Realty Income Corporation (O) Earnings Call Transcript & Summary

We appreciate everyone being with us for the conference call on Realty Income’s operating results for the second quarter of 2025. Presenting our results will be Sumit Roy, who serves as President and Chief Executive Officer, along with Jonathan Pong, our Chief Financial Officer and Treasurer. On this call, certain remarks we make could be treated as forward-looking statements under federal securities law. It is possible the company’s actual results in the future will vary materially from what is covered in any such forward-looking statements. A more detailed disclosure of the elements that might lead to those differences will appear in the company’s Form 10-Q filing. When we reach the Q&A part of the call, a limit of 2 questions will be applied. Should you wish to pose more questions, you are welcome to reenter the queue. At this point I’ll hand the call over to Sumit Roy, our CEO.

Thanks, Kelsey. Hello, everyone. The reliable income we've provided over time comes from what our data-driven platform makes possible; we built that platform on purpose so it could hold up under all sorts of economic circumstances, supported by diversification and scale, predictive analytics, a cautious approach to the balance sheet, and an investment discipline refined across many decades. We think Realty Income's remarkable capacity to produce steady, rising income throughout the entire economic cycle, along with our notable size, scale, and track record, means we're set up to seize two major worldwide megatrends. The first is expanding appetite for investment solutions focused on durable income, fueled by an aging worldwide population and heightened focus on income stability among both public and private investors. The second is corporations' growing eagerness to adopt asset-light approaches via big portfolio purchases or sale-leaseback deals. Our distinctive know-how lets us move toward these trends as we chase adjacent growth verticals such as private capital and credit investments, all while keeping our strategy rooted in our core real estate net lease vertical, supported by our access to public equity; this method lets us take advantage of a wide array of emerging opportunities, providing consistent income to our investors while further expanding the menu of capital options available to our clients. Now on to the specifics of our second quarter. Our investment choices showed off the strategic flexibility of our platform. We think our business model lets us evaluate opportunities largely without geographic or industrial limits, so we can chase the best risk-adjusted returns. Around the world, we put $1.2 billion to work at a 7.2% weighted average initial cash yield, which works out to a spread of 181 basis points above our short-term weighted average cost of capital. When it comes to acquisitions in particular, these investments carry a weighted average lease term of roughly 15.2 years; during this quarter, we sourced $43 billion in volumes, yielding a selectivity ratio below 3%. That $43 billion sourced equals our source volume for the entirety of 2024 and stands as the biggest quarterly volume in Realty Income's history. It shows just how large our addressable market is and how much visibility we have into global net lease transaction opportunities, thanks to the breadth and depth of our platform. So far this year, we've sourced about $66 billion in investment opportunities, which keeps us on pace to surpass our previous record for annual sourced volume of $95 billion set in 2022. Domestic sourcing made up 57% of the year-to-date volume, with the remainder coming from Europe. Returning to our investment volumes for the quarter. Once again we tilted toward Europe, which represented $889 million, or 76%, of our investment volume at a 7.3% weighted average initial cash yield. Europe continues to be an appealing growth market, thanks to a fragmented competitive landscape, a total addressable market bigger than what the United States offers, and a cost of debt capital that right now is more advantageous, with euro borrowing costs roughly 120 basis points inside of U.S. For 10-year notes, dollar debt costs stand where they are today. Ever since we first entered the U.K. market back in 2019, our underwriting discipline and the strength of our balance sheet have let us grow substantially throughout the continent, and Europe today accounts for 17% of our annualized base rent. During this quarter, we moved into our eighth nation in Europe, which involved a sale-leaseback deal with Eko-Okna in Poland, a top manufacturer in that region. Turning to the U.S., we put $282 million to work at a 7% weighted average initial cash yield. Although deal volumes have slowed here at home, that shows selectivity on our part rather than any shortage of opportunity, since we keep prioritizing long-term risk-adjusted returns ahead of how quickly we deploy capital. Throughout the portfolio, we increasingly serve our clients as a full-service capital provider, delivering an array of real estate capital solutions alongside sale leasebacks, credit solutions among them. With 56 years of operating history behind us, we hold long-standing relationships with high-quality operators around the world, which opens the door to using those partnerships to provide tailored access to capital. Now on to our operations. The second quarter showcases the structural advantages of our business model, among them portfolio diversification, built-in resilience across our top industries, and advanced data analytics capabilities. Along those lines, our proprietary predictive analytics tool, which we developed over the past 7 years, guides decisions in sourcing, underwriting, lease negotiations, and asset management. We believe this degree of embedded intelligence lets us operate proactively and strengthens the reliability of our long-term cash flows. At quarter end, our portfolio consisted of more than 15,600 properties across 91 industries and over 1,600 clients. The inherently defensive character of our leading sectors, grocery and convenience stores included, together with our scale and diversification, leaves us well positioned to perform across a range of economic environments. We closed the quarter at 98.6% portfolio occupancy, roughly 10 basis points above the previous quarter and higher than the historical median of 98.2% from 2010 to 2024. Over the quarter, our rent recapture rate on 346 leases came to 103.4%, which amounts to $97 million of annual cash from prior cash rents, with 93% of leasing activity coming from renewals by existing clients, and we stayed active in how we approach optimizing the portfolio. During the quarter, we disposed of 73 properties for total net proceeds of $117 million, $100 million of which was tied to vacant properties. On the whole, the steadiness of our results keeps showing how our platform's benefits allow us to remain agile, manage risk effectively, and drive long-term portfolio performance. Now to our outlook for 2025. With the ongoing momentum in our acquisitions pipeline and our progress year-to-date, we are lifting our 2025 investment volume guidance to approximately $5 billion. Beyond that, we are raising the low end of our AFFO per share guidance, which we now expect to fall in the range of $4.25 — sorry, $4.24 to $4.28. Within this forecast, we continue to observe consistent tenant performance throughout our global portfolio. When we look ahead to 2025, we're factoring in roughly 75 basis points of possible rent loss. That's a bit above what we've typically seen, though it lines up with what we expected when the year began. A good portion of that credit loss stems from specific tenants we picked up through public M&A deals closed over the past few years. At the close of the quarter, our credit watch list sits at 4.6% of annualized base rent, down from the previous quarter, with median client exposure at only 3 basis points. Even with these modest hurdles, we appreciate the solid outcomes our asset management team delivered on recent bankruptcy resolutions. As we mentioned last quarter, we're happy with the 94% recapture rate across our 132 Zips locations, and after At Home filed for Chapter 11 bankruptcy in mid-June of this year, we expect resolutions that move things forward. With that, I'll hand things over to Jonathan.

