Q1 2026 Realty Income Corp Earnings Call

May 6, 2026

Operator 2: Good day. Welcome to the Realty Income Q1 2026 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad, and to withdraw your question, please press star then two. We do ask you please limit yourself to one question and one follow-up. Please also note today's event is being recorded. I'd now like to turn the conference over to Alex Waters, Vice President, Investor Relations. Please go ahead.

Operator: Good day. Welcome to the Realty Income Q1 2026 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad, and to withdraw your question, please press star then two.

Speaker #2: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad, and to withdraw your question, please press star, then two.

Speaker #2: We do ask that you please limit yourself to one question and one follow-up. Please also note today's event is being recorded. I'd now like to turn the conference over to Alex Waters, Vice President, Investor Relations. Please go ahead.

Operator: We do ask you please limit yourself to one question and one follow-up. Please also note today's event is being recorded. I'd now like to turn the conference over to Alex Waters, Vice President, Investor Relations. Please go ahead.

Speaker #2: Thank you for joining Realty Income's first quarter 2026 results conference call. Joining us on the conference call today are Sumit Roy, President and Chief Executive Officer; Jonathan Pong, Chief Financial Officer and Treasurer; Neil Abraham, Chief Strategy Officer and President, Realty Income International; and Mark Hagan, Chief Investment Officer.

Alex Waters: Thank you for joining Realty Income's Q1 2026 results conference call. Joining us on the conference call today are Sumit Roy, President and Chief Executive Officer; Jonathan Pong, Chief Financial Officer and Treasurer; Neil Abraham, Chief Strategy Officer and President, Realty Income International; and Mark Hagan, Chief Investment Officer. During this conference call, we will make certain 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 company's Form 10-Q filed today with the SEC. We will observe a one question and one follow-up limit during the Q&A portion of the call to ensure that everyone has an opportunity to participate.

Alex Waters: Thank you for joining Realty Income's Q1 2026 Results Conference Call. Joining us on the conference call today are Sumit Roy, President and Chief Executive Officer; Jonathan Pong, Chief Financial Officer and Treasurer; Neil Abraham, Chief Strategy Officer and President, Realty Income International; and Mark Hagan, Chief Investment Officer. During this conference call, we will make certain 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.

Speaker #2: During this conference call, we will make certain 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.

Speaker #2: We will disclose in greater detail the factors that may cause such differences in the company's Form 10-Q filed today with the SEC. We will observe a one-question-and-one-follow-up limit during the Q&A portion of the call.

Alex Waters: We will disclose in greater detail the factors that may cause such differences in the company's Form 10-Q filed today with the SEC. We will observe a one question and one follow-up limit during the Q&A portion of the call to ensure that everyone has an opportunity to participate. With that, I would now like to turn the call over to our CEO, Sumit Roy.

Speaker #2: To ensure that everyone has an opportunity to participate, and with that, I would now like to turn the call over to our CEO, Sumit Roy.

Alex Waters: With that, I would now like to turn the call over to our CEO, Sumit Roy.

Speaker #3: Thank you, Alex, and welcome everyone. We entered 2026 with strong momentum, and our first quarter results demonstrate progress across the priorities that matter most for Realty Income.

Sumit Roy: Thank you, Alex. Welcome everyone. We entered 2026 with strong momentum. Our Q1 results demonstrate progress across the priorities that matter most for Realty Income. Disciplined capital deployment, durable portfolio performance, and continued expansion of our private capital platform. In Q1, we delivered AFFO per share of $1.13, up 6.6% year over year. We invested approximately $2.8 billion or $2.6 billion on a pro rata basis at a 7.1% initial weighted average cash yield. Our investment activity remained balanced between North America and Europe. We also deployed approximately $1 billion into credit and structured investments. That strong start to 2026 supports our decision to raise the midpoint of full-year AFFO per share guidance by $0.025 or approximately 60 basis points at the midpoint.

Speaker #3: Disciplined capital deployment, durable portfolio performance, and continued expansion of our private capital platform. In the first quarter, we delivered AFFO per share of $1.13, up 6.6% year over year.

Speaker #3: And invested approximately $2.8 billion, or $2.6 billion, on a pro-rata basis, at a 7.1% initial weighted average cash yield. Our investment activity remained balanced between North America and Europe, and we also deployed approximately $1 billion into credit and structured investments.

Speaker #3: That strong start to 2026 supports our decision to raise the midpoint of full-year AFFO per share guidance by 2.5 cents. Or approximately 60 basis points at the midpoint.

Speaker #3: Jonathan will walk through the quarter and our updated guidance in more detail. Looking ahead, our 2026 outlook reflects an anticipated acceleration from 2025 as we leverage our scale, data-driven, and robust platform to strive towards consistent double-digit total operational returns for our shareholders.

Sumit Roy: Jonathan will walk through the quarter and our updated guidance in more detail. Looking ahead, our 2026 outlook reflects an anticipated acceleration from 2025 as we leverage our scale, data-driven, and robust platform to strive towards consistent double-digit total operational returns for our shareholders. I'd like to briefly step back and place our recent announcements into the broader strategic context for Realty Income. Over the past several months, we've been deliberate in building a private capital ecosystem to diversify our sources of permanent equity, expand our investment opportunity set, and support long-term value creation, all while remaining anchored in the same underwriting discipline, credit standards, and focus on durable growing cash flow that have defined Realty Income since our inception. This is demonstrated through three critical achievements. First, we completed our $1.7 billion cornerstone capital raise for our perpetual life U.S. Core Plus fund.

Speaker #3: I'd like to briefly step back and place our recent announcements into the broader strategic context for Realty Income. Over the past several months, we've been deliberate in building a private capital ecosystem to diversify our sources of permanent equity and expand our investment opportunity set and support long-term value creation all while remaining anchored in the same underwriting discipline: credit standards and focus on durable, growing cash flow that have defined Realty Income since our inception.

Speaker #3: This is demonstrated through three critical achievements: first, we completed our $1.7 billion cornerstone capital raise for our perpetual life US core plus fund. Second, we formed a strategic partnership with GIC focused primarily on construction financing and takeout commitments for built-to-suit industrial in the US and Mexico.

Sumit Roy: Second, we formed a strategic partnership with GIC focused primarily on construction financing and take out commitments for build-to-suit industrial in the US and Mexico. Lastly, we raised $1 billion in equity from Apollo as part of a programmatic venture that strives to ultimately deliver Realty Income's dependable income to the massive insurance and annuity market. Taken together, these initiatives represent what we view as a meaningful evolution of the Realty Income platform, rooted in years of intentional planning to strengthen how we fund growth and deploy capital across cycles. Several years ago, we identified a potential concentration risk in relying primarily on public equity markets, where pricing at times can become disconnected from underlying operating performance, and this discrepancy persists for prolonged periods.

Speaker #3: Lastly, we raised $1 billion in equity from Apollo as part of a programmatic venture that strives to ultimately deliver Realty Income's dependable income to the massive insurance and annuity market.

Speaker #3: Taken together, these initiatives represent what we view as a meaningful evolution of the Realty Income platform. Rooted in years of intentional planning to strengthen how we fund growth and deploy capital across cycles.

Speaker #3: Several years ago, we identified a potential concentration risk in relying primarily on public equity markets, where pricing at times can become disconnected from underlying operating performance and this discrepancy persists for prolonged periods.

Speaker #3: That realization led us to a fundamental question: how do we diversify capital sources to better leverage a platform designed to deploy billions of dollars annually while seeking to create long-term value for public shareholders?

Sumit Roy: That realization led us to a fundamental question: How do we diversify capital sources to better leverage a platform designed to deploy billions of dollars annually while seeking to create long-term value for public shareholders? These partnerships represent the early stages of our private capital journey, and we expect to continue adding accretive sources of permanent capital over time. Today, we view private capital not as a single strategy, but as an ecosystem of distinct, non-overlapping verticals tailored to different geographies, property types, and investment mandates. This approach has expanded our investor base, strengthened our return profile through asset-light fee income, and meaningfully broadened our investable universe. Importantly, it allows us to deploy capital across property types and across the real estate capital structure while preserving the core DNA of Realty Income.

Speaker #3: These partnerships represent the early stages of our private capital journey, and we expect to continue adding accretive sources of permanent capital over time. Today, we view private capital not as a single strategy but as an ecosystem of distinct, non-overlapping verticals tailored to different geographies, property types, and investment mandates.

Speaker #3: This approach has expanded our investor base and strengthened our return profile through asset-light fee income, and meaningfully broadened our investable universe. Importantly, it allows us to deploy capital across property types and across the real estate capital structure, while preserving the core DNA of Realty Income.

Speaker #3: Each vehicle is designed to be complementary to our public REIT model, and accretive to long-term per-share value. Alongside that backdrop, our global platform evolution drove transaction activity during the third quarter.

Sumit Roy: Each vehicle is designed to be complementary to our public REIT model and accretive to long-term per share value. Alongside that backdrop, our global platform evolution drove transaction activity during Q3. With approximately $2.8 billion of investment volume, we delivered one of our higher levels of quarterly deployment in recent years, supported by consistent execution across geographies, property types, and investment structures. We sourced approximately $31 billion of investment opportunities during Q1, reflecting the depth of our global relationships and the scale of our platform. That sourcing allowed us to remain highly selective, closing on roughly 9% of what we reviewed while maintaining discipline on yield structure and credit. Approximately 94% of opportunities were relationship-driven, reinforcing the durability of our origination engine. Our European platform continues to be a key competitive advantage.

Speaker #3: With approximately $2.8 billion of investment volume, we delivered one of our higher levels of quarterly deployment in recent years, supported by consistent execution across geographies property types and investment structures.

Speaker #3: We sourced approximately $31 billion of investment opportunities during the first quarter, reflecting the depth of our global relationships and the scale of our platform.

Speaker #3: That sourcing allowed us to remain highly selective closing on roughly 9% of what we reviewed, while maintaining discipline on yield, structure, and credit. Approximately 94% of opportunities were relationship-driven, reinforcing the durability of our origination engine.

Speaker #3: Our European platform continues to be a key competitive advantage, markets remain more fragmented, and less crowded than in the US, allowing us to source portfolio-oriented, tailored transactions with attractive duration and credit, and to flex capital toward highly compelling opportunities.

Sumit Roy: Markets remain more fragmented and less crowded than in the US, allowing us to source portfolio-oriented tailored transactions with attractive duration and credit, and to flex capital toward highly compelling opportunities. In the US, transaction markets remain active and competitive, particularly for small one-off assets. We continue to see meaningful value creation in larger and more structured investments where our relationships scale and underwriting capabilities provide a competitive advantage. We deployed $1 billion into credit investments globally, including two mezzanine transactions. The first was a $375 million loan alongside a sovereign capital investment firm backed by a portfolio of high-quality logistics assets leased to a strong investment-grade e-commerce client with a right of first offer on the underlying real estate.

Speaker #3: In the US, transaction markets remain active and competitive, particularly for small one-off assets. We continue to see meaningful value creation in larger and more structured investments, where our relationships scale and underwriting capabilities provide a competitive advantage.

Speaker #3: We deployed $1 billion into credit investments globally, including two mezzanine transactions. The first was a $375 million loan alongside a sovereign capital investment firm backed by a portfolio of high-quality logistics assets, leased to a strong investment-grade e-commerce client.

Speaker #3: With a right of first offer, on the underlying real estate. The second was a $190 million loan supporting the development of a data center campus in Virginia, pre-leased to an investment-grade hyperscale tenant.

Sumit Roy: The second was a $190 million loan supporting the development of a data center campus in Virginia pre-leased to an investment-grade hyperscale tenant. Our ability to invest across owned real estate, loans, preferred equity, and structured investments gives us flexibility to remain disciplined and selective, particularly in periods of macro volatility. Our global platform, long-duration leases, and conservative balance sheet position us to stay active while maintaining underwriting rigor. Our platform advantage continued to deliver strong operating results. We ended the quarter with robust occupancy and reported recapture. Through proactive asset and property management, our teams remained focused on driving AFFO per share growth from the core portfolio. We combined deep familiarity with our assets and clients, proprietary predictive analytics, and disciplined credit underwriting to maximize risk-adjusted economics on re-leasing and renewal outcomes.

