ADC - NYSE

Good morning, and welcome to the Agree Realty Fourth Quarter 2025 Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. To withdraw your question, please press star 1 a second time. Please limit yourself to two questions during this call. Note, this event is being recorded. I would now like to turn the conference over to Reuben Treatman, Senior Director of Corporate Finance. Please go ahead, Reuben. Thank you.

Good morning, everyone, and thank you for joining us for Agree Realty's fourth quarter 2025 earnings call. Before turning the call over to Joey and Peter to discuss our results for the quarter, let me first run through the cautionary language. Please note that during this call, we will make certain statements that may be considered forward-looking under federal securities law, including statements related to our 2026 guidance. Our actual results may differ significantly from the matters discussed in any forward-looking statements for a number of reasons. Please see yesterday's earnings release and our SEC filings, including our latest annual report on Form 10-Ks, for a discussion of various risks and uncertainties underlying our forward-looking statements. In addition, we discuss non-GAAP financial measures, including core funds from operations or core FFO, adjusted funds from operations, or AFFO, and net debt to recurring EBITDA. Reconciliations of our historical non-GAAP financial measures to the most directly comparable GAAP measures can be found on our earnings release, website, and SEC filings. I'll now turn the call over to Joey.

Thanks, Reuben, and thank you all for joining us this morning. 2025 represented yet another year of consistent execution for our growing company. In a dynamic macro environment, we remain disciplined, continued investing in our future, and delivered over 4.5% AFFO per share growth. The $1.55 billion invested across our three investment platforms was the second highest total in company history, representing more than 60% year-over-year growth. As demonstrated by our 2026 guidance, the fundamentals supporting our outlook are very strong. Our portfolio has never been better positioned. The depth and strength of our team is exceptional, and our balance sheet is in tremendous shape. We have commenced numerous IT undertakings, including the construction of the next iteration of ARC, and continue to drive efficiencies through systematic process improvement. These initiatives will support bottom-line growth this year and beyond, driven by ongoing efficiency gains and a material reduction in G&A as a percentage of revenue. During the course of the year, we once again proactively fortified our balance sheet, raising roughly $1.5 billion in capital. We concluded 2025 with over $2 billion of liquidity, including over $715 million of outstanding forward equity. With no material debt maturities until 2028, our balance sheet is in tremendous position to execute on our 2026 investment guidance and provide significant flexibility. At year-end, pro forma net debt to recurring EBITDA stood at just 3.8 times, enabling us to execute on the high end of our 2026 investment guidance without incremental equity while staying within our targeted leverage range of four to five times. Our pipeline has expanded significantly over the past month and now represents over $500 million and provides us confidence in increasing our 2026 investment guidance to a range of $1.4 billion to $1.6 billion. Our updated investment guidance represents approximately a 10% increase from our prior range, and the high end of the range is slightly above our 2025 investment activity. With yesterday's release, we have initiated full-year AFFO per share guidance of $4.54 to $4.58. At the midpoint, this represents 5.4% year-over-year growth and two-year stacked growth of 10%. When combined with our current dividend yield, this implies a total operational return of our target of approximately 10%. Combined with the fortress balance sheet, best-in-class portfolio, and historic track record of execution, we believe that ADC offers one of the most compelling value propositions in the REIT sector. Turning to our three external growth platforms, our partnerships across the real estate spectrum have never been stronger nor more productive. Today, Agree Realty is the preferred one-stop shop for the country's largest retailers. These partnerships are translating into actionable opportunities, including one-off acquisitions, sale-leasebacks, blend and extend transactions, programmatic development, and high-quality DFB projects. As a result, all three external growth platforms are accelerating and see increasing transactional opportunities. Moving on to recap last year, during the fourth quarter, we invested approximately $377 million in 94 high-quality retail net leased properties across our three external growth platforms. This included the acquisition of 94 assets for over $347 million. The properties acquired during the quarter were leased to leading operators in home improvement, auto parts, grocery store, farm and rural supply, convenience store, and tire and auto service sectors. Fourth-quarter investment activity was of very high quality, evidenced by the largest quarterly percentage of ground lease acquisitions since 2021 at over 18%. Notable transactions included three geographically diverse ground leases leased to Lowe's, as well as a Home Depot in Michigan paying under $5 per square foot rent. The acquired properties had a weighted average cap rate of 7.1% and a weighted average lease term of 9.6 years. Investment-grade retailers accounted for nearly two-thirds of the annualized base rent acquired. For the full year 2025, we invested nearly $1.6 billion in 338 retail net lease properties spanning 41 states. Over $1.4 billion of our investment activities originated from the acquisition platform. The acquisitions were completed at a weighted average cap rate of 7.2% and had a weighted average lease term of eleven and a half years, with roughly two-thirds of rents coming from investment-grade retailers. As a reminder, we do not impute credit ratings for non-rated retailers. Our development and DFP platforms had a record year with 34 projects either completed or under construction, representing approximately $225 million of committed capital. We're continuing to see increased activity across both these platforms, as we partner with retailers and developers to execute on their store growth plans. During the fourth quarter, we commenced four new development and DFP projects with total anticipated costs of approximately $35 million. The new projects are with leading retailers, including Boot Barn, Burlington, Five Below, Ross Dress For Less, Ulta, and 7-Eleven. Construction continued during the quarter on nine projects with anticipated costs totaling approximately $59 million. Lastly, we completed construction on three projects during the quarter with total costs of $29 million. On the asset management front, we executed new leases, extensions, or options at over 640,000 square feet of gross leasable area during the fourth quarter, including a Walmart Supercenter in Rochester, New York, and a Lowe's in Roland Park, Kansas. For the full year 2025, we executed new leases, extensions, or options in approximately 3 million square feet of GLA with a recapture rate of 104%. We are very well positioned for 2026 with only 52 leases or one and a half percent of annualized base rents maturing. During the past year, we disposed of 22 properties for gross proceeds of just over $44 million at a weighted average cap rate of 6.9%. This includes nine properties that were sold for $20 million during the fourth quarter at a weighted average cap rate of 6.4%. Our capital recycling efforts will continue to focus on select non-core assets as well as opportunistic dispositions. At year-end, our best-in-class portfolio is approaching 2,700 properties and spanned all 50 states. The portfolio includes 251 ground leases representing over 10% of annualized base rents. Our investment-grade exposure at year-end stood at nearly 67%, and occupancy increased to 99.7%, reflecting a 50 basis point improvement since the first quarter of the year. Lastly, I want to recognize Peter and his team for their exceptional work in 2025. We achieved an A-minus rating from Fitch and successfully launched our commercial paper program, both milestones that will deliver meaningful savings and long-term benefits to our cost of capital. With that, I'll hand it over to Peter, and then we can open up for questions.

