Q3 2021 Agree Realty Corp Earnings Call
Good morning, and welcome to the angry Realty third quarter 2021 conference call. All participants will be in listen only mode should you need assistance. Please signal our conference specialist by pressing the star key followed by zero.
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I would now like to turn the conference over to Nicole would've been executive Vice President and Chief of staff.
Please go ahead Nicole.
Thank you good morning, everyone and thank you for joining us for Aegean Realty's third quarter 2021 earnings call before turning the call over to Julian 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.
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.
And our tenant 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 reckon.
Reconciliations of these non-GAAP financial measures. The most directly comparable GAAP measures can be found in our earnings release website and SEC filings I will now turn the call over to Joey.
Thank you Nicole I'm very pleased to report that we achieved record investment volume of approximately $1 $1 billion through the first nine months of 2021 with continued momentum heading into the fourth quarter of this year.
While replicating these investment volume is the testament to the efforts of our talented team I am most pleased with the exceptional quality of the investments that we've made in a challenging environment.
Our investment activities further strengthen our best in class retail portfolio. We have also fortified our robust balance sheet with $1 $5 billion of capital market transactions year to date positioning our company for a dynamic growth in the quarters ahead, notably we completed our inaugural preferred equity offering during the third quarter raising.
$175 million at a $4 two 5% coupon. This represents the lowest non PSA read preferred equity coupon in history and provides a new source of perpetual capital for our rapidly growing company.
During the third quarter, we invested approximately $343 million and 83 high quality retail net lease properties across our three external growth platforms.
Of these properties were sourced through our acquisition platform representing acquisition volume over $340 million.
The 80 properties acquired during the third quarter or at least a 49 tenants operating in 20 distinct retail sectors, including best in class operators in off price retail convenience stores tire and auto service home improvement auto parts grocery and general merchandise.
The acquired properties at a weighted average cap rate of six 2% and a weighted average lease term of 10 seven years.
As mentioned through the first nine months of the year, we've invested a record $1 $1 billion and 226 retail net lease properties spanning 40 states across the country in 26 retail sectors.
While raising the lower end of our acquisition guidance for the year to $1 3 billion, our thoughtful and disciplined approach as evidenced by the nearly one third of annualized base rents acquired year to date derived from ground lease assets and roughly 70% of annualized base rents acquired derived from leading investment grade retailers.
During this past quarter, we executed on several unique transactions, including our third Amazon fresh store in Illinois, We're excited about the opportunity to add yet another Amazon fresh store to the portfolio located in a prominent Chicago suburb with median household incomes of 110000 and a daytime population of roughly 202.
<unk> 5000 within a five mile radius.
Our acquisition team also continues to uncover compelling ground lease opportunities.
During the quarter, we completed the acquisition of a nine property portfolio of Thorton's convenience stores for approximately $21 million.
The stores, which are paying an average annual rent of only $120000 per year and had a weighted average lease term of close to 20 years are all well located in the Nashville, and Chicago Msas.
Shortly after executing a letter of intent to purchase this portfolio BP announced they're taking full ownership or assortments convenience store chain after two and a half years as part of a joint venture established in 2019. This transaction makes BP, which is an a minus rated company by S&P when the leading convenience store operators in the Midwest.
With more than 200 stores across six states.
Other notable ground lease acquisitions during the quarter, including Walmart and Sam's club in Lansing, Michigan to Lowe's stores, located in Wallingford, Connecticut, and the Abington, Massachusetts, and a CBS in Springfield, Massachusetts.
We've acquired 73 ground leases year to date for total investment spend of nearly $350 million, representing nearly 31% of acquisition spend for the entire year.
This includes 28 ground leases during the third quarter, representing investment volume of over $108 million.
As of September 30, our ground lease exposure reached a record of nearly 14% of annualized base rents.
The ground lease portfolio now derives roughly 87% from investment grade tenants and has a weighted average lease term of 12, one years with an average rent of less than $10 per square foot.
This portfolio continues to represent an extremely attractive risk adjusted investment for our shareholders.
