Q1 2021 Agree Realty Corp Earnings Call
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Yes.
Good morning, and welcome to the acreage Realty first quarter 2021 conference call.
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I would now like to turn the conference over to Simon Leopold Chief Financial Officer. Please go ahead Simon.
Good morning, everyone and thank you for joining us for AAV Realty's first quarter 2021 earnings call before we begin I'd like to thank Joey on the board for the opportunity to join ADC and the outstanding team that they've assembled.
I'm very excited to build upon our long track record of success here at acre and I look forward to contributing to the company's next phase of growth, while maximizing value for all stakeholders.
Before turning the call over to Joey 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, including uncertainty related to the scope severity and duration of the COVID-19 pandemic the actions taken to contain the pandemic or mitigate its impact and the direct and indirect economic effects of the pandemic and containment measures on us and.
And on our tenants.
Please see yesterday's earnings release, and our SEC filings, including our latest annual report on form 10-K, and subsequent reports for a 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 <unk> adjusted funds from operations or <unk> 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.
You Simon and welcome aboard.
Everybody I'm pleased to report that ADC three pointed out is officially underway our focus on people processes and systems combined with a unique and unprecedented opportunity in the marketplace has accelerated trajectory of our company in every respect.
Our increase in guidance reflects the success, we are seeing on the acquisition front, while externally. These results speak to our present and future capabilities, what is less visible as the platform infrastructure that we've constructed that powers the ADC engine.
The launch of our proprietary technology platform is the culmination of a multiyear effort.
We started as an idea on a static spreadsheet is now materialize into a powerful and dynamic tool for our growing company.
At the core of our decision, making is real time data arc enables informs everything from relationship management through its CRM tool, our asset level underwriting portfolio construction be advanced modeling and planning capabilities as well as asset management through its work order management system.
These tools have enabled our team to execute quickly and decisively on opportunities aggregate and access data established key performance indicators measure our performance streamline and provide clarity to team members and proactively manage our growing team. We are very excited to demonstrate our capability in the very near future.
In addition to the technology that we've deployed the leadership and board additions match the opportunity we see in front of US. This is not a company. That's it's still but we intend to continue to rise to the occasion and take advantage of our distinctive market positioning.
Moving now to our results during the first quarter, we invested approximately $391 million in 90 high quality retail net lease properties across our three external growth platforms.
86 of these properties were originated through our acquisition platform representing acquisition volume of almost $387 million, while achieving another very strong quarter of acquisition volume. During these uncertain times, we maintained our disciplined focus on best in class opportunities with leading retail partners. This was clearly demonstrate.
By a record 32% of first quarter acquisition volume being comprised of ground leases and more than 72% of first quarter volume being derived from investment grade retailers.
The 86 properties acquired during the first quarter or at least a 46 tenants operating in 20 distinct sectors, including best in class operators in the off price consumer electronics auto parts general merchandise convenience store grocery entire grocery entire on auto service sectors.
The acquired properties at a weighted average cap rate of six 3% and had a weighted average lease term of 12 nine years.
We executed on several notable transactions during the quarter, including our first two Amazon fresh grocery stores located in Westmont in Bloomingdale, Illinois.
We're very pleased about the opportunity to add Amazon is a top 50 tenant within our portfolio and look forward to additional opportunities to grow our relationship with them.
Additionally, we acquired a unique portfolio of 10, Cvs stores, all of which recently signed brand new 20 year net leases at below market rents or just over $14 per square foot on a weighted average basis.
Even with this portfolio acquisition, our pharmacy exposure is still down nearly 110 basis points year over year, driven by portfolio growth and the opportunistic disposition of Walgreens assets.
With this transaction CBS has surpassed Walgreens is our largest pharmacy tenant quite an accomplishment for our former walgreen developer that at one time had nearly 40% exposure to Walgreens by.
By year end I anticipate our exposure to Walgreens had dropped to at or below one 5% of our total portfolio.
The pharmacies that we've added in recent years, including this portfolio in the long term Cvs in downtown Greenwich, Connecticut reflect unique opportunities to acquire high performing Cvs stores with duration and residual values that are difficult to find in the pharmacy space as I've discussed in recent calls we continue to favor Cvs as the sector leader give me there.