Thank you, Joey. Starting with the balance sheet, we had a very active year in the capital markets, raising approximately $1.5 billion of long-term capital, including roughly $715 million of forward equity, a $400 million bond offering, and closing on a $350 million term loan. Additionally, we established a $625 million commercial paper program, becoming one of only 19 US REITs with a commercial paper program. This has become our preferred source of short-term capital, enabling us to issue approximately $28 billion of notes during the year and generate over $1 million in savings compared to borrowings on our revolving credit facility. During the fourth quarter, we sold 1.5 million shares of forward equity via our ATM program for anticipated net proceeds of approximately $109 million. We also settled 5.9 million shares of forward equity, receiving proceeds of over $428 million. At year-end, we had approximately 9.6 million shares of outstanding forward equity, which are anticipated to raise net proceeds of $716 million upon settlement. During the quarter, we closed on the previously announced $350 million five-and-a-half-year term loan. Prior to closing the term loan, we entered into $350 million of forward-starting swaps to fix SOFR until maturity. Including the impact of those swaps, the interest rate on the term loan is fixed at 4.02%. The term loan fits well into our debt maturity schedule and demonstrates continued strong support from our banking partners. Today, no amounts have been drawn under the term loan, which has a twelve-month delayed draw feature. We also entered into $200 million of forward-starting swaps during the year, effectively fixing the base rate for a future ten-year unsecured debt issuance at approximately 4.1%. This is consistent with our proactive hedging strategy and combined with our outstanding forward equity provides over $915 million of hedged capital to fund investment activity in 2026. As of December 31, we have over $2 billion of liquidity, including approximately $1.3 billion of availability under our revolving credit facility and term loan, the previously mentioned outstanding forward equity, and cash on hand. Pro forma for the settlement of our outstanding forward equity, net debt to recurring EBITDA was approximately 3.8 times at year-end. Excluding the impact of unsettled forward equity, our net debt to recurring EBITDA was 4.9 times. Our total debt to enterprise value was approximately 27%, while our fixed charge coverage ratio, which includes principal amortization and the preferred dividend, was very healthy at 4.2 times. Our floating rate exposure remained minimal, with approximately $321 million of outstanding commercial paper borrowings at year-end. And as Joey mentioned, we have no material debt maturities until 2028. We are in an excellent position to execute on our increased investment guidance this year without having to raise any additional equity capital. The strength of our fortress balance sheet was further validated by the A-minus issuer rating that we received from Fitch in August. The rating makes us one of only 13 publicly listed US REITs to carry an A-minus credit rating equivalent or better. This achievement reflects the prudent, disciplined way we continue to grow the company and stands as a testament to more than fifteen years of thoughtful portfolio construction and disciplined capital allocation. Over that period, we have invested nearly $11 billion in best-in-class retailers while maintaining a preeminent balance sheet and consistently leading the way in capital markets execution. Moving to earnings, core FFO per share was $1.10 for the fourth quarter and $4.28 for the full year 2025, representing 7.35.1% year-over-year increases, respectively. AFFO per share was $1.11 for the fourth quarter, representing a 6.5% year-over-year increase. For the full year, AFFO per share was $4.33, which reflects the high end of our guidance range and 4.6% year-over-year growth. As Joey mentioned, initial AFFO per share guidance of $4.54 to $4.58 for 2026 represents approximately 5.4% year-over-year growth at the midpoint, which would be our highest earnings growth since 2022. We provide parameters on several other inputs in our earnings release, including investment and disposition volume, general and administrative expenses, non-reimbursable real estate expenses, income and other tax expenses, as well as treasury stock method dilution. Our guidance for treasury stock method dilution relates to our outstanding forward equity. As a reminder, if ADC stock trades above the net price of our outstanding forward equity offerings, the dilutive impact of unsettled shares must be included in our share count in accordance with the treasury stock method. Provided that our stock continues to trade near current levels, we anticipate that treasury stock method dilution will have an impact of approximately 1p on full-year 2026 AFFO per share. That said, the impact could be higher if our stock price moves significantly above current levels. Our accelerating earnings growth supports a growing and well-covered dividend. During the fourth quarter, we declared monthly cash dividends of 26.2¢ per common share for each of October, November, and December. The monthly dividend equates to an annualized dividend of over $3.14 per share and represents a 3.6% year-over-year increase. Our dividend is very well covered with a payout ratio of 71% of AFFO per share for the fourth quarter. With that, I'd like to turn the call back over to Joey.