In recent earnings calls and discussions that are been considerable dialogue regarding our ground lease portfolio and its valuation I would encourage everyone to take a look at the new slide we added on page 10 of our Investor presentation, which compares our ground lease portfolio to the 10 year Bloomberg Triple B index, which has been trading between 2% and 3% over the past 12 months.
This is a very compelling comparison when thinking about the value of our ground lease portfolio, which has a weighted average credit rating of triple B plus over two years of additional term in comparison to the Bloomberg Triple B index and internal growth of nearly 1%.
As of September 30, our portfolio's total investment grade exposure was approximately 67% representing close to a 500 basis point year over year increase.
On a two year stacked basis, our investment grade exposure has improved by roughly a 1000 basis points.
Moving on to our development and partner capital Solutions program, we continue to uncover a compelling opportunities with our retail partners we.
We had seven development and Pcs projects, either completed or under construction. During the first nine months of the year that represent total committed capital of approximately $40 million.
Im pleased to announce we commenced construction during the quarter on our third development with Gerber collision in new Port Richey, Florida Gerber.
<unk> will be subject to a new 15 year lease upon completion, and we anticipate rent will commence in the second quarter of 2022.
Construction continued during the third quarter on two development and Pcs projects with anticipated cost of just over $5 million. The project consists of our first 711 development in Saginaw, Michigan, and a gerber collision in Pooler, Georgia.
We remain focused on leveraging our three external growth platforms, and our differentiated asset management capabilities to expand our relationships with best in class retailers, providing comprehensive solutions that facilitate the real estate strategies and growth plans.
While we continue to strengthen our best in class retail portfolio through record investment activity. We remained active on the disposition front during the third quarter.
We continue to reduce exposure to franchise restaurants, and non core tenants through the disposition of three properties for total gross proceeds of approximately $11 $8 million.
With a weighted average cap rate of six 3%.
As of 930, we've disposed of 13 properties for gross proceeds of just over $48 million and are maintaining our disposition guidance of $50 million to $75 million for the year.
Bolstered by the recent addition of David Darling as our Vice President of real estate the asset management team continues to diligently address upcoming lease maturities.
Their efforts have reduced our 2021 maturities to just four leases representing 10 basis points of annualized base rents.
During the third quarter, we executed new leases extensions or options and approximately 72000 square feet of gross leasable area.
Through the first nine months of the year, we executed new leases extensions or options on approximately 347000 square feet of gross leasable space.
Our 2022 lease maturities are de Minimis with only 19 leases maturing representing less than 1% of annualized base rents expiring over the course of the next year.
As of September 30, our expanding retail portfolio consisted of 1338 properties across 47 states, including 162 ground leases and remains effectively fully occupied at 99, 6%.
Notably and as pointed out in our press release, Walgreens, and la fitness or no longer top tenants for our company. Both now represent less than one 5% of annualized base rents.
For those that have been following our company over the years. This reduction in Walgreens exposure is a true milestone given our historical exposure, which one's approached 40% of our portfolio. We have made a concerted effort to approach to tailor our pharmacy exposure given the high per square foot rental rates of many vintage pharmacy leases and the divergent approach.
As of Cvs and Walgreens to quickly changing landscape.
Before I turn the call over to Peter to discuss our financial results I'd like to welcome Mike Judd load to our board of directors. Many of you are familiar with Mike as he most recently served as chairman of the U S real estate gaming and lodging investment banking practice at Jefferies over the course of his career, Mike has raised in excess of $50 billion of capital through numerous transactions.
Having had the opportunity to work with Mike for many years I am extremely excited to Leverages unique perspectives and experiences as our company continues to dynamically grow and evolve.
With that I'll hand, the call over to Peter to discuss our financial results for the quarter. Peter. Thank you Joey starting with earnings core funds from operations for the third quarter was <unk> 92 per share representing a 13% year over year increase adjusted funds from operations per share for the quarter increased 11, 5% year over year to 89.
As a reminder, treasury stock is included within our diluted share count prior to settlement if in one ADC stock trades above the deal price of our outstanding forward equity offerings.
