Eric Wolfe: Got it. That is helpful. And then I guess just given the rising rates that we have seen, I mean, would you expect that cap rates would say, move over 8%. And if you think about the cadence of your acquisitions. Obviously, you mentioned the advantage you have in terms of free cash flow, being able to fund those acquisitions without incremental capital issuance, but would you rather hold a higher percentage of that cash now just thinking that cap rates are likely to move up in the future or just kind of keep the acquisitions consistent quarter-to-quarter?
Stephen Horn: In our business, there is not much consistency quarter-to-quarter. We like to look at kind of the entirety of kind of the 12-months. But yes, we are being prudent allocators of capital currently, where we have passed on deals that were in the mid-sevens that we feel should have an ante. So we are holding a little cash on the side because we believe cap rates in the first quarter will be higher than they are today. So when the right opportunity presents itself, it is a cap rate game right now. You go back to the GFC, when everybody shut it down, that was access to capital wasn’t there. But as I stated in my opening remarks, we have been doing this a long time, management and NNN. So we know how to navigate the capital markets and the higher cap rate, and the proven investment model. So yes, I expect cap rates. It is a long-winded way of saying cap rates will be higher in the first quarter than they are today.
Kevin Habicht: Yes. And this is Kevin, Eric. I will just add a little bit to that because I want to dial the lens back kind of not the next quarter or two, even the next year, but that is a piece of the rationale for us probably not acquiring as much as we did two and three years ago. We clearly were tempering acquisitions volumes at a point in time when cap rates were at record lows, and we weren’t buying five – half rate deals. We just – to us, it didn’t have appropriate returns in our minds for how we burden our capital in our minds for deploying them. And so – so yes, we appreciate the sentiment of kind of where you are going. We don’t think about it too much on a month-to-month or quarter-to-quarter kind of basis.
But yes, longer term, we do think about those kinds of things. When should we be accelerating acquisitions, when should we be tempering acquisitions? Or when should we be standing still. And so – but we think about those things on maybe a longer-term basis. Anyway, I will leave it there.
Operator: Our next question is coming from Spenser Allaway with Green Street.
Spenser Allaway: Can you perhaps just provide some color on what AFFO growth would look like in 2024 absent any acquisitions?
Stephen Horn: Yes. As far as acquisition buying for 2024, we are going to hold off, given any guidance until most likely the February call. But as Kevin kind of stated in the beginning of the call, we could roughly do $400 million, $450 million without tapping the capital markets and being leverage neutral.
Spenser Allaway: Okay. And then just maybe on the re-tenanting side, just given the economic backdrop, has conversations becoming more difficult, just given the current environment as you think about retenanting or….
Stephen Horn: So it is interesting. This year, year-to-date, we actually have a recapture rate of about 87% of the prior rent. But I really – that is not apples-to-apples to a lot of numbers you hear stated in our market. Because we don’t like to give capital expense to tenants. I mean we could just buy up the rent. So that 87% recovery year-to-date is kind of an as-is recovery rate. But no, it is surprising, Spencer, that we have had such great success this year. Historically, we have about a 70% recovery rate. So no, we are not having any issues retending any assets currently.
Spenser Allaway: Okay. And then just maybe one more, if I may. You talked about [ passed on ] deals, which in your mind have been mispriced. Do you have a sense of what percentage of the deals you have recently looked at that you ultimately passed on due to the bid-speddynamic?
Stephen Horn: So whatever you hear from our competitors that they have looked at, we have looked at it as well. We don’t track that, to be honest with you. Our selectivity, our closure rate and stuff like that. But what I have seen is deals that I really thought were priced well and then the movement in the market was so fast as far as the debt side that we pulled out of transactions because they became mispriced. But the bid ask is tightening up. If the 1031 deals to me are the most mispriced because the sellers are still living back a year or two, and they think they can still get that pricing. The sale-leaseback market, I find is moving a lot faster than call it the investment-grade market because they understand the true cost to get the deals done.
But the investment-grade companies can still tap the market and get debt, it is a loan to value of close to 100% of the sale leaseback. But that is what we find. The sale-leaseback market is moving a little bit quicker.
Operator: Our next question is coming from Brad Heffern with RBC Capital Markets.
Bradley Heffern: Kevin, the ABR this quarter didn’t go up as much as I would have expected, just given the amount of investment activity you had. Was there something that fell out of ABR with someone moved to cash?
Kevin Habicht: No. We didn’t move anybody to cash. A little bit of that is the and that comes from the split-funded transactions we do where we are funding the construction of sale-leaseback properties for us over time. And so rent typically does not show up in our ABR until completion. And so that is why that is lagging a little bit. But with time that will normalize, if you will, once projects get completed. But as we discussed, I think, last quarter, activity, which typically is 15%, 20% of our investment activity is going to be closer to 40% of our investment activity this year, which we like at the margin, to be honest. But that is the piece of that puzzle, I think, that is probably missing for you.
Bradley Heffern: Got it. And then can you just walk through the current watch list. You mentioned the Bed Bath & Beyonds already, but anything else you are keeping an eye on?
Kevin Habicht: Yes. Lots of stuff, but that we always worry about lots of stuff. I would say kind of at the top of the list, if you will, we have got Three big lots. So we are watching that. We have got two JoAnn. These are all very small exposures. We have got some we are still watching our fishes restaurants exposure. That is a bigger exposure just because it doesn’t feel like they have totally got it down to the COVID fog, if you will, yet. But I mean, there fine and they are covering rents, but they just are a little slower, and it is focused on a few stores within that part of our portfolio and then maybe at home, but they have got liquidity in the near term. But I mean, those are the kinds of names that we think about.
