Good morning and welcome to the Agree Realty First Quarter 2024 Conference Call. All participants will be in listen-only mode. [Operator Instructions] Note that this event is being recorded. I'd now like to turn the conference over to Brian Hawthorne, Director of Corporate Finance. Please go ahead, Brian.

Thank you. Good morning, everyone, and thank you for joining us for Agree Realty's First Quarter 2024 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 2024 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 10-K for discussion of various risks and uncertainties underlying our forward-looking statements. In addition, we discussed non-GAAP financial measures, including core funds from operations, or core FFO, adjusted funds from operations, or AFFO, and 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.

Thanks, Brian, and thank you all for joining us this morning. We mentioned on our last call that we remain nimble and opportunistic, ensuring we are well-positioned to capitalize on opportunities as we uncover them. I am pleased to report that is precisely what we have done so far this year and what our organization is focused on every day. While the net lease transaction market continues to sort itself out, our team is doing a tremendous job leveraging our relationships and uncovering unique opportunities. We see little competition in the marketplace and are often the first and last call when a seller is prepared to transact. Though first quarter acquisition volume was light, we've seen an acceleration in the second quarter while achieving similar yields and continuing to focus on best-in-class retailers across the country. This is being driven by the sheer effort of our team, our proprietary data environment, and the depth of our industry-wide relationships. Year-to-date, our origination team has made an average of approximately 420 outbound calls weekly to contacts within our vast database to mine for opportunities, which is up 20% year-over-year. Our conversion rate of deals approved by our investment committee to letters of intent signed is the highest in over two years at approximately 38%. Simultaneously, we have ramped up our efforts and leveraged our tenant relationships, exemplifying how we create proprietary deal flow and accretive off-market opportunities. We continue to work hand-in-hand with the country's leading operators to drive efficiencies and reduce operating expenses. Our portfolio remains extremely well-positioned with approximately 69% of rents derived from investment-grade retailers, a weighted average lease maturity of over eight years, and minimal lease term maturities. Similarly, our balance sheet is in excellent shape, with total liquidity over $920 million, more than $385 million of hedge…

Thank you, Joey. Starting with earnings, core FFO for the first quarter was $1.01 per share, representing a 3.5% year-over-year increase. AFFO per share for the first quarter increased 4.6% year-over-year to 1.03% year-over-year increase. AFFO per share for the first quarter increased 4.6% year-over-year to $1.03. We received approximately $1.4 million of percentage rent during the quarter, which contributed more than a penny of earnings to core FFO and AFFO per share, respectively. Tenants typically pay percentage rent during the first quarter of each year. As Joey mentioned, we have introduced AFFO per share guidance for full year 2024 of $4.10 to $4.13, representing 4.2% growth at the midpoint. We provide guidance on several other inputs in our earnings release, including acquisition and disposition volume, general and administrative expenses, non-reimbursable real estate expenses, and income and other tax expenses. Our guidance further demonstrates our ability to drive consistent earnings growth, which supports a growing and well-covered dividend. During the first quarter, we declared monthly cash dividends of $0.247 per common share for each of January, February, and March. On an annualized basis, the monthly dividend is very well covered with a payout percent increase over the annual AFFO per share for the first quarter. Subsequent to quarter end, we announced a monthly cash dividend of $0.25 per common share for April. The monthly dividend equates to an annualized dividend of $3 per share and also represents a 2.9% year-over-year increase. Moving to the balance sheet, we remain in excellent position with over $920 million of total liquidity at quarter end. Including roughly $237 million of outstanding forward equity, $670 million of availability on the revolver, and more than $15 million of cash on hand. We have also entered into $150 million of forward starting swaps, effectively fixing the base rate for a contemplated 10-year unsecured debt issuance at just under 4%. Combined with our outstanding forward equity, this provides us with over $385 million of hedge capital to fund this year's investment activity. Our revolving credit facility and term loan also have accordion options, allowing us to request additional lenders commitment in this year's investment activity. Our revolving credit facility and term loan also have accordion options, allowing us to request additional lender commitments of $750 million and $150 million, respectively. Further bolstering our liquidity position is free cash flow after the dividend, approaching $100 million on an annualized basis and $50 million to $100 million of anticipated disposition proceeds. As of the end of the quarter, pro forma for the settlement of our outstanding forward equity, net debt to recurring EBITDA was approximately 4.3x, which is flat quarter-over-quarter. Excluding the impact of unsettled forward equity, our net debt to recurring EBITDA was 4.8x. Our total debt to enterprise value was approximately 30%, while our fixed charge coverage ratio, which includes principal amortization and the preferred dividend, is very healthy at 4.9x. With that, I'd like to turn the call back over to Joey.

