Q2 2025 Realty Income Corp Earnings Call
Good day.
And welcome to the realy income second quarter of 2025 earnings conference call.
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I would now like to turn the conference over to Kelsey Mueller, vice president investor relations. Please go ahead.
Thank you for joining us today for realy incomes 2025.
5 second quarter, operating results conference call discussing our results will be assumed at Roy president and chief executive officer and Jonathan pong Chief Financial Officer and Treasurer. During this conference call. We will make statements that may be considered forward-looking statements under Federal Securities Law. The company's actual future results May differ significantly from the matters. Discussed in any forward-looking statements, we will disclose in Greater detail. The factors that may cause such differences in the companies filing on form 10q.
During the Q&A, during the Q&A portion of the call, we will be observing a 2 question limit. If you would like to ask additional questions, you may reenter the queue. I will now turn the call over to our CEO student Roy.
Thank you, Kelsey. Welcome everyone.
A reality income. The durable income. We have historically delivered originates from the power of our data-driven platform.
We have intentionally designed this platform to perform through a variety of economic conditions, anchored by diversification and scale.
Predictive data analytics, a conservative balance sheet philosophy and a disciplined investment strategy. Honed over decades.
We Believe realy incomes exceptional ability to deliver stable and growing income. Across the full economic cycle.
Positions us to capitalize on two key global mega trends.
First, the growing demand for durable income oriented investment Solutions, driven by an aging, global population, and increased emphasis on income income stability from both public and private investors.
And second the rising interest from corporations to pursue asset light strategies, through large, portfolio Acquisitions or sell these back transactions.
Realy incomes differentiated expertise enables us to lean into these Trends. As we pursue adjacent growth verticals, including private capital and credit Investments while continuing to Anchor our strategy in. Our core real estate net lease vertical underpinned by our access to public equity.
This approach allows us to capitalize on a broad range of emerging opportunities, delivering consistent income, for our investors. While further enhancing our menu of capital options for our clients,
Turning to the details of our second quarter, our investment decisions, reflected the Strategic flexibility of our platform. We believe our business model enables us to look at opportunities, substantially free from geographical or industrial, constraints, allowing us to pursue the most optimal risk adjusted returns.
Globally. We invested 1.2 billion. At a 7.2% weighted average initial cash yield equating to a spread of 181 basis points over our short-term weighted average cost of capital.
For Acquisitions specifically, these Investments have a weighted average lease term of approximately 15.2 years.
This quarter we sourced 43 billion in volumes. Resulting in a selectivity ratio of less than 3%.
The 43 billion sourced matches, our source volume from all of 2024 and is the highest quarterly Vol in the history of realy income.
This is a testament to the size of our addressable market and our visibility to global net lease transaction opportunities, given the breadth and depth of our platform.
Year to date. We have now sourced approximately 66 billion of investment opportunities, which puts us on track to Eclipse, our prior High, watermark for annual Source, volume of 95 billion reached in 2022.
57% of the year to date volume has been sourced domestically with the rest in Europe.
turning back to our investment volumes, for the quarter, we again leaned into Europe, which accounted for 889 million or 76% of our investment volume at a 7.3% weighted, average initial cash yield
Europe remains a compelling, growth Market, driven by a fragmented competitive landscape a larger total addressable Market than what is available in the United States and a cost of debt Capital that is currently more favorable with Europe borrowing costs, approximately of 120 basis points inside of US dollar debt costs for 10 year notes. As of today,
Since entering the UK Market in 2019. Our disciplined underwriting and balance sheet strength have enabled significant expansion of the continent with Europe. Now, representing 17% of our annualized base rent.
This quarter, we expanded into our 8th European country, including a sale. Le back transaction involving, echo, okna in Poland, a leading manufacturer in the region.
Transitioning to the U.S., we invested $282 million at a 7% weighted average initial cash yield, while transaction volumes have moderated. Domestically, this reflects selectivity, not a lack of opportunity, as we continue to prioritize long-term risk-adjusted returns over the pace of deployment of capital.
Across the portfolio. We are increasingly acting as a full-service, Capital provider to our clients offering a variety of real estate Capital Solutions. In addition to sale lease backs including Credit Solutions
With a 56-year operating history. We have long-standing relationships with high-quality operators worldwide, which creates opportunities to leverage these Partnerships to offer tailored access to Capital.
Moving to our operations, the second quarter, reflects the structural advantages of our business model including portfolio diversification built-in resilience across our top industries and advanced data analytics capabilities.
Across sourcing underwriting lease negotiations and asset management.
We believe this level of embedded intelligence allows us to be proactive operators and reinforces the reliability of our long-term cash flows.
As of quarter end, our portfolio comprised over 15,600 properties spanning 91 Industries and more than 1,600 clients.
The naturally defensive nature of our leading sectors, including Grocery and convenience stores combined with our scale and diversification position us to perform through a variety of economic environments.
We ended the quarter with 98.6% portfolio occupancy, approximately 10 basis points ahead of the prior quarter and above the historical median of 98.2%, from 2010 to 2024,
During the quarter, our reentry capture rate across 346 leases was 103.4%. Representing 97 million of annual cash from prior cash rents with 93% of leasing activity generated from renewals by existing clients.
