Agree Realty (NYSE:ADC) reported first-quarter financial results on Wednesday. The transcript from the company’s first-quarter earnings call has been provided below.
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Summary
Agree Realty reported its largest quarterly acquisition volume since 2022, investing $403 million in acquisitions and $425 million across three external growth platforms.
The company raised approximately $660 million through forward equity and holds $2.3 billion in total liquidity, with a pro forma net debt to recurring EBITDA of 3.2 times.
The company reiterated its full-year 2026 AFFO per share guidance of $4.54 to $4.58, implying a 5.4% year-over-year growth.
Operational highlights include a sale-leaseback with Hobby Lobby and acquisitions including Home Depot, Wawa, Sherwin Williams, Aldi, and Walmart properties.
Management emphasized the robustness of its external growth pipeline and the strategic focus on high-quality retail portfolio improvements.
Full Transcript
OPERATOR
Good morning and welcome to the Agree Realty first quarter 2026 conference call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the Star key followed by zero. After today’s presentation there will be an opportunity to ask questions. To ask a question, you may press Star then one on your touchtone phone. To withdraw your question, please press Star one again. Please limit yourself to two questions during this call. Note this event is being recorded and at this time I would like to turn the conference over to Reuben Treitman, Senior Director of Corporate Finance. Please go ahead.
Reuben Treitman (Senior Director of Corporate Finance)
Thank you. Good morning everyone and thank you for joining US for Agree Realty’s first 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. 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 10K for a discussion of various risks 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 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
Thank you Ruben and thank you all for joining us this morning. I’m extremely pleased with our performance to start the year as we have continued to execute on all fronts. During the quarter we invested nearly 425 million across our three external growth platforms while further strengthening our market leading portfolio. The 403 million of acquisitions completed during the period represents our largest quarterly acquisition volume since 2022 as we continue to source superior risk adjusted opportunities. While the macro backdrop remained highly unpredictable, we have never been better positioned. During the quarter we raised approximately 660 million of forward equity through our ATM. We now enjoy 2.3 billion of total liquidity and more than 1.6 billion of hedge capital including a company record 1.4 billion of outstanding forward equity at quarter end. Pro forma net debt to recurring EBITDA was just 3.2 times giving us meaningful flexibility to execute regardless of customers, capital markets volatility. As a reminder, we have no material debt maturities until 2028. We have married this fortress balance sheet with the highest quality retail portfolio in the country that only continues to improve in a K shaped economy. Our industry leading tenants stand poised to leverage their scale and value propositions to drive further share gains. We are consistently seeing leading retailers with the balance sheets and operating discipline when winning across cycles and expanding their brick and mortar footprints. Our pipeline across all three external growth platforms is robust, yet our approach remains unchanged. We will stay consistent within our established investment parameters without compromising our underwriting standards while our investment and earning guidance remain unchanged. I would note that we have increased our treasury stock method dilution in anticipation of an elevated stock price and as well as the additional forward equity raise during the quarter. We’ll continue to provide updates as the year progresses and Peter will provide additional details on our guidance and input shortly. Turning to our external growth activity, we had an active start to the year leveraging our unique market positioning and deep relationships with retail partners to uncover opportunities across all 3 platforms. During the first quarter, we invested nearly 425 million in 100 properties across these 3 platforms. Of note, during the quarter, we executed a sale leaseback with Hobby Lobby on their corporately owned stores. As we’ve discussed on prior earnings calls, Hobby Lobby is privately owned, has a pristine balance sheet and stands as a clear market leader in the craft and hobby space. They are a terrific operator and partner. As a reminder, we do not impute investment grade or shadow investment grade ratings in our IG percentage. Additional acquisitions during the quarter included a Home Depot, five WAWA ground leases in Pennsylvania and Maryland, a portfolio of 11 Sherwin Williams stores, several Aldi’s, and three Walmarts located in Georgia and South Carolina. The acquired properties had a weighted average cap rate of 7.1% and a weighted average lease term of 11.3 years. Nearly 60% of base rent acquired was derived from investment grade retailers and we continued to add to our ground lease portfolio during the quarter. As