Agree Realty Corporation

Good morning and welcome to the AGRI Realty fourth quarter 2020 earnings 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. Please note this event is being recorded. I would now like to turn the conference over to Clay Thalen, Chief Financial Officer. Please go ahead, Clay.

Thank you. Good morning, everyone, and thank you for joining us for AGRI Realty's fourth quarter and full year 2020 earnings call. Joey will, of course, be joining me this morning to discuss our record results for the past year. 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 for a number of reasons, including uncertainty related to the scope, severity, and duration of the COVID-19 pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures on us and on our tenants. Please see yesterday's earnings release and our SEC filings including our latest annual report on Form 10-K and subsequent reports for discussion of various risks and uncertainties underlying our forward-looking statements. In addition, we discussed non-GAAP financial measures, including core funds from operations, or core FFO, adjusted funds from operations, or AFFO, and net debt to recurring EBIT debt. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in our earnings release, website, and SEC filings. I will now turn the call over to Joey.

Thanks, Clay, and thank you, everyone, for joining us this morning. Before I begin, I would like to wish all of our listeners and their families health and safety as we continue to navigate these very difficult times. Despite the incredibly challenging circumstances, our team had a tremendous year, achieving a number of notable milestones, including record investment activity of $1.36 billion, nearly doubling our previous record in 2019, adding 325 properties to our growing portfolio, the acquisition of 18 Walmart stores, cementing Walmart as our top tenant at 7.3% of annualized base rent, increasing our investment grade exposure by 930 basis points to 67.5% of ABR, executing our inaugural public bond offering and receiving a BBB investment grade rating from S&P. And lastly, surpassing $4 billion in equity cap and $5 billion in total enterprise value. Just as important, we continued to invest in our people, adding 12 team members across an array of functions, as well as additions in our systems, with our state-of-the-art database driving tremendous efficiencies. These investments will enable us to continue on our robust growth trajectory. While we achieved yet another year of record acquisition volume of $1.31 billion, Our continued focus on best-in-class omnichannel retailers is demonstrated by nearly 84% of annualized base rent acquired being derived from leading investment-grade retailers. Our laser-like focus is further cemented by the ground lease opportunities that we've executed on during this past year. We added 26 ground leases to our portfolio during 2020, representing over 12% of annualized base rents acquired increasing our overall ground lease exposure to 9.6% of our total portfolio. Several notable ground lease assets were acquired during the year, including our first Wegmans in Chapel Hill, North Carolina, five long-term Wawa convenience stores, three Walmarts, two Home Depots, two Aldis, two Sheetz convenience stores, and a Lowe's in Toledo, Ohio. As a reminder, our ground lease portfolio derives more than 92% of rents from investment-grade tenants and is comprised of the country's premier retailers. We continue to identify additional compelling opportunities to add assets to this portfolio, and I look forward to updating you in upcoming quarters. We closed out the year with a strong fourth quarter, investing $363 million in 106 properties across our three external growth platforms. Consistent with our focus on quality throughout the year, more than 83% of annualized base rents acquired during the fourth quarter are derived from retailers with an investment-grade credit rating, and more than 19% of annualized base rents acquired were derived from ground-leased assets. The 100 properties acquired during the fourth quarter are leased to 31 tenants operating in 18 distinct sectors, including off-price retail, home improvement, auto parts, general merchandise, dollar stores, convenience stores, grocery stores, and tire and auto service. The properties were acquired at a weighted average cap rate of 6.4% and had a weighted average lease term of 11.6 years. Our pipeline heading into 2021 is robust, and I am very pleased with our progress to date. As indicated by our initial acquisition guidance of $800 million to $1 billion, we are confident in our team's ability to aggregate high-quality transactions comprised of leading omni-channel retailers. Consistent with our initiative to rethink retail, we continue to construct a net lease portfolio with sector-leading operators that are well-positioned to succeed in an omnichannel world. During this past year, we added Kroger to our top tenants list while reducing exposure to Mr. Carwash and Dave & Buster's, who are no longer amongst our top tenants. As mentioned, at year-end, our portfolio's investment-grade exposure stood at more than 67%. representing a year-over-year increase of more than 900 basis points and a two-year stacked increase of more than 1,600 basis points. Our focus on best-in-class retailers will continue as we continue to not see it prudent to move up the risk curve. Moving on to our development and partner capital solutions platforms, we had 12 development and PCS projects either completed or under construction during the year that represent total capital committed of more than $43 million. Nine of these projects were completed during the past year, representing total investment volume of approximately $31 million. Two of these projects were commenced during the fourth quarter, with total anticipated costs of just over $6 million. The projects consist of a Burlington in Texarkana, Texas, and a Gerber collision in Beaufort, Georgia. Construction continued during the fourth quarter on the company's first development with Grocery Outlet in Port Angeles, Washington, which is expected to be completed in the second quarter of 2021. Subsequent to quarter end, we commenced construction on our first 7-11 development in Saginaw, Michigan. 