Agree Realty Corporation

Good morning and welcome to the AGRI Realty fourth quarter and full year 2018 conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. Each questioner will be limited to two questions only. Please note this event is being recorded. I would now like to turn the conference over to Joey Agri, President and CEO. Please go ahead, Joey.

Thank you, Operator. Good morning, everyone, and thank you for joining us for Agri Realty's fourth quarter and full year 2018 earnings call. Joining me this morning is Clay Phelan, our Chief Financial Officer. 2018 was an exceptional year for our growing company, as we made tremendous progress further transforming AgriRealty into a leader of retail ownership. We achieved several significant milestones during the past year. Among them, we exceeded $3 billion in enterprise value. We added a record of over 230 high-quality properties to our growing portfolio. We increased our exposure to leading investment-grade retailers by approximately 800 basis points from 43% to 51% via leading tenants such as Sherwin-Williams, TJX, Tractor Supply, and Home Depot. We further improved the diversification of our portfolio by investing across 38 states and 22 retail sectors. We received an investment-grade credit ratings from Moody's Investor Service. We solidified our balance sheet by raising worth $750 million in permanent capital, and we increased our well-covered dividend by 6.4 percent. While these metrics are quantifiable and visible to our shareholders, we simultaneously invested significantly in our very bright future, expanding our organization to 36 team members and counting, as well as embarking on an expansion of our headquarters to accommodate our growing company. During the past year, we invested $629 million, of which a record $607 million was through our record acquisition platform activities. The 225 properties acquired during the year span 22 diverse retail sectors, Over 61 percent of annualized base rents acquiring during the year are derived from retailers that carry an investment-grade credit rating. While we achieved another record year of acquisition volume in 2018, we continue to adhere to our rigorous underwriting standards that pair an emphasis on retail real estate fundamentals with a top-down focus on leading omni-channel retailers. Our robust and growing pipeline similarly represents best-in-class retailers in our targeted retail sectors. We closed out this past year with a very busy final quarter, investing a record amount across our three external growth platforms while executing several capital market transactions that served to fortify our balance sheet for additional growth. During the fourth quarter, we invested nearly $263 million in 139 high-quality retail net lease properties. 129 of these investments were originated through our acquisition platform. representing total acquisition volume of a record $256 million for the quarter. A record 84 percent of annualized base rents acquired during the quarter are derived from investment-grade retailers, not solely because of their rating, but rather the combination of their market positioning in an omnichannel retail world and their superior risk-adjusted real estate. Most notable during the quarter was the completion of the Sherwin-Williams leaseback transaction the world's largest paint and coatings retailer which carries an investment-grade credit rating from all major rating agencies. This was a unique transaction that demonstrated a differentiated capability from our traditional focus on granular sourcing activities. Since this transaction, we have seen increased opportunities to continue to partner with leading retailers such as Sherwin-Williams. Pursuant to the sale-leaseback transaction with Sherwin, we acquired 98 properties across 29 states, for a purchase price of approximately $142 million. The properties are subject to long-term triple net leases and have very fungible boxes averaging 5,800 square feet. The portfolio has extremely strong demographics with an average five-mile population of 180,000 people and an average five-mile household income of 72,000 with daily traffic counts averaging almost 30,000 vehicles. Inclusive of the Sherwin-Williams transaction, the properties acquired during the fourth quarter are leased to 28 sector-leading retail tenants operating in 15 diverse sectors, including home improvement, off-price retail, auto parts, tire and auto service, discount grocery, and convenience stores. Notable other retailers acquired during the quarter include Home Depot, Ross Dress for Less, AutoZone, O'Reilly Auto Parts, Bridgestone Firestone, and Sheetz convenience stores. The properties were acquired at a weighted average cap rate of 6.7% and had a weighted average remaining lease term of approximately 12.5 years. Excluding the Sherwin-Williams sale leaseback transaction, the company's fourth quarter acquisitions were completed at a weighted average cap rate of 7.2% and had a weighted average remaining lease term of approximately 13 years. Our top tenant roster continues to be a list of the strongest retailers in their respective sectors, and what we continue to view as a dynamically changing omni-channel retail world. During 2018, we added Sherwin-Williams, O'Reilly Auto Parts, Best Buy, and Burlington Coke Factory as top tenants. Simultaneously, we eliminated Smart & Final, Michaels, Academy Sports, Rite Aid, 24 Hour Fitness, and PetSmart for our top tenant list during the year. You will see us continue to evolve our portfolio as we proactively