Speaker #3: Our ability to invest across owned real estate, loans, preferred equity, and structured investments gives us flexibility to remain disciplined and selective particularly in periods of macro volatility.

Speaker #3: Our global platform, long-duration leases, and conservative balance sheet position us to stay active while maintaining underwriting rigor. Our platform advantage continued to deliver strong operating results, and we ended the quarter with robust occupancy and reported recapture.

Speaker #3: Through proactive asset and property management, our teams remained focused on driving AFFO per-share growth from the core portfolio. We combined deep familiarity with our assets and clients, proprietary predictive analytics, and disciplined credit underwriting to maximize risk-adjusted economics on re-leasing and renewal outcomes.

Speaker #3: That approach generated outsized lease termination income of $40.2 million, during the first quarter. And based on current visibility, we've increased our full-year termination income outlook range to $45 to $50 million.

Sumit Roy: That approach generated outsized lease termination income of $40.2 million during Q1. Based on current visibility, we've increased our full-year termination income outlook range to $45 to 50 million. Overall, we believe Realty Income today is more differentiated and better positioned for long-term growth than at any point in our history. With that, I'll turn the call over to Jonathan.

Speaker #3: Overall, we believe Realty Income today is more differentiated and better positioned for long-term growth than at any point in our history. With that, I'll turn the call over to Jonathan.

Speaker #2: Thanks, Sumit, and good afternoon, everyone. We had an active first quarter with several new capital partnerships that expand our financial flexibility and deepen our access to long-term-oriented private capital.

Jonathan Pong: Thanks, Sumit. Good afternoon, everyone. We had an active Q1 with several new capital partnerships that expand our financial flexibility and deepen our access to long-term oriented private capital. Combined with our established access to public markets, these initiatives broaden our investment buy box and support sustained global development. We ended the Q1 with approximately $3.9 billion of liquidity on a pro rata basis. Subsequent to Q1 end, we raised an additional $174 million of forward equity, bringing our current ATM unsettled balance to approximately $1.4 billion. Net debt to annualized pro forma adjusted EBITDA was 5.2x within our targeted leverage range. Inclusive of our outstanding forward equity, our leverage would sit at 4.9x.

Speaker #2: Combined with our established access to public markets, these initiatives broaden our investment buy box, and support sustained global development. We ended the quarter with approximately $3.9 billion of liquidity on a pro-rata basis, subsequent to quarter end.

Speaker #2: We raised an additional $174 million of forward equity, bringing our current ATM unsettled balance to approximately $1.4 billion. Net debt to annualized pro forma adjusted EBITDA was $5.2 times within our targeted leverage range.

Speaker #2: And exclusive of our outstanding forward equity, our leverage would sit at 4.9 times. Subsequent to quarter end, we issued $800 million of 4.75% senior unsecured notes due 2033.

Jonathan Pong: Subsequent to quarter end, we issued $800 million of 4.75% senior unsecured notes due 2033. Swapping EUR 500 million into euros for a blended yield of 4.44%. In addition to diversifying our sources of equity, we're also taking steps to broaden our access to unique sources of debt capital. In Q1, we established a new form of debt financing through a 10-year unsecured term loan with an affiliate of Goldman Sachs. The capital raise provided Realty Income the opportunity to partner with the local community via San Diego Community Power, supporting its long-term energy procurement objectives for San Diego residents.

Speaker #2: Swapping $500 million into euros for a blended yield of 4.44%. In addition to diversifying our sources of equity, we're also taking steps to broaden our access to unique sources of debt capital.

Speaker #2: In the first quarter, we established a new form of debt financing through a 10-year unsecured term loan with an affiliate of Goldman Sachs. The capital raise provided Realty Income the opportunity to partner with the local community via San Diego Community Power, supporting its long-term energy procurement objectives for San Diego residents.

Speaker #2: To facilitate this arrangement, San Diego Community Power utilized a well-established municipal prepay structure that enables a public agency to issue municipal bonds and use the proceeds to prepay for future electricity deliveries.

Jonathan Pong: To facilitate this arrangement, San Diego Community Power utilized a well-established municipal prepay structure that enables a public agency to issue municipal bonds and use the proceeds to prepay for future electricity deliveries while effectively lending a portion of the proceeds, in this case, $694 million, to Realty Income. In return, we agreed to pay a fixed annual interest rate of 4.91% through the Goldman Sachs term loan. We subsequently swapped $500 million of the note to euros via a cross-currency swap, resulting in a 4.34% all-in blended cost of debt. The strategic benefit to Realty Income is the creation of a deep pool of new debt capital at attractive pricing that can complement our access to the public unsecured debt market. Our European operations continue to provide incremental low-cost financing flexibility.

Speaker #2: While effectively lending a portion of the proceeds in this case $694 million, to Realty Income. In return, we agreed to pay a fixed annual interest rate of 4.91% through the Goldman Sachs term loan.

Speaker #2: We subsequently swapped $500 million of the note to euros via a cross-currency swap resulting in a 4.34% all-in blended cost of debt. The strategic benefit to Realty Income is the creation of a deep pool of new debt capital attractive pricing, that can complement our access to the public unsecured debt market.

Speaker #2: Our European operations continue to provide incremental low-cost financing flexibility. Euro-denominated debt is priced approximately $100 basis points inside comparable tenor US dollar debt, and serves as both a natural currency hedge and a tool to offset higher-cost US refinancings while remaining leverage neutral.

Jonathan Pong: Euro-denominated debt is priced approximately 100 basis points inside comparable tenor US dollar debt and serves as both a natural currency hedge and a tool to offset higher cost US refinancings while remaining leverage neutral. Given our strong start to the year, we are increasing full-year investment volume guidance to $9.5 billion at 100% ownership and raising the AFFO per share guidance range to between $4.41 and $4.44. As Sumit noted, we are also increasing the expected lease termination income guidance range to between $45 million and $50 million as we become increasingly proactive with our asset management platform. Lastly, we are lowering our credit loss outlook to approximately 40 basis points of rental revenue, reflecting improved visibility and performance across the portfolio.

Speaker #2: Given our strong start to the year, we are increasing full-year investment volume guidance to 9.5 billion dollars at 100% ownership. And raising the AFFO per-share guidance range to between $441 and $444.

Speaker #2: As Sumit noted, we are also increasing the expected lease termination income guidance range to between $45 million and $50 million, as we become increasingly proactive with our asset management platform.

Speaker #2: And lastly, we are lowering our credit loss outlook to approximately 40 basis points of rental revenue, reflecting improved visibility and performance across the portfolio.

Speaker #2: As Sumit highlighted, we now have three distinct and intentionally structured private capital vehicles through our partnerships with Apollo, GIC, and the Perpetual Life US Core Plus Fund.

Jonathan Pong: As Sumit highlighted, we now have three distinct and intentionally structured private capital vehicles through our partnerships with Apollo, GIC, and the Perpetual Life U.S. Core Plus fund. Each vehicle serves differentiated investment mandates and is designed to provide Realty Income with three new alternative sources of long-term oriented equity. Our most recent strategic partnership with Apollo seeks to provide a repeatable source of low-cost property-level equity while allowing us to retain operational control. We view this structure as a compelling complement to traditional public equity, and we expect it will carry comparatively less volatility of pricing and availability. A diversified net lease portfolio at scale is a natural complement to Apollo's perpetual capital AUM, which comprises a significant majority of their total AUM.

Speaker #2: Each vehicle serves differentiated investment mandates and is designed to provide Realty Income with three new alternative sources of long-term-oriented equity. Our most recent strategic partnership with Apollo seeks to provide a repeatable source of low-cost property-level equity while allowing us to retain operational control.

Speaker #2: We view this structure as a compelling complement to traditional public equity, and we expect it will carry comparatively less volatility of pricing and availability.

Speaker #2: A diversified net lease portfolio at scale is a natural complement to Apollo's Perpetual Capital AUM, which comprises a significant majority of their total AUM.

Speaker #2: Our initial transaction with Apollo resulted in a $1 billion equity investment in a highly granular, well-diversified, long-duration retail portfolio of approximately 500 single-tenant properties contributed off our balance sheet.

Jonathan Pong: Our initial transaction with Apollo resulted in a $1 billion equity investment and a highly granular, well-diversified, long-duration retail portfolio of approximately 500 single-tenant properties contributed off our balance sheet. The joint venture includes a call option exercisable between years 7 and 15 that caps the cost of this equity at 6.875% during Apollo's ownership period. This structure provides meaningful long-term optionality as contractual rent growth compounds over time, increasing spread versus our long-term cost of equity and enabling incremental investment volume at lower return hurdles. We are pleased to partner with one of the world's leading asset managers and intend to scale this relationship beyond this initial product. The partnership is well aligned with Apollo providing long-term equity capital and Realty Income delivering sourcing, underwriting, and asset management capabilities through our global net lease platform.

Speaker #2: The joint venture includes a call option, exercisable between years 7 and 15, that caps the cost of this equity at $6.875% during Apollo's ownership period.

Speaker #2: This structure provides meaningful long-term optionality as contractual rent growth compounds over time, increasing spread versus our long-term cost of equity, and enabling incremental investment volume at lower return hurdles.

Speaker #2: We are pleased to partner with one of the world's leading asset managers and intend to scale this relationship beyond this initial product. The partnership is well-aligned with Apollo providing long-term equity capital in Realty Income delivering sourcing, underwriting the asset management capabilities, through our global net lease platform.

Speaker #2: The Apollo partnership represents our second programmatic private capital joint venture, following the January announcement of our Build to Suit development JV with GIC. Finally, during the first quarter, we completed the cornerstone fundraising round for our US Core Plus open-ended fund, raising $1.7 billion of institutional capital, primarily from state, city, and employee pension plans.

Jonathan Pong: The Apollo partnership represents our second programmatic private capital joint venture following the January announcement of our build-to-suit development JV with GIC. Finally, during Q1, we completed the cornerstone fundraising round for our U.S. Core Plus open-ended fund, raising $1.7 billion of institutional capital, primarily from state, city, and employee pension plans. The vehicle is designed to allow us to invest alongside high-quality institutional partners in assets with lower initial yields but strong long-term growth characteristics while generating high margin capital-light fee income. Just as important, is that it is intended to broaden our buy box and enhances day one accretion by more efficiently matching capital with opportunity. With that, I'll turn it back to Sumit.

Speaker #2: The vehicle is designed to allow us to invest alongside high-quality institutional partners in assets with lower initial yields but strong long-term growth characteristics, while generating high-margin, capital-like fee income.

Speaker #2: Just as important as it is intended to broaden our buy box and enhance this day-one accretion, by more efficiently matching capital opportunity. With that, I'll turn it back to Sumit.

Speaker #3: Thank you, Jonathan. Our private capital initiatives represent a natural extension of Realty Income's long-standing business model. They're expected to enhance our ability to deploy capital through cycles, improve our cost of capital efficiency, and strengthen our long-term value proposition for shareholders.

Sumit Roy: Thank you, Jonathan. Our private capital initiatives represent a natural extension of Realty Income's longstanding business models. They're expected to enhance our ability to deploy capital through cycles, improve our cost of capital efficiency, and strengthen our long-term value proposition for shareholders. We are encouraged by the progress to date and look forward to building on this momentum. Operator, we are ready for Q&A.

Speaker #3: We are encouraged by the progress to date and look forward to building on this momentum. Operator, we are ready for Q&A.

Speaker #1: Thank you. We will now begin the question-and-answer session. To ask a question, you may press star, then one, on your telephone keypad. If you're using a speakerphone, we ask that you please pick up your handset before pressing the keys.

Operator 2: Our first question today comes from Jana Galan at Bank of America. Please go ahead.

Speaker #1: If at any time your question has been addressed and you would like to withdraw your question, please press stars and two. Once again, we do ask that you please limit yourself to one question and one follow-up.