The aggregate dilutive impact related to these offerings was roughly half a penny in the third quarter.
As mentioned on the last two calls we expect to achieve high single digit earnings growth for full year <unk> per share building upon our 6% <unk> per share growth in 2020. This implies two year stacked growth in the mid teens. We view this level of per share growth is very compelling when combined with the strength of our portfolio and our fortress like balance sheet.
This consistent and reliable earnings growth continues to support a growing and well covered dividend during the third quarter. We declared monthly cash dividends of 21 seven per common share for July August and September on an annualized basis. The monthly dividends represented eight 5% increase over the annualized dividend from the third quarter of last year.
While meaningfully increasing the common dividend over the past year, we maintain conservative payout ratios for the third quarter of 71% of core <unk> per share and 73% of <unk> per share respectively.
Subsequent to quarter end, we again increased the monthly cash dividend by four 6% to $22 seven per common share for October the monthly dividend reflects an annualized dividend amount of $2 72 per share or nine 8% increase over the annualized dividend amount of $2 48 per share from the fourth quarter of 2000.
'twenty two.
Two year stack basis, this reflects annualized dividend growth of more than 15%.
General and administrative expenses for the third quarter, which were impacted by recent changes to the company's executive officers totaled $5 7 million G&A expense was six 5% of total revenue or 6%, excluding the noncash amortization of above and below market lease intangibles, while we continue to invest in people.
<unk> systems to support our dynamic and growing business, we still anticipate that G&A as a percentage of total revenue will be roughly 7% for full year 2021, and this excludes the impact of lease intangible amortization on total revenues as mentioned last quarter G&A expense for acquisitions team fluctuate based on acquisition volume for the year.
Year, and our current anticipation for G&A expense reflects acquisition volume within our new guidance range of $1 3 billion to $1 4 billion.
Total income tax expense for the third quarter was approximately $390000, which was slightly lower than our expectation due to a onetime refund. We continue to anticipate total income tax expense for 2021 to be close to $2 5 million.
Moving on to our capital markets activities for the quarter as Joey mentioned in September we completed our inaugural preferred equity offering raising $175 million of gross proceeds at a record low coupon of four in a quarter. This attractive offering demonstrates our ability to opportunistically access yet another source of capital to support that continue.
Growth of our company.
During the third quarter, we entered into forward sale agreements in connection with our ATM program to sell an aggregate of approximately 367000 shares of common stock for anticipated net proceeds of roughly $27 million.
During the quarter. We also set up close to 886000 shares under forward ATM sale agreements and received net proceeds of approximately $56 million at.
At quarter end, we had approximately $3 4 million shares remaining to be settled under existing forward sale agreement, which are anticipated to raise net proceeds of more than $226 million upon settlement.
Inclusive of the settlement of our outstanding forward equity our fortified balance sheet stood at approximately three seven times net debt to recurring EBITDA, excluding the impact of our unsettled forward equity our net debt to recurring EBITDA was approximately four four times.
If you include our recent preferred equity offering our net debt. This adds roughly half a turn of leverage to our net debt to recurring EBITDA metrics.
At 930 total debt to enterprise value was just under 25%, while our fixed charge coverage increased to a record $5 one times with full availability under our revolving credit facility of nearly $830 million in total liquidity, we have tremendous flexibility to execute on our growth plans with that I'd like to turn the call back over to Joe.
Thank you Peter at this time, operator, we will open it up for questions.
We will now begin question and answer session.
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This time, we will pause momentarily to similar roster.
Our first question comes from Brad Heffern with RBC capital markets. Please go ahead.
Hey, good morning, everyone. I was wondering on the acquisition front, if you could talk through the relative attractiveness of the investment grade versus sub investment grade this quarter I noticed it was a little bit below the normal proportion for the portfolio overall and it was down quite a bit sequentially.
Good morning, Brad.
First off we're focused on.
Our sandbox of industry, leading retailers at 25% to 30 retailers across the country.
Generally speaking have investment grade credit ratings, and or a ground lease asset, where we see residual upside and so notably this quarter, we acquired a shorter term out that portfolio of unrated tenants, we don't impute any scores or rating to those included there a chipotle chipotle KFC franchise and Outback Steakhouse.
