アグリー・リアルティ（ADC）2026年第3四半期決算説明会：キャップレート拡大に伴いAFFOガイダンスを上方修正

アグリ・リアルティ（NYSE: ADC）は、第3四半期の1株あたりコアFFOおよびAFFOが前年同期比で4.9%増加したことを受けて、2026年通期の1株あたりAFFO業績予想を引き上げた。また、経営陣は金利上昇に伴い取引の価格改定を実施し、投資規模の拡大よりも買収スプレッド（利回り差）の確保を優先させたため、計画中の投資額を削減した。

主なポイント

• 2026年第3四半期の1株あたりコアFFOおよびAFFOはいずれも1.15ドルとなり、前年同期比4.9%増加した。
• 2026年通期の1株あたりAFFO業績予想は4.58ドル〜4.59ドルに上方修正され、中央値で約6%の成長を意味する。
• ポートフォリオの稼働率は同社過去最高の99.8%に達し、投資適格級のテナントが年間換算基本賃料の約65%を占めた。
• 当四半期中、アグリ・リアルティは94件の商業用ネットリース物件に対し約3億6,000万ドルを投資した。買収額は合計約3億1,000万ドルで、加重平均キャップレートは7.3%となり、前四半期比で30ベーシスポイント上昇した。
• 経営陣は2026年の投資額見通しを約16億ドルに引き下げる一方、物件売却の見通しを1億ドル〜1億5,000万ドルに引き上げた。
• 四半期末時点の手元流動性は約20億ドルであった。未決済のフォワード株式の全額決済を仮定したプロフォーマ純有利子負債対経常EBITDA倍率は3.9倍であった。

主要財務データ

事業および運用実績

アグリ・リアルティの当四半期における新規買収は、自動車部品、タイヤ・自動車サービス、ホームセンター、食料品店、会員制倉庫型ホールセールに集中した。投資適格級の小売り企業が、買収した物件の年間換算基本賃料の52%以上を占めた。

同社はセブン-イレブンの新規4プロジェクトを含む、予想コスト5,700万ドルの6件の新規開発案件に着工した。当四半期中には7件のプロジェクトが完了し、総コストは同社過去最高となる8,200万ドル超となった。さらに8件のプロジェクトが着工中であり、その予想コストは8,800万ドルとなっている。

9月30日までに着工した開発およびデベロッパー資金提供プラットフォームの案件総額は約1億6,300万ドルに達した。2026年の最初の9か月間で、同社は42州、コロンビア特別区、および29の小売りセクターにわたる261件の商業用ネットリース物件に対し、約13億ドルを投資した。

アセットマネジメント活動は引き続き堅調であった。アグリ・リアルティは第3四半期中に86万平方フィート超を対象とする新規賃貸借契約、契約延長、またはオプション行使を実行し、リキャプチャー・レート（契約更新時の賃料改定率）は106%に達した。2026年に満期を迎える予定の契約は、年間換算基本賃料の20ベーシスポイントに相当するわずか11件にとどまっている。

ポートフォリオは全50州とコロンビア特別区に及ぶ約2,900物件に近づいた。これには、年間換算基本賃料の10%を占める270件の定期借地権（グラウンド・リース）が含まれている。

資本配分に関して、同社は11物件を加重平均キャップレート6.5%で売却し、約2,700万ドルを回収した。これは当四半期の買収物件のキャップレートを80ベーシスポイント下回る水準である。経営陣によると、売却した資産の中に投資適格級の信用格付けを持つものは含まれていない。

経営陣の見通し

アグリ・リアルティは、2026年通期の1株あたりAFFO業績予想を4.58ドル〜4.59ドルに上方修正した。経営陣はこの上方修正の理由として、ポートフォリオの好調なパフォーマンスと自己株式方式に基づく希薄化想定の縮小を挙げており、純投資活動の減少、SOFRイールドカーブのスティープ化、第3四半期の負債調達費用の増加によるマイナス影響を相殺した。

同社は通期の信用損失および空室損失の想定を従来の25ベーシスポイントから15ベーシスポイントに引き下げた。最初の9か月間の実績値（完全反映ベース）は9ベーシスポイントにとどまった。

経営陣は、利回りの低い案件の除外やパイプラインの価格見直しを行った結果、2026年の投資額見通しを約16億ドルに下方修正した。第4四半期の買収キャップレートは大幅に上昇すると見込んでおり、経営陣は第3四半期からさらに約25ベーシスポイント拡大する例を挙げて説明した。

物件売却の見通しは、従来の5,000万ドル〜1億ドルから1億ドル〜1億5,000万ドルに引き上げられた。経営陣は、ボーナス減価償却や1031エクスチェンジ（同種資産の買い替えに伴う課税繰延制度）を利用する買主への売却を含め、キャピタル・リサイクリングの機会が2027年にかけて継続すると予想している。

2027年について経営陣は、金利や株価の変動を仮定しなくても、既存の貸借対照表および資本ポジションにより1株あたりAFFOの1桁台半ばの成長と2桁の運用リターンが支えられると述べた。ただし、これらは実現した実績ではなく、あくまで経営陣の期待値にとどまる。

