Agree Realty Corporation

Good morning and welcome to the Agree Realty second quarter 2022 conference call. All participants will be in listening mode. Should you need assistance, please signal conference sessions by pressing the star key, followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask questions, you may press star then one and a touch down phone. To withdraw your question, please press star then two. Please note this event is being recorded. I'll now 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 agri-realty's second 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'll 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. 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.

Thank you, Ruben. I'm very pleased to report that we've continued our strong start to the year, deploying significant capital across all three external growth platforms, maintaining near full occupancy, and further solidifying our balance sheet. While these results are readily apparent for investors to see, One of our most notable achievements was our continued progress on our ADC state-of-the-art initiative. Both our ERP implementation and ARC enhancements made material strides during the quarter and will drive significant efficiencies for our growing organization. During the second quarter, we invested approximately $430 million in 121 properties across our three external growth platforms. Ninety-nine of these properties originated through our acquisition platform, representing acquisition volume of more than $420 million. The 99 properties acquired during the second quarter are leased to 34 tenants operating in 21 distinct sectors, including best-in-class operators in the dollar store, general merchandise, tire and auto service, home improvements, off-price, warehouse clubs, convenience store, and auto parts sectors. The acquired properties had a weighted average cap rate of 6.2% and a weighted average lease term of 10 years. Our investment activities were supported by almost $525 million of equity raised during the quarter that fortified our best-in-class balance sheet and positioned us for continued growth. Through the first half of the year, we've invested a record $860 million across 228 retail net lease properties spanning 40 states and 26 retail sectors. Approximately $828 million of our investment activities originated from the acquisition platform. Nearly two-thirds of the annualized base rent acquired during the first six months of the year is derived from leading investment-grade retailers. These metrics demonstrate our continued focus on a broad spectrum of opportunities, with leading omni-channel retailers through multiple growth avenues, ranging from one-off acquisitions, diversified portfolios, select sale leasebacks, development, and our PCS platform. This diversified toolkit continues to ramp and produce superior risk-adjusted opportunities in long-term relationships with our retail partners. As of June 30th, tire and auto service was our top sector, representing 9.4% of the portfolio. We continue to find compelling opportunities across this space and view the sector quite favorably. The average age of U.S. cars on the road hit a record of over 12 years. This combined with high-quality national operators and the low rents per square foot score very highly in our model. Given our record acquisition volume year-to-date and our robust pipeline, we are increasing our 2022 acquisition guidance to a range of $1.5 to $1.7 billion, from the previous range of $1.4 to $1.6 billion. The low end of this range would represent record acquisition volume for our company, surpassing the approximately $1.4 billion acquired last year. Given our improved cost of equity capital, we are able to invest in even greater spreads and provide additional cash flow accretion. Our superior cost of capital combined with our fortress balance sheet positions us to pursue many exciting opportunities while levered competitors have exited the market. We are seeing distress amongst owners and developers and are intent on leveraging our strong positioning. While once again raising our acquisition guidance, We are cognizant of the dynamic macro environment and will remain disciplined to our strategy. Moving on to our development and partner capital solutions platforms, our team continues to uncover compelling opportunities with the growing pipeline. Cap rate expansion, inflationary pressures, and rising construction interest rates have uniquely situated us to deliver projects timely and on budget. During the quarter, we commenced five development and PCS projects, including three additional grouper collisions, as well as another Sunbelt Rentals. We completed the development of the Gerber in Pugar, Georgia, and construction continued on 16 additional projects. In total, we had a record 23 projects either completed or under construction during the first half of the year, representing $74 million of committed capital. On last quarter's call, I mentioned our expectation to commence between $50 and $100 million through our development in PCS platforms this year. Given our significant activity year-to-date and our growing pipeline, we've increased that range and now expect to commence between $75 and $125 million this year. Moving on to dispositions, we sold four properties for total gross proceeds of almost $17 million during the quarter, with a weighted average cap rate of approximately 7%. This activity includes the previously announced sale of the LA Fitness in Houston, Texas, which further reduced our health and fitness exposure. Through the first six months of the year, we sold five properties for gross proceeds of nearly $25 million, with a weighted average cap rate of approximately 6%. On the leasing front, we executed new leases, extensions, or options on approximately 102,000 square feet of gross leaseable area. Notable new leases, extensions, or options included a Best Buy in El Paso, Texas, a Chick-fil-A in Rocky River, Ohio, and a Panera Bread in Nashua, New Hampshire. As a result of our asset management team's efforts, At quarter end, our 2022 lease maturities stood at just 0.1% of annualized base rents. Our portfolio remains nearly fully occupied at 99.6%. At quarter end, it encompassed over 1,600 properties across all 48 continental United States and included 193 ground leases representing 13% of total annualized base rents. Our investment-grade exposure stood at nearly 68 percent, representing a two-year stacked increase of 650 basis points. Before handing the call over to Peter to discuss our financial results, I want to commend Peter and our entire ESG Steering Committee for their efforts on our second annual ESG report. The report includes enhanced disclosure through the incorporation of climate-related and investor-preferred frameworks. We encourage you all to read our report, which you can access within the Investors section of our website. With that, I'll hand the call over to Peter, and then we can open it up for questions.