Agree Realty Corp (ADC) 2018 Q1 法說會逐字稿

Good morning, and welcome to the Agree Realty First Quarter 2018 Conference Call. (Operator Instructions) Please note that today's event is being recorded.

I would now like to turn the conference over to Joey Agree, President and CEO. Please go ahead, Joey.

Thank you, operator. Good morning, everyone, and thank you for joining us for Agree Realty's First Quarter 2018 Earnings Call. Joining me this morning's is Clay Thelen, our Chief Financial Officer.

We're very pleased to report that we're off to a strong start in 2018. During a busy quarter, we further diversified and strengthened our industry-leading portfolio through disciplined investment activity and proactive asset management and executed on a strategic capital market transaction that further fortified our balance sheet, positioning us for continued growth.

Capital invested across our 3 external growth platforms totaled $102.7 million in the first quarter among 39 high-quality retail net lease properties. Of those 39 investments, 30 properties were sourced through our acquisition platform, representing aggregate acquisition volume of approximately $98.6 million for the quarter. The properties were acquired at a weighted average cap rate of 7.2% and had a weighted average remaining lease term of 13.6 years.

The acquired properties are located in 15 states and are leased to leading operators operating in 12 different sectors, including off-price, convenience stores, auto parts, tire and auto service, grocery and crafts and novelties. Notable retailers include AutoZone, Tire Kingdom, O'Reilly Auto Parts, Hobby Lobby, T.J.Maxx, HomeGoods, Panera Bread, Starbucks, Firestone and Gerber Collision.

During the quarter, we are also very pleased to have closed on a sale-leaseback with Belle Tire, a leading regional tire and auto service retailer with a 95-year operating history. The portfolio is comprised of 7 master lease properties of very strong tire and auto service stores. Belle Tire is a local family-owned company and the 11th largest tire retailer in the country with approximately 100 stores. They are the clear market leader in Michigan with more than a 33% share. This transaction was Belle's first sale-leaseback, and we're excited to partner with a leading retailer in our own backyard that many of us have frequented over the years. We look forward to continuing to build upon our strong relationship with the Belle Tire team as well as the Barnes family.

As our pipeline continues to ramp, we remain focused on adhering to our stringent underwriting standards. Given the dynamic nature of the retail landscape and often the binary outcomes associated with second- and third-tier operators, we continue to emphasize high-quality retail real estate leased to industry-leading operators that have a comprehensive omnichannel strategy, a value-oriented business model or a service-based component.

Our disciplined focus has served strengthen our best-in-class portfolio. Today, our portfolio is stronger and more diverse than it's ever been in our company's history.

Turning to our development in Partner Capital Solutions platforms. In the first quarter, we had 9 development and PCS projects either completed or under construction that represent total committed capital of approximately $51 million. Four of those projects were completed during this past quarter, representing total investment activity of $26.7 million.

The project completed during the quarter include Art Van Furniture's new flagship store located across from IKEA in one of the state's dominant retail trade areas in Canton, Michigan. The store celebrated a successful grand opening on February 1.

Additionally, our first 2 developments with Mister Car Wash in Urbandale, Iowa and Bernalillo, New Mexico, celebrated successful grand openings in the first quarter and rent has commenced at both locations. The projects are subject to new 20-year net leases and had aggregate total cost of approximately $6.3 million.

Lastly, the company's first project with leading Burger King franchisee, TOMS King, was completed during the quarter, and rent subsequently commenced. The project is subject to a new 20-year net lease.

During the first quarter, we commenced 2 new development and PCS projects. These projects include the company's first PCS project with Aldi in Chickasha, Oklahoma; and the company's first development with Burlington Coat Factory in Nampa, Idaho. We continue to find opportunities to leverage our differentiated capabilities to partner with leading retailers to execute their expansion plans.