previously discussed, we continue to see increased activity across our development and developer funding platforms. During the first quarter, we commenced 2 new development or DSP projects with total anticipated costs of approximately $18 million. Construction continued on nine projects during the quarter with aggregate and anticipated costs of approximately $71 million. We completed four projects during the quarter representing a total investment of approximately 23 million. Our development and DFP pipelines continue to grow significantly and we expect development and DFP activity to meaningfully ramp in the second and third quarters, including several additional Projects that have commenced subsequent to quarter end. Moving on to dispositions, we sold seven properties during the quarter for total gross proceeds of approximately $11 million at a weighted average cap rate of 6.8%. This activity included both the Jiffy Lube and Dutch Brothers that were included in the grocery portfolio acquisition last year. We sold These assets approximately 300 basis points inside of where we acquired them less than one year ago, highlighting our ability to opportunistically recycle capital and harvest value across our portfolio. Our asset management team continues to do an excellent job proactively addressing upcoming lease maturities. We executed new leases, extensions or options on over 876,000 square feet of gross leasable area during the first quarter with a recapture rate of over 104%. This included a Walmart Super center in Whitewater, Wisconsin and a Home Depot in Orange, Connecticut. We remain well positioned for the remainder of the year with just 29 leases or 90 basis points of annualized base rent maturing, which is down 60 basis points quarter over quarter and 260 basis points year over year. We ended the quarter with pharmacy exposure at 3.5% of annualized base rent and it now falls outside of our top 10 sectors, a meaningful milestone given that pharmacy once exceeded 40% of our portfolio. Anchored by assets such as our Walgreens on the corner of the Diag on the University of Michigan’s campus, our CVS on Greenwich Avenue, we are confident in the real estate and performance of our remaining pharmacy assets as of quarter end. Our Best in class portfolio comprised 2,756 properties spanning all 50 states. The portfolio included 261 ground leases comprising over 10% of annualized base rent. Our investment grade exposure stood at over 65% and occupancy is strong at 99.7%, up 50 basis points year over year. Before I hand the call over to Peter, I’d like to thank and compliment the tremendous work he and his team did on the creation of our inaugural supplement. We have taken feedback from a number of constituents and created a first class document that provides investors and analysts with a thorough picture of our portfolio and financials. Peter, thank you and take it away.
Peter
Thank you, Joey. Starting with the balance sheet, we were very active in the capital markets during the first quarter, selling 8.7 million shares of forward equity via our ATM program for anticipated net proceeds of approximately $658 million. This represents yet another company record for equity raised in the quarter and underscores our ability to raise equity at scale via our ATM and in a cost efficient manner. At quarter end we had approximately 18.4 million shares of outstanding forward equity which are anticipated to raise net proceeds of approximately $1.4 billion upon settlement. Additionally, during the period we drew $250 million on our previously announced $350 million delayed draw term loan. As a reminder, we entered into forward starting swaps to fix SOFR through maturity in 2031 and inclusive of those swaps, the term loan bears interest at a fixed rate of 4.02%. We also took further steps to hedge against interest rate volatility, entering into $50 million of forward starting swaps during the quarter. In total, we now have $250 million of forward starting swaps, effectively fixing the base rate for a contemplated 10 year unsecured debt issuance at roughly 4.1%. Combined with the approximately $1.4 billion of outstanding forward equity, we have over $1.6 billion of hedge capital which provides critical visibility into our intermediate cost of capital, particularly amidst recent geopolitical and macro uncertainty. At quarter end we had liquidity of approximately $2.3 billion including the aforementioned forward equity, availability on a revolving credit facility, term loan and cash on hand pro forma for the settlement of all outstanding forward equity. Our net debt to recurring EBITDA was approximately 3.2 times, our total debt to enterprise value is under 29% and our fixed charge coverage ratio which includes the preferred dividend remains very healthy at 4.2 times. Our sole short term or floating rate exposure was comprised of outstanding commercial paper borrowings at quarter end and as Joey mentioned, we continue to have no material debt maturities until 2028. Our balance sheet is extremely well positioned to execute on our robust investment activity across all three external growth platforms. Moving to Earnings Core FFO per share was $1.13 for the first quarter, which represents an 8.1% increase compared to the first quarter of last year. AFFO per share was $1.14 for the quarter, representing