Thank you, operator. Good morning, everyone, and thank you for joining us today for Essential Properties' third quarter 2026 earnings conference call.

During this conference call, we will make certain statements that may be considered forward-looking statements under federal securities law. The company's actual future results may differ significantly from the matters discussed in these forward-looking statements, and we may not release revisions to those forward-looking statements to reflect changes after the statements were made.

Factors and risks that could cause actual results to differ materially from expectations are disclosed from time to time in greater detail in the company's filings with the SEC and in yesterday's earnings press release. In our earnings release last night for the quarter, we reported GAAP net income of $60.7 million and AFFO of $111.9 million.

With that, I'll turn the call over to Pete.

Thank you, Sheryl, and thank you to everyone joining us today for your interest in Essential Properties. In the third quarter, we continued to execute on our goal of driving compelling earnings growth for shareholders through owning a diverse portfolio with an increasing revenue stream and accretively deploying capital to grow and diversify that portfolio.

On the external growth front, we invested $342 million into 100 properties at an average initial cash yield of 7.7% and a GAAP yield of 9.4%. 91% of our investments in this quarter were sale-leaseback transactions, which continues to be a compelling source of growth capital for middle-market operators across our targeted industries.

In an elevated cost-of-capital environment, our ability to deliver reliable, permanent capital to operators gives us compelling pricing and structuring leverage, and that is showing up in our pipeline. Our investments team continues to find attractive opportunities across our targeted industries.

That said, we are being deliberately selective, prioritizing transactions where pricing reflects a meaningful spread to our cost of capital, supporting long-term earnings growth for our shareholders. As Max will discuss later, we are achieving pricing power real time, with new investments being struck at higher cap rates than the third quarter investments, which were largely contracted over the summer.

Importantly, our methodical approach to deployment protects our capital runway and preserves our corporate liquidity in a period of capital markets choppiness. Our capital position remains strong, with pro forma leverage of 3.8 times and liquidity of $1.3 billion, providing ample financial capacity to execute our business plan, as Rob will discuss later.

Turning to the portfolio, we ended the quarter with investments in 2,580 properties that were leased to tenants operating over 700 concepts. Our weighted average lease term is over 14 years, our weighted average lease escalations are 1.9%, and just 2% of our annual base rent is expiring through 2028.

Our portfolio continued to deliver solid and consistent performance this quarter, with same-store rent growth of 1.4%, healthy rent coverage of 3.5 times, and occupancy of 99.6%, and a reduction in our tenant credit watch list. With investment activity and portfolio performance tracking ahead of our budgeted expectations, we are increasing our 2026 AFFO per share guidance to a new range of $2.02 to $2.05, and our investment volume guidance to a range of $1.3 billion to $1.5 billion.

Our revised AFFO per share guidance implies a growth rate of almost 8% at the midpoint. We are establishing our initial 2027 guidance with an AFFO per share range of $2.10 to $2.18, investment volume of $1 billion to $1.5 billion, and cash G&A expense of $32 million to $37 million.

Our operating plan calls for a slowed pace of deployment over the next 2 to 3 quarters as our investment teams remain disciplined on pricing, allowing us to retain balance sheet capacity. Historically, asset pricing adjustments tend to lag the rapid movement of pricing in the capital markets.

Based on our current weighted average cost of capital, dispositions have become an accretive source of capital and are likely to trend higher in the near term to alleviate capital markets funding requirements. Lastly, I'd like to congratulate Max and Rob on the recent promotions, which recognize the meaningful contributions they have made to the company and position them with greater responsibilities going forward.

I'd also like to welcome Craig Vachris to the company as our new Chief Investment Officer. These management changes reflect the continued evolution of management team as we pass our 10-year anniversary.

With that, I'll turn the call over to Craig, who will provide an update on our portfolio and asset management activities. Craig?

Thanks, Pete. Overall, our portfolio fundamentals remained healthy during the quarter and continued to perform in line with our expectations.

Same-store rent growth was 1.4%, consistent with recent quarters. Occupancy remained strong at 99.6%, with only 11 vacant properties.

Portfolio rent coverage remained at a very healthy level of 3.5 times, the percentage of ABR with rent below 1 times was consistent quarter over quarter, and our watch list improved, reflecting continued stability in tenant credit. On the disposition front, we sold 11 properties for $17.9 million at a weighted average cap rate of 6.1%.

The dispositions were primarily driven by opportunistic sales led by restaurant and car wash properties. Notably, these dispositions were transacted at cap rates that were accretive to our weighted average cost of capital, highlighting the value of owning granular, fungible properties with a deep buyer pool.