Innovation at adaptation to consumer preferences, and overall market dynamics in the pharmacy space the acquisition of Aetna in 2018, the rollout of the minute clinics and now Theyre health hub concepts continued to demonstrate thoughtful leadership.
During the quarter. We also added our first Rei store located on a major retail thoroughfare on East Hanover, New Jersey, with median household incomes of $150000 and a daytime population of 165000 within a five mile radius. This store is positioned for long term success.
Our focus on building the highest quality retail portfolio was further evidenced by the record number of ground leases that we acquired during this past quarter.
We added 31 ground leases to our portfolio for an aggregate purchase price of $127 million again, representing almost 32% of annualized base rents acquired during the quarter.
Our overall ground lease exposure now stands at a company record of 11, 4% of our total annualized base rents.
Notable ground lease acquisitions during the quarter include a carmax in Pleasant Hill, California, six wawa convenient stores, our first discount tire and the previously announced portfolio acquisition of 15 ground lease assets from Kite Realty group.
Inclusive of our first quarter acquisition activity, our ground lease portfolio now derives 89% of rents from investment grade tenants and is comprised of the company's premier retailers are deep relationships across the industry as well as our teams strong track record of execution continues to deliver additional opportunities to add such properties.
Expanding sub portfolio.
Given our robust acquisition activity in the first quarter enhanced visibility into our pipeline. We are increasing our full year 2021 acquisition guidance to a range of $1 one to $1 3 billion.
Representing a 33% increase at the midpoint as compared to our previous annual guidance. This increase reflects the fact that we were seeing very strong opportunities to grow our portfolio, while remaining disciplined and committed to our stringent investment criteria. We continue to view retail real estate is dynamic and bifurcate it into long term winners and losers.
And we fully intend to stay on the winning side.
At quarter end, our portfolio is investment grade exposure stood at more than 67%, representing a significant year over year increase of more than 750 basis points on a two year stacked basis, our investment grade exposure has improved by almost 500 basis points.
Moving on to our development and partner capital solutions platforms, we continue to see compelling opportunities, we had for development and Pcs projects, either completed or under construction during the first quarter that represent total capital committed to more than $14 million.
One of these projects was completed during the quarter, our second development with Burlington in Texarkana, Texas.
I am pleased to announce we also commenced our first development with 711 during the quarter located in Saginaw, Michigan 711 will be subject to a new 15 year lease upon completion, and we anticipate delivery will take place in the first quarter of 2022.
Construction continued during the first quarter on two development and Pcs projects with anticipated total cost of more than $8 million.
The project consists of a grocery outlet and Port Angeles, Washington, and a gerber collision in Buford, Georgia <unk>.
Subsequent to quarter end, we commenced our first development with floor and decor in Naples, Florida, where there'll be subject to a new 15 year lease we anticipate total cost for these projects to be approximately $20 million with rent commencing by January of 2022.
We remain focused on leveraging our three prong external growth platform to expand our relationships with best in class retailers and we look forward to updating you on progress in the quarters ahead.
Moving on to dispositions, we sold three properties for total gross proceeds of nearly $9 million. During the first quarter. These dispositions were completed at a weighted average cap rate of six 8% and included a short term Walgreens and Big Rapids, Michigan as well as in other franchise restaurant.
Subsequent to quarter end, we sold our Dave and Busters, and Austin, Texas for approximately $10 5 million, representing a cap rate of seven 4%, notably, Dave and Busters had less than four years remaining on the base term of their lease at the Tayo sale. This disposition is reflective of our real estate underwriting and the ability to sell this asset.
At an IRR of more than 8% is a testament to the quality of real estate in our portfolio.
This sale reduced our David David Busters exposure to just two remaining locations.
During the quarter, we executed new leases extensions or options on approximately 66000 square feet of gross leasable area.
As a result of our asset management team's efforts at quarter end, our lease maturities for 2021 stood at just 4% of annualized base rents representing a quarter over quarter decrease of approximately 50 basis points in a year over year decrease of approximately 170 basis points.
Our 2022 weeks maturities are in a very positive position as well with only 21 leases or one 2% of ABR expiring during the course of the year.
No single lease, which already exceeds $600000 annualized base rent and represents only 2% of ABR.
