FrontView REIT - Q4 2025
February 25, 2026
Transcript
Operator (participant)
Good day, ladies and gentlemen, and welcome to the FrontView REIT Inc. Q4 2025 Earnings Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Wednesday, 25th of February, 2026. I will now like to turn the conference over to Pierre Revol, CFO of FrontView. Please go ahead.
Pierre Revol (CFO)
Thank you, operator, and thank you everyone for joining us for FrontView's fourth quarter and year-end 2025 earnings call. I will be joined on the call by Stephen Preston, Chairman and CEO. In addition, Drew Ireland, our Chief Operating Officer, will be available for Q&A. Before we get started, I would like to remind everyone that this presentation contains forward-looking statements. Although we believe these forward-looking statements are based on reasonable assumptions, they are subject to known and unknown risks and uncertainties that can cause actual results to differ materially from those currently anticipated due to several factors.
I refer you to the safe harbor statement in our most recent filings with the SEC for a detailed discussion of risk factors relating to these forward-looking statements. This presentation also contains certain non-GAAP financial metrics. Reconciliation to non-GAAP financial metrics to most directly comparable GAAP metrics is included in the exhibits furnished to the SEC under Form 8-K, which include our earnings release, supplemental package, and investor presentation. These materials are available on the investor relations page of our company website. With that, I'm now pleased to introduce Stephen Preston. Steph?
Stephen Preston (Chairman and CEO)
Great. Thank you, Pierre. Good morning, everyone. I am very pleased to discuss our fourth quarter and full year results. Today, FrontView is operationally stronger, financially more resilient, and strategically better positioned than at any point since becoming public. Our portfolio has been refined. Our balance sheet remains conservative. We have secured capital to fund accretive growth opportunities consistent with our real estate first philosophy. As a reminder, our portfolio was built around a real estate-centric strategy, focusing on acquiring fungible, frontage-based assets, typically located in front of major retail nodes in the top 100 MSAs nationwide.
Our strong real estate provides critical advantages and quicker outcomes when recycling, re-tenanting, or repositioning tenants. For example, we owned one Tricolor auto dealership that closed in early Q4 due to the widely reported Tricolor bankruptcy. Due to the quality of our real estate and our experienced management team, we quickly released the property to Avis in the same quarter, resulting in a substantial credit upgrade and an approximately 24% increase in value for our shareholders. Historically, since founding the REIT in 2016, our experience has been that we have achieved, on average, over 110% of prior rent when leasing to a new tenant.
Results like these cannot happen without top-tier real estate quality and a top-tier management team. Our tenant base remains heavily diversified across necessity and service-based industries. Today, we have 321 leases, with the top 10 accounting for only 24% of ABR, and our largest tenant contributing just 35%. In addition to our real estate first philosophy, diversification has been part of our strategy from day one and serves as another risk mitigant, keeping exposure to any single tenant low as credits come and go over time.
During the fourth quarter, we acquired seven properties for approximately $41.3 million, at an average cap rate of 7.5%, with a weighted average remaining lease term of approximately 13.1 years. In 2025, we acquired 32 properties for approximately $124.1 million, at an average cash cap rate of 7.74%, and a weighted average remaining lease term of approximately 12.4 years. Since the IPO in October 2024, we have added 61 properties and increased the initial asset base by nearly 30%. Starting this quarter and going forward, to help you better understand our real estate strategy, we will highlight one quarterly acquisition on the cover of our investor presentation and briefly discuss it during our calls.
This quarter, we are highlighting a seven Brew in Jacksonville, Florida. seven Brew is a rapidly growing drive-thru coffee chain founded in 2017, known for its high energy, double drive-thru model, and offering over 20,000 unique drink combinations. It received a growth equity investment from Blackstone in 2024 and has over 600 locations today, and is working with some of the most experienced franchisee operators in the country. We like their business model and have three properties leased to them in the portfolio, which is about 0.6% of ABR.