a 7.9% year over year increase, which is the highest quarterly AFFO per share growth achieved since the second quarter of 2022. As Joey noted, we are reiterating our full year 2026 AFFO per share guidance of $4.54 to $4.58, which implies approximately 5.4% year over year growth. At the midpoint. We provide parameters on several other inputs in our earnings release including investment and disposition volume, general and administrative expenses, non reimbursable real estate expenses, as well as income tax and other tax expenses. Our current guidance also includes anticipated treasury stock method dilution related to our outstanding forward equity provided that our stock continues to trade around current levels. We anticipate that treasury stock method dilution will have an impact of $0.02 to $0.04 on full year 2026 AFFO per share. This is up from approximately 1 penny in our prior guidance due to both a higher share price and more forward equity outstanding. As always, the impact could be higher or lower if our stock price moves significantly above or below current levels. During the quarter we recorded approximately $2.4 million of percentage rent, up from $1.6 million in the first quarter of last year. Roughly a third of the increase was driven by strong same store sales performance across this group of leases as we have actively targeted leases with potential percentage rent upside. The remainder reflects a timing shift as certain tenants that have historically paid Percentage rent in Q2 contributed in Q1 of this year Our growing and well covered dividend continues to be supported by our consistent and durable earnings growth. During the first quarter we declared monthly cash dividends of 26.2 cents per common share for January, February and March. The monthly dividend equates to an annualized dividend of over $3.14 per share and represents a 3.6% year over year increase. Our dividend is very well covered with a payout ratio of 69% of AFFO per share. For the first quarter, we anticipate having over $140 million in free cash flow after the dividend this year, an increase of over 10% from last year. This provides us another source of cost efficient capital while maintaining a healthy and growing dividend. Subsequent to quarter end, we announced an increased monthly cash dividend of 26.7 cents per common share for April. This represents a 4.3% year over year increase and equates to an annualized dividend of over $3.20 per share. Our inaugural financial supplement this quarter includes several non GAAP financial metrics and key performance indicators including our recapture rate, credit and occupancy loss and same store rent growth. The enhanced disclosures are intended to provide better visibility into our operations and highlight the high quality nature of our tenancy and portfolio reflecting our best in class execution. We also hope the supplement serves as a one stop resource that centralizes the key information needed to understand the performance and drivers of our business. With that, I’d like to turn the call back over to Joey.
Joey
Thank you Peter Operator at this time let’s open it up for questions.
OPERATOR
Thank you. We will now begin the question and answer session if you have dialed in and would like to ask a question, Please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. As a reminder, we ask that you please limit yourself to two questions. We’ll take our first question from Janet Gallen at Bank of America. Thank you. Good morning, Julie. If you could just follow up on the investment guidance. I know it’s already been raised once this year, but with 1.6 billion of hedge capital already raised, just curious if you could kind of expand on the pace or the size of the different pipelines for the platforms.
Joey
Sure. Good morning, Yana, how are you? Great, thanks. So our pipeline, as I mentioned in the prepared remarks across all three platforms, is very strong. There are two things that will determine frankly our pace into Q2. Number one is just the macro environment here. Obviously we have a significant amount of uncertainty that seems to change by the hour and, and then two, at our election, which transactions we decide to pursue. So we have a number of transactions across all three platforms that are under contract or under letter of intent going through the diligence period. But all three pipelines are extremely strong.
Janet Gallen (Equity Analyst)
And maybe just following up on the kind of macro uncertainty rates moving around, does this cause any kind of delay in, you know, your partner’s decision making or wanting to kind of pause on any type of big plans?
Joey
No, this is totally unilateral on our side here. We have pipelines that are extensive across all three platforms. Just didn’t think it was appropriate to raise investment guidance at this time in the midst of a war with J.D. Vance sitting on the Runway. Thank you. Thanks, Anna.
OPERATOR
We’ll go next to Michael Goldsmith at UBS Financial.
Michael Goldsmith (Equity Analyst)
Good morning. Thanks all for taking my questions. You now have a record 1.4 billion of forward equity outstanding. Can you walk us through a bit about the timing of physical settlement relative to acquisition funding and how you’re thinking about using the forwards versus term loans or other sources? Thanks.