Additionally, healthy buyer demand enables us to have the flexibility to scale our disposition activity should we choose to lean further into capital recycling. Our portfolio continues to benefit from broad diversification, as our top 10 tenants represent just 15.2% of ABR at quarter end, while our top 20 tenants account for only 25.1%, reflecting our continued focus on partnering with a broad base of middle-market operators and limiting concentration risk.

We also reduced our car wash exposure by 60 basis points during the quarter to 12% of ABR, and our portfolio construction remains healthy. Lastly, you may have noticed that we relabeled certain industry categories in our supplemental to better reflect the businesses in our portfolio.

This was simply a name change. For example, medical/dental is now health and wellness, and health and fitness is now fitness.

With that, I'll turn the call over to Max Jenkins, our President and Chief Operating Officer, who will provide an update on our investment activities and the current market dynamics.

Thanks, Craig. On the investment side, during the third quarter, we invested $342 million at a weighted average initial cash yield of 7.7%.

Our investments in the quarter had a weighted average initial lease term of 17.9 years and a weighted average annual rent escalations of 2.3%, generating a strong average GAAP yield of 9.4%. Our capital deployment during the third quarter was broad-based across most of our top industries as we completed 31 transactions totaling 100 properties.

With alternative financing sources becoming more difficult to access for many companies, operators continue to monetize their own real estate through sale-leasebacks, which encompass 91% of our investment volume in the quarter. Our average investment size was $3 million per property during the quarter, reflecting our focus on granular, highly fungible assets that provide attractive risk-adjusted returns.

As Pete mentioned, pricing is front and center for us. As our cost of capital has moved higher, we have been proactive in managing our pipeline and pushing for higher returns reflective of the current environment, without taking on any incremental risk.

Diminished competition from private players in a more restrictive middle-market lending landscape are factors contributing to our pricing power. Consequently, our forward pipeline has cap rates around 8% with GAAP yields in the high 9s.

With over $1 billion of investments closed year-to-date, we have again increased our full-year investment guidance to a new range of $1.3 billion to $1.5 billion. With that, I'd like to turn the call over to Rob Salisbury, our CFO and Chief Strategy Officer, who will take us through the financials for the third quarter.

Thanks, Max. Overall, we delivered another strong quarter of operating and financial performance.

Our AFFO per share was 51 cents, representing an increase of 6% versus the year-ago period, while nominal AFFO increased 16% year-over-year to $112 million. This AFFO performance was ahead of our expectations, driven by strong investment volume and a modest benefit from the lack of treasury stock method dilution on our unsettled forward equity balance.

Total G&A in the quarter was $14.1 million. Our cash G&A was $7.3 million, which is trending favorably toward the lower half of our guidance range of $30 million to $34 million for the year and represents just 4.3% of total revenue, down from 4.6% in the same period a year ago.

We declared a cash dividend of 32 cents in the third quarter, which represents an AFFO payout ratio of 63%. This low payout ratio enabled us to retain free cash flow totaling $42 million in the quarter, representing a substantial source of internally generated capital.

Turning to the balance sheet, at quarter end, our income-producing gross assets totaled $8.1 billion. The growth and diversification of our portfolio continues to further strengthen our credit profile.

During the quarter, we partially exercised the accordion feature on our revolving credit facility, increasing capacity by $300 million to $1.3 billion. We would like to thank our entire bank group for their overwhelming support in this successful transaction.

We utilized this extra liquidity to support the prepayment of our sole 2027 maturity, a $430 million term loan, leaving us with no debt maturities until 2028. As a reminder, we retained our favorable interest rate swaps, which had previously hedged that maturity.

Our revolving credit facility will utilize this hedge until it expires next month. Looking ahead, we are evaluating a range of debt capital options to term out our revolver balance and extend our robust liquidity profile.

With $483 million of unsettled forward equity at an average price of $30.50 per share and $809 million of revolver capacity, we have more than enough liquidity to continue funding our growth plan, allowing us to be opportunistic when it comes to sourcing external capital. Additionally, from a leverage standpoint, our pro forma net debt to annualized adjusted EBITDAre remains low, at 3.8 times at quarter end, underscoring our commitment to maintaining a low-leverage profile.

As Pete mentioned, we increased our 2026 AFFO per share guidance to a range of $2.02 to $2.05, reflecting a growth rate of approximately 8% at the midpoint. We also established an initial AFFO per share guidance range for 2027 of $2.10 to $2.18, reflecting our expectation of another year of best-in-class earnings growth.