embrace today's changing omnichannel retail environment. In addition to our roster of leading top tenants, our ground lease portfolio continues to expand, evidenced by the more than 100 basis point year-over-year increase to now over 9% of our annualized base rents. During the quarter, we added eight ground lease assets, most notably a Walmart Supercenter in Franklin, Ohio, and a Home Depot in Forkett River, New Jersey. Our ground lease portfolio derives 89% of rents from investment-grade tenants, and is comprised of leading retailers, including Walmart, Home Depot, Lowe's, Wawa, Aldi, AutoZone, Chick-fil-A, McDonald's, and Starbucks. We continue to see a number of high-quality opportunity to add assets to this portfolio and look forward to updating you in the coming quarters. Subsequent to year end, we announced 2019 acquisition guidance of $350 to $400 million and disposition guidance of $25 to $75 million. I'm very pleased with both the volume as well as the composition of our current pipeline. It contains several unique opportunities that are anticipated to close in the upcoming months. Moving on to our development and partner capital solutions platform, I am pleased to announce that we commenced three new developments in PCS projects during the fourth quarter, with total anticipated costs of approximately $15 million. The projects consist of our first development with Gerber Collision in Round Lake, Illinois, Our third project was Sunbelt Rentals in Georgetown, Kentucky. During the quarter, we also commenced the redevelopment of the former Kmart space in Frankfort, Kentucky. We recently commenced demolition of the former Kmart building and are now very pleased to announce that Aldi, Big Lots, and Harbor Freight Tools have executed new 10-year leases for the project. Our development team has been working diligently on this project for over a year, and as you might recall, we recently added a Chick-fil-A on a recently created outlet. During the fourth quarter, we also made considerable progress on our five previously announced development in PCS projects, which represent committed capital of approximately $14 million. The projects include our third and fourth developments with Mr. Carwash in Orlando and Tavares, Florida, our first two projects with Sunbelt Reynolds in Batavia in Maumee, Ohio, and the redevelopment of the former Kmart in Mount Pleasant, Michigan for Hobby Lobby. For the full year 2018, we had 16 development and PCX projects either completed or under construction that represent total spent or committed capital of approximately $74 million. Eight of those projects were completed during this past year representing total investment volume of approximately $46 million. I'm pleased with our progress during the year as we continue to focus on providing full-service real estate solutions to leading omnichannel retailers. The relationships we've built with these retailers have served to significantly expand our investment opportunities across all three of our external growth platforms. During this past year, we also strengthened and diversified our portfolio through proactive asset management and disposition efforts. We were again active on the disposition front during the fourth quarter, selling four assets for gross proceeds of approximately $6 million. For the full year, we disposed of 21 properties for approximately $68 million in gross proceeds, Included in our 2018 disposition activity was the sale of three Walgreens assets, reducing our exposure to 5.4% at year-end 2018, down from 7.7% at the end of 2017. Similarly, the company decreased its pharmacy exposure significantly during the year, reducing at approximately 380 basis points from 12.3% to 8.5%. We would anticipate further reduction in our pharmacy and specifically our Walgreens exposure from additional asset sales that are forthcoming. Our asset management team has also been diligently focused on addressing our upcoming lease maturities. At year end, we had only 11 remaining lease maturities in 2019, representing just 1.6% of annualized base rents. During the fourth quarter, we executed new leases, extensions, or options on approximately 90,000 square feet of gross leasable area, throughout the existing portfolio. This included our TJ Maxx in Logan, Utah, which extended their lease to 2029. And for the full year of 2018, we executed new leases, extensions, or options in approximately 331,000 square feet of gross leaseable space. Other notable leases, extensions, or options included Old Navy in Grand Chute, Wisconsin, and Harbor Freight Tools in Cedar Park, Texas. As of December 31st, our rapidly growing retail portfolio consisted of 645 properties across 46 states. Our tenants are comprised primarily of industry-leading retailers operating in more than 28 distinct retail sectors, and again, with more than 51% of annualized base rents coming from investment-grade tenants. Occupancy ticked up slightly during the fourth quarter to 99.8%, and the portfolio had a weighted average remaining lease term of 10.2 years. Overall, our portfolio is in the strongest shape in the history of our company. I would like to take this opportunity to thank all of our loyal shareholders for their continued support during another fantastic year for our company. With that said, I want to be clear that we are focused on creating the highest quality retail portfolio in the country, and our past success only sets the bar higher as we look forward to our bright future. With that, I'll turn it over to Clay to discuss our financial results.