Peter
Sure. Michael, this is Peter. To your point, we still have $100 million of capacity on our delayed draw term loan. That’s at a fixed rate of roughly 4% given the swaps that we entered into. So given the attractive rate there, I think that’s likely the first option we look to when we decide to term out some of our short term variable rate debt. Beyond that, to your point, we have roughly 18.4 million shares of outstanding forward equity as disclosed in our new supplemental, the contract for about 8 million of those shares matures at some point this year. And while we can always extend the contract if needed, I think there’s a good chance that we settle those shares at or prior to maturity, given our anticipated uses. So I would expect that, you know, those 8 million shares are likely settled at some point in 2026. And then lastly, we have the $250 million of forward starting swaps in place that have effectively fixed the base rate for us on a future 10 year issuance at 4.1%. And so with those swaps in place, we’ll evaluate the appropriateness of an issuance later this year. But we’re not in a rush to do anything. Given the term loan. We have the capacity there plus the forward equity. And I think Most importantly, with $2.3 billion of liquidity from multiple sources, we have plenty of flexibility and optionality here.
Michael Goldsmith (Equity Analyst)
Thanks for that, Peter. And then Joey, you talked on the prepared remarks about Hobby Lobby and how you’ve been partnering with them. Can you just talk a little bit more about what makes this particular tenant attract and just how you view the outlook for the Craft space going forward?
Joey
Sure. Hobby Lobby is clearly the far and away leader in the Craft and Hobby space. Out of respect for the Green family and our confidentiality, I won’t go into their financials, but they are an extremely strong company here. The Green family as well as Hobby Lobby as an entity has literally zero or no debt on a net debt to even net debt basis here. So we’re talking about a leading operator here that if they pursued a rating would be a high investment grade operator. They effectively put Joanne out of business. They’re a market leader here. They had limited stores on their balance sheet. Most of their assets are leased. They wanted to eliminate the real estate from the balance sheet and the management responsibilities that entitled and had with owning those assets. And so this was a unique transaction for us through a tremendous operator, a tremendous partner. They’re extremely methodical in their growth plans and we are thrilled to complete this transaction with them.
Michael Goldsmith (Equity Analyst)
Thank you very much. Good luck in the second quarter.
Joey
Appreciate it. Thank you.
OPERATOR
We’ll take our next question from Smedes Rose at Citi.
Smedes Rose (Equity Analyst)
Hi, thanks. I just wanted to ask you a little bit more. I mean, I think the answer is probably no here because you mentioned that you’re meaningfully ramping up your development pipeline in the second and third quarters. But I just don’t have the knowledge of construction enough I guess to know. But you’re not seeing any increases in kind of pricing or due to what’s going on in the Middle east or any kind of hesitancy on the part of tenants, maybe to kind of pause interest at this point given sort of a more fluid macro backdrop or. I mean, it sounds like the answer is no, but I’m just curious as to maybe why.
Joey
Yeah, no, it’s a great question. Means we’re seeing absolutely no hesitancy on the part of tenants as world events unfold here. Could that be possible? Sure. But what we’re seeing is the exact opposite in the. And the middle conflict in the Middle east has not changed the perspective of brick and mortar retailers. And as we mentioned on prior calls, if you look at just the announced store openings for the biggest and best retailers in this country, they have all come to the recognition that the store is the hub of an omnichannel world. It is not a spoke. And so they are all opening new stores, some at voracious paces here to reduce last mile delivery costs and be efficient. And so we have not seen any slowdown from any of the tenants that we’re working with. In fact, we’ve seen some acceleration. As I mentioned in the prepared remarks, we have commenced several projects subsequent to quarter close and we will be closing on additional projects later this week and next week. In terms of costs, the projects that we close on have guaranteed maximum price bids. They have GMP contracts in place from general contractors. I’ll remind everybody, we’re not speculating on land, we’re mobilizing and commencing right after close. We aren’t speculating on small tenant space here. These are build to suit projects or ground lease projects for the leading operators in the country that are signed, sealed and delivered at the time we close. And so we have not seen any material cost creep yet. The team here, the construction team led by Jeff Conkhold, does a a tremendous job budgeting these projects in advance. And then we work with general contractors for the bid process prior to close.