The guidance range includes investment volume of $1 billion to $1.5 billion, which is expected to be back-end loaded as we seek to preserve balance sheet capacity in the near term. Importantly, our annual free cash flow after dividends is approaching $200 million, and our guidance assumes approximately $200 million of dispositions next year.

Combined with our expanded revolver capacity and unsettled forward equity balance, these sources provide sufficient funding to support our investment guidance for 2027 without the need to source external capital. With that, I'll turn the call back over to Pete.

Thanks, Rob. In summary, we are pleased with our third quarter results.

Volatile capital markets present both challenges and opportunities for disciplined investors. We have positioned this company to manage both the challenges and capitalize on the opportunities with a strong balance sheet, longstanding relationships built on reliable execution, and a great team.

We are excited about the business plan that supports our 2027 guidance. Operator, please open the call for questions.

Good morning. Thanks a lot for taking my questions.

First on the 2027 guidance, I think you started to touch on it, but can you provide the building blocks for how you're going to achieve that? Then is also what are you assuming on the debt refinancing and how you're going to approach that?

I know you put it on the revolver, but just can you talk about your different options there and how you plan to proceed?

Rob, you want to handle that?

Hey, Michael. Good morning.

We outlined some of the high-level drivers in our press release, most notably the investment volume range. As it relates to financing, yes, we currently have $430 million on the revolver that was attributed to the prepayment of that term loan that was set to mature in February.

We had 8-K'd that about a month ago, but we went ahead and expanded our revolver capacity that helps support taking that down a little bit early. Just as a reminder, we kept that swap in place.

You can see some expanded disclosure in our supplemental to show you where that's currently swapped. That swap will mature at the end of November, at which time it'll become a floating-rate obligation just like the rest of our revolving credit facility.

As we look at some potential options to term that out, clearly we don't want to leave that floating. We seek to have as low variable-rate debt exposure as we can.

As we sit here today, we're evaluating all of the debt alternatives, I think we mentioned in the earnings call script. When we look at the menu, right now, unsecured bonds on a 10-year basis would probably price in the high 6s.

A convert would probably price south of a 5 on a coupon basis, I should say. Then bank debt would probably be somewhere in between, in the 5.6% to 5.7% range.

We're looking at all of those, and as a general comment, we're always looking to extend the duration on our liability stack. We recently did a 10-year bond offering back in June.

Strategically we're continuing to focus on that, understanding, of course, that we do have a hole in our ladder at both the 5- and 7-year maturity, we would consider shortening up just a little bit to support the refinancing of that obligation. I should say that we've included a range of scenarios for that baked into our guidance range.

The range does not assume that we leave it floating for the entirety of 2027. We assume that we do term that out.

I think that, just given where the swap is today, we'll probably have more to talk about in a month or two as we continue to assess those options, but clearly interest rates are evolving dynamically and we'll see where that shakes out.

Mike, the other building blocks for 2027, obviously we have the investment guidance out there, a billion to a billion five, which is a conservative range relative to our historical performance. Then all of that guidance kind of predicated on continued solid portfolio performance and our compelling growth within the portfolio, so.

Thanks for that. Just as a follow-up, speaking about the solid portfolio performance, can you just talk a little bit about tenant health and the watch list?

I think your sub-1 times rent coverage bucket was flat with last quarter, just trying to get a sense of is there any change in the watch list, how you're thinking about your tenant base, and how they're and have been able to navigate the macro? Thanks.

Hey, Vac, why don't you handle that? New to the seat.

Thanks, Pete. No, it's been very consistent.

We don't really seeing any trends or movement one way or another. Obviously, like I said, it's going to be pretty consistent.

I think we're happy with the way our tenants are performing. Coverage remains strong.

Michael, on that, specifically the watch list, it's actually down 50 basis points quarter-over-quarter and sits at 1.1%, and, as Vac noted, the portfolio continues to operate within the guidance range, and no trends, nothing material to report, and we're happy with how our tenants are performing.

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

Thank you.

Hey there, guys. Good morning.

Love it. Want to follow up on the 2027 line of questioning from Michael before.

Can you talk a bit more about your capital deployment strategy and balance sheet management a bit more? Sounds like, Pete, you mentioned the investments may be back-end loaded.

Should we expect to see leverage tick up a little bit here over the course of '27? Maybe some color on the key swing factors for the upper and lower end of the range for next year?

Is it basically volume, spreads, and debt refis or anything else we should consider? Thanks.

Listen, I think we're going through a period of time here, as we said on the call, where there's been a rapid movement in our weighted average cost of capital, and that we're going through a process of repricing assets and repricing our pipeline. As we go through that period of time, we expect volumes to decrease as sellers' expectations are adjusted.