Thank you, Joey. Good morning, everyone. I'll begin by quickly running through the cautionary language. As a reminder, please note that during this call, we will make certain statements that may be considered forward-looking under federal securities law. Our actual results may differ significantly from the matters discussed in any forward-looking statements. In addition, we discussed non-GAAP financial measures, including funds from operations, or FFO, and adjusted funds from operations, or AFFO. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in our earnings release. As announced in yesterday's press release, total rental revenue, including percentage rents for the fourth quarter, was $36.4 million, an increase of 27.1% compared to the same period last year. For the full year 2018, total rental revenue increased 26.4% to $133.1 million. General and administrative expenses in the fourth quarter totaled $3.2 million, or 7.8% of total revenue. For the full year 2018, general and administrative expenses totaled $12.2 million, or 8.2% of total revenues. For 2019, we anticipate G&A expenses to contract roughly 50 basis points and be closer to 7.7% of total revenues. Income tax expense for the fourth quarter was $125,000. For the full year 2018, income tax expense was approximately $516,000. For 2019, we anticipate total income tax expense for the year to be in the range of $525,000 to $575,000. Funds from operations for the fourth quarter was $25.6 million, representing an increase of 20% over the fourth quarter of 2017. On a per share basis, FFO increased to $0.72 per share, a 1.2% year-over-year increase. Funds from operations for the full year was $93.4 million, representing an annual increase of 22.5%. On a per share basis, FFO increased to $2.85 per share, a 4.9% annual increase. Adjusted funds from operations for the fourth quarter was $25.4 million, a 21.2% increase over the comparable period of 2017. On a per share basis, AFFO was 71 cents, an increase of 2.2% year over year. Adjusted funds from operations for the full year 2018 was $92.7 million, a 22.4% annual increase. On a per share basis, AFFO of $2.83 per share represented a 4.9% increase over 2017. On a quarterly and full year basis, FFO per share and AFFO per share were impacted by dilution required under GAAP related to the forward equity offerings we completed in March and September of 2018. Treasury stock is to be included within our diluted share count in the event that prior to settlement, our stock trades above the deal price from the offerings. The aggregate dilutive impact related to these offerings was roughly a penny to both FFO and AFFO per share for the three month and 3 cents for the full year periods. In 2019, there will be no Treasury stock dilution related to the March forward offering, given we settled the transaction in 2018. To the extent that prior to settlement, our stock continues to trade above the deal price of the September forward offering, we will continue to record Treasury stock dilution related to that offering. To date, we have not settled any of the 3.5 million shares from our September forward, and view this as a meaningful equity backstop to fund our future growth. As a reminder, beginning in the first quarter, we will modify our calculation of NAREIT FFO to exclude the add-back of the amortization of above and below-market lease intangibles and introduce Core FFO, which will include the add-back of this non-cash item. Core FFO will be consistent with our historic reporting of FFO And we believe the introduction of core FFO will more accurately compare our performance to our peers. As Joy already mentioned, we had an active year on the capital markets front, raising a company record $750 million to continue to fund our dynamic growth, as well as position our company for 2019 and beyond. This capital raising is in addition to the almost $90 million generated through our disposition activity and free cash flow after dividends. In May, we were very pleased to receive an investment-grade credit rating of BAA2 with a stable outlook from Moody's Investor Service. The receipt of an investment-grade credit rating not only demonstrates the strength of our balance sheet and our conservative