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

Thank you. Good morning, everyone, and thank you for joining us for AgriRealty's second quarter 2025 earnings call. Before turning the call over to Joey and Peter to discuss our results for the quarter, let me first run through our 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-K for a discussion of various risks and uncertainties underlying our forward-looking statements. In addition, we discussed 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 gap 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. I am extremely pleased with our performance during the first half of the year, having invested over $725 million across our three external growth platforms while further solidifying what we believe to be the preeminent retail portfolio in the country. The $725 million-plus invested year-to-date represents a more than two-fold increase relative to the first half of last year. All three of our external growth platforms have broad and expansive pipelines and will see acceleration in the third quarter. Hence, we are raising our full-year investment volume guidance once again to an updated range of $1.4 to $1.6 billion. The midpoint of this range represents a 58% increase over total investment volume for last year. Most exciting is not the defensive nature of our portfolio or balance sheet in a dynamic world it is now our dominant market position driven by a best-in-class team that executes on hundreds of transactions annually across our three growth platforms this value proposition is unparalleled and when combined with our internal asset management platform and deep retailer relationships has built a differentiated and unmatched company it has been 15 years in the making since this vision was outlined in our one-page operating strategy, December of 2009 to be exact, and I am delighted to say that it has been realized. I am confident that these factors will drive an increased earnings algorithm in the coming years without moving up the risk curve in any manner. We continued to expand our war chest during the quarter, now having raised over $1 billion of capital year-to-date with $1.3 billion of outstanding forward equity. With over $2.3 billion in total liquidity, no material debt maturities until 2028, and pro forma net debt to recurring EBITDA of just 3.1 times a quarter end, our balance sheet remains best in class and is positioned to support our growth well into next year. To support this growth, we've continued to scale our team, enhance our systems, and refine our processes, building a well-oiled machine and widening our competitive moat. We've added over 20 new team members year-to-date across the organization, increasing the scale of our horizontally integrated platform to support current activities as well as growth for years to come. We have driven industry-leading efficiencies with the deployment of additional systems, including AI and machine learning tools, as well as enhanced and integrations and streamlined workflows. Additionally, we have commenced the next iteration of ARC, which will come online next year. We've already started to reap these benefits in 2025 as we're raising our full-year AFFO per share guidance by $0.02 at the midpoint to a new range of $4.29 to $4.32. This represents over 4% growth at the midpoint and demonstrates our ability to provide consistent and reliable earnings growth without deviating from our investment strategy. Peter will provide further details on the guidance range and its key input shortly. We continue to see the biggest and best retailers take market share, which acts as a tailwind to all three of our external growth platforms. Even in today's uncertain macro environment, we are seeing the highest level of retailer demand for new brick-and-mortar locations since the great financial crisis. Nearly every retailer in our sandbox is focused on adding net new stores, underscoring the critical role that retail net lease assets play in an omni-channel retail world and is outlined in our previous commentary in white papers. Moving on to the second quarter in detail, we invested over $350 million in 110 properties across all three platforms. This includes $328 million of acquisition volume across 91 high-quality retail net lease assets. Notable acquisitions during the quarter included a sale leaseback with the leading national auto parts retailer, a one-off Walmart supercenter in Ohio, and a $75 million grocery-dominated portfolio representing one of our largest non-sale leaseback transactions since the inception of our acquisition platform in 2010. This unique opportunity was owned by an elderly woman and was sourced through 18 months of working an off-market opportunity. These differentiated examples underscore the strength of our platform and its ability to source differentiated opportunities in a substantial and highly fragmented space. The acquired properties had a weighted average cap rate of 7.1% and a weighted average lease term of 12.2 years. Over 53% of base rent acquired was derived from investment-grade retailers, and we continue to add to our ground lease portfolio during the quarter. We anticipate selling a few lower-yield non-core assets from the aforementioned $75 million grocery-dominated portfolio, which will improve both acquisition cap rate and investment grade percentage for the quarter post-disposition. Although we only commenced one project in our development and DSP platforms during the quarter, don't be fooled. We continue to see increased activity and have a deep pipeline. We anticipate announcing several projects in the quarters ahead while construction continued on 14 projects during the quarter with aggregate anticipated costs of over $90 million. We wrapped up four projects during the quarter, representing aggregate investment of over $13 million. These projects are with leading retail partners, including TGX, Burlington, 7-Eleven, Boot Barn, Starbucks, Gerber Collision, and Sunbelt Rentals. In total, we had 25 projects either completed or under construction during the first half of the year, representing $140 million of committed capital, including $98 million of costs incurred through June 30th. We anticipate development spend to be up to at least 50% year-over-year as both platforms continue to ramp. Our asset management team continues to address upcoming lease maturities. We executed new leases, extensions, or options on approximately 950,000 square feet of gross leasable area during the quarter. This included a Walmart Supercenter in Ohio, a Best Buy in California, and five geographically diverse leases with the TGX companies. In the first half of the year, we executed new leases, extensions, or options at 1.5 million square feet of GLA, with recapture rates of approximately 104 percent. Notable examples in recent quarters include the releasing of our former big lot to Manassas, Virginia and Cedar Park, Texas, with net effective recapture rates of almost 170 and 150 percent respectively, as well as the releasing of our former party city in Port Arthur, Texas, with a net effective recapture rate of 115 percent, demonstrating our emphasis on fungible boxes in dominant retail corridors. At quarter end, our best-in-class portfolios surpassed 2,500 properties spanning all 50 states. The portfolio includes 232 ground leases comprising over 10% of annualized base rents. Our investment grade exposure stood at 68%, and occupancy rebound posted retenanting of the former big lots by 40 basis points to 99.6%. Dispositions remain limited. However, our only at-home located in Provo, Utah, across from a new target, is currently under contract to sell and non-refundable at a seven cap. We purchased the at-home as a pure real estate play in 2016 and have had interest in the site from multiple retailers and prospective purchasers. The disposition cap rate of 7% is nearly 50 basis points inside of where we acquired the asset, and we anticipate realizing an unlevered IRR of approximately 9% upon closing this quarter. Although at-home recently exercised a five-year option and the lease is anticipated to be infirmed in bankruptcy, I'm confident that at home will ultimately suffer the same fate as Party City, Joanne, and Rite Aid, and ultimately Liquid Aid. 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 had a very active quarter with over $800 million of debt and equity capital raised, bringing total capital markets activity year-to-date to over $1 billion. We raised approximately $415 million of forward equity in the quarter via our ATM program and a $5.2 million share overnight offering in April. In May, we completed a $400 million public bond offering comprised of 5.6% senior unsecured notes due in 2035. In connection with the offering, we terminated forward starting swap agreements of $325 million, dollars receiving almost 14 million dollars upon termination and reducing our all-in rate to 5.35 percent during the quarter we also settled close to 700 000 shares of forward equity for net proceeds of approximately 41 million dollars as of june 30th we had approximately 17.5 million shares remaining to be settled under existing forward sale agreements for anticipated net proceeds of $1.3 billion. At quarter end, total liquidity stood at $2.3 billion, including cash on hand, forward equity, as well as $1 billion of availability on our revolving credit facility, which is net of amounts outstanding on our commercial paper program at quarter end. Pro forma for the settlement of all outstanding forward equity, our net debt to recurring EBITDA was approximately 3.1 times, representing the lowest level since Q4 of 2022. Excluding the impact of unsettled forward equity, our net debt to recurring EBITDA was 5.2 times. Our total debt to enterprise value was approximately 28 percent, and our fixed charge coverage ratio, which includes the preferred dividend, remains very healthy at 4.2 times. Our only floating rate exposure remains short-term borrowings, and we continue to have no material debt maturities until 2028. Our balance sheet is extremely well positioned to fund our growth into next year as we've locked in an attractive cost of capital, which helps provide visibility into the acceleration in our multi-year earnings algorithm, as Joey mentioned. Core FFO per share was $1.05 for the second quarter, which represents a 1.3% increase compared to the second quarter of last year. AFFO per share was $1.06 for the quarter, representing a 1.7% year-over-year increase. As Joey highlighted, we have updated our full-year 2025 earnings outlook to reflect a strong first half to the year. We raised both the lower and upper end of our full-year AFFO per share guidance by $0.02 to a new range of $4.29 to $4.32, which implies year-over-year growth of over 4% at the midpoint. The increase in our earnings guidance is largely driven by higher investment activity, as evidenced by our increased investment guidance, as well as a lower assumption for Treasury stock method dilution. 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. Our stock is trading at lower levels than in late April, and if it continues to trade near current levels, we anticipate that Treasury stock method dilution will have an impact of roughly one penny on full year 2025 AFFO per share. That said, the impact could be higher if our stock moves materially above current levels, as was evident in last quarter's guidance, or if we were to issue additional forward equity.