Smedes Rose (Equity Analyst)
Okay, thanks. And then I wanted to ask you, Obviously we also 711 announcement to close a bunch of stores. I mean first of all, do you think any of your stores might be impacted? And you know, given some of your leaning into convenience stores in a way, some of the reasons that they’re closing some of those stores seems like it kind of supports some of your white papers that you guys have written around this space. But just curious, any just near term concerns around your portfolio specifically and anything it might tell you about kind of where convenience stores are going?
Joey
Absolutely zero concerns. We have no stores closing in our portfolio. And I appreciate you Referencing the white paper, I ask everyone to take a look at it on our homepage. 711 is closing the stores that have roller hot dogs and Slurpees. That’s the bottom line. And they are constructing and we are developing on their behalf large format convenience stores that have food and beverage offerings that are extensive aligned with where the convenience store space. And so 711 is just a proxy here for the broader gas station convenience store space. The days of the 1800 square foot get cigarettes and gum and a couple coolers and gas are gone. That was the gas station. If you think back 10, 15 years ago, they also had an auto bay. They probably blocked that up to add a little bit more square footage to sell in store products. Today the gas station is moving to the convenience store model. Whether it’s 711 or sheets or Wawa. We acquired a number of assets this quarter and led their development entry into the state of Florida over a decade ago. These operators are taking meaningful share across sectors and the evolution of the business is happening before our eyes. And so again the pump, while it produces significant revenue, doesn’t produce the EBITDA that the inside source sale does. That is F and B food and beverage, primarily breakfast and lunch, liquid gold coffee and affordable meals and convenience items that also take from the front end of the pharmacy for consumers. And so this is going to be a multi year evolution and we’re going to continue to see the 12 to 2000 square foot, 1200 to 2000, excuse me, square foot quote unquote gas stations go away. Michigan, we’re at the heart of this right now with sheets and Quick Trip and 7Eleven Speedway and operators expanding across the state while the legacy gas stations are frankly put out of business. Now this takes time, like any transition of any retail sector but effectively it’s sweeping the country. And so it’s a tremendous opportunity for us. You see us our activity here through all three platforms. But it’s truly the evolution of a business model into a highly successful operator that has significant margin in food, beverage and in store components.
Smedes Rose (Equity Analyst)
Thanks, appreciate it.
Joey
Thanks Mead.
OPERATOR
We’ll go next to John Kielachowski at Wells Fargo.
John Kielachowski (Equity Analyst)
Good morning. Thank you, Joey. That was very helpful on the 711 breakdown. I guess if you wouldn’t mind maybe just talking about the rest of the portfolio. What’s in got from a credit loss perspective and if there’s anything else in there that you’re looking at that maybe is forecasted that you know you have some expected closures or if all of that is just precautionary no, no, no.
Joey
Anticipated closures, all precautionary. We give our guide, we try to narrow it down during the year. The supplement does a great job of bucketing what we call credit loss, whether it’s expirations or actual or credit loss. A tenant defaulting, falling out of entering bankruptcy, rejecting a lease shows that historical trend. We don’t anticipate anything material in the portfolio this year. You know, we’re watching one to two couple assets, but really that’s about it. Peter, anything?
Peter
No, I think you hit it just to hit on the numbers quickly. John, you know, in the supplement we disclosed 14 basis points of both credit and occupancy loss during the first quarter. Our AFFO per share guidance for the year still assumes 25 to 50 basis points of credit and occupancy loss. So there is an implied acceleration in Q2 through Q4 there. At this point in the year, we thought it was prudent to leave that range as is, but as Joey said, the portfolio is continuing to perform well.
John Kielachowski (Equity Analyst)
Got it, thank you. And then the second one for me is just, you know, yields and deployment timeline on development dft, you know, lighter one. Q. I know in the opening remarks you mentioned some scale in 2Q and 3. Q. I guess my question is, you know, we’ve highlighted 250 as sort of a medium term target. Is that still a realistic target for this year? And then, you know, maybe above and beyond that, is there the opportunity to scale above that? Like would, you know, would it be surprising for us to see a number well north of 250 in a year or is there a reason from a risk perspective why, you know, your initial remarks sort of capped that target as like a 250 number.