Speaker #1: At this time, we'll pause for just a moment to assemble our roster. And our first question today comes from Yana Gallen at Bank of America.

Operator: Our first question today comes from Jana Galan at Bank of America. Please go ahead.

Speaker #1: Please go ahead.

Speaker #4: Good evening. This is Dan. For Yana. Could you provide more detail on the $40 million lease termination income recognized this quarter? For example, was it driven by a small number of tenants or broad-based activity and were they re-leased or sold?

[Analyst] (Bank of America): Evening. This is Dan for Jana. Could you provide more detail on the $40 million lease termination income recognized this quarter? For example, was it driven by small number of tenants or broad-based activity and were they re-leased or sold?

Speaker #3: So this was obviously part of the forecast that we had shared with the market. If you recall, we had come out with a forecast of 40 to 45 million.

Sumit Roy: This was obviously part of the forecast that we had shared with the market. If you recall, we had come out with a forecast of $40 to 45 million. We were expecting this to be front-loaded. We have increased that based on the momentum we've seen to $45 to 50. This was not concentrated in any 1 single name. It was across the board. The rationale for doing this remains the same. It is 100% focused on trying to create and maximize our total return profile on our investments. If we feel like we have the ability to recoup the remaining rent and be able to lease these assets to alternative tenants who are better suited for those locations, that is one of the main drivers of doing this.

Speaker #3: We were expecting this to be front-loaded. We have increased that based on the momentum we've seen to 45 to 50. So this was not concentrated in any one single name.

Speaker #3: It was across the board. And again, the rationale for doing this remains the same. It is 100% focused on trying to create and maximize our total return profile on our investments.

Speaker #3: And if we feel like we have the ability to recoup the remaining rent and be able to lease these assets to alternative tenants who are better suited for those locations, that is one of the main drivers of doing this.

Sumit Roy: The second being, rather than waiting for an asset to become vacant in 3 to 4 years from now, being able to recycle the capital today and create a value proposition for our clients who are not long-term occupiers of that asset is, again, a win-win situation. It is really us leaning into our analytics and being much more proactive about harnessing these types of opportunities in our portfolio that's driving this. Despite the fact that it was all pretty much front-loaded, you know, the actual increase in lease termination is only $5 million.

Speaker #3: The second being rather than waiting for an asset to become vacant in three to four years from now, being able to recycle the capital today and create a value proposition for our clients who are not long-term occupiers of that asset is, again, a win-win situation.

Speaker #3: So it is really us leaning into our analytics and being much more proactive about harnessing these types of opportunities in our portfolio that's driving this.

Speaker #3: And despite the fact that it was all pretty much front-loaded, the actual increase in lease termination is only 5 million.

[Analyst] (Bank of America): Just as a follow-up, could you walk through the rationale behind the $40 million add back to AFFO related to credit loss?

Speaker #4: Then just as a follow-up, could you walk through the rationale behind the $40 million add-back to AFFO related to credit loss?

[Analyst] (Bank of America): Just as a follow-up, could you walk through the rationale behind the $40 million add back to AFFO related to credit loss?

Jonathan Pong: The add back to AFFO for credit loss is really a non-cash dynamic. You know, we have loans that we invest in. These are non-cash allowances for loan loss, very standard with how we've treated similar situations in the past.

Speaker #5: The add-back to AFFO for credit loss is really a non-cash dynamic. So we have loans that we invest in. These are non-cash allowances for loan loss.

Speaker #5: Very standard with how we've treated similar situations in the past.

Speaker #3: So incidentally, they happen to be the same number, but one is CISO non-cash-driven add-back. The other one is an actual cash payout. To us, which is certainly part of AFFO.

Sumit Roy: Coincidentally, they happen to be the same number, but it's one is CECL non-cash driven add back. The other one is an actual cash payout to us, which is certainly part of the AFFO.

Speaker #1: Thank you. Our next question today comes from Brad Heffern at RBC Capital Markets. Please go ahead.

Operator 2: Thank you. Our next question today comes from Brad Heffern at RBC Capital Markets. Please go ahead.

Operator: Thank you. Our next question today comes from Brad Heffern at RBC Capital Markets. Please go ahead.

Speaker #6: Yeah. Thanks, everybody. You obviously have the various private capital vehicles now. Clearly, you want to grow those. So I'm wondering where you see the split of private capital investing versus the traditional investing going in the coming years.

Brad Heffern: Yeah. Thanks, everybody. You obviously have the various private capital vehicles now. Clearly, you wanna grow those. I'm wondering where you see the split of private capital investing versus the traditional investing going in the coming years.

Speaker #3: So, Brad, this is a continuation of a theme that we've been touching on for the last, call it, 18 months now, where we used to share pretty much every quarter some of the transactions that we were passing on just because it wouldn't fit what our public shareholders demand, which is day-one accretion or spread investing, along with meeting a long-term hurdle rate.

Sumit Roy: Brad, this is a continuation of a team that we've been touching on for the last, call it 18 months now, where we used to share pretty much every quarter, some of the transactions that we were passing on just because it wouldn't fit what our public shareholders demand, which is day 1 accretion or spread investing, along with meeting a long-term hurdle rate. You know, part of why we are doing what we are doing is to be able to continue to take advantage of transactions that we think that actually meet the long-term return profile. These are very good investments, and there's a pocket of private capital that is very interested in trying to take advantage of that. That was really the genesis behind why we started to look at these opportunities.

Speaker #3: And part of why we are doing what we are doing is to be able to continue to take advantage of transactions that we think that actually meet the long-term return profile.

Speaker #3: These are very good investments. And there's a pocket of private capital that is very interested in trying to take advantage of that. So that was really the genesis behind why we started to look at these opportunities.

Speaker #3: And if you think about the three buckets of capital that we have, and you try to sort of dive in and analyze what is the potential overlap, if you will, on strategies, there's very little, if any, to be very honest.

Sumit Roy: If you think about the 3 buckets of capital that we have and you try to sort of dive in and analyze what is the potential overlap, if you will, on strategies, there's very little, if any, to be very honest. You know, one is a potentially lower initial yield but with higher growth, which lends itself to our open-ended fund. The insurance capital is much more steady Eddie, you know, low growth, investments that don't necessarily meet the long-term hurdles, but are very good predictable cash flow streams that works very well for insurance capital. The third is a build to suit that we have at GIC that is, you know, we go in with the intention to provide debt capital and then have the path to ownership, you know, downstream if we so choose to exercise.

Speaker #3: One is a potentially lower initial yield but with higher growth, which lends itself to our open-ended fund. The insurance capital is much more steady-eddy low growth investments.

Speaker #3: That don't necessarily meet the long-term hurdles, but are very good, predictable cash flow streams that work very well for insurance capital. And then the third is a build-to-suit that we have with GIC, where we go in with the intention to provide debt capital and then have the path to ownership downstream if we so choose to exercise.

Speaker #3: So, I think these are three distinct strategies which, if you think about in the traditional sense of the word and how we were able to—or not able to—recognize earnings in these three different buckets, and in some cases not even do these transactions, it is now allowing us to execute those three strategies.

Sumit Roy: I think these are three distinct strategies, which if you think about in the traditional sense of the word and how we were able to or not able to recognize earnings in these three different buckets, and in some cases not even do these transactions, it is now allowing us to execute those three strategies. It is largely based off of, you know, third-party capital. The way it translates to, you know, a positive for our public shareholders is through predictable permanent fee income stream, allowing us to recognize, you know, development investments that we make and interest income during development, which we were not able to do in the past.

Speaker #3: And it's largely based off of third-party capital. And the way translates to a positive for our public shareholders is through predictable permanent fee income stream, allowing us to recognize development investments that we make and interest income during development, which we were not able to do in the past.

Speaker #3: And be able to satisfy a need by insurance capital that doesn't really work long-term on our balance sheet, but allows us to create a fee income stream by leveraging our platform.

Sumit Roy: Be able to satisfy a need by insurance capital that doesn't really work long-term on our balance sheet, but allows us to create a fee income stream by leveraging our platform. That's how the strategy that we've now started to implement and will continue to grow, you know, is going to benefit our shareholders, is essentially monetizing the platform that we've built.

Speaker #3: So that's how the strategy that we've now started to implement and will continue to grow is going to benefit our shareholders is essentially monetizing the platform that we've built.

Speaker #6: Okay. Thank you for that. And then it sounded like you did a data center development loan during the quarter you obviously did the deal with digital a few years back.

Brad Heffern: Okay. Thank you for that. It sounded like you did a data center development loan during the quarter. You obviously did the deal with Digital a few years back. It hasn't been a ton of, you know, consistent investment in data centers. I'm wondering, you know, what does the playing field look like for O today in that space? Does it look more like this in our loans or is there a chance that maybe, you know, the deal like you did with Digital would, you know, potentially come back from a pricing standpoint to being attractive?

Speaker #6: Hasn't been a ton of consistent investment in data centers. I'm wondering what does the playing field look like for O today in that space?

Speaker #6: And does it look more like data center loans, or is there a chance that maybe the deal like you did with digital would potentially come back from a pricing standpoint to being attractive?

Speaker #3: Yeah. So the rationale here is, again, anytime we are making credit investments, it's with a desire to own the real estate, or at least a path to ownership.

Sumit Roy: The, you know, the rationale here is, again, anytime we are making credit investments, it's with a desire to own the real estate or at least a path to ownership. You know, what we have said about our data center sleeve is we are highly selective around who our operator is going to be. I'm very happy to say that, you know, we are partnering with one of the best private operators out there. We are also very highly selective in terms of the location of these assets. Once again, it is in Virginia, what I've described in the past as the epicenter of the data center business, to again, address the residual risk that is associated with these assets.

Speaker #3: And so what we have said about our data center sleeve is we are highly selective around who our operator is going to be. And I'm very happy to say that we are partnering with one of the best private operators out there.

Speaker #3: We are also very highly selective in terms of the location of these assets. Once again, it is in Virginia. What I've described in the past is the epicenter of the data center business.

Speaker #3: To, again, address the residual risk that is associated with these assets. And then the underlying asset itself, the lease itself, needs to be needs to be able to fit into our investment thesis of being a single-tenant asset long-duration lease, well above growth rates that we've been able to realize on the retail side of the business.

Sumit Roy: The underlying asset itself, the lease itself, needs to be, you know, needs to be able to fit into our investment thesis of being a single tenant asset, long duration lease, well above, you know, growth rates that we've been able to realize on the retail side of the business, it fits all those boxes. You know, my hope is, this is the second investment we've made with this particular developer, and it is with the intent to have a path to actual ownership of these assets. In the meantime, we are lending our balance sheet. We are getting, you know, very decent yields on these investments, which will then allow us to, you know, be able to ultimately own the real estate.

Speaker #3: And it fits all those boxes. And so my hope is this is the second investment we've made with this particular developer. And it is with the intent to have a path to actual ownership of these assets.

Speaker #3: And in the meantime, we are lending our balance sheet. We are getting very decent yields on these investments, which will then allow us to ultimately own the real estate.

Speaker #1: Thank you. Our next question today comes from Michael Goldsmith at UBS. Please go ahead.

Operator 2: Thank you. Our next question today comes from Michael Goldsmith at UBS. Please go ahead.

Operator: Thank you. Our next question today comes from Michael Goldsmith at UBS. Please go ahead.

Speaker #7: Good afternoon. Thanks a lot for taking my questions. Sumit, in your prepared remarks, you talked about all these private credit vehicles, but you also mentioned that you were kind of in the early stages of this.

Michael Goldsmith: Good afternoon. Thanks a lot for taking my questions. Sumit, in your prepared remarks, you talked about just all these private credit vehicles, but you also mentioned that you're kind of in the early stages of this. Just kind of curious, are you thinking, hey, you know, we've done these 3 things, and now we've got another 3 more to do, you know, in the next 24 months? Or should we be thinking about this as more longer term? I'm just trying to get a sense of, you know, how much more activity you expect in this avenue going forward.