Our guidance has been updated to include an assumption of 25 basis points of credit loss at the high end of our AFFO per share range and 50 basis points of credit loss at the low end of the range.

I want to reiterate that our definition of credit loss is fully loaded. It encompasses not only credit events, but downtime due to a tenant vacating at least maturity unrelated to credit issues and other partial or non-payments for any and all reasons. It also includes any operating and tax expense that ADC is responsible for paying while a space is vacant in addition to lost rental revenue. We believe this is an important distinction versus narrower definitions of credit loss used by some of our peers, as we're looking to provide a more comprehensive picture of not only credit events, but overall economic loss for modeling purposes. Our growing and well-covered dividend continues to be supported by our consistent and reliable earnings growth. During the second quarter, we declared monthly cash dividends of 25.6 cents per common share for April, May, and June. The monthly dividend equates to an annualized dividend of over $3.07 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 second quarter. We anticipate approximately $120 million in free cash flow after the dividend this year, up over 15% from last year. This provides us with another source of cost-efficient capital to fund our growth while maintaining a growing and well-covered dividend. Subsequent to quarter end, we announced a monthly cash dividend of $0.25.6 per common share for July. The monthly dividend also equates to an annualized dividend of over $3.07 per share and represents a 2.4% year-over-year increase. With that, I'd like to turn the call back over to Joey. Thanks, Peter.

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

Thank you. We will now begin the question and answer session. If you would like to ask a question please press star 1 on your telephone keypad to raise your hand and join the queue and if you would like to withdraw your question again press star 1. we do ask that you limit yourself to two questions your first question comes from the line of linda sai from jeffrey's please go ahead hi good morning um could you give us some color about your apm activity and QQ and overall timing, given your overnight equity offering in late April?