Joey
So we said about, I said about 18 months ago, our intermediate target that was approximately, approximately three years was to put $250 million in commencements in the ground per year. There’s a chance we hit it this year. Again, Q1 is generally light just because if you get into the northern half of the country, you get weather related, you’re not going to commence a project with frost in the ground. Q1 is generally light. Q2 will be significantly larger. And Q3 is shaping up to be along the Same lines if Q2. Now these projects are generally subject to entitlement and municipal and other government authorities approving approvals there. But we are on track to hit that intermediate goal of $250 million in the ground. The team’s doing a tremendous job working with the biggest retailers in the country and the best developers in the country on the DFP side and we’re very excited about our pipeline there.
John Kielachowski (Equity Analyst)
Got it. Thank you.
Joey
Thanks John.
OPERATOR
We’ll move next to Upal Rana at Keybank Capital Markets.
Upal Rana (Equity Analyst)
Great. Thank you for taking my question. On the competition and seller behavior side, you mentioned people not pulling back due to the macro volatility, but are you seeing any change in behavior due to the volatility in the 10 year? Just wondering if you’re seeing any increased deal flow the past month or so that could be positively impact 2Q investment volumes.
Joey
Nothing that I could say is causal. You know we’ve said with the 10 year between 4 and 5 it seems like the world has been accustomed to the base rate purportedly for the entire world. The 10 year UST vacillating by 10 15% up and down. We haven’t seen anything causal. I’ll tell you, we see more and more opportunities. Our funnel is bigger than it’s ever been across all three platforms. We don’t see increased competition. I wouldn’t tell you we haven’t seen a notable decrease in competition. Really nothing’s changed since coming out of 2024 in our do nothing scenario. And so the only thing that I can point to is the performance, the size, the scope, the depth and the experience of this team. And then our relationships within the market highlighted in the supplemental, just the retailer relationship driven transactions.
Upal Rana (Equity Analyst)
Okay, great, that was helpful. And then acquisitions of investment graded tenants has come down again this quarter. Just curious, outside of IG credit ratings, is there something else in the lease economics that we should that you’re acquiring that is a sign of higher quality that we should be considering?
Joey
No, but let’s clarify why investment grade came down this quarter. We don’t impute a credit rating to Hobby Lobby, a privately held company by the Green family. So that’s the biggest piece of this here we’re talking about again, the largest crafts and hobbies retailers. A multi billion dollar revenue operator that is far and away the leader in the crafts and hobby space that is privately owned by one family. So that is the driver. And I’ll reiterate, investment grade is an output for us. We have tremendous operators in our portfolio that we don’t impute shadow investment grade ratings to. But Publix, Chick Fil A, Aldi Wegmans, Hobby Lobby, again, so that is an output. In order for us to call an operator an investment grade operator, they have to be rated by a major agency and therefore have the outstanding debt. Alta is not an investment grade company, but I believe they don’t have any debt. Correct, Peter? Correct. They don’t have any outstanding debt. So we have debt free multibillion dollar public and private operators in our portfolio. If you want to impute shadow investment grade ratings to our portfolio, we’d be at 80%. Then add on the ground lease exposure which doesn’t have any sub investment grade and I would tell you the safety of those assets is even greater than investment grade assets and we’d probably be at 85, 87%. So it’s an output to what we do. Our focus is on the biggest and best operators, the best real estate opportunities across the country. Leveraging all three platforms, whether or not they have an investment grade rated balance sheet or carry any debt is really again, just a secondary here.
Upal Rana (Equity Analyst)
Great, thank you for that. Thank you.
OPERATOR
We’ll take our next question from Rich Hightower at Barclays.
Rich Hightower (Equity Analyst)
Hey, good morning guys. Joey, I want to go back to a comment you made in the prepared comments. You sold some grocery store assets with a pretty quick turnaround versus where you bought the assets at a lower cap rate versus the purchase price. So you know, is there any movement specifically in grocery assets versus non grocery, any sort of bifurcation in cap rate trends? Because obviously we all saw sort of the headline number didn’t really change in terms of what you bought quarter on quarter. Just help us understand any movement there.