For example, the outback paying $9 50, a foot on two acres on the two acre site $63000 a year, we see tremendous upside if we were unable to get that get that asset back we.
Acquired a publix, obviously it doesn't have a credit rating you can impute, an investment grade credit rating the publics if you'd like in South Carolina Lastly, we acquired a bj's in Wallingford, Connecticut.
<unk> adjacent to the lows, we own in Wallingford as well right on the toll road, great piece of real estate high performing store low rent and clear visibility into the residual real estate. There. So youll see those numbers investment grade <unk> term ground lease as well fluctuate from quarter to quarter, but I think over the course of the year is pretty consistent.
Okay got it and then on ground lease.
You all continue to acquire at sort of the 30% level every quarter.
Is that what we should sort of think of as the long term goal for ground leases as a percentage of the portfolio or any any color you can put around how big you wanted to eventually be.
But we see as I mentioned in our prepared remarks tremendous opportunity, we think the valuation of that portfolio. When you comp it to something like the triple B indexes because it is extremely compelling in terms of a go forward basis, we're opportunists at our core.
The Outback that I've just mentioned is a perfect example, there we'd love to get that asset back.
And re lease it for three times of the current rent. So we'll see those transactions continue to materialize as a number of them in Q4 visibility into 2022 is still pretty light here at the beginning of November but we're focused on finding a best in class opportunities on a risk adjusted basis.
Okay. Thank you.
Thanks, Brad.
Our next question comes from Katy Mcconnell with Citi. Please go ahead.
Thanks. Good morning can you, perhaps walk walk with some help on looks like today and have you seen any multiple changes to walk achieving follow up question from Mike <unk>.
Maybe you can talk about John Bullock.
Thanks.
Yes, good morning, Katie I would read too much into the upper end of our guidance being raised there's certainly no deceleration in our pipeline. We have a few hundred million dollars close to a 100 properties in our pipeline today, It's really just a question of timing windows when those close so does it close by year end the push into next.
You are a lot of that is under our control subject to a seller <unk> our retailer and so I can say with confidence here. The pipeline is in place to continue to execute on the granular nature of our traditional transactions or much larger transaction. If that comes to comes about or come to fruition. So you can combine the team here in.
Conjunction with our arc system is a powerful combination will continue to execute I wouldnt read into any.
Guidance not being raised at year end here or the $1 4 billion not being raised it's quite possible, we will hit or exceed it subject to timing.
Hey, Joe It's Michael Bilerman good morning.
Just going back to the ground lease portfolio and you and I discussed earlier when you started to.
Really accelerate the ground leased assets.
We're not going to get a commensurate decline in the cost of capital and I can understand the residual value that could be embedded in some of these which are quite long duration. So it's not always immediate in terms of getting to that opportunity Im sure Youre going to tell me examples that you have but in aggregate youre not going to hope to get the residual value as quickly.
And I'm not sure the market gives you value.
Especially if your cost of capital is not declining to the same degree to create the same level of accretive growth.
So I guess are you thinking at all about different structures for the ground lease portfolio or how do you.
Help us understand why buying a ground lease even I understand the risk adjusted relative to Triple B.
Argument, but thats not how your stock sort of trade.
And so I'm just trying to better understand why go after lower yielding even if they are more secure longer term.
How does that really drive your cash flow growth to rich.
Would we get a higher multiple.
No I appreciate the question. We've obviously made a focus here at an emphasis put an emphasis on communicated in articulating the value proposition of the ground lease portfolio first we're not reaching for yield.
In terms of chasing cap rates or in the ground lease portfolio generally the ground lease assets on an individual basis at acquisition are in line with our acquisition cap rates. What we've done is pivot with our capabilities with our relationships with retailers and owners developers sellers is really a flight to quality and so we.
See tremendous upside now these arent 99 year ground leases I E lease hold interest or something of the like in this April.
99 year ground leases and you're never getting a residual back the outback is a good example of that I think.
