Agree Realty Corporation Price & Performance (ADC)

Before turning the call over to Joey and Peter, discuss our results for the quarter, let me first run through the cautionary language. Please note that during this call, we will make certain statements that may be considered forward looking under federal securities law including statements related to our updated 2025 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 Q 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 in our earnings release, website and SEC filings, I'll now turn the call over to Joey. Thanks, Ruben, and thank you all for joining us this morning. We are extremely pleased with our performance in the first quarter of twenty twenty five as we invested over $375,000,000 across our three external growth platforms, while further strengthening our best in class portfolio.

This represents the largest quarter of investment volume since the third quarter of twenty twenty three and is characteristic of the accelerating activity that we're seeing across our three platforms. While the macroeconomic environment remains volatile and unpredictable, our company remains a bastion of stability and poised for growth. Our liquidity bolstered by our outstanding forward equity and swaps combined with our preeminent cost of capital position Agree Realty to again take advantage of market dislocations and disruptions. Year to date, we have added over a dozen team members initiated several systems improvements and sequenced multiple process improvements to accelerate our investment activities. This growing investment activity is supported by a fortress balance sheet with $1,900,000,000 of liquidity, over $1,200,000,000 of hedge capital. During the quarter, we raised another $181,000,000 of forward equity via our ATM program, effectively replenishing amounts settled in the first quarter and maintaining an ample runway to execute our growth strategy. With no material debt maturities until 2028, and pro form a net debt to recurring EBITDA of just 3.4 times at quarter end, Our fortified balance sheet provides significant flexibility and protection against capital markets volatility. Our balance sheet is paired with what we view to be the country's leading retail portfolio.

We launched the acquisition platform in 2010 with a focus on recession resistant retailers, that have adapted to a comprehensive omni channel strategy. Although we have yet to experience a traditional recession since its inception, our portfolio has proven to be pandemic proof and we remain confident it will be tariff resistant. We have and will remain focused on the country's biggest and best retailers sell necessity goods and services. Many of these retailers benefit from the trade down effect during tougher economic times. And they have the scale and balance sheet strength to mitigate higher input costs and withstand margin pressure. While tariff headlines continue to evolve and dominate the news flow, ultimately, we believe the bid will continue to get bigger in this environment. Further validating our investment philosophy over the past fifteen years. Given our robust investment pipeline across our three external growth platforms, we've increased our investment guidance range from 1,100,000,000.0 to 1,300,000,000.0 to 1,300,000,000.0 to $1,500,000,000 for the year. At the midpoint, this represents a 47% increase over last year's investment volume. As I mentioned, all three of our investment platforms continue to find compelling opportunities that hurdle both our qualitative and quantitative analysis. While increasing our investment guidance for the year, we will remain disciplined and thoughtful in our approach to asset underwriting and portfolio [indiscernible] during these volatile times.

In addition, we are raising the low end of our full year AFFO per share guidance by $01 to a new range of $4.27 to $4.3 representing over 3.5% growth at the midpoint and demonstrating the durability of our cash flows. As a reminder, this number includes realized potential treasury method dilution due to our significant forward equity position. Peter will provide additional details on our guidance range and the inputs shortly. Raising our investment and earnings guidance amid the current macroeconomic uncertainty demonstrates that our company is built for all markets. We thrive in periods of uncertainty where we can leverage our speed, relationships, exceptional team, balance sheet flexibility and superior cost of capital. We launched the acquisition platform on the heels of the GFC in 02/2010 doubled the size of the company during the depths of the pandemic and are always positioned to take on the next challenging economic period. Turning to our external growth activity, we had an active start to the year leveraging our unique market positioning and deep relationships retail partners to uncover opportunities across all three platforms. During the first quarter, we invested over $375,000,000 in 69 properties across all three platforms. This includes $359,000,000 of acquisitions across 46 assets.

Acquisitions during the quarter included a lender owned Home Depot in California, a sale leaseback with a leading national grocer and Albertsons backed Acme grocery store in Bronxville, New York an off market portfolio from a relationship seller a CarMax ground lease in Colorado, as well as approximately 41 off transactions. Our acquisition activity remains focused on industry leading necessity based retail. The properties acquired in the first quarter are leased to operators in sectors including grocery. Off price, auto parts, convenience stores and tire and auto service. The acquired properties had a weighted average cap rate of 7.3% and a weighted average lease term of thirteen point four years. Nearly 69% of base rent acquired was derived from investment grade retailers. And we continue to add to our ground lease portfolio during the quarter. We continue to see increased activities across our development and DFP platforms as well. During the first quarter, we commenced four new development or developer funding projects with total anticipated costs of approximately $24,000,000 Construction continued on 14 projects during the quarter with aggregate anticipated costs of approximately $80,000,000 We also completed six projects during the quarter, representing a total investment of approximately 27,000,000 These projects are with several leading retail partners including TJX Companies, Burlington, seven Eleven, Boot Barn, Starbucks, Gerber Collision, and Sunbelt Rentals.

