Q3 2019 Earnings Call
Good morning, and welcome to the agree Realty third quarter 2019 conference call all participants will be in listen only mode.
Do you need assistance. Please signal a conference specialist by pressing the Starkey followed by zero.
After today's presentation, there will be an opportunity to ask a question.
Ask a question you May press Star then one on your Touchtone phone to withdraw your question. Please press Star then too.
Each question there will be limited to two questions. Only please note. This event is being recorded I would now like turn the conference over to Joey acreage President and CEO . Please go ahead Joey.
Thank you operator, good morning, everyone and thank you for joining us for eager Realty's third quarter 2019 earnings call. Joining me. This morning is quite say when our chief financial Officer.
I'm very pleased to report another extremely strong quarter of execution across all aspects of our business.
Robust acquisition activity during the quarter was at the highest quality in our company's history.
Record, 85.5% of acquired annualized they'd be our was derived from leading retailers with investment grade credit ratings.
In the quarter, we invested over $252 million in 74 high quality retail net lease properties across our three external growth platforms.
The eight of these properties were sourced through our acquisition platform represent a aggregate acquisition volume more than $246 million for the quarter.
The properties were acquired at a weighted average cap rate of 7% and had a weighted average remaining lease term of 12.3 years.
The acquired properties are located in 27 states and at least the retailers operating in 16 different retail sectors, including off price retail convenient stores Autoparts tire and auto service dollar stores home improvement pharmacy and farm in rural supply.
Notable acquisitions during the quarter included a CBS in downtown Greenwich, Connecticut located on granted you Avenue CBS is committed to a long term net lease with nearly 19 years of remaining base term.
This acquisition adds yet another unique urban street retail asset to our portfolio.
During the quarter. We also acquired our first Marianos grocery store located just outside of Chicago, the leases guaranteed by Kroger, which carries a triple b rating from S&P and has more than 15 years of remaining term.
We also acquired 10 711 properties located in Virginia in Florida, We're very excited to have to work with 711 to construct a portfolio that has a weighted average lease term of more than 14 years.
This was our first significant transaction was 711.
Through the first nine months of the year, we've invested a record $579 million into 157 retail net lease properties geographically diversified across 37 states.
Oh, the nearly $580 million invested year to date, approximately 563 million was sourced through our acquisition platform.
147 properties acquired or at least a 45 different retail tenants operating in 22 distinct sectors.
Most notably 78% of the annualized base rent acquired during the first nine month of the year comes to reach hours the carry an investment grade credit rating.
Our stringent focused on premier operators that avoidance of private equity sponsor or second tier retailers is continuously demonstrating to the quality of our investment activity.
We continue to view the retail world is dynamic and believe the risk adjusted weird risk adjusted returns we are achieving our exceptional.
Given our record UTR data acquisition activity improved visibility into the pipeline for the remainder of the year, we're increasing our full year 2019 acquisition guidance to a range of 650 million to $700 million.
While increasing our full year acquisition guidance I want to again reiterate that our activities remain Grand Youre nature, and we continue to leverage our unique relationships and skill sets to identify and execute and best in class opportunities.
During the quarter, we continue to add properties to our ground lease portfolio, we acquired for ground lease properties, including a wawa cocoa, Florida in Threed geographically diverse autozone stores.
Today, our ground lease portfolio spent 60 assets comprising 8.6% of total annualized base rents.
At quarter end, nearly 90% of ground lease rents continue to be derived from leading investment grade retailers, including Walmart home depot Costco, all the Wawa 711 and Autozone.
Conversely, only 1% of the portfolios at least the sub investment grade tenants and the remaining 9% is lease to leading unrated retailers.
Our focus on creating the country's leading retail portfolio was also demonstrated by the continued transformation of our top tenant roster.
During the quarter, we're very pleased to a bad at home depot to our top 10 list, marking the third new entrant to be added to this list this year alone.
At quarter end, approximately 57% of our annualized base rents were derived from investment grade retailers.
This represents a nearly 1000 basis point year over year increase it's important to again note that the investment grade makeup of our recent activities is the result of our rigorous focused on best in class retailers, rather than an explicit focus on a rated companies.