Thank you, Peter. At this time, operator, we'll open it up for questions.

Thank you, ladies and gentlemen. [Operator Instructions] First question comes from RJ Milligan at Raymond James. Please go ahead.

Joey, I just wanted to start off with the newly issued AFFO per share guidance. Obviously, a long history of not providing it. I'm just curious what the catalyst was to provide it now.

Hey, good morning, RJ. I think a couple things. I think first, just given the most probably uncertainty in the macro environment, we're in a pretty crazy world. I think we're a boring net lease REIT, and that by definition should provide for clarity uncertainty of execution. And I think this guidance solidifies that in this macro environment. I don't recall a net lease REIT ever performing well with uncertainty surrounding it. And then second, I think our investor deck, the third page, is consistency. And we wanted to once again reinforce that we will be a consistent growth REIT here with a defensive portfolio, obviously, and a fortress balance sheet. And then lastly, I'd say just the confidence in the team here to recalibrate to the new world order that everybody is in. So this isn't easy going from a world of free money to today. And so frankly, most of them or none of them have seen it from that perspective, obviously, the last time being the GFC. So as a leadership team, we needed to reset internally. Our theme for the year is dialed in and cascaded down to the entire team. So my hat's off to the leadership team. Also, thank you to the lineage team, which has been integral in our operating strategy and our operating execution. But everyone here is now embracing the new normal. We talked about it on the last call. And we're working our tails off here. And we're not in this game just to play it. We're in it to win it. And so given those factors, I think it makes sense.

It makes sense. Thank you for that. You mentioned that you have visibility on about half of the total acquisition volume guided for the year. Can you just talk about where those cap rates are falling?

Right in line, effectively in line with Q1. That is Q2. We're just wrapping up sourcing for Q2 probably in the next few days here. So right in line, plus or minus 10 basis points subject to timing of closings or something leaking into Q3 or falling out. But right in line here, we're going to hold to that strict mandate of 100 basis point plus spreads without going up the risk curve here.

And have you noticed any changes in terms of the pipeline just given the move that we've -- the recent move that we've seen in interest rates?

The most recent move, I assume? I'll tell you. Any changes in our pipeline, as I mentioned in the prepared remarks, are a function of the hard work. This isn't market-based transactions. And so with 400-plus outbounds that we track through ARC with conversion rates that are higher, we're extremely focused on those sellers that have a strong desire or need to transact. And so we'll continue to attempt to push cap rates higher here. We'll look for those unique or asymmetrical opportunities where we have insight or knowledge that can create value or bring value to the table. But, again, it's hard to see what cap rates will do from here with the volatility of the tenure.

And just one follow-up. Joey, I think in your prepared remarks you mentioned 110% on some re-leasing. I'm just curious, whether, if you could clarify, is that 110% recovery or is that 110% a positive rent spread?

That's 110% percent recovery. So the Fresenius and Cape May -- go ahead. Sorry?

I was just going to say, so rents are 10% higher than the previous tenant.

Correct. The Fresenius and Cape May, New Jersey, which took the former Rite Aid and then

So rents are 10 percent higher than the previous tenant.

Correct. The Fresenius and Cape May, New Jersey, which took the former Rite Aid and then the former Big Lots with the O'Reilly Hub. So I think most importantly, or as important, is we're getting new 15-year base terms here with significant escalations with, obviously, vastly superior operators as well.

Thank you. Next question comes from Nick Joseph from Citigroup. Please go ahead.

Thanks. Joey, I just want to go over what is really driving the 50 basis points sequential increase in cap rates from first quarter to fourth quarter. Obviously, that was a pretty big jump, so I just want to understand if there's any change in tenant credit there or the makeup of DO relative to what you saw in the fourth quarter.

No, very similar composition. We're operating within the context of our sandbox as we've defined it. Obviously, volume was down for Q1. I talked about the acceleration coming for Q2. But we aren't stretching the box here, and we're going to remain disciplined. We're not going to go up the risk curve. We're not loading up on dollar stores and pharmacies to check the proverbial IG box. And so the composition is very similar to what you've seen historically. Frankly, no new names.