And we remained active in our approach to optimize the portfolio.
In the quarter, we sold 73 properties for total. Net proceeds of 117 million of which 100 million was related to vacant properties.
Overall, the stability of our results continues to demonstrate how the benefits of our platform. Enable us to stay agile manage risk, effectively, and drive long-term portfolio performance.
Moving to our outlook for 2025 given the continued momentum in our Acquisitions Pipeline and our progress year to date. We are increasing our 2025 investment volume guidance to approximately 5 billion dollars.
In addition, we are raising the low end of our afo per share guidance. Now anticipated to be in the range of $4.25, sorry, $4.24 to $4.28
Within this forecast, we continue to see consistent tenant performance across our Global portfolio.
our 2025 Outlook contemplates, approximately 75 basis points of potential, rent Los,
Which is slightly higher than our historical experience, but consistent with our expectations going into the year.
Much of this credit loss is the result of certain tenants acquired through public m&a transactions. We have consummated in recent years.
As of quarter end our credit watch list stands at 4.6% of our annualized base, rent below the prior quarter and with median client exposure of just 3 basis points.
Despite these small challenges, we are grateful for the strong results produced from our asset management team on recent bankruptcy resolutions as shared last quarter, we are pleased with the 94% recapture rate on our 132 Zips properties and following atoms chapter 11. Bankruptcy filing in mid June of this year, we anticipate constructive resolutions with that. I will turn it over to Jonathan.
Thank you so much.
Our Capital markets activity, remained active in the second quarter and we view our liquidity and balance sheet as well, positioned to address our active investment pipeline.
During the quarter, we raised $632 million in equity through our ATM at a weighted average stock price of $56.39 per share.
And as of today, we have another 654 million of unsettled Ford equity, which provides us with solid Runway to fund our investment activities for the remainder of the year.
Given our updated investment volume. Guidance of 5 billion are implied, second half investment volume of 2 and a half billion would require approximately 500 million of incremental, external Equity to remain, leveraged neutral, after giving effect to the 654 million of equity already raised but not settled.
And an estimated 40050 million of free cash flow for the second half of the year.
In addition, our disposition pipeline is expected to accelerate as well, which would be expected to contribute meaningful Equity. Like proceeds to our sources of funding further, reducing our external Equity need for the balance of the year.
From a leverage standpoint. We finished the second quarter with net debt to annualize ProForm or adjusted ibida of 5 and a half times in line with our leverage Target that we have, methodically maintained
Including our current outstanding Ford Equity. We had 5.4 billion dollars of liquidity at quarter end which includes 800 million of cash and 4 billion dollars of availability under our 5.4 billion credit facility
The board of debt and capital markets remains open and constructive across all three currencies, particularly in the Euro Zone.
We consider a robust investment activity in Europe, as a competitive Advantage, creating additional net investment hedge capacity in Euros which avails US of more debt capacity in this low cost of capital currency.
Additionally the Ford FX rate from Euros to US, Dollars provides a favorable cost of carry that amplifies the organic growth of any net cash flow.
Repatriated from our Euro denominated assets.
Diversifying our sources of capital as a core strategic initiative, as we scale. Our platform globally with the establishment of our Evergreen us corpus fund serving as a key milestone.
We are energized by the opportunity to monetize the value of our platform by managing real estate on behalf of third parties.
By using an open, end, fund structure to invest in net, lease. Real estate. We believe We will have the opportunity to enhance acquisition investment spreads.
Bolstering returns to our public shareholders, while providing attractive and stable long-term returns to our private Capital partners.
Each by applying realy incomes platform and experience to the structure.
Given the highly scalable nature of our platform and the vast addressable market for net lease. Real estate.
We see this initiative, as a powerful driver of long-term value creation for realy income.
After launching our formal marketing process in February, we have been pleased with the breadth and depth of interest from prominent institutional investors.
We believe these investors clearly appreciate the strength of our platform, the resilience of our asset class, and the value created by our long operating history.
Feedback has validated our fundamental view that scale matters.
And we look forward to sharing more soon.
I would now like to hand it back to sum to complete our prepared remarks. Thank you Jonathan.
We're confident that the structural advantages we've cultivated—including scale, diversification, discipline, and data analytics—will continue to create value through a range of economic backdrops.
Looking ahead, our Focus remains on operational, consistency and disciplined investment principles that have guided us throughout our 56 year operating history.
Our long-term objective remains unchanged: deliver resilient and growing income through a diversified net lease platform.
With meaningful scale and strategic flexibility. We believe we are well positioned to remain selective in today's environment, and deliver lasting value for shareholders over time.
I would now like to open the call for questions, operator.
We will now begin the question and answer session.
Again, to ask a question, you may press star and then 1 on your touchtone phone.
And if you're using a speaker-phone, please pick up your handset before pressing the keys.
To withdraw a question, you may press star, then 2. At this time, we will pause this momentarily to assemble our roster.
And our first question here, will come from Brad. Heather with RBC Capital markets. Please go ahead.
Yeah. Hi everyone. Thanks for taking my questions. Um, send me you mentioned that you expanded into Poland in the second quarter. Can you walk through the opportunity? You see in that market and maybe how it's similar or different to other areas in Europe.