There's two ways to go and in an environment, where you see continued cap rate compression, it's continue to drive towards quality and find asymmetric in unique opportunities or you can go up the risk curve in terms of creditor term or single purpose buildings, which you won't see us do so I think the premise of that question, we're not going to reach for yield in terms of ground lease theyre going.
To be effectively in the same range as our as our standard net leases.
And then if we can just transition to the CFO side of the equation obviously.
All of a sudden leopold sort of.
I guess you broke up.
In mid August.
Coming into the CFO role.
Six or seven months before that was a board member for a period of time before that.
Look over the years.
This will be CFO number four or five.
Over the last decade.
To help us understand what's going on.
In that role why isn't there more and I know youre going to go.
Every situation specific but it is rare to see the turnover in a company that's growing as fast as yours and it has performed well and Hasnt had the hiccups.
That you would normally see with a lot of executive turnover.
What is it about.
In that role Thats, not getting sticky within the company.
And how are you thinking about filling the role going forward and just take us through a little bit of what's happened.
Yes, no I appreciate the question Peter can you plug your ears really the room. Please just kidding.
Well look I think.
Simon and Joey did breakup that first of all there was no personal animosity there was no challenge in her personally or strategic.
Strategic challenge there in terms of the performance of the company on a go forward basis.
That was just a case of operating styles or operating model not thinking it was obviously it was disappointing for us.
We quickly pivoted and understood that we needed to we needed to separate and I think both parties, it's better off for both parties. There. So that's what I'll save US time, we only wish him. It wish him the best and continues to be Fred.
In terms of the CFO, we've had we've had a.
We will continue to execute on this search we will do our diligence Peter is doing a tremendous job you can unplug yourself Peter is doing a tremendous job here executing on the preferred offering and now earnings we're going to continue to do our diligence on this search okay. It's been a unique circumstances instead of events with the CFO two left on their own.
Volition for other for one for a personal reason and one for professional opportunity that didnt work out for them in another state and so.
It's incumbent upon us to make the right choice for this seed for this company. Most importantly, this is an operating seat and so we're not out there pontificating or thinking strategically about things that aren't aligned with our operating strategy everyone. Here in the 60% company rolled up their sleeves and has to execute too.
Really a disciplined operating strategy. So that's most important and we've taken the last several months here a few months to really evaluate the seed I've had a number of conversations with not only candidates with existing REIT Ceos as well as under industries to think about how the CFO search here should should culminate in a.
And a permanent successor, I mean, David Wolfe, our Chief Accounting Officer is sitting here, we have we have a fantastic chief accounting officer, and David and accounting team Thats really closing the books here and.
The day to day accounting and so now it's incumbent upon us to figure out what the right role and responsibilities for the CFO here at <unk> and a growing company homegoods.
Alright, I guess is there any introspective that you have on yourself or the board because it is.
So every situation's, Scott there reasons or rationale.
Yes, just as happened a little bit often so I'm just wondering if there is a reflection of maybe your own management style or how you'd like to work with people.
The board is involved.
Yeah.
Rare right you, obviously knew Simon well he was a board member for a short period of time.
These things don't happen that often Joe I feel like it's come up.
<unk> had to explain things away a few too many times and so I'm just trying to understand if there is a larger.
I'm going on Thats, not keeping the CFO spot.
Yes.
This is Cynthia answer to that question. The last part of the question is no. There is no larger thing going on as Susan a personal this isn't a personal dynamic with Joey. This is right. This is part of being a part.
Part of our broader leadership team that are growing and dynamic company, even comparing the CFO seat today to two years ago, when we own 345 years ago here required just so.
Different skill sets.
And a half years ago, we moved into the current building that we're in with $14 15 employees today, we're at 60 team members here.
So I think to the first part of your question, Yes, 100%. There is an introspective and look in the mirror we would be.
Ignorant frankly, not to look in the mirror and say what do we have to do differently, but also and what can we do better.
But also what is how has this rule change in context of the overall growth of this company, we're a $7 billion of approaching $7 billion enterprise, most more likely than not soon to be $10 billion enterprise with a with a dynamic team here. So.