Joey
Yeah, just to clarify Rich, we did not sell the grocery assets. The grocery portfolio that we bought had outlets that were leased to Jiffy Lube as well as Dutch brothers that we disposed approximately 300 basis points inside of where we bought the grocery anchored portfolio. Inclusive of those assets, we have no interest in owning a thousand square foot Dutch brothers that trades in the low fives or a quick lube that’s a 1200 square feet that has no residual value in the low fives either. So we quickly moved, we closed those in a TRS and then quickly moved to recycle those assets accretive to the overall transaction and we’ll redeploy those proceeds accretively into better real estate and we think better credit.
Rich Hightower (Equity Analyst)
Okay, appreciate the clarification there, I guess. Secondly, you know, maybe there’s nothing to read into this, but you did mention better percentage rents in the first quarter, part of which, not all of which, but part of which was due to obviously better sales at those particular properties. Is there anything to read into that in terms of strength of the consumer, a particular type of consumer relative to the aggregate, just as we see sort of other, other Indicators maybe softening. You know, given everything else going on in the world.
Joey
You know, it’s such a small handful of assets. It’s the biggest retailers in the country. We’re talking about five or six properties that contributed two that contributed the vast majority of that percent rent. I think it’s aligned with our thesis and what we’re seeing in terms of the K shaped economy. But I would be hesitant to draw broader conclusions from it just because of the sheer limited number of properties. But we are seeing it through non percentage rent but through anecdotal conversations and also through other data here. And look, you’re seeing it as well through the public reporters. The Walmart and the TJ’s of the world are thriving. Right. The trade down effect is real. And the middle income consumer, the $125,000 medium household income plus minus is trading down. And we’re seeing that through multiple data points, both public and private. I think the percent rent falls in line with it. That’s the only conclusion. I would rather Got it.
Rich Hightower (Equity Analyst)
Thank you. Thank you.
OPERATOR
Our next question comes from Linda Tsai at Jefferies. Hi. Two questions. In your investor deck you highlight avoiding private equity ownership. Do you have a sense of what percentage of your tenants are owned by private equity and how it’s trend over time in your portfolio?
Linda Tsai (Equity Analyst)
So Linda, we added some new disclosure
Peter
to our supplemental that highlights ownership type and would just call out in that disclosure 77% based on ABR of our portfolio today is publicly traded. There’s the remainder of that is private companies, but that is broken down into a few buckets. This could be privately held companies. We talked about Hobby Lobby owned by David Green. They could be nonprofit companies, you know, ESOPs or some other form of private ownership. So there is a small component of private equity within that private bucket, but it isn’t a significant component of the portfolio today for us.
Linda Tsai (Equity Analyst)
Thanks. And then just one for Joey. You always have a clear eye view on the state of retail. I guess you said the consumer is trading down and that’s been happening for quite some time. But are you seeing sectors where the consumer really is pulling back completely and then any tenant sectors where you’d be more concerned, just broadly speaking, not necessarily in your portfolio.
Joey
Yeah, not within our portfolio, but I think if we watch the casual dining space we’re seeing with some of the quick service restaurants, all the guys that sell bowls for $18, $22, I don’t know, I don’t get to them very often. It’s the discretionary options where people have the ability to trade down and that goes across really all sectors. So whether it’s basic goods and services here, basic things like grocery, I mean I drove by the Costco gas station two days ago and the line was about 25 cars deep for fuel alone. And so we are continuously seeing that trade down effect now pinched by gasoline prices as well and exacerbated by gasoline prices and prices at the pump. So I think it’s across all luxury, experiential and discretionary sectors and then also trading down and then necessity based stuff for things like groceries.
OPERATOR
Thanks. Next we’ll go to Eric Borden at BMO Capital Markets.
Eric Borden (Equity Analyst)
Hey, good morning. Thanks for taking my question, Joey. Just curious how cap rates are trending to start the year between investment grade and non investment grade tenants. Are you seeing any meaningful changes in the spread between the two? Just given the macro uncertainty here, we
Joey
haven’t seen any change in cap rates in I would tell you, the past 18 to 20 months. Again, the volatility, even with the 10 year treasury really hasn’t driven it. We’re still nowhere near peak transactional activity coming out of COVID or before COVID There’s still limited 1031 or private buyer competition out there on a relative basis. So we really haven’t seen any, any real material moves in cap rates here. The low price point stuff, the Jiffy Lubes and the Dutch brothers, those trade extremely aggressively, those are to the limited 1031 buyers. But if you look at just the inventory out there, even for Starbucks and things like that, there’s a significant amount of inventory that’s stale out there because of the lack of a bid in the buyer pool. But we really haven’t seen any material change here almost to two years.