Overall, we would expect there to be a lower level of transaction opportunities, but I think on a bigger picture, we would expect a more than commensurate lower level of competition that continues to afford us ample opportunities to invest. It's very dynamic time, and we're going to react to the market as it evolves, and as we're focusing on achieving attractive spreads and pricing transactions appropriately for the risk in the current market, and we're uncertain what that looks like as we think about certainly 2Q and 3Q and out into 4Q.

There's a wide range of scenarios supporting our guidance, and I guess it really just depends on one, our cost of capital, and two, the pricing of assets and our ability to maintain spread. We're pretty optimistic.

The pipeline's strong, and we've gone through and repriced a large portion of the opportunities in the pipeline, and those transactions have held together and are consummating at attractive rates. It's early days, and we'll see what happens.

I'd add on the capital side, Haendel, we're not assuming a dramatic re-leveraging of the balance sheet. We're going to continue to run at a low-leverage point.

We're assuming really nothing on the ATM in the very near term just in recognition of where our share price is today. No common equity in the near term.

Got it. Super helpful.

Gracias. Maybe one follow-up, if I could, on the dispositions.

It certainly seems like there's an opportunity out there, as you alluded to, to sell some assets at good pricing and perhaps accretively recycle into investments. Maybe color on the market, the demand, your ability to sustain low 6 cap rates or maybe the range of expectations for cap rates as well as you look at the marketplace and any color on verticals you may lighten up as well?

Thanks.

I think we'll take a deep look at the portfolio, and I think we have good liquidity across most of our industry verticals, and we'll probably try to sell a representative sampling of those assets. Certainly, we wouldn't want to cherry-pick the portfolio solely to achieve pricing.

We'd probably sell a representative sample and overall try to improve our hold positions. Historically we've been about $25 million a quarter.

I think if we could conceivably ramp that up very easily to $50 million a quarter, and I would expect us to be able to achieve in the mid to high 7s cap, excuse me, mid to high 6% cap rate range on those transactions.

Got it. Very helpful.

Thank you, guys.

Thank you. Good morning, and congrats on a strong quarter.

Just going back to the investment guide for 2027, curious is that gross or net? I think, Rob, you mentioned 200 million of potential dispositions next year?

We guide to a gross investment number.

Thank you. Then on the activity in the quarter, we noticed early childhood education picked up.

Just curious if there's any tenant categories that look more attractive today, anything that you're looking to lean into?

Hey, thanks for the question. This is Max.

Our investment strategy hasn't changed in the last decade, and we're going to price deals within each industry based on the appropriate risk-adjusted returns and maintaining an attractive spread in this environment. Notably about early childhood education, it was five different portfolio transactions within the quarter with different tenants, and so no large portfolio, just our normal right-of-way relationship-based investing.

Thank you.

Good morning, everyone. Pete, you mentioned earlier and now we've talked about it a bunch about how you're continuing to find attractive opportunities but are being deliberately selective, and getting a meaningful spread.

I was just wondering if you can talk a little bit more about how that's possible. Is it that you look at more deals so then you can be more selective?

Is it that your customers need you so you have that call it upper hand, or yeah, how can you continue to achieve that outcome?

I think, part of this the looking at a lot of deals, having a lot of throughput. We have a very granular portfolio where we're investing in 10 $5 to $10 million chunks, and so that granularity gives us good optionality.

I think the bigger picture is that we're negotiating and providing capital to operators who are motivated by accessing capital and growing their business. An extra 25, 50, 75 basis points on cap rate doesn't change the complexion of their overall business plan, and they're more focused on expanding units, growing sales, and improving margins, and having that access to capital is important to them.

We've always focused on a value-added investment strategy by providing capital to middle-market operators that are not that price-sensitive, and through those relationships, we've been able to kind of price our deals. On the flip side of that, those operators are getting transactions and opportunities that are attractive to them in the current market environment, too, such that the overall transaction can handle a higher cost of capital supporting it.

Got it. Then just as you think of industries going forward, I think last quarter we talked a lot about how you guys have your kind of split of different industries, you didn't expect to really change that.

Guess a lot has happened in the past quarter, so as you think of the investment volume in the next 12 months or through '27 and maintaining attractive spreads, would you consider some shift and industry focus where you could get that larger spread, or you still expect it to be ratable?

I would expect it to be more ratable, and we certainly built the business plan that way. I would not want to look at a business plan that focuses us solely on out the risk spectrum on the wider industries, or the more risky transactions.

We generally follow our relationships with 80% to 90% repeat business, and I would expect the composition of our 2027 investment pipeline to be very ratable to the overall portfolio.