リスクおよび注視すべき点

• マクロ経済環境の変化に伴い、アグリ・リアルティのスポット資本コストが上昇している。アナリスト向けの説明会において、経営陣はスポット加重平均資本コストが6.8%であることを明らかにした。
• 米国債利回りの上昇と株価の変動性の高まりが取引の経済性を悪化させており、同社は投資額の削減と買収パイプラインの積極的な価格見直しを余儀なくされた。
• 第3四半期の負債調達費用により、1株あたりAFFOは約0.01ドル押し下げられた。経営陣は、これらの費用および一般管理費が第4四半期には正常化すると見込んでいる。
• 経営陣は、薄利、価格競争、消費者の選別志向の強まりを理由に、下位クラスの食料品スーパー運営企業における圧迫が継続していると指摘した。
• 今後の買収額には引き続き不透明感が残っており、経営陣は2027年の買収パイプラインの発掘にまだ着手していない。

アナリスト質疑応答のハイライト

買収価格と競争状況：経営陣は、資金調達コストの上昇と流動性の低下に伴い競争が鎮静化したと述べた。キャップレートの拡大は小売りセクターよりも取引規模との関連性が高いように見られ、価格帯が低い物件ほど価格の粘着性が高くなっている。

資本の投下：アグリ・リアルティは、約20億ドルの手元流動性がより有利な旧価格水準で調達されたものであることを強調した。経営陣は、設定した4倍〜5倍のレバレッジ目標範囲内を維持しつつ大幅な資金投下が可能であるものの、厳選した投資姿勢を維持し、貸借対照表の柔軟性を確保する方針を示した。

リスクプロファイル：経営陣は、買収キャップレートの上昇がリスクカーブの上昇（高リスク資産への移行）を意味するものではないと説明した。同社は引き続き全米の大手小売り企業や、既存の引受基準を満たす資産に焦点を当てる計画である。

開発およびデベロッパー資金提供：同社は中期的に年間2億5,000万ドル規模の開発およびデベロッパー資金提供の着工目標を継続する。経営陣は、建設市場や長期融資市場の縮小がさらなる機会を生み出す可能性があるとする一方、すべての取引が収益率のハードル率を満たす必要があると述べた。

キャピタル・リサイクリング：経営陣は、ポートフォリオの質を損なうことなく資産売却を拡大する余地があるとみている。第4四半期から2027年にかけて、約175〜200ベーシスポイントの利回り差（リサイクリング・スプレッド）を見込んでいる。

信用力：経営陣は、格付け機関による公式な投資適格格付けのみに依存することに警鐘を鳴らした。小売り企業の業績基盤、貸借対照表の質、裏付けとなる不動産価値、およびポートフォリオの分散が、引受判断において引き続き中心的な役割を果たすと述べる。

決算説明会文字起こし全文

決算説明会の完全なトランスクリプト

経営陣による説明

Operator

Good morning, and welcome to the Agree Realty Third Quarter 2026 Earnings Call. [Operator Instructions] Note this event is being recorded. I would now like to turn the conference over to Reuben Treatman, Senior Director of Corporate Finance. Please go ahead, Reuben.

Reuben Treatman

Thank you. Good morning, everyone, and thank you for joining us for Agree Realty's Third Quarter 2026 Earnings Call. Before turning the call over to Joey and Peter to discuss our results for the quarter, let me first run through the cautionary language. Please note that during this call, we will make certain statements that may be considered forward-looking under federal securities law including statements related to our updated 2026 guidance and outlook for 2027.

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 and uncertainties underlying our forward-looking statements. In addition, we discuss non-GAAP financial measures including core funds from operations or core FFO, adjusted funds from operations or AFFO, net debt to enterprise value, fixed charge coverage ratio and pro forma net debt to recurring EBITDA. Reconciliations of our historical non-GAAP financial measures to the most directly comparable GAAP measures can be found in our earnings release, website and SEC filings.

I'll now turn the call over to Joey.

Joey Agree

Thanks, Reuben. Good morning, and thank you all for joining us today. I'm pleased to report another strong quarter of performance, reflecting our disciplined execution of our operating strategy. We invested in high-quality opportunities across all 3 external growth platforms while our best-in-class portfolio remained at a company record 99.8% occupied. I want to start by directly hitting the elephant in the room, the dynamic and changing macroeconomic environment, which has increased our spot cost of capital.

I've had the privilege to lead this company through the launch of our acquisition platform on the heels of the great financial crisis as well as through the pandemic in which we doubled in size and reshaped the complexion of our portfolio. I intend to do the same here on our terms and at our price, and we will emerge from this period stronger than before. Disruption is advantageous in a fragmented noninstitutionalized market such as ours in many ways. Our relationships, balance sheet, 3 growth verticals and myriad of capabilities are poised to further validate our leading market position.

3 years ago, we introduced our do-nothing scenario to demonstrate the durability of our earnings algorithm during a period of uncertainty. Our position today is tremendously stronger, while the underlying earnings durability remains unchanged. Most importantly, we have learned from 2023. We have moved decisively as the macro began to shift this time around. While we've $1.1 billion of attractive capital this year, including forward equity at approximately $75 per share and a recently completed 10-year unsecured bond offering at just under 5.4%, we are in no rush to deploy yesteryear's pricing.