As of March 31, our rapidly growing retail portfolio consisted of $1 213 properties across 46 states, including 120 ground leases.
Thoughtful and disciplined construction of our leading retail portfolio continues to be reflected in our rent collections data, including April we've now collected at least 99% of rent payments for eight consecutive months during the quarter, we collected more than 99% of rent payments from our portfolio, while entering into deferral agreements representing less than 1%.
Our first quarter rents.
As a reminder, our collections data includes both base rent and recurring operating cost reimbursements. In addition, we include base rent and operating cost reimbursements charged to tenants in bankruptcy and have not made any COVID-19 related adjustments the denominator when making these calculations, we remain committed to providing complete and transparent day.
Adder to our investors on our collections.
I'm also pleased to report that our inaugural ESG report was published in the first quarter and can be found on the investors section of our website I look forward to continuing to engage with our stakeholders on the ESG front and excited about our future successes here.
Lastly, I'd like to take a moment to welcome ambassador genre Colton Junior back to our board of Directors. John previously served on our board from 2011 until his confirmation as United States Ambassador to the United Arab Emirates in September of 2019. His leadership helped shape our company and his contributions will be invaluable as we enter the next phase of our growth.
With that I'll hand, the call over to Simon and then we can open it up for any questions.
Thanks Joey.
Starting with earnings core funds from operations for the first quarter was <unk> 84, a share a 3% year over year increase.
Adjusted funds from operations per share for the quarter was <unk> 83, an increase of two 3% year over year.
During the past four quarters, we have elected to treat COVID-19 rent deferrals as delinquent receivables and our <unk> measures include this revenue.
As a reminder, treasury stock is included within our diluted share count prior settlement, if and when ADC stock trades above the deal price of our outstanding forward equity offerings.
The aggregate dilutive impact related to these offerings was negligible on the first quarter.
Per factset current analysts' estimates for full year <unk> per share range from $3 39.
The $3 53 per share implying year over year growth of 6% to 10%.
Given current visibility into our investment pipeline and the broader operating environment. We view this level of growth is achievable and expect to end the year towards the higher end of this range.
General and administrative expenses totaled $6 $9 million on the first quarter G&A expense was eight 8% of total revenue or eight 3%, excluding the noncash amortization of above and below market lease intangibles.
While we continue to invest in people and systems, our anticipation is that G&A as a percentage of total revenue will decrease approximately 100 basis points from 2020 to roughly 7% for 2021, excluding the impact of lease intangible amortization on total revenues.
As a reminder, G&A expense for our acquisitions team fluctuates based on acquisition volume for the year and our current anticipation for G&A expense reflects acquisition volume within our new increased annual guidance range of one one to $1 3 billion.
Due in part to a one time true up of almost $500000 related to 2020 income taxes total income tax expense for the first quarter was approximately $1 million from.
For 2021, we now anticipate total income tax expense to be approximately $2 5 million.
Moving on to our capital markets activities for the quarter as mentioned on last quarter's call in January we completed a follow on public offering of approximately $3 5 million shares of common stock, including the underwriter's option to purchase additional shares which generated net proceeds of almost $222 million.
We were also active on the ATM during the first quarter entering into forward sale agreements to sell more than 372000 shares of common stock at an average gross price of $68 93.
For anticipated net proceeds of more than $25 million.
On March 31, we settled 578000 shares of <unk>.
Under our outstanding ATM forward offerings for net proceeds of approximately $37 million.
At quarter end, we had approximately $2 9 million shares outstanding on that.
M forward offerings, which in total our anticipated on our raised net proceeds of approximately $190 million upon settlement.
Inclusive of the anticipated net proceeds from our outstanding forward offerings and availability under our credit facility, we have more than $450 million in available liquidity.
As of March 31, our pro forma net debt to recurring EBITDA was approximately four two times as our outstanding forward equity or equity offerings continue to meaningfully reduce pro forma leverage excluding the impact of unsettled forward equity offerings, our net debt to recurring EBITDA was approximately four nine times.
Total debt to enterprise value at quarter end was approximately 24% while fixed charge coverage, which includes principal amortization increased to a company record five times.
During the first quarter, we announced the transition to a monthly dividend and declared monthly cash dividends of $20 seven per share for January February and March the monthly dividend reflected an annualized dividend amount of $2 and $48 <unk> per share representing a six 2% increase over the annualized.