Good morning, Linda. You're breaking up a little bit, but I think you asked about the ATM activity during the quarter, correct?

Yes, in your overnight offering in late April.

Got it. Yes, the ATM activity during the quarter all predated the overnight offering in April. During the overnight offering at post-commencement of launch, I promised investors that we would be inactive in the capital markets, and we were fully funded, and we held that promise.

Thanks. And then I think you said acquisition cap rates would expand going forward. What's the magnitude and any highlights on the tenants you're targeting?

No new tenants that we're targeting. We're going to stay within our sandbox. I would anticipate Q3. Again, we just started sourcing for Q4, but Q3 acquisitions could be similar to the first quarter, but larger in volume.

Just one last one. Just given all the macro headline volatility, how are you thinking about retailer and consumer health right now? Do you have a view of whether it's improved or deteriorated year to date?

Well, I think consumer health has undoubtedly deteriorated, at least consumer sentiment. We've seen those numbers swing. I think this morning's jobs report most likely affirms that conclusion. ultimately this this enters to the benefit of our portfolio which is focused on core durable goods and necessity-based retailers that are biggest in the company in the country and that has been our focus will continue to be our focus we will stay away from experiential we'll stay away from discretionary and we're going to buy things as you see in this quarter whether it's auto parts or in grocery or tire and auto service that continue to be required by consumers to live their daily lives from the biggest and best operators cannot that can offer the lowest price um and we're seeing that throughout retailer earnings reports right the biggest and best operators here are going to continue to gain market share and when simultaneously we're going to continue to gain market share you think retailer health is improving though overall we'll see how retailer health is i think you're going to see small retailer i think the big beautiful bill and what we're seeing going on in washington ultimately is going to impact and tariffs are ultimately going to impact the smaller retailers smaller retailers that have to deal with tariff pass-throughs here right on goods that they're selling or components of the goods that are selling are going to be have to either take margin or pass on and price themselves out and so at the end of the day the bigger retailers with the larger balance sheets not dissimilar from a recessionary-type environment, not predicting a recession, but not dissimilar. The bigger retailers with the bigger balance sheets are going to be able to have choices and alternatives in terms of passing through incremental costs and inflationary costs to consumers due to tariffs or to eat margin or better negotiating leverage with their ultimate suppliers. And that is just – that's a fact. This bill hurts – this bill and the tariffs hurt Main Street, right? They helped large retailers such as Walmart and Kroger and the biggest and best operators in the country.

Appreciate the color. Thank you, Joey.

Thanks, Linda.

Your next question comes from the line of Ki Bin Kim with Truist Securities. Please go ahead.

Thank you. Good morning. So looking at out at the investment landscape, Joey, can you just talk about some of the opportunities that you see, maybe in particular, the DFT business for development, and maybe you can just touch on volume, quality, and pricing, things like that. Thank you.

So the opportunities, as I mentioned, to prepare to mark, this is the most excited that I've personally been since COVID. It's the culmination of 15 years of a vision. In the net lease space, everyone loves to focus only on acquisition volumes. Our acquisition volume will be strong, our third quarter pipeline is very significant but in terms of development and our dfp business we're going to break ground on a minimum of 100 million dollars in projects before year end it's over 10 projects it's geographically diversified with some of the country's largest retailers coming behind that is a significant shadow pipeline and i'll say this was the vision that we laid out 15 years ago prior to the inception of the acquisition platform when we were still a micro cap. And it was to become a, it was to be a real estate company in the net lease space. And not what everyone in the space refers to as a simple spread investor. Anybody can do that to different degrees of success, ultimately. Frankly, I'm not interested in being part of that, of that crew. I grew up on a real estate site. This company is a real estate company. And what you're going to see is all three external growth platforms pipeline scale, the results of those pipelines being scaled, and the culmination of that vision to be a full-service real estate company to the biggest retailers in the country.

And can you remind us, what is the type of margin or spread that you're earning on the development versus a equivalent acquisition yield?

Sure, all subject to duration and scope of the project. And so we benchmark those yields against where we can buy a like-kind asset at pricing today, not where comps are, but where we could purchase it. If we're going to take an existing building and retrofit it for a tenant and they're going to commence paying rent in 120 days from rent commencement, that could be 50 basis points wide of where we'll acquire such an asset. But if it's an 18-month entitlement process and there's significant obstacles and hurdles that we're going to overcome for true organic development, that can be as wide as 150 basis points. So, again, duration and scope, internal allocation of time and overhead are critical there. So, we're doing all different types of projects. You will see in the second half of this year, roundup projects, retrofit projects. projects. Many of them are $10 million plus, and we are very close to commencement or have commenced post June 30th.

Okay, thank you.

Thanks, Keeba.

Your next question comes from the line of Smee's Rose with Citi. Please go ahead.

Hi, thanks. On the development platform, I wanted to ask you kind of what do you think it's kind of the or is there sort of an upper limit of where the investment there could go and I guess just bigger picture I you know I think when people one of the reasons one of the reasons you traded at a pretty premium multiple is the sense that you can grow AFFO by at least kind of four percent plus a year and you know that's driven by external acquisition opportunities and your spread to the cost of capital and I'm just wondering are you sort of suggesting that you know, you'll be shifting more into this development platform over time because you think the spreads are better and you can grow, you know, faster that way? Or is it just a growing kind of platform concurrent with your, you know, call it $1.5 billion of acquisition activity? I'm just trying to figure out like this.