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

We will now begin the question and answer session. We ask that you please limit yourself to two questions. Our first question will come from the line of Michael Goldsmith with UBS. Please go ahead.

Hi. Thanks. This is Amy Proven on with Michael. I was hoping to start, we could dig in a little bit on the increase in the 2020 investment guidance just thirty days after providing the initial guide. How was this increased split across the platforms? And were there any large transactions identified, or is this more of an increase in one-off opportunities?

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

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

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

Great. Thank you.

Thank you.

Our next question will come from the line of Jon Golan with Bank of America. Please go ahead.

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

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

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

They certainly aren't going down in the hundred years fuel capacity up to the past hundred years, while commercial rental rates have peaks and valleys, construction costs just continue to migrate upwards. And so we're seeing construction costs that are fairly in line with last year. We've looked at some alternative, you know, engineering and alternative mechanisms to reduce those costs in conjunction with our retailers. Those costs are embedded, obviously, in our development budgets. They certainly aren't going down. As I mentioned, the typical junior box in this country today is approximately $160 per square foot vertical cost. That's an off-price retailer today. Pre-pandemic, those were $95 per square foot. Obviously, a constrained labor environment doesn't help that. Tariffs don't help that. Since we've been able to look at sourcing domestically and, like I said, other alternatives here to try to reduce those costs, different construction methodologies, reducing labor when appropriate, using some prefabricated materials. And Jeff Conklin, our construction team, have worked diligently with our retailers to value engineer any buildings.

Thank you.

Thanks, Anna.