7-11 will be subject to a 15-year net lease upon rent commencement, which is anticipated to take place in the first quarter of 2022. The continued growth of our pipeline demonstrates our efforts to expand our relationships with best-in-class retailers and leverage our three-pronged external growth platform. These capabilities continue to produce opportunities that fit very nicely within our portfolio. While we fortified our portfolio through record investment activity, we have also diversified our portfolio during the year through strategic asset management and disposition activities. We sold 17 properties for total gross proceeds of just more than $49 million in 2020. These dispositions were completed at a weighted average cap rate of 7.1%. Notably, we sold 12 franchise restaurants during this past year, reducing the company's franchise restaurant exposure to a mere 1.2% of annualized base rents at year's end. Our asset management team remained diligently focused on addressing our upcoming lease maturities. As a result of their efforts, at year-end, our 2021 lease maturity stood at just 0.9% of annualized base rents, representing a year-over-year decrease of 170 basis points. During the fourth quarter, we executed new leases, extensions, or options on approximately 82,000 square feet of gross leaseable area. For the full year 2020, we executed new leases, extensions, or options on approximately 518,000 square feet Notable new leases, extensions, or options included new 20-year leases on three Wawa convenience stores located in the Mid-Atlantic, a Dick's Sporting Goods in Boynton Beach, Florida, and a Giant Eagle in Ligonier, Pennsylvania. As of December 31st, our rapidly growing retail portfolio consisted of 1,129 properties across 46 states. This represents approximately a 38% increase in total property count over the course of just one year. The strength of our carefully constructed portfolio is reflected in our collections data for 2020. During the year, we received second, third, and fourth quarter rental payments originally contracted for in those quarters from 95, 98, and 99 percent of our portfolio, respectively. During that past year, we also entered into deferral agreements for second and third quarters of 2 percent and less than 1 percent of fourth quarter rents, respectively, net of repayments received. In January of this year, we saw a continuation of these collection trends as we again collected 99% of rent. This marks the fifth consecutive month of 99% collections for our portfolio. I will again highlight that our collections data includes both base rents and recurrent operating cost reimbursements. In addition, we include base rents and operating cost reimbursements charged to tenants in bankruptcy and have not made any COVID-related adjustments to the denominator when making these calculations. Our goal remains to provide complete and transparency to our investors on actual collections data. As evidenced by our increasing investment-grade exposure, our expanding ground lease portfolio, our minimal near-term lease rollover, and our leading rent collections, our portfolio is better positioned than it has ever been. In January, we launched our Rethink Retail initiative to challenge the misperceptions about the future of brick-and-mortar retail and highlight why net lease properties, and specifically our portfolio, is exceptionally positioned in an omni-channel retail world. Our newly launched websites include resources regarding our portfolio, as well as our first white paper, which provides our perspective on omnichannel retail. We will be putting out additional materials in the coming weeks focused on the dynamic nature of retail and how agri-realty is positioned to capitalize on this landscape. I would encourage everyone to visit our new website and please provide any feedback as we continue to build out the content portal. In January, we also announced the conversion to a monthly dividend. The conversion to a monthly dividend is a testament to the reliability and consistency of our portfolio's operating cash flow, as well as the increased individual investor participation of the equity markets. Lastly, I'd like to take a moment to welcome Karen Dearing to our Board of Directors. Many of you are very familiar with Karen as she serves as the Chief Financial Officer and Executive Vice President of Sun Communities. We're very excited to add Karen's accounting, finance, capital markets, and REIT industry experience to our board. I look forward to our many insights and experiences as we continue to scale our growing and dynamic company. I'll hand the call over to Clay, and then we can open it up for any questions.