Thanks. And then just kind of on the theme of where cap rates potentially may move, given what's happening on the 10-year side, how long of a lag would you expect to see if the 10-year stays where it is before cap rates start to adjust up? Or was the kind of the sequential increase you saw into the first quarter already kind of contemplating a higher rate environment? This is bringing it more into a normalized range.

It's a great question. There's no direct correlation. I think it's fair to say there's causation there. But what we see in the net lease and all stabilized real estate asset classes, without a need to sell, I mean, this applies all the way down to the single-family residential market. Without the need to sell, there just really isn't the impetus for owners to transact. And so, again, our focus around what Peter often references for first two is the three Ds, situations where there's death, divorce, and debt maturing here. Or shorter-term opportunities that we're working hand-in-glove with retailers to extend high-performing opportunities. Or just solid underlying fundamental real estate where we know there's a market-to-market opportunity embedded in it. So I tell you, it will be interesting to see how cap rates. I would hope we'll see more of those types of instances here. But a lot of it is driven, frankly, by sellers' hesitancy to transact in a market when they were hoping for a March cut. Now they're hoping for a June cut or a September cut. And so, there's obviously murkiness to the overall environment from a seller's perspective, at least.

Thank you. Next question comes from Ronald Kamdem from Morgan Stanley. Please go ahead.

Hey, two quick ones. Just on starting with the guidance, just what are you guys thinking in terms of bad debt, what's baked into that number, and how does that compare to historical?

Yes. So, Ron, this is Peter. Last year, when we came out with the do-nothing scenario of over 3% AFFO per share growth, we talked about embedded in that scenario about 50 basis points of credit loss, which at the time we framed as a conservative assumption. I think that is still a conservative assumption today. And this guidance range contemplates 50 basis points of credit loss. I think, as I've talked about historically, our longer-term average is closer to 25 basis points. And particularly with visibility here through April, we view 50 basis points as a conservative level in our guidance range today.

Great. And then just my second quick one on the acquisitions. I think you talked about the cap rates, but can you talk about sort of sale leaseback activity in the ground lease market? How are things sort of reacting on a cap rate basis with the recent interest rate move?

Sale leasebacks, most tenants, unless they need the money, are very reticent to enter into the sale leaseback. We've had a couple of market today, given the rising rates. We've had a couple of discussions in the last week with tenants that are in a holding pattern. We're working on a potential couple opportunities in Q2. We'll see if those materialize. But I think sale leaseback activity outside of private equity sponsors here is going to be fairly muted until we get some stability in base rates. And then most of these are IG issuers, right? And so they're comparing where they can issue in the unsecured market to the sale leaseback market. I think, most importantly, we're not going to transact with any tenants that need our capital. And so I think they're being patient and we're being patient. But there are a couple opportunities out there that we're looking at.

And the ground lease market?

The ground lease market, like I've always said, is essentially the same sourcing methodologies and the same ownership pool and the same seller pool as the traditional net lease market. I would note that this quarter, our second largest acquisition was a ground lease to Home Depot in Joliet, Illinois. Everyone can go take a look at it. It's a dominant retail corridor with 700 feet of frontage. It only has about four years remaining of lease term, paying approximately $600,000 in rent. So to the questions out there that may be forthcoming and for anyone who's wondering if we're going up the risk curve in terms of WALT, weighted average lease term, just look at the underlying real estate on your own Google Maps. This is a high-performing store with significant frontage subsidized by a Dunkin' Donuts sublease on one outlet. So we're finding those opportunities in the ground lease space, but it's the same sourcing methodology, and they've got to make sense for us in the confines of our underwriting.

Thank you. Next question comes from Ki Bin Kim from Truist. Please go ahead.

Just going back to your guidance, just trying to gauge how much conservativeness is built into the midpoint, basically trying to see how fast you have to run to achieve it, given that it's your first time.

I think our guidance is realistic. It's something that we're obviously confident that we're going to be able to achieve. As the year plays out, we'll hopefully have the opportunity to narrow that guidance and give it even more visibility. Peter, anything you would add there?

No, I would just add in April, obviously, we have some visibility into the year, just in terms of timing of when we're introducing guidance. It's a relatively tight range from 410 to 413, and I think that speaks to the confidence we have in hitting that range.

Okay. And I guess what's changed over the past couple of months? Last quarter, you were talking about, I don't want to put words in your mouth, but more of a kind of pencils down approach, that there was unclarity in the market and maybe the deal flow wasn't there. What's basically changed in the past quarter?