Thanks, Sumit. Capital markets stayed busy for us in Q2, and we believe our liquidity and balance sheet are in a strong position to support our active investment pipeline. Over the quarter, we brought in $632 million of equity via our ATM, at an average weighted share price of $56.39. As of right now, we hold an additional $654 million in unsettled forward equity, giving us a solid runway to fund investment activity through the rest of the year. With our updated investment volume guidance at $5 billion, the implied $2.5 billion of second half investment volume would call for roughly $500 million of incremental external equity to stay leverage-neutral, after accounting for the $654 million of equity already raised but not yet settled, plus an estimated $450 million of free cash flow for the second half of the year. On top of that, our disposition pipeline should pick up speed as well, and that is expected to deliver meaningful equity-like proceeds into our funding sources, further trimming our external equity need for the balance of the year. On the leverage side, we closed the second quarter with net debt to annualized pro forma adjusted EBITDA at 5.5x, consistent with the leverage target we have methodically maintained. Counting our current outstanding forward equity, liquidity at quarter end stood at $5.4 billion, which is made up of $800 million of cash and $4 billion of availability under our $5.4 billion credit facility. Going forward, the debt capital markets are still open and constructive across all three currencies, especially in the Eurozone. We see our robust investment activity in Europe as a competitive advantage, generating additional net investment hedge capacity in euros, which gives us more debt capacity in this low cost of capital currency. Beyond that, the forward FX rate from euros to U.S. dollars offers a favorable cost of carry that magnifies the organic growth of any net cash flow repatriated from our euro-denominated assets. Diversifying our sources of capital is a core strategic initiative as we scale our platform globally, with the establishment of our Evergreen U.S. Core Plus Fund standing as a key milestone. We are energized by the chance to monetize the value of our platform by managing real estate on behalf of third parties. Through an open-end fund structure used to invest in net leased real estate, we believe we will have the opportunity to enhance acquisition investment spreads, bolstering returns for our public shareholders while providing attractive and stable long-term returns to our private capital partners, each by applying Realty Income's platform and experience to the structure. Given how highly scalable our platform is and the vast addressable market for net lease real estate, we view this initiative as a powerful driver of long-term value creation for Realty Income. After launching our formal marketing process in February, we have been pleased with the breadth and depth of interest from prominent institutional investors. In our view, the power of our platform, the durability of the asset class we operate in, and the worth generated through our lengthy track record are all things these investors plainly recognize. What we've heard back has confirmed our core belief that scale is important, and we're eager to tell you more before long. At this point, I'd like to return the floor to Sumit so he can finish up our prepared comments.

