Agree Realty Corporation

Good morning and welcome to the Green Realty Third Quarter 2022 Conference Call. All participants will be in listening mode. If you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, you'll have an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. To draw your question, please press star then two. Please limit yourself to two questions during this call. Note that this event is being recorded. I'd like to turn the call over to Mr. Ruben Treeman, Director of Corporate Finance. Please go ahead, Ruben.

Thank you. Good morning, everyone, and thank you for joining us for AgriReality's third 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 a 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. Good morning, everyone, and thank you for joining us. Before running through our standard update, I'd like to take a step back to provide some observations on the current state of the market, as well as the steps we've taken to further strengthen our positioning in a challenging macro environment. Our recent capital markets transactions have bolstered our balance sheet with attractively priced capital. At quarter end, our fortress balance sheet stood at approximately 3.1 times pro forma net debt to EBITDA, providing tremendous flexibility and enabling us to opportunistically execute as buyers and sellers continue to adjust to the market. Cap rates are creeping higher, most significantly in the merchant builder space, and provided us opportunities to take advantage of distressed situations. We have seen the levered buyer and a number of institutionally capitalized investors exit the market altogether or move significantly up the risk curve to drive incremental yield. As the bid-ask spread continues to narrow and more sellers capitulate, our focus will remain on the strongest retailers in the country with the balance sheets to execute their omni-channel strategy in a challenging retail environment. We will not go up the risk curve in terms of tenant credit profile, single-purpose assets, or private equity-sponsored sale leasebacks. Our working assumption is that attractively priced long-term debt does not return to the market for the foreseeable future. Hence, we are focused on unlevered returns on equity. We are very fortunate to have the balance sheet and cost of capital to still drive incremental spreads without leverage. Our focus continues to remain on per-share AFFO growth while preserving the dry powder to execute on distress. I remind all investors that our company has thrived in times of economic uncertainty. We launched our acquisition platform after the great financial crisis and nearly doubled the size of our company during COVID. Candidly, I think the market has been ready for a reset for a while now, and I'm confident that our team is ready to once again seize on the opportunities that will be forthcoming. Moving on to third quarter activities, We selectively invested approximately $372 million in 121 properties across our three external growth platforms. 98 of these properties originated through our acquisition platform, representing volume of more than $360 million. The properties acquired during the quarter are leased to 39 tenants, including best-in-class operators in the dollar store, auto parts, farm and rural supply, grocery, home improvement, consumer electronics, and off-price sectors. The acquired properties had a weighted average cap rate of 6.2% and year-to-date record weighted average lease term of 11.1 years. Nearly 73% of the acquired properties were leased to investment-grade operators. Throughout the first nine months of the year, we've invested a record $1.2 billion in 328 retail net lease properties spanning 42 states. Over two-thirds of the annualized base rent acquired is derived from leading investment grade retailers. These metrics demonstrate our continued focus on leveraging all three external growth platforms to execute on opportunities with best-in-class operators. Given the increased visibility into our high-quality pipeline, we are increasing the bottom end of our acquisition guidance to $1.6 billion, while maintaining the high end of our guidance at $1.7 billion. That said, we will remain prudent and disciplined in how we deploy capital. Our investment activities were supported by almost $815 million of equity and debt raised during the quarter that fortified our balance sheet. At 9.30, we had over $630 million of forward equity and cash on the balance sheet with no outstanding balance on our revolving credit facility. Moving on to our development and partner capital solutions platforms, Our team continues to uncover compelling opportunities, helping to build the company's largest ever development pipeline. Our platform is uniquely situated to provide struggling merchant developers with the ability to lock in funding while providing us with additional opportunities to drive superior risk-adjusted returns. We continue to have dialogue with many of our retail partners to find solutions that fit their store growth strategies. During the quarter, we commenced two new developments in PCS projects, including one Gerber collision located in Marietta, California, as well as the Sunbelt rentals in Wentzville, Missouri. We also completed the development of two Gerber collisions locations, as well as a Burlington. Construction continued on 18 additional projects. In total, we had a record 25 projects either completed or under construction during the first nine months of the year, representing approximately $82 million of committed capital. Moving on to dispositions, we sold our Gardner-White furniture store in Canton, Michigan for approximately $20 million during the quarter. As noted on previous calls, this was the art van flagship we developed prior to the company's acquisition by THLE, which was subsequently released to Loves Furniture and then most recently to Gardner-White. During the time we owned the asset, we were able to release this property twice, recapturing effectively 100% of rent without tenant improvement dollars. Now, three tenants and a pandemic later, we are ultimately selling the asset in an IRR of approximately 10%, which demonstrates our bottoms-up approach to real estate underwriting. Through September 30th, we sold six properties for gross proceeds of nearly $45 million, with a weighted average cap rate of 6.5%. Given our year-to-date activity, we are increasing the lower end of our disposition guidance range to $45 million, while maintaining the upper end of our range at $75 million. On the leasing front, we executed new leases, extensions, or options in approximately 192,000 square feet of gross leaseable area. Notably, new leases, extensions, or options included in Dick's Sporting Goods in St. Joseph's, Missouri, and at Big Lots in Cedar Park, Texas. At quarter end, our 2022 lease maturity stood at just 0.2% of annualized base rents. We're also in terrific position for the upcoming year with only 1.5% of our portfolio-wide leases maturing. At quarter end, our portfolio encompassed over 1,700 retail properties across all 48 continental United States, including 201 ground leases, representing 12.7% of total annualized base rents. Occupancy ticked up during the quarter to 99.7%, while investment-grade exposure stood at nearly 68%, representing a two-year stacked increase of 530 basis points. Our portfolio is the best in the country and undoubtedly positioned to withstand any economic headwinds. With that, I'll hand the call over to Peter, and then we get it open for questions.