Sure, thank you for the question, Brad. Um, Poland is a a country that we have been talking about for about a year year and a half. Uh, we are very excited by doing our first 2 transactions in Poland, and getting it over the Finish Line in the second quarter. Um, as you probably know, Brad. Um, Poland is the second.
And uh fastest growing GDP uh in Europe today, it is the 8th largest. Uh in terms of population and 6 largest in terms of uh uh GDP growth uh in the European Union. And so the that backdrop was, the initial screen which sort of attracted us to the, to the, uh, to the geography to, that particular country, and given some of the, you know, uh, uh, property laws, Etc, that, that that exists in that country, as well as our ability to structure the transaction and the type of transactions that we've been following for a very long time, made us, uh, made it a very compelling geography to expand into uh the 2 transactions that we got over the Finish Line 1 was with Echo, okna. And the other 1 was a grocery store. Um operator. Um,
Distribution centers and, uh, industrial assets that we we invested in and we are very excited about not only these 2 initial, um, uh, transactions that we executed, but the pipeline of transactions that we are starting to build, uh, in this country. So super excited about, continuing to redefine the sandbox for ourselves. Obviously, that continues to contribute to uh, yet another source of volume that we can, we can source. And uh, some of which is starting to get reflected, in the 43 billion of sourcing volume that we shared uh, for the second quarter.
Okay, thank you for that. Um and then on the acquisition you know the only underlying guidance items that change was Acquisitions. Um I'm assuming those deals are creative and so I'm just wondering you know, why the low low and moved up but then the high-end didn't change.
It's a it's a function of continued. Uh um you know conservatism on our part is 1 there continues to be a fair amount of uncertainty uh in terms of policies that are being instituted here in the US as well as in Europe. And and so for us, you know, we wanted to be as accurate as possible and we felt like it was important for us to move the bottom end by 2 cents. But yet leave the top end where it is. Um,
The increase in acquisition volume by a by a billion. As as you can tell, it's going to be back-end loaded uh second uh, second half loaded. And so the impact that, uh, 1 would experience from, and and you correctly said, these are all accretive transactions. We wouldn't be doing dilutive transactions. Um, you know, the impact of which won't be, you know, experienced in 2025 but certainly, we'll, we'll be, you know, we'll see the benefits of which in 2026.
And our next question will come from sme's Rose with City. Please go ahead.
Hi thanks. Good afternoon. Um, I wanted to ask you a little more on the Acquisitions as as well. Um and really just um if there were some I mean it sounds like there's just a tremendous increase in the source volume that you mentioned at 43 billion. But um with a less than 3%, it's like getting into an IU League school, I just kind of wandering was the quality of what you saw. Um, you know, not that good did you become more sort of um picky I guess in terms of what you chose to invest in or just sort of wondering because you're investment activity, went down, um, sequentially. But the sourcing it sounds like kind of um, really ballooned
That's a great question. And uh yes we pride ourselves in being super selective. Uh yes. Akin to the Ivy Leagues but um, the the the main reason SME was look at the end of the day, there was close to 3.7 billion dollars of transactions.
That basically checked.
All of the boxes. Save for the initial yield.
And that is the reason why we stepped away from pursuing those transactions.
And um, and and and so yes, 3% does seem very low, but had we done, that 3.7 billion. It would be closer to what we've traditionally done, which is closer to 7 to 8% of the overall volume that we've looked at
And part of the reason why we are doing this private capital, and looking at these other forms of capital that want to take advantage of the platform that we've built. And we want to monetize the platform that we've built, um, is to be able to do these transactions that we stepped away.
So yes, uh selectivity continues to be a governing factor and our disciplined approach to making sure that anything that we do day 1 is a creative to the bottom line is part of the reason. Why you know, we got 1.2 billion over the Finish Line rather than something much higher
Thanks. And then, I just wanted to follow up. You you obviously remained um, very concentrated in in Europe during the quarter as you did in the first quarter. Um, last quarter, you talked about um, finding a number of, uh, retail Park opportunities. Was that a significant part of your investing activity, this quarter, or was there a particular asset class that, um,
You know, that you were, you were able to execute on this quarter.
Great question. Um,
actually in the UK.
Out of um, retail Parks, a lot of it was in Ireland.
A major source of uplift both in the near term as well as long term. Um, if you've been following, uh, the whole retail Park, um, Resurrection. If you will in the UK as well as in Ireland, Etc, including Scotland, I would say it's it's quite phenomenal, you know? Um, a lot of positive factors are contributing, uh, Tailwind to this particular sector, uh, increasing rent. Um, you know, uh, concession rents are are going away. Vacancy in Scotland today is actually inside of for the first time in a very long time of uh the rest of England. Uh we are buying vacancies and the uplift. We are being able to capture on Renew on releasing, those vacancies is part of what's contributing to Value creation. So for a variety of reasons, we are super excited about, you know, this journey we were on of
of assimilating, uh, this portfolio of retail Parks. Uh, but that window is now starting to sort of close a little bit and, and, uh, we are we are the largest owners of retail parks in in the UK today. And, uh, we are in the midst of putting together, um, you know, a presentation that we'll post on our website, that will go into a lot of details around this. But this that's been a a, a very favorable
Investment thesis that we executed on over the last 3 years. Um,
Most of what we executed in Europe, uh going back to precisely the question. You asked uh was on the industrial side almost half of it was industrial. If you look at, you know what we did, uh, some of it was um um, you know, we made a loan against a industrial asset as well in 1 of uh, the primary markets in the UK, uh, um, as well as another loan that we made. And so, um, that was the composition of what we did in Europe, um, and uh, we are continuing to see from a risk adjusted basis.
