Realty Income Corporation (O) Earnings Call Transcript & Summary

Good day, and welcome to the Realty Income Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note, today's event is being recorded. I would now like to turn the conference over to Alex Waters, Vice President, Investor Relations. Please go ahead.

Thank you for joining Realty Income's second quarter 2026 results conference call. Joining us on the conference call today are Sumit Roy, President and Chief Executive Officer; Jonathan Pong, Chief Financial Officer and Treasurer; Neil Abraham, Chief Strategy Officer and President, Realty Income International; and Mark Hagan, Chief Investment Officer. 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 our Form 10-Q filed with the SEC. We will observe a 1 question and 1 follow-up limit during the Q&A portion of the call to ensure that everyone has an opportunity to participate. And with that, I would now like to turn the call over to our CEO, Sumit Roy.

Thank you, Alex, and welcome, everyone. Realty Income delivered another strong quarter in Q2, reflecting the benefits of our diversified investment strategy and our position as a trusted capital partner to many of the world's leading companies. Our investment activity highlighted the breadth of our opportunity set, demonstrating our ability to invest across the capital stack, geographies and property types to support accretive growth. Against that backdrop, AFFO per share grew 3.8% to $1.09 during the quarter. Year-to-date, AFFO per share was $2.22, representing 5.2% growth and a meaningful acceleration from the same period in 2025. This momentum supports a $0.02 increase in our full year AFFO per share guidance midpoint to a new range of $4.44 to $4.45, representing growth of approximately 4% at the midpoint. We're also increasing 2026 investment volume guidance from $9.5 billion to $10 billion as our pipeline remains robust. I'll cover key investment highlights during the quarter before detailing market dynamics in each of Realty Income's strategic areas. Global investments totaled approximately $2.6 billion or $2.1 billion at our pro rata share at an initial weighted average cash yield of 7.3%. Second quarter activity was weighted more heavily towards the United States with approximately $1.7 billion in pro rata investments at a weighted average cash yield of 7.4% including roughly $800 million in industrial assets, representing approximately 75% of U.S. real estate investments. Also embedded within this U.S. activity was continued deployment through our U.S. Core Plus Fund, which acquired approximately $673 million of assets on a global basis with Industrial representing more than half of that volume and Retail accounting for the balance. In Europe, we closed on approximately $400 million at a weighted average yield of 7%. Finally, on June 30, we announced a $6 billion programmatic hyperscale data center joint venture with Cloud Capital in which Realty Income expects to invest up to $1.4 billion over time for its 45% equity interest. Turning to additional investment details. Let's start with Industrial, which represented approximately 65% of our global real estate investments. We continue to find attractive risk-adjusted opportunities supported by improving fundamentals and contractual rent escalators that generally range from 2% to 3.5% annually. Just under half of industrial acquisitions NOI this quarter came from investment-grade clients with investments concentrated in high-quality primary and infill markets. Notably, U.S. industrial fundamentals strengthened during the quarter as net absorption accelerated sharply, vacancy declined and development activity began to improve alongside market conditions. That positive industrial momentum also carried through to our U.S. Core Plus Fund, which continues to demonstrate the value of pairing our scale and sourcing with long-term private capital. During the quarter, we fully deployed the fund's remaining cornerstone commitments, increased total gross asset value to approximately $3 billion. Assets acquired into the fund in Q2 generated a 6% weighted average cash yield. While these investments carry lower initial yields, they consist of high-quality assets in attractive markets leased to strong credit customers and supported by contractual rent escalators well above average, a dynamic reflected in the fund's 2.9% year-to-date same-store revenue growth. Importantly, the management fee stream from the fund enables us to pursue these lower initial yield investments with day 1 accretion