EPRT 2026年第3四半期決算説明会：AFFOガイダンスを上方修正、パイプラインのキャップレートは8％近辺

Essential Properties Realty Trust（NYSE: EPRT）が発表した2026年第3四半期のAFFO（調整後事業キャッシュフロー）は1億1,190万ドル、1株当たりAFFOは前年同期比6%増の0.51ドルとなった。物件取得のアクティビティと安定したポートフォリオのパフォーマンスに支えられ、経営陣は2026年通期の1株当たりAFFOおよび投資額の見通し（ガイダンス）を引き上げた。

主要なポイント

• AFFOは前年同期比16%増の約1億1,200万ドルとなり、1株当たりAFFOは6%増の0.51ドルとなった。
• EPRTは100物件に対して3億4,200万ドルを投資し、初期キャッシュイールドは7.7%、GAAPイールドは9.4%であった。セール・アンド・リースバックが四半期投資額の91%を占めた。
• ポートフォリオの稼働率は99.6%、賃料カバー率は3.5倍を維持し、既存店賃料成長率は1.4%となった。テナントの信用ウォッチリスト率は前四半期比で50ベーシスポイント低下し、1.1%となった。
• 経営陣は2026年通期の1株当たりAFFO見通しを2.02〜2.05ドルに、投資額見通しを13億〜15億ドルにそれぞれ引き上げた。
• 初公表された2027年通期ガイダンスでは、1株当たりAFFOを2.10〜2.18ドル、総投資額を10億〜15億ドルと想定しており、資金投下は下半期に偏る見込み。
• 今後の投資パイプラインはキャップレート（還元利回り）が約8%、GAAPイールドが9%台後半となっており、資本コストの上昇に合わせて取引価格の再交渉を進める経営陣の取り組みを反映している。

主要財務データ

事業および運用実績

当四半期中、EPRTは100物件に及ぶ31件の取引を完了した。投下された3億4,200万ドルの加重平均初期賃貸期間は17.9年、年率の賃料スライド率は2.3%であった。1物件当たりの平均投資規模は約300万ドルであった。

四半期末時点のポートフォリオは、700以上のコンセプトを展開するテナントに賃貸されている2,580物件で構成されている。加重平均残存賃貸期間は14年を超え、ポートフォリオの平均賃料スライド率は1.9%であり、2028年までに満期を迎える年間基本賃料の割合はわずか2%である。

稼働率は99.6%を維持し、空室物件は11物件であった。上位10社のテナントが年間基本賃料の15.2%を占め、上位20社では25.1%となった。洗車場向けエクスポージャーは当四半期中に60ベーシスポイント低下し、年間基本賃料の12%となった。

EPRTは11物件を1,790万ドルで売却し、加重平均キャップレートは6.1%であった。経営陣は、保有資産が小口分散されていることや買い手の幅広い需要が存在することにより、資本再配分（キャピタル・リサイクリング）を拡大する柔軟性が得られていると述べた。

同社はリボルビング信用枠を3億ドル拡大して13億ドルとし、2027年に満期を迎える唯一の債務であった4億3,000万ドルのタームローンを繰り上げ返済した。これによりEPRTは2028年まで満期を迎える債務がなくなった。四半期末時点で、1株当たり平均30.50ドルで未決済のフォワード株式契約が4億8,300万ドルあり、リボルバーの利用可能枠は8億900万ドルであった。

経営陣による業績見通し（ガイダンス）

経営陣は、取引価格が資本コストの変化に追随するまで、今後2〜3四半期の資金投下ペースが減速すると予想している。同社は、2027年の資金計画がフリーキャッシュフロー、資産売却、拡大されたリボルバー枠、および未決済のフォワード株式によって裏付けられており、当面は外部での新たな普通株発行を必要としないと述べた。

配当支払い後の年間フリーキャッシュフローは2億ドルに近づいている。普通株の発行を行わないシナリオの場合、2027年末のレバレッジは4倍台前半から半ばの範囲となり、EPRTの過去の平均水準と一致すると経営陣は述べた。

