Good day, and welcome to Realty Income third quarter 2022 earnings conference call. All participants will be in listen-only mode. If you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation will be an opportunity to ask questions. Please note that this event is being recorded. I'd like to turn the conference over to Ms. Andrea Behr, Corporate Communications Manager. Please go ahead. Thank you all for joining us today for Realty Income's third quarter operating results conference call. Discussing our results will be Sumit Roy, President and Chief Executive Officer, Christie Kelly, Executive Vice President, Chief Financial Officer, and Treasurer, and Jonathan Pong, Senior Vice President, Head of Corporate Finance. During this conference call, we will make certain statements that may be considered forward-looking statements under federal securities law. The company's actual future results may differ significantly from the matters discussed in any forward-looking statements. We will disclose in greater detail the factors that may cause such differences in the company's Form 10-Q. We will be observing a two-question limit during the Q&A portion of the call in order to give everyone the opportunity to participate. If you would like to ask additional questions, you may re-enter the queue. I'll now turn the call over to our Chief Executive Officer, Sumit Roy. Thank you, Andrea. Welcome, everyone. At Realty Income, we pride ourselves on having a consistent and dependable business model. For 53 years as an operating company, we have persevered through a variety of macroeconomic climates, and our track record of stability, notably during periods of volatility, is particularly relevant during current times. We sit here today well positioned and operating very well across all areas of our business. We are grateful for all of our team members who make this success possible. To start off, we capitalized on opportunities to bolster our balance sheet in the third quarter, including raising over $2 billion of equity on the ATM, with approximately $700 million of proceeds received during the third quarter, as well as over $1.3 billion remaining subject to our settlement on a forward basis in alignment with our capital strategy. In addition, we issued $750 million of ten-year senior unsecured notes in October to further increase our liquidity. Between cash and cash equivalents, our availability under our credit facility, our liquidity as of the end of the third quarter was over $2.5 billion, which when combined with the $1.3 billion of our unsettled forward equity and approximately $744 million in net bond proceeds, equates to liquidity of approximately $4.6 billion, had the forwards and net bond proceeds been received at quarter end. Moving on to acquisitions. During the quarter, we acquired approximately $1.9 billion in high-quality real estate, bringing us to approximately $5.1 billion in acquisitions year-to-date. A significant portion of the properties purchased in Q3 were part of portfolio deals or large transactions. We believe these deals were accessible to us because of our size, scale, relationships, ability to close, access to and cost of capital, together with our research and technology-driven analytic capabilities. For Realty Income, our competitive advantages allow us to design and execute on strategies that benefit all those we serve, including our clients. The pending $1.7 billion Encore Boston Harbor transaction, which we continue to expect to close this year, remains an example of this dynamic. Based on our current total portfolio annualized base rent, the transaction would comprise approximately 3% of our total portfolio annualized contractual rent once closed. Further leveraging our international capabilities, we made our entry into Italy last week, investing approximately EUR 165 million in seven high-performing wholesale clubs operated by METRO AG in major Italian cities like Rome and Florence. METRO AG is a Pan-European leader in the wholesale club industry and operates almost 700 stores across Europe. METRO AG is publicly listed and investment grade rated and has continued to perform well during and since the pandemic. We are delighted to add them as a client and hope we will be able to add to this initial portfolio over time. During the third quarter, we did experience cap rate expansion, registering a 6.1% cash cap rate on investments, which compares favorably to the 5.7% cap rate we realized on investments in the second quarter. This resulted in a third quarter investment spread of 165 basis points based on actual capital raised, which is higher than our year-to-date total of 161 basis points and above our historical average. As we move towards year-end, we continue to see cap rates push higher as capital costs increase. This is consistent with the historical correlation we've come to expect, which has tended to preserve investment spreads as the market adjusts. Transaction flow remains strong with sourcing volume totaling approximately $18 billion this quarter, bringing year-to-date sourcing volume to approximately $78 billion. We remain selective as we have acquired approximately 6.5% of sourced volume year to date. The international market continues to be an important part of our strategy, and it remains an active component of our volume, representing approximately 33% of investment volume in the third quarter. Capital recycling continues to be a strong component of our funding strategy, which also has the dual purpose of culling non-core properties from the portfolio. During the third quarter, we sold 34 properties, generating net sale proceeds of $142 million at an unlevered IRR of 12.8%, illustrating the full cycle attractiveness of owning net lease real estate under long term leases. We intend to continue to act opportunistically to dispose of assets at moments in time when we can obtain attractive risk-adjusted returns. In addition to the disposition of properties on our balance sheet, we also sold our interest in seven properties owned in an industrial JV that we assumed as part of our VEREIT merger. The gross purchase price totaled $905 million at a low 4% cap rate. Our share of net sale proceeds was approximately $113.5 million. Our core portfolio continues to perform, and by and large, our clients have generally continued to perform very well despite the cyclical market changes and shifts in consumer behavior. A point to note, as previously publicly announced, one