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

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

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

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

So last year, we were very clear that it was an investment year for us. Coming off of 2024, we started with the do-nothing scenario. We had effectively net new zero net new team members incremental to the team. Last year, we added almost 25 team members to the organization. We're approaching 100. As I mentioned in the prepared remarks, and we're in a terrific position to continue to execute with depth across all areas and functional areas of the organization. At the same time, we continue to benefit from our IT improvements. The team here has done a really terrific job. I mentioned we're working on the ARC 3.0 next iteration of ARC, we put a Microsoft backbone in place, and they have a number of projects that the team is executing on. For data efficiency and access. Will continue to make us faster and more efficient. We're utilizing AI as we mentioned on prior for higher calls for the last three and five years for lease underwriting checklists. We've deployed AI for lease abstraction. We anticipate deploying artificial intelligence for purchase agreement drafts and other form documentation this year. And so I would anticipate that approximately 30 plus basis points of G&A savings relative to total revenues. And so I think we'll continue to see that on a go-forward basis. On top of that, as Peter mentioned, we're seeing just from our size, scale, obviously, obtaining the A-minus credit rating, a million dollars in savings from the commercial paper program. And so our size and scale now is giving us access to different tools, different capital raising, short-term capital, in this case, it saves a million dollars, so almost a penny last year. Subject to the curve and, obviously, the commercial paper program that can move up and move down. But we just have more tools, frankly, at our disposal to drive savings. And so this year, I would anticipate single-digit hires, and I think we are in tremendous position to execute across all facets of the business on a go-forward basis and continue to benefit from those efficiencies.

Thank you.

Thanks, Dave.

Our next question will come from the line of Spencer Glimcher with Green Street. Please go ahead.

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

They are not one-off projects. There will be, I think, significant opportunity for us. What we're seeing is retailer, and many of these are publicly issued statements. Retailer expansion with the desire that is greater or greater than any time since prior to the GFC. So if we look across the board, Home Depot, Walmart, Kroger, Keepgoing, Tractor Supply, O'Reilly, all the off-price operators have realized in a twenty-first-century omnichannel world their store base is critical. And so absent construction costs getting in the way of project feasibility here, we're gonna continue to see that. I would anticipate us breaking ground on 10 plus projects over the course of the first and second quarter. And so we're excited about both the development pipeline. We've announced 3711 Speedway projects last year. We will continue to execute those in the first and second quarter this year. As well as some significant DFP projects where we'll step in and finance any of the developer and know them upon completion.

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

Yeah. No purchase options at the end of the lease. That I can think of. That's very atypical. The ground lease market per se isn't really a market. I mean, oftentimes, sellers aren't even, frankly, cognizant of the ground lease structure and look at it as a net lease transaction. We did one unique transaction, I would say, during the quarter in Flanders, New Jersey, which had a number of ground leases, driven by a Lowe's ground lease, as I mentioned. In the prepared remarks. There's also a ground lease to Panda Express there, a ground lease to Wells Fargo, a ground lease to Wendy's there. And so a number of ground leases all pads to that Lowe's. Obviously, 18% was elevated in Q4 driven by that. The other Lowe's I mentioned as well as the Home Depot about twenty minutes from here. We'll have more ground lease opportunities in Q1, but I think, you know, thinking of it as a market is pretty challenging. Many times, we're working with retailers on early extensions or short-term either retail or directed. And so it's a unique seller pool all the way from institutions to mom and pop owners here.

Great. Thank you.

You.

Our next question comes from the line of John Kilekowski with Wells Fargo. Please go ahead.

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

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

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

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

Definitely not. I think it's our yeah. It is our guide at this time. We have no visibility outside of development into Q3 or Q4. We started commencing sourcing Q2 acquisitions fifteen days ago. What I can tell you is there's a half billion dollars in the pipeline, as I mentioned. That we are very confident in, and we'll continue to source across all three platforms. And update the market and everybody on this call as we continue to see activity. But no visibility outside of development in a couple of DFP projects beyond let's call it, May right now.

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

In terms of competition, we haven't seen any increase in competition due to the private capital that's entered the space. I think everyone on the call is familiar with the numerous different sleeves and operations that have launched. These you know, our transaction is 4 to $5 million. 20 people touch it from letter of intent in our underwriting. A letter of intent execution to close. We're a horizontally integrated machine that's closing two transactions per day. It's high touch, frankly. We are working with retailers to extend deals, to identify dealers, working directly with developers. We overcome obstacles and hurdles that are again, high touch real estate exercises, not just sale-leasebacks with middle market credit. And so it's a very different business and the preponderance of capital that has entered the space is chasing. In terms of our DFP platform, I think what's really driving the increased activity is one, our own efforts. Those are critical. But two, we already touched on construction cost today. And so with vertical construction cost, primarily vertical, I should say, penciling these projects is extremely challenging. You combine that with the availability and the cost of capital, as you mentioned, partly driven by the tenure, which drives equity return to fill any gaps or potential mezz debt. These projects are very difficult to pencil for private developers. And so our developer funding platform provides a unique solution to finance the entire project and to own it upon completion. Really taking the risk off the developer unless they blow their budget. And then it comes out of, frankly, their profit payment. And so we're entering with a fixed return. We're providing not only our balance sheet as well as an exit, but our relationships with retailers, many of which we have formed leases and very strong relationships with, so we can expedite or accelerate that project. And so we see that looking pretty stable, and our goal is to continue to ramp it.