Thanks, Jonathan. The structural benefits we've built up—things like scale, diversification, discipline, and data analytics—give us confidence they'll keep generating value across various economic conditions. As we look forward, we're still centered on operational consistency and the disciplined investment approach that's steered us across our 56 years in business. Our long-term aim hasn't changed: provide income that's resilient and growing via a diversified net lease platform. Given substantial scale and strategic flexibility, we think we're positioned well to stay selective in the current climate and produce enduring shareholder value as time goes on. At this point, I'd like to turn the call over to questions. Operator?

Brad, you brought up our second-quarter entry into Poland. Could you describe the opportunity you see there and whether it resembles or differs from other parts of Europe?

Absolutely, and thanks for asking, Brad. Poland has been a topic of conversation for us going back roughly a year to 1.5 years. Completing our first two deals there and pushing them across the line during the second quarter has us quite enthusiastic. As you're likely aware, Brad, Poland currently ranks as the second fastest-growing GDP in Europe. Within the European Union, it stands eighth by population and sixth by GDP growth. That context served as the original filter that drew us toward the geography, toward that specific country; combined with certain property laws, et cetera, present there, along with our capacity to structure the transaction efficiently and the kinds of deals we've tracked for a very long time, it became a highly compelling geography for expansion. Of the two deals we pushed across the line, one involved Eko-Okna, while the other was with a grocery store operator, a Dutch grocery store operator. Essentially, these were distribution centers and industrial assets we put money into; and we're quite enthusiastic not just about these two initial deals we closed, but about the deal pipeline we're beginning to build in this country. So we're extremely excited to keep redefining the sandbox for ourselves. Naturally, that adds yet another source of volume we can source, some of which is beginning to show up in the $43 billion of sourcing volume we reported for the second quarter.

All right. Then regarding the acquisition, the sole guidance line that shifted was acquisitions. My read is that these deals add to earnings, so I'm curious why the bottom end was raised while the top end stayed put.

Partly that reflects our ongoing cautious stance, and partly it's because quite a bit of uncertainty remains around policies being put in place both in the U.S. and across Europe. Given that, we aim to be as precise as we can. We concluded that shifting the lower bound by $0.02 mattered, while keeping the upper bound unchanged was the right call. That $1 billion rise in acquisition volume, as you can see, will arrive weighted toward the back half, concentrated in the second half. So the effect someone would get from — and you were right to note all of these deals add to earnings, we wouldn't pursue transactions that dilute — that effect won't show up during 2025, though we will certainly realize its advantages in 2026.