Turning to our development and partner capital solutions Glasforms, We had 10 development and piece, yes projects either completed or under construction. During the first nine months of the year. They represent total committed capital of more than $32 million.
During the quarter, we completed for previously announced development in Pts projects. The projects had total aggregate cost of $12.2 million and include the Companys third and fourth developments with Sunbelt rentals, and Caresource Springs, Texas in Georgetown, Kentucky, The company's first development with Gerber collision around like Illinois, and the company's reading.
Element of the former Kmarts basin, Mount Pleasant, Michigan for hobby lobby.
We also commenced our first development with tractor supply during the third quarter in heart, Michigan anticipated completion is the second quarter of next year.
Construction continued during the quarter on the redevelopment of the former Kmart and Frankfort, Kentucky for all the big lots and harbor freight tools.
The project is anticipated to complete in the first half of next year.
We continue to work to foster deeper relationships with retailers that are top tenant roster.
His relationships enable our retail partners to leverage our capabilities well consistently demonstrating our ability to add value across the full lifecycle of an asset.
Well, we strengthened our portfolio through record year to date investment activity. We've also diversified our portfolio through strategic asset management and disposition efforts.
During the quarter those activities continued as we sold three properties for gross proceeds of approximately $8 million at a weighted average cap rate of 6.8%.
Dispositions during the quarter were comprised of a Walgreens in Grand Blake, Michigan, I, Mister car wash and flow would Mississippi and a franchise operated Taco Bell.
Through the first nine months of the year, we sold nine assets for total gross proceeds of $35.4 million. These dispositions were completed at a weighted average cap rate of 7.2%.
As I discussed on last quarter's call, we continue to be very discerning at our approach to the health and fitness face.
Subsequent to quarter end, we sold an L.A. fitness and Maplewood, Minnesota.
This disposition reduces our current elie fitness exposure to approximately 2.6% of annualized base rents representing a year over year decrease of approximately 100 basis points.
This week, we also be closing on the sale of another Walgreens and gifts the landing, Michigan pro forma for this sale, our Walgreens exposure will be reduced to 3.5% of annualized base rent, a 270 basis point reduction year over year.
Our asset management team also continues to proactively address our upcoming lease maturities as a result of their efforts at quarter end. Our 2019 lease maturities represented just 0.2% of annualized base rents during the third quarter, we execute a new leases extensions or options at approximately 140000 square feet of.
Gross leasable space, notably we acquired a 31000 square foot best buy in Sanford, Florida and extended the least commensurate with the acquisition.
As of September Thirtyth are rapidly growing retail portfolio consisted of 789 properties across 46 states. Our tenants are comprised primarily of industry, leading retailers operating in more than 28 distinct retail sectors again with nearly 57% of annualized base rents coming from investment grade tenants.
The portfolio remains effectively fully occupied at 99.7% and head of what we weighted average lease term remaining of 10.2 years.
Lastly, our second headquarters building continues to make substantial progress we're looking forward to having additional capacity for our growing team as well as providing enhanced amenities and functionalities to our team.
We anticipate move into occur by Thanksgiving and look forward to many of you visiting our campus in the future I think you for your patience happy to answer any questions. After Quaid discusses our financial results for the third quarter I'll turn it over to play.
Thank you Joe is good morning, everyone I'll begin by quickly running 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.
In addition, we discuss non-GAAP financial measures, including core funds from operations are core FFO adjusted funds from operations or FFO and net debt to recurring EBITDA.
Reconciliations of these non-GAAP financial measures during most directly comparable GAAP measures can be found in our earnings release.
Core funds from operations for the third quarter was $33.4 million, representing an increase of 42.2% over the third quarter of 2018.
On a per share basis core FFO increased to 78 cents per share and 8.8% year over year increase.
Adjusted funds from operations for the third quarter was $32.7 million, a 40% increase over the comparable period of 2018 I per share basis, Epo 77 cents represent an increase of 7.1% year over year.
General and administrative expenses in the third quarter totaled $3.8 million DNA expenses, 8% of total revenue for 7.4%, excluding the noncash amortization of above and below market lease intangibles. We continue to anticipate gionee as a percentage of total revenue to be an approximate 50 basis point improvement.
Our 2018 from 2018 or in the upper 7% range, excluding the impact of above and below market lease intangible amortization in total revenues.