リスクと注視すべき分野

• 経営陣は、短期的資金投下の主な制約要因として、資本市場の変動性と加重平均資本コストの上昇を挙げた。
• 資産価格の調整は一般に資本コストよりも遅く、投資スプレッドを圧迫する。EPRTは現在の追加資本コストを6%台半ばから後半と試算しており、これは新規取引におけるスプレッドが約100〜150ベーシスポイントであることを意味する。
• 資金調達の変動性とEPRTによる取引価格再交渉の取り組みにより、パイプラインの予想成約確率は通常の90%〜95%の範囲から概ね65%〜70%に低下した。
• リボルバーに設定された4億3,000万ドルの残高は、11月末に既存のスワップが満期を迎えた後、変動金利負債となる。経営陣は、この残高を長期資金に借り換える（タームアウトする）ため、無担保社債、転換社債、銀行融資を検討している。
• 当四半期の減損損失は、主に家具販売チェーン「Art Van」の空室となった旧店舗に関連するものであった。経営陣は、同業界に対するポートフォリオの残存エクスポージャーは重要ではないと述べた。

アナリスト質疑応答のハイライト

投資価格設定：経営陣は、プライベート市場での競合減少と中堅企業向け融資条件の厳格化がEPRTの価格交渉力を向上させていると述べた。第3四半期の投資における初期キャッシュイールドが7.7%であったのに対し、今後のパイプラインのキャップレートは約8%となっている。

2027年の資金投下ペース：下半期への偏りが予想される主な理由は、投資機会の欠如を反映したものではなく、バランスシートの余力を維持し、資産価格の調整時間を確保するためである。

資本再配分（キャピタル・リサイクリング）：経営陣は、四半期当たりの資産売却額が過去の標準レベルである約2,500万ドルから約5,000万ドルに増加する可能性があると述べた。実施時期は数四半期に及ぶ可能性があるものの、代表的な売却対象ポートフォリオは6%台半ばから後半のキャップレートで取引され得ると見込んでいる。

テナントの健全性：ポートフォリオのパフォーマンスは安定を維持しており、重大な悪影響を与える傾向は見られない。経営陣は、ポートフォリオ設定以来の実現信用損失率が年平均で30ベーシスポイントをわずかに下回っているとし、2027年ガイダンスにはより保守的な損失想定を組み込んでいると述べた。

株式発行：経営陣は現在の株価が普通株発行にとって魅力的であるとは考えていないため、EPRTは当面のアット・ザ・マーケット（ATM）株式発行を想定していない。同社は、既存の手元流動性とレバレッジ枠によって2027年に計画している投資活動を十分にカバーできると述べた。

業界別配分：経営陣は、業界別の資本配分に重大な変更があるとは想定していない。EPRTは2027年の投資構成が既存のポートフォリオと概ね一致して推移すると見込んでおり、通常、投資活動の80%〜90%が継続的な取引関係から生じることを指摘した。

決算説明会文字起こし全文

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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, ladies and gentlemen, and welcome to Essential Properties Realty Trust Third Quarter 2026 Earnings Conference Call. [Operator Instructions] This conference call is being recorded, and a replay of the call will be available 3 hours after the completion of the call for the next 2 weeks. The dial-in details for the replay can be found in yesterday's press release. Additionally, there will be an audio webcast available on Essential Properties' website at www.essentialproperties [Audio Gap], an archive of which will be available for 90 days. [Audio Gap] are Pete Mavoides, Chief Executive Officer; Rob Salisbury, CFO and Chief Strategy Officer; Max Jenkins, President and Chief Operating Officer; Craig Vachris, Chief Investment Officer; and Sheryl Kaul, Director of Financial Planning and Data Analytics. It is now my pleasure to turn the call over to Sheryl Kaul.

Sheryl Kaul

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.

Peter Mavoides

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 3.8x 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 3.5x 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 slow pace of deployment over the next 2 quarters 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 Vachris

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 3.5x. The percentage of ABR with rent below 1x 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.

Max Jenkins

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 escalation 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 encompassed 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 and 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.

Robert Salisbury

Thanks, Max. Overall, we delivered another strong quarter of operating and financial performance. Our AFFO per share was $0.51, 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 towards 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 $0.32 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 3.8x 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.

Peter Mavoides

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, long-standing 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.

Operator

[Operator Instructions] And we'll take our first question from Michael Goldsmith with UBS.

質疑応答

Michael Goldsmith

First, on the 2027 guidance, I think you started to touch on it, but can you provide us the building blocks for how you're going to achieve that? And then 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?