I was hoping to dig a bit deeper into the acquisitions; and honestly — if there were, I mean, it seems like there was simply a huge surge in the source volume you brought up at $43 billion, but with a less than 3% it's like getting into an Ivy League school. I'm just sort of curious, was the quality of what you saw not that great? Did you get more sort of selective, I suppose, regarding what you decided to put money into? Or just sort of curious since your investment activity declined sequentially, but the sourcing, it sounds like, really exploded.

That's an excellent question. And yes, we take pride in being extremely selective — yes, similar to the Ivy Leagues; but the primary reason, Smedes, was, look, when all is said and done, there was nearly $3.7 billion of transactions that essentially met every criterion, except for the initial yield; and that's why we walked away from chasing those transactions. And so yes, 3% does appear quite low, but if we had completed that $3.7 billion, it would be nearer to what we've historically done, which is nearer to 7% to 8% of the total volume that we've reviewed. And part of why we are pursuing this private capital and exploring these other forms of capital that wish to leverage the platform we built and we want to monetize the platform we've built is to be able to complete these transactions that we walked away from. So yes, selectivity remains a governing factor and our disciplined approach to ensuring that anything we do day one is accretive to the bottom line is part of why we got $1.2 billion over the finish line, rather than something much higher.

Then I just wanted to ask a follow-up. Clearly, you stayed heavily focused on Europe in the quarter, just like you were in the first quarter. During the prior quarter, you mentioned uncovering quite a few retail park opportunities. Did that make up a big chunk of your investment activity this quarter? Or was there some specific asset class you managed to act on this quarter?

Yeah. That's a good question. In the U.K., truthfully, we didn't do a tremendous amount of retail parks. A great deal of it was in Ireland, where we keep expanding our retail park portfolio. Those assets keep serving as a big driver of uplift, in the short term and over the long haul. If you've been tracking what you might call the retail park revival in the U.K. and in Ireland, et cetera, Scotland included, I'd call it pretty remarkable. Many favorable elements are providing tailwinds for this sector. Rents are rising — concession rents are disappearing. Vacancy in Scotland today, for the first time in ages, is actually below that of the rest of England. We purchase vacancies, and the uplift we can achieve by re-leasing those vacancies is one thing driving value creation; so for many reasons, we're incredibly enthusiastic about this journey of integrating this retail park portfolio; but that window is beginning to close somewhat now. And today we are the biggest owners of retail parks in the U.K. And we're in the middle of assembling a presentation we'll put on our website that will cover a great deal of detail about this. But that has been a highly favorable investment thesis that we carried out across the last 3 years. Most of what we did in Europe, returning to exactly what you asked, was on the industrial side. Nearly half of it was industrial. Looking at what we did, part of it was a loan we made against an industrial asset in one of the primary U.K. markets, plus another loan we made. So that was the makeup of our European activity, and we keep seeing, on a risk-adjusted basis, superior opportunities in Europe, and part of that may be reduced competition, part of that may be that we operate across these multiple jurisdictions. Part of that may be that we're an established name in these jurisdictions. And so, we get those first calls, which helps us drive this volume. And you should — and I realize you didn't ask this, but you should anticipate a similar makeup of total acquisitions between Europe versus U.S. in the near term, particularly in the third quarter.

Two fast questions. To begin again with tenant health — you folks have, I believe, put in more effort than nearly anyone else when it comes to assessing what tariffs will do. We're now a couple of months in, so could you remind me how you're approaching this? Which parts look better than we thought? Which parts look worse? And regarding bad debt, what assumptions sit inside the guidance?