Speaker #7: So, just kind of curious, are you thinking, hey, we've done these three things, and now we've got another three more to do in the next 24 months?

Speaker #7: Or should we be thinking about this as more longer-term? I'm just trying to get a sense of how much more activity you expect in this avenue going forward.

Sumit Roy: That's a good question, Michael. Let me, you know, step back and share with you that any time we are exploring attracting third-party capital, it was the singular intent to grow our earnings per share for our public shareholders. If it doesn't translate to that, there is no reason for us to be attracting, you know, third-party capital. Let's start there. If you filter any decision that we make and how it translates to growth, and if there isn't a clear tie-in, then we are not going to be pursuing that capital source. That's the governing factor on anything we do. The reason why I've said is, you know, what are we going to do in the future remains, you know, unclear.

Speaker #3: That's a good question, Michael. So let me step back and share with you that anytime we are exploring attracting third-party capital, it was the singular intent to grow our earnings per share for our public shareholders.

Speaker #3: If it doesn't translate to that, there is no reason for us to be attracting third-party capital. So let's start there. And if you filter any decision that we make and how it translates to growth, and if there isn't a clear tie-in, then we are not going to be pursuing that capital.

Speaker #3: So that's the governing factor on anything we do. The reason why I've said is what are we going to do in the future remains unclear.

Speaker #3: But our intent is, we have effectively solved for what we need here in the U.S. And our build-to-suit with GIC also includes Mexico. But we do happen to be in other geographies as well.

Sumit Roy: Our intent is we have effectively, you know, solved for what we need here in the US, and, you know, our build to suit with GIC also includes Mexico. We do happen to be in other geographies as well. We are being approached by other sources of capital. If we can create a distinct strategy that does not interfere with our ability to continue to buy on balance sheet and is truly accretive to what we are doing on balance sheet, those types of decisions and those types of, you know, channels are ones that we are going to continue to look at, continue to consider, and potentially add to the, you know, ecosystem that we have created.

Speaker #3: We are being approached by other sources of capital. And if we can create a distinct strategy that does not interfere with our ability to continue to buy on balance sheet and is truly accretive to what we are doing on balance sheet, those types of decisions and those types of channels are ones that we are going to continue to look at, continue to consider, and potentially add to the ecosystem that we have created.

Sumit Roy: Just like we've done on our investment side, where we've diversified asset types, we've diversified across geographies, we are trying to do the same on the capital side. Jonathan's done an amazing job diversifying on the fixed income side. We continue to do that today with, you know, this muni prepay structure that he talked about. We had a single point of failure when it came to our equity capital, and that's what we are trying to diversify today. Hopefully, this is the path to being able to get to our double-digit total return profile that we are all, you know, singularly focused on.

Speaker #3: Just like we've done on our investment side, where we've diversified asset types, we've diversified across geographies, we are trying to do the same on the capital side.

Speaker #3: Jonathan's done an amazing job diversifying on the fixed income side. We continue to do that today with this muni prepay structure that he talked about.

Speaker #3: But we had a single point of failure when it came to our equity capital. And that's what we are trying to diversify today. And hopefully, this is the path to being able to get to our double-digit total return profile that we are all singularly focused on.

Michael Goldsmith: Got it. Thanks for that. Just as a follow-up, it seems like you're doing an increasing amount of these credit investments. How should we think about just the duration of some of these investments? You know, it seems like a shorter vault than maybe we've seen in the past. Can you just talk a little bit about what does that mean for the portfolio going forward?

Speaker #7: Got it. Thanks for that. And just as a follow-up, it seems like you're doing an increasing amount of these credit investments. So how should we think about the duration of some of these investments and its it seems like a shorter walk than maybe we've seen in the past.

Speaker #7: So can you just talk a little bit about what does that mean for the portfolio going forward?

Sumit Roy: Sure. Again, great question, Michael. Now, you know, a portion of the investment that we made was on this build to suit in Mexico. It's a perfect example of how we are effectively, you know, lending during the construction phase with the intent to own the asset, you know, once it's fully stabilized. That is part of our credit investment. The other bigger credit investment was on this data center project. Again, the intent there is to, you know, lend capital to a partner that we have decided is the right partner going forward on our data center strategy. What we are hoping and we believe will happen is on the back end, we are going to be the owners of these data center assets.

Speaker #3: Sure. And again, great question, Michael. Now, a portion of the investment that we made was on this build-to-suit in Mexico. It's a perfect example of how we are effectively lending during the construction phase with the intent to own the asset once it's fully stabilized.

Speaker #3: That is part of our credit investment. The other bigger credit investment was on this data center project. Again, the intent there is to lend capital to a partner that we have decided is the right partner going forward on our data center strategy.

Speaker #3: And what we are hoping and we believe will happen is on the back end, we are going to be the owners of these data center assets.

Speaker #3: And what it is effectively allowing us to do is get a much higher yield on the front end of the on the development side which can then make up for perhaps a nominal yield when we are actually buying the assets on balance sheet.

Sumit Roy: What it is effectively allowing us to do is get a much higher yield on the front end of the, you know, on the, on the development side, which can then make up for perhaps a nominal yield, you know, when we are actually buying the assets on balance sheet. You know, again, this is a strategy. Yes, we start off with the credit side of the business, but it is leading to what we believe is the real estate, which was the intent behind why we instituted this credit investment strategy to begin with. There's a similar story behind every credit investment that we do, and we are, you know, we are acutely aware that, you know, these tend to be shorter duration, which by the way, is by design.

Speaker #3: And so again, this is a strategy. Yes, we start off with the credit side of the business, but it is leading to what we believe is the real estate, which was the intent behind why we instituted this credit investment strategy to begin with.

Speaker #3: So there's a similar story behind every credit investment that we do, and we are acutely aware that these tend to be shorter duration, which, by the way, is by design.

Speaker #3: We want it to be shorter duration. So that we can then have the decision on whether or not when it comes to an end, do we own the real estate or not, or at least develop relationships with clients or with developers who can then feed us a lot more product downstream.

Sumit Roy: We want it to be shorter duration so that we can then have the decision on whether or not when it comes to an end, do we own the real estate or not? At least develop relationships with clients or with developers who can then feed us a lot more product downstream. We are starting the relationship building on the development side. That is really the thesis behind why we are making credit investments.

Speaker #3: But we are starting the relationship building on the development side. So that is really the thesis behind why we are making credit investments.

Speaker #1: Thank you. Our next question today comes from Smitty's Rose at Citi. Please go ahead.

Operator 2: Thank you. Our next question today comes from Smedes Rose at Citi. Please go ahead.

Operator: Thank you. Our next question today comes from Smedes Rose at Citi. Please go ahead.

Smedes Rose: Hi. Thank you. I just wanted to follow up on that, on the credit investments or that sort of loan portfolio, 'cause we definitely see it with some of the other names that we cover, and it seems like, you know, frankly, a good way to kinda build relationships and end up with real estate ownership. Is there kind of a, I guess sort of a limit, an upper limit on how much you'd be willing to sort of build in this book? It looks like it's, what, a little over $1 billion right now, or like where do you think that could be in the next 2, 3 years as some of these early loans start to roll off and you're replacing them, presumably?

Speaker #7: Hi. Thank you. I just wanted to follow up on that on the credit investments or that sort of loan portfolio because we definitely see it with some of the other names that we cover.

Speaker #7: And it seems like frankly, a good way to kind of build relationships and end up with real estate ownership. Is there kind of a, I guess, sort of a limit, an upper limit on how much you'd be how much you'd be willing to sort of build in this book?

Speaker #7: It looks like it's a little over a billion right now or where do you think that could be in the next two or three years as some of these early loans start to roll off and you're replacing them, presumably?

Sumit Roy: It's a good question, Smeedy. You know, look, obviously it's not going to suddenly start to dominate what we do. Our capital is very dear to us and, you know, it is very important that we allocate it appropriately. Look, we turn down a lot more credit investments than we actually engage in. Despite the plethora of opportunities available to us in the credit side, we are highly selective. You know, what size could it become? It's going to be a function of the overall size of our platform. Today, we are 90 billion plus minus. You know, we have a small book of loans. Again, it's by design.

Speaker #3: It's a good question, Smitty. Look, obviously, it's not going to suddenly start to dominate what we do. Our capital is very dear to us.

Speaker #3: And it is very important that we allocate it appropriately. And look, we turned down a lot more credit investments than we actually engage in.

Speaker #3: And so despite the plethora of opportunities available to us in the credit side, we are highly selective. And what size could it become? It's going to be a function of the overall size of our platform.

Speaker #3: Today, we are 90 billion plus minus. We have a small book of loans. But again, it's by design these loans are short duration, and the hope is that this same capital will then be used towards the permanent buying of the real estate.

Sumit Roy: These loans are short duration, and the hope is that this same capital will then be, you know, used towards the permanent buying of the real estate. If we can't create that clear path, it's not something that we're gonna be leaning into, you know, unlike a credit, a true, you know, credit company that all they do is invest in loans. In terms of percentages, I really don't have a number, Smedes. This is going to be opportunistic driven. It's going to be driven by this, the strategy that I've laid out.

Speaker #3: And so if we can't create that clear path, it's not something that we are going to be leaning into. Unlike a true credit company, where all they do is invest in loans.

Speaker #3: In terms of percentages, I really don't have a number, Smitty. This is going to be opportunistic-driven. It's going to be driven by the strategy that I've laid out.

Smedes Rose: Thanks. I just wanted to ask you too, maybe just a little bit, just bigger picture. I mean, you obviously took the investment volume outlook for the year up quite a bit. Also a theme we see across, you know, many of the reports this quarter. Could you just sort of talk to kind of generally what you're seeing? I mean, I assume part of this is you have this access to these other pools of capital that's bringing opportunity. Just sort of bigger picture for the market in terms of how competition is trending or just, you know, US versus Europe, the sort of bigger picture.

Speaker #7: Thanks. And then I just wanted to ask you too, maybe just a little bit just bigger picture. I mean, you obviously took the investment volume outlook for the year up quite a bit.

Speaker #7: That's also a theme we see across many of the reports this quarter. Could you just sort of talk to, kind of generally, what you're seeing?

Speaker #7: I mean, I assume part of this is you have access to these other pools of capital that's bringing opportunity, but just sort of bigger picture for the market in terms of how competition is trending, or just U.S. versus Europe, sort of bigger picture.

Speaker #3: Yeah. Look, we are obviously, we feel very confident of what our pipeline looks like. It is largely a function of the pipeline. And our ability to forecast out what that's going to translate into for the entire year, that's what's helped us raise our number from 8 to 9 and a half billion.

Sumit Roy: Yeah. Look, obviously, we feel very confident of what our pipeline looks like. It is largely a function of the pipeline and our ability to forecast out what that's gonna translate into for, you know, the entire year. That's what's helped us raise our number from $8 to 9.5 billion. You know, what I would say is, it was an even split between the US and Europe. This was something we started talking about in last quarter, where we had started to see a bit more of a momentum here in the US than we had seen for the prior 3 quarters in 2025, where Europe was dominating, you know, what we were getting over the finish line.

Speaker #3: And what I would say is we did about it was an even split between the US and Europe. And this was something we started talking about last quarter.

Speaker #3: Where we had started to see a bit more of a momentum here in the US. Then we had seen for the prior three quarters in 2025 where Europe was dominating.

Speaker #3: What we were getting over the finish line. And so I think that trend we are continuing to see a lot of opportunities in Europe.

Sumit Roy: I think that trend, we are continuing to see a lot of opportunities in Europe, and that will continue to drive a lot of the, you know, the volume. We are starting to see similar impact here in the US, which is a good thing, which is why it gives us the confidence to increase the, you know, the investment to $9.5 billion. The other piece is what you touched on, Smedes. I mean, the fact remains that, you know, having these different sources of capital will allow us to do transactions that we wouldn't have done in the past. Again, why are we doing all of this? It is to help grow our earnings per share. That's what we're seeing.

