WPC - NYSE

Hello, and welcome to W. P. Carey's Fourth Quarter and Full Year 2025 Earnings Conference Call. My name is Diego, and I will be your operator today. All lines have been placed on mute to prevent any background noise. Please note that today's event is being recorded. After today's prepared remarks, we will be taking questions via the phone line. Instructions on how to do so will be given at the appropriate time. I will now turn today's program over to Peter Sands, Head of Investor Relations. Mr. Sands, please go ahead.

Hello, everyone, and thank you for joining us today for our 2025 fourth quarter earnings call. Before we begin, I would like to remind everyone that some of the statements made on this call are not historical facts and may be deemed forward-looking statements. Factors that could cause actual results to differ materially from W. P. Carey's expectations are provided in our SEC filings. An online replay of this conference call will be made available in the Investor Relations section of our website at wpcarey.com, where it will be archived for approximately one year. And where you can also find copies of our investor presentations and other related materials. And with that, let me hand the call over to W. P. Carey's Chief Executive Officer, Jason Fox.

Thanks, Peter. Afternoon, everyone, and thank you for joining us. 2025 was a standout year for W. P. Carey. Reflecting successful execution across our business, producing strong performance for the year and laying the foundation for attractive sustainable growth. Supports long-term value creation. The 5.7% AFFO growth we generated for the year was among the best in the net lease industry. Reflecting our record investment activity sector leading rent growth, and strong portfolio performance. The dividends we paid combined with the appreciation of our stock price provided our shareholders with a total return of 25% for the year. Placing us in the top tier of publicly traded REITs. Looking ahead, we're confident the momentum we established in 2025 will carry into this year. Our deal flow remains strong, We have access to multiple forms of accretive capital We expect incrementally higher contractual rent growth compared to last year. And stable credit quality within our portfolio. Our competitive advantage on investment spreads should also continue to differentiate us. Our average yields and IRRs are among the highest of the public net lease REITs. Reflecting both the strength of our rent bumps and the long duration of our leases. But combined with our lower average cost of debt, aided by access to euro denominated financing, we believe we're exceptionally well positioned to drive industry leading AFFO growth in 2026. And beyond. On this call, I'll briefly recap 2025. And expand on how we're positioned to continue delivering attractive growth. I'm joined by Tony Sanzone, our CFO who will review the key details behind our results balance sheet and guidance and Brooks Gordon, our Head of Asset Management, to take your questions. Starting with our investment activity. We finished the year at the top end of our guidance range, closing record annual investment volume totaling $2.1 billion representing substantial growth over our initial guidance and demonstrating our ability to source and close a high volume of transactions in a competitive market. Throughout 2025, we put capital to work at attractive spreads relative to the pricing we achieved on our asset sales. As well as to our overall cost of capital. Our investments carried a weighted average initial cash cap rate of 7.6% for the year. Translating into an average yield just above 9% over long-term leases averaging seventeen years. In contrast, the occupied assets we sold traded at cap rates averaging 6%, generating an average spread of about 150 basis points and creating significant value as we recycled capital from non-core asset sales to higher yielding net lease investments. We allocated the most capital to warehouse and industrial, which accounted for 68% of our full year investment volume. And found additional compelling opportunities in retail which represented 22%. Geographically, 26% of our 2025 investment volume was in Europe, and 74% was in North America. The vast majority of which was in The US. Importantly, we finished the year with continued strong momentum. Completing $625 million of investments during the fourth quarter, Among them, was our $322 million investment in a portfolio of high quality, lifetime fitness facilities. Which significantly expanded our relationship with that tenant. Making it our third largest by ABR. One of the compelling aspects of our business model that continued to stand out in 2025 was our industry leading rent growth. Even with inflation remaining below the peak levels of recent years, we generated among the best internal growth in the net lease sector. Driving a meaningful share of our overall AFFO growth independent of our transaction activity. We expect this to continue in 2026. Supported by the strength of our fixed rent escalations. Turning to our sources of capital. As mentioned, our 2025 investment activity was supported by disciplined capital raising. Funding new transactions primarily with sales of non-core operating assets. This approach enabled us to both accretively recycle capital and further simplify our portfolio mix. Effectively exiting the operating self-storage business. During the year, we also successfully refinanced our euro denominated term loan locking in an attractive all in rate below 3%. Further demonstrating the advantages of having access to euro denominated debt in multiple forms of capital. In midyear, we achieved execution on our five-year U. S. Bond issuance. Giving us additional funding flexibility. Furthermore, during the second half of the year, we utilized our ATM program to sell forward equity getting ahead of our 2026 needs. So looking ahead to 2026, we remain very well positioned to sustain a high level of investment activity and deliver attractive AFFO growth. Following the strong fourth quarter, we've already closed approximately $312 million of new investments year to date. And we currently have a sizable investment pipeline with several $100 million of transactions. At various stages of completion. In addition, our year to date investment volume includes roughly $50 million of completed capital projects. With another $290 million underway and scheduled to deliver over the next twelve to eighteen months. We remain just as active, if not more active, in other net lease REITs and build to suits expansions, redevelopment projects. These are capabilities we've built over many years and view as a meaningful competitive strength. Now further supported by a recently launched carry tenant solutions platform. Historically, we've generally maintained a pipeline around $200 million of such projects. Which typically deliver above market yields extend lease terms, and enhance the strategic importance of the assets involved. Creating highly attractive proprietary deal flow that leverages and strengthens our tenant relationships. We see significant opportunity to lean further into these capabilities. With our carry tenant solutions platform position us to do even more going forward. Alongside other initiatives, such as our expansion in U. S. Retail. With all these factors in mind, we're confident in our ability to continue generating higher investment volumes. We have historically. As we demonstrated in 2025. At the same time, we're mindful that it's still early in the year so we're starting with an initial investment volume guidance range of $1.25 billion to $1.75 billion As we move through the year and gain more visibility to the second half, we expect to refine and potentially raise that range. As we did in 2025. We also foresee cap rates being incrementally lower this year. Based on our current pipeline, we're anticipating going in cash cap rates in the mid to low 7% range. Compared to twenty twenty five's weighted average of 7.6%. The momentum we're generating on the investment side of the business is supported by our strong funding position. Having already accounted for the vast majority of our anticipated 2026 equity needs. The more than $400 million of forward equity we sold in 2025 remains available for settlement. With an active ATM program in place enabling us to issue additional forward equity as needed. We also anticipate generating close to $300 million of retained cash flow this year. Providing an additional source of equity capital. And importantly, with the option to pursue additional accretive disposition opportunities, potentially taking us over the top end of our initial disposition guidance range. Should we choose to do so. Enabling us to continue driving AFFO growth. Accordingly, we have ample flexibility to fund additional investments above the top end of our initial acquisition guidance range. Regardless of equity capital market conditions. Let me pause there hand the call over to Tony to discuss our results balance sheet, and guidance in more detail.

