Sure, Ron, in terms of credit loss, we've experienced roughly 30 basis points of credit loss year-to-date, which is slightly above our longer-term average, but overall the portfolio continues to perform very well. And in instances where we have experienced down times such as that Bath and Beyond or Big Lots, as Joey mentioned in the prepared remarks, we're seeing very healthy recapture rates which bodes well for future earnings. In terms of what's contemplated in guidance at the low end of our guidance range, we're still assuming approximately 50 basis points of credit loss for the year, but at the higher end of that guidance range, we're assuming credit loss that's more in line with our year-to-date average.

Speaker Change: Yes, Peter what hit the bad debt.

Speaker Change: Sure Ron.

Ron: Terms of credit loss, we've experienced roughly 30 basis points of credit loss year to date, which is slightly above our longer term average, but overall the portfolio continues to perform very well.

Ron: In instances, where we have experienced downtime such as bed Bath <unk> beyond or big lots as Joey mentioned in the prepared remarks, we're seeing very healthy recapture rates, which should bode well for for future earnings.

Ron: In terms of what's contemplated in guidance at the low end of our guidance range, we're still assuming approximately 50 basis points of credit loss for the year, but at the higher end of that guidance range. We're assuming credit loss that's more in line with our year to date average.

Eric Borden: Thank you. The next question comes from Eric Borden at BMO Capital Markets.

Speaker Change: Thank you. The next question comes from Eric Gordon at BMO Capital markets. Please go ahead.

Eric Borden: Please go ahead. Thank you. Morning out there.

Eric Gordon: Hey, good morning out there Joe with the acquisition market seemingly opening up in the assets that you're targeting are you seeing larger portfolio deals come to market or is it mainly more singles.

Joey: Joey, with the acquisition market seemingly opening up in the asset that you're targeting, are you seeing larger portfolio deals come to market, or is it mainly more singles and doubles? I tell you, it's a myriad of opportunities. Single credit portfolios sell these back opportunities, which we anticipate closing in Q4 into Q1. Did a smaller sales scale sell these back in Q3 here. One-off opportunities directed from retailers, all different types. I'll tell you, this is the largest breadth of opportunity set that we've seen that I can recall. And so it's all over the board. I tell you, we're not paying portfolio premiums at this point by any means, but it's really all over the board today.

Speaker Change: Singles and doubles.

Speaker Change: I would tell you, it's a myriad of opportunities single credit portfolios sale.

Sale leaseback opportunities.

Speaker Change: Which we anticipate closing in Q4 into Q1 due to small smaller sales scale sale leaseback and in Q3 here one off opportunities directed from retailers.

Speaker Change: All different types I'll tell you. This is this is the largest breadth of opportunity set that we've seen.

Speaker Change: That I can recall and so.

Speaker Change: It's all over the board I would tell you.

Speaker Change: We're not paying portfolio premiums at this point by any means.

Speaker Change: But it's really all over the board today.

Joey: That's helpful.

Okay. That's helpful. And then more of a bigger picture question, just with natural disasters, becoming a bigger threat today. How are you thinking about your current exposure to states with higher risks, such as Florida and California.

Joey: And then more of a bigger picture question just with natural disasters becoming a bigger threat today. How are you thinking about your current exposure to states with higher risks, such as Florida and California? And how is the increasing probability of hurricanes and forest fires affected your thoughts on future acquisitions today? It's definitely impacted. It's part of our underwriting. Look, we're looking in those areas, and frankly, the occurrence or the potential occurrence of natural disasters. We're also looking at it from an insurance perspective. And so it is definitely at the forefront; Peter has been working actively on the insurance program for 2025 for us.

Speaker Change: And how is the increasing probability of Hurricanes forest fires affected your thoughts on future acquisitions today.

Speaker Change: It's definitely impacted as part of our underwriting.

Speaker Change: We're looking at we're looking in those areas and frankly.

Speaker Change: The occurrence or the potential occurrence of natural disasters. We're also looking at it from an insurance perspective.

Speaker Change: And so it is definitely at the forefront Peter has been working actively on the insurance program for.

Speaker Change: For 2025 for us.

Joey: And so it's something that has to be considered; it would be negligent not to. And so we get into those coastal areas, or as you mentioned, those fire zones, we're going to be pretty careful that we're covering all of our bases. And we're going to have the insurance program in place to just to make sure that we don't run into any Andrew there.

It's something that has to be considered it would be negligent not to.

Speaker Change: And so we get into those coastal areas or as you mentioned those fire zones.

Speaker Change: We're going to be pretty careful that we're covering all of our basis.

Speaker Change: And we're going to have the insurance program in place to just to make sure that we don't run into any challenges there.

Eric Martin Borden: I appreciate the time. Thank you.

Speaker Change: Alright I appreciate the time thank you.

Speaker Change: Thank you.