of our clients, Cineworld, commenced Chapter 11 bankruptcy in September. Despite being one of its largest landlords, Cineworld represented only 1.5% of our total portfolio annualized base rent as of Q3. We'll continue working closely with Cineworld as this process continues towards resolution. For some color regarding theaters. For the third quarter of 2022, we collected approximately 85% of the contractual rent across our theater portfolio as Cineworld Group plc was not yet required to pay rent for the month of September. For the month of October 2022, we have collected 100% of the contractual rent across our theater clients, including Cineworld. For some specifics, our Cineworld portfolio consists of 41 properties, 17 properties of which are subject to a single master lease agreement, and 22 properties of which have been accounted for under cash basis accounting since the third quarter of 2020. Through September, we have recognized $23.5 million of cumulative reserves on these properties, representing primarily contractual rent and expense recoveries that have not been collected dating back to the beginning of the COVID-19 pandemic in 2020. These 22 properties on cash basis accounting currently account for approximately $1.6 million of monthly contractual base rent or 40% of our total exposure to Cineworld. Based on current public information and our internal analysis, we continue to believe our portfolio of Cineworld assets are generally comprised of the stronger performers in the operator's portfolio. Our locations are freestanding single-tenant assets, typically with large land areas and close proximity to population centers, supporting potential conversion to residential, industrial, or life science uses. We have received reverse inquiries from multifamily and industrial developers exploring opportunities on these sites. We believe there is alternative and adaptive reuse potential if Regal were to vacate any locations as part of bankruptcy. Moving on to some of the most important key operational metrics delivering value that continue to demonstrate a consistent, well-positioned real estate portfolio. At the end of the third quarter, our occupancy was 98.9%. In Q3, we re-leased 169 leases and achieved a rent recapture rate of 108.5%, bringing our year to date recapture rate to 106.7%. As we look forward, less than 4% of our contractual base rent comes due through the end of 2023, providing strong visibility into our near-term portfolio performance. At quarter end, approximately 43% of our portfolio's total annualized contractual rent was generated from investment grade rated clients. Our properties leased to clients on our portfolio watchlist represented less than 4% of our portfolio's annualized contractual rent. Lastly, our same-store rental revenue increased 1% during the quarter and 2.4% year to date, and we continue to expect full year same store growth to be approximately 2%. At this time, I'll pass it over to Christie, who will further discuss results from the quarter. Thank you, Sumit. Put simply, it was another productive quarter for us. In the third quarter, our business generated $0.98 per share of AFFO, representing 7.7% year-over-year growth. Our net debt to annualized adjusted EBITDA was 5.3x or 5.2x, giving effect to the annualization of net investment activity during the quarter. These ratios do not reflect the $1.3 billion in outstanding equity forwards we had at quarter end. As Sumit previously mentioned, we were both active and prudent in our capital raising efforts since the end of the second quarter. In addition to raising over $2 billion during the quarter at an initial weighted average price of approximately $68 per share, subsequent to quarter end, we completed a $750 million bond transaction, the majority of which served as a synthetic euro offering to take advantage of favorable foreign exchange dynamics while also allowing us to return to the US dollar public fixed income market, which we last accessed in 2020. In conjunction with this offering, we executed a $600 million US dollar to euro 10-year cross-currency swap, resulting in the receipt of approximately EUR 612 million in euro proceeds, an effective fixed rate euro-denominated semi-annual yield to maturity of 4.7%. Additionally, giving effect to $500 million of interest rate hedges, which were terminated with the offering, we generated a $72 million dollar cash settlement gain of pricing, which when amortized over the ten-year tenor of the notes, is expected to result in an effective semi-annual yield to maturity of 3.93%. Financial flexibility has long been a hallmark of our strategy, and our ability to move between various financing markets, given our international capital needs, is a competitive advantage. As previously reported in the third quarter, we upsized our U.S. commercial paper program from $1 billion- $1.5 billion and established a Euro commercial paper program with a capacity of $1.5 billion. The combined $3 billion commercial paper program, which is backstopped by our multi-currency $4.25 billion revolving credit facility, gives us the flexibility to efficiently match fund our short-term funding needs in various currencies at much lower rates than comparable U.S. facility borrowings. We look forward, we have limited near-term refinancing risk as only $23 million of mortgage debt comes due through the end of 2023, and our next unsecured debt maturity is not until 2024. With continued stable and consistent results in the quarter, we tightened our AFFO guidance range by $0.06 to $3.87-$3.94, maintaining the midpoint at a 9% year-over-year growth rate, consistent with what we initially provided a year ago. As a monthly dividend company, Realty Income's dividend will remain sacrosanct to our mission. This is a testament to our confidence in the time-tested consistency of our business model, supported by a conservative balance sheet and diverse real estate portfolio, leased to clients that are leaders in their respective industries. In September, we increased the dividend for the 117th time and for the 100th consecutive quarter, representing a 5.1% increase compared to the dividend declared one year ago. We are proud of these accomplishments and the work our talented colleagues perform every day to help drive this consistent track record. Earlier this week, we celebrated the 1-year anniversary of our VEREIT merger. We've grown together as one team over the last year, and I'm pleased that