Thanks, Jason, and good afternoon, everyone. Our fourth quarter and full year results demonstrate a strong consistent pace of investment activity throughout 2025 at attractive spreads, coupled with sector leading internal rent growth from our portfolio. I'll walk through the details of those results starting with AFFO. AFFO per share for the fourth quarter was $1.27 representing a 5% increase over the prior year fourth quarter. For the full year, AFFO totaled $4.97 per share representing 5.7% year over year growth and coming in just above the midpoint of our guidance range. As Jason mentioned, the record investment volume we completed came in just above the top end of our guidance range. At an average spread of just over 150 basis points to our dispositions, which will continue to benefit our earnings in 2026 as the full year impact flows through our results. During the fourth quarter, we continued to fund our investment activity accretively, through opportunistic dispositions selling 44 properties for gross proceeds totaling $507 million, bringing full year disposition volume to $1.5 billion. The vast majority of which was sales of noncore assets. Our 2025 dispositions included sales of 63 self-storage operating properties for gross proceeds totaling approximately $785 million. Leaving us with 11 such properties at year end, which we're currently in the process of selling and hope to complete in the first half of the year. Turning to our portfolio growth. Contractual same store rent growth remained strong. Averaging 2.4% both for the fourth quarter and the full year, on a year over year basis. VPI linked rent escalations averaged 2.6% for the year, which comprise about half of our ABR. While fixed increases, which make up the other half, average 2.1% for the year. We continue to see fixed increases in new investments trend higher than the averages in our existing portfolio. Which will support sustained higher levels of internal growth even as CPI is moderating. About three quarters of our 2025 investment volume had leases with fixed rent escalations averaging 2.5%. For 2026, we anticipate the contractual same store rent growth will trend slightly higher than it did in 2025, although still averaging in the mid 2% range for the full year. Comprehensive same store rent growth for the quarter was 70 basis points, which moderated from the first half of the year as anticipated, driven by the impact of a prior year fourth quarter rent recovery, well as higher vacancy over the back half of 2025. On a full year basis, comprehensive same store average 2.8%, line with our contractual same store growth. After taking into account the impacts of releasing, rent collections, vacancies, and lease restructurings. Our portfolio continued to perform well throughout 2025. With minimal rent disruption. As previously announced, rent loss from tenant credit events totaled $400,000 for 2025, or about 40 basis points of rent. Which was well within our conservative assumption of around $10 million earlier in the fourth quarter. We continued reducing our Helvec exposure in 2025, through a combination of releasing activities and asset sales, bringing it down to 1.1% of total ABR by year end. And we're currently engaged in active transactions that will further reduce our exposure by midyear. Looking ahead to 2026, we're taking a similar approach to last year. Initially assuming a conservative estimate for rent loss from tenant credit, totaling 10 to $15 million or 60 to 90 basis points of expected rent. Importantly, we've not seen any material changes in credit throughout the portfolio since our last earnings call. As was the case in 2025, hope to be able to reduce our rent loss estimate as the year progresses, which could provide some upside to our initial AFFO guidance. Portfolio occupancy at the end of the year increased to 98%. Up 100 basis points from the end of the third quarter. As we completed vacant asset sales and entered into new leases during the fourth quarter, as we had anticipated. During 2026, we expect portfolio occupancy to remain over 98% through a combination of releasing and dispositions. Fourth quarter releasing activity resulted in the recapture of 100% prior rent on 1.3% of ABR, and added almost eight years of weighted average lease term. We saw similar positive results for the full year, about 100% recapture on 5.3% of total portfolio ABR adding five point seven years of weighted average lease term. Other lease related income for the fourth quarter was $8.1 million bringing the total for the year to $24.6 million in line with our expectations. While the timing of these payments can vary from quarter to quarter and even from year to year, demonstrate our proactive approach to managing our portfolio. Often identifying opportunities to maximize the outcome for assets that may be better suited for releasing, redevelopment, or disposition. Turning now to our guidance. For 2026, we currently expect to generate AFFO of between 5.13¢ and $5.23 per share. Implying a healthy 4.2% year over year growth at the midpoint, and which is based on investment volume of between 1.25 and $1.75 billion Currently, we're assuming 2026 dispositions total between $250 million and $750 million. This includes ordinary course net lease dispositions, notably certain of our vacant assets and a subset of our Helwig portfolio, as well as the expected sale of our remaining operating self-storage assets. And as Jason discussed, we've identified additional opportunistic and noncore asset sales we could execute at attractive