Eric Borden (Equity Analyst)
That’s helpful. And then just on the forward equity, just given the increasing diluted impact in the TSM as your share price rises, would you consider it a more balanced approach to equity issuance between forward equity and traditional etm? Or do you believe it’s more prudent to keep the forward equity book full given the current macro? Sorry, there’s one that I’m going off.
Joey
We’ll continue to look at all alternatives. Obviously our balance sheet is in a fortress position, but I think when we first issued forward equity and came up within the net lease space, the goal was to get an intermediate perspective on our cost of capital. So volatility could give us the decision making real time basis whether we do something or not because we liked it in relative to the environment, not because we had to fund it just in time. Right. And so inherently we think the forward equity construct and I think as adopted now by all or the vast majority of our peers, takes a just in time financing business and then gives you that intermediate cost of capital to truly operate. Looking forward months and quarters in advance. Now we’ll look at all opportunities to raise and source capital that are efficient and fit within context of our balance sheet. And so I wouldn’t rule anything out on a go forward basis, but sitting here with 1.4 billion of forward equity and $2.3 billion of liquidity, it’s not something that’s top of mind for us.
Eric Borden (Equity Analyst)
Thank you for the time. Thank you.
OPERATOR
And we’ll move next to Ronald Camden at Morgan Stanley.
Ronald Camden (Equity Analyst)
Great. Two quick ones. Thanks for the disclosure on the supplemental. Just comparing the acquisitions versus the DFP developer and DFP platform. Just remind us what the spread on yields are that you’re getting on the DFP side developer and DFP side. And also I think you mentioned earlier that competition is actually easing on the acquisitions front. Maybe can you just talk a little bit more about like which of those platforms is more competitive and you’re better positioned.
Joey
Yeah. Good morning Ron. So we’ve always talked about developments subject to the timing and scope of the project, whether it’s a retrofit or a ground up development. Right. That’s going to range anywhere from 9 to 18 months. Those projects being significantly wide. 75 to 150 basis points. Points of where we can buy a like kind asset Developer funding platform is generally ranging from six to 12 months. That will be tighter just given the time horizon. Again, we’re targeting the same tenant through all three external growth platforms. The only difference here is time and so it is just time and pricing that duration risk and so that’s where we derive that spread from. But we’re not targeting different types of of assets or credits here. It’s all within our sandbox. We’re not doing anything on a speculative basis across all three platforms. So we’re seeing significant activity across all three platforms at appropriate spreads and we’re going to continue to build that pipeline and we’ll demonstrate it in Q2.
Ronald Camden (Equity Analyst)
Helpful. And then just a quick one on the so I’m looking at the recapture rates and same store rent growth on the supplement. Is that, is the 1.6, is some of that sort of volatility from quarter to quarter? Is that all the percentage rents or is there something else going on? There seems to be some seasonality to the same store rent growth. Thanks.
Peter
Yeah, in terms of some of the seasonality you see in same store rent growth. Ron, you’re right. That percentage rent is included in Q1, and so that’s driving a portion of the seasonality. But if you look at that over a longer time series as well, that seasonality is going to be driven by the underlying lease structure of our portfolio. And we disclosed in the supplemental about 91% of our leases have fixed rental escalators. Those are typically rental escalators taking place every five years ranging from 5 to 10%. And so when those escalators hit is going to drive some variability in same store rent growth. But what we’ve seen over the trailing eight quarters, and it’s consistent with what we’ve seen historically, is same store rent growth just north of 1% with very little falling out, as you can see from our credit loss and occupancy loss disclosure.
Ronald Camden (Equity Analyst)
Helpful. Thank you.
Joey
Thanks, Ron.
OPERATOR
And that concludes our Q and A session. I will now turn the conference back over to Joey Agri for closing remarks.
Joey Agri
Well, thank you all for joining us this morning and we look forward to seeing everyone at the upcoming conferences and appreciate your time. Thanks again.
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