John Kilitowski: Thank you. The next question comes from John Kilitowski at Wells Fargo.

Speaker Change: Thank you. The next question comes from John Keller Tusky at Wells Fargo. Please go ahead.

John Kilitowski: Please go ahead. Hi, thank you.

Speaker Change: Hi, thank.

Speaker Change: Thank you so I'll start with Theres been a fair bit of headline and credit issues in the net lease space. This year. How are you thinking about portfolio construction as we move into 'twenty five in terms of changing preferences for top tenant sectors.

Joey: So I'll start with, there's been a fair bit of headlining credit issues in the net least space this year. How are you thinking about portfolio construction as we move into 25 in terms of changing preferences for top tenant sectors? I think we're in a tremendous position. I think what we've been talking about a lot of these credit issues and in questioning the concentrations from both the tenant and sector perspective. If you look as pharmacy, for example, we're at 4% pharmacy today. That number was close to 50% when we launched the acquisition platform. I mean there's one company that's been harping on Walgreens and divesting of Walgreens here from nearly a decade now.

Speaker Change: I think we are in tremendous position I think we've been talking about a lot of these credit issues in and questioning the concentrations from both the tenant and sector perspective, if you look at pharmacy for example, we're at 4% pharmacy today.

Speaker Change: That number was close to 50% and we launched the acquisition platform I mean, Theres one company, that's been harping on Walgreens and.

Speaker Change: And divesting of Walgreens here for nearly a decade now if you go to our disposition side and read the prior transcripts.

Joey: If you go to our disposition side and read the prior transcripts, we've been very clear. We'll coire select CVS pharmacies, specific to the pharmacy space, of course, but select CVS pharmacies in the new world order. And I think pharmacies are similar to theater. Today, pharmacies aren't going away; movie theaters aren't necessarily going away. We're over pharmacies, and we're over screen in this country, and there are multiple avenues to fulfill your need for a pharmaceutical product, or to go watch a movie, whether it's at home on Netflix or in the movie theater or an Apple TV.

Speaker Change: We've been very clear, we will acquire select Cvs pharmacies.

Speaker Change: Specific to the pharmacy space of course, but select Cvs pharmacies.

Speaker Change: In the new World order.

Speaker Change: I think pharmacies are similar to the theaters today pharmacies arent going away movie theaters aren't necessarily going away.

Over pharmacy, then we're over screened in this country and there are multiple avenues to fulfill your needs for a pharmaceutical product or to watch a movie whether it's at home on Netflix or in the movie theater or an Apple TV and so we're going to continue to operate a balanced portfolio no sector and our portfolio was over 10%.

Joey: And so we're going to continue to operate a balanced portfolio; no sector in our portfolio is over 10%. Grossries, obviously, at the top of that listed about 9.4%, followed by home improvement and tire service. The only tenant in our portfolio, north of 5%, is Walgreens, the biggest retail or in the country, which we added, as I mentioned, the prepared remark to three opportunities and continues to thrive. So I think ultimately a balanced portfolio, not taking unnecessary concentration risk from a tenant or sector, has benefited us. I think that was frankly ignored by the investor community, or at least pushed to the side, and secondly, by the investor community for a while. The headline risk comes in ban.

Grocery is obviously at the top of that listed about nine 4%.

Speaker Change: Followed by home improvement entire service the only tenant in our portfolio north of 5% as Walmart the biggest retailer in the country, which we added as I mentioned in the prepared remarks, three opportunities and continues to thrive. So I think ultimately a balanced portfolio not taking.

Speaker Change: Not taking unnecessary concentration risks.

Speaker Change: Inter sector has benefited us I think that was frankly ignored by the investor community or at least pushed to the side.

Speaker Change: Secondarily.

Speaker Change: By the Investor community for a while the headline risk comes in Bam.

Joey: People suffer from it, and so historically those great lines have been 5% from a tenant perspective, 10% from a sector perspective, and we've invited by that. Addison Walgreens exceeding that that 5% number and will continue to operate a well balanced portfolio with the leading operators and their respective sectors.

People suffer from it and so historically those gray lines have been 5% from a tenant perspective, 10% from a sector perspective, and we've abided by that.

Speaker Change: Absent Walmart exceeding that 5% number and we will continue to operate a well balanced portfolio with the leading operators in their respective sectors.

Speaker Change: Okay.

Joey: And on that, so 7-11 is in making its rounds with a large portfolio that sounds like it's been marketed around a 6-5, and then also 7-11 last week announced the closure of 444 stores. So first part of my question would be, how do you think that kind of price discovery would impact some of your target acquisition verticals on yield to going forward, and then two would be how they communicated to you that any of those closures are yours. To your second question, no, I'll actually be at 7-11 with the team next week. To your first question, I would tell you a large scale sale-leaseback that you're referring to, does it impact price discovery at all?