Better opportunities in Europe and part of it could be less competition. Part of. It could be we are playing in these multiple jurisdictions. Uh, um, part of. It could be, we are an established name in in these jurisdictions and therefore, we are getting those first calls that's helping us drive this volume and you should. And I know you didn't ask this question, but you should expect similar, uh, composition of total Acquisitions between Europe versus Us in the near term, especially in the third quarter.
And our next question will come from Ron Camden with Morgan Stanley. Please go ahead.
Hey, just uh, 2 quick ones just uh, starting back on just 10 and health. Uh, you guys have sort of done, I think more work than most in terms of evaluating the impact of tariffs, uh, now that we're a couple months into it, just you remind me how how you're sort of thinking about it, what's better than expected, what's worse than expected and and and what's baked into the guide for bad debt? Thanks.
I would say, you know,
The 4.6% watch list that we've shared with the market has basically taken into account all of the various outcomes that could come out of these. These, um, you know, tariffs that are that are being discussed in the market today. Look, I uh, we we've always felt like some of the more susceptible Industries. IE Furnishing, uh, um, you know, apparel, um, Electronics. Um, those are the industries that are going to be most impacted by tariffs and thankfully, either we have very little to zero exposure to these types of Industries in our in our us portfolio. And so we we feel like, you know, the numbers that we've shared uh Ron at this point, the 4.6%.
A lot of it was from China, um, you know, that was a 1 of the contributing factors to their to their performance, along with obviously the leverage levels that they were running the business at Etc, but that's already played out. And so, we feel like we have bookended, what the possible outcomes could be client by client industry by industry. Um, um, the only variable is where will some of these tariffs land. But at this point we feel like we've got it pretty well bookended. In terms of what we've shared with the market,
Great. Uh my second question is just going back to the the Acquisitions. Obviously we talked about this selectivity. We've also talked about I think 76% in Europe, which maybe the the biggest skew. I I certainly recall uh and maybe I guess can you contextualize just the is that just a reflection of the better funding better opportunity and how do you compare and contrast sort of the Europe versus the US market today? Thanks?
Adjusted right.
That's ultimately how we look at things. But one of the key advantages we have is access to, you know, European funds.
And, uh, I'm sure Ron, you're aware that, you know, we raised about €1.25 billion, um, and the total all-in cost was 3.69%.
And though, we talked about, in my prepared remarks of that being 130 basis points inside 3.69 is closer to 1.
6% inside of what we would be able to do in the 10-year unsecured bonds. So that certainly is a contributing factor. But what is the product that we are buying? You know, if you're being able to buy long-term leases 20 year, leases industrial product with businesses that are either the best operator within their sector or or a leading operator within their sector. Um, we feel like from a risk, adjusted return perspective, it's the right place to be and there are a lot of factors that go into it, but, you know, it's not just the capital, it's not just the product, but the combination of the 2 makes it, um, you know, very, very impressive. Uh, I spoke about Echo okna, uh, as 1 of the larger transactions. We did in Poland, you know, the rent coverage is 6 times. Um, and, and, and so when you see metrics like that, and you're able to get it at at initial yields. Uh,
You know like the like the way we were able to I mean it's it's very difficult to compete. Here in the US where even in secondary markets, industrial assets are trading in the mid sixes. Um and that's that's I'm being generous here, you know they tend to go even more uh aggressive than that. So
uh, all of those factors contribute to us, you know, leaning a little bit more into Europe and
Again I I I I don't want the statement to retake in the wrong way. There's a bit more stability there, you know, there's a bit more, uh, Stronger Outlook to, what's going to happen to interest rates Etc. And so I think transactions are a little bit more, uh, plentiful there than than than you know what we are seeing here in the US. Um, it's just a lack of stability as well. So I think all of those factors go into why we are doing more in Europe. And again, it accrues to our benefit that we have all these Avenues created. And we can lean into wherever we, we find the best opportunities. So
Uh, but thank you for that question.
And our next question will come from John kilichowski, with Wells Fargo, please go ahead.
Uh, thank you, good afternoon. Uh maybe just the first 1 from me is on sort of the competitive landscape here. I think our broker contacts have highlighted that. There's a lot of uh, there are a lot of portfolio deals expected to come to Market. And the the second half of this year and we've also seen, uh, a fair share of of private buyers. Get involved with uh, fundamental elm tree. I'm curious how you're seeing this sort of uh, Supply demand Dynamic here and what do you think the impact will be on yields for you? And if there's a potential for a large portfolio, that could take you maybe, well above your guide.
Is a tremendous amount of demand for this product uh that we've been executing on for the last 56 years, in the private Market.