cap rates, giving us a great deal of optionality and funding investments accretively. As the year progresses and we have a greater visibility, we'll be able to refine that range. G and A is expected to total between $103 million to $106 million for 2020 which includes additional investments in data and technology initiatives. With a focus on expanding AI further into our business processes and portfolio monitoring. We have a highly scalable operating platform, and remain keenly focused on driving further long-term efficiencies. For modeling purposes, just a reminder that our G and A expense runs highest in the first quarter mainly due to the timing of payroll taxes. We currently expect first quarter g and a to total about $28 million with the balance of the year, expected to trend lower and more evenly. Non reimbursed property expenses are expected to total between $56 million and $60 million for 2026. Including approximately $6 million of expected demolition costs associated with the planned redevelopment work. I'll note these incremental costs are expected to mostly occur in the first half of the year. And will be more than offset by an associated termination payment. Which will be recognized in other lease related income since we proactively terminated the in place lease at these facilities to commence the development work. Excluding demolition costs, we expect non reimbursed property expenses to decline as we continue reducing vacancy and the related carrying costs. Including the termination payment related to this redevelopment, other lease related income is expected to total in the low to mid-thirty million dollars range for 2026. With about $20 million of that total expected to be recognized in the first half of the year. Tax expense on an AFFO basis the vast majority of which comprises foreign taxes on our European assets, anticipated to fall between 45 and $49 million for 2026. With the increase over last year mainly reflecting growth in our European portfolio. As we've now exited the vast majority of our operating assets, we expect operating NOI to total only about $10 million in 2020 which contemplates the sale of our remaining self-storage properties by the end of the first quarter. Investment management fees are expected to decline to about $5 million this year, down from $9 million in 2025 as NLOP continues to asset sales. Nonoperating income for 2020 is currently estimated to total between 7 and $11 million, declining from about $17 million in 2025. For 2026, we assume a flat dividend from our equity stake in Lineage of about $11 million as well as lower estimated FX derivative hedging impacts, assuming the euro remains around its current level for the full year. Given the effectiveness of our hedging strategy, movements in the foreign currency rates are not expected to result in any meaningful impact on our 2026 AFFO. Considering all these factors, we see encouraging momentum heading into the year. The midpoint of our initial AFFO guidance range implies meaningful year over year growth of 4.2%, driven primarily by accretive external growth, and continued strong internal growth. And importantly, we're delivering this growth outlook even while initiating guidance with a conservative stance towards both investment volume and credit related rent loss. Moving to our balance sheet. In 2025, we demonstrated we have a variety of capital sources to fund our investment activity accretively, and we expect to continue to optimize our funding approach in the coming year allowing us to execute on a strong pipeline of activity, generating attractive spreads. We sold 6.3 million shares of forward equity through our ATM program. At a weighted average price of $67.53 for gross proceeds totaling $423 million. All of this forward equity remains outstanding positioning us well to fund our investment activity throughout the year. Our strong investment grade balance sheet, and diversified asset base also gives us the unique opportunity to access attractive debt capital across a variety of markets. We have two bonds maturing in 2026. A €500 million bond in April and a $350 million US bond in October. Our initial guidance assumes we refinanced these bonds with issuances in the same currencies. Although we continue to have a wide range of options available to us. Our weighted average interest rate on debt was 3.2% for 2025, which we believe is among the lowest in the net lease sector. Despite having to refinance our upcoming bond maturities, our weighted average interest rate for 2026 is expected to remain in the low to mid 3% range. Net debt to adjusted EBITDA was 5.6 times, inclusive of unsettled forward equity at the end of the year, well within our target range. Excluding the impact of unsettled equity forwards, net debt to adjusted EBITDA was 5.9 times. We expect to continue to manage the balance sheet maintaining leverage within our target range, of mid to high five times. We ended the year with liquidity totaling $2.2 billion including the availability of our credit facility, cash on hand or held for ten thirty one exchanges, and unsettled forward equity. In December, we increased our quarterly dividend by 4.5% year over year to 92¢ per share. Based on our current stock price, that equates to an attractive annualized dividend yield over 5% which remains well supported with a full year payout ratio of approximately 73%. We expect our dividend to continue to grow in line with our AFFO growth, while maintaining a conservative payout ratio. And with that, I'll hand the call back to Jason.