Dividend amount of $2 34 per share from the first quarter of last year.
Our payout ratios for the first quarter were a conservative 74% of core <unk> per share and 75% of <unk> per share respectively.
Subsequent to quarter end, we declared an increased monthly cash dividend of $21 seven per share.
On the monthly dividend reflects an annualized dividend amount of $2 64 per share or an eight 5% increase over the annualized dividend dividend amount of $2 40 per share from the second quarter of last year.
With that I'd like to turn the call back over to Joey.
Thank you Simon operator at this time, we will open it up for questions.
Okay.
We will now begin the question and answer session.
To ask a question you May press.
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At this time, we will pause momentarily to assemble our roster.
Yeah.
Our first question comes from Keybanc Kim. Please go ahead.
Thanks, Good morning, Joey can you talk about your leverage philosophy I believe your last.
Quarterly target range of about four to five times debt to debt.
Preferred to EBITDA.
Why is that the right range for you guys why not a little bit higher will be great to see debt total <unk> and total <unk> growth translate to more <unk> per share growth.
And when you take net take into account.
The high quality nature of your EBITDA, 70% investment grade and all that.
I would think it can support a higher leverage range relatively speaking.
Yes. Good morning, Good morning, Stephen I think well I think if you look at net lease generally in our portfolio specifically in a private context I think net lease of course, you're right. It does enterprise contact support significantly more leverage what we've found is running a conservative balance sheet with liquidity and.
With the balance sheet capacity to continue to expand our business, which is growing at a clip of call it 33% on a.
Per annum here is prudent and so during the pandemic. We brought our stated leverage target down from four from five to six times to four to five times. We've historically been operating in that range. It really really any way inclusive of the forward equity offerings today.
Today sitting at pro forma for two times, we think we're in fantastic position to continue to execute on our pipeline near term and long term, but at the same time, but these aren't hard and fast rules.
No.
Tools like the forward equity offering.
Give us the ability to move leverage between that four and five and even potentially north of five times, but I think as Simon mentioned in the prepared comments. We think we can achieve upward upper single digit upper single digit <unk> growth here, even with a strong balance sheet.
Thats running between four and five times, so while while the portfolio certainly could support higher leverage we think it's prudent to maintain the dry powder to continue to execute on the business.
So on you on anything yes, the only thing I would add Keith is that.
It's really important that we continue to be able to raise capital.
An efficient and cost effective way.
With our leverage where it is right now we think we're clearly going to be very appealing to investors in the bond market and that's a really important part of our overall capital strategy and we're able to achieve the kind of <unk> growth that Joey talked about that I talked about on the call.
At these leverage points. So it seems like the right place us as a comfortable balance between sort of all the stakeholders interest in the company.
Our next question comes from Katy Mcconnell with Citi.
Please go ahead.
Thanks, and good morning, everyone.
Can you provide some insight into the volume of deal flow.
During the quarter.
Thank you Amit <unk> from Jason your underwriting criteria or assets that you're targeting based on the new technology.
Part one.
No. Good morning, the first part of your question broke up with the specifics about what we acquired during the quarter.
Yes, just a volume that you saw on credits.
So I would tell you we closed the vast majority of assets that we source as long as obviously, we cleared diligence and receive stoffels and the like and so.
In terms of sourcing we will continue to bat.
Upper single digits, that's our business here, we've got 60, 70% of what we of what we actually close on in terms of what comes in New investment Committee and so the team is doing a.
A tremendous job of uncovering opportunities and so it's fair to say, we will get billions of dollars in any given quarter, if we're acquiring close to $400 million.
The second to your second part of your question. What Ark enables is really real time access to data and transactional capabilities to match and then the dashboard capabilities as I mentioned in the prepared remarks. So it's it's a fantastic tool for our team both on both on the origination side as well as throughout the entire.
Real estate lifecycle of an asset, but I would anticipate our acquisition activity in coming quarters to be similar in terms of composition will continue to focus on industry, leading retailers in our quote unquote sandbox will continue to source Opportunistically high quality ground lease assets and our focus will remain in investing.
<unk> omni channel operators.
Okay. Thanks, and then Matt you probably gave on Baxter's asset one of your pumps from further sell Downs next day net exposure.