Well, if we hearken back to the fourth quarter, we saw the 10-year Treasury go from 4 to 5 down to 385 in a combined 80 days or so, plus or minus. Then we've had some stability. Obviously, the 10-year has been on a march upward since then, we've had some stability. But I think more important to that, again, I'll reiterate, the team here, led by the leadership team, has recalibrated our approach. We are not wasting time on sellers that are in 2022 still. We are focused on the opportunities that are readily available to transact with real sellers, and that in conjunction with ramping our outbound efforts, rolling our sleeves up, and that in conjunction with ramping our outbound efforts, rolling our sleeves up, and leveraging our tenant relationships, which are very deep, gives us proprietary access to deal flow. And so we're creating opportunities. I referenced manufacturing transactions on the last call. I apologize if that was taken incorrectly. When I referenced the manufacturing transactions, finding short-term opportunities and doing early extensions, finding high-performing stores, and working with retailers, working with retailers to reduce their occupancy costs on stores or the landlords that are no longer fit within their profile or framework. So it's a value creation exercise, but this is hand-to-hand combat. This isn't wholesale buying like most people were accustomed to with 12 years of declining interest rates and cap rates. And so the team's done a tremendous job refocusing, recalibrating in a wholly different environment.

Thank you. Next question comes from Joshua Dennerlein from Bank of America. Please go ahead.

Hi. This is Farrell Granath on behalf of Josh. I just wanted to touch on, I know last quarter there were comments on the most attractive investment verticals in terms of investment spreads. Are you still seeing developments as your most attractive, or do you have any other commentary around that?

Our development and DFP platform remain active. I mean, the standard mode of the majority of retailers' growth through merchant developers is broken today. And so we continue to have those conversations with both the developers as well as the retailers on how we can step in and create value. As I mentioned last quarter here, we can be a solution, but that solution has duration risk, whether it's a four-month project or an 18-month project, and we're going to price in that duration risk. And so we continue to have those conversations. I'll be on the road, actually, with a couple of retailers' headquarters in the next few weeks here to see how we can continue to be a solution in a world where elevated construction costs, lower loan-to-values, higher interest rates, and unknown cap rates upon completion, frankly, just inhibit a merchant builder's ability to perform.

Great. And also, when you were mentioning the increase in call volumes outbound, is this a new internal initiative just going forward, or what was the shift in the increase?

So ARC, obviously ARC is instrumental and tracks all of our connections through conversion rates, utilizing KPIs across all functions, really, here at the company. But we've made a concerted effort, led by Craig Erlich, our Chief Growth Officer, to ramp that call volume [indiscernible] use our vast database embedded in ARC, to mine for opportunities out there that aren't glossy brochures and in an auction environment. And so those, I'll reiterate, those opportunities are really going to come to fruition more so in Q2 here. Q1 sourcing, the majority of that was done during Q4, right? If we just use our standard 70 days to letter of intent execution to close. We only got 20 days of sourcing in Q1. Now Q2 is really post-rollout and coming up after the new year here of our dialed-in strategy, and that's the theme here for the year. It's dialed-in, and we'll see that come to fruition in Q2 here.

Thank you. Next question comes from Eric Borden at BMO. Please go ahead.

Just one on the disposition guidance. I was hoping that you could talk about some of the opportunistic capital recycling program that you have going on. What are the different tenant types or geographies that you're looking to prune from the portfolio?

Yes. As I mentioned in the prepared remarks, there seems to be a disproportionate amount of activity, albeit at a low base, of 1031 activity specifically in Florida. We dispose of a Gerber Collision, of a Mr. Carwash. I think you'll continue to see us dispose of and recycle some non-core assets primarily in Florida, but also opportunities that are inbound with a 1031 that needs to be filled quickly, where we can opportunistically sell an asset and recycle that capital 150 basis points spread. So, again, Florida seems to be the hotspot for a number of reasons, and so we're very confident in that range of 50 to 100, considering we've already closed over 20 and have visibility into over 20 for Q2.

That's helpful. And then I just noticed that occupancy had a small dip sequentially. I was just hoping you could provide some additional color on the tenant vacates and how should we be thinking about occupancy for the remainder of the year?

