Agree Realty Corporation

Good morning and welcome to the Agri Realty third quarter 2024 conference call. All participants will be in 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 your touchtone phone. To withdraw your question, please press star, then two. Please limit yourself to two questions during this call. Note that this event is being recorded. I would now like to turn the conference over to Ruben Treatman, Senior Director of Corporate Finance. Please go ahead, Ruben.

Thank you. Good morning, everyone, and thank you for joining us for AgriRealty's third quarter 2024 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, including statements related to our updated 2024 guidance. 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 our historical 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. Before running through our standard update, I'd like to take a step back to provide our perspective on the current state of the market and how we have taken steps to proactively fortify our balance sheet and portfolio in this dynamic environment. As the markets have readjusted to changing expectations around inflation and employment, our cost of capital has improved significantly. We've been able to capitalize on this shift, bolstering our fortress balance sheet during the quarter with nearly $470 million of forward equity raised, via our ATM program. This brings our total outstanding forward equity to approximately $725 million, with total liquidity approaching $2 billion. We now enjoy significant runway to execute on our growing pipeline into 2025 without any equity capital needs. At quarter end, leverage stood at just 3.6 times pro forma net debt to recurring EBITDA. During the quarter, S&P upgraded our credit rating to BBB+, while recognizing the strength of our balance sheet and high quality nature of our portfolio. We continue to maintain a high level of discipline in our underwriting process. This patient approach has paid off as we've been able to capitalize on distressed sellers while leveraging our asymmetric data sets and relationships to identify unique opportunities. Our team's continued efforts to create value and identify these opportunities combined with our improved cost of capital, have opened up a larger opportunity set and resulted in accelerated deal flow. Given these market dynamics and our well-positioned balance sheet, we are increasing our acquisition guidance to approximately $850 million for the full year. With that said, we will continue to be disciplined capital allocators and maintain our stringent real estate quality underwriting standards. Our portfolio and pipeline remain balanced with a variety of differentiated opportunities. Given our liquidity profile, balance sheet, and the portfolio's performance, we have raised the lower end of our AFFO per share guidance to a range of $4.12 to $4.14 for the year. This represents approximately 4.6 year-over-year growth at the midpoint. Peter will provide more details on our guidance momentarily. Turning to our three external growth platforms, during the third quarter we invested approximately $237 million in 93 high-quality retail net lease properties across our three external growth platforms. This includes the acquisition of 66 assets for over $215 million. The properties acquired during the third quarter are leased to leading operators operating in the sectors including general merchandise, warehouse clubs, home improvement, auto parts, tire and auto service, as well as grocery stores. During the quarter, we executed an array of transactions, including the acquisition of three high-performing Walmart and Sam's Club stores located in Elmsford and Kingston, New York, as well as Anderson, South Carolina, further expanding upon our relationship with the largest retailer in the U.S. Also included in the quarter were select off-market sale leasebacks with relationship tenants with whom we continue to enjoy a strong partnership. The acquired properties had a weighted average cap rate of 7.5%, a 60 basis point increase year over year, and a weighted average lease term of 9.8 years. Investment grade retailers accounted for over 60% of the annualized base rent acquired. As a reminder, we do not impute credit ratings for non-rated issuers. Through the first nine months of the year, we've invested nearly $580 million across 176 retail net lease properties, spanning 40 states and 26 retail sectors. Approximately $525 million of our investment activities originated from our acquisition platform. I anticipate that the upcoming quarter will be our most active of the year. During the third quarter, we commenced eight development and developer funding platform projects representing total committed capital of approximately $34 million, while completing six projects with total costs of $19 million. In total, we had 33 projects either completed or under construction during the first nine months of the year, representing $135 million of committed capital, inclusive of the approximately $88 million deployed through September 30th. Our pipeline for both of these platforms continues to grow significantly, mirroring our efforts to solve the continued challenges that both our retail partners and merchant developers have in bringing new stores to fruition. On the asset management front, we executed new leases, extensions, or options on approximately 785,000 square feet of gross leaseable area during the quarter, including a 211,000-square-foot Walmart Subaru Center in Ohio and a 70,000-square-foot Marshalls and Home Goods in Secaucus, New Jersey. As a result of our asset management team's efforts, our 2024 lease maturities now stand at just three leases, representing less than 10 basis points of annualized base rents. During the quarter, we also opportunistically disposed of two properties for total gross proceeds of over $7 million, with a weighted average cap rate of 5.8%. Both of these non-core dispositions were Florida-based assets, which continue to command a strong bid from 1031 Capital. Given the questions that we've received, I wanted to address the status of our existing Big Lot stores post-filing for Chapter 11 bankruptcy. As discussed before, we have limited big lots exposure with less than 40 basis points of annualized base rent as of quarter end, paying just over $6 per square foot on average, which would provide upside in the event of rejection, given our confidence in the underlying real estate. Only two of our stores have been rejected to date, Manassas, Virginia, and Grand Rapids, Michigan. We purchased the Manassas lease at auction, effectively terminating it, and have executed a letter of intent with a leading operator in the discount retail space with an anticipated recapture of over 150% on net effective rent. We were negotiating multiple letters of intent for our Grand Rapids, Michigan location, which had resulted in a strong recapture rate as well. We look forward to providing further updates in the coming quarters on our progress, driving value via our leasing capabilities. Similar to Bed Bath & Beyond, Big Lots is another example of our ability to recapture embedded value within the portfolio when credit issues infrequently arise. This is a testament to our disciplined, bottoms-up, realistic underwriting approach and proactive asset management efforts. Our best-in-class portfolio now spans over 2,270 properties across all 49 continental United States, including 223 ground leases comprising nearly 11% of annualized base rents. Our investment grade exposure at quarter end stood at 67.5%, and occupancy remained strong at 99.6%. With that, I'll hand the call over to Peter, and then we can open it up for questions.