Thanks.

Hi, thanks. I just wanted to ask a little bit just in your experience in the space, are there any segments where you might expect to see kind of seller expectations adjusting maybe more quickly, more rapidly, I guess, as expectations do reset over the next several months or quarters, or is it generally kind of similar across all categories?

The flip side of that, Smedes, is I would expect seller expectations in the auction market of existing net lease product to adjust less rapidly. I think where we focus, providing capital to middle-market operators in sale-leasebacks, that's very dynamic, and those operators are less price-sensitive.

If you're sitting on a portfolio of net lease assets that are cash flowing, your sole motivation is going to be price, and unless you have a debt financing or some maturity or some artificial catalyst that forces you to effectuate a sale, you're going to hold on for the best price, and so that market tends to be the slowest to adjust, but with our granular middle-market operators, that adjustment has happened really in a matter of a month, month and a half.

Okay. Then I was just wondering, we heard from other reports, either deals being canceled in the fourth quarter or sort of an aggressive efforts to reprice deals that were underway.

Is that something that you are, I guess, currently doing now? Could you maybe just sort of update us on where the kind of total, sort of line of sight is on your pipeline relative to your September update, I guess?

Max, why don't you tackle that?

Hey, Smedes. We took a pretty granular and tactical approach, and so we took all 60 to 90 deals in the pipeline, and when we're relationship investing, you want to be proactive and reach out to those partners and those operators, and so it's a mixed bag.

Some deals are M&A related, and so the financing just didn't come together, and they naturally fell out in a volatile environment, but generally we're pretty happy with how quickly we've kind of been able to move cap rates to make investments accretive, and I think that's just a testament to the pipeline engine that we built over the last decade and a lot of repeat business, and so we're focused on maintaining those relationships. As Pete said, when you're providing a service and you're one of the only capital providers in the middle market right now in this volatile period, we were encouraged by where the pipeline sits and where we've been able to move cap rates.

I would add, Smedes, the complexion of our pipeline is call it 30 30 $10 million deals in any given quarter that are being priced every week, and so we have a very real-time ability to price transactions and react to our movements in cost of capital, and we certainly have done that on a go-forward basis. That said, we generally operate with a 90% to 95% expected probability to close within our pipeline, but given the capital markets choppiness, I would say that's probably closer to 70% or 65% in the current market.

There's more volatility, but that's offset by the number of opportunities and the diminished competition.

Great. Thank you.

Thank you, Smedes.

Hey, good morning. Thanks for taking my question.

I know you don't provide specific credit loss guidance, but with tenant performance stable and the watch list improving, how should we think about the credit loss assumption embedded in 2027 relative to what you've actually experienced this year? I think you talked about previously that the credit loss assumption within guidance was trending a little bit higher.

If you could just provide a little bit more color on '27, that would be great. Then just to follow up on the impairment this quarter, can you just talk about what drove that?

Was it primarily related to dispositions, or was there other factors? Thanks.

Hey,

Eric, it's Rob. Thanks for the questions.

Credit losses generally are trending slightly better than we had guided to for this year. As we think about 2027, similarly we tend to guide well in excess of where our realized losses had historically been.

Just as a reminder, that realized loss has been just under 30 basis points per year since the inception of this portfolio. While we don't give a specific number out, the assumption that's baked into that guidance range is well in excess of that roughly 30 basis point range.

That's where credit losses are today. As you noted, all the indicators that we monitor are very healthy right now, hopefully that will prove to be conservative again next year, but our starting point is a conservative posture, as we do on a lot of lines in our guidance range.

Then on your second question as it relates to the impairments, I think as we've discussed in the past, a lot of these situations are much more idiosyncratic in nature. As it relates to this one specifically, we have a robust quarterly impairment testing process.

It's well-established. It's been in place for a very long time, and as part of that rigorous process, we're constantly testing on a quarterly basis.

This quarter specifically, it was driven primarily by one site that's on a former Art Van location. It's in the home furnishing retailer segment.

As we've talked about in quarters past, the tenant that went bankrupt in the fourth quarter of last year, that used to be in those sites, we owned two sites at that time, and the specific property from 3Q had been vacant. We've been assessing sale and leasing alternatives for the site.

We received more leasing information this quarter, which triggered the impairment testing process, but in general, we have not been bullish on the home furnishing industry. That's an industry that we've not invested in for many years, and we're down to one location now, which represents effectively a rounding error in terms of the exposure to the portfolio broadly.

It's not a huge surprise in terms of where the exposure is there, and all that's outlined in footnote 12 of our 10-Q if you want to dig into more of the details behind those assumptions.