Speaker Change: And on that so 711 is it making its rounds with a large portfolio that sounds like it's being marketed around six five and then also 711 last week announced the closure of 444 stores. So first part of my question would be how do you think that kind of price discovery would impact some of your target acquisition verticals on yields going.

Speaker Change: Forward and then two would be have they communicated to you that any of those closures are yours.

To your second question no.

Speaker Change: Actually be at 711 with the team next week.

Speaker Change: To your first question I would tell you a large scale sale leaseback that youre, referring to does it impact price discovery at all I think you have institutional capital that is chasing it will compressed cap rates, we will pay a portfolio premium to drive the necessary volume that they think is appropriate in their pie.

Joey: I think your institutional capital that is chasing it will compress cap rates, will pay a portfolio premium to drive the necessary volume that they think is appropriate in their pipeline. But that has no impact on our pricing, our price discovery. Frankly, a transaction of that size would be disproportionate to everything. I just spoke of in terms of tenant concentration. Wayne, Scott, okay, thanks for the color.

Speaker Change: But.

Speaker Change: That has no impact on our pricing or price discovery, frankly, a transaction of that size.

Speaker Change: Would be disproportionate to everything I just spoke of in terms of tenant concentration and sector concentration.

Speaker Change: Got it thank you.

Speaker Change: Thank you next question comes from Linda Tsai of Jefferies. Please go ahead.

Linda Tsai: Hi, Good morning, just on the topic of credit what was it that made you want to increase your credit rating to Triple B plus.

Linda Tsai: And then does this impact your debt cost to capital.

Speaker Change: I'll, let Peter talk about the impact to the cost of capital I'll tell you. We think it was a long time coming and we've been pretty clear with the fixed income market I think the fixed income market has agreed with us.

With S&P initially rated the company Peter in the last and last meeting they had the onset of Covid.

Speaker Change: When was that a 2020, yes March of 2020, we were at one third the size I'll, let you take it from here I'm just going to sure yes, Linda to answer your question.

Speaker Change: We're initially rated back in early 2020, we've.

Speaker Change: As I mentioned in the prepared remarks tripled the size of our portfolio.

We've increased the investment grade concentration in our portfolio we have.

Speaker Change: Deleveraged the balance sheet, so to Joe's point I think this has been.

Speaker Change: A long time coming I think we view our credit metrics as indicative frankly as a company that is stronger than triple B, plus and we're going to continue to maintain a very conservative and well positioned balance sheet in terms of the impact to our.

Speaker Change: Our debt cost of capital.

Speaker Change: I think most investors viewed us as frankly, a triple B plus company before we got the upgrade and we were on a positive outlook and so we haven't necessarily seen a material impact to our debt cost of capital from the upgrade alone, but we continue to maintain.

Speaker Change: Tractive spreads.

Speaker Change: The unsecured markets because of the way that we maintain the balance sheet and we'll continue to do so.

Thanks, and then Joe you always have a good perspective on tenant credit we're seeing some weakness in the restaurant space. There's a headline this morning that Denny's is closing 150 stores can you opine on what's happening with the restaurant teams.

Speaker Change: I continue to eat at them.

Speaker Change: Not specifically.

Speaker Change: But when do we have been pretty clear that restaurants are not in our sandbox. Our restaurant exposure is on ground leases will take the building back for free, but specifically the furniture fixtures and mechanical electrical electrical and plumbing the build outs all amortize into the rental rates.

In one of the two probably most difficult retail business retail sectors to operate in the restaurant business is not our forte.

Speaker Change: Again, we're focused on fungible rectangles here and generally those rents are elevated and their tenant specific and so our focus has not been in the restaurant space. We didn't acquire one in Q3.

Speaker Change: I don't anticipate us acquiring one in Q4.

Speaker Change: We will continue to enjoy the food and stay away from the real estate.

Speaker Change: But any general thoughts on why they might be struggling now.

Speaker Change: No certainly I mean, we will give you a look at the elevated labor costs are constrained consumer at the low end I mean, there is different.

Speaker Change: Different value propositions here, but elevated labor costs led by the state of California elevated consumers.

We also see elevated consumer preference frankly, excuse me for for eating at home utilizing things such as door dash and Uber eats.

Speaker Change: Those numbers have not come down to pre COVID-19 levels.

Speaker Change: And it's it's a difficult business undeniably, but I would tell you. It's just not restaurants, what we're seeing today is a shakeout in that post COVID-19 free money world of retailers that probably had no value proposition in the first place, but had access to cheap capital that elongated their lifecycle and we will see.

Speaker Change: Continued elevated bankruptcies now while they have to refinance their ongoing obligations and their sales continue to erode.

Speaker Change: And so we're going to see that in the pet space in the office supply space in the sporting goods space in the restaurant space.

Speaker Change: These are these are things that were inevitable inevitably delayed bye bye free capital or nearly free capital that was out there.

Speaker Change: And now we're seeing the shake out and so it's back to capitalism, which I think is healthy.