Construction continued during the quarter on 3 development and PCS projects. The development include the company's third project with Camping World in Grand Rapids, Michigan; and our third and fourth projects, respectively, with Mister Car Wash in Orlando and Tavares, Florida. All 3 projects are subject to new 20-year net leases.

While our investment activity year-to-date has served to improve the quality of our portfolio, we've also looked to solidify and diversify our portfolio through proactive asset management as well as disposition efforts. These efforts continued in the first quarter as we sold 5 properties for gross proceeds of approximately $16.7 million.

During the quarter, Meijer exercised an option to purchase their store in Plainfield, Indiana. Meijer had previously ground leased the location from the company for the past 10 years. Following Meijer's exercise of their option to purchase the property for $3.9 million, the company realized an internal rate of return of 11% on our investment. It's important to note that this was the only purchase option in our portfolio. Meijer's exercise of their option to purchase and our disposition activities in the first quarter have resulted in a net gain of $4.6 million.

Our disposition efforts, portfolio management and continued growth continued to strengthen the composition of our leading portfolio. Our exposure to our top 3 tenants now stands at 14.4% of rental income, a decrease of 360 basis points year-over-year. Similarly, our top 10 tenant concentration has been reduced to 32.4% of annualized base rents, a 360 basis point decrease from this point last year.

Our asset management team has also been proactively addressing upcoming lease maturities. As a result of these efforts, we had just 6 remaining lease maturities in 2018, representing 0.6% of annualized base rent. Roughly half of the annualized base rent expiring in 2018 is attributable to our 2 Kmart locations in Mount Pleasant, Michigan and Frankfort, Kentucky. Kmart has failed to exercise options at both locations, and we look forward to the opportunities to redevelop both sites and unlock additional value.

I am pleased to announce we have executed a 15-year lease with Hobby Lobby in Mount Pleasant foin the construction of new 50,000 square foot prototype. Entitlements have been fully secured, and we anticipate demolition on the former Kmart will begin in the third quarter of this year, with rent commencing in the second half of 2019.

We are also working with a number of leading retailers in Frankfort, Kentucky. As you may recall, both of these former Kmart locations were retained because of the below-market rental rates as well as the strong underlying real estate. We look forward to updating you on these redevelopment opportunities later this year.

As of March 31, our growing retail portfolio consisted of 463 properties located in 43 states. Our tenants are comprised primarily of industry-leading retailers in more than 28 diverse retail sectors, with 46% of annualized base rents coming from tenants with an investment-grade credit rating. The portfolio remains effectively fully occupied at 99.7% and has a weighted average remaining lease term of 10.3 years.

On last quarter's call, we highlighted the quality of our ground lease portfolio, which is comprised of leading retailers including Lowe's, Walmart, Wawa, Aldi, AutoZone, Chick-fil-A, McDonald's and Starbucks. At quarter end, nearly 90% of our ground lease portfolio derived its rent from retailers that carry an investment-grade credit rating.

To conclude, the first 3 months of the year marked another very strong quarter for our growing company. Our high-quality portfolio continues to improve and our fortress-like balance sheet position us to execute in 2018 and beyond.

With that, I'll turn it over to Clay to discuss our financial results for the first quarter. Clay?

Thank you, Joey. Good morning, everyone. I'll begin by quickly running through the cautionary language. As a reminder, 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 funds from operations, or FFO; and adjusted funds from operations, or AFFO. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in our earnings release.

As announced in yesterday's press release, total rental revenue, including percentage rents, for the first quarter of 2018 was $31 million, an increase of 27.8% over the first quarter of 2017.

General and administrative expenses in the first quarter totaled approximately $2.9 million. G&A expenses were 8.3% of total revenue in the first quarter, and we anticipate G&A expenses to be roughly 8% of total revenue for the year.

Funds from operations for the first quarter was $22 million, representing an increase of 29.3% over the comparable period of 2017. On a per-share basis, FFO increased to $0.71 per share, a 9.3% increase as compared to the first quarter of 2017.