Well, we were 99.8% in Q4, which is pretty high. I mean, that's effectively occupied. I'd argue 99.6 is effectively occupied. It's really the resolution of one box, which we anticipate in Q2. We're going to have some interesting embedded real estate opportunities, inclusive of the Bed, Bath & Beyond redevelopment in Memphis, Tennessee, in Q2, it looks here. And I think it's going to demonstrate our underwriting prowess and our real estate prowess and also our ability to identify transactions and assets within our portfolio, I should say, not transactions, but assets within our portfolio that have real estate fundamentals that aren't being, frankly, utilized to the highest and best purpose. And so hopefully those are done and complete in Q2, and we can give, obviously, a much more detailed breakdown.

Thank you. Next question comes from Rob Stevenson from Janney, Montgomery. Please go ahead.

Good morning, guys. Joey, can you talk a little bit about the expected return on the $74 million of development in DFP projects that were under construction at the end of the quarter and what was a similar sort of return to the projects you completed in '23?

Yes. I don't recall that the 2023 returns offhand. Again, it's really duration. Obviously, there's real estate and credit, but duration becomes the critical aspect. If we're able to retrofit an existing building through either project and the tenant's going to be paying rent in 120 or 150 days, we do that often with Sunbelt Rentals. We do that often with Gerber Collision. We're looking to, I would say, approximately 50 basis point spreads to where we're very, frankly, wide of that if it's going to be a 12 to 18-month project. We're not going to go out there on the duration curve without a significant preview. And so that's really the tension, again, which we're trying to work through with retailers and merchant developers here. The team is on the phone all day talking to developers with broken projects where they can't get financing or the returns don't make sense and they're unable to perform or, frankly, just won't perform because they don't have clarity upon the back end. And so there's a significant opportunity there. The question becomes which ones hit the risk-adjusted return threshold that we just talked about, Rob. But you can assume that if we're buying here in the mid-upper sevens, we're certainly not putting or financing shovels in the ground at those rates.

Okay. And then you talked a bit earlier about the Dollar Trees. Can you talk about how many, excuse me, are likely to close or not likely to be Dollar Trees in the near future, given your current discussions, that you're going to need to re-tenant it at some point? And what's the average size of those boxes?

Yes. So just to reiterate, we have no stores on the closing list that have less than three years of term. That is obviously subject to Dollar Trees change. They'll be responsible for all rent and net. There's corporate guarantees behind all of these leases. Ironically, the weighted average lease term of the approximately 15 stores that will be closed is approaching 8 years -- 7.5, 8 years. So they're on the hook there. And then we've had inbounds for over half. We're going to start discussions. Obviously, they've got a lot of going through a Dollar Tree right now, whether they're going to sub-lease or whether they'll want to pay a termination fee here. And then we'll enter into direct leases, but you can imagine the retail partners inclusive of other dollar stores, auto parts operators, low price point operators that are looking at those opportunities. But I think we're very pleased. We're very pleased that with the outcome, given the store closure announcement there, it will have nothing expiring within three years. And again, these are average a hundred thousand dollars in rent per store with a weighted average lease term approaching eight years.

Okay. And then last one for me, can you talk a little bit about the market out there for vacant sites, given the financing environment, so if there's a, like your vacant Bed Bath Beyond or whether or not there's movie theaters, et cetera, are there people out there actively buying these for redevelopment play at this point? Or is, the financing, not allowing them to do that. Is that an opportunity for you guys to use capital on some of the better located, vacant retailers to do.

Oh, the Kmart days. It's a broad question. First, the lack of financing given the regional bank credit crunch here has made development a very difficult proposition with loan to cost at 60% to 65%, as opposed to getting 90%, 95% that's one plus obviously the elevated interest rates. To the movie theaters, I mean, those are teardowns, right? If you're a movie theater owner here, there's too many screens in this country. Those are teardowns and redevelopments. That's not really within our sandbox. The Bed Bath and Beyond opportunity. I'll tell you, well, first there's an insatiable appetite for highly or well-located boxes that are marketable size. So if you have a 20,000 to 25,000 square foot junior box, the replacement cost on vertical alone is $160 per square foot. And so those numbers don't pencil to build. And so what we see is significant interest in any existing boxes that are well-located from a whole host of tenants. I mean, 90% of the tenants in our portfolio are looking to grow today. It's just the cost structures and the ability to execute that growth. The Bed Bath and Beyond case, and I'll give a little bit more detail on it. It's fairly unique. It's out in front of a mall in Memphis, Tennessee. It's perpendicular to the road and isn't maximizing the frontage. We've written white papers about this and the migration to freestanding formats is driving a really an insatiable demand for pad sites from C store users, from chicken users or chicken sellers, chicken restaurant, chicken-based restaurants, I'll call them. A lot of chicken going around. Car washes, we all know square foot Bed, Bath and Beyond, box creators are continuing to thousand square foot box today is, isn't very marketable. There aren't many users for 45,000 feet. We had an offer to take the box in the mid-single digits from a user. And then we looked at it and said, wait a second. The highest and best use here is to take the box down and create freestanding pad sites along a major retail corridor. It will be my first redevelopment of a freestanding box, which includes a total teardown and conversion to pad sites in my career. And we're going to have a significant, very significant lift here upon completion of that redevelopment. And we think there are other opportunities in the portfolio and both outside the portfolio to continue to really take advantage of the migration and the really the expansion of the freestanding operators.