Thanks, Rob.

Great. Thank you.

Then just one on the disposition timing. Sorry if I missed this earlier, but just how should we be thinking about the dispositions as it relates to acquisitions?

Would you be looking to match fund those, or would there be some sort of delay between the two?

We're not tying dispositions to acquisitions. Our disposition activity is very granular, single $3 million average assets, and our investments tend to be $10 million, and so both are very granular, so, and really, it's not tied one-for-one.

As I said, we're maybe taking $25 million a quarter to $50 million a quarter, and they'll both kind of be very much on a flow basis.

Great. Thank you very much.

Thank you.

Hey, good morning, guys. Just one for me.

Rob, I think you mentioned in your prepared comments that the acquisition volume target for '27 is back-end loaded, presumably kind of related to some of the capital markets choppiness we've been discussing, but when I think about sources of funding and kind of adding up all available sources as they exist today, can you express that as sort of a runway to complete 2027 expected activity, and is '27 fully covered, is it kind of covered through the first half, does the back-end loading affect that calculation? Just help us think through that.

Yeah. Hey, Rich.

Good question. Yes, we're fully covered in terms of funding for next year, and that's maybe from a liquidity standpoint.

We'd also add from a leverage capacity standpoint, we're also covered. That would end the year assuming no common equity, that we'd be in the low to mid-4s in terms of net debt to annualized adjusted EBITDAre on a pro forma basis, which is in line with our historical average.

That being said, we have run at a lower-leverage point over the last several years, and so clearly should our share price get to a more attractive level, that'd be something that we would think about to build more dry powder. Obviously where we are today, the math doesn't make a whole lot of sense to issue common, which is why we noted earlier we're not assuming any ATM equity in the near term.

Then as it relates to the sources on that, I think we mentioned earlier about the dispositions as one lever. We're trading at a 7 3 cap right now, and as Pete noted, we're able to dispose in the 7 cap or even better than 7 cap territory.

That's something that's new. We haven't really talked about sourcing that capital because it's been dilutive relative to our weighted average cost of capital over the last several years, but obviously to the extent that we're able to source more opportunities, that is a potential lever that we could pull.

That's the quick picture on where it sits today. In terms of the cadence, part of that is really just making sure that we extend the runway not just over the next quarter or two, but really as we're moving through the year.

As you think about the high end of the guidance range, that's assuming that we have a much higher investment volume activity level, and so obviously that would be a world where our cost of capital has improved as well. That's kind of scenario that we're outlining at the high end.

All right. That's great.

Thanks so much.

Thanks for taking my question. What is driving the lower credit loss in your portfolio?

Do you attribute it to how you're operating the portfolio, or are you seeing lower tenant distress for the tenants in which you're investing in?

I would say it's certainly more the latter. We buy these assets and make an investment decision, and we have 14 years weighted average lease term, and there's a little we can do to effectuate change after our initial investment.

The vast majority of our low level of credit loss can be attributed to the investment decisions we make at the outset. Then

in terms of achieving more favorable disposition cap rates and seeing expansion in acquisition cap rates, could we expect investment spreads to improve in '27 versus '26 since your funding for next year is in place?

We have historically invested anywhere as tight as 100 basis points to wide as 300 basis points. I would say that is an output, not an input, and as we move cap rates, obviously our spread will improve relative to the capital that we've raised, and hopefully relative to the capital that we continue to raise.

As Rob just said, our business plan in 2027 isn't predicated on raising of new capital. Then generally cap rate movements lag the movements in cost of capital, and that's why we're in a compressed cap rate spread environment today, and it really just depends on what happens to interest rates and what happens to our cost of capital and our ability to move the pipeline.

It's early as we sit here in the fourth quarter of '26, to make a prediction on our net spread in '27, but I would say it'll be about the same.

Thanks.

Good morning. Thank you.

I think it was mentioned earlier that kind of 8% is the new floor for going-in transaction cap rates. Obviously, that's the cash cap rate.

I'm wondering, can you still extract portfolio average now 1.9% escalators on that type of cap rate, or is there a bit of a trade-off going on? Thank you.

Hey, Jim. This is Max.

I would say you've seen over the last year or two that we've been able to push the escalations and they've kind of increased, and we're sitting at 1.9%, and I would say the forward pipeline is pretty consistent with that, and internal growth has been a focus for us as we're striking new deals. Like we said in the prepared remarks, forward pipeline has an 8 in front of it, and the GAAP yields will be approaching mid to high 9s at this point, we're happy with the pricing and making sure we're investing at accretive spreads.