Our development in DFP pipeline continue to grow with several upcoming starts we announced in the near future. Our asset management team continues to proactively address upcoming lease maturities. We executed new leases extensions or options on over 584,000 square feet of gross leasable area during the first quarter. This included a Walmart Supercenter in Rancho Cordova, a Home Depot in Farmington, New Mexico, and 16 geographically diverse AutoZone leases comprising over 100,000 square feet. We remain well positioned for the remainder of the year with only 30 leases or 90 basis points of annualized base rents maturing. Quarter over quarter, our pharmacy and dollar store exposure declined twenty and thirty basis points respectively. We have been clear that our exposure to both of these categories peaked within our portfolio before their challenges had become newsworthy. As of quarter end, our best in class portfolio comprised 2,422 properties spanning all 50 states. The portfolio includes two thirty one ground leases comprising nearly 11% of annualized base rents. Our investment grade exposure stood at 68.3% and occupancy remained solid at 99.2%. This number represents a temporary dip as we continue to resolve the former remaining Big Lots in our portfolio. Our second former Big Lots in Cedar Park, Texas was successfully released to ALDI at a net effective rental lift of nearly 50% during the quarter while an additional store was acquired during the bankruptcy process for a variety of wholesalers.

Rent has already commenced on both of these locations. We anticipate further announcements on the next call about the remaining Big Lots in our portfolio. With that said, I'll hand the call over to Peter to discuss our financial results for the quarter. Thank you, Joey. Starting with the balance sheet, we remained active in the capital markets during the first quarter. Raising approximately $181,000,000 of forward equity via our ATM program. We also settled 2,700,000.0 shares of forward equity for net proceeds of approximately $183,000,000 Additionally, we established our inaugural $625,000,000 commercial paper program during the quarter. The program allows us to tap into another pool of short term capital and further diversifies our balance sheet. We anticipate that we will be able to efficiently fund our short term capital needs on the program at rates that are substantially lower than our revolving credit facility today. Since the end of last quarter, we have taken further steps to hedge against interest rate volatility by entering into $125,000,000 of forward starting swaps. In total, we now have $325,000,000 of forward starting swaps effectively fixing the base rate for a contemplated ten year unsecured debt issuance at roughly 3.9%. Combined with approximately $920,000,000 of outstanding forward equity, we have over $1,200,000,000 of hedge capital which provides critical visibility into our intermediate cost of capital particularly during this uncertain period.

At quarter end, we had liquidity of approximately $1,900,000,000 including the aforementioned forward equity and availability on our revolving credit facility. Pro form a for the settlement of all outstanding forward equity our net debt to recurring EBITDA was approximately 3.4 times.

Excluding the impact of the unsettled forward equity, our net debt to recurring EBITDA was 4.9 times. Our total debt to enterprise value was under 26%, and our fixed charge coverage ratio which includes the preferred dividend, remains very healthy at 4.3 times. Our only floating rate exposure was comprised of amounts outstanding on the revolver at quarter end And as Joey mentioned, we continue to have no material debt maturities until 2028. Our balance sheet is extremely well positioned to execute on our accelerating investment activity across all three external growth platforms.

Moving to earnings. Core FFO per share was $1.04 for the first quarter, which represents a 3.1% increase compared to the first quarter of last year. AFFO per share was $1.06 for the quarter, representing a 3% year over year increase. As Joey highlighted, have updated our full year 2025 outlook to reflect our strong start to the year. We raised the low end of our full year AFFO per share guidance to a new range of $4.27 to $4.3 which implies year over year growth of more than 3.5% at the midpoint. 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, as well as income tax and other tax expenses. In addition to those inputs, our earnings guidance for 2025 includes anticipated treasury stock method dilution related 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 roughly $02 on full year 2025 AFFO per share. That said, the impact could be higher if our stock moves materially above current levels or if we were to issue additional forward equity. Our growing and well covered dividend continues to be supported by our consistent and durable earnings growth. During the first quarter, we declared monthly cash dividends of $0.02 $53 per common share for January, February, and March. The monthly dividend equates to an annualized dividend of almost $3.04 per share and represents a 2.4% year over year increase. Our dividend is very well covered with a payout ratio of 72% of AFFO per share for the first quarter. We anticipate having almost $120,000,000 in free cash flow after the dividend this year. Up approximately 15% from last year.