Thank you. The next question comes from Alec Feygin from Baird. Please go ahead.

First one is what are the plans, if any, to issue debt? And is there anything of the sort assumed in guidance?

Thanks, Alec. This is Peter. I think first, just in terms of our funding plans for the year, as we said in the prepared remarks, we can execute on that $600 million acquisition guide on a leverage neutral basis without needing to raise any external capital. And so we're in a great position for the remainder of the year. We have plenty of flexibility in terms of how and when we access the capital markets. In terms of debt funding plans for the year, again, we can be flexible. We do have $150 million of forward starting swaps in place, which have hedged a future 10-year unsecured debt issuance at an effective base rate of just under 4%. And so we'll look to be opportunistic in terms of accessing the debt markets. But we have over a year to use those swaps and can afford to be nimble and flexible in terms of how and when we come to the market.

That's helpful. Thank you. Second one for me is kind of on the pipeline of potential developer takeouts. And is that, are those conversations increasing or decreasing? I know, Joey, you talked about this merchant developer or retailer kind of bind right now. But just curious if those conversations have been increasing.

Increasing. We built out that team. We've launched an ARC module for that team. We've added to that team in terms of team members. They are increasing their daily multiple times per day, trying to piece together projects that can work. And so it's really just sifting through the returns that work for the developer and/or retailer, the rents per square foot, they're the output and figuring out the duration premium and/or term or credit premium that we're going to require relative to where a standard acquisition.

Got it. And one last one for me, is the company having any more direct conversations with retailers about expansion? So not through the developers, but directly. I know you mentioned you're about to go meet with some retailers, but any more color on that?

Yes. Very, very frequently. Whether it's coming in and stepping in as a solution, or working with retailers on a standard rollout. Those are those are at the big focus for us along with the FB.

Thank you. The next question comes from Linda Tsai from Jefferies. Please go ahead.

Hi, good morning. I know you're confident about the 600 million in acquisitions this year, but what does the low and high end of AFFO per share guidance baked in for acquisition volume?

So the acquisition, or sorry, the AFFO per share guidance range assumes approximately $600 million of acquisitions. When I think about hitting the low end or the high end of that AFFO per share guidance range, I would look to the other inputs that we guided to in the earnings release. And obviously the more favorable end of those ranges will result in us being closer to the high end of our AFFO per share guide range. At the less favorable end of those ranges, we'd be closer to the low end. But in terms of acquisition volume, we're assuming approximately $600 million.

Thanks. That's helpful. And the 5.7% to 6% of G&A, I know it's a little early, but would this be a reasonable run rate to assume as we look out to next year?

Well, I think, first we've continued to scale. So the G&A is a percentage of revenues has continued to scale. I would assume next year you'll see that that continued scale as well. Obviously, that's subject to revenue, which is driven by investment volumes, but this company has become much more efficient from a technology standpoint, from a process standpoint. And so you'll see that number continue to scale. The denominator there I think will be the biggest moving piece, the revenue number, right Peter?

Yes, that's correct. And Linda, just for some more context, if you look back four years ago, G&A as a percent of revenue was roughly 8%. And so we've seen based on our guide this year, roughly 200 basis points of scale just in the last four years and expect that we'll continue to see scale here going forward.

Thanks for that. And those 15 family dollar boxes, what's the IRR you'll expect on those as you re-lease those?