On a quarterly and year to date basis core FFO per share an AFFO per share were impacted by dilution required under GAAP related to the forward equity offerings. We completed in September of last year in April of this year.
These risk factors to be included within our diluted share count in the event that prior to settlement our stock trades above the deal price from the offerings.
There was no treasury stock dilution in the third quarter related to the September 2018 forward equity offering given we settled the transit transaction in conjunction with our April for it offering.
However, our year to date results included Treasury stock dilution from both transaction.
The aggregate dilutive impact related to these offerings was roughly a penny to both core FFO and FFO per share for the three month period and three cents for the nine month period.
To the extent that prior to settlement our stock continues to trade above the deal price of the April 2019 forward, we'll continue to record Treasury stock dilution to date, we have not settled any of the 3.2 million shares from our April forward and do this is a meaningful equity backstop to fund future growth.
Now moving on to our capital markets activities in July we entered into a new 400 million dollar aftermarket equity program. During the third quarter, we issued over 400000 shares of common stock through our new ATM program at an average prices $74 in 30 cents raising gross proceeds of $33 million.
We've raised more than $270 million VR ATM program in the past four quarters, which demonstrates our view that the ATM is an efficient tool to raise equity given the granular nature of our business.
Subsequent to quarter, and we funded of $125 million of senior unsecured notes per the agreement that we entered in June of this year. The proceeds were used to pay down the outstanding balance on our revolving credit facility.
The notes bear interest at a fixed rate of 4.47% and have a 12 year term.
As a reminder, in March we entered into forward starting interest rate swap agreements to fix the interest for $100 million of long term debt until maturity.
The company terminated the swap agreement at the time of pricing the senior unsecured notes in June .
Taking into account the effect of the terminated swap agreements the blended all in rate for the $125 million private placement is 4.42%.
Our balance sheet continues to be in fantastic shape as of September Thirtyth, our net debt to recurring EBITDA was approximately 5.1 time, which is at the low end of our stated range of five times to six times.
Pro forma for the settlement of the nearly $200 million and proceeds from April 2019 forward <unk> equity offering our net debt to recurring EBITDA is approximately four times.
Total debt to enterprise value at the end of the third quarter was approximately 23% and our fixed charge coverage ratio, which includes principal amortization increased to a company record of 4.3 times the.
The company paid a dividend of 57 cents per share on October 11 to stockholders of record on September 27th 2019, representing a 5.6% year over year increase this is our company's 102nd consecutive cash dividend since our IPO 25 years ago.
For the first nine months of the or the company declared dividends of $1.69 and half cent per share at 5.9% increase over the dividends of $1.60 cents per share declared for comparable period in 2018.
Our quarterly payout ratios for the third quarter were 73% of core FFO per share and 74% of AFFO per share.
The first nine months of 2019, our payout ratios were 75% of core AFFO per share and 76% of AFFO per share respectively.
He's payout ratios I knew the low end of the company's targeted ranges and continue to reflect a very well covered dividend with that I'd like to turn the call back over to Joey.
Thank you play to conclude I'm very pleased with our execution through the first nine months to the year, where an excellent position to close out 2019 strong at this time, operator, we'll open it up for questions.
We will now begin the question answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using speakerphone. Please pick up your handset pressing the key.
If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then too.
At this time, we will pause momentarily to assemble our roster.
The first question comes from Rob Stevenson with Janney.
Hi, good morning, guys.
Good morning Joey.
Hi, Thanks, Joe you talked about the development in partner capital pipeline be behind the for projects that you currently have I mean, you've got the three that are at the Frankford side and then the tractor supply I mean, how robust is sort of shadow pipeline on the stuff that you're working on behind that.
You know if this is we look at this is this you know gonna grow are we going to basically be had sort of four projects, you know plus or minus at any given time over the next couple of years, how much of a focus is this for you guys going forward versus the acquisitions can you just share a little insight there.
Sure I I think look we look at all three external growth platforms as providing unique value proposition for our sand box of retailers and again that really consists of 30 to 35 retailers that we're focused on growing those relationships with so we're very pleased to announce the draggers fly at heart, Michigan Thats a former.