We have deliberately reduced our 2026 investment volume guidance to approximately $1.6 billion by culling lower yield opportunities and aggressively repricing our pipeline. Today, we sit on a $2 billion war chest, pro forma net debt to recurring EBITDA of just 3.9x and no material debt maturities until 2028. Our best-in-class retail portfolio with highly durable cash flows and limited lease rollover in conjunction with our fortress balance sheet provide for a meaningful competitive advantage. That foundation positions us to generate the mid-single AFFO growth per share and double-digit operational returns in 2027 that we've consistently delivered over the past few years.

We expect to do so without sacrificing our balance sheet strength or investment criteria, prudently deploying capital while adding cap rates higher, preserving our dry powder and leaning further into recycling capital. We can achieve similar levels of earnings rough with less capital deployment at higher cap rates. We have already begun that shift. Acquisition cap rates expanded by 30 basis points this quarter to 7.3% and we will expand them materially further in the fourth quarter as we lean into our capabilities and prioritize value creation over volume. This past quarter, we invested a total of approximately $360 million in 94 high-quality retail net lease properties, including the acquisition of 68 assets for approximately $310 million.

The property acquired during the quarter are leased to leading operators and sectors, including auto parts, tire and auto service, home improvement, grocery and warehouse clubs. Notable acquisitions during the quarter included a Walmart Supercenter in Virginia, a new vegas wholesale in the economic center of Western Massachusetts, a portfolio of group -- 2 Hobby Lobbies, 5 Lowe's as well as ground leases to Lowe's and Home Depot in Connecticut and Minnesota, respectively. The acquired properties had a weighted average cap rate of 7.3%. As mentioned, this represents a 30 basis point expansion quarter-over-quarter. The weighted average lease term was 14.5 years and investment-grade retailers accounted for over 52% of the annualized base rent acquired.

During the third quarter, we broke ground on 6 developments, representing total anticipated costs of $57 million. This included 4 new 7-Eleven projects, which now total 12 7-Eleven commenced in our development platform. Additionally, working in conjunction with the price retailer, we acquired a former furniture store located in a dominant power center in Philadelphia for an exciting redevelopment to be completed in early 2027. Seven projects were completed in the quarter, representing a company record of over $82 million in total costs.

For perspective, this exceeds the total cost of all projects completed in 2024. Completed projects included 3 7-Elevens and several Burlington and Ross locations. Construction continued on 8 projects during the quarter with aggregate anticipated costs of $88 million. Through September 30, we have commenced projects totaling approximately $163 million, nearly doubling the achieved in the prior period. We continue to make progress to our medium-term objective of $250 million in annual development and developer funding platform commencements. This progress reflects the strength of our best-in-class team and platforms which provide the country's leading retailers with a one-stop shop to execute on their growth objectives.

In total, we had 26 projects that are either completed or under construction during the first 9 months of the year representing a company record of over $255 million of committed capital. Through the first 9 months of the year across all 3 platforms, we've invested approximately $1.3 billion and 261 retail net lease properties spanning 42 states in the District of Columbia across 29 retail sectors. Moving on to the disposition front. We sold 11 properties during the quarter for gross proceeds of approximately $27 million at a weighted average cap rate of 6.5%, 80 basis points inside the cap rate on acquisitions completed during the period. The dispositions consisted primarily of 5 franchise-operated Taco Bell locations, 2 Goodyears and 2 Advance Auto Parts stores.

None of the dispositions carried an investment-grade credit rating and the assets had a weighted average rerating lease term of approximately 7.6 years. For the year, we now anticipate total disposition volume of $100 million to $150 million, a material increase from our prior range of $50 million to $100 million. We are and we will continue to pursue additional opportunities to recycle capital via strong demand from 1031 and bold appreciation buyers on an accretive basis. Our asset management team continues to address upcoming lease maturities. We executed new leases, extensions or options on over 860,000 square feet of GLA during the third quarter with a recapture rate of approximately 106%, the highest level in 6 quarters.

Through the first 9 months of the year, we executed new leases, extensions or options on 2.5 million square feet of gross leasable area at a recapture rate of more than 105%. Only 11 leases, representing 20 basis points of annualized base rent remains scheduled to mature this year. At quarter end, our best-in-class portfolio is approaching 2,900 properties spanning all 50 states in the District of Columbia. Our investment-grade exposure stood at approximately 65% of annualized base rents. Our portfolio includes 270 ground leases, comprising 10% of annualized base rents which have embedded exposure of approximately 85%.

With that, I'll hand the call over to Peter to discuss our financial results for the quarter.

Peter Coughenour

Thank you, Joey. Starting with the balance sheet, we had a very active quarter of over $825 million of debt and equity capital reshadow, bringing this figure to nearly $1.5 billion year-to-date. In September, we completed a $400 million public bond offering of 5.65% senior unsecured notes due in 2026. The offering priced at a spread of 90 basis points, the tightest level achieved for a 10-year public bond offering in the company's history.

In connection with the offering, we returned $300 million of forward-starting swap agreements and received more than $90 million of proceeds. Those proceeds reduced the all-in interest rate on the notes by nearly 50 basis points from yield to maturity to a rate of 5.36%. Over the past 6 years, we have generated more than $82 million of net proceeds from our hedging program, relating into nearly $8 million of annual interest savings. We view that as a direct result of our disciplined and proactive hedging policy. Our approach has been to avoid just-in-time financing, which has provided better visibility into our medium-term cost of capital and has created meaningful value for shareholders over time.