The 4.6% watch list we gave to the market, I'd say, already reflects every possible scenario that might emerge from these tariffs currently being talked about in the market. Look, we've long believed certain industries are more vulnerable — that is, furnishing apparel, electronics — those sectors will feel tariffs the hardest. And luckily, either our exposure to such sectors within our U.S. portfolio is extremely small or nonexistent; therefore, Ron, we believe the figures we provided at this stage — the 4.6% and even more crucially, the spread of diversification inside that 4.6% — hold up. There are 114 clients we're monitoring who make up this 4.6%. On average, that works out to roughly 4 basis points per client. That covers the potential scenarios; thus this diversification clearly provides us far greater confidence. And a few of the names already mentioned, such as At Home — which we think is at least one factor behind their difficulties — was their excessive dependence. 70% of their product consisted of, were imported goods, and much of that came from China. That ranked among the contributing factors behind their results, together with, clearly, the leverage levels at which they were operating the business, and so on. But that has already unfolded; therefore we believe we've bounded the range of possible outcomes, client by client, industry by industry. The sole unknown is where these tariffs will ultimately land. Yet at this stage, we believe we've bounded it quite well regarding what we've provided to the market.

Thanks. For my follow-up, circling back to those acquisitions — clearly we discussed the divestment side, and we also mentioned, if I remember right, that 76% figure for Europe, which might be the largest tilt. Could you maybe frame that for us — does it simply reflect superior financing and a superior chance? And how would you size up the European market against the U.S. market right now?

Sure. Once more, on a risk-adjusted basis — that's how we ultimately evaluate things. But a major edge we enjoy is our ability to tap European funds. And Ron, I'm certain you know we brought in roughly EUR 1.25 billion, with an all-in cost totaling 3.69%. And while I noted in my prepared remarks that this came in 130 basis points inside, that 3.69% figure sits nearer to 1.6% inside what we could achieve with a 10-year unsecured bond. So that's definitely one element driving it. But consider what we're acquiring — if you can purchase long-term leases, 20-year leases, industrial assets whose tenants are either the top operator in their sector or a leading operator in their sector, then from a risk-adjusted return standpoint, we believe that's the correct spot to be. Numerous elements feed into this, and it isn't merely the capital, nor merely the product — rather, the pairing of both is what makes it extremely, extremely compelling. I mentioned Eko-Okna as among the bigger deals we completed in Poland. Rent coverage stands at 6x; so when you encounter metrics such as that and can secure them at the initial yields we managed to. I mean, competing here in the U.S. is incredibly hard, where even within secondary markets, industrial assets change hands in the mid-6s. And that's being charitable, frankly — they often push even more aggressively than that; so every one of those elements leads us to tilt somewhat further toward Europe; and once more, I don't want that comment misconstrued. Things are somewhat more stable over there. The outlook for what happens with interest rates, and so forth, is somewhat stronger. Consequently, I'd say deals are somewhat more abundant there than what we're witnessing in the U.S. It's simply an absence of stability as well. So I believe every one of those elements explains why we're more active in Europe. And once more, it works in our favor that we've established all these channels and can lean toward whichever location offers the finest opportunities. So — but I appreciate that question.

Perhaps I'll start with just one thing, which is about the competitive landscape. From what I understand, our broker contacts have pointed out that many portfolio deals are anticipated to hit the market during the latter half of this year; plus, we've observed a decent number of private buyers participating with Fundamental and ElmTree. I'm interested in your perspective on this supply and demand situation. Also, what effect do you anticipate it having on your yields? And whether a big portfolio might push you potentially far beyond your guidance.