You're absolutely right. That companies, like, BlackRock that did the elm tree deal? Um, you know, star, uh, uh, Starwood did, the fundamental deal, JP Morgan and, um,
There are a couple of others, I think Morgan Stanley. They're creating their own net lease funds.
Blackstone has, uh, obviously aggressively gone down the path of creating their own net lease fund.
This is a testament to this product.
And the way we are seeing it.
Is the inbounds that we are getting.
From different pockets of capital wanting to utilize our platform to execute this strategy.
For me, this is a win-win.
I believe, we are perfectly situated to be that, you know, platform that these pockets of capital can utilize to execute this very safe. Very durable, very dependable. Um, you know, uh, uh, business model. We often times talked about, you know, we have a bond like cash flow but Equity like growth, I mean, which are the product gives you that, so I'm not surprised.
That you have more and more of these private platforms, that are, you know, uh, uh, creating these net lease, um, either they are creating it themselves organically or they're, you know, uh, trying to do it through a partnership. So this is a good thing for our industry, more Capital coming. In more stable Capital coming into our business. Uh, I would add and um, you know, I believe that we are best suited or very well suited to be, um, you know, to take advantage of that.
Will it create more competition? Will it push cap rates down? Sure, you know. Um, but will they have the same level and maturity of underwriting that we have? I don't believe so. We've been competing with private capital sources.
you know at least in the in the last 10 years uh from the more established players and you know the fact that the interest rate environment remains up in the air, you know Leverage is a big part of a lot of these strategies and that
Continues to be something that we will benefit from most given our, a minus A3 credit rating. And so I, I, I and and once we have these other channels that we are, you know, working on up and running.
Then we will also be able to address the volatility we see on on our public Equity side with some, private sources of equity. And so
I say bring it on, you know, it's going to sort of create more opportunities for our platform, like ours to do large-scale deals. And that's that's 1 of the mega Trends. I talked about in my prepared, remarks, more and more product is coming into the market, more and more companies are are engaging and saying, you know, but we want the right partner and it is not just okay, we understand at least it's who's the right landlord that we trust who will hold these assets, the long term and there again we stand out
So uh sorry John I know you didn't you you asked a very specific question but I wanted to provide this context to to you know frame. My my mega Trend, you know, comments that I made during my prepared remarks.
No, that was very helpful. I appreciate the thoughtful response. Um and the second 1 for me, I just want to make sure I heard you correctly in the opening remarks. It sounds like you reiterated the 75 bib credit loss guide. Um, I was just hoping, maybe you could talk about what you've experienced year to date. And then what else is included in that number? Or if it's just sort of a an open-ended source of conservatism,
Carrying costs associated with vacancy. And so this is a fully baked number and, you know, you'll hopefully, you know, see us out perform that. But to be clear, we are reiterating that for the back half.
And our next question will come from Ryan caviola, the green screen. Please go ahead.
Good afternoon. Thanks for taking my question. Um, you know, just wanted to ask a question on what you're seeing on net, lease industrial Assets in Europe, uh, versus, you know, kind of what you mentioned in the United States, how that surge of private Capital interests. Um, had, you know, kind of infected pricing Dynamics here. Uh, how is it different in Europe? Uh, I know that was the focus of the Investments this quarter. And do you think, uh, you know, that Trend will continue, thank you.
That's, that's a good question, Ryan. I, I just think lack of competition. We don't have the same, you know, number of potential buyers of assets with this, you know, wall of capital wanting to be invested in this particular sector, um, you know, pushing for for transactions in Europe. I think that's a big part of it, so we can be a lot more rational about, uh, about assets. The second piece, I would say is relationships. Um, relationships means a lot more in in our opinion in Europe than it does here. Um, and so, you know, when you have the right relationships with developers, you have
I have the right relationships with the operators and and they get to know you. It doesn't always come down to who's willing to pay the most certainty of clothes desire to hold assets. The long term uh, ability to do more repeat business,
Factors I to think also contribute to a much, much more what I would call a rational market for industrial uh, transactions in Europe. Having said that, you know, cap rates are not the same across every jurisdiction. If you go to Germany, things are, are are um, still pretty, pretty tight, and um, you know, so you
We we look for the right opportunities in places where we have the right yield. So that day 1, we can point to accretion. Um, and, and we've already talked about the, you know, the ability to finance these transactions with much lower lower cost of capital. So, I, I, I, I, I think that's where the rational pricing comes into play. Right? In Europe, versus here, in in, um,
in the US where there's just
just a lot more competition.
Appreciate that, and then, um, I know you telegraphed the entry to Poland a few quarters back and were able to execute on that. This quarter does that round out the countries of interest on that side of the globe for now. Or are there still a few new countries you're looking at or is that kind of a fluid situation?
I would say, you know, there are a few other Western countries in Europe that we are looking at opportunities in, but we haven't been able to get over the finish line. Some in the Lux States, some in the Nordics.
Um, you know, but again, those are fair game. If, if we, if we, you know, do a transaction, please don't be surprised. We'll obviously talk a lot about the details around those transactions.
But, uh, otherwise we are largely sort of, you know, identified the European strategy, but you use the word "global."