Speaker #3: And that will continue to drive a lot of the volume. But we are starting to see similar impact here in the US, which is a good thing, which is why it gives us the confidence to increase the investment to 9 and a half billion.

Speaker #3: And the other piece is what you touched on, Smitty. I mean, the fact remains that having these different sources of capital will allow us to do transactions that we wouldn't have done in the past.

Speaker #3: And again, why are we doing all of this? It is to help grow our earnings per share. And so that's what we're seeing from a competition perspective. Public markets here in the US—I think that hasn't changed much.

Sumit Roy: From a competition perspective, public markets here in the US, I think that hasn't changed much. There is certainly a lot more competition on the private side here in the US. You know, I think our product is well understood now, and it's very attractive to private sources of capital to sort of pursue. We do see that competition, elevated, you know, interest rate environment will continue to be a benefit for us. You know, debt capital remains elevated, in order for these private sources of capital to meet their return hurdles, it's going to be a little bit more of a challenge. Europe continues to be, you know, a very interesting area for us.

Speaker #3: There is certainly a lot more competition on the private side here in the US. I think our product is well understood now. And it's very attractive to private sources of capital to sort of pursue.

Speaker #3: So we do see that competition. But elevated interest rate environment will continue to be a benefit for us because debt capital remains elevated. And so, in order for these private sources of capital to meet their return hurdles, it's going to be a little bit more of a challenge.

Speaker #3: Europe continues to be a very interesting area for us. I mean, I've mentioned this in the past, and I'll mention it again. I think Neil and the team have done a great job of becoming the go-to net lease name, especially in the UK.

Sumit Roy: I mean, I've mentioned this in the past, and I'll mention it again, I think Neil and the team have done a great job of becoming the go-to net lease name, especially in the UK, and soon it's translating into mainland Europe as well, where we get a lot of, you know, off-market transactions where, you know, transactions are negotiated on an off-market basis and closed. The fact that we have delivered for so many of our clients there, you know, the repeat business continues to be a big driver of the volume that we've gotten over the finish line. I believe for this quarter it was circa 94% was effectively relationship-driven businesses. I think that's what the landscape looks like from a, you know, from a competition perspective.

Speaker #3: And soon it's translating into mainland Europe as well, where we get a lot of off-market transactions—where transactions are negotiated on an off-market basis.

Speaker #3: And closed. And the fact that we have delivered for so many of our clients there the repeat business continues to be a big driver of the volume that we've gotten over the finish line.

Speaker #3: I believe for this quarter, it was circa 94% was effectively relationship-driven businesses. So I think that's what the landscape looks like from a competition perspective.

Speaker #1: Thank you. All right. Next question today comes from Wes Goloday at Baird. Please go ahead.

Operator 2: Thank you. Our next question today comes from Wes Golladay at Baird. Please go ahead.

Operator: Thank you. Our next question today comes from Wes Golladay at Baird. Please go ahead.

Speaker #7: Hey, everyone. Just got a question on the UK. Are you doing much over there right now on the investing side or in the pipeline?

Wes Golladay: Hey, everyone. Just a question on the UK. Are you doing much over there right now on the, on the investing side or in the pipeline? I'm just curious how the bond market volatility is impacting the bid-ask spread, maybe there's some opportunistic opportunities in the pipeline there.

Speaker #7: I'm just curious how the bond market volatility is impacting the bid-ask spread, and maybe if there are some opportunistic opportunities in the pipeline there.

Speaker #3: So I'll start it off, and then Neil, if I miss something, please jump in. Yes, it is absolutely true that the bond market in the UK is quite elevated.

Sumit Roy: I'll start it off, you know, Neil, if I miss something, please jump in. Yes, it is absolutely true that the, you know, the bond market in the UK is quite elevated, it is also true that we are getting higher cap rates as a, you know, because of the cost of capital environment in the UK. More importantly, we are pursuing transactions, and we are providing solutions because of the retail footprint that we have that continues to, you know, be very attractive to potential clients. It creates opportunities for us to invest with them, either via the sale-leaseback route or through repositionings of assets where we are attracting these clients, remains an area that is very helpful.

Speaker #3: But it is also true that we are getting higher cap rates because of the cost of capital environment in the UK. And, more importantly, we are pursuing transactions and providing solutions because of the retail footprint that we have, which continues to be very attractive to potential clients.

Speaker #3: And it creates opportunities for us to invest with them either via the sale leaseback route or through repositionings of assets. Where we are attracting these clients remains an area that is very helpful.

Sumit Roy: Outside of that, Neil, if there's anything else you'd like to add, in terms of the market, in terms of what you're seeing, that would be great.

Speaker #3: But outside of that, Neil, if there's anything else you would like to add in terms of the market, in terms of what you're seeing, that would be great.

Sumit Roy: Outside of that, Neil, if there's anything else you'd like to add, in terms of the market, in terms of what you're seeing, that would be great.

Speaker #1: Thanks, Sumit. So I would say we continue to see a very healthy pipeline in the UK. The higher rate environment has meant that yields are either moving out or will soon move out.

Neil Abraham: Thanks, Sumit. I would say we continue to see a very healthy pipeline in the UK. The higher rate environment has meant that yields are either moving out or will soon move out. Beyond that, the historical pattern that we saw of funds having to sell just because of redemptions or end of life continues and makes it a very good time for us to consolidate the market there.

Speaker #1: And then beyond that, the historical pattern that we saw of funds having to sell just because of redemptions or end-of-life continues and makes it a very good time for us to consolidate the market there.

Speaker #7: Okay. Thanks a lot. That's all for me.

Wes Golladay: Okay. Thanks a lot. That is all for me.

Speaker #3: Thanks.

Sumit Roy: Thanks.

Speaker #1: And our next question today comes from Jim Cameron at Evercore. Please go ahead.

Operator 2: Our next question today comes from James Kammert at Evercore. Please go ahead.

Operator: Our next question today comes from James Kammert at Evercore. Please go ahead.

James Kammert: Good afternoon. Thank you. Given the intensified sort of asset management function vis-a-vis the capture of the lease term fees, is it a reasonable assumption that the annual lease term fee revenue can trend in the 85 to 95 basis point type level of ABR, which I think the 2026 guidance equates to?

Speaker #8: Good afternoon. Thank you. Given the intensified sort of asset management function vis-à-vis the capture of the lease term fees, is it reasonable—is it a reasonable assumption that the annual lease term fee revenue can trend in the 85 to 95 basis point type level of ABR, which I think the '26 guidance equates to?

Sumit Roy: I wouldn't look into, you know, what we are doing, what we did in 2025 and what we are planning on doing in 2026, as, you know, the new watermark for lease terminations. I think what we are trying to do, James, is make sure that if we are starting to see opportunities with certain clients, with certain assets, that we are taking care of those right now. This is an intent to sort of, you know, look, we did 2 very large-scale M&A deals in the last 4 years, and we obviously inherited a lot of assets that were not, you know, ideal for the long-term hold strategy that we have, generally speaking, on anything that we do organically.

Speaker #3: I wouldn't look into what we are doing, what we did in 2025, and what we are planning on doing in 2026 as the new watermark for lease terminations.

Speaker #3: I think what we are trying to do, Jim, is make sure that if we are starting to see opportunities with certain clients, with certain assets, that we are taking care of those right now.

Speaker #3: And this is an intent to sort of look, we did two very large-scale M&A deals in the last four years. And we obviously inherited a lot of assets that were not ideal for the long-term hold strategy that we have generally speaking on anything that we do organically.

Speaker #3: And so this is a mechanism that we are using to sort of reposition those assets with the right clients or accelerate the rent collection and dispose of these assets so that we can get to a profile of portfolio that will fall into that long-term hold strategy.

Sumit Roy: This is a mechanism that we are using to sort of reposition those assets with the right clients or, you know, accelerate the rent collection and dispose of these assets so that we can get to a, you know, a profile of a portfolio that will fall into that long-term hold strategy. I don't see, you know, $45 to 50 million, which is our current forecast, you know, continuing indefinitely for our strategy going forward. This is, you know, much more episodic and much more around what we see in our portfolio today. I gave you the rationale as to why we see that. It's largely through these M&A transactions.

Speaker #3: So I don't see 50, 45 to 50 million, which is our current forecast, continuing indefinitely for our strategy going forward. This is much more episodic and much more around what we see in our portfolio today and I gave you the rationale as to why we see that.

Speaker #3: It's largely through these M&A transactions.

Speaker #1: Oh, thank you, Sumit. Yeah. No, the M&A context and cleanup makes a lot of sense. I get it now. Thank you.

James Kammert: Well, thank you, Sumit. Yeah, no, the M&A context and cleanup makes a lot of sense. I get it now. Thank you.

Speaker #3: Thanks.

Sumit Roy: Thanks.

Speaker #1: Thank you. Our next question today comes from Handel St. Just at Mizuho. Please go ahead.

Operator 2: Thank you. Our next question today comes from Haendel St. Juste at Mizuho. Please go ahead.

Operator: Thank you. Our next question today comes from Haendel St. Juste at Mizuho. Please go ahead.

Speaker #7: Hi, this is Mike On with Handel at Mizuho. My question is, what is the timeline to full deployment of the $1.7 billion US Core Plus fund raised, and how much management fee income could that generate on an annualized basis?

[Analyst] (Mizuho): Hi, this is Mike on with Haendel St. Juste at Mizuho Financial Group. My question is, what is the timeline to full deployment of the $1.7 billion U.S. Core Plus fundraise, and how much management fee income could that generate on an annualized basis?

Sumit Roy: Thanks, Mike. We are very close. I think in our opening remarks, we mentioned that we've raised the $1.7 billion, which we had forecasted to the market. We are very close to full deployment. Our belief is that, you know, the next time we are having this earnings call, all of that equity capital will be fully deployed. Of course, given that it is largely an unlevered structure today, we will still have dry powder to continue to invest beyond the $1.7 and get to a zip code of 3.5 to 4 billion dollars of, you know, assets under management. I think we also share, Jonathan, do you wanna take the management fee comment?

Speaker #3: Thanks, Mike. Look, we are very close. I think in our opening remarks, we mentioned that we've raised the $1.7 billion, which we had forecasted to the market.

Speaker #3: We are very close to full deployment. Our belief is that the next time we are having this earnings call, all of that equity capital will be fully deployed.

Speaker #3: And then, of course, given that it is largely an unlevered structure today, we will still have dry powder to continue to invest beyond the 1.7 and get to a zip code of 3.5 to 4 billion dollars of assets under management.

Speaker #3: I think we also share Jonathan, do you want to take the management fee comment?

Speaker #9: Yeah, in terms of the annualized management fees once fully drawn, it'll be a little bit over $10 million on an annualized basis. And these are all base management fees.

Jonathan Pong: Yeah. In terms of the annualized management fees, once fully drawn, it'll be a little bit over $10 million on an annualized basis. These are all base management fees, doesn't include any kind of promote accruals or anything.

Speaker #9: Doesn't include any kind of promotic rules or anything.

Speaker #7: Thank you. That's helpful.

Sumit Roy: Thank you. That's helpful.

[Analyst] (Mizuho): Thank you. That's helpful.

Speaker #3: Sure.

Jonathan Pong: Sure.

Speaker #1: Thank you. And our next question today comes from Anthony Pallone at JPMorgan. Please go ahead.

Operator 2: Thank you. Our next question today comes from Anthony Paolone at J.P. Morgan. Please go ahead.

Operator: Thank you. Our next question today comes from Anthony Paolone at J.P. Morgan. Please go ahead.

Speaker #10: Yeah. Thanks. Sumit, I think you talked a lot about just the debt and the why and so forth around all the deal activity. But just for this year, the 9.5 billion dollars, any sense as to how much of that's likely going to be debt?

Anthony Paolone: Yeah, thanks. Sumit, I think you talked a lot about just the debt and the why and so forth around all the deal activity. Just for this year, the $9.5 billion, any sense as to, like, how much of that's likely gonna be debt? Of the rest, like, how we should think about your share, just to try to roll all that up.