we remain on track to realize over $50 million in run rate annual cost synergies that we estimated when we announced the merger. With that, I would like to pass the call back to Sumit. Thank you, Christie. Our strengths have been accentuated in this quarter's result. While we cannot control the macroeconomic forces that periodically introduce volatility in the capital markets, I am regularly reminded that the resiliency of this team and the inherent stability of our business model allows us to look to the future with confidence. I'm pleased that we are able to lean in to market conditions when it's advantageous to serve our shareholders, and I believe that the best is still ahead of us. At this time, we can open it up for questions. Operator? Thank you. Now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you're in a speaker phone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. This time we'll pause momentarily to assemble the roster. First question comes from Brad Heffern, RBC Capital Markets. Please go ahead. Hey, good morning out there, everyone. Cap rates on acquisitions were up 50 basis points quarter-over-quarter. Looks like some of that's related to the mix of industrial and investment grade. Can you talk about how much of that was underlying market cap rates moving? Was there a particular goal to pursue higher cap rates to preserve accretion? It's more the former than the latter. We are definitely seeing movement in cap rates. If we were to compare it to where the environment was at the beginning of the year, which is what I would say we saw over the last couple of years, and compare it to cap rates that we are seeing today and what we experienced in the third quarter, I would say retail cap rates have moved circa 100 basis points. It's a story of basically two ends of the credit spectrum. If you think about the high investment grade grocery assets, those at the beginning of the year were trading in the low 4% cap rate range, and those have moved the most. I would say today, they are in the 5.5%, maybe even in the 5.6% ZIP code. So that's about 150 basis points. Then on the other end of the spectrum, it was the higher yielding cap rates that had compressed quite a bit over the last few years that also saw similar movement. The stuff that was in between has seen movements circa 400 basis points, and that's really what is starting to translate into actual realized cap rates that you noticed for the third quarter. Having said all of that, you know, things don't happen at the spur of the moment. I mean, a lot of these transactions, we started to have discussions with our potential clients about the movement that we were seeing in our cost of capital, which was quite brutal and quite immediate. Thanks to the relationships, our ability to close all of the things that I enumerated in my prepared remarks, some of the more institutional type clients were also experiencing similar dynamics and were more than willing to adjust cap rates to continue to do business and continue to fund their respective businesses. I think that's what you sort of saw translating to, you know, the 40 basis points of increased cap rate that we were able to realize in the third quarter. It is a timing thing. I just want to be very careful that, you know, depending on, you know, if for instance, if the gaming asset in Boston were to have closed in the third quarter, that's already been a transaction that's going to have a 5.9% cap rate. That's going to sway the overall cap rate. It really is a question of when those transactions got under contract, and what the timing of close is that's going to dictate what the quarter results are. Having said all of that, I think we are definitely seeing movement, and it is in the quantum that I described earlier. It's a similar story on the industrial side. I would say that industrial cap rates have also moved considerably. This is something that we started seeing even in the early part of the year. I think in my first quarter comments, I had talked about maybe seeing a 25-50 basis point movement. This was on the heels of, you know, Amazon announcing that they are, you know, no longer going to be big takers of industrial assets. They accounted for about 20% of the volume over the last few years. That started to see some movement. That resulted in some movement on the industrial side. That movement continued through the second quarter. I'll say today, despite what we quoted in our joint venture that we sold in the low fours, I would say similar assets that we were pursuing are in the 5.5 ZIP code today. There's clearly movement and the hope is that the movement will continue in the right direction over the next coming months. Our portfolio is a testament. Our portfolio as well as our pipeline is a testament to that. Okay. Appreciate the detailed answer. Christie, I was hoping you could walk through the puts and takes on the new guide. Obviously, you had headwinds from FX and from higher rates. I'm curious what the offsetting factors were that kept the midpoint the same. Thanks. You know, I think, Brad, you captured the headwinds, you know, together with the strengthening U.S. dollar. I think in terms of, you know, where we see opportunity is, you know, first, as it relates to the determination on our AFFO per share, is the overall developments as it relates to our clients that are on cash accounting. I just wanna note that for Regal, we have no change associated with the status of Regal, and in the midpoint of our guidance are expecting full collection. A couple of other things is also just our access to the international borrowings, which are a nice tailwind. You can see that, you know, demonstrated in what we were able to do with the Euro Commercial Paper program. You know, as Sumit articulated, our relationships with clients, our ability to pivot in the marketplace, together with our strong pipeline and the timing of the Encore transaction, which could be a positive or a negative. Hope that helps, Brad. Yep. Thank you. Thank you. Next question will be from RJ Milligan of Raymond James. Please go ahead. Hey, good afternoon. I'll start with my boilerplate question for the quarter, and certainly appreciate the attractively priced capital you guys were able to source in 3Q. I'm curious, you know, how you view your current weighted average cost of capital and what kind of spreads you've been able to achieve year quarter to date? The spread we were able to achieve, you