Agree Realty Corporation

Good morning and welcome to the Agri Realty fourth 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 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 AgriReality's fourth 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 2025 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 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 our historical non-GAAP financial measures to the most directly comparable GAAP measures can be found on 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. I'm very pleased with our performance during 2024 as we maintained our strategic discipline through a year of significant market volatility. Approximately 16 months ago, we introduced our do-nothing scenario, demonstrating that even in the absence of conditions that facilitated external growth, we could deliver meaningful AFFO per share growth. We resisted the temptation to move up the risk curve or deviate from our core investment strategy. Instead, we remained steadfast in our commitment to investing in the strongest retailers with superior risk-adjusted returns and focused on our objective of being a valued partner to the largest retailers in the country. Quite simply, our discipline paid off. As the market shifted, we quickly capitalized on opportunities and proactively strengthened our Fortress balance sheet, decisively pre-equitizing with $1.1 billion of forward equity during the year, including $423 million in the fourth quarter alone. We concluded 2024 with over $2 billion of liquidity, including $920 million of outstanding forward equity. Paired with no material debt maturities until 2028, our balance sheet management philosophy has put us in a tremendous position to execute. As we enter 2025, we find ourselves once again navigating a volatile, higher interest rate environment. This underscores the importance of our disciplined and prudent approach to both capital allocation and capital raising. By proactively fortifying our balance sheet last year, we provided ourselves with ample liquidity to execute on this year's investment guidance without the need for additional equity capital. At year end, leverage stood at just 3.3 times pro forma net debt to recurring EBITDA. We can deploy over $1.5 billion this year, while staying within our target leverage range of four to five times net debt to EBITDA without raising any additional equity. I would note that we've had a very strong January to start the year and remain extremely confident in our ability to invest between 1.1 and 1.3 billion in 2025 across all three external growth platforms. It could, in fact, turn out to be conservative. We are committing to updating the market in regular course as we gain incremental visibility. This outlook, supported by a Fortress balance sheet and combined with our best-in-class portfolio, gives us conviction in achieving our AFFO per share guidance of $4.26 to $4.30 for the full year 2025. This represents approximately 3.5% year-over-year growth at the midpoint. I would note that given our significant forward equity position, This includes assumptions for dilution via the Treasury stock method if the stock continues to trade in the 70-plus range. I repeatedly said that I don't care about a penny or two of earnings in any given year due to accounting methodologies, but more importantly, value the balance sheet flexibility enabled by forward equity and other risk mitigation tools. Peter will provide more details on our guidance momentarily. Turning to our three external growth platforms we set out last year to further enhance and deepen our relationships with our core retailers. I am pleased to report this effort led by Craig Ehrlich, our Chief Growth Officer, was a success. Today, our retail partners truly understand the value proposition of partnering with AB Realty. We are a one-stop shop for acquisitions, development, and developer funding solutions. This unique value proposition is unmatched in the industry. Our private peers don't have the liquidity, cost, or access to capital, while our public peers lack the real estate development and operational capabilities ingrained in our organization. For the fourth quarter, we invested approximately $371 million in 127 high-quality retail net lease properties across all three platforms. This included the acquisition of 98 assets for over $341 million. The properties acquired during the quarter released to leading operators in the auto parts, off-price, farm and rural supply, home improvement, tire and auto service, as well as crafts and novelty sectors. The fourth quarter marked both the highest volume and highest quality quarter of the year, evidenced by the longest weighted average lease term, as well as the highest investment grade and ground lease percentage of any quarter in 2024. Notable transactions included a Walmart and Home Depot ground lease, as well as a sale lease back with a top relationship tenant with which we enjoy a very strong relationship. The acquired properties had a weighted average cap rate of 7.3% and a weighted average lease term of 12.3 years. Approximately 10.5% of annualized base rents acquired were derived from ground lease assets, while investment grade retailers accounted for over 73% of the annualized base rents acquired. For the full year 2024, we invested $951 million in 282 retail net lease properties spanning 45 states and 28 retail sectors. Approximately $867 million of our investment activities originated from our acquisition platform. The acquisitions were completed at a weighted average cap rate of 7.5% and had a weighted average lease term of 10.4 years, with roughly two-thirds of rents coming from investment-grade retailers. As a reminder, we do not impute credit ratings for non-rated retailers. Switching to our development and DFP platforms, we had a record year with 41 projects either completed or under construction, representing approximately $180 million of committed capital. We're continuing to see increased activity across both platforms as we work with our retail partners to help them execute their store growth plans and provide struggling developers with liquidity to fund their pipelines. During the fourth quarter, we commenced eight new development and DFP projects with total anticipated costs of approximately $45 million. The new projects are with leading retailers including Aldi, TJ Maxx and Marshalls, Hobby Lobby, Boot Barn, Sherwin-Williams and Starbucks. Construction continued during the quarter on 14 projects with anticipated costs totaling approximately $67 million. Lastly, we completed construction on nine projects during the quarter with total costs of $31 million. On the asset management front, we executed new leases, extensions, or options on over 530,000 square feet of gross leaseable area during the fourth quarter. For the full year 2024, we executed new leases, extensions, or options on approximately 2 million square feet of gross leaseable area. We are very well positioned for 2025 with only 41 leases or 120 basis points of annualized base rents maturing. During the year, we opportunistically disposed of 26 properties for total gross proceeds of over $98 million, including eight properties that were sold during the fourth quarter. The weighted average cap rate for dispositions in 2024 was 6.7%. At year end, our best-in-class portfolio included 2,370 properties and spans all 50 states. The portfolio includes 229 ground leases comprising nearly 11% of annualized base rents. Our investment-grade exposure year-end stood at 68.2%, and occupancy remained strong at 99.6%. With that, I'll hand the call over to Peter, and then we can open up for questions. Thank you, Joey.