We acquired this property at approximately an eight cap rate, well above the low six cap rate we believe a new seven Brew would typically trade at today. The property is very well located within a top 100 MSA. It features direct frontage on a major retail node. The land provides tenant flexibility, and the lease has a 15-year term, annual rental escalators. It is triple net, and it has a modest rent of $168,000 annually, which we believe other tenants could afford to pay in this desirable Florida location. We achieved a higher cap rate due to liens associated with the recent construction, which limited the buyer pool.
We resolved the liens directly, cleared title, and ultimately closed on the transaction. Being known in the marketplace as a buyer who can identify and resolve problems during an acquisition, further strengthens our position as a buyer of choice. Our largest acquisition during the quarter was a DICK'S House of Sport, located in Durham, North Carolina, adjacent to the Streets at Southpoint, a Brookfield-owned mall that does just over $900 per sq ft in sales and is rated an A-plus mall in Green Street's Advisor's Mall database.
We are excited about the real estate location and are very familiar with this flagship concept and owning select larger boxes. We already own a few larger format assets with strong frontage such as Walmart, Lowe's, Best Buy, et cetera, and will continue to own more of these assets when the opportunities present themselves. We are always seeking to acquire assets with value creation opportunities that fit our investment criteria. We placed this asset under control earlier in 2025, while the project was under construction to take advantage of attractive pricing.
As a result, we believe we have created about 100 basis points of value based upon our purchase price cap rate in the mid-7s. The acquisition market remains open to us. With our competitive advantages intact, we believe we can materially increase our acquisition pace as our cost of capital improves. We expect acquisition cap rates for Q1 2026 to settle around 7.5%, with volumes generally in line with guidance. As previously reported, on the capital side, we have our net acquisitions funded for the year with our $75 million convertible preferred investment from Maewyn, with our first $25 million draw completed already in February.
With respect to dispositions, we sold 11 properties for $20.4 million during the quarter at an average cash cap rate of approximately 6.82% for the occupied assets, with a weighted average lease term of 6.9 years. For the calendar year, we sold 36 properties for $78 million at an average cash cap rate of approximately 6.79% for the occupied assets, with a weighted average lease term of 7.9 years. For the year, the disposition cap rate range was 5.4%-8%, with the median cap rate on sales at 6.9%. In the fourth quarter, the lowest cap rate was a Twin Peaks in Irving, Texas, where we achieved a 5.8% cap rate.
The assets we have disposed of are less optimal concepts compared to the balance of our portfolio, or they could be concepts we just want to reduce exposure to. We expect to continue optimizing the portfolio through 2026, but we expect the pace of dispositions to decline materially as most of our portfolio optimization occurred in 2025. Since our IPO, the 2025 dispositions reduced the asset base by 11%. During the quarter, we sold the following concepts: Red Robin, Sonic, Twin Peaks, which is now bankrupt, Adam's Auto, and a dark PNC, Bojangles, and FirstBank.
These asset sales clearly demonstrate the desirability and liquidity of our well-located real estate portfolio. They highlight the disconnect between our stock price and the implied 8.1% capitalization rate on existing NOI. Our implied cap rate is higher than what we sold a dark Bojangles in Alabama for, with less than four years remaining on the lease term. Our highest cap rate sale for the quarter and year, 160 basis points above the average disposition cap rate for properties sold in Q4.
I would draw your attention to page 23 of our investor presentation, where we show our dislocated NAV relative to the entire portfolio being valued at the same level as the assets we sold in the quarter, along with the average implied cap rate of our peers. Switching gears to the portfolio, we closed the quarter with occupancy approaching 99%, with just four vacant assets. We currently have two tenants in bankruptcy, Smokey Bones and Twin Peaks, each with one unit, representing a combined 0.56% of ABR. With Smokey Bones, we have already received multiple offers to purchase the asset during the year.
We believe we can maximize value by re-leasing the asset. We waited until the bankruptcy went through to obtain control of the property. With respect to our remaining Twin Peaks, we have understood Twin Peaks' financial condition for some time and got ahead of their bankruptcy, selling one property in the quarter at a 5.8% cap rate and already re-leasing the second property to two tenants, Panda Express and Jagger's. The combined rent for both of these leases is $265,000, versus Twin Peaks' rent of approximately $138,000, resulting in a 92% increase in rent and approximately a three times increase in value from our original basis.