Thanks, Tony. 2025 was a successful year that demonstrated the strength of our business model, the quality of our portfolio, and the dedication of our team. We executed on our objectives across the company delivering attractive external and internal growth maintaining disciplined capital allocation, and continuing to strengthen incrementally optimize our portfolio composition. We've entered 2026 well prepared to build on that progress. Our investment momentum remains strong and our initial acquisition guidance for the year is effectively fully funded. With the flexibility to execute additional investments without needing to access the equity capital markets. Through the combination of our internal growth, the spreads we're achieving on new investments, and a well supported dividend, we're confident that we can again deliver attractive double digit total returns this year. Before factoring in any expansion to our multiple. That includes our prepared remarks. I'll pass the call back to the operator for questions.

At this time, we will take questions. If you would like to ask a question, please press If you would like to withdraw your question, please press the star, then the number two. And your first question comes from Jana Gallen with Bank of America. Please state your question.

Thank you. Hi, and congratulations on a very successful 2025. Jason, I wanted to follow-up on the strategy of the expansion in U. S. Retail. It looks like Lifetime Fitness was part of this goal. I'm kinda curious what other categories within retail you're targeting, and whether these will be kind of in the form of more larger sale leaseback opportunities.

Yeah. Sure. Yeah. We're making good progress. In retail, it accounted for about 22% of our deal volume last year, and, of course, about two thirds of that was the lifetime deal. You know, looking forward to this year, you know, a good chunk of of our pipeline is retail. It's probably about half and half right now. Overall, lease retail is the biggest part of the net lease market, especially in The US. And you know, we think it could become a bigger, you know, part of our deal volume on an annual basis. I'd like to build it to maybe, you know, 25, even 30% of our annual deal volume That would include both The U. S. And Europe. When you think about what we're targeting, I mean, we've done deals recently with Dollar General and Lifetime, some other fitness We've done some family entertainment, some grocery, some c stores in Europe. I mean, we're kinda looking across the sector, and, you know, we'll be somewhat opportunistic in, you know, the things that we typically look for in you know, generally, what we do in net lease, we're we're focused on tenant credit and lease term and structure. You know, master lease versus individual leases. Coverage, things like that are all important, and and and that won't change.

Thank you. And then maybe also on the carry tenant solutions platform, you know, maybe just near term, how much above $200 should we think about that growing?

Yeah. Sure. So we've we've historically, as I mentioned, done about $200 million per year or or had, you know, active projects, maybe in that range at any given point. And we do think that this can become a larger component of the business. You know, last year, we started, you know, a number of new projects Year to date, we completed about $50 million of those. And there is another $280 million, in construction that will deliver over the next twelve to eighteen months. Know, some of those new deals were done in conjunction with some recent investments where we agreed to either a build to suit or an expansion as part of that. And then there's other things that we're doing related to our existing portfolio. I mean, namely, there are some expansions and redevelopments. It includes you know, I think two redevelopments that Tony had referenced earlier as well as an expansion for one of our top tenants. So it's becoming more of an emphasis for us and know, it's hard to predict exactly how big of a component it could be. You know? But I I I do think we can increase it.

Thank you. Next question comes from Greg McGinnis with Scotiabank. Please state your question.

Hey, Jason. I appreciate the commentary on the retail side. Also hoping you can kinda dig in a bit more on the end on the industrial, you know, types of assets that you're finding or looking for cap rates. And then kinda US versus Europe. And if you comment on whether or not, you know, real fee income is becoming more of a competitive company that you're seeing more on deals in Europe as well, that'd be appreciated.

Yeah. Sure. I mean, industrial is still, you know, really the the the core part of our business. You know, we wanna keep on adding retail, but you know, industrial is significant. It's probably made up two thirds to maybe even three quarters of our deal volume over the last number of years. In terms of, you know, what type of industrial, it's really a mix between both manufacturing and logistics. And we do provide some disclosure on those two components. I think in the past, we've also layered in some some food production and processing, which which we've always liked. Those tend to be you know, nondiscretionary spend type products. The tenants tend to have a very meaningful investment in these facilities. We also tend to get, you know, long lease terms, and in many cases, you know, higher yields as well. So that's, you know, certainly a component as well. You know, in terms of cap rates, I mentioned earlier, I think that there's maybe some expectation they could tighten a little bit this year. Last year, our average for the year was 7.6%. We'll continue to target deals in the sevens this year, but but I do think they could come in some maybe that ends up somewhere in the low to mid 7% range on average for us. Versus the mid sevens last year. Maybe that's 25, you know, basis points of tightening. But but it's early in the year. It's kinda hard predict what will happen over the next ten months or so. In terms of Realty Income, I mean, we we see them time to time. I would say more in Europe than we have in The US. But but they've focused a lot of their investing in The UK, which has not been a a country in which we've allocated a lot of capital. We're still doing more of our deals in Continental Europe, and we're doing more of our deals at least lately, in industrial. So, you know, we see them time to time. But Europe's a big market, and there's not a lot of competition there generally. So it's I I wouldn't say it's all that impactful.

Okay. And then just I don't know if I missed anything else there.

Yeah. No. Thank you. I appreciate that. And just just on the potential cap rate tightening, is is that just kind of an assumption based on, maybe cost borrow lowering or increased competition? Is it anything that you're seeing today or is it just some conservatism that you we should be building in there?

Yeah. You know, it's really a combination of all of that. I think that to the extent rates come down and stay stable, I mean, they've really been range bound in this kinda low fours for probably the better part of six months now. I think a lot of that, you know, maybe has flown flowed through to to cap rates, but probably not all of that. Incremental competition, yep, maybe there's some of that, but we haven't seen a lot of it. We hear about know, new entrants, but we haven't seen it, and we haven't seen it you know, be all that impactful yet. But I think ultimately that could be a little bit of a catalyst towards that as well. So yeah. And I think overall cost of capital across the sector is getting a little stronger too. But we haven't seen a lot of it. I would say our year to date deals are still within our target range. Maybe at the low end, but I would probably attribute most of that being that the bulk of what we've done year to date have been in Europe. And, you know, we can borrow, call it, a 100 basis points in euros inside of where we can borrow in dollars. So even if those cap rates are a little bit lower than what we've done historically, I think our spreads are still wider than where we've been. So it's shaping up. It's a good market. You know, we think that we're gonna be quite active this year. And I think our spreads are, you know, probably are gonna be similar to what we we did last year.