Adjusted funds from operations for the first quarter was $21.8 million, a 27.7% increase over the comparable period of 2017. On a per-share basis, AFFO was $0.70, a 7.8% increase as compared to the first quarter of 2017.

Now moving to our capital markets activities. During the first quarter, we completed a follow-on public offering of 3.5 million shares of common stock in connection with a forward sale agreement. The offering included the full exercise of the underwriter's option to purchase additional shares and is anticipated to raise net proceeds of approximately $163 million after deducting fees and expenses. To date, the company has not received any proceeds from the sale of shares of its common stock. Selling common stock through the forward sale agreement enabled us to set the share price while delaying the issuance of such shares and receipt of the net proceeds by the company. We have the ability to settle the transaction in whole or in tranches at any time between now and March 1, 2019.

The forward offering provides the company the capacity to invest an incremental $500 million and stay within our stated leverage range of net debt to recurring EBITDA of 5x to 6x. We view this transaction as a unique way to further bolster our balance sheet in the intermediate term, lock in our cost of capital and mitigate external risk.

As of March 31, our net debt to recurring EBITDA was approximately 4.8x and below our stated range. Furthermore, our total debt to total enterprise value was approximately 27%. And our fixed charge coverage ratio, which includes principal amortization, remains at its highest level in the company's history at 4.2x. These metrics continue to be amongst the strongest of our peers and demonstrate the ongoing strength of our balance sheet, which is in excellent position for 2018 and beyond with significant capacity and flexibility in regards to capital sources. Our conservative approach to leverage provides us with ability to be opportunistic when making capital markets decisions.

The company paid a dividend of $0.52 per share on April 13 to stockholders of record on March 30, 2018. The quarterly dividend represents a 5.1% increase over the $0.495 per share quarterly dividend declared in the first quarter of 2017. This was the company's 96th consecutive cash dividend following its IPO in 1994, and it represents a 5-year increase of 27% over the company's first quarter 2013 dividend.

Our quarterly payout ratios for the first quarter of 2018 were a conservative 74% of both FFO and AFFO. These payout ratios are at the low end of the company's targeted ranges and reflect a well-covered dividend.

With that, I'd like to turn the call back over to Joey.

Thank you, Clay. To wrap it up, I'm very pleased with our performance during the quarter. We are in a fantastic position to execute for the remainder of the year, with a strong portfolio, a talented and growing team and a fortified balance sheet.

At this time, operator, we will open it up for questions.

(Operator Instructions) Our first question comes from George Hoglund of Jefferies.

Just first question. In terms of the asset sales that happened during the quarter, if you could give a little bit more color on that. And then just also going forward, kind of what type of assets will you be targeting in terms of either retail categories or types of situations that you'd be targeting.

Generally, I think our asset sales fall into a couple distinct buckets. First and foremost, we'll continue to target reduction of our Walgreens exposure. We've pretty well telegraphed what we perceive that exposure to be at year end. And we sold 1 Walgreens in Grand Rapid, Michigan during the quarter. And then we'll look both at opportunistic sales, most notably in the franchise restaurant space, but look then at opportunities to improve our portfolio like we talked about in the prepared remarks. I note our restaurant exposure is down 6.8% at the aggregate restaurant exposure year-over-year. Our quick service is down 150 basis points to 5.3%. Casual dining, similarly, is down 105 basis points to 1.5% this quarter. We really focused in on that casual dining exposures. It's not a space that we're overly comfortable with. And so you'll continue to see us execute on disposition transactions in those buckets.

Okay. And then is there any change in sort of the tenant watch list? Any noticeable deterioration in any of the tenants that you're having an eye on?