Opco, our first a project with tractor supply on the developments last redevelopment front and then we have another a number of projects that are in the shadow pipeline that we anticipate commencing either fourth quarter. This year first quarter of next year, I really really subject to weather and timing.
Sips similar in scope to the tractor supply existing retailers looking to grow our relationships.
That said, what we will continue to be discerning, where we deploy not only our capital, but more importantly, our time in our energy and so we've got a continued to be a full service provider for those for those leading retailers, but we're not willing to go up the risks spectrum are down the credit spectrum to put shovels in the ground.
Okay and then the second one from me anything abnormal in the market, that's causing you guide to see higher than normal acquisition opportunities I guess, what I'm getting at is if you have to people and the relationship right now to be able to do $650 million to $700 million of acquisitions. This year is there anything.
Other than the availability of cost effective capital that would suggest that the 2020 run rate shouldn't be and four where it shouldn't be at that level or higher.
But I'd say, there's there's nothing macro in the market today that.
That changes our perspective, hence keeping our balance sheet and then in such a prime position to continue to execute our operating strategy that said what we are in the aggregate are by nature. We have we added approximately 70 properties to the portfolio.
In this last quarter alone and so it's really opportunistic and opportunity dependent but no theres no. There's nothing out there on the horizon that we season change our level of activity or the opportunity set that we see.
Okay. Thanks, guys.
Yes, Rob.
Our next question comes from Nate Cross It was fair and Burke.
Hi, Thanks for taking my question guys I wanted to touch on maybe tenant concentrations and Sherwin Williams and I'm wondering if you acquired any of those in the quarter.
I saw that they reported today and they noted they opened 31 new stores year to date.
I'm just curious on your thoughts for owning more share win and then is there even an opportunity to maybe on Benjamin Moore as well.
I tell you first thanks, thanks for joining us Nate look Sherwin Williams is down to approximately 5% just over 5% of the portfolio that's up from 6%. The time of the sale leaseback transaction with the 100 plus stores, we didn't acquire any sherwin Williams during the quarter, nor dispose of any Sherwin Williams since the acquisition of the of those 100 and.
These stores so.
No we're not focused necessarily on Sherwin Williams or Benjamin Moore today, it's really a natural a attenuation of that 6% to 5.1% in terms of pro forma concentrations, but overall I will tell you that we continue to be big fans of Sherwin Benjamin Board, a great operator as well.
But really the portfolio from attending concentrations that is really on a strong strong place with sherwin approximately 5%. We anticipate just just again just natural dilution from denominator grocer will be sub 5%. So we have no really material concentrations that are outside to speak of.
Okay, and then I mean, I know that they have a lot of locations in Canada and I'm. Just curious now you know your ABS, probably too far away, but would you ever consider going to Canada. So it was with a tenant that you really like can deal with.
No we think the opportunity set here domestically you a at least for the foreseeable future for us.
It's very fast and we're focused really on the continental United States, where and 46 at a 48 continental United States today, and that's really our focus.
Okay, and then just one quick that maybe on the Gionee load as you guys continue to kind of scale are there any more heads that need to be added or you guys said for the time being.
Yes, I'll, let clay speak to the quantitatively in terms of DNA and trajectory, but I'll tell you with a with the addition of our new building as I mentioned the prepared remarks, you really gives us the continued opportunity to grow headcount across the organization. While also are getting leverage in terms of DNA the percentage revenue. So we.
We continue we had two new members of the acquisition team join three weeks ago, we have a new property a new member of the property management team growing and as as you would expect with a with the dynamically growing portfolio with revenue growing 40% year over year last quarter, we're going to continue to add headcount and frankly invest in the fantastic team that we built here.
Sure and they in terms of run rate growth, we're guiding to a 50 basis point improvement as for DNA as a percentage of of revenues year over year.
Currently in the middle of our annual budgeting process and going through 2020 will provide guidance again as a percentage of total revenue on our Fourq you call from GSK.
Okay. Thanks, guys very helpful.
Thanks. Thanks.
Our next question comes from calling me with Raymond James.
Thank you good morning, guys.
Good morning.
First question for me Joey I know in the past Youve discussed that your deal flow does not necessarily reflect pricing trends in the market more broadly.
Thank you maybe update us on your take on competition for deal and seller price.
Technicians, just given the move in interest rates in particular the tenure here over the last few months.