Speaker #10: And then of the rest, how should we think about your share? Just to try to roll all that up.

Sumit Roy: I really don't have a number for you in terms of what's gonna constitute debt, of that $9.5 billion, Tony. I'm sorry. Like I said, it is very opportunistic. It is very episodic. Some of what initially starts off as a debt investment will then convert over to an equity investment because ultimately, the name of the game here is to own the real estate. If this is the way how we can ultimately own the real estate and in the meantime, get enhanced returns, I think that is why we are doing what we are doing.

Speaker #3: I really don't have a number for you in terms of what's going to constitute debt. Of that 9.5 billion, Tony, I'm sorry, like I said, it is very opportunistic.

Speaker #3: It is very episodic. Some of what initially starts off as a debt investment will then convert over to an equity investment, because ultimately the name of the game here is to own the real estate.

Speaker #3: So if this is the way how we can ultimately own the real estate and in the meantime get enhanced returns, I think that is why we are doing what we are doing.

Speaker #3: But I'm sorry, Tony, I don't have a number of that 9.5 billion that I can share with you with a high level of confidence that it'll constitute the debt piece of our investment strategy.

Sumit Roy: I'm sorry, Tony, I don't have a number of that nine and a half billion that I can share with you with a high level of confidence that it'll constitute, you know, the debt piece of our investment strategy.

Speaker #10: Okay, fair enough. And then just my follow-up is on the Apollo transaction. How should we think about that—whether there's new money coming in from that? Is it likely that you'll just sell stakes in existing assets, or will that be used to go out and buy new assets?

Anthony Paolone: Okay, fair enough. My follow-up is on the Apollo transaction. You know, how should we think about that as being whether, like, if there's new money coming in from that, you know, is it likely that you'll just sell stakes in existing assets, or will that be used to go out and buy new assets? I'm just trying to think whether that falls into the full year nine and a half billion if you continue to go down the path of using that capital. Also, just what do you think the capacity is there to that they have to offer you?

Speaker #10: Because I'm just trying to think whether that falls into the full-year 9.5 billion if you continue to go down the path of using that capital and also just what do you think the capacity is there to that they have to offer you?

Speaker #3: Yeah. You should expect any new capital that we raise through the Apollo channel will be on new investments. Now, it is possible that just because of expediency, we end up warehousing the assets on our balance sheet, but it'll be assets that we are buying with the intent of putting in into the Apollo strategy.

Sumit Roy: Yeah. You should expect, you know, any new capital that we raise through the, you know, Apollo channel will be on new investments. It is possible that just because of expediency, we end up warehousing the assets on our balance sheet, but it'll be assets that we are buying with the intent of putting in into this Apollo strategy. Look, the proof of concept was very important for everyone involved, including Apollo and including us. Now that we have, you know, the mousetrap fully functional, fully endorsed by the rating agencies and the SEC, we're going to really lean into expanding that channel. It should be on new investments that we make.

Speaker #3: So look, the proof of concept was very important for everyone involved, including Apollo, and including us. And now that we have the mousetrap fully functional, fully endorsed by the rating agencies and the SEC, we're going to really lean into expanding that channel but it should be on new investments that we make.

Speaker #1: Thank you. And our next question today comes from Ronald Camden with Morgan Stanley. Please go ahead.

Operator 2: Thank you. Our next question today comes from Ronald Kamdem with Morgan Stanley. Please go ahead.

Operator: Thank you. Our next question today comes from Ronald Kamdem with Morgan Stanley. Please go ahead.

Ronald Kamdem: Hey, just my quick one, just looking at the real estate acquisition cap rates look like came down another 20 basis points this quarter, similar to last quarter. Maybe can you just talk a little bit about sort of the competition and just your thoughts on just the cap rate compression that you've seen and any forward thoughts? Thanks.

Speaker #11: Hey, just my quick one. Just looking at the real estate acquisition cap rates—looks like they came down another 20 basis points this quarter, similar to last quarter.

Speaker #11: Maybe can you just talk a little bit about the competition and your thoughts on the cap rate compression that you've seen, and any forward thoughts?

Speaker #11: Thanks.

Speaker #3: Yeah. I'm sure, Ron, good question. No, this is precisely what we expected. When you are starting to buy assets into the fund, we have shared with the market that the fund is going to be buying assets at a lower yield.

Sumit Roy: Sure, Ron. Good question. No, this is precisely what we expected. When you are starting to buy assets into the fund, we have shared with the market that the fund is going to be buying assets at a lower yield. When you blend all of that in, you know, the fact that our average cap rate's gonna be a little lower is a function of that strategy. You know, ultimately it's all about growth. If we look at the fact that we have effectively increased the midpoint of our guidance by $0.025, that is what's driving, you know, a lot of what we are doing.

Speaker #3: And when you blend all of that in, the fact that our average cap rate is going to be a little lower is a function of that strategy.

Speaker #3: So ultimately, it's all about growth. And if we look at the fact that we have effectively increased the midpoint of our guidance by 2.5 cents, that is what's driving a lot of what we are doing.

Speaker #3: But the 6.7 is was fully expected and it's a function of our us being able to deploy more and more of the fund capital into the assets that are lower yielding.

Sumit Roy: The 6.7 was fully expected, and it's a function of us being able to deploy more and more of the fund capital into the assets that are lower yielding.

Speaker #11: Great. My quick follow-up would just be on if you could just give us an update on the watch list again and going back to sort of the termination cost in the quarter, how much of that are we through?

Ronald Kamdem: Great. My quick follow would just be on if you could just give us an update on the watch list again. You know, going back to sort of the termination cost in the quarter, like how much of that are we through? Like, is that a number that's gonna recur over time, or does that create a tough comp for next year? Thanks.

Speaker #11: Is that a number that's going to recur over time, or does that create a tough comp for next year? Thanks.

Speaker #3: No, I think somebody prior to you asked this question, Ron. And I don't think you should expect us to come out with the same number year in, year out.

Sumit Roy: No, it's. I think somebody prior to you asked this question, Ron. I don't think you should expect us to come out with, you know, the same number year in, year out. I'm not gonna say that next year we won't have a similar number. I'm just saying that this is, you know, this is being done with, you know, with the intent of making sure that the remaining portfolio that we have is truly a long-term hold strategy for us. We are trying to create a win-win situation for our clients who are not long-term, you know, tied to that particular location.

Speaker #3: I'm not going to say that next year we won't have a similar number, but I'm just saying that this is being done with the intent of making sure that the remaining portfolio that we have is truly a long-term hold strategy for us.

Speaker #3: And we are trying to create a win-win situation for our clients, who are not long-term tied to that particular location. And, at the same time, for us, when we believe we can actually collect on the remaining rent and then be able to entice another client to step in on these particular locations.

Sumit Roy: At the same time, you know, for us, when we believe we can actually collect on the remaining rent and then be able to entice another client to step in on these particular locations. Yes, if next year, mathematically speaking, you know, if our termination income is going to be less, it is a, it is a headwind. We are not, you know, we are not doing this with the intention of, you know, this is going to become an ongoing strategy, and it'll have a similar quantum. It is largely being driven by asset management decisions, that our asset management team is very focused on executing upon.

Speaker #3: But yes, if next year, mathematically speaking, if our termination income is going to be less, it is a headwind. But we are not doing this with the intention that this is going to become an ongoing strategy and that it’ll have a similar quantum.

Speaker #3: It is largely being driven by asset management decisions that our asset management team is very focused on executing upon.

Speaker #1: Thank you. Our next question today comes from Eric Borden at BMO Capital Markets. Please go ahead.

Operator 2: Thank you. Our next question today comes from Eric Borden at BMO Capital Markets. Please go ahead.

Operator: Thank you. Our next question today comes from Eric Borden at BMO Capital Markets. Please go ahead.

Speaker #10: Hey, thank you for taking my question. Same-store rental revenue for theaters declined about 10% year over year. Just curious what drove the underperformance this quarter and how are you guys thinking about the outlook and potential credit risk within the theater segment going forward?

Eric Borden: Hey, thank you for taking my question. Same-store rental revenue for theaters declined about 10% year-over-year. Just curious what drove the underperformance this quarter, and how are you guys thinking about the outlook and potential credit risk within the theater segment going forward?

Speaker #3: Yeah, great question, Eric. Look, I think there were a lot of adjustments that we made to both the when Regal came out of there, Chapter 11 situation, and so that obviously is part of what is flowing through on a same-store basis.

Sumit Roy: Great question, Eric. Look, I think there were a lot of adjustments that we made to both when Regal came out of their Chapter 11 situation. You know, that obviously is part of what is flowing through on a same-store basis. Also, I think Q1 2023, we moved some of the cash accounting to accrual accounting. From a, you know, comp perspective, we recognized and accelerated the recognition in Q1 2023. You know, when you compare that to what we have 2024, it, you know, it was again, a headwind.

Speaker #3: Also, I think in the first quarter of last year, we moved some of the cash accounting to accrual accounting. And so, from a comp perspective, we recognized and accelerated the recognition in the first quarter of last year.

Speaker #3: And so when you compare that to what we have this year, it was again a headwind. Some renewals that have gone through, we have shifted more to a percentage rent type of arrangement with some of these operators.

Sumit Roy: Some renewals that have gone through, we have shifted more to a percentage rent type of arrangement with some of these operators, the base rent is lower vis-à-vis the base rent, and that's all we actually compare. Again, from a same-store basis, that too, would have been a bit of a headwind. Some restructurings. You know, At Home emerged, though the outcome for us was very good, there was a slight adjustment down on some of those on those rents, and that's what's flowing through the business. If you're talking about what do we think about the theater business going forward, you know, there was a big conference a couple of weeks ago. You know, so far so good. Q1 was great.

Speaker #3: And so the base rent is lower. Vis-à-vis the base rent. And that's all we actually compare. And so again, from a same-store basis, that too would have been a bit of a headwind.

Speaker #3: And then some restructurings. At-home emerged and though the outcome for us was very good, there was a slight adjustment down on some of those rents.

Speaker #3: And that's what's flowing through the business. If you're talking about what do we think about the theater business going forward, there was a big conference a couple of weeks ago—so far, so good.

Speaker #3: First quarter was great. Second quarter is turning out to be pretty good. And the numbers that I've heard bantered about is 9.5 billion in sales.

Sumit Roy: Q2 is turning out to be pretty good. The numbers that I've heard, bandied about is $9.5 billion in sales, which is, of course, still not anywhere close to 2019 levels of $11 billion, but moving in the right direction. We hope to see some of this flow through on the percentage rent, but that gets calculated at the end of the fiscal year.

Speaker #3: Which is, of course, still not anywhere close to 2019 levels of 11 billion, but moving in the right direction. And so we hope to see some of this flow through on the percentage rent.

Speaker #3: But that gets calculated at the end of the fiscal year.

Speaker #10: Thank you for that. I appreciate it. And then more of a bigger picture question, assuming you're prepared remarks, you noted that you sourced 31 billion of opportunities, but only closed 9% selectively.

Eric Borden: Thank you for that. I appreciate it. More of a bigger picture question. Sumit, in your prepared remarks, you noted that you sourced $31 billion of opportunities, but only closed 9% selectively. You know, where are you seeing the largest disconnects today between your underwriting and seller expectations? Thank you.

Speaker #10: Where are you seeing the largest disconnects today between your underwriting and seller expectations? Thank you.

Speaker #3: Yeah, look, I do see some of it is just unreasonable expectations. The pricing seems to be off. Everything else would work, but there's a disconnect between what the seller wants versus what we are willing to pay.

Sumit Roy: Yeah, look, I do see, some of it is just unreasonable expectations. The pricing seems to be off. Everything else would work, but there's a disconnect between what the seller wants versus what we are willing to pay. You know, some of the sourcing is on the higher yielding stuff that we just are not comfortable given the risk adjusted return profile that we are seeing, especially in an environment where interest rates are highly volatile and the cost of debt could be something that we are acutely aware of could, you know, be a headwind for some of these operators. It's a combination of multiple factors. Look, we've always been very selective.