We view this as another source of cost efficient capital while maintaining a robust and growing dividend. Subsequent to quarter end, we announced an increased monthly cash dividend of $0.02 $56 per common share for April. The monthly dividend equates to an annualized dividend of over $3.07 per share, and also represents a 2.4% year over year increase. 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.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you wish to decline from the polling process, please press star followed by the two. And if you are using a speakerphone, please lift the handset before pressing any The first question comes from Ki Bin Kim at Truist. Please go ahead.

Thank you. Good morning.

So Joey, you guys raised investment guidance by $200,000,000 You guys also mentioned the treasury stock dilution method. What were there other detracting items? Because I would have thought you guys raising that much of your investment guidance that the AFFO guidance would been more than $0.05 Thank you. Good morning, Ki Bin. No other detractors. Obviously, we've included as Peter mentioned in the prepared remarks, approximately $02 treasury method anticipated treasury method dilution that's already already hit the P and L, but also throughout the year. Obviously, can't predict the stock price on a daily or for an annual basis. Here. But we've been conservative, we think, and appropriately included that treasury method dilution as it incurs and what's incurred to date. Peter can talk about any other puts takes in there, but that's really the only offset to the investment increase. Ki Bin, yeah, this is Peter. In terms of other puts and takes, there's to Joey's point, really no other offsets. If you think about the incremental $200,000,000 of investment spend this year subject to timing of that investment spend and spread. We think that that should translate to about $1,000,000 or so of incremental earnings or about a penny.

Obviously, at the low end of our guidance range, we took up the range by point $1 We didn't touch the top end.

That's really a reflection of the fact that we do anticipate treasury stock method dilution will be closer to that $02 rather than $01 to $02 given where we're trading currently and obviously that remains subject to where we trade for the remainder of the year and you know, any other capital markets activity throughout the year as well.

And I guess it's a high class problem that your stock price goes higher and creates treasury stock dilution. But when does the kinda calculus start to work out so that we can start to get to, you know, a plus, like, 4% type of AFFO per share growth rate or more from [indiscernible] I think in the near term. Obviously, subject to macro conditions, are outside of our control, this business is built for that. And so we made a decision to pre equitize the balance sheet, put hedges in position in terms of the swaps this year in anticipation. Of increased volatility. But we think that algorithm kicks in there outside of just balance sheet protection and treasury method dilution.

Okay. Thank you.

Thanks, Ki Bin.

Thank you. The next question comes from Smedes Rose at Please go ahead.

Hi, good morning.

I just wanted to ask you a little bit about some of your tenant exposure. It looks like grocery exposure went up by about 90 basis points and within that, your name, Tennant's Kroger's was up. And I was just wondering, is that any specific change in your strategy around groceries or is that more just sort of a one off opportunity that you found during the quarter?

Good morning, Steve. That was a one off predominantly in the quarter. I also mentioned the Acme in Bronxville, New York. That we acquired as well. We'll continue to find dominant grocers across the country. There's a number in the pipeline already for the second quarter. We continue to believe that the dominant grocers will gain share here. Given the macro obviously, but also just the challenges for small growth to operate in a 2% margin business. Ex tariffs and all the other noise out there?

Okay. And then just maybe just touching on tariffs. Given your tenant exposures, anyone that you are particularly maybe concerned about or watching more carefully particularly given higher tariffs with China specifically? Which I realize is kind of a moving a very fluid situation, but what's on your radar?

I appreciate you acknowledging the moving and fluid situation. It seems to be day to day. I'll be honest, there really is really is nobody that we're overly concerned with tariff inputs the portfolio today. Now all retailers subject to carve outs and exclusives. Obviously, the electronics carve out for the truth social post or whatever it was last week alleviated concerns for computers and televisions. Now that could all obviously change. But we think this portfolio is in tremendous position continue to benefit from the trade down effect. As you mentioned, grocery obviously, with the economic conditions where they are, people will stop eating out. Auto parts, you've seen that accelerate in our portfolio. These new cars will be impacted significantly by tariffs. The average new car in this country is already approximately $45,000 That's pre tariff. Tire and auto service, another category we highlighted during prepared remarks. Off price retail. Where one of TJX's and Burlington's largest landlord, we continue to think they'll gain from from any tariff implications. So we think this portfolio, as I mentioned in the prepared remarks, was built to be recession resistant. We haven't heard it hit a traditional recession since 2010 upon its inception.