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

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

Okay. Great. Thank you.

Thank you.

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

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

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

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

Sure. In terms of our AFFO per share guidance for 2026, we're assuming at the high end of that guidance range, 25 basis points of credit loss. Which is relatively in line with where we ended up for 2025. I believe we're at 28 basis points to be exact. And then at the low end of our AFFO per share guidance range for 2026, we're assuming 50 basis points of credit loss for the year. So overall, the portfolio continues to be in great shape. It was 99.7% occupied. As of year-end and is performing well. We're not seeing any significant changes to our watch list or any new entrants that are material from an exposure perspective, and anticipate the portfolio should continue to perform well in '26.

Okay. Thank you.

Our next question comes from the line of Bacon with Baird. Please go ahead.

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

No. It's a timely question. The team was down with a number of retailers yesterday that we are working with currently and aren't working with currently across all three platforms. I think most importantly, it provides a holistic conversation with retailers. I would add our asset management platform. And so everything we manage is internally property managed, lease administrator, internally, taxes, insurance, any ancillary responsibilities. The ability to sit down with any retailer in the country and provide an entrepreneurial platform that can across all phases of the life cycle of a transaction. From net new development to extensions of short-term leases for sale-leasebacks. Is just a unique value proposition that is one of one. And so you combine the entrepreneurial DNA of a real estate company, a private real estate company, with a $1.213 trillion dollar balance sheet of an A-minus rated company that is a publicly traded REIT with significant liquidity, access, and a premier cost of capital. And opportunities will arise. And so we continue to maintain dialogue with retailers, grow those relationships, that are existing. We're always talking to retailers about net new projects and launching a vertical with them in conjunction with our standard acquisition third-party activities.

Thank you for that. That's it for me.

Thank you.

Our next question will come from the line of Upal Rana with KeyBanc Capital Markets. Please go ahead.

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

We have a lot of flexibility in terms of settling the $750 million plus of outstanding forward equity. I think the earliest tranche matures in June. The latest tranche matures in May 2027, and so have a lot of flexibility in terms of when we settle those shares. I think it's fair to assume that most of those shares get settled at some point, and in 2026 subject, obviously, to uses and other capital sources. But have a good amount of flexibility in terms of when we decide to settle those shares and receive the proceeds.

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

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

Okay. Great. That was helpful. Thank you.

Thank you.

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

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

So I'm gonna hesitate to look. We've talked about Boot Barn. We've talked about our increased exposure there. We foreshadowed Gerber Collision. We foreshadowed Tractor Supply. Obviously, we're extremely acquisitive with off-price, that TJX concepts. Burlington roster, tenants that we're always looking at. That are I would tell you on the periphery of our sandbox, or potentially even on the cusp of entering that sandbox, I'm hesitant to mention them because as soon as we start, frankly, targeting them, it seems that we get some copycats out there that then start chasing those credits. And so there are always tenants that we're looking at. We've been pretty outward with Five Below in terms of developing, acquiring. So there's always tenants on the outsides of that sandbox that are making their way in. I think we'll hold off disclosing them until they are in our table.

Appreciate it. Congrats.

Thank you.

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

Great. Thanks. Joey, CVS performance appears to be improving. You know? Have the CVS's recent initiatives begun to show up in the performance metrics within your portfolio, and how does your exposure compare to their broader store base?