Speaker Change: Thank you Tony.

Tony: Thanks Linda.

Speaker Change: Thank you next question comes from RJ Milligan of Raymond James. Please go ahead.

Speaker Change: Hey, good morning, guys.

RJ Milligan: Joe just a bigger picture question as we're looking into 2025, I'm curious, where you think the potential upside is from current expectations do you think that might be volume or is it spreads in terms of what the potential upside is next year and then same question on the downside do you think it's potentially low.

Than expected volume lower than expected spreads or higher credit loss.

Speaker Change: Our jamat honestly sure where expectations are today.

Speaker Change: Potentially get a better feel for it after NAREIT in Las Vegas, where they are today, we've been focused on closing out 2024 here.

Speaker Change: Including sourcing for the fourth quarter.

Speaker Change: Look I think it's pretty clear, we've built award chest with nearly $2 billion in liquidity and a value proposition that's distinct in this space.

We're going to execute what those expectations are they look they vary obviously across the street what those expectations are today are not truly certain but I think people can expect more of the same from us we don't.

The second slide in our deck pretty.

Speaker Change: Pretty much says it all.

And so we are we're going to continue to execute there won't be any surprises here.

And I think that said it will get a sense, obviously as people turn to turn their attention towards 2025 in the near future I would assume.

Speaker Change: I guess another way to ask it would be as you think about 2025 and <unk> gotten the question as to what keeps you up at night is is it concerns about credit as it concerns about where the 10 year moves what's what does keep you up.

Speaker Change: I don't see much to begin with I don't know Peter has done a.

Speaker Change: A tremendous job from a hedging perspective, we have $200 million as you mentioned in the prepared remarks hedged at $3 7 million for anticipated issuance of 10 year issuance in 2025, we have $735 million of forward equity and so I'll tell you the capital side of the balance sheet is not keeping me up right. So.

Speaker Change: The sources are and I'm very confident that we're going to be able to find accretive opportunities that are high quality to invest and so there is nothing here that keeps me up at night.

Speaker Change: From a macro perspective from an internal perspective, I think we will risk mitigation is critical in that lease that's driven by having a hedging policy, whether its forward equity or swaps not trying to tap the market and not trying to wait out for the last dollar or $2 for our share price and then executing.

Speaker Change: On a consistent basis with the strategy that is aligned with where you think where do you think the retail consumer is heading.

Speaker Change: With sound underlying fundamental real estate and so as Peter mentioned bed Bath <unk> beyond goes out we have three of them great outcomes.

Speaker Change: Lots files bankruptcy, we buy the lease in bankruptcy will have a 104 biome in Manassas will have a 150% lift on a net effective basis not just a.

Speaker Change: Gross basis here so.

Speaker Change: We are in tremendous position to execute for the remainder of this year and I'm excited about the fourth quarter and 2025 and I think it's always good to have that visibility into your sources and cost of capital heading into the year.

Speaker Change: I appreciate it thanks guys.

Speaker Change: Thanks RJ.

Speaker Change: Thank you next question comes from Joshua <unk> at Bank of America. Please go ahead.

Speaker Change: Yes, hey, everyone.

Joshua: Joey maybe just a follow up to John's question earlier, you mentioned getting ahead of lake tenant issues like Walgreens kind of years before most others, but what is it about your process for watching out for companies or sector issues.

Joshua: Kind of allows you to do that.

Speaker Change: Well I think we.

Speaker Change: Our credit monitoring process in place here.

Speaker Change: Reports, obviously up through Peter that we're watching not only tenants in our portfolio, but the broader retail market.

Speaker Change: I wouldn't attribute that Walgreens.

Speaker Change: Just the Walgreens perspective to that I think if anybody took a step back and look at the retail pharmacy space in this country for several years now upwards of a decade, we were over stored and I've talked about it at length. The front end of the store continued to lose share to see stores to Amazon in the back end of the pharmacy.

Speaker Change: Itself generic pressures alternative means of fulfilling pharmaceutical products.

Speaker Change: Whether it's Walmart or its mark Cuban startup or its Amazon or.

Speaker Change: Any of the Super centers out there I think it was very clear and then when you look at it from a real estate perspective of 13% to 14000 square foot rectangle.

Speaker Change: It's a difficult space to fill.

Speaker Change: At the dollar store at the end of the day generally speaking and so I think.

Speaker Change: The smell test is always probably the best at Belk Best Test walk the walk the store figure out what the value proposition is to consumers what drives consumers to.

Speaker Change: Phil baskets at that store and make in store or out store purchases.

Speaker Change: And frankly, Walgreens hadn't passed that test.

Speaker Change: I've said before I think on an earnings call when I need toothpaste I hit order again it shows up the next day.

Speaker Change: It's pretty efficient and they don't have to go drive to a pharmacy and.

Speaker Change: Find the toothpaste and wait in line.