Sure I think I think one it's important to note again the average transaction here takes approximately 61 days from a letter of intent execution.
To close and so there's always theres always a lag and what we report to the market were close or what we originate I tell you for a couple of months there with the tenure compressing a approximately 50 basis points the investment sale community as well as owners and developers saw some of them saw an opportunity to try to compressed cap rates are.
Increase corollary increased pricing.
I tell you if anything on the margin we've seen cap rates for high quality project compressed.
Depend you're still below 1.8%.
But in terms of competition look we are in a very unique position. We are the largest aggregator the most well capitalize aggregator in this space and at the same time, we have the best relationships and capabilities and so we don't consider we don't see any changes on the horizon in terms of private or public purchasers.
In competition generally and we think we're very well positioned to continue to execute.
Got it so overall the deal flow is still there just maybe on the margin a little bit more expensive than it is that fair way to take it.
Well, we don't anticipate our cap rates compressing it anymore any material way I tell you I wouldn't assume a significant deceleration in activity. Obviously Q3 was a near record quarter for us will continue to be highly selective and disciplined to what we acquire there are no shortages of net lease spread retail product in this massive.
In fragmented space in which we operate.
And just as a reminder to everybody I look back at our notes and last year at this time, the Sherwin Williams transaction had it even come up our original Oh, our original offer on the Sherwin Williams transaction was sent November 10th of 2018. So it is a very fluid marketplace, we try to give the best.
Yes, the middle of our visibility.
But it is large it is fragmented and we moved decisively and quickly.
Okay, and then one more for me just can you expand on how the 711 portfolio opportunity came together and then the potential to expand that relationship moving forward.
Yeah. It was originated a buyer acquisition team it was a an off market opportunities from a third party seller.
And we worked with a with our retail partners to create really a win win situation for both parties and so we're excited to add 711 in a material way I think we had one or two prior to the transaction.
But it but in a material way, obviously, a fantastic operator and fantastic credit.
And so we are 711000 meaningful part of our tenant roster.
I'll turn it over it thanks guys.
Thank you count.
Our next question comes from Christy Mcelroy with Citi.
Hey, Good morning, guys Kelly you highlighted the granite CBS and the Marianos in Chicago that Youve completed in Q3 can you just talked about the size and pricing of those deals relative to the rest.
And what sort of your appetite for doing more of these kind of higher value.
And deals like this going forward.
Yes, good morning, Chris I think the Granix Cvs, we haven't but obviously, we've had not been a net acquire a a pharmacy.
With the Walgreens disposition during the quarter and then the one occurring this week.
We anticipate future Walgreens dispositions going forward is really a unique real real estate opportunity compelling value proposition the heart of Greenwich on Greenwich Avenue over 19 years left of remaining terms significant growth in the lease.
We're a big fan of high quality Street retail with long term leases to leading operators and so that was a a very unique one.
For Us I tell you I I think it's fair to say that that was going to given specific guidance, but that was inside of our seven cap range.
The Marianos again, Marianos Kroger guarantee outside of Chicago.
Not really it I wouldn't call it an urban street retail asset for us, but a high performing location Marianos is really performing well for Kroger and is really become one of the dominant flags in the Chicago MSN. So well continue to look at those Trent transactions.
That are of that similar nature, but but really our businesses aggregating four and a half the 5 million dollar on average.
Assets really across the country.
Okay, and you know any changes in sort of how you're thinking about your targeted 30 tenant last and then as you continue to pursue.
Deals with these another investment grade rate tenants just kind of following up on Collyns question. You did comment that you know market cap market cap rates have compressed a little bit does it make you know finding some of these deals tougher as you look to remain disciplined I mean are you seeing sort of more bidders out there in the market for deals from an hour.
Cost of capital environment.
It's a to the last part of your question, we aren't seeing necessarily more bidders I'll tell you we will be more opportunistic on the disposition side, but on the acquisition side, we do a lot of transactions with repeat developers repeat sellers were not necessarily seeing more bidders.
I think on the margin pricing has skewed more expensive or frankly anticipated pricing has skewed more expensive.
But but the proposition that we bring to close quickly and decisively the relationships we bring.
We don't think thats going to pose a challenge for us in this environment.