And so I I I don't want to Discount our ability to continue to expand. Of course, we are going to do it as we did our European expansion. You know, we've always looked at our neighbors with Canada and Mexico as as potential countries to expand into
And a lot of this uncertainty around trade dynamics might create opportunities for us.
So, uh, you know, those those countries too would be fair game. But look, the hurdle rate to go into a brand new country for us is very, very high.
And, uh, I hope we've proven to the market and, and to urine that, you know, if we do decide to expand, it will be with a lot of fours thought and with a thesis that we will share with you um you know and uh and and that will be the precursor to us going into these countries.
And our next question will come from Greg mcginness with Scotia Bank? Please go ahead.
Resourced during the quarter, maybe representing larger portfolio deals that you have higher confidence in closing, say maybe early next year instead of this year.
and then, how would you describe your ability to curate portfolios and and also maintain pricing power uh, in today's environment on those deals
Yeah, it was 43 billion. Actually um I
but um,
Yeah, it's it's tough to tell, you know, certainly there'll be a portion of that 43 billion that's not reflected in the 1.2 billion that we closed this quarter that we will be closing in subsequent quarters. So your question is a, is a good 1.
but I think the the the comment I made around approximately 3.7 billion of transactions that we walked away from
because it didn't meet that initial spread remains intact. Um,
and and our our expectation is that
Given this expansion into new geographies, uh, and our Advent into Data Centers. You know, some of these volume numbers are going to continue to track much higher, just because we are now playing across a wider geograph, geographical footprint and additional asset types. So you should, you should continue to see that um, Elmer and uh, yes, and a portion of this. We will certainly close in the subsequent quarters but I can't go into any
Any more detail than that.
Okay, yeah, thank thanks for that correction. There's uh, and uh, second question is on lease. Expirations, you have about 6% of ABR expiring this year next year. Uh what what percentage of that bucket represents non-core assets, that you've identified for Capital recycling opportunities, and how a creative would you expect those sales? Those potential sales to be as you look to Source uh, more investment opportunities.
That that's that's a, that's a good question. Um, look, anytime we have a lease roll over.
we basically go through the economic analysis of, you know, if the existing client
Does not exercise their renewal rights.
then we have a couple of routes to pursue 1, is
Uh, can we find an alternative tenant? And can we find them? You know, quickly enough to justify, you know, um, that particular route. A second route could be, can we reposition this asset for a highest and best use, which, you know, we are happy to do and we are currently doing within our development Pipeline and then as a third outcome
Um, is to sell it vacant because we have realized the, you know, the the full economic value and holding on, to this asset creates, um, you know, costs um, that that, you know, holding costs that that is not justifiable. And so we try to sell it just to be very efficient.
So once we've gone through that, and this is where our, our data analytic tools are very useful along with the experience of our asset management team. We execute on 1 of those 3 strategies immediately, but the point I want to make is we are not waiting till a particular lease is within the last 3 months or 6 months of expiration.
you know, if I were to speak with our asset management team, they're working on assets, uh, that may be rolling over, not only in 2026 but some even in 2027 if it's with the same client and, and they have a wider swath of assets and
Often times, you know, what you might see today in, you know, the expirations in 2627, um, I think in 26, it's close to 4 and a half percent in that in that zip 4% in that zip code. Um, you know, by the end of this year, you'll see that 4% has already come down considerably because we've already resolved, you know, those 2026 assets within the, uh, the last 6 months of 2025. And that's, that's the Cadence to to a lot of these. Um, these expirations
Are they unique expirations next year? I don't believe so you know this is pretty much folks that we've we've had plenty of experience with could they possibly be 1 or 2 assets that we've inherited through our m&a transactions. That you know we don't have a beyond that 1 asset. We don't have multiple assets leads to them. Yes that's that's always possible and every year we run into that but I don't believe that that's going to be a disproportionate share of what is expiring next year.
All for the remainder of this year, for that matter.
And our next question will come from Hendel St. Just with Mizuho. Please go ahead.
Hey guys. Uh, good afternoon. A couple of quick ones from me here. Um, first I guess, maybe John, can you talk about how you're thinking or looking at feeling about the overall balance sheet, your growth liquidity here in the current environment, and also how you're thinking about the various funding sources—free cash flow, equity, the revolver, dispositions?
Term opportunities. Yeah. Bill
yeah, I feel very good about it, you know, obviously we had a very successful year of bond offering
Uh, it was over 5x subscribed. Uh, we were very excited about, uh, just the lineup and the sponsorship, uh, that we got and um, you know, like give us a level of confidence on a go forward basis. We do have some debt maturities uh that are coming up. You know, we do have about 850 million for the balance of the year. Uh we have a 5.4 billion dollar line and you know as of quarter end, net of cash was only about 700 million drawn. So plenty of capacity there for us to be incredibly patient, uh, the European pipeline as we've talked about today, continues to grow which, you know, I love hearing because that just means we're getting closer to issuing more Euro denominated debt. Um, and we all, you know, we had 800 million dollars of cash, uh, at at quarter end.
So you start adding up all of these, these Tailwinds, not to mention the 654 million of, unsettled forward equity. And, you know, there's very little Equity that we have to go out there and raise externally to our Acquisitions guidance.