During the quarter, we settled approximately 5.7 million shares of existing forward equity for net proceeds of over $425 million. At period end, we had approximately 8.8 million shares of outstanding forward equity, representing anticipated net proceeds of over $657 million. At quarter end, total liquidity stood at approximately $2 billion, including cash on hand, outstanding forward equity and full availability on our revolving credit facility. In addition, we anticipate free cash flow after the dividend to exceed $140 million this year, a more than 10% year-over-year increase. Pro forma for the settlement of all outstanding forward equity, net debt to recurring EBITDA was approximately 3.9x, reflecting our conservative and well-positioned balance sheet.

Excluding unsettled forward equity, net debt to recurring EBITDA was 4.8x, a decline of 0.4 of a turn from the prior quarter. Net debt to enterprise value was approximately 29%, while our fixed charge coverage ratio, including the preferred dividend, remained very healthy at 4.1x. Net -- short-term are floating rate borrowings at quarter end and we continue to have no material debt charges until 2028. Our balance sheet remains exceptionally well positioned, providing ample liquidity and flexibility to strategically allocate capital and remain disciplined in our investment approach.

Put simply, we are and can afford to be judicious in how and when we deploy our capital. Our consistent and reliable earnings growth continues to support a growing and well-covered dividend. During the third quarter, we declared monthly cash dividends of $0.267 per common share for July, August and September. The monthly dividend equates to an annualized dividend of over $3.20 per share and represents a 4.3% year-over-year increase. Our dividend is very well covered with a payout ratio of approximately 69% of AFFO per share for the third quarter.

Subsequent to quarter end, we announced a monthly cash dividend of $0.271 per common share for October. The monthly dividend equates to an annualized dividend of over $3.25 per share and represents a 3.4% year-over-year increase. Moving on to earnings. Core FFO and AFFO per share reached $1.15 for the third quarter, representing a 4.9% increase from the same quarter last year. We have increased the full year 2026 AFFO per share guidance to a range $4.58 to $4.59 implying year-over-year growth of nearly 6% at the midpoint. The increase in our earnings guidance is driven by the continued strong performance of our portfolio and lower assumed treasury stock method dilution for the year. These benefits are partly offset by a decrease in net investment activity of $100 at the midpoint, a steeper SOFR curve for short-term borrowings and elevated debt deal cost in the third quarter as we adjusted to a new pricing paradigm.

Our guidance has been updated to include an assumption of 15 basis points of credit and occupancy loss for the year, down from 25 basis points previously. As a reminder, our definition of credit and occupancy losses fully loaded encompassing not only credit events, but downtime due to a tenant vacating at lease maturity unrelated to credit issues and other partial or nonpayments for any reason. It also includes all operating and tax expenses that ADC is responsible for paying while the space is vacant and additional loss rental revenue. Year-to-date, we've experienced a 9 basis points of fully loaded credit and occupancy loss.

With that, I'd like to turn the call back over to Joey.

Joey Agree

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

Operator

[Operator Instructions] Your first question comes from the line of Richard Hightower with Barclays.

質疑応答

Richard Hightower

As far as the behavior in the private market for net lease transaction goes nowadays, I mean, give us a little more color on what you're seeing from other buyers, other buyer pools, competitors? And then maybe talk about how tax motivations and just kind of general year-end fourth quarter seasonality, how do you expect that to play out broadly even if Agree per se is not participating at the same level that we would have thought even 60 or 90 days ago.

Joey Agree

Yes. In terms of private buyer pools or other acquirers in the space, I really can't speak to their behavior. As I mentioned in the prepared remarks, we have been decisive. We've learned from 2023 from the volatility. We understand that our balance sheet and our cost of capital that we have historically raised here is probably our greatest asset. So I can't speak to other buyers or buyer pools, we're really focused.

In terms of tax motivated behavior -- we have seen a significant rise in -- purchased for bonus depreciation purchasers. You'll see us lean into dispositions, as we mentioned, to those types of purchasers. 1031 acquirers still remain fickle. But obviously, we've increased our disposition activity and guidance here. And I think they will continue into next year.

Richard Hightower

That's helpful. And I guess my second question, just to go to development in DFP. I think you've got maybe a little over a dozen projects currently expected to deliver through -- towards the end of next year, I guess. Just help us understand. I know you said there's about a $200 million kind of annual target for that sort of spend. Help us understand the cadence of run rate spend and rent commencement and earnings contribution? Just how does that sort of flow through the model on a stabilized kind of run rate basis from here?

Joey Agree

Yes, I'll let Peter get into the details of the numbers. The one thing I'd point out is we have really leaned into our development in our developer funding platform starting approximately 18 months, call it, 6, 7 quarters ago and set that target with 2 purposes. One, to diversify our external growth sources, right? Our uses of capital. And then two, to balance out our relationships with retailers to provide a one-off really differentiated solution. Those have obviously come to fruition. As I said on the last call, subject to entitlements and permitting, we could hit that $250 million number this year. We're obviously well on the way as you can see through 3 quarters.

Peter, I'll let you get into the specifics.

Peter Coughenour

Sure. Rich, just to hit on the modeling impacts or how we should think about revenue coming online. We have disclosure in our supplemental on Page 35 that lays out our development in DFP projects and the anticipated quarter of delivery. We announced projects once construction commences. And then on that table, we lay out the intimate quarter of delivery and total project costs for each quarter. So I would think about revenue recognition beginning when the project is delivered. And using that table as a guide for future projects coming online for those that have been announced. .