Jim, I wouldn't want it to be lost, last quarter we were at 2.3% on our new deals,

and

a GAAP yield well into the 9s. The overall economic package we negotiate with tenants is fluid.

I think the highest sensitivity is on initial cap rate, but we continue to do the best we can on that front.

Thank you.

Sure do. Thank you for that.

I just wanted to go back and touch on your commentary regarding the change in the percentage of deals closing and how it related to this year. Is that entirely the seller backing away after not getting financing or whatever other reason they may have, or is that your team adjusting underwriting and stepping away from deals that no longer make sense?

It's not our team adjusting underwriting. It could be our team adjusting pricing.

We haven't changed the way we look at credit or the way we underwrite credit, but I would say it's equally balanced between deals not closing because of the choppy capital markets backdrop, our deals not closing because of the pricing that we're offering.

Okay. Then looking forward, is there a targeted investment spread where you feel more comfortable transacting, trying to get some sense how much cap rates need to adjust before you guys kind of hit the accelerator again?

Then how are you thinking about cost of capital as it relates to what you've kind of previously raised versus what you could do today when you're evaluating these investment spreads?

I'll let Rob tackle the cost of capital end of it. We don't necessarily have a targeted spread.

It's not that mathematical. We try to negotiate the best deals we can with our counterparties, and we try to source the cheapest capital that we can from the market.

As I said earlier, it's been about 100 on the low end, 300 on the wide end, and we're just working hard to make it as wide as possible both on initial cap rate and a GAAP cap rate basis, it's not that formulaic because the markets aren't that efficient. Rob, from a weighted average cost of capital, how are we looking at it?

On the capital that we've raised, where we have an unsettled forward equity balance that's struck at $30.50 and a 10-year debt issuance that we did in June in the low 5s, we're looking at a spread that's over 200 basis points in 3Q, 4Q. Obviously that's not where our spot cost of capital is now, so that's probably what you'll see pull through the model in the back half of 2026.

For the incremental deal and incremental dollar that goes out the door, our cost of capital today is in the mid to high 6s. Depends a little bit on which debt instrument you want to choose for that calculation, but that would get you to a range of 100 to 150 basis points of spread, which, as Pete noted, I think on an earlier question, is within the range of 100 to 300 basis points that we've enjoyed historically, but obviously towards that lower end.

We would hope to continue to achieve good pricing power to widen that spread out over time without maybe giving any guidance on where that might ultimately shake out.

Great. Thank you.

Thanks, Greg.

Great. Thanks for taking the question.

I was hoping you can dig deeper into the bonus depreciation demand market. We keep hearing from brokers there's a pretty healthy appetite.

Concerns about maybe rules eventually changing if there's a change in administration in a couple years. Can you just provide more color on how deep it is, how sticky it is?

Sounds like you and some of your peers are saying the same thing in terms of that should be a pretty good source of fund going forward. Just wanted to kind of get your latest thoughts on that, and especially given the move in rates.

We've got a lot of demand for product from that market. Historically, we haven't delved into it too deeply, but it is certainly there and it is certainly there at attractive costs given the massive tax incentives that kind of benefit that capital.

Given the fact that the tax benefits are pretty dramatic, it tends to be pretty sticky. There tends to be pretty big penalties for selling those assets once you've fully depreciated them.

It's a market we can look at. It tends, as you'd imagine, given any sort of tax-motivated capital, tends to be more robust in the fourth quarter than the first and the second quarter.

I would say our guidance and our disposition plan hasn't really leaned into that too much, but it certainly out there as an attractive source of capital, should we want to tap it deeper.

Okay. Thanks for that.

Then, I guess, just focusing a little bit more on some of the tenant moves. We saw Flagstop Carwash fall out of the top 10, TA Express is in.

Was that primarily a function of pruning car washes, or are you leaning more into truck stops and c-stores? Then also, it looks like you bought another Dave & Buster's.

What's your appetite to increase exposure with that tenant, given their credit outlook from S&P?

Hey, thanks. This is Max.

First, I'd point out that our top 10 concentration of 15.2% is among the most diversified across the space, and when you're talking about tenants that are less than 200 basis points of exposure, we do a ton of repeat business, relationship investing. Every quarter, we have movements, we never want to look too much into each quarter-over-quarter slight changes.

TA Express, we've been working with the largest franchisee in the space that operates over 100 truck stops and convenience stores, two asset classes that we've invested in since inception, and this was just a follow-on transaction. We've done multiple deals over the past couple years, and so they're a great operator and a great partner.

You mentioned Dave & Buster's. It was a single transaction that was added to the master lease.