Uh, the 450 million of free cash flow is on top of that and we haven't talked about dispositions volume and our ass managing team continues to be extremely active on on that front. So, yes, 850 million of of, uh, mush maturity is coming out for the rest of the year. Sounds like a big number, but, you know, we have a multitude of sources to take care of that and, you know, we're very programmatic about keeping our leverage at quarter end in that 5 and a half times level. And the level of predictability we get from this cash flow that allows us to do that.
That's helpful. Great color. Thank you. Uh, and then, maybe, uh, 1 more. We saw some additional disclosure about the different return thresholds, in the private fund platform. Sounds like you guys are slowly steadily moving the ball forward here. So I guess I'm curious. Uh, where we are over on the process, when should we expect to launch? And I'm really curious how much of the 3.7 that you passed on. During the second quarter for the on-balance sheet that would have met the thresholds for the fund. Thanks.
So handle, you know, where bear with us for a little bit because, you know, this is a process. Um, there's only so much we can share at this Junction.
Um, you know, there's a level of extreme due diligence that happens uh from the investor side. Um but I think you've been able to pick up from our commentary that we've made substantial progress and you know, even better than we would have hoped um to start the year, the type of return thresholds. We've talked about this before, you know, what's right for a private capital is something that has a great IR profile over the long term, you know, 10 years plus
um, but may not necessarily have that year 1 yield
And you know, of that 3 plus billion that we talked about, you know, that was primary reason why we had to pass on it.
And so the expansion of the buy box by virtue of having tools like this that aren't thinking about this notion of year 1 investment spread, or they're thinking about true underwriting, real estate over the long term and thinking about it from an irr standpoint.
You know, we're not sacrificing irr. There's just a different trajectory towards it. And that's really how we're thinking about, what, what go to private capital.
And our next question will come from West Gala day with B. Please go ahead.
Hello everyone. I just want to build off that last question and answer. When you look at the opportunity and the constraints of the third-party capital, it doesn't seem like sourcing deal volume will be an issue. So, I guess, where would the constraints be? Would it be on the...
be a constraint or would it be, could you get a higher close rate? How should we think about that?
Wes, uh a portion of your question, got lost. But I'm I I I think you were talking about. Where would the constraints be and
You qualify that question by saying that it's not going to be sourcing volume. So if if we if we heard you right, that is 100% true.
For this channel, is the amount of capital that we are able to raise.
Um, you know, to be able to execute, uh, the strategy. So, um, so far, so good more to come on that. Uh, but, um, you know, uh, we are very excited about where we stand in the process today.
Thanks for the time.
Sure.
And our next question will come from my Google Smith. When UBS please go ahead.
Good afternoon. Thanks for taking my question. Retail, concentration, and acquisition step down from about 72% to 47% in the quarter. So, I know this will vary from period to period, but is there anything to read in that? Is that a function of opportunities? This is a function of continued interest in diversifying the portfolio. Just trying to understand, you know, where you're interested in Acquisitions lies.
Good question. Michael. And uh, yes it was very opportunistic. We just found more transactions.
Uh, within the industrial sector, and on the credit side that that fit our box better than continuing to pursue retail. But it is going to vary, you know, retail still dominates 80% of our overall portfolio and will continue to be a big part of
You know, uh, of what we do going forward.
Yeah. And as a follow-up, I think you mentioned in a response, you know, uh, your pursuit of different geographies and and and you brought up data center. So just wanted to talk a little bit about what you're seeing from that asset class. The opportunities that to acquire further there and and just like your your overall interest in in moving deeper into Data Centers from here, thanks.
Yeah, so so Michael, our interest in data centers remains intact uh continues to accelerate uh but the selectivity in that uh, particular area also continues to uh, remain intact. And so look as as long as we find the right Partners, as long as we find the right locations and and uh, ultimate clients sitting in those those assets, um, we would be very interested in deploying lots of capital into that space, uh, but we are not going to compromise our selectivity. We have been approached to do certain transactions and uh, it just doesn't meet our our selectivity uh, um box if you will. And so, uh, but look, we we, we again, even on that particular area, we made an investment in the first quarter, um, and uh, we we hope to continue to cultivate that particular relationship and, um, you know, we are looking forward to it bearing fruit.
Uh, in the future.
And our next question will come from adjacent Wayne with Barclays. Please go ahead.
Good afternoon. Um yeah just uh lease expirations ticked up a bit um, quarter up a quarter. I'm just wondering if you could break down how much of that was due to leases rejected and bankruptcies.
Um, I don't think we have that data Json. It's a good question. But, um, you know, it was silca 100 million plus minus of of lease expiration and, you know, and, and if I remember correctly, 93%, we had a very high number of existing clients, renewing their leases. So, I'm not sure. You know, how many of that remaining 7% were back, bankruptcy driven, uh, uh, uh, uh, you know, releases or what have you. But, um, I think it was still very much dominated by our natural flow of expirations. Uh, that occurred in the second quarter, but this number and and by the way, I've been talking about this for the last 4 or 5 years, now, we'll continue to increase, you know. And and this is where I I genuinely believe that our asset management team and our data driven approach to resolving leases Etc, is going to start to become yet another driver of value creating
For us. And, you know, over the last...