On one of demand looks like for this category.
First of all the totality of our entertainment exposure as the two remaining Dave and Busters assets on the ones in downtown New Orleans.
On a mixed use complex, which is a very unique.
Very unique property for us and adjacent to the Smoothie Center and the Mercedes Benz on the former Super.
Sure.
The former the former dome there in New Orleans until the Superdome so.
The totality, that's the totality of our exposure there and so we would never overly inquisitive.
In the experiential slash entertainment sector to begin with and so.
Those are the two assets, we're very comfortable with them. Obviously, if we get the right bid for them. We look at the opportunity to dispose of them I think that Dave and Busters and Austin is representative of the high quality nature of our real estate debt asset at three seven years of remaining term on it.
And we were able to achieve a mid seven cap rate. So I think that was on.
Optimal outcome for us there and that was that was an inbound which we've been talking about for a couple of quarters now it wasn't even openly marketed.
Okay, great. Thank you.
Thanks Katie.
Our next question comes from Nate Crossett with Bam Bank. Please go ahead.
Hey, good morning, guys.
I'm just curious to get your comment on what the outlook for pricing looks like.
As far as you can see again.
Is there any pressure there have you seen any change with kind of rates backing up or what what should we kind of be expecting.
Well I think I think pricing in the high quality net lease space and from comments from some of our peers and just general market data, we see it in the lower tier in terms of quality in the net lease space continues to be attractive.
We continue to see aggressive cap rates marginally compressing we continue here specifically to source value given our relationships our technology now.
And just the depth and breadth of our team but.
In terms of cap rates on a go forward basis, if the 10 year stays in this range bound here in the $1 six range lets call it plus or minus 20 basis points out on this.
We really don't see any material movement in cap rates or any upward pressure in terms of GAAP rate.
Okay. That's helpful and then.
Record quarter for ground leases for you guys is there anything to call out there thats driving.
The increase volume there was it or is it just a function of the kite realty portfolio and.
Are there other portfolios like that debt are out there that you.
You can get.
We'll kite was certainly a component there, but as we talked on the prepared remarks, we acquired a number of wildlife we acquired a carmax in California, a long term ground lease in Pleasanton, California to Carmax, who we continue to view it really in a superior position on the used car space given the given the nature and breadth and depth of their different lines of <unk>.
<unk> and.
And we continue to source unique opportunities like the discount tire on a one off basis. So the kite portfolio certainly with a piece of it we will continue to look at such portfolios as they arise, but the vast majority of opportunities we are truly on a one off basis there.
Okay. Thanks, guys.
Thanks Nate.
Our next question comes from Handelsbanken.
Mizuho. Please go ahead.
Hey, good morning.
Morning Handoff.
Hey.
Jerry I guess, we've seen that pick up here and M&A Kimco Weingarten Realty income in theory, the latest I guess I'm curious on what your view on the backdrop for M&A today is here in this space and if theres any scenarios, we could see ADC participating and then also more broadly curious what's your thoughts on the pricing from the <unk>.
<unk> income and be REIT merger.
Thanks.
Well, it's certainly interesting to see public to public M&A in the overall retail space I think the shopping center space potentially with a long time coming and I'm not sure. If we've seen the remainder all of it in totality given just the number of operators in this space and the different pressures on the space I think book.
M&A is obviously it is.
It is unique it is transaction specific we'll continue to look at any and all opportunities and most importantly, I think the M&A, we've seen in our space and as well as Adjacencies provides us a continued opportunity to execute on what we do.
No we are not Ah.
Portfolio purchaser generally speaking went on a sale leaseback purchaser generally speaking we're focused on a very tight sandbox here of the best retailers in the country and we have 80 to 80, plus or minus transactions going through our pipeline at any given time at a very granular in nature average price point to $4 million to $5 million. So our.
<unk> debt continues to be.
Private purchasers 10, 31 purchasers levered purchasers on the asset leverage on the asset level and so it's a very unique opportunity for us to continue to accelerate and expand our business with the M&A backdrop, there and we'll continue to look at opportunities I've always said, what we will never do.
Is that with the quality of this portfolio. We are on a march to improve what we think is already the highest quality retail portfolio in the country and we are going to continue to drive that home now pandemic <unk> sales and the like and a lot of unique circumstances.