to Realty Income's shareholders, thus expanding our overall buy box. In Europe, while several international clients were more cautious earlier in the year amid geopolitical uncertainty, activity has improved and a number of those clients are actively pursuing transactions today. Europe continues to offer attractive risk-adjusted investment spreads, supported by lower borrowing costs, our established presence in the region and a landscape that remains less competitive than in the U.S. We remain constructive on Europe and continue to view it as an important contributor to our growth over time. Turning to data centers. Our joint venture with Cloud Capital establishes another large-scale programmatic investment vehicle. The venture includes 3 Northern Virginia data center assets representing under 400 megawatts of capacity. We closed on the first stabilized asset last week and expect to acquire our share of 2 development assets upon stabilization. Our partnership with Cloud Capital originated from a prior credit investment and has evolved into a long-term relationship focused on developing and owning hyperscale data centers across leading U.S. and European markets. Since announcing the venture, data center dialogue has continued to increase, expanding our access to opportunities across the sector. We believe the industry is still in the early stages of a multiyear digital infrastructure build-out driven by AI adoption, cloud computing and broader digitization trends. As a result, demand for data center capacity continues to exceed available supply in many of the industry's most attractive markets. We remain focused on top-tier supply-constrained markets and partnering with experienced operators that value our long-term programmatic financing capabilities. Across our investment activity, our scale and sourcing platform continue to be significant advantages that are difficult to replicate through individual asset acquisitions. As an example, earlier this year, the fund acquired a combined 19 property portfolio leased to a top-performing quick-service restaurant operator for more than $100 million. Our subsequent third-party valuation completed in connection with our Core Plus Fund verified a prevailing market cap rate for the portfolio, that is more than 30 basis points below our acquisition basis, providing tangible evidence of the immediate value creation that can be achieved through portfolio transactions. While acquisitions and capital deployment are important drivers of long-term growth, we are seeing increasing opportunities to create value through active portfolio management and capital recycling. During the quarter, we completed $161 million of dispositions, reallocating capital towards areas of the portfolio where we see the strongest combination of organic growth, pricing power and value creation. Importantly, this approach is not limited to noncore or vacant assets, but extends across the portfolio whenever we believe capital can be redeployed more strategically. This disciplined approach enhances portfolio quality, improves capital efficiency and supports sustainable earnings growth. Looking ahead, we continue to see attractive opportunities to recycle capital into assets that are better aligned with our long-term strategic priorities. We also continue to improve portfolio quality during the quarter with investment grade client exposure increasing to 34% of annualized rent from 32% in the first quarter. Portfolio fundamentals remained strong with occupancy of 98.8% and 482 re-leased units generating a blended rent recapture rate of 102.7% with renewals at 104.6%. This included a large batch renewal with a single client covering nearly 150 assets, demonstrating the scale and efficiency of our platform. Industrial comprised approximately 1/3 of leasing activity during the quarter and generated a rent recapture rate of 105.8%, while international recapture rates reached 112.9%, reflecting the continued success of our U.K. value-add retail park strategy. Our international retail park strategy continues to benefit from limited new supply, strong retailer demand and record low vacancy rates, helping drive attractive leasing spreads and incremental value creation. Importantly, the growth and diversification of our investment capabilities have been matched by similar progress on the capital side of the business. Our expanding capital platform is reducing our reliance on public equity while enhancing our ability to fund growth efficiently. With that, I'll turn the call over to Jonathan.