Yeah. We've look. We've got a tremendous CVS. I would note that pharmacy exposures at 12/31 was down to 3.6% in totality. Again, that's in as versus in 2010 when I launched the acquisition platform of being 43% Walgreens exposure. There's a case study in the deck about that. The very de minimis for us now. Our focus with CVS is acquiring high-performing stores where the fixed cost, the rents make sense, the days of dual, dueling suburban pharmacies on opposing corners, we believe, is over. Ground leases, super high-performing stores, and then stores that have an extremely low rental basis and are productive. And so we're not interested in the suburban $400,000 per year pharma. It's 14,000 feet on two acres. Yeah. Those are readily available on the market for anyone who wants to roll back the clock to ten, fifteen years. We're more interested in the pharmacies that are either on a ground lease or paying a couple $100,000 in rent or have outperformance twenty-four-hour operations. Or early extensions with our tenants there. And so it's a very selective acquisition process for us. It's a very informed acquisition process for us. We'll make select additions to the portfolio, but it's not a focus for us. Will not see any material growth in our pharmacy exposure CVS exposure at this time.

Yep. Great. And then just on the quick service restaurant side, noticed that the exposure increased to 2.3% of '4.

So the Flanders Outlaw, the Panda Express, the Wendy's, We acquired an Olive Garden ground lease with a garden guarantee during the quarter. Restaurants, a McDonald's ground lease. So I would tell you restaurants for us. We will continue to stay away from outside of the ground lease structure. Or a very unique opportunity. Not a focus for us, especially in today's economy. And then more important, when we look at the fungibility of the box, the rent per square foot, we just don't see the residual values there. To mark to market. And so restaurants will be on the perimeter. If you see us acquire a restaurant, or any such single-purpose type structure or fit out, it will generally be on a ground lease.

Alright. Thank you very much. Appreciate the time.

Thank you.

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

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

I think it's the absolute on last call, I said we are the trade-down effect. What we're seeing in 2026 is just the steepening of decay. The theme in 2024, and I don't wanna get, you know, this is about affordability, and I'll put it in quotes. The theme of 2024 and 2025, was the low-income consumer and the challenges they were having. The theme of 2026 and hopefully, it gets resolved, but I don't see any resolution in the near term, is the middle-income consumer. We have dual working parent households in this country. Costs are increasing, whether it's automobiles, health insurance, residential costs. Right? Costs cost of living across the board. Inflation, the cumulative inflation that we've seen since the pandemic has been devastating for these families. And so if you look at the print of the targets of the world, and you juxtapose that against the prints of the Walmarts of the world and the dollar stores of the world, the trade-down effect is palpable. You can see those consumers looking for bargains, for discounts. You see it, frankly, in the size, the basket size, the ticket size. And the frequency of the trips. You see Five Below retailers, like Five Below, really thriving in this environment. Our general performing extremely well, and Walmart, frankly, kicking ass, crossing a trillion-dollar equity cap. And so you'll continue to see us focused on those retailers that cater to that consumer. We avoid luxury. We avoid experiential. We avoid fun. It's goods and services that are necessity-based. And if they're not the lowest-priced operator, they have a unique value proposition. And so that's our focus. It has been our focus. I think it inures to our benefit what we're seeing out there given the portfolio composition that you see obviously, in our materials.

That's all I got. I appreciate the time.

Thank you.

Our next question comes from the line of Linda Tsai with Jefferies. Hi, good morning. Earnings growth was over 4.5% in 'twenty-five and you're guiding the midpoint to 5.4% in 'twenty-six. You view this 4.5% to 5.5% earnings growth cadence as a sustainable state?

Yeah. Good morning, Linda. We've been very clear for months that our earnings algorithm would kick in this year. And we drove over four and a half percent AFFO growth per share last year after only deploying $950 million. Approximately in 2024. And while investing and dealing with the big lots, bankruptcy machinations. And so we were very clear that our earnings algorithm would kick in this year. We have no upcoming material debt maturities, and so we're all systems go. Let's be clear. Across all three external growth platforms, as well as from a balance sheet perspective. And so our goal has consistently been to deliver 10% operational returns. We will deliver ten percent two-year stacked AFFO growth, whether it's last year, this year, this year, next year. We've been very clear about that while maintaining a defensive posture from a portfolio position maintaining our strict underwriting criteria and a fortress balance sheet.

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

New to market, meaning new to our portfolio.

Yes.

Peter, I can't think of one new tenant to the portfolio that we added. Can you?

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

Yeah. Extremely de minimis. We took out a bank ground lease for, I think, 80,000 or a $100,000. As an outlot to one of the Lowe's that we acquired. So it would be an ancillary small piece, but really no new tenants or new entrants of any substance at all in the portfolio in 2025?

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

To Walmart specifically?

Just anyone.