Meet retailers outside of our sandbox appear more attractive in the near term debt as I stated in the prepared remarks, we really view retail as a K here is going to be continued dynamic transformation in net in retail we're focused on the upper leg of that Kay and the winners there.
Got it thank you for that.
Anything on their contractor LOI today and then.
Part of that so I'm thinking what your overall view on exposure further ground lease value business could grow to how you're thinking about that over time. Thanks.
Well I continue the team continues to surprise me by the ability to source ground lease assets. They are a nice day consistently we think the best risk adjusted returns, but by a significant margin in retail real estate. The ground lease portfolio at 11, 4% is almost doubled in size in approximately I'd say 24 months I.
Weighted to tick higher in Q2, just given with the extent of the pipeline that we can see cash.
Currently with similar opportunities that we executed on on Q1 and so it is a it's a unique aspect to our business the team and through their efforts surprise me about their capabilities to continue to uncover those truly on a granular basis, where it goes from here will be a function of the team's efforts in.
Pricing and what makes sense.
Qualitatively within the portfolio. So I wouldn't have predicted 11, 4% I wouldn't have predicted historically it would be north of there at 630, but.
But we continue to find those opportunities.
And on the contract or LOI side anything you can share on that front.
Nothing specific on our pipeline continues to be strong for Q2, hence the raise of the guidance. We are beginning to source for Q3 opportunities today. There are some unique transactions in there similar to Q1, obviously diverse geographically by sector and by tenant but nothing overly notable.
Or nothing that we're going to call out today.
Got it thank you.
Thanks, Andrew.
Our next question comes from Linda Tsai with Jefferies. Please go ahead.
Hi, good morning.
Curious on the high end of consensus.
Good morning, the high end of consensus estimates Simon I think you said, 10% year over year growth does this assume $1 3 billion in transaction volume.
What kind of assumptions does this incorporate on the equity side.
On the range was 6% to 10% on what we said was that we expected to be towards the higher end not necessarily all the way to 10%, but it does it does incorporate the range of outcomes on on acquisitions that we put out there the one one to 1.3.
And look you never know exactly where youre going to get this is not a precise science we're out there buying things every day, but thats what were trying to get to it also does require an acceleration of the.
On the results quarter over quarter. So we had call. It 83 of <unk> in this first quarter in order to get to that higher end of the range. It does require an acceleration of results towards the backend and thats really a function of our acquisition pipeline.
Thanks, and then Joey in your prepared remarks, you highlighted to Cvs in Greenwich and Rei in East Hanover.
You're seeing more compelling opportunities come to market and higher income areas or is this part of the focus to gain higher exposure to these markets.
Is it just for clarity on the Cvs and credit was acquired I believe in 2000. The 20 year late 2019, the Cvs portfolio of the <unk> was acquired in the first quarter. We continued to be geographically very dispersed that debt is from urban to rural to street retail to ground.
Leases really across that spectrum as long with our sandbox. So.
We've seen accelerated opportunities in the sunbelt just given the nature of construction starts down there we've seen accelerated opportunities in the south.
But really we're opportunistic in terms of going coast to coast.
North to south across the country.
Thank you.
Based on the.
Our next question comes from Todd Stender with Wells Fargo. Please go ahead.
Great. Thanks, Joey just to kind of hone in on the Cvs transaction.
How big a deal was that what was the remaining lease term before you.
Blended and extended maybe just some context, there I think you've commented on the zone.
Renting below market, maybe any more color. Please.
So that transaction as I mentioned was unique these are Cvs locations in their core markets in the Midwest short remaining lease terms.
Approximately five years on those on those stores fully recast into 20 year leases 10 stores. It was approximately off of off the top of my head about $30 million.
Need aspect of the transaction was not only that Cvs as I mentioned in the remarks, the extended for a full 20 years, but also if you look at per square foot rental rates in aggregate rental rates across the pharmacy space. They typically range from 25 to $35 per square foot part of my challenge with pharmacy acquisitions, historically, and hence the dispositions of the Walgreens.
And our overall exposure reduction overall exposure was the replacement rents on those approximate 13% to 14000 square foot buildings, which which typically ran from a third to half in.
