And so those are the primary drivers of the 3% plus growth in AFFO per share next year. As Joey mentioned, that would be offset by growth in G&A of more than 5% as well as a conservative credit loss number. We’ve assumed in there 50 basis points. That compares to the credit loss that we realized this year of 10 basis points so far through the first 9 months of the year. That’s in line with the credit loss that we realized in 2022 of 10 basis points as well, but trends below our longer-term average of 25 basis points in terms of credit loss. And that’s a fully loaded credit loss number. So we feel that 50 basis points is very conservative.
Nathan Crossett: Okay. That’s helpful. And then maybe just 1 on leverage. Like if you were to do acquisitions next year, like what’s your tolerance to do, like lever up.
Joel Agree: Yes, we have effectively 100% availability under our $1 billion revolver excluding the accordion. We only have $350 million in bank debt. The term loan market is open to us. The 10-year unsecured market is open, but at unfavorable pricing. I said in the last call, we look at leverage here over a full cycle. And so piercing 5x has no problem. There’s no problem to us. We’re sitting at 4.5x levered with significant liquidity and frankly, flexibility to execute on transactions that provide for the spreads that are necessary to drive AFFO growth. What we will not do, I think, is as important as what we will do is we will not get on to the treadmill, grow a denominator, invest capital at immaterial spreads or de minimis spreads.
That’s just not something that is — that, frankly, is in our strategy or is in our wheelhouse. We’re sitting here with a portfolio now approaching 70% investment grade, over 11.5% ground leases, no material debt maturities until 2028, no refinancing headwinds, we’re not going to cause — we’re not going to create self-created — self-caused problems here or self-inflicted wounds. We are going to be prudent and disciplined in turbulent times. We’re going to watch them play out and read and react accordingly.
Operator: The next question comes from Haendel St. Juste with Mizuho.
Haendel St. Juste: So Joey, I wanted to follow up on your comments about appropriate risk-adjusted spreads that you’re looking to underwrite here in the current environment. I guess I’m curious what exactly does that mean? What’s the minimum spread you’re looking for today in light of your higher cost of capital? And then perhaps dispositions. Will that maybe play a greater role near term in terms of the funding?
Joel Agree: Certainly, we’ll look at dispositions. We have a high-quality portfolio that we can dispose into the 1031 market. I’ve talked about that historically. It’s not the most efficient or time effective, but we have dispositions that are a potential source for us if we so choose to go down that road. In terms of appropriate spreads, I’d tell you it’s really across 3 external growth platforms, those deviate, right, because duration equals risk there. And then also qualitative aspects. But investing capital, sub 70, 75 basis points without a compelling underlying real estate case for the ability to mark to market doesn’t make much sense. And frankly, doesn’t move the AFFO or the earnings needle here unless you did such in massive quantities, which isn’t appropriate in today’s environment.
Haendel St. Juste: And a bit more maybe on the hurdle rates, the minimum spread that you’d be looking to invest in today?
Joel Agree: Will you repeat that Haendel, sorry?
Haendel St. Juste: A bit more color on the appropriate risk-adjusted spreads, maybe perhaps some color on how you’re thinking about what level of spread versus your cost of capital that you would require today in the current environment?
Joel Agree: Yes. I think — again, I think we will not be acquiring, I can say, fairly — succinctly at this time. We won’t be acquiring certainly. That doesn’t make sense given our — given the cost of capital in the environment, I don’t think there’s a purchaser of sub-7 out there outside of a 1031 buyer. Second, if we look at our development in PCS platforms, we’re going to be looking to — depending on duration, scope of the project, 50 to 150 basis point spreads of where we could acquire or would acquire a like-kind asset in a 70-day period. Again, each transaction is specific. One thing I would note is we don’t have to qualitatively improve this portfolio. We’re not going to degrade it, but again, reaching record investment-grade exposure here.
Again, we aren’t insinuating any shadow ratings in that number either. We don’t have the qualitative aspects in terms of improving the portfolio sitting here where we are today. And so, the #1 driver for us is not sacrificing quality, but at the same time, driving spreads that are appropriate based upon the credit risk, underlying duration of the project or of the real estate. And then the long-term viability of that asset with the real estate fundamentals.
Operator: The next question comes from Brad Heffern with RBC Capital Markets.
Bradley Heffern: Joey, you mentioned that you expect cap rates to increase gradually. But if both cap rates and cost of capital stayed sticky at current levels, how would you treat capital deployment? Would it just be free cash flow that you would deploy? Or do you think that you would still have the ability to use debt or something like that to actually have acquisition activity beyond the free cash flow level?
Joel Agree: Well, I think that case is very — I would tell you, after the rise we’ve seen in the 10-year, for cap rates not to continue to incrementally adjust again, it will take time. I think that is highly unlikely. Second, I think what you’re referring to there is if they don’t adjust and the 10-year stays in this 4.8% to 5% range, what will we do? And I think, again, that reflects back whether we can uncover opportunities through all 3 platforms that will provide the appropriate spread. In the unlikely event or I’ll tell you most likely impossible event, we’re unable to find any opportunities across those 3 platforms that reflects back to the base case, which Peter just gave the walk on over — again, over 3% AFFO growth frankly, delevering or leverage neutral, not investing any capital, not raising any capital, and I start taking golf lessons.
Bradley Heffern: Okay. Fair enough. And then if you do have a big decline in activity overall, where does the first dollar go? Is that largely development activity? Or is it a mix of development and acquisitions?
Joel Agree: I would assume it’s a hybrid. Look, we’re seeing all different types of activities. Our funnel has never been as wide as it is today. We’re seeing all different types of opportunities across all 3 external growth platforms. And so it’s really — it’s individual transactional specific here and the merits and considerations, again, when you get to development or DFP, when you get to those 2 points, you’re really looking at the duration of those projects. And so we will be disciplined capital allocators and again, have the appropriate premium for duration risk, whether that be a 120-day retrofit of an existing building or 1.5-year true ground-up development.
Operator: The next question comes from R.J. Milligan with Raymond James.
Richard Milligan: First, a quick question, just a slight impairment in the third quarter. I’m just curious what drove that $3 million impairment.
