Agree Realty Corporation

Good morning, and welcome to the AGRI Realty first quarter 2023 conference call. All participants will be in a listen-only mode for the duration of the call, and should you need any assistance during that time, 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. And to withdraw your question, please press star, then two. We ask that you please limit yourself to two questions for today's call. Please also note that this event is being recorded today. I would now like to turn the conference over to Brian Hawthorne, Director of Corporate Finance. Please go ahead, Brian.

Thank you. Good morning, everyone, and thank you for joining us for Agri Realty's first quarter 2023 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. 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 discussed non-GAAP financial measures including our 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, Brian, and thank you all for joining us this morning. I'm extremely pleased to report that we're off to a strong start in 2023. The lack of competition amongst both public and private buyers has provided us with greater access to attractive risk-adjusted opportunities than anticipated. As demonstrated by our first quarter investment activity, and even more evident in our pipeline, is seller fatigue that's contributing to a narrowing bid-ask spread. We have seen a recent acceleration of seller capitulation as the reality of a new pricing paradigm has begun to set in. Due to market forces, capitalized competition within our targeted sandbox is extremely limited. Our ability to quickly diligence and certainty to close are very attractive propositions for owners that have been on and off market with private purchasers. Our pipeline over the last few weeks has been very dynamic with a wide spectrum of opportunities. In the last several days alone, we've executed letters of intent to acquire over 100 million in high-quality assets at attractive cap rates. Diversified portfolios, sale leasebacks, distressed developers, and early extensions are among the approximately 100 properties that we currently have under control. Given our acquisition volume in the first quarter and increased visibility into our pipeline, we are raising our acquisition guidance from at least $1 billion to at least $1.2 billion acquired for the year. That said, the world remains quite volatile, and we will not waver from our stringent underwriting criteria. The investments we have made in technology and our team have provided our company a distinct competitive advantage. Both our analysts and rotation programs, led by our EVP of people and culture, Nicole Witteveen, have given us a deep bench of multifaceted and talented future leaders. Similarly, our multi-year investments in information technology, led by both ARC and our ERP system, are continuing to bear fruit, enabling us to be nimbler and review, source, and execute transactions more efficiently. Peter will speak to the G&A leverage we continue to gain in a few minutes. Our decision to pre-equitize our balance sheet in advance of this year has proven prudent, and we remain in an extremely strong position. We ended the first quarter with approximately $1.2 billion of liquidity, significant outstanding forward equity, and well below the low end of our target leverage range. On earlier calls, I stressed that we would avoid moving up the risk curve or shifting our strategy. We have been very successful leveraging our relationships and core competencies to identify extremely high quality opportunities as economic and geopolitical uncertainties remain. During the first quarter, we invested over $314 million in 95 high quality retail net lease properties across our three external growth platforms. This includes the acquisition of 66 assets for approximately $302 million in the tire and auto service, home improvement, grocery, auto parts, dollar store, and farm and rural supply sectors, among others. The weighted average cap rate of the acquisitions was 6.7%, a 30 basis point expansion relative to the fourth quarter, and 50 basis points higher than the full year 2022. Seventy-five percent of the acquisitions released to investment grade retailers, and our weighted average lease term of over 13 years was a five-year high. We acquired two ground leases during the quarter representing $19 million, approximately 7% of total acquisition volume for the quarter. The breadth and variety of transactions during the quarter demonstrates our unique value proposition and the strength of our industry-wide relationships. We executed several stat leasebacks with our retail partners, led by two transactions in the grocery space with national and super-regional operators, both of which carry investment-grade credit ratings. We also completed the acquisition of a diversified portfolio for an institutional seller, several blend and extend opportunities, as well as a number of developer direct transactions. Our long-term vision, that of a full-service, real estate-focused, net-lease retail REIT, and not simply a spread investor, has accelerated due to the capital-constrained environment and our team's hard work across multiple fronts. Moving on to our development in PCS platforms, we commenced five new projects with total anticipated cost of over $19 million. Construction continued during the quarter on 21 projects with an anticipated cost totaling nearly $86 million. Three projects in Florida and California were wrapped up during the quarter for Gerber Collision. In the aggregate, we had 29 projects completed or under construction during the quarter, with anticipated total costs of $115 million, inclusive of the 59 million of costs incurred as of March 31st. On the leasing front, we executed new leases, extensions, or options on approximately 510,000 square feet of gross leaseable area during the first quarter. Notable extensions, options, or new leases included two Sam's Clubs located in Lansing, Michigan, and Brooklyn, Ohio. We are in a very strong position for the remainder of the year with just 16 leases or 80 basis points of annualized base rents maturing. At a quarter end, our growing retail portfolio surpassed 1,900 properties across all 48 continental United States, including 208 ground leases representing over 12% of total annualized base rents. Occupancy remained very strong at 99.7%, and our investment grade exposure stood at 68%. Our portfolio continues to be the preeminent retail portfolio in the country. It remains extremely well positioned to withstand any macroeconomic headwinds. With that, I'll hand the call over to Peter, and then we can open up for questions.