But approved to be pandemic resistant and we're very confident it will be ultimately whatever way, shape and form tariffs pan out will be tariff resistant as well.

Okay. Thank you.

I appreciate it.

Thanks, Smedes.

Thank you. The next question comes from Arjory Milligan at Raymond James. Please go ahead.

Hey, good morning guys. Joey, I was wondering, as you are having conversations with your development partners, what's their current appetite for opening new stores? Has there been a pause? Just trying to get a broader market read there. Good morning, Arjun. We have not seen any pause to date, this is a volatile and fast moving environment The team was with a number of retailers this week and will be again with two or three in the up upcoming couple days here. We haven't seen a pause. We've actually seen an announcements. Sam's Club has announced that they're opening net new stores. Kroger's made announcements. In terms of remodels and net new stores in the past two weeks as well. And so we have not seen that pause We haven't had any deals frankly tabled or put on hold either yet, but obviously again, this is a fluid situation which is out of our control. But again, I think when you have a discount oriented necessity based tenant roster, those tenants today, I don't think are overly scared by tenant tariffs. I think a lot of them see this as an opportunities As I mentioned in the prepared remarks, the big are getting bigger.

And this is what we've effectively built this portfolio and constructed around. To invest in price, they have to. To invest in labor and invest in omni channel fulfillment and tariffs will require retailers to effectively invest in price unless they're going to pass that entire tariff on to the end consumer. Thanks. That's helpful. And wanted to move over from a portfolio standpoint, is there any tenants out there you know, obviously, is not really tariff related. Where you're just keeping a watch on them and saying, you know, ex the tariffs, there might be some fundamental issue? No, no new entrants into that, obviously, are what are the three movie theaters total in the portfolio. We continue to watch, we have been proactive in reducing, as I mentioned in the prepared remarks, dollar store and pharmacy [indiscernible] That was prior to the headlines in 2024. And so there there really no no changes to our watch list here. Just one last follow-up. In terms of cap rates, Where do you think we end the year in terms of Agree's acquisition cap rates? Is it going to be higher or lower in sort of how do you think about the inputs there?

RJ, to be frank, I have no idea. The volatility in ten year treasury, which has been historically obviously the base rate for the world, fear read spectrum, continues to vacillate, obviously we're on the fear side We are just starting effective Monday. Building our Q3 pipeline, given our sixty six, sixty seven days letter of intent to close. Think this is going to be a volatile world. I think it's going change. I think the volatility doesn't effectively move cap rates as a secondary impact. I think the volatility that we were frankly accustomed to all of us are accustomed to, inclusive of real estate owners. When you have 10%, 15% swings in the ten year treasury, these used to be aberrations. They seem to happen on a month basis. Now if not a daily basis with 3%, 5% swings. And so none of this volatility effectively moves cap rates. Ultimately, I believe that owners of real estate and perhaps those that have secured interests in real estate ultimately make a disposition or investment decisions based upon the fear greed spectrum. And so the ten year going sub four or the ten year piercing five move cap rates. But with the ten year moving between four point two and four point six and just use using a band here, don't think that ultimately moves cap rates in any material way just because of the frankly people being accustomed to that volatility.

Great. That's it for me. Thanks, guys.

Thanks, RJ.

Thank you. The next question comes from Michael Goldstein. Smith at UBS. Please go ahead.

Good morning. Thanks a lot for taking my question. Maybe a similar question that was just asked from a different angle. Have you seen any changes in the transaction market post the April 2 tariff now? Does maybe not directly from the tariffs, but just from the overall uncertainty. You sort of touched on the cap rate environment, but are you seeing any changes in competition or any deals pulled just given the uncertainty?

No deals pulled. Competition remains extremely limited. Obviously, the ten thirty one buyer has effectively been cut in over half just due to the commercial real estate transactional volume. Being down by half, the lack of liquidity invested markets. [indiscernible] We see very limited competition. I often make the analogy I did during fourth quarter of door versus a window. We see a door here. In our balance sheet, our cost of capital as I mentioned, as well as our portfolio and the tremendous team here we have is going to take advantage of that opportunity. And so we took advantage of the opportunity during the GFC. We took advantage the opportunity during COVID obviously when we doubled the size of the company. We see a like kind opportunity potentially on the horizon, obviously, subject to the next truth social. Post here, and and and changes in the macro. But with limited competition across all three investment platforms, and with our core strengths here, this is a tremendous opportunity for our company to continue to grow this portfolio in an accretive manner and solidify it as the preeminent, now lease portfolio in the country?