Thanks, Sumit, and good afternoon, everyone. The second quarter demonstrated our commitment to diversifying our sources of capital on a global scale while maintaining a healthy balance sheet. We continue to operate from a position of significant liquidity, conservative leverage and broad access to multiple capital channels. We ended the quarter with approximately $3.5 billion of available liquidity on a pro rata basis, net debt to annualized pro forma adjusted EBITDA at the end of the second quarter stood at 5.4x or 5.2x inclusive of unsettled ATM forwards, which is well within our target range. Subsequent to quarter end, we further enhanced our liquidity profile through an expansion of both our global revolving credit facilities and commercial paper programs, an unsecured bond offering in Europe and continued forward equity issuance under the ATM. Our updated credit facility now provides for borrowings of up to $5.5 billion, an increase of $1.5 billion from the prior facility with a 5 basis point reduction to our borrowing rate. Similarly, we expanded our global commercial paper program to $5.5 billion, an increase of $2.5 billion. Secondly, we completed a EUR 600 million denominated bond offering at a yield of 3.7%. And finally, we raised an additional $90 million of forward equity, bringing our current ATM unsettled balance to approximately $1.3 billion. Pro forma for these transactions available liquidity increased to more than $5.7 billion. With our enterprise value approaching $90 billion and a robust pipeline of external growth opportunities, the access to additional capital enhances our ability to immediately finance our investment pipeline while remaining patient and opportunistic in accessing longer-term and permanent capital. As a reminder, outstanding borrowings on our credit facilities and commercial paper programs represent our only exposure to variable rate debt, and we intend to maintain variable rate exposure at 10% or less of our total outstanding debt. Our commitment to maintaining a strong balance sheet supported by access to multiple sources of capital, was recently recognized in Fitch's initiation of coverage for Realty Income with a solid A long-term issuer default rating. This rating places us among just 4 U.S. REITs with a solid A or equivalent rating from one of the 3 major rating agencies, and we are grateful that our size, diversification and track record of performance have elevated us to this rating. We remain active on the capital raising front. Inclusive of the aforementioned Eurobond offering, we've issued $3 billion of new debt year-to-date at a blended effective coupon of 3.9% compared to $1.4 billion of debt that has matured year-to-date at a blended coupon of 4%. We continue to diversify our sources of debt capital across different currencies and investor capital pools with the focus on avoiding saturation or reliance on any one market while lowering our all-in cost of borrowing and managing an appropriate maturity ladder going forward. On a year-to-date basis, we have issued 4 discrete debt instruments, including a convertible bond, a U.S. dollar unsecured bond swapped to euros, a municipal prepaid term loan swapped to euros and a euro unsecured bond. Each of these debt instruments was selected with an intentional bias towards tapping into unique investor bases while minimizing our global and blended cost of debt. On the equity side, private capital has reduced our reliance on the public equity markets to fund our growth. As a result, we have meaningfully lowered our public equity consumption as a percentage of investment volume, comprising only 18% of investment volume year-to-date compared to an average of 47% over the past 3 years. Year-to-date, we have settled only $825 million of forward equity to close on $4.7 billion of pro rata investment activity, all while maintaining leverage within our 5.5x target level. This reflects the benefit of our recent capital initiatives, which have diversified our sources of equity capital. Turning to our 2026 outlook. As Sumit mentioned, we are increasing our full year AFFO per share guidance range to $4.44 to $4.45. We're also increasing our full year acquisitions guidance of $10 billion, up from $9.5 billion previously, given the strength of our investment pipeline and the confidence in our ability to source and execute attractive opportunities. At our share, we expect to invest approximately $9 billion during 2026. We are also holding our 2026 credit loss outlook flat at around 40 basis points of rental revenue, reflecting stable operating performance across our client base. Notably, we are not raising our lease termination income guidance. We recorded approximately $1 million in the second quarter and continue to expect $45 million to $50 million for the full year. As a result, the increase in AFFO guidance reflects the underlying strength of the business in terms of investment volumes, yields, modest credit losses, the successful execution of several capital markets transactions and our expectations for continued momentum throughout the balance of 2026. With that, I'll turn the call back over to Sumit.

Thank you, Jonathan. In summary, the second quarter represented disciplined execution across the platform highlighted by continued performance of a high-quality portfolio, disciplined capital allocation at attractive yields and the curation of unique capital vehicles that provide Realty Income with durable financing engine to accelerate AFFO per share growth in the years ahead. With that, I would now like to open it up for questions. Rocco?

[Operator Instructions] And today's first question comes from Michael Goldsmith at UBS.