The introspective piece here is both are looking backwards, but also looking forward and again I would emphasize that this is the team that is committed to producing consistent results and also is committed to working both in and on the business.
We arent, we arent golfers here, we take these things seriously we operate it.
It's a private company in the sense that we have an ownership mentality, that's probably our most important core value.
Great. Thanks for the time Joe.
Thank you Michael.
Our next question comes from Linda Tsai with Jefferies. Please go ahead.
Hi, good morning.
Looking at Slide 16 of your IR deck sandbox offers runway for growth and you showed the different retailer categories.
Are you seeing the best opportunities from a risk adjusted basis.
Continuing to build the pipeline for 2022.
Hey, good morning, Linda I think I think it's across the full spectrum for us. So we saw the surge in grocery due to the <unk> transaction and the <unk> transaction in Q2. This quarter, we see divergent again emphasize the Amazon fresh the third in the portfolio, but it's really across the sectors that we're targeting but most importantly across the samba.
<unk> of retailers, obviously, the ground lease opportunities span the full spectrum all the way from a casual dining opportunity like the outback I highlighted to a Walmart Costco Lowe's or home depot, and so it's pretty fragmented this quarter. The C store emphasis with Assortments transaction as well as a ground lease to Royal farms that we also acquired we're very unique.
But the most interesting part about this business as the pipeline changes every day and again I would emphasize there is no rhyme or reason for that change it's with the origination team continues to dig up so I'd tell you it's extremely divergent.
Sure.
Got it and then just given the risks lift that retailers have seen across the board in 2021.
Underwriting changed at all to accommodate for this more positive environment I know you mostly have material exposure to necessity based retailers.
But even these guys have done a little bit better than usual.
No I would tell you it hasn't changed our underwriting if anything it has emphasized that we have affirmed believes that the stronger the big are getting bigger.
Access to capital their balance sheet their ability to invest in price even in a supply constrained environment and compete.
As well as the ability to invest in an omnichannel future. So, but we've seen sales surges pent up demand across the categories. We've seen some idiosyncrasies.
In different sectors everyone's got up.
Mike or a shotgun or wherever they're buying an academy sports today.
We've seen some unique changes there, but we think those are our second quarter cyclical.
And we will normalize here hopefully sooner rather than later in terms of in terms of consumer behavior.
The environment continues to be what we expect the big.
Have the access to capital they have the ability to invest in both two most important pieces of their business today competitive on price in an omnichannel future, which obviously.
Is paramount.
Thanks, just one last one on the past couple of earnings calls for <unk> here earnings growth expectations for the year for 2022 should we expect the same type of communication.
It's a good question look we're looking at all options, we're looking at all options, including providing all the way from providing formal earnings guidance all the way to a similar strategy. We've executed this year I'll tell you. Our expectation is a continued upper single digits earnings growth profile in terms of <unk> we have.
The ability to do that with an extremely strong balance sheet investing in the best retailers in the country with superior real estate and Thats, what youre going to see us execute.
Thank you.
Thanks Linda.
Our next question comes from Tayo Okusanya with Credit Suisse. Please go ahead.
Hi, Yes, good morning, everyone.
Joey you guys.
Feel pretty bullish on your acquisition outlook, a bunch of your peers put out 'twenty two guidance. This morning, as well with very strong acquisition outlook.
I guess, what I'm curious about is number one whats kind of really.
Driving everyone to being so bullish.
And being able to kind of match or England, b kind of what our record acquisition volumes next year, especially given the backdrop of everyone getting concerned about higher interest rates higher inflation and things of that sort.
Yes, good morning.
Wouldn't want to answer for our peers ours is opportunistic.
<unk> transactions approximately right at any given time moving through our pipeline average price points of $4 million to $5 million ranging from $1 million.
$80 million.
I wouldn't want to speak for our peers I'll tell you across redone when you see favorable cost of capital you see generally speaking companies deploy them in terms of external growth. The next question is what is the quality of the underlying real estate credit residual that people are acquiring and so I know what our strategy is specifically here.
