Agree Realty Corporation

Good morning and welcome to AGRI Realty Corporation's first quarter 2022 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal conference specialists by pressing the star key followed by zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. 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 Ruben Treatment, Director of Corporate Finance. Please go ahead, Ruben.

Thank you. Good morning, everyone, and thank you for joining us for AgriReality's first quarter 2022 earnings call. Before turning the call over to Joey and Peter to discuss our 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 on us and our tenants. Please see yesterday's earnings release and our SEC filings including our latest annual report on Form 10-K for discussion of various risks and uncertainties underlying our forward-looking statements. In addition, we discuss 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 to the most directly comparable GAAP measures can be found in our earnings release, website, and SEC filings. I'll now turn the call over to Joey.

Thanks, Ruben, and thank you all for joining us this morning. I'm pleased to report that we're off to a very strong start in 2022. The first quarter marked record development in partner capital solution starts, as well as our second highest quarter of acquisition volume in the company's history. While continue to execute across all three external growth platforms, we are very pleased that our fortress-like balance sheet and disciplined portfolio construction received an upgrade from Moody's to BAA1. During the first quarter, we invested approximately $430 million in 124 high-quality retail net lease properties across our three external growth platforms. 106 of these properties were originated through our acquisition platform, representing acquisition volume of just over $407 million. While investment volume was impressive, we maintained our disciplined focus on best-in-class opportunities with our leading retail partners, as demonstrated by more than 74% of first-quarter acquisitions being comprised of investment-grade retailers. The 106 properties acquired during the first quarter are leased to 42 tenants operating in 20 distinct sectors, including leading operators in farm and rural supply, dollar source, home improvement, general merchandise, tire and auto service, and auto parts. We executed on several notable transactions during the quarter, including the 55 property $180 million portfolio discussed on our last earnings call. The acquired portfolio has a weighted average lease term of nearly 10 years. It derives approximately 90% of annualized base rent from a diversified set of investment grade retailers. Top tenants include tractor supply, CBS, Dollar General, Sherwin-Williams, Advance Auto Parts, and O'Reilly Auto Parts. For the quarter, the total properties acquired had a weighted average cap rate of 6% and had a weighted average lease term of 9.2 years. Excluding the 55 property portfolio, the properties acquired during the quarter had a weighted average cap rate of 6.2%. During the first quarter, we also acquired six Sunbelt rental stores in North Carolina, New York, Washington, Florida, and Michigan. Several years ago, we identified Sunbelt and their parent, Ashtead Group, as a compelling and aligned partner with the only investment-grade credit profile in their respective space. Our decision to invest in Sunbelt Rentals was recently reinforced by their upgrade to Triple B by Fitch. We continue to look for opportunities to build our relationship with Sunbelt across all three of our external growth platforms. Given our significant acquisition activity in the first quarter and robust pipeline, we are increasing our full year 2022 acquisition guidance to a range of $1.4 to $1.6 billion, representing a 25% increase at the midpoint. While the midpoint of our increased acquisition guidance would represent record volume for our company, we have not and will not sacrifice quality or yield. We continue to believe that retail is dynamically evolving and we remain intent on investing in those retailers best positioned to succeed in an omnichannel and dynamic world. Moving on to our development and partner capital solutions platform, this quarter demonstrates the results of our efforts to provide comprehensive real estate solutions to our retail partners through our programmatic relationships, and as well as the modifications and additions we have made to our team to increase productivity. Led by our Chief Operating Officer, Craig Ehrlich, our development and construction team is working around the clock on a host of exciting projects. During the quarter, we commenced a record 15 new development and PCS projects, including 13 geographically diverse Gerber collision locations, a Sunbelt rentals in St. Louis, Missouri, as well as a Burlington in Turnersville, New Jersey. We completed our first development with 7-Eleven in Sagat on Michigan during the quarter, while construction continued on two Gerber Collision projects in Poober, Georgia, and Newport Ritchie, Florida. In total, we had 18 projects either completed or under construction during the first quarter, representing $53 million of committed capital. On last quarter's call, I mentioned our expectation to commence between $50 and $100 million through our development and PCS platforms this year, and we've now surpassed the low end of that range, and our pipeline continues to ramp. Our value proposition remains unique and distinct. Our three-pronged external growth strategy combined with our outstanding asset management platform continues to provide a full service solutions for the country's premier retailers. Moving on to dispositions, we sold one property opportunistically for total gross proceeds of approximately $8 million during the quarter. The property was a recently acquired ground lease convenience store Notably, we acquired the property during the third quarter of 2021 and received an unsolicited offer shortly thereafter. We sold the asset at just over a four cap, approximately 200 basis points below the initial acquisition yield, resulting in a gain in over $2 million in just six months. While this was a one-off transaction, it demonstrates the embedded value in our ground lease portfolio and validates the compelling risk-adjusted returns that we've discussed on prior calls. During the quarter, we executed new leases, extensions, or options on approximately 358,000 square feet of gross leaseable area. Notable new leases, extensions, or options included a Walmart in Ohio and a Best Buy in Amarillo, Texas. As a result of our asset management team's efforts at quarter end, our 2022 lease maturities stood at just 0.4% of annualized base rents, representing a year-over-year decrease of approximately 80 basis points. At quarter end, our quickly growing retail portfolio surpassed 1,500 properties, a remarkable achievement in terms of our exponential growth in recent years, and consisted of 1,510 properties across 47 states, including 186 ground leases, representing 13.5% of total annualized base rents. Our investment grade exposure stood at nearly 68%, representing a two-year stacked increase of more than 800 basis points. With that, I'll turn the call over to Peter, and then we can open it up for any questions.