Yeah, you know, many parts. Let's break it down. First, this is not a capital. These are not capital allocations. We have a war chest of a balance sheet with $2.3 billion in liquidity and $1.3 billion of forward equity that we built for a reason. Now, we will do every deal that hurdles across our investment guidance and internal underwriting standards across all three platforms. So again, our Q3 acquisition pipeline, we just started building Q4, is quite significant. There's no material sale leasebacks in their regular way q4 i will see right but that's uh grows every day now we're off to a good start since monday um ultimately we achieve better returns and yields through development and our dfp program but that will not dissuade us or not deter us from investing in acquisition so that is not a capital allocation decision these are the same tenants that we are targeting and working with, our retail partners in the same sandbox. If you look at our earnings algorithm, which I mentioned in the prepared marks, and you look at our five-year historical growth trend, I think that's a good place to start. I'm not sure that all investors realize we're coming off a 2024 investment volume, which was the lowest level since 2019, just over $900 million, due to the nature of the capital markets and our stock being in the 50s for approximately, only I can't recall the first six months of last year. That obviously earns through to the following year. This year's earnings, we're at a midpoint of now of over 4%. We made a conscious decision last year to remain disciplined. We started with effectively the do-nothing scenario, if people recall. We weren't going to invest inside a 75-basis point margins. We weren't going to go up the risk curve and invest in real estate or credit that didn't meet our historic underwriting standards. And then additionally this year, we had to restart with the big lots vacancies after the first exit from Chapter 11 failed with Nexus One purchasing the company. So we paused those leasing efforts in anticipation of all of the big lots being affirmed. That deal fell apart the week it was supposed to close. It decreased occupancy during the first half of this year by 40 basis points. You've seen that rebound now to our releasing efforts of 99.6 occupancy today at June 30th. So I would look at our five-year earnings algorithm. I think that's a good place to start. It is higher, our historic five-year earnings algorithm, excuse me. I think it is a good place to start. This is a down year for us, to be frank, in terms of AFFO growth. All three platforms will contribute to AFFO growth in the future. Obviously, development, if it's one of Those longer-duration projects takes longer to contribute. But, again, this is not capital allocation decisions. This is not taking away from acquisitions. This is the envisioned future of having all three platforms firing on all cylinders being here and now.

I'll leave it there, but thanks for the incremental power.

Did I miss anything there, or was it a multi-part question?

No, I think it's good. I mean, I guess, you know, just on the developed platform, I mean, do you see sort of an upper limit of how much you can invest there at what time? You know, I mean, a billion dollars, five hundred million.

What we foreshadowed and set out about six months ago was our intermediate, we called it a three-year goal of putting $250 million in the ground per year. We have obviously made significant strides towards that goal. I will tell you our shadow of the shadow pipeline, we are working with new retailers that could come to fruition and have geographic territories assigned to us. That could come to fruition. So I can't tell you about an upper limit. Every time I give a number of the size of the company or what we're able to achieve, frankly, we achieve it. So I don't want to put that out there. My goal when we launched the acquisition platform was to be a billion-dollar diversified net lease company. So I don't want to put that number out there. I think we've made considerable investments, and I'm open to making more investments in people and processes and systems to continue to expand that. And again, I want to remind everybody, this is not speculative development, right? We are not speculating on land. We're not speculating on vacant space. These are turnkey or ground lease projects that have guaranteed maximum price bids prior to us closing and returns that are effectively fixed. That is our business. It is non-speculative in nature, and it is a margin of cushion above where we can acquire a like-kind asset.

Very good.

Your next question comes from the line of Michael Goldsmith with UBS. Please go ahead.

Good morning. Thanks a lot for taking my question. Just to follow up on the development in the DFP as it relates to the earnings algorithm, is the point that when you add in the development in DFP to kind of regular way acquisitions, And it provides more consistency, both from a magnitude perspective and then also from a stability of that earnings algorithm, just trying to understand the point with the diversification of the three-pronged approach here.

I would think of it quite simply. We have one business that everyone focuses on, net lease, one line of business, external growth, acquisitions. And that's what everyone wants to focus on in NetLease acquisition volume. Our acquisition volume will be very strong. At the same time, we have been working for years now to build and scale development and then our development funding platform. These are just additives. That's all they are. They are additive, both qualitative and quantitative. And they ultimately build out a holistic relationship with retailers, that we are a critical real estate partner, that we are working along multiple different fronts with them, and we are a differentiated real estate company. That has never been done in the net lease space. Again, the quote-unquote spread investors, anyone can do it. We have no interest in being part of that. Our goal when we created our one-page operating strategy in 2009, over 15 years ago, was to be a differentiated real estate company in the net lease space. I am more than proud to say that this team has now achieved that goal. We are going to see in the coming months the fruition of the results of all those efforts.

Thanks for that. And just as a follow-up, you know, you've talked a lot about in the past about the importance of scale in grocery. Last quarter, you did a sale leaseback of an Acme backed by Albertsons, and now you're taking on more Albertsons with this portfolio deal. So does that kind of put, like, does that reflect like a view that Albertsons kind of fits into that, the scale that you're looking for and the stability within grocery that you're interested in? Thanks.