know, third quarter year to date, was right around 161 basis points. This is based on actual capital raised throughout the year. For the quarter, it was closer to 165 basis points. One of the things I'll point to is that, you know, in our investor deck, I believe it's Page 26, we do lay out precisely how we calculate our cost of capital. There are basically three components to it. One of which is the free cash flow that we are generating, as well as the cost of equity loaded for the cost of raising that equity and our bond prices. You know, there was a strange thing that played out in the third quarter, and I don't know if I've got this fact 100% right, but you know, we reached our 52-week high as well as our 52-week low during the third quarter. That was the level of volatility that we experienced. Call it luck, call it Jonathan Pong doing his thing, we were able to raise a lot of our equity capital on a forward basis with an average price of $68, and that's $2 billion worth of equity. $700 million of which we obviously were able to close and settle at the end of the third quarter, and $1.3 billion of which we will settle at the end of the fourth quarter. You know, that's the reason why I want to be very precise around the actual realized spread versus what traditionally has been a calculation of average WACC over a given period. This is the first quarter where we felt like there was a massive diversion, precisely driven by the volatility that I just spoke about. Yeah, that's how we calculate our WACC. Thank you. That's helpful. Given the fact that cap rates in general are starting to move higher, but probably not as quickly as the cost of debt, how are you thinking about acquisition volume as we, you know, move into 2023? Is it time to maybe tap the brakes, sort of keep the pace? Or do you think there's gonna be more opportunities to potentially even accelerate the pace? Yeah, RJ, it's gonna be a function of how quickly the cap rates adjust. You know, clearly there are mechanisms available to us on the capital side, on the financing side that we are going to avail of, but that's limited in terms of, you know, what is the ultimate spread that we can realize. We are being incredibly disciplined around making sure that the team is pivoting to, you know, hurdle rates that we need to achieve on the cap rate side in order to continue to maintain spreads that we feel like represents, you know, the right spread for the kind of risk that we are taking, based on the acquisitions that we are pursuing. you know, I think I mentioned this in the second quarter, but I'll say it again, I have been pleasantly surprised with how quickly cap rates have moved. Again, based on some of the transactions that we are seeing in our pipeline, we are very optimistic that we'll be able to continue to maintain the spreads that we have historically maintained, and we see that over the continuing next few quarters. you know, timing will be of the essence. Like I said, if there are certain transactions that we entered into, especially on the development side, that was, you know, that 12 months ago, those are going to not be quite as accretive as transactions that we are entering into today, which will potentially close in the fourth quarter and some of which will close in the first quarter, that have spreads that are more in line with what our historical spreads have been. Timing is going to be of the essence in terms of what we report at the end of a given quarter. Makes sense. Thank y ou for the color. Thank you, RJ Thanks. Next question will be from Greg McGinniss, Scotiabank. Please go ahead. Hey, good afternoon. Sumit, deal sourcing is still significant, but it's also slowed each quarter in 2022, even while potentially casting a wider net internationally. What are the drivers of that trend? Do you expect it to continue that way into Q4 in 2023? How might that declining investment opportunities impact acquisition levels and cap rates? Yeah, it's a good question, Greg, and it goes back to, you know, having sticky sellers. Sellers who haven't quite embraced the changing cost of capital environment, who are hoping for this to have a shorter duration disruption. You know, starting to recognize that, you know, given what the Fed's doing, given what they're seeing on the inflation side, that this may be a longer process than what they had anticipated. I think that is part of the reason why you saw a tailing off on the sourcing side. We were averaging around $30 billion per quarter. Third quarter, I would still claim was quite robust with $18 billion worth of sourcing, you know, one-third of which was from the international markets. On a relative basis, yes, there was a bit of a slowing down, and it's largely being driven by the time it takes for sellers to adjust to the new environment. There too, it really is a story of, you know, those that are institutional sellers, they are able to adjust to it a lot quicker than, you know, some of the non-institutional, more private owners of real estate, for whom it has taken and will take a little bit more time to adjust. Right. That's fair. Just going back to the portfolio deals, large transactions that you mentioned in your opening remarks, can you provide a little more detail on the size of some of those deals, asset types, and whether that's the kind of maybe trend that you expect us to move into? Maybe that seller is just more willing to accept the current financing environment for what it is. Yeah. I think the way I'll answer that question is to say, you know, in large portfolio deals, which tend to be owned by institutional owners, they're far more receptive to the changing cap rate environment and far more accepting of the changing cap rate environment. It will come as no surprise to you that over 70% of what we did were portfolio deals in the third quarter. It should also come as no surprise to you that some of the institutional owners of real estate were far more willing to enter into sale-leaseback as an alternative source of raising capital, especially given their, you know, traditional sources of capital, which may have been the leverage finance market or the high yield market, and the disruption that they saw there. About 50% of what we did in the third quarter were largely sale-leaseback transactions. I think that'll give you a flavor for, you know, some of the transactions that we did. It was still mostly, I wanna say 94%, was retail, and there was about 4%, 