John, clearly what you said at the end of your question is quite accurate. Indeed, should we complete a very sizable transaction that our guidance hasn't included, then certainly we would exceed the $5 billion. However, let's discuss briefly how you framed your question, which incidentally is completely and entirely correct. There's enormous demand for this product that we've been implementing over 56 years in the private market. You're entirely correct that firms such as BlackRock, which completed the ElmTree deal, Starwood, which did the Fundamental deal, JPMorgan, and a few others, I believe Morgan Stanley, are establishing their own net lease funds. Blackstone has clearly moved aggressively toward establishing its own net lease fund. This demonstrates the strength of this product; and from our perspective, the inquiries we receive from various sources of capital eager to leverage our platform to carry out this strategy represent, to me, a mutually beneficial situation. I think we're ideally positioned to serve as that platform these capital sources can use to implement this highly secure, highly resilient, highly reliable business model. We frequently mention that we offer bond-like cash flow combined with equity-like growth. I mean, what other product provides that? So it doesn't shock me that an increasing number of private platforms are setting up these net lease entities, either organically or via partnerships. So this benefits our sector. More capital flowing in, and I'd say more steady capital entering our business. And I think we're the best fit or a very strong fit to capitalize on that. Will it lead to greater competition? Will it drive cap rates lower? Certainly. But will they possess the same degree and sophistication of underwriting as we do? I doubt it. We've been up against private capital providers, at least over the past 10 years, among the more seasoned participants. Also, the uncertainty around where rates will go is still a factor, and leverage plays a major role in many of these approaches, which keeps being an area where we stand to gain the most because of our credit ratings of A- and A3. So — and after the additional channels we're developing are operational, we'll then be in a position to tackle the swings we're seeing in our public equity segment using certain private equity sources; so my attitude is bring it on; it will kind of generate additional chances for a platform such as ours to complete big deals; and that's among the megatrends I mentioned in my prepared remarks. An increasing amount of product keeps entering the market. An increasing number of companies are stepping up and saying, yet we're looking for the right partner; and it isn't merely, okay, we get net lease, it's which landlord is the right one that we have confidence in, who is going to keep these assets over the long term. And once again, we distinguish ourselves; so apologies, John, I realize you didn't — you posed a quite specific question, but I wanted to give this background to set up my megatrend remarks that I delivered during my prepared remarks.

No, that helped a lot. Thanks for giving such a considered answer. On my second point, I simply want to confirm I understood your opening comments correctly — it sounded as though you restated the 75 bp credit loss guidance. I was hoping you might walk through what you've seen so far this year. Then, what else factors into that figure, or is it more of an open-ended conservative buffer?

John, this is Jonathan. Looking at the year to date, roughly $17 million in reserves has been recorded by us. For the first half, that figure works out to around 65 basis points of rental revenue; for the entire year, yes, we are reaffirming the 75 basis point figure. So when you consider the back half, there are certain credits we've identified that we've more or less earmarked, and we have a base model forecast or expectation regarding reserves we might take or might not take. Our view is that this may be somewhat conservative; beyond that, we also hold a modest amount of cushion. One point I want to stress, though: it's a completely baked figure — it accounts for accounts receivable we could write off. It accounts for rent tied to vacancy, and it accounts for carrying costs tied to vacancy. So the figure is fully baked, and ideally you'll watch us beat it. That said, to be clear, for the back half we are reaffirming it.

I'd like to ask about the net lease industrial properties you're seeing in Europe, compared with what you brought up regarding the U.S. — how has that wave of private capital interest shaped pricing dynamics over here? What's the difference when it comes to Europe? I'm aware that was the focus of this quarter's investments. And do you expect that pattern to keep going?

Good question, Ryan. I'd say it comes down to a shortage of competition. We simply don't face the same quantity of possible asset buyers, with this wall of capital eager to be deployed into this specific sector, driving deals in Europe — I think that explains a large part of it. That allows us to be far more rational regarding assets. The second element, I'd mention, is relationships. In our view, relationships carry far greater weight in Europe than they do over here. So when you've built the right ties with developers, when you've built the right ties with the operators and they come to know you, the decision doesn't always hinge on who will pay the highest price. I believe several things are at play here: the confidence that a deal will get done, the intention to keep properties for years, and the capacity to generate additional transactions with the same parties. Together, these create what I'd describe as a far more sensible environment for industrial deals throughout Europe. That said, you won't find identical capitalization rates in each country. In Germany, for instance, conditions remain quite constrained. So we hunt for suitable deals in markets that deliver the returns we need, which lets us demonstrate accretion right away. And as we've noted before, we can fund these deals using a significantly cheaper cost of capital. Ryan, that's the situation in Europe where sensible pricing takes over, unlike the U.S., which simply has far more players fighting for the same business.