Operator

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

Michael Goldsmith

You highlighted a spot WACC of 6.8% in your presentation, acquisition costs -- or acquisition cap rates moved up 30 basis points to 7.3%. So it's a 50 basis point spread, and you expect cap rates to continue to move higher. I think you said materially in the fourth quarter. So I guess like how far away are you right now from kind of I know you used that traffic light analogy, but like where are you right now? And do you think you can be in that green zone kind of heading out into the -- during the fourth quarter and into 2027.

Joey Agree

I appreciate the question. We put our spot cost of capital in there because we always want to be transparent. Again, we're not using unburdened free cash flow. We're not using dispositions. But I think we've got to back up and let's recap for a second to write up the conversation. We have 0 short-term borrowings, again, 0 short-term borrowings. We have a war chest of nearly $2 billion that we raised at yesteryear's pricing, which is in that same slide, including a 10-year bond that was effectively 10 basis points wide of where the treasuries due to our proactive hedging policy at 5.37%.

We can invest approximately $2 billion until we're 5x levered while the majority of our peers are sitting at 5.5x plus. We have no debt maturities until 2028. Yes, we said cap rates will expand in the fourth quarter. Let's assume 25 basis points on top of our Q3 expansion of 30 basis points that we already saw. I'll add, we'll add another $200 million that we'll dispose in probably in the near term, extending into Q4 into Q1 -- half primarily to those bonus depreciation buyers.

So we're really deploying really cheap capital that we deployed at yesteryear's pricing at the largest spreads we ever have and driving cap rates higher to make those spreads even larger. So our spot cost of capital is if we raise capital today. But again, our balance sheet is sitting at 3.8x levered. If we did nothing, which we're not going to do, we've been very in the no deducting scenario. We have 3% growth next year, add it all up, and there's really no material change in our earnings algorithm and hence, why I talked about mid-single-digit AFFO growth in 2027, double-digit total shareholder returns. It's pretty it's pretty simple math. So the spot cost of capital is to highlight if we raise capital today.

But let's not forget we raised almost $2 billion of capital at yesteryear's pricing, which we're going to be disciplined and drive cap rates higher and drive the largest spread that we've had, frankly, since COVID.

Michael Goldsmith

Got it. And Joe, you're right, you talked about still achieving that mid-single-digit AFFO growth per share and double-digit operational returns next year. So how much of that is a function of the environment or maybe you can kind of qualify like how much does the environment need to improve in order to achieve that versus your do-nothing scenario of 3%?

Joey Agree

There is no do-nothing scenario for us in 2027. That's a baseline that we're just using that we learn from in 2023 and 2024. When we entered 2024 and we talked about a do-nothing scenario, we were 4.7x levered. So we said we are going to proactively engage and discuss a do-nothing scenario. That is not an option for us. We have a $2 billion war chest that was raised at yesteryear's pricing. We are going to deploy it, disciplined and decisively at cap rates that we are going to continue to push on. We don't need any -- that assumes 0 changes in the short end, the long end of the curve, our stock price, anything, again, that capital is raised. It's in the bank. It's priced. The equity is at $75, the 10-year treasury, our 10-year unsecured debt was at 5.37%. .

So we -- that includes standard credit loss assumptions for 2027. No change in the curve, no change in our stock price. We're not guessing on where the economy is going to go in 2027. That is our earnings algorithm. So I think the focus on our spot cost of capital, which we want to clearly delineate because we want to be transparent in our deck relative to our historically raised cost of capital, which we have in the same page, column are very different things, right? Again, we're sitting here with a $2 billion war chest, $2 billion in capital to deploy until we approach 5x levered at the upper end of our guidance with the majority of our peers sitting at 5.5x plus already.

Operator

Your next question comes from the line of Nick Joseph with Citigroup.

Nicholas Joseph

Joe, you talked about the 30 basis points quarter-over-quarter increase in cap rates in the third quarter. I think you just mentioned an expectation of 25 basis points in the fourth quarter. Does that -- or would you expect further expansion in the first half of '27, assuming that rates stabilize at current levels?

Joey Agree

I wish I knew. Honestly, we are focused on time and place right now. We reacted very quickly to the meteoric rise in the 10-year. We repriced our pipeline. We called our pipeline very aggressively. Again, and as you'll see that rise in our Q4 cap rates. We haven't even begun sourcing for 2027. We're not assuming in the model, which I just talked about and any further extension of cap rates. .

We're going to keep pushing. The key here is that we can create value across all 3 external growth platforms, whether it's working with retailers, we were in Walmart, we were in T.J. Maxx in Framingham, Massachusetts last week, working with our retail partners, creating value across all 3 platforms. Where cap rates go, what's the next true social post, I have no idea for 2027. All I know is we are going to be disciplined and deploy capital and material spreads to drive that earnings algorithm.

Nicholas Joseph

Sounds good. And then you're in over 30 different retail sectors. What areas are you seeing cap rate expansion the most? Where are you seeing the stickiness? And then on the go forward, if there's any you call out that you could see more expansion in or stability?