4.5%, of industrial assets that we did, but largely driven by what we're seeing on the retail side. Great. Thank you. Sure. Thank you. Next question will be from Michael Goldsmith, UBS. Please go ahead. Good afternoon. Thanks a lot for taking my question. International acquisitions represent about 33%, maybe lighter than what we've been seeing. Are the opportunity set just larger in the U.S. now relative to Europe? Or are you seeing anything in Europe that you wanna highlight in terms of pricing or sentiment? I recognize that also comes at a time when you've moved into Italy. I'll tell you, Michael, I mean, we were doing north of 50% in the international markets in the first quarter. We did north of 50% in the second quarter. We are at 1/3, you know, of the total volume in the third quarter. Again, it really is a function of, you know, timing of close, et cetera. Having said that, I will say that, you know, the sellers in the U.S. are far more accepting of the changing financing environment than perhaps in Europe. Europe is, you know, by country, a smaller market. You know, it does take a little bit longer for things to adjust. Having said all of that, we are finding very good opportunities in the U.K. Now with the advent into Italy, I believe that momentum will continue, because for precisely some of the reasons that I think we touched on during the second quarter, you know, the debt markets are very unsettled. It has a very high cost associated with it. You know, in order for them to raise the appropriate level of capital, monetizing real estate is creating opportunities for us. I wouldn't read too much into it. There is, you know, still a very, very healthy pipeline that we have, you know, within Realty Income. The sourcing volumes continue to be, yes, lower than what we saw in the first half, but still very healthy. Thank you, Sumit. As a follow-up, grocery is in your top 10 industries. Kroger is one of your top 10 clients. Does consolidation in the grocery industry give you any pause or change your opinion about kind of the future of this sector and as a product type within your portfolio? Thanks. Sure, Michael. Look, I mean, anytime you have consolidation, the question needs to be asked, who is doing the consolidation? If Kroger is going out there and, you know, this is a publicly announced transaction with regards to Albertsons, Kroger is still triple B rated. S&P reaffirmed the rating, although they did put it on a negative outlook. They're acquiring Albertsons, which is a double B rated credit, still solid rated. You know, I don't necessarily see that as a bad thing. Now, there are obviously a lot of other social issues that we have to also address and take into consideration. From a pure credit standpoint, you know, it's actually a stronger outcome for us that suddenly, you know, 30 basis points that we have of Albertsons that has a double B credit associated with it is now gonna get enhanced to a triple B rating. From a purely credit perspective, that's not necessarily a bad outcome for us. You know, that obviously doesn't address a lot of other issues that should be addressed, and I think it's percolating through the markets today around, you know, the viability of this combination. By and large, you know, there isn't a standard answer that all consolidation is good. It really does depend on the specific situations. Got it. Thank you very much. Thank you. Thank you. Next, we'll have a question from Wes Golladay of Baird. Please go ahead. Hey, everyone. Just have a question on the hedging. A lot of the FX volatility and interest rate volatility. Is that making it easier or harder for you to hedge cost effectively? Hey, Wes, it's Jonathan. You know, look, it's been a very volatile FX environment, as we certainly saw in the third quarter. I wouldn't necessarily say that it's been harder to hedge. I mean, these are all very liquid currencies that we're looking to hedge going out very short term. From that dynamic, yes, it's difficult to understand where these rates might be going. The mechanism itself, nothing's really changed. On the hedging front, I would say that, you know, when you look out the next 12 months, we are around 50% hedged at this point on earnings. We, you know, aspire to get to a hedging program where, you know, hopefully going forward, you know, rates aren't the story, FX rates aren't the sTory of any quarterly earnings. Rest assured we're very mindful of that. Got it. I wanna touch upon Regal. It sounds like you're pretty optimistic under an adverse scenario for the cash basis tenant. I guess question number one: do you overall expect a positive outcome here? Then question part two of the question was for the master lease asset. That's an all or none typically is how we view it. In your history, is that typically the case, or do these ever get negotiated for a modest haircut? I guess, what should we brace for based on historical precedent? Wes, there isn't a you know one single answer that can address the master lease question. It is very much jurisdictionally dependent, depending on where you know the bankruptcy is playing out. In this case, I think I believe it's in Texas. You know it's a function of how they're going to interpret the strength of the master lease. Yes, having a master lease certainly does accrue certain benefits to us, and it should be viewed as an all or nothing situation. You know we can't guarantee that going forward. We'll see how it all plays out. With regards to Regal and the ultimate outcome, you read a fair amount of optimism into some of our prepared remarks and when we have answered questions directly. That is a true read. You know, I'm not saying that, you know, Regal will continue to run 41 assets when they emerge from Chapter 11. What I am telling you is the ultimate economic outcome on this portfolio, we feel very comfortable about. A lot of it has largely been driven by unsolicited inbounds that we've been receiving, even on some of the assets that we recognize to be not very good performers. Recognizing that, you know, the best use for these assets perhaps may not be a theater asset going forward, but something totally different. When you start to look at where these are located, the amount of land, you know, in some cases north of 10 acres, creating a mixed use or a multifamily makes a tremendous amount of sense. The value creation opportunities for us to partner with some of these, you know, developers can create a lot of value