It starts with that Omnichannel critical e-commerce resistant.
<unk> based approach on a granular basis open to larger opportunities that fit within the context of this portfolio and obviously are accretive I can't speak for what other.
What other appear what other Reits or other peers are acquiring but I think given the favorable cost of capital you see them continuing to achieve spreads that they think makes sense in the context of their overall portfolios.
Okay. That's helpful. And then just a quick second question.
You guys have relatively low leverage at this point why the decision to go down the route rather than just kind of issue straight up.
That would have another lower interest rate.
I'll turn that question over to Peter I would tell you when we heard saw forward a quarter.
As Peter mentioned in the prepared remarks, and non PSA record at four in a quarter. It was extremely attractive now obviously debt preferred equity is a hybrid security.
We think perpetual paper at four in a quarter with a call ability feature after five years was extremely attractive and again non PSA record, but I'll turn that over to Peter you really execute on that deal yes. Thanks Joey.
I'll just mention when we've historically looked at the preferred market to Joe's point that pricing Hasnt always made sense in the context of other capital sources.
But this past summer we saw several reached very low coupons relative to what they've been able to achieve historically.
And thought it made sense for us to explore that market further NIM.
Market dynamics, when we're taking a look some favorable theres a lot of demand for high quality investment grade paper.
And given that anticipated pricing and strong demand as well as the fact, we really didnt have a need for $300 million index eligible bond, we thought that it made sense to issue our inaugural preferred offering and really open up another source of capital for the company as we continue to grow.
In terms of the execution of that offering the demand was stronger than we anticipated.
And we were able to upsize the deal from $100 million to $175 million and tightened pricing down to four and a quarter as Joey mentioned with a really strong order book and strong institutional demand. So it was great execution for the company.
Makes sense. Thank you.
Thanks Al.
Our next question comes from Wes Golladay with Baird. Please go ahead.
Hey, good morning, guys I, just wanted to stick with the preferred I mean, when I look at the portfolio, it's very high quality and the company's balance sheet is very strong with low leverage and it is a risk on environment. So I wanted to see what your appetite is to get a little bit more leverage to the common via the preferred.
Well I think the preferred auto inherently if you if you look at net debt plus preferred to EBITDA inherently leverages off.
An additional half a turn now again with no maturity nichol ability feature of perpetual paper. Our stated range of four to five times is exclusive of debt preferred in that half turn that add to our current leverage profile. So it does provide for us to quote unquote lever up obviously.
So we look at it both in both directions here, both as an equity substitute as well as the ability to add incremental leverage without a maturity.
So.
I have a term b, where you would be comfortable with.
As you grow the company.
Certainly.
Again, our stated range of 4% to five times is exclusive of the preferred but we're certainly comfortable at five five times with the preferred so inclusive of the preferred so you can look at it and we understand investors and sell side look at it both ways preferred as well as the rating agencies. We've had continued dialog with <unk>.
Peter mentioned the ability to.
To raise a $175 million of four in a quarter effectively read on our weighted average cost of capital and then invest it with 200 basis points spreads.
And the perpetuity there, it's we take that.
Was extremely attractive for us.
Got it and then.
I guess when you talk to existing tenants I guess, what is your appetite for new projects to go into the development of Dcs project pipeline for next year.
So it varies across the board.
By tenant and generally by sector, we see a lot of activity obviously in the off price space, we see a lot of activity in the auto and tire service space.
And so it truly varies at the same time, we see the home improvement retailers, most notably home depot and Lowe's not looking for net new stores, but investing in their omnichannel distribution initiatives.
And so it varies across retailers there are definitely retailers on a freestanding basis that are expanding throughout this country, our third Amazon fresh store obviously.
Expanding and people read the news.
So it really varies by retailer and by sector. Today. You are guys that are contracting are guys that are that are growing aggressively.
Got it thanks for the time.
Thanks Wes.
This concludes the question and answer session I would like to turn the conference back over to Joey agree for any closing remarks.
Well. Thank you for joining us everybody today, we look forward to catching up virtually at the upcoming NAREIT in about 10 days, we will talk to you soon thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.