The acquisition cap rates during the quarter were 6.4%, which is a bit lower than what you saw last quarter. Is that a reflection of mix, competition or something else? Does that have to play into also the industrial assets with the elevated lease escalators? And just how should we think about the accretion on cap rates of 6.4%?

Yes, that's a great question. It's -- the idea here is to always try to blend to a number that is getting us back to our historical spreads, Michael. And the blended cap rate or the investment yield is 7.4%. And when you think about the portion north of $600 million was in the fund, that was where the lower yielding cap rates went. And that was by design because that's why the fund was created. Stuff that we couldn't accretively buy on balance sheet was going to be allocated to the fund where the long-term return hurdles were going to be met, but that initial accretion was not. And so what's remaining is -- has a profile that gets us to our historical spreads of circa 150 basis points. That's how you should think about our investments.

And then just as a follow-up, can you provide an update on where we are in terms of generating fee income, is the amount in the quarter? Is that kind of the right run rate? Or do you expect that to accelerate from here? And then also how much is included in the underlying guidance?

Michael. So if you look at the supplement, I believe at Page 22, we do show management fee income to Realty Income is about $3.2 million for the quarter. The majority of that, obviously, is for the U.S. Core Plus Fund. We have raised $1.7 billion during our cornerstone round. And as of early July, we had drawn down all of the capital that is now fee generating. There is also a separate component of that, that is attributed to the insurance JV that we announced back in March. And so in totality, that's where you get the $3.2 million. In terms of guidance, we've talked about this before, but you expect around $10 million or so for the fund in terms of management fees and then perhaps there will be perhaps $2 million to $3 million attributable to the insurance JV.

And our next question today comes from Brad Heffern at RBC Capital Markets.

Obviously, rates have been bouncing around a lot, but generally going up, but we've also been hearing some of your peers talk about some slight cap rate compression. I guess, first, are you seeing that as well? And then do you think higher rates will eventually flow through? Or are competitive dynamics preventing that from happening?

That's a great question, Brad. It's a very strange environment really because this inverse correlation that exists between how net lease generally trade versus the 10-year largely holds true. But what has happened over the last 2 months is that, that inverse correlation hasn't held true. And so it really is a question of what is going to happen to the 10-year, what is the forward outlook, not so much where it's trading at today, that's going to dictate what's going to happen to cap rates. We've oftentimes talked about cap rates being a trailing variable when it comes to interest rate, the 10-year Treasury. And if the view is that the 10-year is going to be in this 4.6% to potentially 5% ZIP code, then what we have historically seen is cap rates do follow. But you mentioned it in your question the way you framed it. There is a lot more competition here in the U.S. There are a lot more new entrants on the private side, along with a few on the public side. And so there is that competitive dynamics that's going to keep cap rates lower. But ultimately, in a highly elevated cost of capital environment, cap rates will need to adjust.

Okay. Got it. And then you talked a bit about the positive European outlook in the prepared comments. I wanted to specifically zoom in on the U.K. Cost of debt seems pretty unattractive over there, especially compared to euro debt. So are you seeing upward pressure on cap rates in the U.K. to reflect that? Or is it just a less appealing market right now?

Neil?

Thanks, Sumit. Brad, in response to that question, I think we have countervailing effects. One, of course, is the sort of macro malaise change in the PM and the move in rates. Against that, what you have is institutional capital coming in, and you can see this more broadly across Europe as well. And it started really with malls or shopping centers as they're called over there, and there's quite an aggressive bid for those kinds of assets. So in the U.K., almost perversely, we're actually seeing institutional capital coming in, in good size and driving down cap rates. And then while we haven't bought retail parks or multi-tenant retail across the continent, there is also now 1 or 2 larger private equity players driving consolidation. I think the industrial logic is that they sort of missed that play in the U.K., but there's still an opportunity across Europe. And the low level of base rates makes it actually quite accretive on a levered basis. And so I don't think we're seeing upward pressure on cap rates in the U.K. or, frankly, much of Europe with the exception of Germany. And I think if anything, the pressure on cap rates downward on retail parks in the U.K. will continue.