Just one correction. This was our first material. We did not do a sale leaseback. We've never done a sale leaseback with Albertsons. This was our first, one Albertsons, I believe, in the portfolio prior. This was our first transaction on Albertsons leases. It was from a third-party elderly woman in her 80s out of California whose family was historically in multifamily development and then 1031 into net lease assets. The 75 million hour diversified portfolio had, I believe it was five Albertsons, Peter, five Albertsons in it. It is aligned with our thesis of investing in the biggest and best grocers in the country. Albertsons is still sub 1% of total rents here, total ABR. Obviously, Albertsons is a double B plus company, the third largest grocer in the country with approximately almost 2,300 stores. As an aside, our peers are investing in small regional and local operators and I'm quoting a billion dollars in revenue for a grocer in a 2% business, which has obviously challenges right now because of just consumer sentiment like we've talked about. We're going in the opposite direction once again. We are building what we think is we have built, what we think is the best grocery portfolio in the country. Albertsism is a minority piece of that. The stores we acquired had average sales of $740, approximately, per square foot. Rent-to-sales below 2%. They are very strong performers. Weighted average lease term of approximately 14 years, and they're paying below $14 per square foot on average. Geographically diversified Texas, Illinois, and Colorado. This is wholly consistent with our white paper on groceries that we're going to invest in the country's largest grocers, Again, in a 2% business, that's a 2% margin business. They have the scale and the balance sheet to win on price. Otherwise, we think there's going to be significant fallout in the grocery space from those local operators with only a billion dollars in revenue. And let's do the math. A billion dollars in revenue at a 2% business is $20 million in EBITDA. Start doing sale leasebacks, and guess what? Your least adjusted leverage and your cash flow starts to deteriorate pretty quickly. And then I mentioned in the preparator mark, this number, the depression of IG and then investment grade during the quarter and yield in the quarter due to the sourcing of the soft market portfolio will ultimately be enhanced through the sale of the Dutch Brothers coffee shops at five caps that we'll dispose of that were included in the portfolio. the corporate Jiffy lubes that were included in the portfolio that are non-core and 1031-like assets that we will dispose. And ultimately, our returns for the quarter and investment grade will be more aligned with historic standards.

Thanks for that. Good luck in the back of that.

Appreciate it. Thank you.

Your next question comes from the line of Jana Gallen with Bank of America. Please go ahead.

Thank you. Good morning. Maybe a question for Peter. On the bad debt in the guidance of 25 to 50 BIPs, is there anything identified, or does that just give you some room on the potential that the 0.4 of expirations doesn't renew?

Thanks for the question, Jana. I'd say through the first half of the year, the credit loss, and again, in my prepared remarks, I mentioned that this is a fully loaded credit loss for us, inclusive of not just credit events and lost rental revenue but any other opex or expenses that we're responsible for during the downtime of an asset that's vacant for any reason related to credit or otherwise and in the first half of the year we realized credit loss relatively in line with the the lower end of that that 25 to 50 basis point range so closer to the 25 basis point range as we look to the back half of this year, I would say that based on known credit issues in the portfolio, we would anticipate operating closer to that 25 basis points or experiencing credit loss closer to that 25 basis points. So, at the lower end or the higher end of the range at 50 basis points, you know, that includes unknown credit events or cushion of approximately 20 to 25 basis points.

And as Peter, let me just chime in, Yana. As Peter articulated in the prepared remarks, our definition of credit loss is fully loaded. So credit loss is any and all events where a tenant does not pay rent, plus all of the nets being reimbursed, not being reimbursed, excuse me, expense coming out from agri realty right and then maintaining the building itself during that period of vacancy so when a building is vacant you have to temper it heat and cool it we don't want mold we don't want frozen pipes you gotta arm it you have fire suppression you have maintenance of that building in order to release it so it is fully loaded and so once again, net lease companies have been very creative in their definition of credit loss. Now, credit loss is due specifically to a credit event, and then it's pro forma for the lease up with the footnote one and footnote two. We are not going to go down that road. We are going to give, as Peter said, the true economic impact, 25 basis points, to our total revenues for the year. And that is outflows as well as the lack of inflows to make – this is real real estate economic underwriting. This is not putting things in a position for investors to have to parse through words and guess in fancy decks.

Thank you.

Your next question comes from the line of John Kielczewski with Wells Fargo. Please go ahead.

Hi, this is Cheryl on for John. Thank you for taking my question. Could you provide us an update on your watch list and what is baked in your guide in terms of going in yields?

Our watch list is very de minimis. At home was clearly on our watch list, as I suggested during the prepared remarks. I fully anticipate the two-step into bankruptcy, like we've seen. Chapter 11, the unsecured creditors have no recoveries. They emerge, like Party City, Joanne, Rite Aid, and then there's no ongoing business. And so then the unsecured creditors who take equity in lieu of their non-recoveries then liquidate the company. That's under contract for a seven flat. We could have worked through that, redeveloped it. Frankly, we have better use of our time given the aggressive offer we took there. So outside of that, our watch list is very immaterial, frankly, at this point. We continue to monitor the couple movie theaters we have in the portfolio. And that's really, that's it. I mean, we've paired that back to 25 basis points, and that was really comprised of big lots this year, right, during the first half, Peter?