No. In fact, our watch list continues to shrink. The Walgreens acquisition of the 2 Rite Aid stores, obviously, that was significant for us. The pending Kmart lease expirations that we touched on there. Obviously, Kmart will be gone from our portfolio fairly shortly here. As I mentioned in our prepared remarks, our portfolio has never been stronger, it's never been more diversified. The team here is doing a fantastic job sourcing opportunities across all 3 of our external growth platforms. And I'll add, you're only going to see our portfolio continue to improve. We're working on a number of very high quality transaction, as well as those non-core dispositions, with the goal of continuing to strengthen our leading portfolio of retailers here.

Our next question comes from Collin Mings of Raymond James.

First question for me, just as you think about the flexibility offered by the forward equity offering. How are you thinking about accessing the debt markets over the balance over the year versus utilizing just the revolver for maybe a little bit more than you had in the past?

Collin, this is Clay. I appreciate the question. Maybe start from a debt perspective in terms of -- just in terms of sizing based on our guidance and the way we started the year. I anticipate sizing, maybe in terms of a private placement, to be more consistent with last year. For reference, last year, we executed on a 12-year deal in September. I would say the forward offering provides us some certainty that is really unique in that having a take out or a backstop, if you will, from an equity perspective and having real intermediate cost of capital certainty in the intermediate term. I would say we'll be a more active user on the line of credit, given that certainty and given the inherent cheaper cost of capital with the line of credit and where we're able to borrow at. And so we'll continue to use the line of credit and then ultimately replace that with longer-term fixed-rate, low-leverage financing throughout the year -- or later this year.

Okay. So for, like, modeling purposes, if we were thinking on it would be $100 million, $150 million, call it, in the back half of '18 that, that might be fair from your standpoint?

That's right, that's exactly right.

Okay. And then just in terms of maybe how you to think about the shift in the pricing environment relative to what you were able to do last year.

Yes, no, it's a good question. Last year, we executed a 12-year deal, as I mentioned -- or as you know, 160 basis points over the curve. I would say today, the balance sheet's even further improved, the portfolio is even further diversified. We continue to operate under an investment-grade mentality and approach. And I anticipate pricing to be reflective of that. We're very close with our private placement lenders and relationships and that continued dialogue that we have. And so I anticipate pricing to be reflective of our continued growth and in growth done in a meaningful and prudent way.

Joey, just one big picture question for you real quick. As you think about your theater portfolio, it looks like now 3% of the ABR. Just update us on how you're thinking about your exposure there.

Yes, sure. Look, I'll start by saying we have a grand total of 5 movie theaters now in our portfolio with no near-term plans to add any additional. We have 3 AMCs with the completion of this transaction in the first quarter, 1 Cinemark and 1 Regal. So the portfolio, it's fairly diversified. With that said, we're real estate opportunists at our core. When sentiment goes one way, we have no problem taking advantage of any dislocations that we see out there in the market. This quarter's transaction was a very good example. The AMC that we acquired, there's more than 2x average revenue per screen and it has fantastic coverage. Very strong sales, we've seen them consistently rise year-over-year. There's no national competitor in the market. You combine that with the 16.5 years of remaining lease term as well as the increases in the base term as well as the options, and we think this fits well into our strategy. Movie theaters, we think, is a minority piece of our overall exposure. You'll continue to see it be a minority piece, but we think that it's at its peak right now.

Our next question comes from Nicholas Joseph of Citi.

Joe, it was an active acquisitions quarter. Have you seen an impact on the transaction market or cap rates due to the rise in interest rates?

Yes, Nick. We really haven't seen cap rates in the product that we're chasing move by any material way. We've seen some gapping out in secondary or tertiary product that really doesn't fit. Some larger boxes, frankly, we've seen cap rates gap out. It's really a binary world today. There is capital chasing in the high-quality asset, and then frankly, there's a significantly less capital chasing lower-quality asset. And so our "sandbox," we haven't seen any material movement in cap rates yet. What we have seen is we've seen some transactions come back to us that, frankly, sellers were either holding out for higher pricing or went the way of a 1031 purchaser who failed to execute and we've seen what we call flowback. But in terms of material move in cap rates, we haven't seen anything of substance.