Thanks for that. So, you signalled a few quarters ago that you'd be entering Poland, and this quarter you got it done. Does that complete the set of countries you're interested in on that part of the world for the time being? Or are there still a handful of additional countries under consideration? Or is it more of an evolving picture?

I'd say there are a handful of other Western European nations where we're evaluating opportunities, though we haven't managed to cross the finish line. A few in the Lux states, a few in the Nordics; but once again, those are fair game. Should we complete a transaction, don't be taken aback; we'll clearly spend a lot of time on the specifics of those transactions, but apart from that, our European strategy is by and large set. That said, you used the word global. So I don't want to understate our capacity to keep growing. Naturally, we'll go about it the same way we handled our European expansion. We've consistently viewed our neighbours Canada and Mexico as possible countries to grow into. And much of the uncertainty surrounding trade dynamics could open doors for us; so those countries, as well, would be fair game; but look, the hurdle rate for entering a brand new country is extremely, extremely high for us; and I hope we've demonstrated to the market and to you, Ryan, that should we choose to expand, it will come with plenty of forethought and a thesis we'll share with you, and that will precede our entry into these countries.

Elmer Chang here, joined by Greg. To start, I want to ask about the investment pipeline. Once more, of that $43 million in deal volume you sourced this quarter, how much might be bigger portfolio deals that you feel more confident about closing — perhaps in early next year rather than this year? And then, how would you characterize your capacity to curate portfolios and still hold onto pricing power on those deals in the current environment?

Yes — actually it was $43 billion. That said, it's hard to say for certain. There will definitely be some share of that $43 billion which isn't captured in the $1.2 billion we closed this quarter and which we'll close in later quarters. So your question is a good one. But I believe the remark I made about roughly $3.7 billion of transactions we walked away from, since it didn't meet that initial spread, still stands. And we expect that — with this expansion into new geographies and our entry into data centers — some of these volume figures will keep tracking much higher, simply because we're now operating across a broader geographical footprint and additional asset types. So you should keep seeing that, Elmer; and yes, some portion of this we will definitely close in the quarters that follow, but I can't provide any further detail beyond that.

Then for my second question, regarding leases coming due, roughly 6% of ABR is set to expire across this year and the next. Within that group, what portion is made up of noncore properties you've flagged for capital recycling? And what kind of accretion should we anticipate from those possible dispositions as you work to find additional investment opportunities?

Good question. Here's how we think about it — whenever a lease comes up for rollover, we run the economics on what happens if the current tenant chooses not to renew, and from there we have a few paths we can take. First, could another tenant be found, and could that happen fast enough to make that path worthwhile? A second path would be repositioning the property toward its highest and best use, which we're glad to do and are actively doing inside our development pipeline. Then there's a third possibility: selling the space vacant, since once we've captured the full economic value, continuing to hold it generates carrying costs that can't be justified — so we look to sell, purely for efficiency's sake. After we've worked through all of that — and this is exactly where our data analytics capabilities prove highly valuable, combined with the expertise of our asset management group — we move on 1 of those 3 strategies right away. But what I really want to stress is that we don't sit around until a lease is 3 months or 6 months from its expiration date. If you asked our asset management team, they'd tell you they're already working on properties that might roll in 2026, or even some in 2027, when it's the same tenant and they hold a broader set of properties. And frequently, what you're seeing right now — the expirations in '26 and '27 — I believe in '26 it's roughly 4.5% in that ZIP — 4% in that ZIP code. By the time this year wraps up, you'll notice that 4% has dropped quite a bit already, since we've already dealt with those 2026 assets during the last 6 months of 2025. That's just the rhythm of so many of these expirations. Any unusual expirations coming next year? I don't think so. These are largely tenants we know very well. Might there be one or two properties picked up through our M&A deals where — apart from that single property — we don't have several properties leased to that same tenant? Sure. That's always a possibility, and it comes up every year. Still, I don't think it will amount to a disproportionate piece of what expires next year, or for the rest of this year either.