Yeah, I think the watch list, to Joey's point, historically, the two biggest components there were at home and big lots. And with those now resolved, the remaining credit issues in the portfolio are fairly de minimis one-offs. And there's nothing on the horizon of any material size that we see as imminent, and the portfolio continues to perform very well.

Thank you. that's helpful and then one quick one on big lots can you remind us uh how many assets were sold or released and what was the final outcome thank you yes we have one or two left one has been approved by we will disclose next quarter by a national retailer you're all familiar with that we will release to cedar park texas was released to aldi as we mentioned in the uh preparator marks with a significant lift in net effective rent in a brand new term. Manassas Virginia was released with a significant rent increase on a net effective basis. We disclose that obviously in the prepared remarks. We have one or two we're continuing again to work through but we we will work through those very quickly here.

Thank you so much.

Thank you.

Your next question comes from the line of Brad Brad Hefferin with RBC Capital Markets. Please go ahead.

Yeah. Hi. Thanks, everybody. Joey, in the prepared comments, you talked about the highest level of demand for brick-and-mortar locations since the GFC. Obviously, we're still in a pretty uncertain environment, and you have the potential tariff headwinds for retailers. I'm curious why you think that demand is so strong.

Yeah, Brad, we haven't seen any retailer pull back, and it's not that they won't potentially do so due to the tariff noise, headwinds, and the 85 different dates that have been handed out by the White House. We just haven't seen it. The biggest retailers in this country, and it's aligned with our thesis going back a decade in our white papers, and I encourage everyone to look at them. There's two drivers here. One is the bigger operators are taking share. Two, the bigger operators now all realize, and you've probably heard me say it before, that the store is not a spoke, it's the hub, right? Free delivery and free returns same day don't work from an EBITDA perspective. Not unless you got AWS backing it up and cloud computing and advertising revenue and ancillary sources of revenue, but from a selling goods perspective, that doesn't work. And so retailers have all realized that. We have never seen Walmart, Home Depot, Target, Lowe's, all growing their store count. It's all public information out there, plus, plus, plus, plus, plus, since prior to the great financial crisis. Sam's Club, Costco, you can keep going. All of these retailers invested for, let's call it a seven-year period in distribution and fulfillment and logistics. And then they realized these investments are great, they make us more efficient, but guess what? We still lose money. We need the customer to get their butt in the car and try to get them to pick up those goods from the store rather than delivering them to their house for free because they're accustomed to it now. And if we can get them to the store to pick up those goods or return those goods, which is an absolute disaster, right? I mean, those get palleted and sold by the pound of returned goods. We've actually done it as an exercise here from Amazon, those return goods, return them in store and maybe repurchase something else. So we've had a number of retailers speak to the team here. We have more retailers, national retailers, had the real estate departments coming in and speaking to the team here that we're partners with and articulating how those impacts on the business. The other piece to it is specifically in some sectors, let's use auto parts. Auto parts, we have seen the rise of the hub store. We have a white paper on this, I believe, as well, Peter, right? The rise of the hub store. The rise of the hub store is to fulfill commercial, tired auto service, collisions, and dealerships demand for a part within 30 minutes. That is impossible from a central distribution facility. So auto parts retailers realize that the standard stores of 7,000 feet can't carry enough SKUs. So they need hub stores of 20 and mega hub stores up to 50,000 feet, which are effectively storefronts with warehouses in the back to carry all of the different SKUs to get that car off of the lift and get that part there within 30 minutes. That's the business. So we see all of these different areas, the convenience stores, let's take that, the rise of the large format convenience stores, which we're obviously very active in. The convenience stores are taking shares, not because there's more fuel being pumped in this country, there's not more cars on the road. Convenience stores are taking share from fast food restaurants, they're taking share from the front end of pharmacies, they're taking share from convenience items. You run in, grab milk, you'll overpay instead of go into Walmart, Kroger, or Albertsons and navigate a 100,000 or 200,000 square foot store. And they're taking share due to their service and offerings, food and beverage for off-premises consumption, primarily breakfast and lunch. And so there's different drivers here, but it's about convenience, time, and EBITDA at the end of the day.

Okay. Thank you for the detail there. Maybe one for Peter on the guidance. you know, the implication is a decent-sized ramp in AFFO per share in the second half of the year. Is there anything lumpy on the expense side that maybe is driving some of that, or is that purely just the ramp and acquisition volume?

No, I think that's largely driven by the ramp and acquisition volume. I also mentioned in my prepared remarks the Treasury stock method dilution and our assumption for roughly one penny of impact there for full year 2025 versus two pennies last quarter.