This is an excellent outcome and another example of why our real estate-focused approach, combined with our seasoned management team, continues to deliver value for our investors. Historically, we achieved an average recovery rate of approximately 90% when combining both vacant sales and new leases, though just our new leases alone has exceeded 110%. As a result, when an asset comes back, we will initially spend more time pursuing re-lease options rather than quickly selling an asset in order to maximize long-term value for our shareholders. For example, our current Smokey Bones.
As we have continued to optimize the portfolio through Q4. We don't see any material additions to our watch list at this point. For clarity, we believe bad debt should be approximately 50 basis points in 2026. In closing, FrontView is stronger today than at any point since our IPO. We have optimized our portfolio. We have demonstrated the fungibility and desirability of our well-located real estate. We have shown our top-tier management team's capability of proactively creating value for shareholders through creative asset management activities and capital structuring.
We beat earnings and raised guidance throughout 2025 while disposing of assets, demonstrating the strength of our operations. We have a low dividend payout ratio below 70%, low leverage, and we are fully funded to acquire $100 million of net assets and grow AFFO per share 4% in 2026 at the midpoint of our guidance. All the while, our share price remains dislocated relative to a much higher NAV, especially given that we can meaningfully accelerate our already strong growth with a lower cost of capital.
We believe that our real estate-focused strategy, coupled with our developer DNA, will deliver AFFO growth and drive outsized returns for our shareholders. With that, I'll turn the call over to Pierre to re-review the quarterly numbers and guidance.
Pierre Revol (CFO)
Thanks, Steph. Before turning to quarterly results, I want to briefly highlight some enhancements we made to our disclosures. We now provide 100% of ADR by concept, along with key location data, including average daily traffic, PlaceAI performance, and population metrics. Our properties are located in retail nodes, with average daily traffic exceeding 24,000 cars. 78% are located within top 100 MSAs, and the average five-mile population is 184,000. PlaceAI ranks retail locations from one to 100, with one being the highest rank based on number of visits by retail subcategory within the state.
Our locations have a median score of 26.8, placing them in the top third of retail locations. For our upcoming lease expirations in 2026 and 2027, our stores have a median Placer score of 22.5 and 15.5, respectively, both in the top 25%. Finally, on our website, we disclose 100% of our property addresses, including direct Google Maps links that showcase the trade area. This detailed disclosure allows investors to independently evaluate the quality of our assets and their locations. Publishing every address affirms our real estate first strategy, the assets we own, and will acquire in the future.
Turning to the quarter. We entered the quarter with annualized base rent of $62.9 million, or $1.6 million higher than keeps the rate, reflecting net acquisitions of $21 million for the quarter. This equates to approximately $15.7 million in stabilized quarterly base rent on a go-forward basis. In addition to base rent in the quarter, we generated $186,000 in interest income and $76,000 in percentage rent and other cash income. At quarter end, our run rate cash revenue is $16 million or $64 million annualized. Our annualized adjusted cash NOI was $61.3 million or a 96% margin on the in-place portfolio.
As we move into 2026, we expect NOI cash margin to expand to 97%, or roughly $16 million on a normalized basis. This improvement is driven by higher occupancy, strong recoveries on insurance, and lower other property costs. Thus, as we start 2026, our run rate quarterly cash NOI is $15.5 million. G&A expense for the period was $3.7 million, which included $534,000 of non-recurring charges and $763,000 of stock-based compensation. Non-recurring items were primarily legal expenses related to amendments to credit facilities and corporate structure.
Excluding stock-based compensation and non-recurring items, cash G&A was $2.4 million for the quarter, which is approximately the run rate for the year. Interest expense declined by $256,000 quarter-over-quarter to $4.3 million. The decrease was primarily driven by amendments to our credit facilities, which reduced the spread on both the term loan and revolver by 15 basis points. As a result, the borrowing rate on our term loan declined to 4.81%, and our savings from the spread adjustments is over $450,000 on our debt outstanding.