And our next question today comes from Rob Stevenson at Huntington.

Sumit, how should we be thinking about how much of the $5 billion or so of second half investments in the guidance is likely to be put on Realty Income's balance sheet and financed by the REIT versus going into various JVs, funds, partnerships and anything new that you would create over the remainder of the year?

Yes. So that [ 500 ], so we've said we are going to do about $10 billion. That's the guidance. And what we have shared with the market is that $9 billion of that $10 billion is going to be on balance sheet. And if you see what we've invested year-to-date on the fund, we have largely used up the equity, the cornerstone equity actually. We completely used up all of the equity that we've raised. And so the only assets that are going to go on the fund will be the leverage capacity that the fund has that is still available to it. And that's going to be obviously -- it's the same ratio, 1/3, 2/3. So we've got about $1.7 billion that we've raised in equity. We've got about 1/3 of that amount in leverage capacity to deploy. But the rest of it will be on balance sheet.

Okay. That's helpful. And then with these various funds, JVs, partnerships, et cetera, that you now have in place, do you have all of the sources of capital that you guys think that you need to execute the business plan over the next couple of years? Or should we expect to see more of these types of partnerships and JVs being announced over the next 6 to 12 months, given what your pipeline looks like?

So Rob, I think in terms of the product that we are going to pursue from an investment perspective, that's largely defined we've been talking about our desire to go into data centers. We have now formed joint ventures. Is it possible that there could continue to be other JVs that we form with developers who have a very healthy pipeline that fits our box, the answer is yes. And especially on the heels of the conversation -- on the heels of the announcement that we've made, there are some very interesting conversations that are taking place. And that is much more in line with what we've already said. The other asset types are ones that we are just continuing to invest in. And obviously, the fact that we've created these multiple channels of geography and asset types, we are going where the best risk-adjusted returns are. On the financing side is where we are sort of still new in the game and the rationale behind why we did what we did was to try to sort of leverage the platform that we have with a lot lower cost of capital, lot lower cost of equity capital, let me be more precise, that we could then generate earnings contribution through the fee stream. And I would say that we've -- that's the journey that we are on. And it's -- I've heard Jonathan mention it as an ecosystem that we are trying to create, where we are maximizing the utilization of a platform with trying to attract the lowest cost of equity capital that wants to leverage and wants to pay fees and basically be exposed to net lease investing. So I won't go so far as to say what we've shared with you is the end all and be all of all equity capital sources. I would characterize it as it's the beginning, and there will be other channels. But what we are going to be acutely focused on is to make sure that the overlap on these various different sources of equity capital -- private sources of equity capital is very minimum. We want to make sure that we're using our platform, very judiciously to serve these various different sources of capital, make each one of them very successful, so that this fee stream that we are able to generate continues to be one that is a very high level of permanence and one that we can count on and our shareholders can benefit from in years to come.

And our next question today comes from Smedes Rose at Citi.

I just -- just to follow up on kind of your acquisitions outlook. It looks like for your portion, the back half of the year is estimated around $4.3 billion. So that suggests it decelerates a little bit from what you saw in the first half. Could you maybe just speak to kind of what you're seeing there? Is it slowdown by design? Are you being conservative? Is competition heating up? And just interested in any kind of color around that outlook?

Mark?

Yes, thanks for the question. I think that with the guidance at $10 billion and the first half total investments of $5.3 billion, I don't think there's a lot of deceleration in there. But...

Well, I'm just looking at your portion, you said for your portion, it would be $9 billion for the year.

Yes. That's the overall global investment amount. But look, it's not driven by anything in terms of what we're seeing in the market conditions in terms of deceleration. In fact, it's really the opposite. We increased our overall volume guidance because of the strength and robustness of the pipeline. And so as we're sitting here today, we really -- we feel great about the pipeline and about at least another strong second half of the year.