Okay. Great. Thank you.

Welcome. Thank you. And your next question comes from John Kim with BMO Capital Markets. Please state your question.

Thank you. I wanted to ask about carrier tenant solutions, which I think is just your branding for Build A Suit. Just wanna make sure that was the case. But how do you protect yourself from development risks associated with these type of projects? And I think in the past, you talked about a 25 to 50 basis point premium on build to suit versus acquisitions. Is that still the right range to think about?

Yes. Sure. Yes. Maybe it's helpful just to kind of you know, spend a a minute or so high level on Carrie. Tenet Solutions. I mean, we've been quite active on what we call capital investment projects for some time. It's been in our disclosure and our sub for for many years at this point in time, and it includes build to suits, expansions, and redevelopments. You know, we're good at these type of investments. We have a lot of experience on the team. I've mentioned that I'd like to see us do more, and I think there's, you know, real potential for that. So, you know, part of our effort around this is to formalize it you know, brand it, be a bit more holistic in our outreach to our tenants. And more proactive in our approach overall and you know, I I think that we can see some increased activity. I mentioned earlier that we historically have seen about $200 million of in process capital projects I think that can get bigger and become a more meaningful component of our annual deal volume. And look, it's also something that investors ask us about. I I think there's been some more you know, some other REITs that have made it more high profile, and and we've been asked about what our capabilities are. So, you know, that's kind of the thought process behind our recent launch of of carry tenant solutions, you know, what we're calling it. You know, in terms of development risk, most of what we're doing here are build to suits, and expansions. There are, you know, occasionally, really high quality, very attractive redevelopment, and it's a real high bar for us to do that type of work. So it's gonna be predominantly built to suits and expansions, and you can see that in our our supplemental. That's what the disclosure is as well. So you know, the the development risk typically you have you know, very strong and large general contractors that provide fixed price contracts. In many cases, on build to suits, we'll have, you know, guaranteed start rent start dates built into the structures So even if there's delays, we still get our rent. We'll also have a construction rent kind of built into the budget as well. So we effectively either either earn or accrue interest, something, you know, for our for our our cost of capital during the construction period. So I said, we've done this for a really long time. We boxed the risks. We have a great team in place that, you know, one of the benefits of being as large as we are and having the scale is, you know, we can build out a dedicated in house project management team. They have lots of experience. Lot of connections to local partners, and, you know, it's a real competitive advantage for us. I think you also asked last cap rate spreads. Yeah. Yeah. I would say on a build to suit, which is more of a market deal It's probably in the you know, 25 to 50 basis point premium, and a lot of that will depend on the the length of the build period and and maybe the specifics of the deal with you know, basis, you know, relative, you know, the the the construction cost relative to kind of the market you know, market basis or or where that puts you relative to market rents. I think on the other end of the spectrum are these expansions that we do for our tenants where you know, this is truly proprietary deal flow. To captive deal You know, the tenant can either fund these expansions themselves on property that we own is likely a really or they can, you know, choose to maybe do something outside of what you know, critical core facility for them, or they can do a deal with us. And so we have you know, some pricing power. Of course, you know, we're very mindful of our tenant relationships We wanna make sure that, you know, there is you know, kind of fairness in how we price it. But but we'll typically see on those anywhere from a 100 to, you know, two or 300 basis points of spread depending on the specific project. And it's not just the premium that we we benefit from in in many cases on these expansions and kind of follow on deals that we do for tenants. We're also, you know, increasing the criticality of the real estate, We're lengthening lease terms, when those are on master leases with other properties, you know, there's a drag along effect with with other properties as well. You know, and also just deepening the tenant relationship through three d separate transactions. So you know, all those are reasons why we wanna lean into this more, you know, especially because we're quite good at

Great. Thank you. And then my second question is on your leverage You talked about operating at a mid to high five times leverage. Is that where you think you could the premium multiple for your stock just wondering how you balance AFFO growth versus having a cleaner balance sheet with more firepower.

Yeah. Sure. I mean, look, there's no real changes to our leverage targets We'll continue to operate in the mid near to high fives. We're we're very comfortable with that. But I think you're right. There is a certainly impact on equity multiple based on leverage. And I think over time, you know, I can see us drifting to the lower end of that range. I wouldn't say there's a specific timeline in that. And that should help the equity multiple, but right now, we're very comfortable within that you know, mid five mid to high fives range.

Great. Thank you.

Thank you. And your next question comes from Jason Wayne with Barclays. Please state your question.

Hi, good afternoon. Just on the $60 million in dispositions year to date, I'm just wondering the cap rate there. And can you give some color on the cap rates that you're assuming on dispositions for the full year?

Yes. Maybe I'll start and if Brooks has any color he can add. For the full year, you know, our our disposition guide is is quite wide. As you know, it includes you know, a hold on. Sorry. Another call came in. It it includes kind of a you know, a normal course dispositions, know, example would be, you know, some Heldigs, but it also includes a meaningful number of assets that we've talked about how we can sell opportunistically at very attractive pricing. It is what I would characterize as noncore. And we've referred to, you know, call it several $100 million of those deals. So the average disposition cap rate for the year is very much gonna depend on the mix of assets we choose to sell. There are certainly scenarios that could put us in and around the execution we saw in 2025, especially if we factor in some some vacant sales. So, you know, we'll dial that in you know, as we execute and as, you know, the year continues. In terms of the $60 million I mean, it's a small amount. It really probably depends on on on the exact assets we we've disclosed. We we we tend not to go into that level of detail. I don't Brooks, if you have any commentary on on broadly, you know, if if that's any indication for rest of the year.