We ended the quarter with $115.5 million outstanding on the revolving credit facility, of which $100 million is hedged. Based on the hedges we put in place last September, the effective SOFR rate of the $100 million steps down from 3.86% to 2.97% over the course of 2026, resulting in an average rate of 3.35% for the year. Total available liquidity was $223 million, inclusive of cash, revolver capacity, and $75 million of undrawn preferred equity. We ended the quarter at 5.6x net debt to annualized adjusted EBITDARE, and our loan-to-value was 34.5%.
On February 10th, we drew down $25 million of the convertible preferred equity and expect to draw the remaining $50 million throughout the year to fund our $100 million net acquisition target. We expect our net debt to adjusted annualized EBITDARE to end the year below 5.5 times. AFFO per share for the fourth quarter and full year achieved the high end of guidance with $0.31 for the quarter and $1.25 for the year. Looking ahead to 2026, we are revising our AFFO per share guidance range upwards to $1.27-$1.32, representing 4% growth at the midpoint and 6% at the high end.
The increase reflects faster than expected resolutions of Tricolor and non-credit issues to date relative to our assumptions. Continued execution of a capital deployment strategy with near-term acquisitions in the mid-7% cap rate range. Our objective is clear: to build the best-in-class net lease REIT, differentiated by a truly real estate-first investment strategy. We believe that credits evolve over time. What drives long-term value is our location, rent basis, and the box. Closing our current gap to NAV starts with performance.
We intend to execute on our capital deployment plan, continue delivering strong operating results. Maintain a conservatively levered balance sheet. With that, I'll turn the call back over to the operator to open up for Q&A.
Operator (participant)
Thank you. Ladies and gentlemen, we'll now begin the question and answer session. Should you have a question, please press star followed by the one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by a 2. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from John Kilichowski from Wells Fargo. Please go ahead.
John Kilichowski (Executive Director Equity Research)
Hi, good morning. Thanks for taking my question. My first question is on the AFFO guide. Pierre, thanks for walking us through the adjustments there. Could you help us understand what gets us to that $1.32 versus that $1.27?
Pierre Revol (CFO)
Yeah, sure, John. Thanks for the question. It really is a portfolio performance is a component of it in terms of if the portfolio continues to do as well as it's been doing, if there's opportunity to go on the high end, because, our assumptions are, they do have some assumptions in terms of what the reserves will be. I think number one is portfolio performance. Two is the timing of acquisitions and dispositions, assuming that we do more in the front half versus the back half, that impacts it. As we talked last quarter, I said that the seven and a quarter would be the cap rate guidance, but we're still seeing it's, you know, mid-sevens right now, so that helps a bit.
It really comes down to, you know, portfolio continuing to execute well, and the timing and cap rate on acquisitions and dispositions.
John Kilichowski (Executive Director Equity Research)
Got it. One for Steph. I believe in the opening remarks, you made a comment about the implied cap rate of the business trading outside of where you sold a dark Smokey Bones. I hope I said that correctly or I heard that correctly. I guess given the persistent discount to NAV, you know, have you received any outside interest, and if so, where is that interest coming in at? There's clearly a disconnect.
Stephen Preston (Chairman and CEO)
Yeah, no, we certainly see that discount, and I think it's pretty obvious and evident certainly from that one sale, and then certainly from the other sales that we made, disposing of about $80 million of property and then averaging about 6.79 cap rates throughout the year. With respect to inbounds, that's been quiet at this point.
Pierre Revol (CFO)
I would just add, John, like the portfolio and the disclosures, I think, kind of can help people understand that in terms of the discount. Obviously, there's a big market there of people that are looking for portfolios and qualities, and it's very hard to replicate what's been created. I will make a correction. It was a dark Bojangles. It wasn't a Smokey Bones that got sold, but when that gets sold at an ACAP, and if you think about there was a lot of dispositions this year, including, you know, at Twin Peaks, that was sub 6, and the median cap rate of dispositions about, you know, 6.9%. The portfolio quality is there.
I think we just have to execute, I think that will drive the performance to get closer to NAV. If there was interest, now you can see, you know, through our website, through the disclosures, there's enough information for people to come up with what this company could be worth.
Operator (participant)
Thank you. Your next question come from Anthony Paolone from JPMorgan. Please go ahead.