In context of this transaction, we have Cvs as that are paying approximately just over $14 per square foot brand, new recast 20 year lease with Cvs results by channel came out this morning again.
Beating the street with impressive results and so we're a fan of what CBS is doing both transformational within their business, but also on the real estate front so as.
As I mentioned Walgreens really went.
It really post the acquisition by debt by Boots Alliance.
And hence the attempted acquisition of Rite aid to increasing store count while CBS went on a divergent health and wellness aspect. They had the PBF historically, the Aetna purchased a minute clinic rollout and now the health hubs, which are extremely impressive if anyone's had the opportunity to see them. If they continue to rollout is really a vertically integrated.
Health and wellness business and so we are we like what they're doing from a corporate perspective were hesitant on the front end of pharmacy were hesitant on the residuals historically.
But given the nature of the oil price points, the low per square foot rental rates in the low per square foot purchase prices in the 'twenty year Cvs leases. We thought this was an extremely attractive transaction.
Alright Thats helpful. Thanks, Julie and then I don't know if I missed this what are the assets.
Debt or on top of the ground leases that you acquired from kite.
Any color there.
So.
A mixed bag.
So everything from a chip delayed two I believe of our bank of America too.
A couple of Panera bread locations outlet to their existing shopping centers throughout their portfolio. There was an opportunity for us.
Portfolio level opportunity to increase the ground lease exposure there and so it was a direct transaction that we thought was beneficial obviously to both parties.
That's all single tenant Standalone not no no shopping centers.
Correct, all single tenant Standalone outlets, which is which is fairly unique for us.
Thank you.
Thank you Todd.
Our next question comes from Peter Herman with Baird. Please go ahead.
Hey, Joey Thanks for you on the questions. Today can you talk about the ability to potentially close deals faster now with the new platform.
Yes, and just to I appreciate the question to talk about arc, a little but I'll just take the opportunity so.
What I found a few years ago is the acceleration of the business really began to ramp was just being the nature of an aggregator is difficult to project forward critical key metrics and so so so Peter Kogan, our our VP of finance and I started sketching out literally on a piece of paper at an idea on a concept that idea quick.
Then morphed into a static spreadsheet, which required obviously significant manual input that static spreadsheet then became.
Became powered by an IBM team one database the IV on <unk>, one database than to get switched to a my simple database to give us the real time and dynamic capability and from there we customize our CRM tool that we hooked in.
Q2 arc through the my sequel database that initial projection tool then became a dashboard tool for us for our acquisition team.
Guided in part by Greg Lang, who was the CEO of lineage Who's a fantastic director on our board and who was a lean guru and whose team trained and facilitated ours just in the operational and using visual key management tool. So every member of our acquisition asset management transaction team now has a dashboard that they can drill into all levels of data.
Cut slice dice it display it visually export it to all types of on.
Really cool things in the last few quarters, we have constructed even even more additional modules really expanding it to really the entire company and so now we have a full pipeline a database that ties into our underwriting and so it's literally a map of the country that can be drilled into sorted and filtered by any criteria a work order management system that spans.
At the property level maintenance all the way the full debt aggregation here work orders by duration type of work order planning tools in terms of seeing the number of work orders and where they spanned across across the country and other transaction T. Module is in is in beta will go.
Very shortly here that enables the full team to see the real time status of old transactions in our pipeline from the first contact with the CRM level.
The customer management level to the current status of the diligence. So Ark is truly the connectivity between the team on the technology, we've created to harness the opportunity in a very fragmented market. It's a key ingredient for us to continue to scale without arc, our people on our cultural it wouldn't be possible to execute one one to $1 $3 billion on transactions with an average.
Purchase price of $4 million to $5 million. So again, we have 50 to 100 transactions going through the pipeline at any given time. This system. This tool the platform really gives us real time data on all real estate activities. It gives us the capability through its dash boarding both team and individual to establish kpis to measure and manage to manage to them. So.
It's a powerful tool that will continue to expedite and accelerate the business here both at the transactional level and obviously that rolls up those 300, plus or minus transactions rose up to a result at the end of the day.
Got it I appreciate that color. Thank you so much.
Thank you.
As a reminder, if you have a question. Please press Star then one.
Our next question comes from John Moscow from Ladenburg Thalmann. Please go ahead.