Speaker Change: So it's.

Speaker Change: It really if you look at the entire retail ecosystem and you say and there is lots of concentric circles here and lots of crossover and you look at the retail environment and you say where else can this be replicated faster cheaper or more efficiently farmer.

Speaker Change: Pharmacy fell right in the middle of those concentric circles.

Speaker Change: Compare and contrast that now to off price.

Speaker Change: T J <unk> largest landlords there are critical partner, we love their businesses similar to Burlington as well.

Speaker Change: Alex can you fulfill right that bargain hunting.

The experience, whether it's a purse or a shirt or shoes warehouse can you fulfill that today you can't do it at other retail outlets unless they are in the same sector off price you can fill it online.

Speaker Change: So again the lack of competition the lack of crossover there is is critical and so I think we quickly identified the challenges.

Speaker Change: That Walgreens was facing and then we also understood getting that real estate back as opposed to bed Bath <unk> beyond or big lots, which are paying six bucks a foot on marketable rectangles.

Speaker Change: Would pose a challenge combine that with cap rates being artificially compressed we thought for Walgreens just due to their credit profile years ago, we chose to divest and recycle that capital.

Speaker Change: I appreciate that color Youll before thanks, Joe Thanks.

Speaker Change: Thanks, Josh.

Speaker Change: Thank you. Our next question comes from Michael Goldsmith UBS. Please go ahead.

Michael Goldsmith: Good morning, Thanks, a lot for taking my question Kelly I believe you said that acquisition in the fourth quarter would be the highest quality of the year. What do you mean by that I know you always have a focus on tenant quality buzz that attention heightened in the current environment.

Speaker Change: We mean, we've made a concerted effort.

Speaker Change: Utilize our cost of capital advantage distinct and discrete purposes and that is to target the highest quality that's from a credit perspective, and underlying real estate perspective, there'll be unique transactions with retailers in the quarter.

Speaker Change: I anticipate from optically from an investment grade perspective will be the highest of the year weighted average lease term will be the highest of the year.

Speaker Change: In the fourth quarter as well.

Speaker Change: There are some very unique transactions in the fourth quarter that were actively working on.

Speaker Change: We're excited to talk about extending all the way into the first quarter now so it's it's a function of the real estate the historical store level performance as well as.

Speaker Change: The tenant credit profile.

Speaker Change: Got it and then.

Speaker Change: Second question just on the guidance you brought up the low end.

Speaker Change: You brought up the low end of your <unk> guidance kept the high end is that a function of just.

Speaker Change: Too late in the year to to make a larger impact on.

Speaker Change: On the guidance in that.

Speaker Change: This acquisition activity in the fourth quarter is going to be more reflected in the growth rate in 2025 is that right.

Speaker Change: Yes anything acquired during the fourth quarter. If you just middle weighted which is sometimes even difficult to do in the fourth quarter. Given the holidays is de minimis in terms of accruing to earnings for the year secondarily. If you take the fourth quarter Peter's prepared remarks, with the third quarter. We have two pennies here of Treasury method dilution.

Speaker Change: So those two pennies are incorporated into the guide inclusive of the pending in the fourth quarter, Peter anything I Miss.

Speaker Change: No.

Speaker Change: I think thats right Joey just from a timing perspective, Michael our acquisitions are actually typically back weighted in any given quarter around two thirds back weighted was the timing that we saw here. Most recently in the third quarter, which means that a lot of these acquisitions are really going to be closing in December late November and we're not going to get significant impact to 2024 to your point it.

Speaker Change: It'll be more so 2025.

Speaker Change: Yes, just to speak to the Treasury method dilution for a second look were obviously the first to.

Speaker Change: The first company in the net lease space to utilize forward equity nearly 90% of equity raised in this space correct me if I'm wrong Peter in the last two to three years has been on a forward basis.

Obviously the impact on earnings because of the accounting methodology is a couple of pennies. This year, we anticipate we're perfectly fine with that.

Speaker Change: We think that that is a vert part of the virtuous cycle of net lease getting ahead of capital raising needs and the shareholders make money and we have to take a penny or two of dilution due to the treasury method, we are perfectly happy with that scenario and so we're not again, we're not trying to top the market. We don't we don't have a <unk>.

Speaker Change: Crystal ball, we're just dumb real estate guys over here, what we are trying to do again medium term visibility utilizing hedging opportunities such as forward equity as well as swap some forward starting swaps in the 10 year treasury to have that visibility. So we can run into 2025.

Speaker Change: With a full head of steam and not worry about what our cost of capital is going to be.

Thank you very much good luck in the fourth quarter I appreciate it. Thank you.

Speaker Change: Thank you. Your next question comes from Rob Stevenson at Janney capital markets.

Speaker Change: Okay.