That are going through a renewal process uh on a year-on-year out basis. Next year, it's it's fairly muted. But in 2027 2028 we are, we are looking forward to those years.
Right. And then just on the, uh,
The Dollar Tree sale of Family Dollar. I'm just wondering how many Family Dollars there actually are, you know, included into the, uh, Dollar Tree exposure and uh, that's contemplated in uh, in your guidance for the rest of the year.
Yeah, that's that's a good question. So rough numbers, uh, please don't hold me to the Precision. It's it's you know the total exposure from Dollar Tree. Family Dollar was so cut. 10%.
Post this separation, it'll be 2%. It's going to go with the Family Dollar and 1%. These are rough. Okay. Directionally accurate 1% will be Dollar Tree.
Over the next year and a half. So through 2026. There's only 10 basis points of expiration coming through for Family Dollar, 1 0 3,
This is through 2026, so that's the Neo term. Uh, uh, exposure. We have to address those two flags.
And our next question will come from Dan bun with Bank of America. Please go ahead.
Good afternoon. Just one from me. Are you starting to see an uptick in interest from U.S. buyers for the European dealers you're looking at?
We have certainly seen a couple of private, uh, uh, entrances into the European market. Um,
So yes, we are starting to see interest.
Uh, from an American, uh, investors wanting to expand into Europe.
Got it. Thank you. Thank you.
And our next question will come from Linda Tsai with Jeffrey's. Please go ahead.
Hi. Um, can you tell more into the increase in the sourcing activity of 43 billion?
What accounted for that? Are you shifting?
AI play a role in how you're sourcing.
That's that's a great question Linda, I never thought about using AI. Um, so the channels of sourcing they have not changed
The, the, the asset types Etc. They have not changed. Uh, Poland is certainly a new entrance that is now going to contribute and has potentially contributed to the 43, uh billion. But as more and more data center opportunities, start to come in, you know, that is going to help with these sourcing numbers being what they are. So that is certainly a contributing factor. But I wouldn't say that we have started to evolve uh, the sourcing channels but I think you you've shared with us an Avenue that perhaps we should lean into.
Great. And then, um, my second question is, you said the mix of Europe versus domestic investments would be similar next quarter? Do you think the initial weighted average cash yields would look similar as well?
um,
I would say they will be similar to slightly better.
And our next question will come from Google with keybanc capital markets. Please go ahead.
Great. Thanks for taking my
Looks like the probability of a Fed.
Rate. Cut is likely in September and it seems like there's a growing pressure for further rate Cuts if not this year, but, you know, could occur. Next year. I'm just wondering if this could potentially change your strategy as it relates to Europe versus US Investments.
And a great question opal. And, you know, if you follow the way our stock trades, uh, it it is highly negatively correlated to interest rates. So, if interest rates in your, you know, uh, opinion does come down. It should have potentially. And, and I'm assuming that the 10 year comes down as well. It should have a positive impact on our, uh, cost of equity, um, through the public channels. And so, our ability to do some of those deals that we passed up on the 3.7 billion, uh, you know, with increase so yes, it could change our our
Um, you know, the ability to do more here in the U.S.
Um, but, um, it's still very unclear to me as to whether you know, interest rates will be cut and, or even if it is cut, if it will have a disproportionate impact, uh, on the tenure.
In your in your beacon assets, increase sequentially, you know, just wanted to get your sense of how much more you have to do to get to a level. You're comfortable with, you know, you mentioned, dispositions, broadly, increasing in your prepared remarks. But any additional color there would be helpful. Thanks.
Um sure um what we have said and we are we are reiterating this quarter is that it will be very similar to what we've done uh last year.
And our next question will come from Eric Corden with BML Capital Markets. Please go ahead.
Jonathan, I just want to go back to your comments around FX. I was hoping that you could talk a little bit more more about the hedging strategy.
Um, that you guys are currently pursuing today. And then if there's any potential Tailwind, given the relative strength between the EU and USD built into the guidance today. Thank you.
Sure. Thanks. All right, I think, first of all, to provide context, we, you know, have a formal hedging policy that forces us to have a level of discipline. Uh, we're not allowed to take too much risk, when we're another. And so, from a balance sheet, standpoint from an fx hedging perspective, uh, you know, we're pretty evenly matched from an assets and liability standpoint, especially in, in Euro
Um, and you know, another thing that I would share is, you know, I reference the Ford FX curve. Um you may not recall but in 2019, when we did enter uh, the international realm, uh, we did a 15-year cross-currency Swap and that was because, you know, the Ford curve between the dollar and and Sterling was extremely attractive. And so that's an option that we have, you know, available to us. Uh, but you know, I think for us, uh, you know, we we try and take as much
Uh, discretion out of it, by virtue of always having some level of, you know, hedged earnings, if you will, locked in, uh, we never want to have a quarter where we're talking about FX headwinds or tailwinds. We want to focus on the core business, and I think we've been successful in that so far.
All right, thank you very much. I appreciate it.
And with that, we will conclude our question-and-answer session. I'd like to turn the conference back over to Sumit Roy for any closing remarks.
Uh, thank you all for joining us today. We look forward to speaking soon and seeing you at conferences in the coming weeks. Thank you. Joe.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.