We haven't got that far yet. There is no resolution. We feel that, as I mentioned, increase for over half of them already. The base case is that Dollar Tree is on the hook for the weighted average lease term of almost eight years for the rent and nets on all of them. But we haven't looked at disposition yet or whether Dollar Tree will be subleasing themselves or we would take a termination fee and enter into a direct lease with a net new tenant. So this is all pretty fresh, hot off the press. But we'll be working through that, I would think, this quarter.

Thank you. One last question. You emphasized Florida a couple of times. Why is now the right time to sell there? Is it asset or state specific?

State specific. It just seems that a disproportionate amount of 1031 activity, which is very muted, as we all know, is attracted to the sunshine state. Florida seems to be the new California. It's international capital. It's private capital. Some of the stories, frankly, of the buyer profile don't even really add up. But if they come to the closing table, we're happy with that. I mean, we had a buyer walk away on a sale, the first time in my career, from a $75,000 nonrefundable deposit the day before closing on a couple million dollar sale in Florida as well. So it's very interesting. But we'll, again, continue to look to opportunistically dispose of assets at these cap rates and then recycle it. But Florida seems to be an outlier here of 1031 activity. Now, I will mention it is fractional. 1031 overall activity is fractional of what it's been in past years. And so this is opportunistic. They don't all close. Half of them will terminate. But we're working prudently through it. And we've built out the disposition team under Nicole, and we're actively pursuing it.

Thank you. And the next question comes from Haendel St. Juste at Mizuho. Please go ahead.

Joey, can you talk a little bit about the economics behind backfilling for the Big Lots? I think it was filled within O'Reilly's. Maybe, some color on the capital that was required, the new lease term, the re-leasing spreads. And I know Linda just asked a question about Dollar stores, but I'm just curious, how different are the in-place rent and box sizes of the Big Lots versus the Dollar stores and anything else that could be relevant or informative there? Thanks.

Yes. The only thing I can share with you, again, we put the two leases, 110% or 111% of former rents. The both leases, both the Big Lots, sorry, the O'Reilly as well as the Fresenius are long-term leases with escalators. We're seeing tenants more amenable to escalators. Obviously, given the inflationary environment, I think there's a misnomer that investment grade operators are flat leases. That is patently false. These leases would prove that wrong. De minimis landlord work, again, this is going to be a hub store, and so we have a few other hub stores, but these are the distribution as well for other commercial locations and body shops as well as a retail storefront. So we're excited to add that. Obviously, a significant upgrade. That box, if I recall, was probably 30,000 feet. So it was a larger box. The Dollar stores range from about 8,000 to 10,000 feet generally, and so they're smaller boxes than the Big Lots. And so the marketability of them is very different, I would just say, from the perspective of tenant pool than a junior box such as the former Big Lots.

That's helpful. Appreciate it. And I wanted to go back quickly on the commentary earlier on. I think you were saying you're expecting less activity on the sale-leaseback side. I would have thought that with debt costs still fairly high here that a lot of these guys don't have better alternatives than sale-leaseback, so maybe some more color on what you're hearing or seeing on that front would be helpful. Thank you.

Well, look, we're talking to sophisticated operators as potential counterparties and former counterparties on sale-leasebacks. Most of them have extremely strong balance sheets rated triple B or higher. They're industry leaders. For them to go enter into a sale-leaseback on a spread over where they could issue today just doesn't make economic sense, and they have the balance sheets and liquidity profile to hope for lower rates. It's that simple. And so I think all of them, knowing where cap rates would trade today, are holding out for honestly better pricing. And so a number of the retailers we transacted with last year on the sale-leaseback front, we've had discussions with them and want to continue. They've publicly commented on their earnings calls about sale-leaseback activity. But in reality, I'm not sure they're ready to stomach the pricing that is really going to clear in today's market. And so it's a game of wait and see. Some are getting full on their balance sheet and looking for solutions. Others are saying, hey, we'll hold for the long-term unless the winds change. So again, the tenants that we're doing sale-leasebacks with don't need the money. That's the most important thing. We're a small piece of their overall capital stack. And so it's almost a secondary exercise in terms of capital. It is a secondary exercise in terms of capital sourcing for them. But if it's not favorable, they're not going to do anything.

Thank you. We have no further questions. I will turn the call back over for closing comments.

Well, thank you, everybody, for joining us this morning. We appreciate everyone's time and look forward to seeing you in the upcoming conferences. Appreciate it. Thank you.

Thank you, ladies and gentlemen. This concludes your conference call for today. We thank you for participating and we ask that you please disconnect your lines.