Okay and then just lastly, a quick modeling question on the deal volume in Q3 was pretty how do you have you. Obviously just you know when Im wondering think about the timing of when those deals closed during the quarter was it more front end or back end loaded.
Yeah, we were a little we're a little more backend loaded Christie.
Our weighted average.
Closing date in the quarter.
The 57 day of the quarter, so little backend weighted which is.
Fairly in line with our last couple of quarters as well.
Okay. Thank you so much.
Thanks Christy.
Our next question comes from John Massocca with Ladenburg Thalmann.
Good morning.
Good morning, John .
I guess, how many are by and then extend transactions were acquired this quarter kind of similar to the Florida best buy if there were any others and then how big is that market for that type of transaction.
I don't know honestly I don't have any exact how for you I'm I would tell you a if I had to guess between 15, and 20 will or we call proverbial blend and extend transactions that's out of the approximately 67 assets that we acquired.
Okay and then it is it just quarter to quarter is kind of going to depend on what the deal flow is there a big market for that type of transaction given the kind of value add you want to do it maintained cap rates.
Well, we're really in reality, we're really making a market right. We are either with direction from our retail partners our acquisition team under our belt uncovering opportunities, we're really really making a market. There. So it's not a market per se, we're truly value creation.
Look we continue to uncover all different types of opportunities from ground leases to street retail to blend and extend opportunities.
And really there like I said in previous quarters, there's really no rhyme or reason when you're playing in a market this size and with our breath and so I.
I would anticipate the will that there won't be necessarily a run rate for any types of transactions frankly for us sometimes were heavy on ground leases like in Q2, this quarter was particularly heavy and blend and extend transactions.
I think the one consistent is that we're going to focus on those retailers that are sandbox the industry leading retailers.
The dominant players in the country.
Okay.
Makes sense and then can you maybe provide some color on the dollar store acquisitions in the quarter seems like that was mostly dollar generals, what maybe made those attractive given some of the different characteristics of dollar stores that.
I guess are both kind of loved and aided by the market.
[laughter] Oh, I can talk about dollar stores and specifically dollar general.
For a long time I'll tell you do we have a few unique relationships with dollar general specifically dollar tree to a lesser extent developers.
Where where they are cycling through their pipeline required capital put new stores in the ground I'll tell you. We are a fan if you look at the overall grocery space in this country. We are a fan of what dollar general is doing you really see them in a lot or the rural food deserts in this country combined with what we think is going to be some grocery store attrition.
And in the near and medium term here, you really see them, providing really filling that void for those rules rural food deserts and so they are the grocery store. They are the one stop shop a lot of times. There also the convenience store when people don't want to make the 20 mile trip to the Walmart Supercenter.
And we think they are very well positioned obviously their comps provide for and they continue to move into more and more perishables and freezer and cooler items and so we like the business model they are performing very well.
And we continue to work with those developers on their pipelines.
I understood and then one last kind of quick one was there a big spread between cash and GAAP cap rates during the quarter or was it kind of a marginal spread essentially just ballpark, what the spread between cash and GAAP.
Yeah. Just generally were generally were about 30 to 40 basis points varies varies by transaction.
Thank you very much.
Thanks, Jeff.
Our next question comes from Todd Stender with Wells Fargo.
Hi, Thanks.
With the home depot being new to your top tenant list sounds like they're not ground leases like the walmarts, maybe just described or what the deal contains and maybe some of the economics. Thanks.
Yes, so good morning pad. So we bought a formed a home depot in Connecticut This quarter.
Over two thirds of our home depot exposure is ground lease.
We'll continue to look to add a high performing home depot is again, a great retail partner of ours, obviously, a dominant player in the home improvement space.
And we'll continue to add home depot and the fourth quarter results continue to add them in 2020 as well.
And cap rate wise I would suspect that that's going to be in the.
She is it six or sub six.
It wasn't there was no that was up six I mean, we very rarely if ever frankly have cracked six that isn't what caused the mid six range on that transaction as well okay.
Thanks, and then back to see the yes. The rent went up pretty meaningfully from Q2, I know you talked about the greenish asset did you buy you end up more or that's just from that one.
That is just the Greenwich asset on in Greenwich Avenue.