No. I think I think you've largely largely hit it. You know, we have closed a few transactions. The the largest so far in in, in Q1 was a warehouse property formerly leased at the time Joanne, which vacated We sold that at an extremely attractive price relative to the to the prior in place rent. I can show a specific cap rate, but highly accretive.

Got it. And then, yeah, just on the the noncore deals that that you've identified, to go above the high end of the guidance range? Can you just go into know, what's still available there?

What what's still available there? Yeah. Sure. I mean, it it it's a it's a mixture, you know, of assets, and, you know, maybe I'll just rattle off a couple. These are just examples, of course. I mean, we do have a a final property in Japan and given where rates are, where they are, those tend to sell tight. We have an operating student housing asset. A net lease hotel. And really, there's a number of assets that are leased to tenants. Who regularly approach us about repurchasing properties. Those tend to be at very aggressive pricing. Think that we can you know, answer the phone on on some of those if we feel a need to do it. And and and, of course, Brooks has mentioned the Joanne's deal, you know, is very attractive as a sub-six cap rate based on prior rent for a vacant asset. You know, good transaction there. But I think maybe the the important note is we have lots of flexibility here. We mentioned earlier that we feel that we've prefunded our equity needs for the year and and to the extent you know, we need to, if our deal volumes are higher than our initial guidance would suggest, you know, we can lean into some of these accretive asset sales. We can also consider you know, equity as well. We've certainly had a nice run over the last twelve months and equity is a lot more interesting too. But, you know, there's a lot of flexibility There's no immediate needs though based on our current deal volume guidance. It it's fully funded.

Got it. Thank you.

Thank you. And your next question comes from Smedes Rose with Citi. Please state your question.

I wanted to ask about a little bit more about your acquisitions outlook for the year. I understand you said that you were coming into the year from a conservative standpoint. But just going back and looking at some of your comments on your third quarter call, you know, you talked about having the infrastructure in place to support a similar pace of activity you were seeing in the 2025. And not seeing anything that would disrupt the pace of activity that you were seeing from a broader kind of macro perspective. It seems like this is, you know, more than conservative. It seems like a very market slowdown from what you're seeing and especially in light of what you've already talked about in a year to date. So can you just kind of help me understand a little bit more you know, conservative versus, like, if there's something disruptive that's happening that's slowing down the overall pace and trying to get a better sort of handle on that.

Yeah. No. There's nothing that we're seeing in the market right now that is that suggests there could be a slowdown. It's strong. Constructive, stable interest rates. And look, we're we're confident in our ability to continue generating high deal volumes. And and maybe we we're we're, you know, to what we did in 2025. And if you look back to last year, maybe at the beginning of last year, we took a measured approach to how we view guidance and that led to a series of increases throughout the year. And know, I think that's our preference going forward. So you can think about our initial guidance as a starting point And our expectation is that as we progress through the year and get more visibility into the back half of the year, we'll refine that range and hopefully, you know, raise it as we get in 2025. But but, you know, it's worth noting, and and and Tony mentioned this earlier, that even at the current midpoint, of what I think could be characterized as conservative deal volume guidance, you know, we believe we can achieve AFFO growth of over 4%, and that should be you know, very attractive, you know, relative to, you know, many, you know, of our of our net lease peers. I think also just look at where we've started the year. We're off to a good start. A little over $300 million closed already. I mentioned earlier that we have about $200 million of capital projects that we'll deliver this year and then a sizable near term pipeline that I would characterize as several $100 million. So we're probably ahead of pace of our initial guidance. But again, we don't have visibility into the back half of the year to necessarily extrapolate this initial pace out for the full year. So as we get more into the year, we'll continue to review it and and and hopefully be in a position to raise it.

Okay. You know, you talked a little bit more about, you know, you're leaning into to more retail, you need lifetime Fitness to your number three tenant. I'm just wondering if you could talk a little bit more about profile of that tenant. I know if you can give kind of coverage levels. And I and I'm just asking because it seems like the fitness world I don't know, can be subject to maybe a certain amount of kind of fickleness on the part of consumers and things come and go. I realized this is a popular asset class. Amongst the large, you know, net lease companies. But I'm just sort of wondering if you could talk a little bit about your comfort level of moving them to such a large position within the portfolio.

Yeah. Sure. I think, first of all, this is not a new tenant for us. You know, we've done deals with them in the past and had because of that, had good access to management during underwriting. Both on the credit itself, but also, you know, into the specific assets And we like lifetime as a credit. They're one of, if not the strongest of The US fitness operators. They're publicly traded, have a 6 to $7 billion equity market cap. Had a nice run since their you know, IPO, and they've been bringing leverage down as well. So it's a it's a good credit. We bought 10 facilities. These are all well located and affluent. And a highly desirable markets near dense retail. Very difficult to replicate these locations. I think our basis is very attractive, well below replacement costs. Low in place rents, and that's both for these locations but also relative to, you know, the rents that that Lifetime pays on you know, other properties throughout the country. And we also have strong site level coverage I I can't get into the the details on the specifics for it, but it's quite strong. And, you know, our understanding, it's it's it's you know, better than the median within their portfolio. I think the other part about this deal is the seller is a group we know well and have transacted with before on other portfolio deals, and they were exiting a fund. Looking to make distributions to their investors by year end. So that drove a quick close, and we think that dynamic contributed to the better than market economics. But but overall, I I think fitness is something that we've done some deals. Over the last couple years, but but, clearly, this is the largest one, and and we do like lifetime. And look. I don't live in the suburbs, I live in the city. But if I did and I live near Lifetime Fitness, I'd be a member. They're you know, I have a number of kids, and these are it's a great model. I mean, it's a very unique model relative to none of the other you know, fitness operators out there. These are more like country clubs with outdoor pools and water slides and restaurants and obviously very you know, large and modern, you know, fitness facilities and and workout rooms etcetera.