Look. Walmart is the only tenant, as you mentioned, over 5% of the portfolio. We've thought that that was a gray line for a while. It was breached by different operators within the space. We also look at 10% as a great threshold for sector, line of trade, groceries just over 10%. We feel very comfortable there. I'm happy to add more Walmart exposure on a percentage basis as we go forward. We're always working on Walmart transactions, frankly. Across our platforms. There are Walmarts in our pipeline right now. So with the percentage basis, we feel very good with where Walmart is. I mean, they are also our top three or top four ground lease tenant in the portfolio, number three, actually, in terms of ground lease ABR. And so we're very confident in our Walmart exposure. The company continues to perform tremendously. And so we're comfortable. I think at the peak during COVID, it went off almost up to nine, Peter. Correct me if I'm wrong. Up to 9%. I wouldn't anticipate that occurring. But we'll certainly pursue Walmart transactions aggressively.

Thank you, and good luck.

Thanks, Linda.

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

I want to go back, I think, was Jamie Feldman's question just on sizing sort of the forward equity component of the total sources. And so, you know, is the gating factor there at any given time related to the deal pipeline? Is it market impact on the share issuance? Is it, you know, something else? Just what would prevent you from taking, you know, 700 something million in ATM, I'm sorry, in the forward, you know, unsettled shares today to a billion, 1,000,000,001 half or something like that.

Well, you get the confluence of factors. Most importantly, ultimately uses. Right? Do we have the uses of that capital? Obviously, we have the liquidity and the balance sheet tolerance, full flexibility to do whatever we want. The most important thing is to have that flexibility and never raise any type of capital. We wanna continue to be opportunistic, but think, ultimately, it's sources. So with no material debt mature uses, excuse me, ultimately, with no material debt maturities, in all of the capital that we raise effectively going toward net new investment activity. We'll monitor those that the pipelines across all three verticals, but that's the driver. Peter, anything else you wanna add?

No. I agree with that. I think staying ahead of our uses is ultimately most important, and that will allow us to continue to be opportunistic in terms of how and when we raise capital. And, today, with over 2,000,000,000 of liquidity and a billion 6 of buying power, as I referenced earlier, we are well ahead of our uses and well positioned for the year.

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

We'll look at all capital sources. I hope we get back to the day where we can issue a perpetual preferred at four in a quarter. We'll look at all capital sources, see how they fit within our capital stack. Last year was the first year in a number of years with the five and a half year delayed draw term loan. We have a full suite, obviously, access to all four quadrants of longer-term capital. Short term, we have the line of credit, the commercial paper program, significant free cash flow, as well as dispositions, which we anticipate ramping a little bit this year. So, you know, there's really no direct causation. Are they correlative? Sure. I would say it's correlative. As we see our investment pipeline grow, further, it's wholly possible that we'll add incremental equity to fund that subject to other capital sources and obviously, the respective cost of those capital sources. But, look, we have been at the forefront of capital raising in the net space, and I would argue read them today, utilizing forward equity. First in 2018 on a regular way, and then subsequently, off of the ATM. And so we anticipate continuing, obviously, in an external growth business to be raising capital. We have swaps in place, as Peter mentioned, to tap the unsecured long-term unsecured bond market this year as well. And as the year progresses, we'll look at all, obviously, the sources and the uses and to match them to create an A-minus balance sheet that's on par. With our expectations.

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

Interesting question. Look. The constraint today and net new development is not desire from retailers. It is cost and the fee project feasibility driven by the vertical construction cost primarily. And so we are operating from the West Coast to the East Coast, all the way down South. There are tertiary markets. There are primary markets. There are redevelopment of existing structures, splitting up larger boxes into junior boxes. There's ground-up projects that have tips or outlots or extremely low land bases to support it. It's highly diversified. It's hard corners. For c stores. It is exit ramps for CFLC stores. Larger commercial fueling locations that provide for diesel. And so if you look at the c store sector today in the growth of the regionals and the nationals, the off-price sector, their voracious appetite to grow, whether it's TGX's buy banners, Ross's too, or Burlington's desire to get to a thousand stores. Then the big box space, Lowe's, Home Depot, as I mentioned, Walmart, Costco, Kroger are even announcing net new stores. We see the tremendous appetite to growth to, again, get the permutation correct, in an omnichannel world. I would tell you all retailers have recognized that free shipping and then a 40% return rate does not work. And so they're trying to get stores in place to get our butts to the store to pick things up. And if it is delivered, to deliver from the store to fulfill that last mile or two in the most efficient way possible. Whether that's tertiary or primary. And so there's tremendous appetite for growth. Again, most of these retailers are public. They're out there with their stated store goals. We can we're in a really unique position to fulfill that appetite through with our three vertical external growth platforms.