Thanks for that. And as a follow-up, on slide 22 of your presentation, you highlight what you're investing in in and what you're not and you call out the avoidance of private equity sponsorship. So, just given where we are in the cycle and the uncertainty what's been your experience with private equity sponsor sponsorship at this point in the cycle? Just give them some of that uncertainty. Thanks.

Ultimately, and this isn't for this part of the cycle, seek to work and partner with retailers that have a long term perspective on the operations of their business. So special dividends levering up the balance sheet opcopropco structures, sale leasebacks, to improve liquidity and frankly, in order to special dividend it out, probably. Those just aren't things that we believe work in a twenty first century omnichannel world, which is hyper competitive. And so we'll continue to focus on our sandbox as the 30, 35 biggest and best retailers in this country. Country rated or unrated and a few sub investment grade rated retailers that are selling essential goods and services that have long term sponsorship and ownership. Frankly, private equity doesn't match that duration for us.

Thank you very much. Good luck in the second quarter.

Appreciate it.

Thank you. The next question comes from Linda Tsai at Jefferies. Please go ahead. Hi. The temporary occupancy dip from Big Lots would that be resolved by year end?

Oh, yeah. I would anticipate that would be resolved much sooner than year end. Most likely by the end of the second quarter. And so we've resolved the number of them. The off price retailer in Manassas, Virginia was the first one where we have a net effective lift Peter jump in. Over 150%. Net effective lift of over 150% Cedar Park, Texas is released with a net effective rent lift of approximately 50% to a large German based grocer [indiscernible] acquired in the bankruptcy by a variety wholesalers and we're working through those others to have solutions here, but we think they will be favorable and not a concern.

And then for the 50 to 150% rent uplift is there CapEx involved?

That's a net effective basis, not same store NOI. So the lease that we purchased in bankruptcy we purchased for a couple hundred thousand dollars and that was the only truly expense on that. It was an as is basis. Same with the grocery in Cedar Park, Texas with that approximate 50% net effective rent lift. And then the variety wholesalers dealer they came current and so that's just the same rent as Big Lots. Was paying prior. And so continue to work on leasing a number of these assets and have letters of intent in hand. From large national retailers predominantly. That's our focus there, our first order of business. And we hope to further expand upon it on the q two call.

And then the comment about drug and dollar stores peaking in your portfolio before it became newsworthy.

What were you looking at to recognize this trend? Was it shift in traffic or rent coverage?

Different perspectives on each sector. Pharmacy, we've been pretty adamant about our Walgreens exposure. We were pretty adamant about Rite Aid's future, know, the bankruptcy and liquidation will occur any day, most likely now. Obviously, that's been a a theme through the past fifteen years of our history in terms of Walgreens disposition going from over 40% to sub 1%, But most importantly, as we talked about on other calls, 13,000 to 14,000 square foot boxes with approximately 11,000 square feet of front end space paying $20 to $30 per square foot that is really isn't relevant in today's world. It isn't something that we're overly attracted to. That said, we'll continue to work on unique pharmacy opportunities where we think the basis is rental basis is appropriate or high store sales or barriers to entry. I'd remind everyone, our largest two pharmacy exposures in terms of asset size are Greenwich, Connecticut on Greenwich Avenue, the CVS and the Walgreens on the corner of the diag, the best piece of real estate and the University of Michigan. And so the pharmacy space, we've obviously made a concerted effort to reduce. Dollar stores, we just saw them being overbuilt frankly. We took advantage in the twenty twenty three of merchant developers that were stressed.

And took some of those properties out. We've never engaged in a sale leaseback with a dollar store operator. Very different themes running through dollar general and dollar tree Family Dollar, but we we saw the space as overbuilt. But also, we were having challenges getting our arms around the pricing in conjunction with the residual. And so you'll see, and I mentioned in the prepared remarks that they fell year over year, quarter over quarter. They peaked in 2023 and we were pretty clear on the Q3 twenty twenty three call that that would be the case.

Thanks for that helpful context. Just one last one. The dozen team members you added, what departments were they located in, and has AI reduced the need to staff up in other areas?

Certainly. So roll back the clock, 2024, obviously, we start with the do nothing scenario, effectively a hiring freeze. We are more than caught up now. This is all built into our G and A G and A forecast for the year that we've provided. To the street. Those team members are strewn across the entire organization from HR to IT to acquisitions, construction development, analyst, accounting, asset management, lease administration, We are built and poised for growth. Simultaneously, we have deployed effective in the last month a new AI module, which eliminating legal costs significantly for us and we got an update actually yesterday from our General Counsel that we're very pleased with the results continue to make some tweaks there. AI will continue to be deployed throughout this company. We have been utilizing AI for lease abstraction Again, correct me. 2022. Yeah. Dating back to 2022 when no one was talking about AI. We think there's significant opportunities both within our underwriting as we launch the next iteration of ARC. 2026 to deploy AI but also I would tell you in overall transactional expense.