Speaker #3: And some of the sourced is on the higher yielding stuff that we just are not comfortable given the risk adjusted return profile. That we are seeing especially in an environment where interest rates are highly volatile and the cost of debt could be something that we are acutely aware of could be a headwind for some of these operators.

Speaker #3: And so it's a combination of multiple factors. Look, we've always been very selective. If you look at the history of what we've sourced and what we've closed, it is right in that 5 to 10 percent zip code.

Sumit Roy: If you look at the history of what we've sourced and what we've closed, it is, you know, right in that 5% to 10% zip code. Nine percent this quarter is in line with what we've done. The point for sharing these sourcing numbers is to say, Look, it's all trending in one direction, and we are starting to source more and more, and it is absolutely a by-product of the team that we've developed, the geographies that we've added, the asset types that we have, you know, decided to pursue. All of these swim lanes are translating into much higher volume, and it's allowing us to pick and choose the investments that makes sense for us.

Speaker #3: And so 9% this quarter is in line with what we've done. But the point for sharing these sourcing numbers is to say, look, it's all trending in one direction.

Speaker #3: And we are starting to source more and more and it is absolutely a byproduct of the team that we've developed, the geographies that we've added.

Speaker #3: The asset types that we have decided to pursue, all of these swim lanes are translating into much higher volume. And it's allowing us to pick and choose the investments that make sense for us.

Speaker #3: And so, what we've passed on—there could be so many different reasons, including the couple that I've just shared with you.

Sumit Roy: You know, what we pass on, there could be so many different reasons, including the couple that I just shared with you.

Speaker #1: Thank you. And our next question today comes from Greg McGinnis at Scotiabank. Please go ahead.

Operator 2: Thank you. Our next question today comes from Greg McGinniss at Scotiabank. Please go ahead.

Operator: Thank you. Our next question today comes from Greg McGinniss at Scotiabank. Please go ahead.

Greg McGinniss: Hey, Sumit. Is there any color you can provide in terms of the potential annual capital contributions from GIC or Apollo they're looking to place, newly place into these programmatic ventures?

Speaker #10: Hey, Samet. Is there any color you can provide in terms of the potential annual capital contributions from GIC or Apollo they're looking to place newly placed into these programmatic ventures?

Speaker #3: Yeah, so Greg, the GIC partnership is 1.5 billion. That's their initial contribution to the partnership, the JV that we've created. Apollo, obviously, was a billion dollars of $2 billion of assets under management.

Sumit Roy: Yeah. Greg, the GIC partnership is $1.5 billion. That's their initial contribution to the partnership, the JV that we've created. Apollo obviously was $2 billion of, you know, assets under management. We don't have a number that we have shared with the street in terms of how much more could this be. I mean, it's going to be, again, opportunity-driven. You know, this will be us in constant contact with our partners to make sure that when we are seeing something that they would be interested in participating and it meets their return profiles, et cetera. The return profile, obviously, it will meet because those are the only ones we're gonna be sharing with them.

Speaker #3: We don't have a number that we have shared with the Street in terms of how much more this could be. I mean, it's going to be, again, opportunity-driven.

Speaker #3: And this will be us in constant contact with our partners to make sure that when we are seeing something that they would be interested in participating in, and it meets their return profiles, etc.

Speaker #3: The return profile, obviously, it will meet because those are the only ones you're going to be sharing with them. But we don't have, Greg, a number in mind in terms of how much bigger each one of these partnerships would be.

Sumit Roy: We don't have, Greg, a number in mind in terms of how much bigger each one of these partnerships would be. Let me just tell you this, that we wouldn't have engaged in either one of these partnerships, if we didn't believe that this was programmatic in nature and could become a huge source of our alternative equity capital going forward.

Speaker #3: But let me just tell you this: we wouldn't have engaged in either one of these partnerships if we didn't believe that this was programmatic in nature and could become a huge source of our alternative equity capital.

Speaker #3: Going forward.

Speaker #10: Okay, thank you. And then, from your data center comments, should we interpret that to mean that there are more of these investment opportunities in the pipeline with the same partner?

Greg McGinniss: Okay. Thank you. From your data center comments, should we interpret that to mean that there's more of these investment opportunities in the pipeline with the same partner? Any color on the magnitude or yield on those would be appreciated.

Speaker #10: And then any color on the magnitude or yield on those would be appreciated.

Sumit Roy: Yes, you should assume that we are in ongoing discussions with our partners to obviously continue to grow this relationship. Once again, there are no definitive commitments on either side. The goal is, you know, when you're engaging with someone, the intent will always be to deploy more capital. Like I said, they are, in our opinion, one of the best-in-class private developers of data centers.

Speaker #3: Yes, you should assume that we are in ongoing discussions with our partners to obviously continue to grow this relationship. But once again, there are no definitive commitments on either side.

Speaker #3: So the goal is when you're engaging with someone, the intent will always be to deploy more capital. And like I said, there are in our opinion one of the best-in-class private developers of data centers.

Speaker #1: Thank you. And our next question today comes from Ryan Caviola at Green Street Advisors. Please go ahead.

Operator 2: Thank you. Our next question today comes from Ryan Caviola at Green Street Advisors. Please go ahead.

Operator: Thank you. Our next question today comes from Ryan Caviola at Green Street Advisors. Please go ahead.

Speaker #11: Thank you, and good afternoon, everyone. Europe investments this quarter had a weighted average lease term close to six years. Is that driven by potentially a return to retail parks that have those shorter terms, or just a result of the general mix, or maybe a different property type?

Ryan Caviola: Thank you. Good afternoon, everyone. Europe investments this quarter had a weighted average lease term close to six years. Is that driven by potentially return to retail parks that have those shorter terms, or just a result of the general mix, or maybe a different property type? Any color you could share there would be appreciated.

Speaker #11: Any color you could share there would be appreciated.

Sumit Roy: Uh-

Operator 2: Go ahead.

Sumit Roy: I'll take this, Ryan. Thank you. Look, I think, you know, as we look at retail parks, we are consciously prioritizing investments where we believe there is roll-up potential. I think if you look at the recent re-leasing that we've talked about and other peers in the UK have talked about, there's now an acceleration in rent and a shrinkage in giveaways like TIs or CapEx. We're actively looking for retail parks. We continue to have a high yield bogey on those, but increasingly, if we can find short tenancy, we are taking that.

Speaker #3: I'll take this, Ryan. Thank you. So, look, I think as we look at retail parks, we are consciously prioritizing investments where we believe there's roll-up potential.

Neil Abraham: I'll take this, Ryan. Thank you. Look, I think, you know, as we look at retail parks, we are consciously prioritizing investments where we believe there is roll-up potential. I think if you look at the recent re-leasing that we've talked about and other peers in the UK have talked about, there's now an acceleration in rent and a shrinkage in giveaways like TIs or CapEx. We're actively looking for retail parks. We continue to have a high yield bogey on those, but increasingly, if we can find short tenancy, we are taking that.

Speaker #3: I think if you look at the recent releasing that we've talked about and other peers in the UK have talked about, there's now an acceleration in rent.

Speaker #3: And a shrinkage in giveaways like TIs or CapEx. And so we're actively looking for retail parks. We continue to have a high-yield bogey on those.

Speaker #3: But increasingly, if we can find short tenancy, we are taking that.

Speaker #11: Got it. That’s helpful. Thank you. And then just on cap rate trends—we touched on it briefly earlier in the call. Completely stripping out the private fund cap rates that obviously drive down that weighted yield, could you just give color on public acquisition cap rate commentary in terms of compression or stability?

Ryan Caviola: Got it. That's helpful. Thank you. Just on cap rate trends, you know, we touched on it briefly earlier in the call, completely stripping out the, you know, private fund cap rates that obviously drive down that weighted yield. Could you just give color on, you know, public acquisition, cap rate commentary in terms of compression or stability, maybe a Europe versus US split? Anything would be helpful. Thanks.

Speaker #11: Maybe a Europe versus US split. Anything would be helpful. Thanks.

Speaker #3: Yeah. So Ryan, I mean, obviously, if we've been asked this question every quarter for the last, I don't know how many years, but every time I've made a comment around, we're starting to see the direction of drift of cap rates one way or the other.

Sumit Roy: Yeah. Ryan, I mean, obviously, if you, we've been asked this question every quarter for the last I don't know how many years, but every time I've made a comment around we starting to see, you know, the direction of drift of cap rates one way or the other, I've turned out to be wrong. I mean, it's pretty much stayed in this, you know, ZIP code, if you will, for now 2 years and continuing. If you look at what's happened to the 10-year, it stayed in this band of 3.8% to 4.4%, 4.5% for that same duration. It is so difficult if you're asking for a forecast, Ryan, of where I see cap rates going.

Speaker #3: I've turned out to be wrong. I mean, it's pretty much stayed in this zip code, if you will, for now two years and continuing.

Speaker #3: And if you look at what's happened to the 10-year it stayed in this band of 3.8 to 4.4, 4.5 for that same duration. And so it is so difficult if you're asking for a forecast, Ryan, of where I see cap rates going I might answer that question with a question.

Sumit Roy: I might answer that question with a question, which is, what is the direction of drift of the 10-year? I mean, every day, we get this incredible volatility in terms of what people think will happen to the short-term rate and how it translates to the longer-term rate, et cetera, et cetera. At this point, I'll tell you what we are seeing in the market is effectively what we've seen this, these last couple of years. It's the same ZIP code for assets, you know, that we are buying 100% on balance sheet. Obviously, our ability to do more and go after, you know, lower yielding, higher quality, more growth assets has now widened, and so we are able to do a lot more.

Speaker #3: Which is, what is the direction of drift of the 10-year? I mean, every day we get this incredible volatility in terms of what people think will happen to the short-term rate and how it translates to the longer-term rate.

Speaker #3: Etc., etc. So at this point, I'll tell you what we are seeing in the market is effectively what we've seen these last couple of years.

Speaker #3: It's the same zip code for assets that we are buying 100% on balance sheet. But obviously, our ability to do more and go after lower-yielding, higher-quality, more growth assets has now widened.

Speaker #3: And so, we are able to do a lot more.

Speaker #1: Thank you. And our next question today comes from Jay Kornreich at Cantor Fitzgerald. Please go ahead.

Operator 2: Thank you. Our next question today comes from Jay Kornreich at Cantor Fitzgerald. Please go ahead.

Operator: Thank you. Our next question today comes from Jay Kornreich at Cantor Fitzgerald. Please go ahead.

Jay Kornreich: Hey, thanks. You know, you entered Mexico recently and just wondering, as you explore new investment locations beyond where you currently have a presence, are there any new frontiers that I guess screen more favorably that you'd like to expand into in the future?

Speaker #10: All right. Thanks. Just wanted to ask about geographies. You entered Mexico recently and just wondering, as you explore new investment locations beyond where you currently have a presence, are there any new frontiers that, I guess, screen more favorably that you'd like to expand into in the future?

Speaker #3: Yeah. So Jay, if we talk about Mexico just for a second since you brought it up and it is the last geography that we entered into, look, it was largely a client-driven opportunity for us.

Sumit Roy: Yeah. Jay, you know, if we talk about Mexico just for a second since you brought it up, and it is the last geography that we entered into. Look, it was largely a client-driven opportunity for us. We went in there with our partners who've had, you know, decades of experience developing in that market. We tried to minimize the risk in terms of currency fluctuations by making sure that our leases were dollar-denominated with clients that we understood and we knew very well. It was largely a macro thematic play, seeing the nearshoring and the onshoring of, you know, what we see as basically tailwinds in the logistics sector, in the industrial sector. This was our way of playing that particular theme with partners who we felt very comfortable with.

Speaker #3: We went in there with our partners who've had decades of experience developing in that market. We tried to minimize the risk in terms of currency fluctuations by making sure that our leases were dollar-denominated with clients that we understood and we knew very well.

Speaker #3: And it was largely a macro-thematic play, seeing the nearshoring and the onshoring of what we see as basically tailwinds in the logistics sector, in the industrial sector.