Had your underwriting standards or return hurdles changed at all?

They have. And I would tell you, if anything, they have become more stringent. We are acutely and intensely focused here on the highest quality of real estate and the highest quality of operators. I just don't feel -- given the dynamic nature of the environment that we're in, I just don't feel that it's the right time to go up the risk curve. And we have the ability to really execute with the best of the best across our 3 external growth platforms. And you see that across acquisitions development as well as Partner Capital Solutions. So look, it's a highly fragmented market, it's a huge space. Our focus continues to be very tight.

And finally, what was the cap rate on the AMC theater this quarter?

I can't disclose because there's some confidentially provisions. I'll tell you, it's in line with our historical acquisitions. We've got some confidentiality provisions in both the purchase agreement as well as the lease. We'd love to give some more detail, but we've been advised not to.

Our next question comes from Rob Stevenson of Janney.

Joey, what was the rough revenue or annualized base rent that you guys were getting from the 2 Kmart locations? And what, alone, is the Hobby Lobby roughly going to wind up doing?

Yes. So specifically to Mount Pleasant, that was a gross lease with Kmart, a $175,000 a year in annual rent effectively on a gross lease. So Kmart, on a net basis there, was really paying a de minimis amount of rent. You're talking about $40,000, plus or minus, on an annual basis. The Hobby Lobby transaction will be a reverse build-to-suit. Hobby Lobby will construct their own building, pretty typical for Hobby Lobby. It's a 15-year base term. Obviously, we're getting a significant credit upgrade, additional term, 50,000 square foot prototype store. Our investment there will be approximately $4 million, including the tenant improvement allowance for their reverse build-to-suit. And we're looking rents at -- in the upper mid-single digits there with growth every 5 years.

And do the -- does the swap between the Hobby Lobby building and the Kmart also leave you with additional space there to develop either there or at the out parcel?

Yes. So we're going to completely demolish the existing Kmart structure, it's 80,000 square feet approximately. I grew up on that site with a -- driving a bulldozer as an original project that my father developed pre-IPO. So we're going to scrape that building, Hobby Lobby will build their new turnkey, and then we'll have 20,000 feet -- a pad of 20,000 feet adjacent to the Hobby Lobby, which we're fairly -- which we're confident is very marketable there. Then moving on to Frankfort, Kentucky -- we can come back to Mount Pleasant if you have another question. Moving on to Frankfort, Kmart was paying $2 gross in Frankfort, Kentucky. So about $165,000 a year on a net basis. We anticipate -- again, that lease expire, Kmart failed to exercise their option there. We anticipate demolishing that building as well, and we're working with a number of tenants that we hope to be able to announce, if not next quarter, fairly shortly here.

Okay. And then second question. Can you talk to us about how the board's thinking about the dividend? I mean, looking at it today, I mean, and where you guys are versus taxable net earnings, could you guys know how, by far and away, the lowest dividend yield in the triple net space? Your payout ratio is low. You guys have been increasing the dividend every couple of quarters or so roughly 3%-ish or something like that. Are you at a point where you're able to keep doing that? Or are you going to be forced to increase the dividend by a more substantial amount, especially if your earnings growth continues to run at this rate?

Well, I think -- I'll tell you, from the board's perspective, and I'll speak on behalf of the entire board, I think there's a few important principles in terms of the dividend. One is predictability. Two is transparency into our thinking, so I appreciate the question. And then three is sustainability, in current sustainability as well as growth sustainability. The board generally thinks about the dividend in line with AFFO growth. We've moved effectively to 2 times a year dividend raise. I don't think that's any secret -- or you can just look at the history, which gives better visibility for the board in terms of AFFO on an annual basis. And we have a number of different constituencies, as all net lease REITs do, from individual shareholders and retirees that life off the dividend to the other side, of dedicated investors who see it at their cheapest form of capital and retained earnings. So we like to strike a balance there. Obviously, I'm a significant shareholder, my family's a significant shareholder. We appreciate the dividend. At the same time, we understand that it's our cheapest form of capital. So I think you'll see us continue to strike that balance. Our stated range of 75% to 85% payout ratio of AFFO and FFO maintained. And you're right, we are at the low end at 74%, and there's obviously an opportunity to consistently be raising that dividend.