Rob Stevenson: Good morning, Joey I don't think you've acquired any ground leases year to date can you talk about what's going on in that market. It's more of a lack of product or pricing has been too high this kept largely on the sidelines.

Speaker Change: It's a combination youll see ground leases and in Q4, we have a number of them.

Speaker Change: In the pipeline currently but we've been very discerning with what we're going to acquire given that minimum 100 basis point spread that we started the year with on a leverage neutral basis, we werent going to mean anything even to the tune of 10 or 20 basis points at that point in time.

Speaker Change: There are number of ground leases in the pipeline in Q4, we're certainly continued to grow.

Speaker Change: We will continue to look for him into a source of.

Speaker Change: But if you look at the first half of the year frankly, there wasn't much product on the market sellers were extremely hesitant buyers inclusive of us we're extremely hesitant. So I would tell you it's really the tale of two halves.

Speaker Change: First quarter is generally source predominantly in the fourth quarter of the prior year and so that's just a function of timing as well as the market conditions.

Speaker Change: Okay, and then how are your theaters doing today versus pre COVID-19 or are we getting closer to seeing non vegan or distressed assets a normal operating asset trade at normal cap rates or is it still some way out into the future given the stigma in the marketplace on theaters.

Speaker Change: I don't think it ever comes back I think we don't have too many of them.

Speaker Change: Look we had one regal that went through the bankruptcy that was a firm that has a high performer with tremendous underlying real estate, we have one cinemark thats a high performer in a couple of Amc's, where we have no interest in the theater space in big anticipating a rebound in the theater space is probably wishful thinking.

Speaker Change: Is that something thats sooner or later from a disposition standpoint for you guys.

Speaker Change: If someone wants to buy a theater directed them to us we'd be happy to discuss that we'd be happy to dispose of one I don't think theres a real market for movie theaters today. Okay. Thanks, guys. Appreciate the time thanks.

Rob Stevenson: Thanks, Rob.

Speaker Change: Thank you next question comes from Handoff. Thank you Masoud Ho. Please go ahead.

Speaker Change: Hi, Good morning. This is Ravi gave you on the line for him now I Hope you guys are doing well.

Speaker Change: You guys have massive liquidity and capacity in a widening opportunity set but I just wanted to understand what's your visibility on <unk> and <unk> right now given any interest rate volatility any potential election risks, what's under contract today and what are the going in cap rates.

Speaker Change #100: Q4, obviously will be as I mentioned will be the largest quarter for us we've increased the guidance to approximately 850. So you can deduce what we anticipate approximately in Q4 Q1, we're just turning on the hose frankly.

Speaker Change #100: This week, given our 70 days or 69 days of letter of intent to execution to closing we do have a couple of transactions already in Q1.

Speaker Change #100: That are either on a forward basis, but we will be we will be watching pricing very astutely here and again deploying capital we think.

Speaker Change #100: Accretive to both who are to earnings as well as qualitatively accretive to the portfolio.

Speaker Change #100: The second question that I missed.

Speaker Change #101: Anything with.

Speaker Change #102: Election risk or and what are the what are the yields for your what do you have under contract under contract in <unk>.

Speaker Change #102: <unk> again, not done yet we will see when we report fourth quarter or some of the year actually most likely in the beginning of January.

Speaker Change #103: Election risks specifically related to real estate.

Speaker Change #103: 10, 31 isn't on the table, but I think generally speaking some of the spending policies out there some of the tariff proposals that are out there. These are secondary effects obviously.

Speaker Change #103: Fiscal policy and will impact monetary policy, but theres nothing specific to real estate that is on the table historically, such as the 10 31 being eliminated.

Speaker Change #103: Or any tax motivation that we see really on the horizon.

Speaker Change #103: That said, we have heard from a number of sellers that they are waiting for November 7th. Our response has been you may have to wait for November nine through November 10th to actually see how this election plays out.

Speaker Change #103: That they are waiting to see which way the election goes.

Speaker Change #104: But no direct policy implications, but you said you certainly can read into the secondary and tertiary impacts.

Speaker Change #105: Yes got it just one more here can you offer any further commentary about the distressed opportunities that youre seeing in.

Speaker Change #105: <unk> balance yield and tenant credit when evaluating them.

Speaker Change #106: When we refer to distressed opportunities just generally these are distressed sellers that have debt to pay off either asset specific or non asset specific or.

Speaker Change #106: I will give you. An example in Q3 one of the Sam's clubs that we acquired.

Speaker Change #106: Acquired that we referenced was.

Speaker Change #107: Was it a trust.

Speaker Change #107: And the trust was liquidating for obviously for most likely for tax reasons.

Speaker Change #107: We're not buying distressed real estate or distressed credit we're out there targeting utilizing different datasets.

Speaker Change #107: Distressed sellers.

Understood. Thank you thank.

Speaker Change #107: Thank you.

Speaker Change #108: Thank you next question comes from Spenser <unk> at Green Street. Please go ahead.