Peter Mavoides

Rob, why don't you handle that?

Robert Salisbury

Michael, so we outlined some of the high-level drivers in our press release, most notably the investment volume range. As it relates to financing, yes, so 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. So we had 8-K that about a month ago, but we went ahead and expanded our revolver capacity that helps support taking that down a little bit early. And just as a reminder, we've 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 will become a floating rate obligation just like the rest of our revolving credit facility. And so as we look at some potential options to term that out, clearly, we don't want to leave that floating -- to seek to have as low variable rate debt exposure as we can. So as we sit here today, we're evaluating all of the debt alternatives. I think we mentioned in the earnings call script.

And when we look at the menu, right now, unsecured bonds on a 10-year basis will probably price in the high 6s. A convert would probably price south of a 5 on a coupon basis, I should say. And then bank debt would probably be somewhere in between 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. So strategically, we're continuing to focus on that, understanding, of course, that we do have a hole in our ladder at both a 5- and 7-year maturity.

So we would consider shortening up just a little bit to support the refinancing of that obligation. And I should say that we've included a range of scenarios for that baked into our guidance range. So 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 2 as we continue to assess those options. But clearly, the interest rates are evolving dynamically, and we'll see where that shakes out.

Peter Mavoides

Mike, the other building blocks for 2027, obviously, we have the investment guidance out there, $1 billion to $1.5 billion, which is a conservative range relative to our historical performance. And then all of that guidance is kind of predicated on continued solid portfolio performance and our compelling growth within the portfolio. So...

Michael Goldsmith

And 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 1x rent coverage bucket was flat with last quarter. So just trying to get a sense of -- is there any change in the watch list? How you think about your tenant base and how they've been able to navigate the macro?

Peter Mavoides

Zach, why don't you handle that? You're new to the seat.

Craig Vachris

Yes. No, it's been very consistent. We don't really seeing any trends or movement one way or another. Obviously, it's -- yes, it's -- I guess, it's going to be pretty consistent. I think we're happy with the way our tenants performing and coverage remains strong.

Max Jenkins

And Michael, on that, specifically the watch list, it's actually down 50 basis points quarter-over-quarter and sits at 1.1%. And as Zach 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.

Operator

We'll take our next question from Haendel St. Juste with Mizuho.

Haendel St. Juste

I want to follow up on. I wanted 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? It sounds like, Pete, you mentioned investments may be back-end loaded. Should we expect to see leverage tick up a little bit here over the course of '27? And 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?

Peter Mavoides

Listen, I think we're going through a period of time here, as we said in the call, where there's been a rapid movement in our weighted average cost of capital, and we're going through a process of repricing assets and repricing our pipeline. And so 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. But it's a 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. So 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 is 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. But it's early days, and we'll see what happens.

Robert Salisbury

And just on -- I'd add on the capital side, Haendel, we're not assuming a dramatic releveraging of the balance sheet. We're going to continue to run at a low leverage point. And we're assuming really nothing on the ATM in the very near term just in recognition of where our share price is today. So no common equity in the near term.

Haendel St. Juste

Got it. Got it. Super helpful. And 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 recycled into investments. So 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?

Peter Mavoides

Yes. 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 probably sell a representative sample and overall try to improve our hold positions. Historically, we've been about $25 million a quarter. I think 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 -- excuse me, mid- to high 6% cap rate range on those transactions.

Operator

We'll take our next question from Yana Galan with Bank of America.

Jana Galan

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.

Robert Salisbury

Yes, we tend to -- we guide to a gross investment number.

Jana Galan

And 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?

Max Jenkins

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. You know notably about early childhood education, it was 5 different portfolio transactions within the quarter with different tenants. And so no large portfolio, just our normal right-of-way relationship-based investing.

Operator

We'll take our next question from Caitlin Burrows with Goldman Sachs.

Caitlin Burrows

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. So 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 it, have that, call it, upper hand? Or yes, how can you continue to achieve that outcome?

Peter Mavoides

Yes. I think part of it the -- looking at a lot of deals, having a lot of throughput. We have a very granular portfolio where we're investing in $5 million to $10 million chunks. And so that granularity gives us good optionality. I think the bigger picture is that we're negotiating and doing -- providing capital to operators who are motivated by accessing capital and growing their business. And so an extra 25 basis points, 50 basis points, 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.

