Agree Realty Corporation

Good morning and welcome to the Agree Realty third quarter 2023 conference call. All participants will be in a listen-only mode. Should you need assistance, 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 a touchtone phone. To withdraw your question, please press star then two. Please limit yourself to two questions during this call. Please note, this event is being recorded. 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 third 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 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, Brian. Good morning, and thank you all for joining us today. I'm pleased to report another quarter of strong performance as we executed our operating strategy in a disciplined manner. We invested in high quality opportunities across all three external growth platforms while increasing our investment grade exposure to an all time high of nearly 69%. Our record investment grade exposure is emblematic of the strength of our portfolio, which will provide for more durable cash flows in today's environment. Our portfolio is paired with a conservative balance sheet with four and a half times net debt to recurring EBITDA at quarter end and no material debt maturities until 2028. We continue to push cap rates higher during the quarter without sacrificing quality and maintaining our stringent underwriting criteria. Within our targeted sandbox, there continues to be a lack of capitalized competition and our track record of execution makes us the buyer of choice in today's market. We anticipate this dynamic will persist and consequently cap rates will continue to move higher, albeit slowly and steadily, given the large and fragmented nature of the net lease space. We are in an enviable position for the upcoming year. Our fortress balance sheet has no material debt maturity until 2028, avoiding refinancing headwinds. Simultaneously, our best-in-class portfolio with minimal lease maturities provides stable and growing cash flows. Even in the absence of external growth, this will enable us to deliver AFFO or true cash growth of over 3% next year on a per share basis. Embedded in this base case is a conservative credit loss amount, inflationary growth in G&A of over 5%, and any outstanding borrowings on the revolver assumed at the current forward silver curve. This base case AFFO growth combined with our current dividend yield sets the stage for high single-digit returns in 2024, even in the absence of additional capital or external growth. As discussed on previous calls, we will continue to avoid going up the risk curve, investing capital only in the country's leading operators with high-quality underlying real estate. While our relationships and acquisition funnel continue to provide a strong pipeline, we will remain disciplined capital allocators to ensure that our risk-adjusted spreads are appropriate and our cap rates are reflective of broader market conditions. This past quarter, we invested approximately $411 million in 98 high-quality retail net lease properties, including the acquisition of 74 assets for $398 million. The properties acquired during the quarter are leased to leading operators in sectors including farm and rural supply, auto parts, tire and auto service, convenience stores, off-price retail, home improvement, and warehouse clubs. We executed several sale leaseback transactions this quarter with our retail partners, including best-in-class operators in the farm and rural supply and convenience store sectors. As mentioned on prior calls, sale leaseback activity has increased for us this year. It is another example of our ability to be a full-service, comprehensive real estate solution for leading operators. The acquired properties had a weighted average cap rate of 6.9%. a 10 basis point expansion relative to the second quarter, and 70 basis points higher than full year 2022. The weighted average lease term was 11.5 years, and approximately 73% of annualized base rents were derived from investment grade retailers. We acquired seven ground leases during the quarter, representing approximately $35 million, or 8.2% of total acquisition volume for the quarter. For the first nine months of the year, we've invested more than $1 billion in 265 retail net lease properties spanning 38 states. Over 73% of the annualized base rent acquired is derived from leading investment-grade operators. These metrics demonstrate our continued focus on leveraging all three external growth platforms to execute on opportunities with best-in-class retailers. Our development and DFP programs continue to see increased activity with a record of over $137 million of capital committed this year. Our team continues to uncover exciting opportunities, and our platform is uniquely situated to provide struggling merchant developers with the ability to lock in funding while providing us with the opportunity to drive superior risk-adjusted returns. We continue to have dialogue with many of our retail partners to find solutions that fit within their store growth strategies. We commenced two new development and DFP projects during the quarter with total anticipated costs of $11 million. Construction continued during the quarter on 14 projects with anticipated costs totaling approximately $56 million. Lastly, we wrapped up construction on eight projects during this past quarter with total costs of approximately $41 million. Moving on to leasing, we executed new leases extensions or options on over 655,000 square feet of gross leaseable area during the third quarter. Notable new leases, extensions or options, including a 220,000 square foot Walmart in Wichita, Kansas, 130,000 square foot Lowe's in North Providence, Rhode Island, and a 40,000 square foot Marshalls and Home Goods in Napa, California. Through the first nine months of the year, we executed new leases, extensions, or options on just over 1.4 million square feet of gross leaseable area. We are in an excellent position for the remainder of the year with just eight leases or 30 basis points of annualized base rents maturing. Our best-in-class portfolio now spans 2,084 properties across 49 states, including 217 ground leases representing 11.6 of total annualized base rents. Occupancy for the quarter remained very strong at 99.7%. And again, our investment grade exposure reached a record of approximately 69%. Before I turn the call over to Peter, I want to congratulate Nicole Witteveen on her promotion to Chief Operating Officer. Nicole has had tremendous accomplishments throughout her career at AGRI, and her operational prowess makes this promotion very well deserved. Craig Ehrlich has now stepped into the newly created role of Chief Growth Officer. where he will devote his full focus to our external growth platforms and tenant relations. Lastly, I'm extremely pleased to welcome Ed Eickhoff to our team as Executive Vice President of Asset Management. Ed has nearly 40 years of industry experience and will help optimize our asset management platforms. I'll hand the call over to Peter, and then we can open it up for questions.