for us. Yes, it's going to take time, but we feel fairly optimistic that the ultimate economic outcome on this portfolio will be one that we'll be very comfortable with. Got it. Thank you very much for that. Thank you. Next question will be from Ronald Kamdem, Morgan Stanley. Please go ahead. Hey, just a couple quick ones. Just back to sort of the tenant health. Maybe you sort of talked about Regal, which was really good disclosure. Any sort of other tenants that are of material size, whether it's 50 basis points, 100 basis points, on the watch list that we should be thinking about. Can you just update us on what the reserve for bad debt is looking like so far year to date? Thanks. Yeah. I'll take, you know, the question around do we have more than 50 basis points or 60 basis points for any other clients outside of Regal? The answer is no, we don't. Our total watch list is less than 4%. It's actually 3.9%. You know, we don't have any large clients on this watch list outside of Regal. Regal is the largest one. We do have some other clients on this, some in the health and fitness industry, et cetera. But again, from an overall perspective, we feel pretty good about it. In terms of, I'll have Christie answer the other part of your question. In terms of reserves, Ron, total reserves are $33 million. Just dovetailing with what Sumit said in regards to the watch list and what we've already made publicly available, it's really primarily a story around Regal and the reserves that we have on the books associated with Regal. Great. If I could sneak in my second one was just. Look, if you take a step back and you think about sort of the company, the balance sheet, when the rest of the capital markets are sort of challenged, it seems like this should be the environment where you guys can thrive. I think you sort of mentioned some of that in your opening comments. I guess my question is just going back to sort of the acquisition volumes and the cap rates. Just trying to get a sense of how much sort of pricing power, how much can you guys actually ask for higher cap rates, right? The thinking, could this be 25 basis points, 50 basis points, 75 basis points cap rates higher given that you do have such sort of advantage cost of capital when others are looking for it? Thanks. Ronald, I don't want to overstate the environment. You know, you just need one other competitor to come in and undercut what the normal situation would dictate in terms of cap rates to continue to keep you know, a lid on cap rates. Having said all of that, if you look at the trend lines, there is no doubt that cap rates are moving, and they're moving much faster than, and I've said this before, than what I expected. It is also true that clients with whom we have relationships, we've been able to enter into contracts with them where we've asked even from where we first started and didn't have a contract to when they came back and re-engaged with us, and said, "Look, the cost of capital environment has changed for us. This is what we'll be able to do." They've still chosen to work with us exclusively. These tend to be larger transactions. There is no doubt that having fewer competitors out there who have the cost of capital to be able to transact at spreads that would be acceptable to their investors creates an opportunity for us. This is a relative gain. We have been able to move cap rates. I think it would be overstating if I were to tell you that everything that happens going forward, you know, we are going to be the beneficiary of. That's not the case, but we will do better than our share. I think that, Ron, you can, you know, take away from what I'm saying. Great. Thanks so much. Thank you. Thank you. Next question will be from Haendel St. Juste of Green Street. Please go ahead. Thanks. Going back to the portfolio transactions piece, your peers have pointed out that there's a trade-off between acquisition volume and cap rates. You can always drive higher volume on cap rates in the fives, but it seems like because of the ability to drive larger portfolio deals, you can drive both higher volumes and then at higher pricing. I guess could you point out how many basis points of pickup you can get on a portfolio transaction versus maybe a one-off single transaction deal, and how long you think it will take for these higher cap rates to show up in the single transaction market? Yeah, Haendel, that's a very difficult question. If you know, if you were forcing me to answer that question, I would say anywhere in the region of 20 basis points-30 basis points, 35 basis points. If the transaction size continues to be bigger and bigger, you know, you're gonna start going beyond that is how you should think about it. There is a dearth in this particular environment of potential buyers being able to write large checks. That is our single biggest advantage today. Along with the fact that obviously on a relative basis, our cost of capital has held up. It is going to be very much an asset by asset, portfolio by portfolio discussion in terms of what is that delta between the one-off market and the portfolio market. In terms of how long is it gonna take, I'll tell you that, you know, a Chick-fil-A, 15-year Chick-fil-A will still trade in the fours today. There is enough, you know, buyers, private buyers, who can write a check for $5 million or $4 million who don't necessarily need to rely on the debt markets in order to do so. It's a tough question to answer, you know, in terms of how quickly the one-off market is going to adjust. There will be an adjustment, there's no doubt, because even a lot of the private buyers would lean on the debt markets to finance some of their asset purchase. It's tough for me. I mean, I saw this Chick-fil-A example literally a week ago, and I asked the team, you know, "What is the ask and what do you think it's gonna trade at?" The answer was mid-fours. You know, how long will it take for that to adjust? Who knows? The good news here is, you know, it helps us on the disposition side. You know, if we have one-off assets that we feel like we can take advantage of this market, we'll certainly do so. It's not a big part of our business. You know, like I said, more than 70% of what we buy are portfolio deals. There I think we are getting the kind of differential that you know it warrants. We continue to focus on that side of the business. Thanks. Then, just considering the timing of moving into Italy, you mentioned that