Our next question comes from Ki Bin Kim of SunTrust.

This is actually a Ki Bin's associate, Alexei. Two quick questions for you. First one is, how you think about the deployment of capital? Do you prioritize acquisitions over developments? Or do you see developments becoming a larger part of the business over time?

Well, I would tell you, we look at each individual opportunity across all 3 platforms as they stand on their own. And so obviously, they have different return thresholds, they have different parameters, different time horizons to execute on a development from an acquisition. Typical development takes -- from start to finish takes approximately 18 months. Our acquisition activity from LOI, execution of closing, averages 71 days. And so we look at every opportunity on its own. We don't have distinct -- I would tell you, we don't have distinct buckets that we need to deploy a certain amount of capital across any. We give our guidance for acquisitions because of that fragmented space. But development is really a function of relationships as well, and the Partner Capital Solutions is the same.

Okay. And a second follow-up. What kind of yield are you projecting on these developments?

So we really haven't changed any yield with the development. We're still targeting, call it, 9% returns on development. Or on a variable basis, 250 basis points wide of where we can buy late-time product on the acquisition market. If we're going to deploy our capital, what I would tell you even more importantly, our human capital into a project and into a relationship, we have to be able to deploy, one, a material amount of capital; and then two, bring true value to the table and be value-add to all stakeholders there, including our tenants.

Our next question comes from R.J. Milligan of Baird.

Most of my questions have been answered, but I was hoping, Joey, maybe you could give us a little bit more color on Belle Tire, which is now one of your top tenants. And maybe just a little bit more background on how you think about underwriting that investment and the attributes you saw there going forward.

Sure, R.J. So what we are extremely thrilled to add Belle Tire to our portfolio. We're talking about a company where, frankly, 3 generations of my family have been getting their tires fixed and changed. My wife was there 3 weeks ago thanks to our fantastic Michigan roads with pot holes all over them. I'll tell you, Belle is a top-tier customer service organization. Net Promoter Scores that are on par with Apple and Costco, that's pretty tough to accomplish when most of your customers come in, in a pissed off mood and you're in a tire and automotive service business. The portfolio of 7 properties that we acquired, first transaction with Belle Tire. First time they've ever executed on a sale-leaseback. The company is family owned, effectively all 100 stores. Our master lease, they're very well covered at over 3x. Great real estate; main retail thoroughfares; very attractive brick buildings; and most importantly, a great operator that we are intimately familiar with. Dominant in Southeast Michigan, 33% market share. And brand awareness here in Southeast Michigan that's really off the chart. It's a company that, frankly, I've grown up frequenting and seen their commercials online.

That's helpful. Is it something that you see potential for other opportunities for more sale leasebacks with the operator?

Potentially -- well, look. We look forward to working with Belle across our external platforms, our growth platforms. It's a growing company, it's a family owned company. It's a very prudent and disciplined company. They're opening 5 to 7 stores per year historically. And so we look at any opportunity to work with both Belle Tire and the Barnes family there.

Our next question comes from John Massocca of Ladenburg Thalmann.

Just kind of follow on to R.J.'s question. Was there anything specific that kind of drove the burst of acquisitions in the tire auto service and auto parts sectors in 1Q '18? Obviously, Belle was a big factor in that, but you seemed to make a number of other acquisitions, similar acquisitions in the space outside of just that sale-leaseback.