Thank you.

Thanks, Linda.

Thank you. The next question comes from John Kilachowski, at Wells Fargo. Please go ahead.

Thank you. Good morning. Joey, you touched on this briefly earlier, but how will tariffs that they stay on impact your go forward strategy as it relates to investments? And if so, would you not expect tighter pricing on those assets? I don't think tariffs impact our go forward strategy, really at all. I I don't think tariffs ultimately impact. I think all retailers will be subject to various levels of tariffs. If this continues to go down this route and I think effectively the biggest retailers in the country that sell necessity based goods and services will benefit. And so you'll continue to see us invest in the Walmarts Home Depot's and Lowe's and O'Reilly's AutoZone's, the dominant tire and auto service operators, dominant C stores throughout the country, off price retail, I think all of these sectors are effectively winners in a large tariff environment. There may be some short term pain, but long term they have the balance sheets, the market position to continue to thrive. Got it. And then in a similar vein, on the bad debt non reimbursable side, is it just too early to change your outlook? Or do you feel very comfortable with the conservatism already built in?

I'll let Peter hit it. I think it's it's pretty early to change the Outlook. Obviously, that Outlook incorporated the few big lots that we continue to work through. But I think it's it's frankly pretty early here, so in the April. Yeah. John, just to to hit specifically on on credit loss and and our guidance for the year, our 2025 earnings guidance as I mentioned on the last call, includes an assumption for 50 basis points of credit loss. And that included an allowance for big lots as we've talked about on this call. In Q1, we experienced roughly 30 basis points of credit loss. And that compares to the 35 basis points roughly that we experienced in 2024. So based on what we have line of sight into today, we feel good about the credit loss guide embedded within our earnings guidance and how the portfolio is continuing to perform. And just to expound upon our 50 basis points of credit loss a little bit. That 50 basis points is a fully loaded number for any lease expirations where we are carrying a vacancy taxes, insurance, maintenance of the building, any rejections in bankruptcy, again, where we are any taxes, maintenance, any expenses that 50 basis points has no carve outs, has no footnotes, has nothing in there.

That's a fully loaded 50 basis points that we put in there that is akin to our underwriting on the acquisition side, right? To truly understand the full economic impact and to provide The Street transparency into that full economic impact.

Just to confirm, the the 40 bits of occupancy loss, would that have been included?

Yep. That was it's specifically tied to the the the of big lots, and it's included in that number. Okay. Perfect. Thank you.

Thank you. The next question comes from Ronald Kamdem at Morgan Stanley. Please go ahead.

Hey, just two quick ones. Just going back to the development and the DFP platform, any sort of early indications of how much construction costs could be going up and how are you guys thinking about sort of your yield requirements for that channel?

Yeah. Great question, Ron. We have done a preliminary in had third parties also do studies on tariff implications, obviously a moving target The tariffs would mostly affect obviously the hard costs call it the vertical costs here. In terms of construction, we would anticipate a 2% to 5% on the high end increase in tariffs. Obviously, those assumptions have to be broken out by country. Some of them are indirect in terms of input, right? Input costs, finished product here. We don't think there's any material moves in our construction costs for tariffs here. Again, projects are effectively rectangles. And so we have our arms around Your second question, Sairon?

Yeah. Sorry. Part part part two.

Just I don't think we've hit on sort of the the dispositions yet. Just any sort of thoughts indication there would would be helpful.

It didn't change the guidance for this quarter. It didn't change our annual guidance. I don't think you'll see us change that annual guidance this year unless there's some sort of change, frankly. I think we have done a tremendous job weaning out assets that we think were core in the portfolio over the last several years. That said, we'll look at opportunistic dispositions. We have inbounds all the time. We'll continue to look for opportunities to prune the portfolio. As we get feedback, either on the ground level or the corporate level. Or if we just think something is above market and the retenant ability is limited. So I don't see dispositions being a major contributor in terms of capital this year. But I will continue obviously to be active on that front, but I don't think it's not a priority as it was last year when were focused on recycling capital.

Helpful.

Thank you.

The next question comes from Spencer Glimsher at Green Street. Please go ahead. Thank you. Just one for me. As you started working through your 2Q acquisition pipeline, have you guys observed any cap rate movements or changes to the bid ask spread in any particular retail segments?