Again over 19 years, a term high performing store really unique irreplaceable real estate.
I had a pretty big price point is that fair to say in one asset is it's is it a single tenant a triple net lease correct. It's a single tenant triple net lease that transaction was over.
Absolutely or $25 million.
Okay, and then the best buy.
So obviously consumer electronic retailers not quite and the Nondiscretionary a bucket that I guess were used to seeing from you guys can you speak to the the size of the real estate that you acquired I know some of the footprint has come down for best buy maybe just speak to what you like about the real estate and and Oh.
Then piece, how long was that leasing and what did it go too.
Yes. So we we acquired a couple of couple of best Buy's during the quarter, the Sanford transaction, which you're referencing is a a 10 year lease now at approximately 30000 square foot store high performing Unitymedia freestanding immediately adjacent to a Walmart Supercenter. We also acquired a best buy in New York.
During the quarter as well into our best buy portfolio. Today is comprised of six assets Fort worth, Texas, Hillsboro, Oregon immediately adjacent to a super target investing in New York Sanford, Florida value of California, and then Woodland Park, New Jersey, So high performing assets, we have a great relationship with best buy there obviously the last.
Last man standing in the consumer electronics business.
And huge Ali what he started there and what he accomplished during his term as CEO now as executive Chairman. We think we are we think is is really just a wonderful and terrific example of how a retailer with the strong balance sheet and good leadership can thrive in an omnichannel world.
Thanks, then the just lastly, Ah so the tractor supply a project you have going is your first one with them can you speak to some of the economics around that what did you do to get that deal and Andy expect more to come.
Sure. So again, we're very pleased we have a number of tractor supply's a in the portfolio today over over 25 in the portfolio again, leading operator in farm enroll supply unrated retail or the lease adjusted leverage of the believe just under two times, so publicly traded fat and it really a strong robust balance sheet.
This is our first project form vacant Shopko, we acquired the vacant shopko and that our retrofitting or redeveloping that existing building for tractor supply in hard Michigan. Those returns are in line with our historical I'd call. It Pcls returns quick turnaround for us.
We'd love to continue to expand the relationship with tractor supply just just really a superior retailer to.
Thank you.
Thanks Todd.
A question comes from London, ITSI with Jefferies.
Hi, it's fun to tie thanks for taking my question. When you look at your year to date stock performance in multiple it's clear you're serving investors as well in terms of acquiring high quality properties, the creatively and driving sustainable growth.
That said you have a sense of how large this portfolio can become ultimately over the next few years and then by extension what do you view as a base case sustainable F. F growth rate I know you just said that the factors are in place to stay on the same level of acquisitions headed into 2020.
Look great questions, Linda I'd say, thanks first of all thanks for joining us.
In terms of how large the the portfolio can grow you know I I kind of put my foot of my mouth, a few years ago. When I thought we have become a 3 billion dollar diversified read today, we're north of $4 billion and we don't see any sign of slow of slowing up.
But we are in a highly highly fragmented space a large space.
Our capabilities the team individual team members continuing to do a fantastic job until I'm hesitant to put.
You know a cap on the size of this organization to size the portfolio.
Most importantly, though our mission is very clear it's in our one page operating strategy and bold letters it to create the highest quality retail portfolio in the country. It's not the largest port for that is not directly that is not.
In conjunction with being the largest operator or anywhere close and so.
Look we think we have significant runway, we think there's a vast opportunity set you pair that with a great balance sheet a terrific team and then then we got to get out chop, what an execute in terms of sustainable AFFO growth, but we think mid to upper.
Mid upper single digit AFFO growth and it's not difficult to people the model our growth rate given the denominator and given our acquisition investment activities is is realistic for us our goal is to deliver double digit total shareholder returns that on a risk adjusted basis, our we think our superior.
Okay.
And so that is we are using capital.
Frankly, very very discriminatory very very disciplined in the highest quality assets paired with a cost of capital with sources that is very attractive today, which really provides for some for some meaningful spreads.
Thanks for that and just one more in terms of being at the low end of the payout ratio and historical basis would that leave room to raise the dividend more aggressively or does this just reflect a moment in time and the impact of lower equity issuance.
I I think I think it continues to allow us to raise the dividend on a consistent in transparent basis, we've effectively been out of Q2 in Q4 dividend run rate.