Thank you I'm just going back to the development landscape can you just provide some color on construction costs I think been very topical and then where yields are today.

Speaker Change #109: Hey, good morning, Spenser construction costs remain extremely elevated with no end in sight.

Speaker Change #109: I've mentioned in previous calls.

Speaker Change #109: No construction cost for this country has gone up sequentially year over year for the last century, while commercial rental rates across sectors have varied.

So we're not seeing any let up in construction costs frankly, they're prohibited about a number of projects specifically if the tenant can absorb it and then S P&L deal.

Speaker Change #109: And I think the secondary real driver here is the lack of liquidity in the regional and local banking system, which financed generally merchant builders and developers and so it has provided us with tremendous opportunity when those cost makes sense, which you can't build anything.

Speaker Change #109: Expansive without a tiff here in place or some type of subsidy.

Speaker Change #109: But it provided us a tremendous opportunity to not only step in as an organic developer, which we're doing for a number of retailers, but also to leverage our developer financing platform.

Speaker Change #109: To step into third party opportunities <unk> bridge, the relationship with retailers and so as I said that that pipeline is growing we anticipate next year, most likely being a if not a record year or close to it with the with our medium term target of putting $250 million in the ground annually.

Speaker Change #110: Okay. Thank you that's really helpful. I would actually ask you outlined that annual target, but I was wondering if in the future years do you think that this could kind of tick up in <unk>.

Speaker Change #110: If not you guys have any sort of implied cap on this investment vertical.

Speaker Change #110: Yeah generally we're looking for are spread over where we can buy like kind product and that is.

Speaker Change #110: That is based off of the duration and scope of the projects. So if for example, if when do we work with Gerber sunbelt or an off price retailer, we can jump into a building a structure thats existing modify it retrofit it turn it over in 90 days that spread can go down to 50 basis points right let's.

Speaker Change #110: There are 90% to 120 day project duration now we have internal expenses and things like that relative to an average of 70 days closing a stabilized acquisition. If we're going to go through extensive entitlement process and this is an 18 month project you can double or triple that return that spread there.

Speaker Change #110: So it's really the scope and duration, obviously were doing credit and lease term in real estate neutral there, but we really priced it off of where we can buy stabilized product that said when does that when.

Speaker Change #110: Our retail partners get into pinch we will step in.

And help them.

Speaker Change #110: We enjoyed tremendous relationships were amongst the largest if not the largest landlord for all of our retail partners.

Speaker Change #110: And they understand that we view this as a.

Speaker Change #110: Really a true partnership not just a landlord tenant relationship here and so those projects were actually have two more team members joining our development platform both in construction and development here.

Speaker Change #110: Well I actually joined and another one joining in the next week, we're scaling it both of them continue to scale and I should say from a systems and process as well as a human resource.

From a human resource perspective, and we continue to see.

Speaker Change #110: Really a flood of opportunities there.

Speaker Change #112: Thanks, so much that's very helpful.

Speaker Change #113: Thank you Spencer.

Speaker Change #114: Thank you and the next question comes from Paul <unk> at Keybanc. Please go ahead.

Speaker Change #114: Great. Thanks for taking my question.

Speaker Change #116: So Joey your portfolio investment grade profile has come down in recent years and in recent quarters, but you've talked about <unk> going to be one of your highest quality acquisition quarters do you expect the profile to begin to trend higher going forward or given your improved cost of capital.

Speaker Change #117: Okay, Peter Im not sure with in recent years. It has come down you said I think it's been.

Speaker Change #117: In recent quarters.

Speaker Change #119: We have recent quarters, you've seen some some changes and some deviations, but I'll tell you. Let's just take Q3 for example, which was approximately 60% investment grade the remainder of that 40%, we don't impute credit ratings with hobby lobby Gerber.

Speaker Change #119: <unk> you can see their balance sheet Boyd group with a two times lease adjusted leverage hobby lobby, which is a private company with effectively no no long term debt, David Green doesn't affect or it doesn't really need anybody elses money is the owner of hobby lobby is doing just fine and then giant Eagle are high performing giant Eagle, which is.

Speaker Change #119: $10 billion revenue company grocer and doesn't happen. So again credit ratings to us are an output of the biggest and best retailers. The majority of them in the country, but we're not going to shy away from publics are all the you're chick flayer hobby lobby or any of those gerber collision those leading operators that.

Speaker Change #119: Don't have public debt out there outstanding and have a credit rating and so there's a number of retailers that are in our sandbox that don't have credit ratings. There are retailers in our sandbox there today sub investment grade, notably Burlington, a tremendous partner for US we work we work across all three platforms with Baird.

Speaker Change #119: Clinton most recently upgraded I believe one notch below investment grade on the trajectory to being a real player. The third player in this off price space as they surpassed their goal of a 1000 stores here.