Speaker #3: So this was our way of playing that particular theme with partners who we felt very comfortable with. And so, if these types of thematic opportunities present themselves, Jay, we are happy to continue to expand geographies, etc.

Sumit Roy: If these types of thematic opportunities present themselves, Jay, we are happy to continue to expand geographies, et cetera. The good news is we've done it now in so many different geographies. We have the playbook down. We understand the risk. We know how to get our arms around, you know, the inherent risk of investing in new geographies. There was a piece that, you know, my colleague Neil did in the Financial Times, where he talks about, you know, how people underestimate the operational intensity of, you know, of making these investments. We've got that covered. You know, we are, I would say at this point, got the blueprint, and we recognize the risks, and we are happy to sort of absorb those for the right opportunities.

Speaker #3: The good news is we've done it now in so many different geographies. We have the playbook down. We understand the risk. We know how to get our arms around the inherent risk of investing in new geographies.

Speaker #3: There was a piece that my colleague Neil did in the Financial Times where he talks about how people underestimate the operational intensity of making these investments.

Speaker #3: We've got that covered. We are I would say at this point got the blueprint and we recognize the risks. And we are happy to sort of absorb those for the right opportunities.

Speaker #10: Okay, appreciate that. And then, just going back to the 94% of investments that you mentioned were relationship-driven, which seems like a very high number.

Jay Kornreich: Okay. appreciate that. Then just going back to the 94% of investments that you mentioned were relationship driven, which seems like a very high number. Was that more so tied to the private partnerships that you've recently done? Or were there other dynamics that led to leveraging current relationships, I guess, more so than seeking new ones this quarter?

Speaker #10: Was that more so tied to the private partnerships that you recently did, or were there other dynamics that led to leveraging current relationships, I guess, more so than seeking new ones this quarter?

Sumit Roy: A lot of them are existing clients that we have operating our assets. Some of it was developers that we have done repeat business with. Some of it was, you know, clients that we are co-investing with and, and, you know, looking at opportunities together. It's all of those, you know, elements that go into that 94%. I think, you know, as we cultivate new relationships, as we cultivate new opportunities, you will see that number right around that 85% to 90%, 95%. It's been very steady.

Speaker #3: A lot of them are existing clients that we have operating our assets. Some of it was developers that we have done repeat business with.

Speaker #3: Some of it was clients that we are co-investing with and looking at opportunities together. It's all of those elements that go into that 94%.

Speaker #3: And I think as we cultivate new relationships, as we cultivate new opportunities, you will see that number right around that 85 to 90 percent, 95%.

Speaker #3: It's been very steady. It's just that the quantum that that percentage represents is continuing to grow as we become more familiar with as our name becomes more familiar.

Sumit Roy: It's just that the quantum that percentage represents is continuing to grow as we become more familiar, with, you know as our name becomes more familiar in the sale-leaseback arena, with developers, with clients, and with capital sources.

Speaker #3: In the sale lease back arena, with developers, with clients, and with capital sources.

Speaker #1: Thank you. And our next question today comes from Jason Wayne at Barclays. Please go ahead.

Operator 2: Thank you. Our next question today comes from Jason Wayne at Barclays. Please go ahead.

Operator: Thank you. Our next question today comes from Jason Wayne at Barclays. Please go ahead.

Speaker #10: All right. Thank you. Just at the properties, the vacated early to date, and your asset management strategy, could you talk to your expectations on mix for sell versus release and what kind of releasing capture, what kind of recapture rates you're seeing on those?

Jason Wayne: Thank you. Just the properties that vacated early to date, in your asset management strategy, could you talk to your expectations on mix for sell versus release and what kind of recapture rates you're seeing on those?

Speaker #3: Yeah, sure. So Jason, any time an asset is coming up for—if there's a lease expiration in the near term, and I would say in the next two to two and a half years, our asset management team is very focused on trying to figure out what is going to be the ultimate outcome.

Sumit Roy: Sure, Jason, any time an asset is coming up for, you know, if there's a lease expiration in the near term, and I would say in the next 2 to two and a half years, you know, our asset management team is very focused on trying to figure out, you know, what is going to be the ultimate outcome. It can effectively take multiple, you know, routes. That is one of the strategies that they are executing. Another one would be if, you know, through our predictive analytics channel, if we are looking at location risk and we see that particular assets are, you know, no longer going to be viable.

Speaker #3: And then it can effectively take multiple routes. That is one of the strategies that they are executing. Another one would be if, through our predictive analytics channel, we are looking at location risk and we see that particular assets are no longer going to be viable—even if the expiration is five, seven years out—we would put those on the disposition bucket and we would try to dispose of those assets.

Sumit Roy: Even if the expiration is 5, 7 years out, we would put those on the disposition bucket, and we would try to dispose of those assets. So there's a variety of reasons. There could be a credit event that we see coming down the pipe that could, you know, help drive disposition decisions. We then look at, okay, even if this particular client is going to be willing to stay, what is the releasing rates that we believe we can get? If our asset management team thinks that there is enough alternative clients that could be stepping in and giving us more, that's again, a decision that they rely upon. Of course, all underpinned by the predictive analytics and what it's suggesting would happen in that particular location.

Speaker #3: And so there's a variety of reasons. There could be a credit event that we see coming down the pike that could help drive disposition decisions.

Speaker #3: We then look at, okay, even if this particular client is going to be willing to stay, what are the releasing rates that we believe we can get?

Speaker #3: And if our asset management team thinks that there is enough alternative clients that could be stepping in and giving us more that's, again, a decision that they rely upon.

Speaker #3: Of course, all underpinned by the predictive analytics and what it's suggesting would happen in that particular location. So there's a variety of analysis that the asset management team goes through.

Sumit Roy: There's a variety of, you know, analysis that the asset management team goes through. What they are focused on is what is going to yield the highest return, economic return, based on these various different decisions that one can take. They try to implement, you know, that highest return probability. In some cases, taking a rent haircut is the right long-term decision. Having said that, if you look at what we've been able to achieve in totality every quarter, it's been, you know, like even last quarter we just reported it's north of 103%.

Speaker #3: And what they're focused on is what is going to yield the highest economic return based on these various different decisions that one can take.

Speaker #3: And then they try to implement that highest return probability. And in some cases, taking a rent haircut is the right long-term decision. Having said that, if you look at what we've been able to achieve in totality every quarter, it's been—even last quarter in this we just reported it.

Speaker #3: It's north of 103%. So our renewal rates and releasing rates in combination is yielding us north of 100, 203 percent, quarter in, quarter out.

Sumit Roy: Our, our, you know, renewal rates and releasing rates in combination is yielding us, you know, north of 100%, 203% quarter in, quarter out. Like I've said before, you know, sometimes the right decision is to take 99%, you know, recapture rate rather than trying to sell that asset vacant or try to attract a client knowing fully well that the recapture rate is gonna be lower. It's, it's a very fluid strategy, Jason, but one that we believe that we have the best asset management team on the street. They have years and years of experience.

Speaker #3: But like I've said before, sometimes the right decision is to take a 99% recapture rate rather than trying to sell that asset vacant or trying to attract a client, knowing fully well that the recapture rate is going to be lower.

Speaker #3: So it's a very fluid strategy, Jason, but one that we believe—we have the best asset management team on the street. They have years and years of experience.

Speaker #3: And when you control so many assets for a given client, the benefit of having a conversation not on a single asset but on multiple assets for that client is something that translates into these higher recapture rates.

Sumit Roy: When you control so many assets for a given client, the benefit of having a conversation not on a single asset, but on a multiple assets for that client is something that translates into these higher recapture rates that our asset management team does brilliantly on. That's really how we think about renewals and releases and sales.

Speaker #3: That our asset management team does brilliantly on. So that's really how we think about renewals and releases and sales.

Speaker #10: Yeah, that makes sense. Thanks for the color. And I guess just on the four-year disposition volume—you gave $750 million last quarter—are we still on track?

Jason Wayne: Yeah, that makes sense. Thanks for the color. I guess, just on the full year dispositions volume, you gave $750 million last quarter on track. Is that still the expectation for this year?

Speaker #10: Is that still the expectation for this year?

Speaker #3: Yes. It certainly is.

Sumit Roy: Yes, it certainly is.

Speaker #10: All right. Thank you.

Jason Wayne: All right. Thank you.

Speaker #3: Thank you.

Sumit Roy: Thank you.

Operator 2: Our next question today comes from Upal Rana with KeyBanc Capital Markets. Please go ahead.

Speaker #1: And our next question today comes from Upo Rena with KeyBank Capital Markets. Please go ahead.

Operator: Our next question today comes from Upal Rana with KeyBanc Capital Markets. Please go ahead.

Speaker #11: Great. Thank you for taking my question. Just one for me. I assume that you've spoken on several industries already, but I had a question on the gaming category.

Upal Rana: Great. Thank you for taking my question. Just one for me. Sumit, you've spoken on several industries already, you know, but I had a question on the gaming category. You know, how are you viewing the industry today, and what's your appetite to invest more into that category through any of your investment vehicles, as the category did tick a little higher to 3.2% in the quarter? Thank you.

Speaker #11: How are you viewing the industry today, and what's your appetite to invest more into that category through any of your investment vehicles, as the category did tick a little higher to 3.2% in the quarter?

Speaker #11: Thank you.

Speaker #3: Sure, Upal. Good question. I would put gaming in a similar thought process that I described for our digital investments. And what I would say is the operator is going to be very important to us.

Sumit Roy: Sure, Upal. Good question. You know, I would put gaming in a similar, you know, thought process that I described our digital investments. What I would say is the operator is going to be very important to us. The location of these assets is going to be very important to us. You know, the sustainability of EBITDA and the ability of these operators to extract that EBITDA is what we are very focused on. If you look at the investments we've made, largely three investments, right, Mark?

Speaker #3: The location of these assets is going to be very important to us. The sustainability of EBITDA and the ability of these operators to extract that EBITDA is what we are very focused on, which is why, if you look at the investments we've made—largely three investments, right, Mark?

Speaker #3: It's city center, Bellagio, and we own 100% of the win in Boston. And so that will continue to dictate our gaming strategy. And obviously, having a very close relationship with both MGM and WIN, two of one could argue, two of the best operators in the space, should yield more transactions for us.

Mark Hagan: Yes.

Mark Hagan: It's CityCenter, Bellagio, and we own 100% of the Wynn in Boston. That will continue to dictate our gaming strategy, and obviously, having a very close relationship with both MGM and Wynn, one could argue, two of the best operators in the space, should yield more transactions for us. Again, we're gonna remain very, very selective, Upal.

Sumit Roy: It's CityCenter, Bellagio, and we own 100% of the Wynn in Boston. That will continue to dictate our gaming strategy, and obviously, having a very close relationship with both MGM and Wynn, one could argue, two of the best operators in the space, should yield more transactions for us. Again, we're gonna remain very, very selective, Upal.

Speaker #3: But again, we're going to remain very, very selective, Upal.

Speaker #11: Great. Thank you.

Upal Rana: Great. Thank you.

Speaker #3: Sure.

Sumit Roy: Sure.

Speaker #1: Thank you. And that does conclude our question-and-answer session for today. I'd like to hand the conference back over to Sumit Roy for any closing remarks.

Operator 2: Thank you. That does conclude our question and answer session for today. I'd like to hand the conference back over to Sumit Roy for any closing remarks.

Operator: Thank you. That does conclude our question and answer session for today. I'd like to hand the conference back over to Sumit Roy for any closing remarks.

Sumit Roy: Thank you very much for joining us today, and we look forward to seeing you at NAREIT in a few weeks.

Speaker #11: Thank you very much for joining us today, and we look forward to seeing you at NAIREAT in a few weeks.

Sumit Roy: Thank you very much for joining us today, and we look forward to seeing you at NAREIT in a few weeks.

Speaker #1: Thank you, sir. That does conclude today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.

Operator 2: Thank you, sir. That does conclude today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.

Operator: Thank you, sir. That does conclude today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.