That's great. Thank you.

Thank you.

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

Hey, this is Jenny on for Ron. Thanks for taking my question. The first is we noticed the weighted average lease term on 4Q acquisition was nine point six years versus, like, ten point seven years in Q3. I'm just curious more broadly, how do you think about lease terms when you underwrite acquisitions? Like, what's the right balance between lease duration and returns? Thank you.

All project-specific or opportunity-specific will buy short-term lease when we like the real estate, the mark to market, or have strong performance feedback. We'll obviously, the sale-leasebacks will have longer term. Some of my favorite opportunities are pre-inflationary or construction cost inflation opportunities in the junior box space. They're paying $10.11 dollars per square foot on a short-term deal. When mark to market is $17.18, $19 just due to those construction costs I've been talking about on this call. And so you'll see a variety of lease terms. This is a real estate operation here. Lease term is one input. Store performance, underlying real estate fundamentals, access, visibility, fungibility of the box, signage, traffic counts, demographics are all playing a part into that role as well. So, I wouldn't think of Q4 as a static state at all. I think if we dive into the individual transactions, you'll see really what the driver was and really push it over through the approval threshold.

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

No difference. I think the one zero four has been improved. A 104% recapture rate has been pretty static. Over the last few years, we've been at a 103 or a 104% each year. It doesn't seem to be moving, the vast majority of our upcoming expirations which will be handled with favorable outcomes here, will you know, think that blended will fall into the same range. We don't anticipate many of these tenants leaving here.

Gotcha. Thanks so much. That's all for me.

Thank you.

Our final question will come from the line of John Kilekowski with Wells Fargo. Please go ahead.

Great. It's Jamie again just with a quick follow-up. The disposition guidance 5 to 75,000,000. I think you had mentioned, you know, $10.31 and even OBVA being a driver of demand. How are you thinking about that range? And then, you know, can you talk more about what's changed and, you know, what if you might be ramping up that pipeline due to pricing.

Well, I think I hadn't heard the acronym. I think the OBVA is the driver there for us. And so we have what I would call not or not economically rational real estate purchasers that are benefiting from accelerated depreciation that they're taking aren't looking at the real estate fundamentals. And if someone wants to buy a Goodyear with a five handle in front of it, we're sellers. I'll be honest. Yeah. We're big fans of Goodyear. We're their largest landlord. We obviously did sale-leaseback with them and took the real estate that they owned on balance sheet. And did a sale-leaseback at extremely low rents, but they have control of that property through options. We see redevelopment potential. They're contractual rental increases. And so if someone wants to pay something that we don't think makes sense relative to, where we can redeploy that capital, we'll do that. So a lot of it is the one big beautiful bill purchasers. Then you have some interesting, I'll call it, purchasers that seem to traverse Florida. That doesn't seem, the pricing often doesn't seem to make sense, and we take advantage there. California as well and Texas as well. In some of these states. Now you're not gonna see and then I'll tell you what we'll look at opportunistic sales on larger price point assets as well. And so if we think we can redeploy the capital at a material spread while increasing the credit profile and the real estate fundamentals, the tenant we're gonna jump on that opportunity, and then overall, it's an accretive transaction for us. So many of these are inbound, not even listed. Would you have a portfolio of 2,700 properties, there's always inbound activity. You know, we'll listen. We'll look at those and vet those opportunities and the qualifications of the purchaser and have an appropriate, we're gonna strike to drive ultimately accretion.

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

Yeah. Generally, it's the smaller ten thirty-one net lease dominated ten thirty-one purchaser or tax-motivated purchaser. As you mentioned. You know, occasionally, there is some institutional inbounds for a variety of reasons. Maybe they own the adjacent property. Maybe there's an overall redevelopment that they're trying to execute upon. But the vast majority of transactions, just like the entire space, is individual, individual purchases.

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

I would say on a blended basis in the sixes. Right? Again, we'll pare down. I anticipate advanced auto exposure to a frankly, a material level and not very material today. There are some Goodyear transactions in the pipeline, which are nonrefundable, which will close in the first quarter or have closed already. I don't see anything different in the second quarter or beyond this time.

Okay. Alright. Great. Thank you.

Thank you.

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

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