and disciplined approach to capital markets decisions, but also the strength of our real estate portfolio. The BAA2 credit rating improved the cost of borrowing on our revolving credit facility and unsecured term loans and will further enhance our long-term access to capital. As previously mentioned, we also completed two forward equity offerings during the year. In March, we completed a follow-on public offering of 3,450,000 shares of common stock in connection with a forward sale agreement. We settled the entirety of the March forward equity offering in September and received net proceeds of roughly $160 million. In conjunction with the settlement of our March forward offering, we completed another follow-on public offering of 3.5 million shares of common stock in connection with a forward sale agreement. Upon settlement, the September forward is anticipated to raise net proceeds of approximately $190 million after deducting the underwriting discount. To date, the company has not received any proceeds from the sale of shares of its common stock in connection with the September offering. We retain the ability to settle the transaction in whole or in tranches at any time between now and September 3rd of 2019. Most recently, during the fourth quarter, we raised gross proceeds of approximately $181 million through our ATM issuance of 3.1 million shares and an average price of $59.28. Including the September forward offering, total common equity raised in 2018 totaled approximately $525 million. While we officially accessed the equity markets in 2018, We were also very active in the debt capital markets. In July, we exercised the accordion option on our unsecured revolving credit facility, securing increased commitments of $75 million and increasing our total revolver capacity to $325 million. The increased capacity on a revolving credit facility reflects the continued growth of the company since our credit facility was last amended in December of 2016. In September, we completed a private placement of $125 million in senior unsecured notes. The notes bear interest at a fixed rate of 4.32% and have a 12-year term, maturing in September of 2030. In December, we closed on a $100 million unsecured term loan. The term loan has a seven-year term and matures in January of 2026. The term loan has an interest rate that is effectively fixed at 4.26% and is based on the company's credit rating. At December 31st, we had just $19 million outstanding on our unsecured revolving credit facility, reflecting additional capacity of $306 million. Our capital markets activities are emblematic of our disciplined approach to opportunistically accessing attractively priced capital and positioning our balance sheet for continued growing. As of December 31st, our net debt to recurring EBITDA was approximately 4.7 times, well below our stated range. Pro forma for the settlement of the September forward equity offering, our net debt to recurring EBITDA is approximately 3.3 times. Total debt to total enterprise value was approximately 24.4%, and our fixed charge coverage ratio, which includes principal amortization, remains at a very healthy level of four times. Our balance sheet is in the strongest position it has been in the company's history. Pro forma for the full settlement of the September forward, we have capacity to acquire up to $600 million of acquisitions without raising additional equity and staying within our stated leverage range of five to six times net debt to recurring EBITDA. The company paid a dividend of 55.5 cents per share on January 4th to stockholders of record on December 21st, 2018. representing a 6.7% year-over-year increase. This was the company's 99th consecutive cash dividend since its IPO in 1994. For the full year 2018, the company declared dividends of $2.15 per share, a 6.4% year-over-year increase. Our quarterly payout ratios for the fourth quarter were a conservative 77% of FFO per share and 78% of AFFO per share. For the full year 2018, our per share payout ratios were 76% of both FFO and AFFO. These payout ratios are at the low end of the company's targeted ranges and continue to reflect a well-covered dividend. With that, I'd like to turn the call back over to Joey.