Sumit Roy
President & Chief Executive Officer at Realty Income
Thank you, Tyler. Welcome, everyone. We are proud of the solid execution we've delivered on our strategy in the third quarter and maintain a favorable outlook for our business. Our One Team at Realty Income continues to work diligently toward delivering strong results to our clients and stakeholders. The resilience, tenacity and range of our One Team has been impressive culminating in the signing of the merger agreement with Spirit Realty, which we announced last week. This followed a quarter in which we invested $2 billion in high quality acquisitions, raised over $2 billion in long-term and permanent capital, re-leased 284 properties at 106.9% recapture rate supporting an increase to our 2023 AFFO per share guidance range, which now stands at $3.98 to $4.01. I would like to thank our One Team for their leadership, efforts and dedication on behalf of all of whom we serve.
Our third quarter results demonstrate the consistency of our earnings profile through varying economic environments and the attractive internal growth of our high-quality real estate portfolio while highlighting the capabilities of our One Team and platform. Notwithstanding the challenging capital markets backdrop, AFFO per share grew 4.1% from last year to $1.02 per share. Combined with our dividend, we are pleased to have delivered an annualized total operational return of approximately 9%.
As announced last week, we entered into a definitive merger agreement with Spirit Realty in an all-stock transaction valued at $9.3 billion. The deal is expected to be immediately accretive to AFFO per share on a leverage neutral basis without requiring any external capital to fund the merger. The accretion from the transaction once completed creates the foundation for AFFO per share growth in the coming year and puts us in a unique situation where we've had good visibility to an attractive forward earnings growth rate potential two months prior to the start of the new year.
Given that there of course remains a fair amount of uncertainty in the capital markets environment, the accretion from the Spirit transaction is made more compelling given the lack of capital markets risk we are absorbing to effectuate this outcome. In fact, we believe our conservative underwriting of the portfolio provides for meaningful upside potential to our headline accretion expectations. We believe Spirit's portfolio is complementary to ours and will help to further diversify our industry, client and property concentrations.
We expect our increased size, diversification, trading liquidity and overall presence in the market will enable us to access the capital markets even more efficiently while also improving our ability to digest larger deals without creating concentration issues within our portfolio. We are excited about the attractive cost basis, earnings accretion and enhanced ability to buy in bulk that will be effectuated through this transaction. I would like to express great appreciation for the Spirit and Realty Income teams given their hard work and collaboration, which enabled us to successfully progress the transaction.
In the third quarter, we invested approximately $2 billion in high-quality real estate investments leased to a diversified group of clients at a 6.9% initial cash yield. $1.4 billion of this total was derived from the international business at a 6.9% yield. Investments in the quarter were made across 132 discrete transactions. I would highlight that our volume include 34 sale leaseback transactions for $1.3 billion of volume and six deals that were greater than $50 million in size. This demonstrates that both the corporate sale leaseback and larger transaction initiatives remained advantageous for us during the quarter, a testament to our ability to source, negotiate and close on transactions that are less trafficked amongst other net lease companies, both public and private.
Our investment activity year-to-date is $6.8 billion with investments in international markets representing approximately one-third of this total. Investment spreads realized during the quarter were over 100 basis points when calculating our WACC on a leverage neutral basis and using the cost of equity and debt actually executed during the quarter. This is a decline of 30 basis points from last quarter, which is a result of the significant increase in the cost of capital felt across the capital markets in a short amount of time. To put it into context, the average tenure yield increased by approximately 55 basis points from Q2 to Q3.
Following the sharp changes in the public debt and equity markets during the quarter, the private market cap rates have not adequately adjusted. Accordingly, we believe that it is particularly important to be disciplined and patient allocators of capital and ensuring that we are appropriately compensated for the capital we provide. We are confident in our ability to source and allocate capital and scale and with efficiency and we are deeply focused on delivering attractive risk adjusted returns to our shareholders.
Given the level of transactions completed in the first three quarters of the year combined with an outlook for narrowed investment spreads, we are modestly increasing our investment guidance to approximately $9 billion for 2023, which excludes the Spirit transaction that is anticipated to close in 2024. This increased target reflects deals that we already had in the closing pipeline prior to the recent surge in our cost of capital. With the sharp recent changes in cost of capital, we remain highly selective in pursuing new investment opportunities and will assertively hold the line on entering into any new transactions unless we can be assured of generating ample spreads to our cost of capital.
From an operating perspective, our portfolio continues to be healthy and performed well. At the end of the quarter, occupancy was 98.8%. This is down slightly from last quarter's historically high occupancy level of 99% and it is a result of expected client move-outs. Rent recapture rates across 284 new and renewed leases was 106.9%. This outcome is better than our historical average of 102.3% and results in year-to-date rent recapture of 104.3% on 661 new and renewed leases. I would highlight that since 1996, we have managed over 5,300 lease expirations and the improving recapture rates in recent years is a testament to our asset management expertise and the unparalleled historical data we have at our disposal.
This competitive advantage enhances the quality of our asset management decisions through unique insights gleaned from our proprietary data analytics platform. Our credit watch list represents 2.5% of our annualized base rent as of the end of the quarter. This is a decline of 120 basis points from the second quarter and is primarily the result of removing Cineworld from the watch list following our amendment, which became effective on October 1. We recovered 60% of prior based rent on our 41 locations without any capital contributions. Importantly, we also negotiated the ability to recover rent through percentage rent agreements, which could give us the ability to recapture a total of 70% of prior rent based on our internal estimates of performance.
Finally, with the reinvestment of certain asset sales, we expect to recapture a total of approximately 85% of prior rent. Same-store rent grew at an elevated rate of 2.2%. We continue to generate increasing higher average rent escalators within the portfolio due to our commitment to investing in leases with stronger rent escalators, particularly in international markets where we have a relatively outsized number of leases with uncapped inflation escalators. The better than expected same-store rent growth in the quarter has enabled us to raise our full year guidance to approximately 1.5%.
With that, I would like to turn the call over to Jonathan.