Anthony Paolone (Executive Director)
Yeah, thanks. Just maybe following up on the last point there around your asset value. As you think about just growing the portfolio over time, you have the prep you could draw down, but, you know, how do you think about just incremental capital, looking at it as either an AFFO yield versus, say, NAV? Because I think those are, you end up with two pretty different numbers, I think, in terms of, you know, when you would seem to have access to capital creatively.
Pierre Revol (CFO)
Got it. Thanks, Tony. It's true. Like, if you think about our NAV and the discount, like we're trading like roughly a like low, low, low 8% implied cap rate. But if you think about the weighted average cost of capital, it has improved meaningfully. What's important to note is that for 2026, it's not an issue because we're fully funded with the equity that we put in place, so we think that gives us time to just execute on the $17 equity that we got through the preferred. Even if you think about where our stock is today, you know, in the mid-sixteens, going to 17, you're talking about an AFFO yield that ranges from, you know, mid-sevens to mid-high sevens.
With debt costs, I think we could probably do debt costs that are, you know, 5% or lower, if you think about, where, you know, 7-year term loans might price. That translates to a weighted average cost of capital, that is, you know, between 75 to 125 basis points below where we're seeing acquisitions. That does put us in a strike zone to continue to execute. Fortunately, you know, the equity question is solved for this year. It's more about when you think about, you know, what you go into next year, how that translate.
I also highlight, I made the comment in my remarks is that, you know, we are delevering this year. We're only using, you know, $25 million of debt on the $75 million of equity. If we end below five and a half times, we do actually have capacity to grow into 2027 without really needing to market for a bit of time. It is nice that from a weighted average cost of capital and growing FFO per share, which is what we intend to do, we are well set up to do that, even if we're not quite at the NAV. I'd point to you, I think if you do get to the NAV or the NAV premium, which you look at the net lease comp set, 98% of the market cap is above NAV.
If we get to that point where we're doing, where our cost of capital gets there, just the math of being a smaller company, will allow us to grow faster than any of our peers. That's something that I think is a, is an advantage that we will see over time. First, we have to get to the NAV.
Anthony Paolone (Executive Director)
Okay, great. That's a lot of good color. Next, my second one relates to the deal activity as you look into the market. You know, how are you prioritizing, like, initial yield versus contractual bumps versus lease length? Like, when I look in the quarter, you had good yield and long lease lengths. The bumps were a little on the lower side. I guess, is there a priority there, or you're just looking at the totality of the transactions?
Stephen Preston (Chairman and CEO)
Yeah, yeah, generally, good question. Certainly, the totality, it's an equation, but certainly for us, you know, we're focusing on the location, and we're focusing on sort of that size of the land track. What's also very important for sure is the market rent and making sure that anything that we're acquiring also, you know, has rent that's replaceable. Of course, you know, we look at and we're focusing on the credit and then the term and the escalations as well. With respect to the escalations, I think they came in about 1.2% for the quarter. You know, it just sort of ebbs and flows on when bumps take place.
Typically, it's, you know, you get, you know, a five or 10% bump or 1% to 2% bump every five years. You know, it's in line with, you know, our 1% to 2% overall, which, you know, sort of averages about 1.5.
Pierre Revol (CFO)
Yeah, 10% every 5, yeah.
Operator (participant)
Thank you. Your next question comes from Ronald Kamdem from Morgan Stanley. Please go ahead.
Ronald Kamdem (Managing Director and Head of US REITs and CRE Research)
Just two quick ones. I wanted to dig back in on sort of the acquisition pipeline. I think you said mid-7s cap rate, if I remember that correctly. Maybe could you just talk through, are some of these deals are off market, are there special situations? Really, how large do you think that pipeline can get to the extent that you get the cost of capital? Thanks.
Stephen Preston (Chairman and CEO)
Yeah, no, good question. You know, certainly the market is fluid. We have, you know, acquired, we expect to acquire through Q1, sort of in that 7.5% range. You know, we see that, you know, cap rates could come in, you know, a little bit into Q2, but we are a circumstantial buyer. You know, we have seen in the marketplace a little bit of increased institutional interest, just generally in net lease, which is kinda setting the tone for the marketplace. Then sort of in the market that we play in, you know, leverage is a little bit easier now for other buyers to obtain.
