Agree Realty Corporation

Good morning and welcome to the Agri Realty third quarter 2021 conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the start 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 1 on your touch-tone phone. To withdraw your question, please press star then 2. Please note, this event is being recorded. I would now like to turn the conference over to Nicole Wudeveen, Executive Vice President and Chief of Staff. Please go ahead, Nicole.

Thank you. Good morning, everyone, and thank you for joining us for AG Realty's third quarter 2021 earnings call. Before turning the call over to Joey and Peter to discuss the results for the quarter, let me first run through the cautionary language. 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 the containment measures of us and our tenants. Please see yesterday's earnings release in 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 EBITDA. Reconciliations of these non-GAAP financial measures, the most directly comparable GAAP measures, can be found in our earnings release website and SEC filing. I will now turn the call over to Joey.

Thank you, Nicole. I'm very pleased to report that we achieved record investment volume of approximately $1.1 billion through the first nine months of 2021, with continued momentum heading into the fourth quarter of this year. While replicating these investment volumes is a testament to the efforts of our talented team, I am most pleased with the exceptional quality of the investments that we have made in a challenging environment. While our investment activities further strengthen our best-in-class retail portfolio, we have also fortified our robust balance sheet with $1.5 billion of capital markets transactions year-to-date, positioning our company for dynamic growth in the quarters ahead. Notably, we completed our inaugural preferred equity offering during the third quarter, raising $175 million at a 4.25% coupon. This represents the lowest non-PSA REIT preferred equity coupon in history and provides a new source of perpetual capital for our rapidly growing company. During the third quarter, we invested approximately $343 million in 83 high quality retail net lease properties across our three external growth platforms. 80 of these properties were sourced through our acquisition platform representing acquisition volume of over $340 million. The 80 properties acquired during the third quarter are leased to 49 tenants operating in 20 distinct retail sectors, including best-in-class operators and off-price retail, convenience stores, tire and auto service, home improvement, auto parts, grocery, and general merchandise. The acquired properties had a weighted average cap rate of 6.2% and a weighted average lease term of 10.7 years. As mentioned, through the first nine months of the year, we've invested a record $1.1 billion in 226 retail net lease properties spanning 40 states across the country and 26 retail sectors. While raising the lower end of our acquisition guidance for the year to $1.3 billion, our thoughtful and disciplined approach is evidenced by the nearly one-third of annualized base rents acquired year-to-date derived from ground lease assets. and roughly 70% of annualized base rents acquired derived from leading investment grade retailers. During this past quarter, we executed on several unique transactions, including our third Amazon Fresh store in Illinois. We're excited about the opportunity to add yet another Amazon Fresh store to the portfolio, located in a prominent Chicago suburb with median household incomes of 110,000 and a daytime population of roughly 225,000 within a five mile radius. Our acquisition team also continues to uncover compelling ground lease opportunities. During the quarter, we completed the acquisition of a nine-property portfolio of Thornton's convenience stores for approximately $21 million. The stores, which are paying an average annual rent of only $120,000 per year and have a weighted average lease term of close to 20 years, are all well located in the Nashville and Chicago MSAs. Shortly after executing a letter intent to purchase this portfolio, BP announced they're taking full ownership of Thornton's convenience store chain after two and a half years as part of a joint venture established in 2019. This transaction makes BP, which is an A minus rated company by S&P, one of the leading convenience store operators in the Midwest with more than 200 stores across six states. Other notable ground lease acquisitions during the quarter including Walmart and Sam's Club in Lansing, Michigan. two Lowe's stores located in Wallingford, Connecticut and Abington, Massachusetts, and a CVS in Springfield, Massachusetts. We've acquired 73 ground leases year-to-date for total investment spend of nearly $350 million, representing nearly 31% of acquisition spend for the entire year. This includes 28 ground leases during the third quarter, representing investment volume of over $108 million. As of September 30th, our ground lease exposure reached a record of nearly 14% of annualized base rents. The