So 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 higher -- can handle a higher cost of capital supporting it.

Caitlin Burrows

Got it. And 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. I 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 like industry focus where you could get that larger spread? Or you still expect it to be like ratable?

Peter Mavoides

Yes, 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%, 90% repeat business. And I would expect the composition of our 2027 investment pipeline to be very ratable to the overall portfolio.

Operator

We'll take our next question from Smedes Rose with Citigroup.

Bennett Rose

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?

Peter Mavoides

The flip side of that, Smedes, I think 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 and sale leasebacks, that's very dynamic and those operators are less price sensitive. But 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, 1.5 months.

Bennett Rose

Okay. And then I was just wondering, we heard from other reports, either deals being canceled in the fourth quarter or kind of an aggressive efforts to reprice deals that were underway. Is that something that you are, I guess, currently doing now? And 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?

Peter Mavoides

Yes, Max, why don't you tackle that?

Max Jenkins

Smedes, we took a pretty granular and tactical approach. And so we took all 60 to 90 deals in the pipeline. And when you'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 -- the pipeline engine that we've built over the last decade and a lot of repeat business. And so we're focused on maintaining those relationships. But 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're encouraged by where the pipeline sits and where we've been able to move cap rates.

Peter Mavoides

Yes. I would add, Smedes, the complexion of our pipeline is, call it, $30 million, $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. And -- but given the capital markets choppiness, I would say that's probably closer to 70% or 65% in the current market. So there's more volatility, but that's offset by the number of opportunities and the diminished competition.

Operator

And we'll take our next question from Eric Borden with BMO.

Eric Borden

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 know I think you had talked about previously that the credit loss assumption within guidance was trending a little bit higher. So if you could just provide a little bit more color on '27, that would be great. And 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?

Robert Salisbury

Eric, it's Rob. Thanks for the question. Yes. So credit losses generally are trending slightly better than we had guided to for this year. And as we think about 2027, similarly, we tend to guide well in excess of where our realized losses have historically been. Just as a reminder, that's -- that realized loss has been just under 30 basis points per year since the inception of this portfolio. And so while we don't give a specific number out, the assumption that's baked into that guidance range is well in excess of that rough to 30 basis point range. So that's where credit losses are today. And yes, as you noted, all the indicators that we monitor are very healthy right now.

So 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. And 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 2 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. So it's not a huge surprise in terms of where the exposure is there. And all of that's outlined in footnote 12 of our 10-Q, if you want to dig into more of the details behind those assumptions.

Eric Borden

And 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 2?

Peter Mavoides

Yes. We're not tying dispositions to acquisitions. Our disposition activity is very granular single $3 million average assets and our investments are -- 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 both kind of be very much on a flow basis.

Operator

We'll move next to Rich Hightower with Barclays.

Richard Hightower

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.

Robert Salisbury

Yes, we're fully covered in terms of funding for next year, and that's maybe from a liquidity standpoint. We also had 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 EBITDA 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 would be something that we would think about to build more dry powder. But 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. And 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. And so 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 2, but really as we're moving through the year. And 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. So that's kind of the scenario that we're outlining at the high end.

Operator

We'll take our next question from Linda Tsai with Truist.

Linda Tsai

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?

Peter Mavoides

I would say it's certainly more of the latter. We buy these assets and make an investment decision, and we have 15 years of weighted average lease term. There's little we can do to effectuate change after our initial investment. And so the vast majority of our low level of credit losses can be attributed to the investment decisions we make at the outset.

Linda Tsai

And 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?

Peter Mavoides

Yes. 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. But as Rob just said, we don't our business plan in 2027 isn't predicated on raising new capital.

And then generally, cap rate movements lag the movements in cost of capital, and that's why we're in a compressed cap 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. So 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 would be about the same.

Operator

[Operator Instructions] We'll take our next question from Jim Kammert with Evercore.

James Kammert

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. And 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?

Max Jenkins

Jim, this is Max. I would say you've seen over the last year or 2 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. And -- like we said in the prepared remarks, forward pipeline has an 8 in front of it and the GAAP yields will be approaching the mid- to high 9s at this point. So we're happy with the pricing and making sure we're investing at accretive spreads.

Peter Mavoides

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. So 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.