cap rates in Europe haven't reacted as much as those in the U.S., and it seems like the economic outlook too might be slightly worse for Europe than it is in the U.S. Given that backdrop, what, you know, what caused you to enter Italy today? I guess more importantly, what prompted the debt swap that was swapped into euros, which suggests that maybe you're expanding more into Europe? Well, certainly part of that swap was to help finance the transactions that we have in Europe, including the one that we did with METRO. Look, that's a fantastic transaction. We started having conversations around this transaction maybe, you know, at the beginning of this year, perhaps even late last year. It's a very interesting geography, Italy is. It's the fourth largest GDP in Europe. It is one that we feel like we can find these types of transactions with investment grade-rated or highly rated operators executing very good businesses who are looking for real estate partners. That's the reason why we find Italy to be very fascinating. You know, and we haven't disclosed the cap rates, but suffice it to say it was a very healthy cap rate, and even in this environment is allowing us to capture spreads that are, you know, very acceptable to us. The point about Europe that I want you to take away is not so much that, you know, cap rates taking longer to adjust. It is adjusting. It will take longer. But to your point, I think the pain in Europe is going to be a lot longer than the pain that we are planning on experiencing here in the U.S., and therefore it will create opportunities. We want to be first in line to take advantage of those opportunities. I think under Neil's tutelage, the team is very comfortable you know continuing to cultivate the relationships that they have established. In some of the areas that we would like to grow our business, that work and is already underway. You know, this is gonna continue to be a very important area of growth for our business. I want to remind you, Harsh, when you think about when we first went into the UK, this was in 2019, retail was not in favor. Brexit had dominated the conversation, and we were able to you know do deals that subsequent to us having done those deals, cap rates compressed to the tune of 70 basis points, 80 basis points, perhaps even more. You know, we are going to be opportunistic. We are going to position ourselves and, you know, use our inherent competitive advantages to execute transactions where it makes sense. Yes, we will be very diligent and very selective. We didn't enter into Europe to shy away when things got rough. We believe the exact opposite, that it's going to be at times like this and what we believe will happen in Europe over the next 12 months that will create opportunities for us. Okay. Thank you. Thank you. Thank you. Next question will be from Linda Tsai of Jefferies. Please go ahead. Hi. Thank you. Just a point of clarification. In terms of the $31 million in outstanding receivables from Regal, is that all factored into your reserve of $33 million? You know, from the perspective of the reserves, Linda, we took reserves on Regal as we had communicated of $23 million, and there are another $30 million of outstanding receivables associated with Regal. To clarify. The reserves you have right now for just tenants on your watch list are $33 million? In terms of the total we have for the watch list is $33 million, of which $23 million is Regal. The remainder is you would understand is primarily health and fitness. Okay. Thank you. Just in terms of the recapture rate, that was very strong, the 108%. Could you just talk about what's driving this overall? It's been strong, you know, pretty much all year. Yeah. Linda, I think it's a testament to the team. It's a testament to us controlling more assets for given operators. There is certainly a backdrop of switching costs have gotten much higher for a lot of our clients. You know, one of the things that we would compete with is the ability for a client to basically say, "I'm gonna go and build a new asset down the road, and you know, that's going to be a better outcome." But now, given the inflationary environment, given the construction costs, the switching cost hurdles have certainly crept up. The fact that we do have 11,700 assets, we tend to control a lot more of the assets for a given client. You know, not talking about leverage, but you know, we can have a much more holistic conversation with clients that not only take into account near-term resolutions, but you know, midterm resolutions as well and come up with a win-win situation and therefore, you know, be able to get the kind of releasing spreads that we have. Having said all of that, you know, it is you know, it is quite. I'm very happy that we were able to do 108%, but it is, I don't want to view it as an outlier, but if you look at the history of the company, you know, since we've been reporting this, we've basically been right around 100%, 101% net of releasing spreads. This, on a proportion basis, is certainly higher, and I think it's a testament to the environment we find ourselves. Do you think this continues for next year? I think near term, you can expect us to continue to be in this particular zip code. The one thing that I will say that we are looking into is, you know, especially in an environment like this, we will be a little bit more receptive to looking at clients. Look, this is an analysis that we do across the portfolio. What is the best economic outcome? You know, renewing with an existing client based on the 5% increase, engaging with an existing client that is asking for a 10% reduction from where it's closing, and then looking at the alternative of, you know, selling the assets and putting the proceeds to use in the current cap rate environment. Once we go through that decision tree and, you know, let's also throw in repositioning of the asset as a fourth variable, we decide what is the most favorable outcome. So far, the outcome that for the last few years has been, you know, resulting in north of 103%, 104%, 105% of releasing spreads. It is possible that it might revert back to 100% or 101%, because it is more favorable for us to keep an existing client, you know, while taking a bit of a haircut. Over the next six to eight months, I still believe that we'll be north of 100% in terms of recapture rate. Thank you. Sure. Thank you. Next question will be from Nick Joseph of Citi. Please go ahead. Thanks. Sumit, you