We think that is that is core to our shareholders.
Yes, as you pointed out we're at the lower end to that payout ratio, which implies in the future frankly significant room for growth.
While also managing the retained earnings and the cheapest form of capital that we have to reinvest.
Thanks.
Thank you Linda.
Again, if you have a question. Please press Star then one.
Our next question comes from Ki bin Kim with.
Thanks, Good morning out there.
So you guys bought about 250 million of assets at a 7% cap rates with over 80% investment grade. So when I think about that it it's a little surprising positively surprised me.
You wouldn't think you could buy that much with that much investment grade at 7%.
So I'm just curious if you can provide a little more color behind that and how much of the investment grade.
Terminology is related to.
The actual real estate being backed by a balance sheet at investment grade first as a franchisee that's part of a flag that's investment grade, where there isn't necessarily a credit backing behind it.
So first off your last question zero, there, where we have no franchise restaurants were franchise operations. So this is all through investment grade exposure.
We've been we've a net.
Really net sellers a franchise operations franchise, driven or small balance sheet. So the last question zero.
The answer is zero.
Well, good surprises or outlook, we like providing those I would tell you again, it's a testament to our team.
First I would just speak to the quality of acquisitions because I. Appreciate you you, bringing it up and I think it's frankly underappreciated by a number of of market parts participants.
We come from this bit perspective, the retail and I think everybody would agree is going through a dynamic transformation the likes of which we've never seen inclusive of the great recession.
I personally believe that this country is going from 24 square feet per hour per capita on a retail basis to to somewhere around 16 square feet in the medium term. So basically we're cutting GL lay in this country down in the medium term by approximately a third.
That doesn't include the disruption that we foresee coming in the grocery space, where we have nearly 40000 grocery stores in this country, excluding dollar stores warehouse clubs and supercenters.
And so we think thats on the horizon as well see you have to ask yourself.
Really we start with the proposition is where do you see this significant GL jelly erosion coming from of course, the mall space is pretty well documented it's pretty pretty easily ascertainable. Given there is only about 1000 malls in this country, but when you step back the mall space only represents approximately five 6% of GL, a retail jelly and this entire country open air centers are approximately 30.
Percentage delay net lease retail is about 55% agility. So the bottom line is that the weaker in line freestanding operators in this country are going to continue to a road with all the pressures that you're facing will I personally think we have another 10 years of disruption and adaption.
Ahead of us in retail here and so we're going to watch legacy brick and mortar retails move to an omnichannel world, which is very expensive Overwatch native an online based historic I'm like online brands opening smaller format stores a showcase their products. So we look at the retail world. Today. We say this is a world of haves and have not been retailers either.
I have the balance sheet flexibility and generally have an investment grade credit rating absent. The hobby lobby is your tractor supply's or chip laser publix of the world that are unrated and they have the ability to invest in pricing it omnichannel future or we think there eventually just going to die off and so our focus is discreetly on the best and brightest operators in this country.
And the majority of those operators carry an investment grade credit rating and so we're going to continue to leverage all of our capabilities in all of our resources and all of our relationships to focus on those retailers that are in our proverbial sandbox and so.
1000 basis point increase or nearly 1000 basis point increase year over year to 57% investment grade is something that I think people were going to look back on.
I think they're going to appreciate in time, when we continue to see more disruption here.
Thanks for that and I'm just following up and then last statement, 57% every portfolios investment grade. So is that similar where 50 most of that.
Or what percent of that is.
Some great at the real estate level versus the franchisee thing you'd want that we're discussing earlier.
No for if there is no franchise investment grade exposure in that number we don't score we don't impute credit ratings. There is no franchise. So if we have eight for instance, a taco Bell franchisee, we're not imputing Yum brands credit, it's the franchise credit.
So that is a that is a true investment grade number.
Without any without any third without any non third party major agency validation.
Okay. Thanks for that clarity.
Great. Thanks, Steven.
This concludes our question answer session I would like to turn the conference back.
For closing remarks.
Great well. Thank you everybody for joining us. This morning, good luck to earnings season, and we look forward to catching up in they read in California in a few weeks. Thanks again.
The conference has now concluded thank you for attending today's presentation.
<unk>.