Joey Agree

I don't think it's truly I'll call it, sectoral driven. I think it's more price point-driven. So obviously, negative leverage doesn't help for private purchasers out there or public purchasers today given where the 10-year treasury is. And so we've seen some stickiness in cap rates and lower price point assets. I think as you climb that price point ladder, actually it dwindles down to institutional buyers that have the capital and the cost of capital to make those transactions work. .

So we could see some rise in our average transaction size, possibly, I'm not foreshadowing Q4 by any means. But we could see that in 2027 if the fallouts remain equal. And so I think price point driven. Obviously, there are tenants that are distressed that are not trading. And then the congress of that is the Big Beautiful Bill bonus depreciation buyers that are really just tax motivated. So I can't think of a sector that is recently in the no-go or no fly territory, but I think there are tenants that obviously have challenges getting moved.

Operator

Your next question comes from the line of Jana Galan with Bank of America.

Jana Galan

I appreciate the comments on value creation over volume and the cap rates and acquisitions in 4Q trending higher. Just curious, again, if you could just provide any expectations on how long it takes cap rates to reset for your more investment-grade tenant base, maybe looking at prior cycles of this type of interest rate volatility.

Joey Agree

Yes. I would tell you, I think it's a misnomer that IG takes longer than non-IG to reset. I think these are all just narratives, frankly, that are false. So Q1 investment grade, this is just acquisition activity for us. At 59%. Q2 was 73% plus, Q3 was down to 52.1%. Q4, we'll pop back up. I'll tell you now.

Again, these numbers are solely for acquisitions. They don't include development or DFP. Add in our development and DFP activity in Q3 is approximately nearly 60% investment grade. But again, as I've been consistent, I think investment grade alone is the wrong focus. It's an output of what we do. Walgreens was investment grade, everyone remembers, we called that. Tractor Supply wasn't investment grade, we called that. Hobby Lobby, Gerber Collision, Publix, Wegmans, Ulta, Aldi, Boot Barn and a whole bunch of other tremendous retailers, preeminent retailers in this country have no rating. And so we can play the Shell IG game, and we can say run on Moody's RiskCalc and not use some random threshold or score, ADC score and say, inclusive of Shadow IG3, we would be 65%, which include Five Below and Hobby Lobby and Ulta.

Our entire portfolio, we ran through the Moody's RiskCalc is 76% investment grade. But again, I can't emphasize enough. Aldi is probably my favorite grocer in the country today. Hobby Lobby is the preeminent craft and hobby retailer. We did a sale leaseback, obviously, and acquired a number of more of them this quarter. Ulta carries no debt. They are the preeminent retailer in this country. And then some of the best grocers in the country outside of Ulta, Publix, Wegmans, these retailers don't carry debt and they're not investment grade.

That doesn't preclude our investment in them. And frankly, it doesn't even factor into our decision because we know the quality of their business and their balance sheet. So the IG, non-IG disparity, shadow IG, I think it's -- let's look at -- let's see through that and look at the quality of the individual retailers, the underlying real estate and then the complexion of the overall portfolio and the diversity within it.

Jana Galan

And then maybe just congratulations on the 106% recapture rate. Curious if in this kind of more inflationary environment, you think that, that could trend higher? And maybe if you have a view of how below market your rents are.

Joey Agree

That trend is really driven by escalations that are contractually driven in options, right? We have very minimal lease rollover as we highlighted. Those have mark-to-market opportunities. I can't quantify it for you at this time. But that's really driven by the stability of our portfolio, the contractual options embedded, approximately the 1% internal growth through same-store NOI that we're receiving every single year, and you'll see that number come up and down subject to what options are being exercised in any quarter. .

Operator

Your next question comes from the line of Ronald Kamdem with Morgan Stanley.

Ronald Kamdem

Just going back to the conversation on the sort of the acquisition environment, and I think your comments about sort of a cap rate or cap rate rising from here. I was just curious if you could just dig in a little bit deeper in terms of the competition for deals that you're seeing out there and who's getting stronger, who's getting weaker would be helpful.

Joey Agree

Yes, Ron, I think overall, competition is less because capital is more expensive and constrained. Again, we don't compete with institutional purchasers generally. We're competing in a very fragmented space here that is primarily owned by individuals, and we're out there looking for value and creating value and hand-in-hand with our retailers. So I would assume that overall bids will go down as cap rates stabilize and try to move up and ultimately hopefully stabilize at some point. But we're not seeing any -- obviously not seeing any increase in competition. That's for sure.

Ronald Kamdem

And then just a quick follow-up on the DFP, that $250 million run rate in this environment. Could that potentially even be more opportunity if other capital sources are strained? Or how should we think about that?

Joey Agree

Certainly. But the transactions also, they have the hurdle. They have to make sense. But yes, I think construction financing and ultimate end financing, long-term financing or dispositions could be more problematic for developers. And DFP, we could see a rise in that activity, and we're exploring a number of options there. .

Operator

Your next question comes from the line of Brad Heffern with RBC Capital Markets.

Brad Heffern

On the development front, do higher rates, the higher rate environment, does that change anything in terms of just the relative attractiveness either for you or for the counterparties? I would think from a pricing standpoint, you're able to dictate that more, but I don't know if there's any difference in terms of how counterparties look at the offering in a higher rate environment.

Joey Agree

Yes, I think it could possibly give us the ability to push on return on cost in a higher rate environment, but we have -- look, we enter into those transactions with a significant margin and the product type that we're developing ultimately has significant value and terminal value because, one, the Big Beautiful Bill for these gas stations, obviously, the bonus depreciation purchasers. .