Speaker Change #119: So thats really not the driver it's an output for us that said as I mentioned earlier Q4 will be the highest investment grade exposure of the year just to just due to the complexion of the transactions in the pipeline.

Got it okay. Thanks for the color.

Joey: And then last one for me, you know, you mentioned a number of tenants and sectors that are growing or want to grow and have mentioned free capital and long getting the life of some of these troubled tenants as well. Do you think that we are nearing an end of some of these high-intended credit concerns broadly, or still have a ways to go? I think we've got a ways to go. I think we're in the middle innings. But you can look around the retail landscape, and there's a number of third-party agencies, not necessarily movies or S&P, that do a tremendous job analyzing their basket size, their ticket size, as well as their traffic.

Speaker Change #120: And then last one from me you mentioned a number of tenants in sectors that are growing or want to grow and have mentioned free capital elongated the life of some of these troubled tenants as well.

Speaker Change #121: Do you think that we are nearing an end of some of these heightened tenant credit concerns broadly or still have a ways to go.

Speaker Change #122: I think we've got a ways to go I think we're.

Speaker Change #123: We're in the middle innings.

Speaker Change #123: But you can look around the retail landscape and Theres, a number of third party agencies, not necessarily Moody's or S&P that do a tremendous job analyzing.

Speaker Change #123: Their basket size their ticket size as well as their traffic.

Joey: But I think we are just in the middle innings here. I think again, if you look at the pet space, you look at the office supply space, if you look at the sporting good space. You know, the only true category killer where we have gone through a full cycle here is consumer electronics. And that's why we have selected Best Buy, a high investment grade rated company with a true value proposition, inclusive of service in the Geek Squad and their health proposition. Comp USA is gone, HX, Red is gone; all of their historical competitions are good city if you remember them.

Speaker Change #123: But I think we are just in the middle innings here I think again, if you look at the pet space you look at the office supply space. If you look at the sporting goods space.

Speaker Change #123: The only true category killer, where we have gone through.

Speaker Change #123: A full cycle here is consumer electronics.

Speaker Change #123: And Thats why we have selected best buy.

Speaker Change #123: A high investment grade rated company with a true value proposition inclusive of service and the Geek squad and their health proposition.

Speaker Change #123: Comp USA is gone <unk> is gone.

Speaker Change #123: All of their historical competition Circuit City, if you remember them gone all of their historical competition has gone now if you look at the other category killers.

Joey: Gone, all of their historical competition is gone. Now, if you look at the other category killers, we haven't seen that. We haven't seen that. With today, we still have Pacto, Pet Smart, Pet This, Pet That. At the end of the day, I think Pet Smart is probably the winner. We're not going to increase material exposure there. But we're certainly not going to be investing in Pacto. Sporting good Sportsman's Warehouse, amongst others, are on the ropes. And so we're going to continue the restaurant space we talked about earlier. General merchants, of course, here. Anyone can file the malls, but you can also look at polls if you're a general merchant. It doesn't sell food and have no true value proposition to your consumers today.

Speaker Change #123: We haven't seen that but we haven't seen that with today, we still have petco petsmart pet this pet that at the end of the day I think petsmart is probably the winter, we're not going to increase material exposure there, but we're certainly not going to be investing in petco sporting goods Sportsman's warehouse amongst others are.

Speaker Change #123: On the ropes and so we're going to continue the restaurant space, we talked about earlier general merchants of course hear anyone can follow the malls, but you can also will get calls if you have general merchant that doesn't sell food and have no true value proposition to your consumers today guess, what they're going to off price.

Joey: Guess what they're going off price. And so there is a lot of attrition that is going to continue to happen, and there's going to be winners and losers.

Speaker Change #123: And so there is a lot of attrition that is going to continue to happen.

And theres going to be there's going to be winners and losers are again, our focus with our sandbox tenants is on those winners.

John Kilitowski: Again, our focus with our sandbox tenant is on those winners. Got it.

Operator: Thank you for your question. Thank you.

Got it thank you for taking my question.

Speaker Change #124: Thank you.

Speaker Change #125: Thank you we have no further questions I will turn the call back over for closing comments.

Operator: We have no further questions.

Operator: I will turn the call back over for closing comments. Thank you, everybody, for joining us. And we look forward to seeing you in Las Vegas or any of the upcoming conferences. Have a great one.

Well. Thank you everybody for joining us and we look forward to seeing you in Las Vegas or any of the upcoming conferences have a great. One thank you.

Operator: Thank you.

Speaker Change #125: Okay.

Operator: Ladies and gentlemen, this concludes your conference for today. We thank you for participating, and we ask that you please disconnect your lines.

Speaker Change #126: Ladies and gentlemen, this concludes our conference for today, we thank you for participating and we ask that you. Please disconnect your lines.

Speaker Change #126: Okay.

Speaker Change #126: Okay.

Speaker Change #126: Yeah.

Speaker Change #126: Yes.