ground lease portfolio now derives roughly 87% from investment grade tenants and has a weighted average lease term of 12.1 years with an average rent of less than $10 per square foot. This portfolio continues to represent an extremely attractive risk adjusted investment for our shareholders. On recent earnings calls and discussions, there have been considerable dialogue regarding our ground lease portfolio and its valuation. I would encourage everyone to take a look at the new slide we added on page 10 of our investor presentation, which compares our ground lease portfolio to the 10-year Bloomberg BBB index, which has been trading between 2% and 3% over the past 12 months. This is a very compelling comparison when thinking about the value of our ground lease portfolio, which is a weighted average credit rating of BBB+, over two years of additional term in comparison to the Bloomberg BBB index, and internal growth of nearly 1%. As of September 30th, our portfolio's total investment grade exposure was approximately 67%, representing close to a 500 basis point year-over-year increase. On a two-year stacked basis, our investment grade exposure has improved by roughly 1,000 basis points. Moving on to our development and partner capital solutions program, we continue to uncover compelling opportunities with our retail partners. We had seven development and PCS projects either completed or under construction during the first nine months of the year that represent total committed capital of approximately $40 million. I'm pleased to announce we commenced construction during the quarter on our third development with Gerber Collision in Newport Ritchie, Florida. Gerber will be subject to a new 15-year lease upon completion and we anticipate rent will commence in the second quarter of 2022. Construction continued during the third quarter on two development and PCS projects with anticipated costs of just over $5 million. The project consists of our first 7-Eleven development in Saginaw, Michigan, and a Gerber collision in Pooler, Georgia. We remain focused on leveraging our three external growth platforms and our differentiated asset managing capabilities to expand our relationships with best-in-class retailers, providing comprehensive solutions that facilitate the real estate strategies and growth plans. While we continue to strengthen our best-in-class retail portfolio through record investment activity, we remain active on the disposition front during the third quarter. We continue to reduce exposure to franchise restaurants and non-core tenants through the disposition of three properties for total growth proceeds of approximately $11.8 million, with a weighted average cap rate of 6.3%. As of 9.30, we've disposed of 13 properties for gross proceeds of just over $48 million and are maintaining our disposition guidance of $50 to $75 million for the year. Bolstered by the recent addition of David Darling as our Vice President of Real Estate, the Asset Management Team continues to diligently address upcoming lease maturities. Their efforts have reduced our 2021 maturities to just four leases representing 10 basis points of annualized base rents. During the third quarter, we executed new leases, extensions, or options in approximately 72,000 square feet of gross leaseable area. Through the first nine months of the year, we executed new leases, extensions, or options on approximately 347,000 square feet of gross leaseable space. Our 2022 lease maturities are de minimis with only 19 leases maturing, representing less than 1% of annualized base rents expiring over the course of the next year. As of September 30th, our expanding retail portfolio consisted of 1,338 properties across 47 states, including 162 ground leases, and remains effectively fully occupied at 99.6%. Notably, and as pointed out in our press release, Walgreens and LA Fitness are no longer top tenants for our company. Both now represent less than 1.5% of annualized base rents. For those that have been following our company over the years, this reduction in Walgreens exposure is a true milestone given our historical exposure which once approached 40% of our portfolio. We have made a concerted effort to approach to tailor our pharmacy exposure given the high per square foot rental rates of many vintage pharmacy leases and the divergent approaches of CBS and Walgreens to a quickly changing landscape. Before I turn the call over to Peter to discuss our financial results, I'd like to welcome Mike Judlow to our board of directors. Many of you are familiar with Mike as he most recently served as chairman of the U.S. real estate, gaming, and lodging investment banking practice at Jefferies. Over the course of his career, Mike has raised in excess of $50 billion of capital through numerous transactions. Having had the opportunity to work with Mike for many years, I am extremely excited to leverage his unique perspectives and experiences as our company continues to dynamically grow and evolve. With that, I'll hand the call over to Peter to discuss our financial results for the quarter.