Good morning.
Hi, John.
Could you maybe provide some color on the expected investment volume cadence. This year, just kind of if you look at the.
One from 21 acquisitions and you back those out of guidance.
Essentially calls for kind of around $300 million on investments, which would be kind of a notable decline versus <unk> I'm just trying to figure out at that day.
Just on your visibility into <unk> or just kind of conservatism around maybe two H.
Well.
I think given just the nature of our businesses as a granular purchaser, it's very difficult to predict or project, we truly have zero visibility into Q4 minimal visibility into Q3, we have very good visibility now into Q2 again I remind people. Our average transaction is approximately 70 days from letter of it.
<unk> execution to close some longer some shorter just about the nature of the transaction and so.
It's difficult given a obviously a fluid market a fragmented space and just the nature of our business to project forward now we've come out with the initial guidance of 800 to a $1 billion in the first week of January given what we know at the time and our promise has always been when we know what we know we will come out.
And adjust any expectations.
And provide that transparency to investors. So I would tell you. It's a combination of the environment. Its a combination of our business and.
And we just can't see the future I wish I wish we could arc does not allow us to see the future.
Unfortunately, but that will be the next module right Peter.
Thanks.
And then just as I think about maybe I know you don't give quarter to quarter.
Investment volume guidance.
If you think about the investment bond guidance. If you think about the $1 1 billion to $1 30 is that significantly front end loaded.
Based on what you see a day.
Well.
I don't think that's a front end loaded and we just printed Q1 at 300 approximately $380 million acquired.
And so I think we can cut that up for the remaining three quarters I don't anticipate Q2 to be very different in terms of assets that we're acquiring volume may be down or at at that level. So we will see where things close again.
We can't predict whether something is going to close on July 27, 28, four July 2nd won't close on July 4th because things close but.
Our business the last outstanding issue generally to close an asset in our business is reliant upon the tenant to provide a stoffels and so things can cross quarters, we have ideas what will close this quarter and then everything can get jumbled around or gives us the visibility to move things around in those corners as we.
Have those third party respondents diligence outstanding estoppel and such like that and so that provides a level of transparency visibility for us, but closing and the timing of transactions really isn't rely on necessarily upon just just our operations our execution here.
Okay.
And then how did the cap rate on ground lease assets acquired in the quarter compared to kind of non ground lease investments and I guess, if you saw ground leases as a percentage of investments maybe normalized versus historical levels.
How much higher.
Assuming ground leases were lower cap rate, how much higher could.
The overall kind of blended cap rate trend.
So the ground lease assets interestingly enough due to the duration on our relationships the duration of their base term remaining our relationships where volume short term long term on ground leases. We obviously did the <unk> transaction. They generally speaking fall within the state within the range of our general acquisition volume now long term ground leases and.
California, It can be at the lower end of the acquisition, obviously spectrum for us in terms of cap rates.
And so but they generally fall within that range I don't have a percentage for you off the top of my head, but just given the nature and the disparity between some of these assets.
It generally is falling within call it debt five to seven range for US and then we ended up generally in the mid sixes.
As a second part to that question sorry.
No I think it's kind of irrelevant because they are in the same range. So.
Makes sense.
And then one last one last kind of bigger picture one.
And some rumblings about kind of increased capital competition in the net lease space from leverage on public buyers life COVID-19 et cetera are you seeing your competitors in the sandbox in which you tend to play.
No I think the ABS backed buyers the CCL backed buyers the heavy liver buyers are looking at larger price point transactions. Some of the larger sale leasebacks, where we see very aggressive cap rates, where we haven't I haven't participated.
I think just again, the $4 million to $5 million average price points does it play itself very well to private equity sponsors or ABS or CTO back purchasers. There. So we are our competition continues to be Jane Doe.
It's a unique competitive said given our balance sheet, our team our capabilities and our technology platform on cost of capital.
Frankly, it's a mismatch.
Okay. That's it from me. Thank you very much for taking my questions.
Great. Thank you John.
Yes.
This concludes our question and answer session I would like to turn the conference back over to Joey agree for any closing remarks.
Thank you operator, and thank everybody for joining us today, and we look forward to catching up with everybody in June at virtual NAREIT, We'll talk to you soon thanks.
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