Yes. Okay. And then you -- yes, go ahead. Sorry.

Forecasting out and trying to back into what is the delta between what we have forecasted versus what we haven't. What I can tell you from a pipeline perspective, from the health of the pipeline, from what we are seeing, we feel great.

Great. Okay. And just on that, you obviously leaned into industrial in the quarter. Just wondering, is that a primary focus going forward from here? Or are you happy with the kind of exposure that you have in that asset class at this point?

Industrial has always been a focus of ours. We obviously can't go into the 3-cap deals that we just saw recently announced. But in industrial -- single-tenant industrial, more specifically across various geographies has always been something that we've leaned into. And the way we are playing that is through the development channel, is partnering with the best-in-class developers and being able to generate yields with more of a built-to-suit characteristic rather than a spec characteristic where we are able to meet the hurdles that we need to meet in order to generate the spread investing that you and our shareholders are used to seeing. So what you're seeing today is -- and I'm sure you've heard it from other industrial companies is this -- what we expect to be a new trend where absorption rates are trending very positive. Vacancies are all at all-time lows. And what's driving this demand is much more widespread than e-commerce, which was the driver of industrial demand 4, 5 years ago. It's much more broad based. It's industrial. It's manufacturing. It's data center equipment that needs to be stored in warehouses, et cetera, that is also driving some of the demand. And so we feel very good about the pipeline that we've created and we are being able to do it at cap rates and investment yields that makes sense to us through a combination of investing on the credit side as well as on the equity side.

And our next question today comes from Haendel St. Juste with Mizuho.

Sumit, maybe starting with you, I guess I was intrigued by some of the comments you were making about capitalizing on the market to do some portfolio recycling, improving the quality of your on-balance sheet assets. So I'm curious how much of the portfolio ballpark might be subject to being upgraded, recycled. It sounds like you're doing a bit more high-grade here. Is that something we should expect near term and maybe some color, perspective on the difference in cap rates or bumps and what you're buying versus selling?

That's a great question, Haendel. I think in the prepared remarks, you picked up on our desire to continue to recycle capital. Obviously, we have talked about there are certain metrics that we are very focused on internal growth being one of them, duration of the lease term being another, being exposed to credit that we have a long-term view on and we feel comfortable with is another metric that we are going to be very focused on. And this capital recycling that we would like to continue to lean into is largely on a pro forma basis, going to help -- make each one of these variables that I just mentioned accretive. And so that's the desire. And it could be obviously leaning into the data center side, leaning into the industrial side and repositioning our overall portfolio to make sure that our net lease metrics that we focus on, KPIs that we are very focused on continues to move in the right direction through this capital recycling.

That's great color. Jonathan, a question for you. Maybe if you'll allow me a 2 parter just -- I want to get some clarification on what's in the other adjustments per share. Looks like we excluded that, the AFFO per share guidance would be down. Maybe I'm misinterpreting it, so maybe some color on that. And then just some color or thoughts on the duration of the loan book. It seems like there's a decent amount of high-yielding paper maturing in the next couple of years. I'm curious if you guys are expecting to be able to originate more or how you plan on managing that dilution?

So the other category is really nothing new. It's primarily FX-related. The gains or losses that are noncash in nature. You also have other CECL-related type of impacts as well. But that's nothing that would raise to the level of a cash adjustment that would impact AFFO and shouldn't impact AFFO, given that it's noncash and it's nonrecurring. I would say on the loan tenor, assuming you're talking about the investments that we make look, we've talked about this before. But when you think about the right-hand side of our balance sheet, when you think about legacy balance sheet with a fair amount of debt that's rolling every single year, this provides a nice hedge, if you will, a natural hedge, where if rates go down, yes, theoretically, there's reinvestment risk, but also the other side of our ledger is also much more attractive in refinancing at much lower rates and vice versa. So we manage it. We look at it just as closely as we look at the liability side of the balance sheet, and that's how we risk mitigate and forecast what our exposure is, should there be various scenarios play out in the rate environment.