Okay. Thank you. I appreciate that.

Yep. You're welcome.

Your next question comes from Anthony Paolone with JPMorgan. Please state your question.

Thanks. Yeah. Just first one on credit loss, the 10,000,000 to $15,000,000. If I go back to last year at this time, I think the number you gave incorporated a couple of situations that maybe you wanted some room for like true value perhaps and maybe another one. So just wondering if any of the 10 to $15 million spoken for at this point or if that's just kind of the number you're you're giving yourself cushion on?

Yeah. I think you're you're setting the range. Or or or sorry. Go ahead. Sorry.

Sorry. Go ahead, Tony.

Yeah. We're setting the range there really to capture a wide variety of scenarios there. I think there's nothing really specific in portfolio at the moment. We set this range last year and this year. Our objective is really early in the year, taking a broad view so that we have no concerns around any AFFO impact from rent disruption. And I think that, you know, again, similar to what Jason said on the investment side, our guidance is set at a level where we can achieve over 4% growth even with a range of rent loss at this level. So again, nothing specific. It's it's probably the only uncertainty out there is in the macro environment. And it's something that, you know, we feel comfortable with at this stage of the game. But I think our goal here is to continue, you know, managing the portfolio, seeing the same limited level of disruption that we're seeing now and hopefully be able to reduce that and see some ups upside to our guidance.

Okay. Thanks. And then second question is coming up just on the balance sheet. You have two and a quarter percent euro bonds Where do those get refinanced today? And just any other details on how you're thinking about know, debt refinancing over the course of the year?

Yeah. Sure. Maybe I'll I'll start here. Don't know if there's any anything to add, Tony. But yeah, the 26 maturities are very manageable. It's two bonds. It's one in each market, a euro bond, and then later in the year, US dollar bond. Think the balance sheet's in great shape. We have access to, you know, multiple forms of debt and lots of flexibility right now given our liquidity. So, you know, I think our guidance assumes that we replace each bond coming due with unsecured debt probably in the same currency. I think that's what we will do, but, you know, we have lots of flexibility. In terms of where things are pricing, you know, the a a ten year euro bond is probably somewhere, you know, in the low 4% range and US is maybe 100 basis points inside of that. Obviously, we'll think about which tenors we want to do and to the extent it's a little bit less than ten years in Europe, which is maybe more the norm, we'll pick up some basis points and get inside of 4% is my guess.

Okay. Thank you.

Your next question comes from Jim Kammer with Evercore ISI. Please state your question.

Thank you. Good afternoon. Perhaps just an extension of that lost last topic. You you obviously have done a very nice job. It's been benefited the company having a lot of euro debt exposure. Could you remind me where do you stand in terms of capacity, in terms of it's about two thirds of your overall debt. Can you do a lot more there? Or are you thinking about that going forward in terms of your overall debt composition?

Yeah. Tony, do want to take that?

Sure. Yeah. I'd say we still have room in our capital structure to issue incremental euro denominated debt. You know, as Jason mentioned, we have a Eurobond that's maturing this year as well. And and a big part of our pipeline is denominated in euro. So we'll still have room beyond that. I'd say it still continues to create an effective hedge for us on both on the foreign currency side, and then, you know, it's really we're benefiting from a lower cost borrowing there. So I think you'll continue to see us access those markets when the time makes sense for us. But overall, we we do see that there's really no bright line at the moment. We have some room for additional capital there.

Okay. And then a different question. Obviously, you're not going all in on retail investing assets but thinking about protecting your above sector average escalator, weighted average escalator, can you get, you know, industrial like escalators on C stores in Europe or fitness centers in The U. S, etcetera? I'm just curious how that blend is incorporated into your numbers.

Certainly. I mean, in in Europe, I would say that retail, like industrial, typically has inflation based increases. So so I think that we'll continue to get that. Whether we're doing industrial or retail. I think in The US, you're right. We've always talked about this, that the bump structures in retail deals tend to be a little bit lower. I think that it's probably if we're doing industrial deals in the two and a half to 3% range, I would say that the retail deals are probably 50 to a 100 basis points below that, but it depends on the deal. I mean, I think that that sale leasebacks, a lot of times, you can, you know, kinda play with the different economics, and there's always trade offs. Between going in cap rates and what the bump structure is, which is why you know, we're always, you know, quick to remind people that it's not just the going in cap rate that matters. The the the cap rate plus the bump structure is important. And, you know, when we're investing in the mid sevens, based on a going in cap rate with bumps that are in the, you know, mid to high twos on average. That puts us to average yields in the nines, which I think is quite attractive. And you know, there'll be a mix of of of retail in there, but we don't think it's gonna be overall impactful.

Appreciate the comments. Thank you.

Thank you. And your next question comes from Michael Goldsmith with UBS. Please state your question.

Good afternoon. Thanks a lot for taking my questions. You talked about cap rates compressing this year to the mid to low 7% range versus 7.6% in 2025. So are there specific areas where you're not seeing that compression And is that does that help drive your acquisition strategy? You're just trying to understand what the implications of this of the cap rate compression is for your acquisition strategy.