But we enter in with a larger margin of, obviously, I'll call it, safety and spread or return on invested capital due to that development platform. But could it give us the opportunity to push those returns even higher? Certainly possible.

Brad Heffern

Okay. Got it. And then, Peter, you talked about the debt deal fees. I'm assuming that was a headwind to guidance above the reduction in acquisition volumes. Is there any number you can put around that in terms of what the impact was for the third quarter? And then should we expect to see any more of that in the fourth quarter? Or is that all done at this point, assuming rates stay where they are?

Peter Coughenour

Yes. In terms of the impact from elevated debt deal costs in the third quarter, that contributed close to roughly $0.01 in terms of a decrease in AFFO per share in the third quarter. Debt runs through general and administrative expenses on our income statement. So you can see that line item was elevated in Q3. I would expect some normalization in G&A and debt deal costs as we move to the fourth quarter. .

Operator

Your next question comes from the line of Eric Borden with BMO Capital Markets.

Eric Borden

Joey, you've been clear that you don't want to move up the risk curve. Just curious how much of the 30 basis point increase in cap rates in this quarter reflects true repricing versus mix? And then when you talk about another potential 25 basis points of cap rate expansion in the fourth quarter, is that on a comparable risk profile?

Joey Agree

Yes. Simply put, yes. We will not move up the risk curve. We have constructed this portfolio over the last 16 years that we believe is a preeminent retail portfolio in the country, and we will not move up the risk curve. We're not -- we will stay retail focused on the largest retailers in the United States and continue to partner with them on their growth strategies as well as existing stores. .

The repricing in the fourth quarter was a function of -- I'll tie it back to the debt deal cost that Peter just to discussed. It was -- for us, it was a take it or leave it effectively. We will kill a deal if it didn't hit a certain threshold for us. You saw those debt deal costs run through Q3. You won't see that again in Q4. And then if the seller was willing to move along with the 10-year treasury, and we were -- as well as our stock price, we were willing to transact. But for us, it effectively became a take it or leave it.

Eric Borden

Great. And then just on the disposition front, you've given the accretive spread between the dispositions and the acquisitions yields this quarter. How much room is there to lean further into recycling? Is there a meaningful pool of noncore assets that you could increase the monetization without compromising the quality of the portfolio?

Joey Agree

Certainly. And I think the biggest opportunity there is with the bonus depreciation purchasers. And obviously, we're very active in the C-store space where that bonus depreciation is applicable. So we will look to recycle at a couple of hundred, 175 to 200 basis point spreads in Q4 and into 2027. .

Operator

Your next question comes from the line of Alec Feygin with Baird.

Alec Feygin

Just on the development side, do you expect that the mix of investments is likely to shift towards development versus regular acquisitions?

Joey Agree

No, I don't -- I mean the mix in terms of percentage of capital allocation will ultimately depend on -- we have a pretty good visibility into our development pipeline will ultimately depend on ultimate acquisition volumes, which we don't have visibility. If acquisition volumes trend down, development could be a larger percentage. But again, with limited foresight into the ultimate denominator, including acquisitions for 2027, it's difficult to answer that question. .

Operator

Your next question comes from the line of Upal Rana with KeyBanc Capital Markets.

Upal Rana

Joey, you mentioned you can deploy $1.9 billion and still get to 5x leverage. Is that sort of the intention to potentially lever up to 5x? Or was that you had a scenario?

Joey Agree

Our stated leverage target is 4 to 5x. We obviously have a $2 billion war chest and just putting that in the context of the overall balance sheet, right? And so I think we'll always be looking at capital sources, whether it was a preferred at 4.25 back in the heyday or whether it's common equity through ATM. We will always maintain a fortress balance sheet and liquidity profile. But I think on a -- when you look on a relative basis, our balance sheet has a significant firepower. .

Upal Rana

Okay. Great. That was helpful. And then the 3Q investment activity had an average WALT of over 14 years versus 10 or 11 years in the quarters prior. Was that a result of just mix? Or were you seeing the ability to ask for higher WALT given the current environment?

Joey Agree

No, that was specifically mix. There was the Gerber Collision transactions, brand-new Hobby Lobbies, one in Apple Valley, California, that was 15 years. So just mix, a new BJ's and Hobby Lobby in Springfield, Massachusetts, again, just mix. .

Operator

Your next question comes from the line of Rob Stevenson with Huntington.

Robert Stevenson

Joey, given that some of the development DFP deals that have yet to break ground might have been put under contract in the past, how quickly are you able to readjust the yield on new deals if you're looking at 50 to 60 basis points of acquisition cap rate expansion in the back half of this year?

Joey Agree

Subject to the project and the stage of the project, we're able to adjust pretty quickly. Obviously, there's multiple levers there. There's the underlying land cost. There's rents with the retailer. But we don't really -- given the margin that we're developing at the margin of safety relative to our cost of capital and relative to ultimate terminal values if we disposed as we talked about with the Big Beautiful Bill Build purchasers, I don't think there's a need to necessarily reprice those transactions.

Robert Stevenson

Okay. And then have you -- given the term, have you seen any material difference in the level of cap rate expansion or the availability of the product in ground leases today versus just fee simple assets?