Operator

And we'll move next to Greg McGinniss with Scotiabank.

Greg McGinniss

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?

Peter Mavoides

Yes. It's not our team adjusting underwriting. It could be our team adjusting pricing. We don't -- 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 or deals not closing because of the pricing that we're offering.

Greg McGinniss

Okay. And 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. And 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?

Peter Mavoides

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

Robert Salisbury

Yes. So 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.

But for the incremental deal and the incremental dollar that goes out the door, our cost of capital today is in the mid- to high 6s. It 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 basis points to 150 basis points of spread, which as Pete noted, I think, on an earlier question, is within the range of 100 basis points to 300 basis points that we've enjoyed historically, but obviously towards that lower end. So 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.

Operator

And we'll take our next question from Jamie Feldman with Wells Fargo.

James Feldman

I was hoping you can dig deeper into the bonus depreciation demand market. We keep hearing from brokers that's a pretty -- there's a pretty healthy appetite, concerns about maybe rules eventually changing if there's a change in administration in a couple of years. Can you just provide more color on how deep it is, how sticky it is? It sounds like you and some of your peers are saying the same thing in terms of that should be a pretty good source of funds going forward. Just wanted to kind of get your latest thoughts on that and especially given the move in rates.

Peter Mavoides

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

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

James Feldman

Okay. And then I guess just focusing a little bit more on some of the tenant moves. So we saw Flagstop Car Wash fall out of the top 10. TA Express is in. Was that primarily a function of printing car wash? Or is there -- are you leaning more into truck stops and C-stores? And then also, it looks like you bought another Dave & Buster's. What's your appetite to increase exposure to that tenant given their credit outlook from S&P?

Max Jenkins

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 movement. So we never want to look too much into each quarter-over-quarter slight changes. But TA Express, we've been working with the largest franchisee in the space that operates over 100 truck stops and convenience stores, 2 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 of years. And so they're a great operator, 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. It was a lower basis that improved our collateral position and the cap rate was accretive to the Q3 overall cap rate. So it's a good deal for us, but it's unlikely we'd probably add more exposure to that name on a go forward.

Peter Mavoides

And I would say that's -- 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.

James Feldman

Okay. I mean are you changing your perspective at all on the consumer heading into next year or areas where you feel less -- have less appetite?

Peter Mavoides

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 like and 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. So do not expect any material shift in our capital allocation strategy.

Operator

We'll take our next question from Spenser Glimcher with Green Street.

Spenser Allaway

On the re-leasing front, I realize you guys have very little coming due in the near term, just given the long lease term of the portfolio. But 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?

Peter Mavoides

Generally, inhering our leases are renewal options that the tenants have. Typically, it's either 2 10-year renewal options 4 or 5-year renewal options. And that option is at the tenant's discretion. So we do not have the ability to mark these assets to market. So -- and generally, we assume if there's a higher than 2x coverage that there's a 98% probability that tenant is going to exercise those options.

Operator

And we'll take our next question from John Massocca with B. Riley Securities.

John Massocca

You kind of mentioned the step-up in cap rate in the pipeline versus what closed in 3Q. I mean, how fast should we expect that to flow through closed transactions?

Max Jenkins

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. So you can kind of infer from there. And 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. So we'll continue to invest in price deals as they come in, but that's about as best I can give you right now.

John Massocca

Okay. And then on the disposition front, I mean, 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 kind of push on that lever for proceeds.

Peter Mavoides

Just to be clear, we didn't guide to $200 million as an indicative level. We're constantly marketing assets. Generally, there's a 30-day premarket period, a 30-day market period and then it could be a 60-day close. So there is some typical lag in ramping those up. But we are in the market. We have listed assets for sale. And so -- and going from a 25 basis points to 50 basis points or 75 basis points is it could happen over a couple of quarters, but it's not going to be a material change immediately.

John Massocca

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

Peter Mavoides

Yes. 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.

John Massocca

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

Peter Mavoides

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

Operator

At this time, there are no further questions in queue. I will now turn the meeting back to Pete Mavoides for any additional or closing remarks.

Peter Mavoides

Great. Well, thank you all for your time today. As we tried 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 abilities to execute in this backdrop and continue to drive earnings growth for shareholders, and we look forward to seeing everyone in the coming months at the conferences. Thank you all, and have a great day.

Operator

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.