There's just a tiny bit more competition. You know, we play in this very large, very liquid market. There is a lot of opportunity for us to choose. You know, again, we're not competing with institutions or, you know, other REITs really due to property size. We have, you know, a very strong pipeline that could build. Remember, we bought about $100 million of acquisitions during Q4, so we can sort of expand and build on that pipeline. We have these competitive advantages that we've demonstrated, which is, you know, we get to close quickly and then see outside returns because of that.
As a result, you know, there are circumstances that allow us to achieve higher cap rates, especially, you know, with respect to, like, the seven Brew as an example, buying an elevated cap rate because there were issues with an acquisition that others just can't fix. That's another very big strength for us, is that we can come in and makes us this buyer of choice in the marketplace, where we close quickly all cash without a sort of financing contingencies, and then at the same time, we can, you know, fix problems.
Pierre Revol (CFO)
I would say, Ron, one more point there, is also that a lot of this, the transactions that we're targeting, if they're below $5 million, $6 million, it's very fragmented in that market where we can play, and there's a lot of opportunities within that market. When you get to larger deal sizes, that's where you see, you know, more people step in. We are dealing with a highly fragmented market, where if you're viewed as a buyer that can solve problems and find solutions, you get a lot of opportunities, and that's something that's helpful for the types of assets that we target.
Stephen Preston (Chairman and CEO)
We've got, you know, just to add on that, deep brokerage relationships, and we see a lot of deals just being that repeat buyer that performs and closes quickly.
Ronald Kamdem (Managing Director and Head of US REITs and CRE Research)
That's really helpful. My second question is, you know, we appreciate the disclosures on the traffic count, population, sort of PlaceAI scores. As you're sort of putting it all together, I think you talked about 50 basis points of bad debt for this year. Is the thinking that through sort of the asset management functions that you've done, like, that's sort of the right run rate going forward as you're thinking about the portfolio and the watch list?
Stephen Preston (Chairman and CEO)
Yeah, I would say so. The portfolio is performing pretty well. You know, 50 basis points is pretty in line with what we've seen historically. You know, as we've said, as you know, heard earlier this morning, you know, we're going to be expecting well over 100% recovery on the current to the Smokey Bones and then certainly the Twin Peaks. Yeah, I think that's a good run rate. Also, you know, sort of with respect to the watch list, you know, that is pretty minimal right now, and I don't really see any material changes or adds to the watch list. It seems pretty healthy, pretty quiet.
Obviously, you've got a Smokey Bones, you've got a small GoHealth, there's a couple of Sleep Number on there, and maybe a couple of gas stations, you know, all in all, it feels pretty good and pretty small. I know there's some tenants that there's a little bit of noise in the marketplace on today. You know, for example, there's Wendy's, they're in the news. We have five Wendy's, we've got sales on most of them. We've already proactively replacing two of them, that would take us down to three. Our Wendy's have average rents of about $120,000, we feel, you know, that those are pretty good.
Again, the sales volumes show that they're performing well. You know, just kind of another tenant that's been in the space and people have been talking about is, you know, Advance Auto. We have seven of those, represents about 1.3%-1.4% of ABR. We were proactive with that group as well, extended several of ours into the 10-year mark. Our average remaining walls on our remaining is about eight years. Again, we've only got an average rent of $120,000-$122,000 across all of our Advance. You know, we don't want to take a look at selling those at any discount, and we've got great basis and great markets.
If, you know, any one of those comes back to us, we've got the team in place, we've got the experience in place, we've got the expertise in place. We've demonstrated that already, that we can, you know, re-lease and create value for any problem that comes our way, onesie, twosies, or whatever it may be.
Operator (participant)
Thank you. Your next question comes from Jana Callan, from Bank of America. Please go ahead.
Dan Phan (Managing Director and Co-Head of Closed Loop Private Equity)
Morning, this is Dan Phan on for Jana. I was wondering if you could provide any color or expectations around non-reimbursed property and operating expenses and cash G&A for the year. I know you guys used a guide for that.