talked about the volatility obviously in your shares, but also really across the space. At this point, there's some diverging multiples in cost of capital. Hoping to get your thoughts on M&A broadly within the sector and then your appetite for it. Yeah, Nick, if you can point to candidates who'd be willing to engage in conversations around M&A today, you know, this could be a very interesting time to discuss that. I suspect that a lot of the management team, Nick, would be very focused on trying to run their business, trying to make sure that they emerge, you know, from this particular economic environment stronger so that they can engage in M&A transactions. Theoretically speaking, you know, M&A is something that one should absolutely consider, especially if it's 100% stock deal and, you know, you don't have an over-reliance on the public markets, on the debt side to help finance. If your relative cost of capital is stronger, you know, which in our case, under most circumstances it is, then that is something that would be very attractive to us. It's just, you know, it'll be difficult, and I'm just, it's a hypothetical comment I'm making. It'd be difficult to see management teams of potential companies wanting to engage in that sort of discussion in this environment. Thanks. I completely understand that it takes two there, but that's helpful. Then just, I know we've talked a lot on cap rates. You'd called out the casino deal that is still expected to close later this year. I think you mentioned a 5.9% cap rate that was struck earlier. Where would that be struck today, do you think? How much cap rate expansion would you expect kind of on the casino cycle? Yeah. You know, you tell me, Nick. You cover all the gaming companies. What I'm seeing is that they've all gotten repriced. I don't know if we did them the favor or what, but they're trading at levels that I don't know if there'll be a lot of movement from, you know, where we entered into the Encore Boston Harbor asset. But look, I still think that that is a wonderful asset. We underwrote it about a year ago now, well, not quite, almost a year ago, with a profile of about $210 million in EBITDA, and it is already, you know, performing at a $250 million EBITDA. I still don't believe that it has fully stabilized, especially with. Mm-hmm. With gaming, sports betting, sorry, being legalized. I don't know if I would say to you, Nick, that 5.9% would be dramatically different today. You know, we haven't seen an asset like that yet, so difficult for me to opine on that. Thanks. When do you think it closes? We are hopeful, you know. That's one of the things that we talked about on the earnings guidance. We are expecting to close in the fourth quarter. That remains our, you know, conviction. Really, as to when in the fourth quarter remains a bit of a question mark. You know, we still believe that it will close in the fourth quarter, and I have a very high conviction on that front. Thank you very much. Thank you. Thank you. Next question will be from John Massocca, Ladenburg Thalmann. Please go ahead. Good afternoon. Hi, John. I know we're long on the call here, so just a quick one for me. It sounds like you were surprised by how kind of receptive the cap rate environment has been to interest rate changes. Have you seen that kind of same receptiveness to maybe higher escalators, you know, particularly on retail transactions? Yes, we have. It's still difficult here in the U.S. to get untethered or uncapped CPIs. Especially given the environment that we are in, and retail tends to be a low-margin business. There is far more receptivity to getting, you know, higher interest, what are they? Escalators. Escalators. Thank you. Higher escalators in our leases today than it was perhaps 12 months ago. The same discussion on, you know, on escalators in Europe, it is a lot more easier for us to engage and get CPI type adjustments. In fact, the METRO AG transaction that we talked about has CPI escalators built into the lease. I think those are easier in Europe than it is here. We are starting to see, you know, the seller being more willing to give us higher escalators than what we have traditionally seen in this space. In terms of the fixed escalators on kind of U.S. investments, you know, particularly retail, any kind of brackets on how much they've increased maybe versus last year or even pre-pandemic? Yeah, John, again, it's gonna be a function of the type of retail. You know, the higher yielding stuff is going to tend to have higher escalations, higher escalators. The investment grade guys is still gonna be tough. Maybe they'll be willing to give you fixed bumps every five years, which perhaps they wouldn't have, you know, 12 months ago. It's difficult for me to quantify the exact, you know, amount of increase in this environment. What I can tell you is we are seeing increases. Understandable. That's it for me. Thank you very much. Thanks, John. Thank you. Again, if you have a question, please press star then one. Next question will be from Chris Lucas, Capital One Securities. Please go ahead. Sorry for the long call. Just two quick ones for me. Sumit, and then you sort of talked a little bit about or actually frequently about the Encore transaction. The question I have is just, are you just waiting for regulatory approval and once that occurs, you can close immediately? Or is there some other timing issue related to the close? That is it, Chris. It really is waiting on the regulators to give us a thumbs up. Once we have that, then we'll be in a position to close. Okay. Kristie, just a quick one from me. I guess the other adjustments was about $0.04 a share, which was huge. Not a lot of detail there. Can you sort of give me some color as to what that breakdown was? I know foreign exchange is a big one. I just don't know how much of it is. Yeah. The other adjustments was really related on the income statement to non-cash oriented translation loss of about $20 million. Okay, great. Thank you. That's all I had. You're welcome. Thank you. That concludes our question and answer session. I'd like to turn the call back over to Mr. Sumit Roy for closing remarks. Please go ahead. Thanks, Nick. Thank you all for joining us today. We're looking forward to ending 2022 strong and to seeing many of you at the Nareit Conference in two weeks. Good evening. Excuse me. Conference is now concluded. Thank you for attending today's presentation. You may now disconnect.