No. Good morning, Spencer. Q2 is effectively built. Subject to diligence and closing, Q2 is effectively built just using that sixty five day plus transaction timeline from letter of intent execution, we're effectively to close, we're effectively through Q2. If you look at the volatility in the ten year treasury during that sixty sixty five, seventy day sourcing period, obviously the ten year dropped, then it pulled back up.

Having a hedged position in terms of both forward equity and the swaps in place, allows us to be frankly consistent. And so this is not we're not in a situation where we have to constantly be changing our targets in terms of yield hurdles. We'll see how Q3 now plays out. Again, that sourcing effectively starts on Monday or Friday of this week.

Just given our our traditional transaction timeline. And then, frankly, I have no idea what the next again, what the next move from the administration will be, where the ten year treasury goes, where our stock price goes. But the good news is we're locked and loaded. And we'll come into with a running start here.

Okay. Understood. You have the pricing power, I guess, and you don't have to be volatile, as you mentioned, in terms of your cost capital. But did you observe anything in terms of tenant ask or where kind of pricing expectations were on the other side of the bidding?

Not really. I think the only thing we noticed is some of the larger institutions would like to play in space given the dislocation in the debt markets. Could be out for a little while here. As spreads widened out or the ten year treasury yield spiked. But again, I forewarn everyone the number one sale leasebacks is a minority of what we do. We're traditionally a third party acquirer. We think we create more value there rather than being just a financier of real estate. And then two, drawing drawing parallels or even putting threads through transactions in this massive fragmented individually owned market called net lease is very difficult. I gave some examples of the transactions that we executed on the acquisition front in Q1. They were wholly disparate from a sale leaseback with a national grocer to a portfolio with a relationship seller, it's probably seven or eighth transaction with that seller to a family office that owned the Bronxville Acme grocery store. And so the seller pool remains extremely disparate. We're seeing more institutions come to the table to recycle capital and potentially dispose of assets. We're in those types of conversations. We're also in the midst of a conversation with a 80 year old widow about a transaction.

Who effectively owns a portfolio that her husband acquired. And so at the end of the day, the aggregation of those transactions comprise the quarter and the I always say the most exciting part about this business is you never know where the next one's gonna come Great, thank you.

Thanks, Spencer.

Thank you. The next question comes from Jenna Gillan at Bank of America. Please go ahead. Thank you. Good morning. Just following up on the commercial paper program, Peter, can you quantify the spread relative to the revolver and if this benefit is included in the updated guidance, or did you already plan to launch the program with the initial guide?

Sure. Just in terms of pricing on the commercial paper program, obviously, closed on the program on March 31, dependent on the tenure of commercial paper notes that we're issuing as well as conditions in the commercial paper market which are subject to change.

Today, we think we can issue commercial paper notes 40 plus basis points inside of our borrowing cost. On the revolver The current borrowing cost on the revolver at quarter end was around 5.2%. For reference. To date, so far in Q2, we have been active in the CP market. And use that for short term borrowings and in our current guidance range, we have contemplated the impact of using commercial paper throughout the year as appropriate.

Thank you. And I know you think of your kind of long term WACC, but just between this and the swaps that you have in place, I mean, think investment spreads should be kind of at historic highs currently.

Can you maybe comment to that?

I would agree, absent the death of the pandemic when rates were at effectively zero and we were issuing ten year paper at two plus percent and perpetual preferred at four and a quarter. There's no doubt that our investment spreads are wide We'll be the beneficiary of those investment spreads and our superior cost of capital here, but we're no doubt in an advantageous position.

Thank you.

Thanks, Anna.

Thank you. The next question comes from Jim Kamrook at Evercore. Please go ahead.

Good morning. Thank you. Joey, obviously, you had the conviction to raise your investment volume for the year.

Is that really built just expanding with your existing relationships? Or have you kind of started to identify additional partners?

All over the board, Jim. It's existing relationships. It's additional partners, it's the breadth and depth of the coverage that this team has across the country. We are the go to buyer for net lease retail, high quality net lease retail assets, bar none. Today. And so I think our transactional history, the quality of the team, our marketing and e marketing campaign, they all nerd to our benefit here. Our ability to look at real estate with a different lens our relationships with the retailers, the end users of these properties is the secret sauce. Part part of the secret sauce. And so it's all of the above and more. [indiscernible] Ground leases have about a nine and half year remaining WALT. Is that remind me, is that through final expiration, or is that really just the first potential extension? Because I'm kind of thinking about potential organic growth opportunities. So any help there? Thank you.

That's exclusive of options just as well for the remainder of the portfolio.