Pierre Revol (CFO)
That was part of the remarks. We think it came in a little bit elevated with a 96% margin. There were some taxes that we took related to vacancies earlier in 2025. We think that that number comes down. We do believe that the NOI margin is going to increase about 100 basis points. If you run that through, it's like $450,000-$500,000 on a quarterly basis in terms of how you should think about that. If the portfolio continues to do well, it's a, it's a big focus area, and it adds value, I think that should come in.
Dan Phan (Managing Director and Co-Head of Closed Loop Private Equity)
Got it. Thank you. Then for my follow-up, could you talk about maybe the potential to do more preferred convertible capital, raising in the future?
Pierre Revol (CFO)
What's interesting about the preferred equity, it's been, it's been hugely successful, and there's been a lot of interest in inbounds to do more, and people be curious about that. I think that right now, our mandate is to deploy it, do well, and I think that the alignment with Maewyn has been helpful, and we will continue to execute on the plan. Our plan right now is to pursue that path. It's an option if we wanted it. It would not be the conversion price would not be a 30% premium at a time, now it's, you know, under 10% premium. We're pretty close to what it is.
We plan to probably just go back to more traditional funding going forward, assuming that our stock price improves as we think it will.
Operator (participant)
Thank you. Your next question comes from Daniel Guglielmo, from Capital One Securities. Please go ahead.
Daniel Guglielmo (Consumer Equity Research Analyst)
Hi, everyone. Thank you for taking my questions. In the past, I think you all have mentioned that the elevated renewals over the next few years could be a potential benefit with current rents below market. You probably have a good line of sight into the 2026 renewals. Are you seeing kind of a rent catch-up benefit with some of these older vintage leases?
Stephen Preston (Chairman and CEO)
Yeah, good question. The short answer to that is yes. What I'll say is that, I think we all know this, but sort of continue to hit it home, that we've got, you know, extremely good quality real estate. It's very desirable, it's fungible, and then ultimately, the portfolio is also exceptionally diversified, which, you know, certainly is helpful. You know, from a data standpoint, pure data standpoint, you know, which gets to your point, since 2016, we've had 53 lease expirations. We've had 44 renewing to the same tenant and three renewing to a new tenant.
That recovery rate has been about or a little over 105%, so that is an approximately 90% renewal rate. We do expect that, you know, with any of these leases coming off, that, you know, we'll have those similar historical recoveries, you know, for 2026 and 2027. I'd also like to point out, too, that, you know, the leases that are coming out in 2026 and 2027, you've got some of the top placer scores. I think we're like about 25%-30% of top placer scores, for those tenants coming up.
Pierre Revol (CFO)
I would just add to that point. One thing to point out is that as we spend more time working on properties and we lease retenanting, so if you think about what's going on with. Twin Peaks and getting a 92% rent increase, that's gonna show up later this year. There's, as you work vacant properties and you re-tenant them, new rents that are coming in higher is a benefit that is on top of the normal course expiration. That's a little bit unique within the net lease space. A lot of net lease REITs just sell properties when they go vacant. By doing this approach, you are creating some tailwinds as we re-tenant those, and they come on next year.
Daniel Guglielmo (Consumer Equity Research Analyst)
Great. Yeah, no, I appreciate that color. It's a, yeah, I guess, a testament to the quality properties. Just as a follow-up, at REITworld, around kind of U.S. consumer health, I think you had mentioned potential for less dollars for older concepts. Have you kind of seen that continue into 2026, or has it generally been healthier than you expected?
Matthew Erdner (Director, Equity Research)
I'm not sure I totally followed the question, are you saying that the concept concerns on certain concepts? Is that the question?
Stephen Preston (Chairman and CEO)
I, just US consumer health, I think, just overall kind of less dollars from US consumers...
Matthew Erdner (Director, Equity Research)
Oh!
Daniel Guglielmo (Consumer Equity Research Analyst)
going to the larger concepts.