Joey Agree

No, you'll see a significant component of ground leases in Q4. Most of the ground lease stuff that we do acquire, either sellers aren't even familiar with the ground leases or they're short term and working hand-in-hand with the retail, there really isn't a threat to pull through ground leases versus turnkey leases. They're really -- it's all a mixed bag.

Operator

Your next question comes from the line of Jim Kammert with Evercore ISI.

James Kammert

Lots have been covered here. Just one quick housekeeping item. Looking at the Q, Peter, there's no hedging in place for the '28 maturities. Is that correct? .

Peter Coughenour

Correct. As we think about the '28 debt maturities, those are fixed rate offerings. And currently, there are no hedges in place for prospective debt issuances. .

Operator

Your next question comes from the line of Michael Gorman with BTIG.

Michael Gorman

Joey, you mentioned taking a closer look at the retailers and your track record there is certainly very strong. And then you mentioned some of your favorites in the grocery space, Aldi Publix, Wegmans, obviously makes sense. I'm curious if you have any thoughts on some of the more traditional mainline grocers that maybe had some negative headlines around them recently? And just kind of how you're thinking about the grocery space that somehow seems to be getting even more competitive than it's been in recent years.

Joey Agree

Yes. I would refer everyone to the white paper on our website from what, 12, 18 months ago, Peter, about the grocery space. I pushed back pretty vehemently about the narrative of grocery-anchored shopping centers being the general safe haven in retail real estate for years now. The grocery space ultimately is a 2% margin business, and we see those margins contracting while they move to advertising revenue alternative sources.

And again, 3 of the largest grocers in the country or retailers that sell groceries, I should say, aren't grocers, right? Walmart, the largest, Amazon and Costco. And so we have always been very clear that we will only invest in those market leaders. Sometimes they are regional leaders. And I think our white paper lays out that thesis, and we'll continue to execute upon that thesis. But we have seen -- as you mentioned, we have seen pressures there. There is price transparency in the grocery space, like all retail spaces today.

Basket sizes are going down even in the face of gas prices going up. Consumers are being much more discerning about what they acquire. Obviously, we have a number of grocers who are going through their overall pricing strategy right now and have been very public about it and saying we have to compete on price. So our thesis has always been and to invest in differentiated grocers that are the regional leaders, H-E-B, Wegmans, Publix, Market Basket, the national grocers that are price leaders, Walmart Neighborhood Market, Aldi, Kroger, and we will continue to execute in that manner. And we've been very clear. B minus, C grocers are suspect at best in a 2% margin business today. And I think we're going to see continued challenges amongst those lower-tier grocers.

Operator

Your next question comes from the line of Jamie Feldman with Wells Fargo.

Connor Siversky

You've got Connor on here with Jamie. Maybe from a higher level, can you talk us through any lessons learned from the last significant move in the 10-year like in 2023? And how does that influence your capital allocation strategy over the next 12 to 18 months?

Joey Agree

Yes. It's a great question, Connor. We emphasize here always constantly improving. I'll tell you my personal lessons learned from the 2023 rapid rise in the 10-year north of 5% was we did not move quickly and decisively enough. We continue to acquire and deploy our most precious asset, our balance sheet, utilize that balance sheet capacity at spot pricing instead of waiting. And that I'll call it lack of discipline, and I'll take the full accountability for that.

That lack of discipline had our balance sheet then in a position which I did not want to deploy incremental capital without knowing what came next. This time coming in with $2 billion of liquidity and the balance sheet at 3.8x levered, we moved immediately. And it was aggressive. I'll be frank. It was an aggressive move. You saw the debt deals run through. I talked about how it was a take it or leave it approach. We reduced our investment guide. We focus -- we're again focused on value over volume. I think the volume game in net lease is over, which I'm excited about because we are value creators ultimately.

But I think in 2023, really looking back, hope of normalization or stabilization probably encouraged me to stay the course on our existing pipeline. This time around, we said go immediately when we saw that meteoric rise in the 10-year treasury and the correlating stock price depreciation. And so it was a very different tactic for us. We are going to preserve our most -- again, we're going to preserve our most precious asset. That's our balance sheet liquidity. We're going to deploy it at larger spreads, and we have been decisive about it, as you can see with the rise in cap rates, the rising cap rates in Q4, I talked about for us, and we will be patient and disciplined.

Connor Siversky

That's super helpful. And sorry if this has been talked about already, but I think you mentioned last time you were going in a do nothing scenario was in 2024 around kind of 4.7x leverage. Your investor presentation shows you haven't been above 4.5 since 2018. So should we maybe think about that 4.5x sort of as a soft maximum for your leverage?

Joey Agree

I wouldn't think of it as a maximum. Our stated range is 4 to 5x. We're obviously nowhere near $2 billion, including free cash flow approximately to get to the do-nothing scenario. That do nothing scenario, once again, is 3% growth. We're not going to do nothing. Look, we will be nimble, flexible. We will be opportunistic, obviously. But the most important thing there is we are not in that position, and we want to emphasize that here.

Operator

There are no further questions at this time. I will now turn the call back to Joey Agree for closing remarks.

Joey Agree

Well, thank you, everybody, for joining us this morning, and we look forward to seeing you during the upcoming conferences and best of luck through the remainder of earnings season. Thanks again. .

Operator

This concludes today's call. Thank you for attending. You may now disconnect.