It was extremely accretive both from a master lease coverage standpoint, there was a lower basis that improved our collateral position, and the cap rate was accretive to the Q3 overall cap rate. It's a good deal for us, but it's unlikely we'd probably add more exposure to that name on a go forward.

That said,

I would say we don't follow S&P as a guide for our investment activity or our underwriting, and so the S&P certainly didn't drive our decision there. It's more just managing exposures and assets, and we remain confident in our master lease there and our coverage, and think that that company will be a great tenant long-term.

Okay. Thanks for that.

Are you changing your perspective at all on the consumer heading into next year? Areas where we'd have less appetite?

No, listen, we know our industries well. We have deep data and experience to support our investment in these industries.

Ultimately, we're real estate investors in these industries, and we specifically know the real estate assets in these industries, and as we study our portfolio performance, our tenant performance, there's no trends that alarm us. Generally, the consumer is doing okay.

At the worst, we have modest same-store sales down 2%, 3% with margin expansion, which results in a flat unit-level coverage, and that kind of commentary runs across a lot of our sectors, do not expect any material shift in our capital allocation strategy.

Okay. Thank you.

Thank you.

Thank you. On the releasing front, I realize you guys have very little coming due in the near term, just given the long lease term of the portfolio.

Just curious how you think about the high rent coverage on the leases coming due in the next few years. Do you see this as an opportunity to step up the rent at all, or is it a priority to keep these coverage levels close to the portfolio average?

Generally, inherent in our leases are renewal options that the tenants have. Typically, it's either two 10-year renewal options or four 5-year renewal options, and that option is at the tenant's discretion, there we do not have the ability to mark these assets to market, and generally, we assume, if there's a higher than two times coverage, that there's a 98% probability that tenant's going to exercise those options.

Right.

Yep, that makes sense. That's it for me, guys.

Thank you.

Thank you, Spenser.

Good morning, everyone. You kind of mentioned the step-up in cap rate in the pipeline versus what closed in 3Q.

How fast should we be expecting that to flow through closed transactions?

Hey, John. It's Max.

We put out the pipeline early in Q3 before conference season, and that showed a 7.6%, and in the prepared remarks, we said cap rates are around an 8%, and as we've always said, our pipeline is about a 90-day forward look, you can kind of infer from there. As Pete said, it's a volatile market, and it seems the rate environment, cost of capital is changing pretty rapidly, and we're taking a long duration, long-term hold 20-year investment horizon, we'll continue to invest in price deals as they come in, but that's about as best as I can give you right now.

Okay. Then on the disposition front, how fast should we expect those to potentially accelerate?

You mentioned 200 million being kind of in the guidance for '27, but is that something that could accelerate as soon as 4Q? I know you've already done 22 million, just kind of trying to think about how fast you can kind of push on that lever for proceeds.

Just to be clear, we didn't guide to 200. As an indicative level.

We're constantly marketing assets. Generally, there's a 30-day pre-market period, a 30-day market period, and then it could be a 60-day close.

There is some typical lag in ramping those up. We are in the market, we have listed assets for sale, and so going from a 25 to a 50 or 75, it could happen over a couple quarters, but it's not going to be a material change immediately.

Okay. Then in terms of trying to kind of think about the lower kind of closed percentage on deals in the pipeline and the call for kind of investment volumes to be back-end loaded next year, how much of that, if any, reflects kind of demand destruction for kind of the net lease offering?

Are you seeing some of your counterparties maybe at current prices or yields just not being able to kind of pencil in some of the growth opportunities that maybe traditionally had kind of catalyzed them to seek out your financing?

I think I said in an earlier comment, John, we would expect overall transaction volumes to be down, but we also expect diminished competition to be down on a greater level such that overall there should be plenty of opportunities for us to invest.

I guess why would deal volume be so back-end loaded next year?

Part of that is not driven by the opportunity set. We've always maintained that our opportunity set is ample, and we have plenty of deals to do, and, I think as we said in the prepared remarks, part of that is preserving our capital runway and waiting for asset pricing to catch up with the movement in capital pricing.

We are sitting at a pretty wide level of capital pricing that we would expect to normalize over time as well. It's more the capital front driving that than the opportunity set driving that.

Okay. That's it for me.

Thank you very much.

Thanks, John.

Great. Thank you all for your time today.

As we try to indicate, it's certainly an interesting time for the capital markets, the net lease industry, and our company, but we're excited about the opportunity. We're excited about our ability to execute in this backdrop and continue to drive earnings growth for shareholders.

We look forward to seeing everyone in the coming months at the conferences. Thank you all, and have a great day.