But there's nothing lumpy from uh from an expense perspective anticipated in the back half of the year okay thank you thanks brett your next question comes from the line of wes galladay with baird please go ahead hey good morning guys i just want to go back to the comment of 100 million that starts and getting 200 million into the ground can you clarify if that was for development or development and funding and then for these assets you're going to develop would you plan on owning them afterwards we do plan on over them with uh everything all pieces of real stated for sale ultimately we have no intention of selling we're not doing them you know we're

not doing these projects in a trs or off balance sheet in any manner we anticipate again starting over 100 million dollars in projects between june 30th and the end of the year okay and then you did mentioned something yeah about yeah at minimum okay um you also mentioned another version of art coming out next year can you elaborate on what's going to be in the latest edition yeah peter understands technology way more than i do i drew it on a piece of paper originally and peter's handled it from there but i will mention we have now fully built out our our it team here um and we're thrilled with that team and the partners we're working with with peter

you uh you're way smarter here than i am sure specific to arc i think the the primary goal of that project is to build arc on effectively a new backbone or system that will allow for more self-service and more dynamic reporting that can be used across the organization and will drive efficiencies in that we we can manipulate the data more and drive to the decisions that we're trying to make across the organization i think in addition to arc Joey mentioned some of the industry-leading efficiencies that we've gained through the implementation of AI. We implemented AI for lease abstraction about three years ago now, and we've been using that tool to abstract hundreds of leases that we onboard each year with a high degree of accuracy. That has increased over time. The accuracy and the tool has resulted in significant time savings for the team. More recently, we've launched an AI tool to complete what we call our lease underwriting checklists, which compares our initial underwriting to the lease and confirms there are no significant issues. With that tool, it used to take an attorney roughly four hours to complete each one of those, and that's now a matter of seconds. So we've seen hundreds of hours of time savings there, 400-plus hours from that on an annual basis, hundreds of thousands of dollars of savings just from the implementation of that And then looking forward, I think we'll look to combine AI and incorporate more of that into ARC from a decision-making process moving forward. So, Wes, we ran a test.

Our IT team here ran a test looking backwards into deals that were approved in an investment committee. And this is far out, this component. But I think it should demonstrate the future of what AI is capable of. Our team ran a test. the deals that were brought into Investment Committee and what they would be approved with the percentage of approval using AI. They were 90% accurate, and it was just a test. It was a game to see if they could replicate Investment Committee's approval. We're using AI today, as Peter mentioned, for functional tasks and driving efficiencies. I want to take legal costs and cut them in half. That's my goal here. We have a great team and a great external team, but we don't need lawyers extracting leases, summarizing leases. We can now do them in 15 seconds using artificial intelligence. That is generative AI learning. And so the new ARC, which will be unveiled next year, 3.0, and I look forward to unveiling it, will enable our full data warehouse and multiple tools to be layered on in the future.

Thanks a lot for that.

Thanks, Wes.

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

Hey, good morning, guys. Thanks for taking the question here. Maybe just to shift gears a little bit on the asset management side of things, I guess traditionally speaking, one of the tradeoffs with very high credit quality in the tenant and low escalators would be, well, one would be low escalators and two would be relatively short vault. And so just as you're, you know, renewing leases and just tell us about any changing parts of the lease structure that might be interesting, especially given just the shortage of good retail space in this country at this point.

Well, the shortage of space due to construction costs in this country, we see, and I think the shopping center reporters have demonstrated this and we've demonstrated with our leasing efforts is the second generation space that is is a b space is in high demand we that said c space functional obsolescence is a challenge single purpose boxes are will always be challenges now i'll take issue with the first statement um investment the portrayal that investment grade has shorter weighted average lease terms and or less escalators, we have effectively net of credit loss, approximately 100 basis points of internal growth. When you look at the totality of those circumstances, I don't think that is, frankly, economically true. So anyone can sign a sale leaseback if you're a private operator or public operator for 30 years, 50 years. Remember Nick Scorch had Red Lobster signed 25-year sale leasebacks? anybody can sign a blast from the past a blast from the past but guess what a lot of this stuff is coming back now into net lease with a lot of the private credit and the private capital that's flowing in you can sign a sale lease back on your house you can have escalators you can sign a sale lease back on anything escalators you can do it for 50 years the piece of paper isn't worth what it's printed on though I mean, ultimately, this is real estate, and can the tenant ultimately afford the compounding impacts of those annual escalators that you're going to write into that lease? Sale leasebacks with non-credit tenants are simply financial structures that are akin to a lender. That is all it is. It is not our business. And when we talk about sale leasebacks being an alternative form of financing for these non-credit, small, middle market, private equity-sponsored operators or small private operators, it is not an alternative form of financing. There is no other place where you can pull out 100% of the proceeds from the building. If I am a private equity-sponsored car wash operator, and I go to a conventional lender, and I say I want a first mortgage, maybe they give me 50%, maybe they give me 60%. Then I go and I try to get mez on that real estate. Maybe if I'm really lucky, I can ramp that to those two combined to 75%. Good luck on that. It can be expensive. Who's still in the last 25% in that primary method of financing this real estate? A hard money lender? A bookie? Nobody, right? And so what we see is alternative markets aren't alternative markets to finance these assets. Look what we've seen in spaces like the car wash space, the experiential space. They are primary assets that don't provide for risk-adjusted returns that are ultimately appropriate. If I'm going to finance a full capital stack for any of those types of uses, I want a 14 cap and I want my money out in six and a half years. And I wouldn't even do it there, I don't think. I'd rather just run the business myself and own the equity.

Helpful comments. It'd be fun to get you on another panel with your peers and kind of go at it from multiple directions.