Our next question today comes from Omotayo Okusanya with Deutsche Bank.

Just along Haendel's line of questioning in terms of capital recycling. Could we see that also manifest itself as kind of new JVs or doing more with your current JV partners? Or how do we kind of think -- are you kind of thinking much more just kind of outright asset sales?

Yes. The idea being recycling. So yes, we are continuously looking at our portfolio, Omotayo, and we are trying to figure out where are the assets that are mispriced in the market where we don't have a long-term hold, strategic outlook on certain portions of our portfolio. And we'd much rather sell those assets, raise that capital and redeploy it in either asset types or geographies or risk-adjusted opportunities where we feel we have a much higher conviction on holding long term. That's what we are talking about. It's not supposed to represent additional JVs, et cetera. That is not the idea behind the capital recycling that you should sort of think about when we are talking about capital recycling.

And our next question today comes from Alec Feygin with Baird.

On the data center hyperscale deals, can you speak if after these 3 assets, are you diversifying your tenant base or the end tenant base for your data center portfolio?

Mark?

Sure. Thanks for the question. Yes, we are. Obviously, we announced the transaction 3 years ago with 2 data centers in Northern Virginia that had a specific tenant in it. The transaction that we just announced last month with 3 data centers has varied tenants in it that are different than the original 2. So we currently have the 5 assets with different tenants in them. And going forward, as we continue to build out our data center portfolio, that is one thing that we're going to keep our mind on as part of our strategy in terms of -- obviously, we want to focus on the investment-grade rated hyperscalers and enterprise users, and those work well for us, but we are going to be very mindful of making sure that we balance our concentration to any particular assets -- tenants, sorry, rather.

Nice. And kind of on the tenant question, broadly, should we expect any new top 20 tenants entering the portfolio this year?

Well, Alec, when that happens, it will be announced, and I think it will be viewed very positively. Obviously, these data center clients tend to be very large. And when those close, could it potentially reshuffle our top 20. The answer is yes. But it will be viewed very positively in my opinion.

Our next question today comes from Ronald Kamdem with Morgan Stanley.

Just staying on the data center portfolio theme. Maybe can you talk a little bit more about sort of the economics, whether it's sort of stabilized yields or price per megawatt, just your views on that going forward. And also on the competition, right, because I think there's a lot of big private equity players out there. There's other public capital. Just what that environment is like to get these deals through?

Sure. Thanks, Ron. Let me hit the second part of the question first, if that's okay. Yes, there are a lot of people in the sector right now, both on the development side and people wanting to invest capital into this sector. So there is a lot of competition for both developing these assets and owning them. I think that one of the important things, though, is that there are a lot that are still in the development phase, if we're talking about the large hyperscale data centers. And there's probably a lack of a natural home for the ultimate long-term ownership of those assets. Some of the developers may want to keep ownership of them for the long term, but others do not. And so that does create a -- despite the competition out there and the players in the sector going after some of these assets for somebody like us whose model focus is on holding long-leased assets that are -- have clients with strong IG credit ratings in them with good annual bumps. There's a natural sweet spot for us to be long-term holders of that. And so I think that makes us perhaps a little bit different than some of the other people who are playing in the space right now. In terms of your question on cap rates, I think there's still a bit of just overall discovery going on in the market. There are -- a lot of these large assets are still rolling from the development phase into the potentially changing hands for the stabilized phase. And I think there's been some transactions that have been in the market recently that have been announced where there's some cap rate data out there on them. And I think that's a good indication of kind of where cap rates are right now for these types of assets.

Great. And then my second one, if I may. I think just going back, I think the comments were 40 basis points in terms of total bad debt for this year. Just can you remind us the watch list sort of any changes over the last 3 months, any sort of larger tenants? Or does it remain pretty -- pretty granular?