Got it. Thank you, guys.

Thanks, Jim.

Thank you. The next question comes from Upal Rana at KeyBanc Capital Markets. Please go ahead.

Great. Thank you.

Joey, you mentioned seeing more opportunities in the development and DFP side, and you noted the increase in construction costs as well, but just wondering how big do you think the development pipeline could potentially get from here?

So we set that medium term target putting $250,000,000 in the ground per year we are on track. Again, that's a medium term target, not for this year. We are on track. Our pipeline and our shadow pipeline pipeline are very large. They're obviously subject to diligence and closing conditions, sometimes entitlements as well. I would tell you very distinctly our development platform and the team has done a tremendous job. We've added team members that have really hit the ground running and Craig Ehrlich and his team, our Chief Growth Officer, are working with retailers all the time has a very significant pipeline. And then our developer funding platform continues to benefit from just the lack of what liquidity out there. As well as unknown exit cap rates through other third party developers. And so we've used our developer funding platform as a bridge to get projects across the finish line. A lot of them are directed to us by retailers. Some sourced by the acquisition team, by our development team here. But both pipelines, they don't get a lot of don't get a lot of headlines. But both pipelines, we think, combined with our acquisition and active asset management platform, provide really a full service value proposition to retailers and it's recognized by all of them today that we can step into any and all types of situations and frankly create value and and provide for value in that partnership.

Okay, great. That was helpful. And then just a quick follow-up on the commercial paper program. Does this put ADC in a position to push more on investments in the future, especially combined with your increase in team members?

No, I think the commercial paper program, as Peter mentioned, while priced inside of the revolving credit facility, we don't use a revolver short term cost of capital to impact or to impact or even in our calculus for our way average cost of capital. These are these are short term borrowing needs commercial paper program effectively supplants the use of the credit facility at cheaper pricing. But that does not impact how we look at deals or impact our weighted average cost capital.

Okay, great. Thank you.

Thank you.

Thank you. The next question comes from Rich Hightower at Barclays. Please go ahead.

Hey, good morning, guys. Thanks for taking the question. I really just got one.

But I want to go all the way back to Ki Bin's line of questioning start the call. Just on equity issuance. Now I think we all appreciate the TSM dilution conundrum and things like that but it is sort of a high class problem and so it looks like equity issuance went down quarter over quarter relative to the fourth quarter stock price has done obviously very well you know and relative year to date so maybe why not lean in a little more to equity issuance in this environment especially if it seems like the the acquisition pipeline is biased to get bigger, not smaller.

Thanks. Well, I think if you book it, the amount settled during Q1 of existing [indiscernible] Plus net of what we issued, we effectively ended up neutral. Right? 3.3, 3.4 times, just over a hundred and $80,000,000 each. And so the balance sheet while deploying $370,000,000 approximately. Ended up effectively in neutral position. And so we continue to have nearly $2,000,000,000 in hedged capital We have significant liquidity. We're in there's $2,000,000,000 in liquidity, excuse me, and $1,300,000,000 of hedged capital approximately. And so we're in a terrific here from a balance sheet of liquidity and cost of capital perspective to execute on our pipeline. Did I answer your question?

Yeah. It does. I mean, I didn't know if there was any sort of internal back and forth on if it makes sense to go any bigger in that light. But obviously you guys are in a really great position. No one would dispute that. Actually, if I may ask a quick follow-up just again on bad debt. I think you guys have articulated pretty clearly how that gets built up but just to be clear is that a it sounds like from your perspective given the creditworthiness of the tenant base it really is kind of a [indiscernible] bottoms up location by location, tenant by tenant situation. Build up to get to that 50 basis points. Is there any sort of general credit overlay on top of that that gets you to the 50 or is it really sort of highly highly specific as it as it as it sounds at at least from from my end?

Yeah, thanks, Rich. This is Peter.

I think in terms of the buildup and how we think about that 50 basis points of credit loss, I mentioned in the first quarter we had roughly 30 basis points of credit loss.

And so, answer your question, it is a location by location and tenant by tenant build up. That we look at as we think about credit loss based on what's identified or known today I think the 30 basis points that we experienced in Q1 we anticipate more or less seen throughout the remainder of the year. And then we have some level of cushion if you will built into that 50 basis points that allows for other potential tenants that we're monitoring, but there's not a known issue today.

Okay. Helpful. Thank you, guys.

Thank you.

Thank you. We have no further questions. I will turn the call back over for closing comments.

Well, you all for joining us this morning. We look forward to seeing everybody at the upcoming conferences and we appreciate your time. Thank you.

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