Happy to do so. I think it would be educational for investors. I think comparing and contrasting rather than isolation in earnings calls and in meetings, debating these things is healthy for investors. The siloed nature of what has transpired in our subsector, as well as REIT-DUM generally, does not give investors a full picture of transparency. You combine that with reporting, as I mentioned prior, that has all types of discrepancies in footnotes and pro formas. This is a simple business. The second slide of our deck is consistency. We've done the same thing since we started this acquisition platform in 2010, and I took over operating this company. We're going to continue to do it. Making nuanced arguments, let's do them and let's debate the merits and considerations and ultimately let investors decide for themselves. But I will stand here and I will say, buying those types of uses is a primary source of real estate financing with a seven-handle in front of it, I do not believe is risk-adjusted appropriate, and I'm happy to articulate that further in any form.

Great. Why don't I leave it there? Thanks, Joey.

Thank you. your next question comes from the line of jim kemert with evercore isi please go ahead good morning thank you uh joey just revisiting one more time the rampant development activity would you say you're more likely just supplanting developer relationships that the retailers had or more strategically used to planting more of the in-house development capability at those retailers?

That's an interesting question, Jim. We are definitely supplanting developers that can no longer perform due to capital constraints and volatility. There are also new relationships that we've formed. I'm trying to figure, you know, some retailers have internal capabilities. We have not seen them give up those internal capabilities. Frankly, retailers are trying to scale their internal capabilities um to be able to execute a on their store growth uh plans to the street generally so uh it's not supplanting retailers self-development it is taking share that's interesting and then uh you know what would you say have you canvassed all of your retailers said hey you know we can do this for you or have you still have uh new tenants that you an approach to say and really explain to them agrees full capabilities just think about how far this could expand for you we have a scorecard a scoreboard um it is in arc i would tell you there are very few we haven't there better not be more than a few but there are not many that we haven't talked talked to time and place economics has to be correct we have new relationships that will will pull through in 27 and then existing relationships always, you know, a lot of it, again, is time and place, right? We need to, right? We're ramping. We need help. You can be a critical partner for us. Our other partners are failing, right? They're not, they're not executing on their promises. When you have a $2.3 billion in liquidity and you pair that with expertise of a private real estate developer, you have a very unique combination that no one else can offer in terms of value proposition. Good.

Thanks for your time.

Thanks, Jim.

Your next question comes from the line of Upal Rana with KeyBank Capital Markets. Please go ahead.

Great. Just a quick one for me. With the development and DFP pipeline ramping, how are you thinking about construction costs today?

You mentioned building 50 base points. wide of where you can acquire so just wondering if you know construction costs continue to rise you know could that potentially eat into your 50 basic points thanks i appreciate the question we've done a full internal uh comprehensive study of the implications of all of these different types of tariffs led by jeff coggle here our head of construction and then we're very fortunate to have john recall to the chairman of walbridge one of the biggest contractors in the country on our Board, and his team ran also a study of the implications of tariffs in the construction Now, we estimate that tariffs, and if you look at project costs, generally vertical costs, right? Moving dirt doesn't cost, buying, acquiring land, obviously, well, not yet, isn't tariffed. We're talking about vertical costs, which are approximately 25% to 35% of entire projects. We think the implication in the current tariff environment is 1.5% of total costs. We generally have a contingency of 7% to 10% in projects, so we're not concerned about this tariffed environment right now in projects. But it's certainly something that we'll pay attention to, maybe not daily because we can't monitor X and true social daily. But it's certainly something that we'll monitor, but no material impact in overall construction costs. Now, if you look, there's different sourcing methodologies that will change. We'll buy domestic products. Retailers are also who designate different specifications for building components, HVAC units, things like that. while they may have components that are tariff, shift building architectural features and engineering features, structural engineering features even potentially, to make it most efficient and continue to drive efficiencies to even bring that one and a half percent down.

Okay, great. That was helpful. Thank you so much. Thank you.

Your next question comes from the line of Amateo Acostana with Deutsche Bank. Please go ahead.

Hey, guys. This is Sam on for Tayo. I hope I didn't miss this, but what gave you guys the confidence around increasing your investment outlook given the uncertainty presented by the macro backdrop as well as potential credit risks stemming from tariffs?

Outside of sourcing acquisitions for Q4 between now and the middle of October, we already know it's there.

Got it. All right. That's all I have on my end.

I appreciate the time. your next question comes from the line of ronald camden with morgan stanley please go ahead hey two quick ones just on ramping on the developments maybe if you talk a little more about the are the lease structures any different from the acquisitions in terms of duration yield contracts just uh curious yeah but generally obviously they're new leases so these are 10 15 20-year leases generally the fresh base terms that are starting standard lease structures nothing different either ground leases or generally turnkey leases the economics again will subject to project duration and scope will be 50 to 150 basis points wide of where we could acquire and do acquire the like kind assets um really no different there except um the methodology of sourcing obviously and then the duration and the return requirements internally here great and then my second one genuine parts company as the top tenant list just any color there on maybe the opportunity with them to continue to grow and look that's Napa obviously is an investment grade auto parts retailer they have made it to the top tenant list no we're very fond of auto parts as we discussed and wrote in white paper fungible boxes great business cars and every day setting a new record on the road i'm not sure if anyone can be able to afford a car after all these tariffs uh actually hit um we continue to like the space where we like napa but no plans for material increased exposure from here thanks so much thanks ron and that concludes our question and answer session and i will now turn the conference back over to Joey for closing comments. I appreciate everybody's time today. Thank you for joining us. We look forward to seeing you in the near future and good luck for the rest of burning season. Thank you.

This concludes today's conference call. Thank you for your participation and you may now disconnect.