Matthew Erdner (Director, Equity Research)
Yeah, I got it. Yeah, no, listen, I think that, I think we see that, you know, throughout the space, unfortunately. You know, we've certainly got a strong stock market and, but you do see the consumer that is struggling a little bit, certainly with inflation, and so, we wanna stick to those concepts. You know, we certainly like the essential, we like the service tenants, and, again, I'll just highlight that, you know, we're focusing on, you know, great real estate, replaceable rents, and the concepts that we have now, you can see all of our concepts throughout the entire portfolio.
These are known, you know, strong national, regional brands and, that applies to a real diverse demographic. Can I point out that even in terms of the dispositions, if you think about, which industries have moved...
Operator (participant)
Sorry.
Matthew Erdner (Director, Equity Research)
Sorry. One other thing, just to add on that one question was that we've actually reduced our casual dining quite a bit this year. We still like certain of the casual dining concepts, like Texas Roadhouse is doing great. We have a good percentage there. If you think about where we were, you know, beginning of last year versus today, that also has come down a little bit. Our-
Operator (participant)
Your next question.
Matthew Erdner (Director, Equity Research)
Uh.
Operator (participant)
Oh, sorry. Yeah, yeah.
Matthew Erdner (Director, Equity Research)
Go ahead, operator.
Operator (participant)
Okay. Your next question come from Matthew Erdner, from JonesTrading. Please go ahead.
Matthew Erdner (Director, Equity Research)
Thanks for taking the question. you know, you mentioned that, you know, most of the optimization of the portfolio has kind of occurred throughout 2025. You know, what are you guys thinking from a gross, you know, net investment, net disposition level, I guess, gross for both?
Stephen Preston (Chairman and CEO)
Yeah, you know, coming into 2026, yeah, you're right. In 2025, we sold off about $80 million, optimized that portfolio. I think certainly it goes without saying that we were certainly not selling off our best assets. We were selling assets that, you know, we're strategically selling concepts that we thought that could come under pressure, maybe less optimal concepts. They had lower wallets, possibly, or just concepts we wanted to reduce exposure to. you know, we've done a lot of that optimization throughout the year. I would expect that, you know, we were doing about 80, you know, run rate in the $30 million-$40 million dollar of disposition, continued to prune that portfolio coming into 2026.
Again, I think, you know, hopefully, we'll expect that similar cap rate, but those asset sales throughout 25 were in that upper 6.79, 6.8% cap rate, median about 6.9, you know, against, you know, where we're trading today in the, you know, low 8s, 8.1. I think it's a pretty good proof in the pudding demonstration of the dislocation, too, of the marketplace. You know, we're not selling any more Raising Cane's, we're not selling our Walmarts, we're not selling our Chipotles, our Lowe's, et cetera. You know, those are sitting at much, much, much lower cap rates available, you know, in the portfolio.
Matthew Erdner (Director, Equity Research)
Right. Right, that makes sense, and that's helpful. I think you mentioned it a little earlier, you know, if the capital was deployed kinda towards the early half of the year, you know, that'll lead to the high end of guidance. You know, what are you guys expecting in terms of pace of deployment? Obviously, the $75 million is gonna be kinda spread out across the year, but, you know, I guess just what does the first quarter kinda look like, to project the first half?
Stephen Preston (Chairman and CEO)
The first quarter is looking like pretty much in line. Like, it's gonna be $25 million net, maybe, I think, it's closer to $35 million of acquisitions with some dispositions behind it. The second quarter, we're building it right now. My expectation in terms of what we're forecasting, is it'll be close to $25 million net as well. There are a few deals that we're looking at that could bump it either way. That is a driver, there's a lot of different drivers in terms of just the portfolio acting well that will help us, you know, achieve the high end of that number.
Matthew Erdner (Director, Equity Research)
Got it. Awesome. Thank you, guys.
Stephen Preston (Chairman and CEO)
Yep, thank you.
Operator (participant)
There are no further questions at this time. I will now turn the call over to Stephen Preston for closing remarks. Please go ahead.
Stephen Preston (Chairman and CEO)
Great. Yeah, thank you, everyone. Please, please be safe, please be healthy, and we look forward to seeing you at the city event in early March. Until then, thanks. Bye.
Operator (participant)
Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation. You may now disconnect.