Yeah. I mean, it's a good question, Michael. And and, you know, we tend to target you know, a diverse set of opportunities. The cap rate range tend to be quite wide depending on lots of factors. You know, certainly, the bumps that I mentioned on the prior question, you know, are a factor in that as well. You you know, I would say that the more commodity driven net lease is gonna have the most compression, and I think that's gonna be you know, investment grade retail is an area that we've seen that, and it's not something that we target. I would say mostly for that reason, is that the the the cap rates and the bump structures are are being driven down, you know, more and more there. I think on the other side of that, sale leasebacks which is maybe our specialty and where a large part of our deal volume is generated from, we're able to maintain, I would say, you know, cap rates that are, you know, closer to what we've done historically. I think there could be a little bit of compression there. I think we'll have more pricing power around there, and I think you'll continue to see us you know, have a a bigger emphasis on on sale leasebacks as as a means to source new transactions.

Thanks for that, Jason. And then just as a follow-up, you guys cited a roughly 150 basis points spread between dispositions and acquisitions. So is that expected to be is that sustainable this year? Or and just, you know, given what you're disposing, is that the right range to think about this? And then does that still make sense in a more competitive net lease environment?

Yeah. I mean, sure. I I I I mentioned earlier that that you know, our dispo range is quite wide and where we shake out on cap rates is gonna depend on what that mix is of what we actually sell, and it's a combination of of, you know, our normal course dispositions, which, you know, this year probably includes some Helvetigs among others. It's gonna be some of these kind of accretive noncore assets that I listed off earlier. And, you know, maybe we can probably factor in some vacant assets there as well, you know, like the the Joanne's asset that I mentioned. So when when you put all that together, we're probably in and around where we were last year. But, again, it's really gonna depend on the mix. You know, I think where we started last year with spreads, we we we we talked about that we think we can achieve at least a 100 basis points and then we dial that up through the year. That's probably a reasonable starting point for year. I I I think that cap rates could come down, but, you know, our equity price has gotten better to the extent, you know, we choose to fund deals with incremental deals above our investment volume with new equity. And I think there's also you know, number of assets we can lean into with very attractive pricing if we choose to fund you know, incremental deals, you know, through asset sales. But but we feel pretty comfortable we could be you know, in the same or similar ballpark to where we where we last year. And and and that certainly gives us a green light to keep on investing and and driving earnings growth.

Thank you very much. Good luck in 2026.

Yeah. Thank you.

Thank you. And before we take the next before next question, press the star, then the number two. Our next question comes from Ryan Caviola with Green Street Advisors. Please state your question.

Good afternoon, everyone. There were four vacant warehouse sales in the fourth quarter, and it sounds like there's a fifth after the quarter end. You just walk us through the decision on retenanting versus disposing of those properties? Were retenanting opportunities not there, or is the choice to sell just opportunistic? Thanks.

Brooks, do wanna take that?

Sure. Yeah. We look at vacancy just like we would any new investment You know, we wanna understand what are the forward looking risk adjusted returns that we can underwrite to where those returns are sufficient and attractive on a risk adjusted basis, we will aggressively lease properties up. you know, make those forward looking When available disposition opportunities returns insufficient, we won't hesitate to sell and do some quickly. So that's that's really the the exercise we we pursue. And so something like a Joanne where an owner occupier needed to own it and could pay a a large premium, you know, that that's a very easy decision for us on on a sale. But you know, elsewhere, we won't hesitate to to release properties you know, where we see a a a direct path to leasing velocity, and an ability to underwrite those forward looking returns.

Thanks. Appreciate that. And then it was outshined by the lifetime purchase, but there was the health care acquisition with NewAir, for a $140 million during the quarter. And I also noticed there is an expansion on the capital commitments with the same tenant. Just wanted to see if you could share color on the relationship there and if health care is a venue you view as attractive going into 2026.

Yeah. Sure. I mean, we're always looking to expand our opportunity set in health care as an area we been tracking for a while, and and we do have some in house expertise as well. You know, it's a competitive space, but know, we do think that there's probably opportunity to add some deal volume there over time. And it's a diverse sector. Lots of segments. I think broadly, it continues to outperform the real estate outperforms, and that's probably supported by long term dynamics of a growing and and aging population. So I think that what we target in healthcare, we still want to make sure it fits within our existing net lease framework. It's gonna be single tenant. Gonna be long term leases, typically absolute net, gonna wanna partner with We're gonna focus on strong site level coverage and, of course, you know, reputable operators and and credit worthy tenants. So yeah. So, you know, example of of of what we're targeting is what we we recently closed. And those are in the inpatient rehab facility space. You know, I think to be clear, we're not looking at acute care hospitals just when I talk about healthcare more generally. But on the on the New Era deals, there's one else that we did earlier in the year called Earnest Health as well, which is a large IRF operator at the same time. You know, these were all kind of somewhat recently developed. They're well located, attractive basis. I mentioned earlier, strong site level coverage, and and and they're good operators. So I think that the r IRF model is one that we like, and I think we could do, you know, hopefully, more of those. Anyway, one of them did come with an expansion. That is a one of the properties is performing quite well with you know, a lot of demand, and so it that's a an easy thing to do if you have the land to expand these properties and and and get the the kind of the operating leverage with additional rooms.

Got it. Appreciate the commentary.

Yep. Thank you. And I am at this time, I'm much showing any further questions. I'll now hand the call back to mister Sands.