No. Look, I'll tell you, we continue to work with all the top operators in the space. Just in the broader space, I'll talk about that. But the Belle Tire transaction was the notable transaction for us in the tire and auto service space during the quarter. In regard to the auto space and tangential spaces generally, I think what you see we're working with the best of the best. I mean, we're working with Mister Car Wash in the car wash space, O'Reilly and AutoZone in the auto parts space, Belle Tire today and Bridgestone and TBC in the tire and auto service space historically and now you see Gerber Collision in the collision space. Again, a company that's owned by Boyd Group of Canada, conservative, disciplined leaders in the collision space. And so we like all of these spaces, they're fantastic operators that we're working with. They're mission-critical brick-and-mortar assets. Obviously, they have an Internet resistance to them. They are fungible boxes. They are smaller price point assets. But again, most importantly, we're picking, we think, the strongest horses in those spaces. I think you'll continue to see us execute on transactions in auto parts, in tire and automotive service and related spaces. And we think it's a core piece of our investment philosophy.

And there's no kind of cap on the exposure you want to -- tire and auto service is the second-largest retail segment now. Do you think it can go beyond that 7.7%?

Definitely, I think there's an opportunity to go beyond 7.7%. I don't think you're going to see it get outside of a range that -- frankly, a rational range. But it's a broad space. It's obviously a national space with a lot of fantastic operators. Again, that Internet resistance to it, that brick-and-mortar presence being integral. I don't think there's any cap in our minds. We'll continue -- I think the real cap is finding the amount of -- the right transactions with the right operators for us. So it's up to 7.7% tire and auto service generally from 5.6% year-over-year. We would have no problem growing that exposure going forward with the right transactions and the right operators.

Understood. And then on the development side, how did you originate the 2 new development/PCS deals? And is there an opportunity to add more Aldis, specifically, given how much growth there is for them in North America?

Yes. I'll take your last question. Aldi's a fantastic operator. I think there are opportunities for us to add potentially additional Aldis in the portfolio. We look at opportunities all the time. We're a big fan of Aldi. Most of our Aldi assets, frankly, are ground lease where they build their own building on their own expense. And so we'll continue to look for opportunities to add Aldi to the portfolio. Discount grocery in general is a space that we're very fond of. And Aldi, we think, is a leader in that space. What was your first question, John?

Just kind of maybe some color on how you originated those 2 deals, the 2 new deals.

Oh, right. Yes. It's a good question. Very different sources. I'll tell you that the Aldi at Chickasaw, Oklahoma is through our PCS platform with a private developer. It's a former Staples box that the developer is converting to an Aldi. And so we're working hand-in-hand, and we'll obviously own that asset, be simple on balance sheet, upon completion with that developer. The Burlington Coat, which is our first turnkey Burlington Coat, we acquired the land from a large-cap shopping center REIT who had been working on the transaction historically with Burlington. Obviously, they had some other areas of focus. And so it is a REIT that we've worked historically, we have a great relationship with. We took the transaction, ran with it. And then, obviously, broke ground this quarter.

Understood. And then kind of maybe shifting gears to the balance sheet, understanding you're probably kind of want to get through the entire forward -- issuance under the forward by March 2019, how does that affect your ability to utilize the ATM if your cost of capital was more attractive maybe than the forward price? And -- go ahead.

Go ahead, sorry. No, go ahead, I'm sorry.

No, I was just saying. Basically, would you be able to utilize the ATM if your stock price got above $48 and you thought that maybe, you could use more than just the equity you have under the forward deal?

Yes, it's a good question. We have no -- there are no restrictions on our ability to raise equity, whether it's through the ATM or anything. So it really is just another tool in our tool belt. And the ATM, we could turn the ATM on at any time, obviously, subject to customary blackout periods. And just touching on the forward. I would tell you, from our perspective, it was a unique transaction. And just building upon what Clay said, this is a transaction that allowed us to lock in our intermediate cost of capital, frankly, to avoid the Twitter battle, the trade wars, the Mueller investigation, the Fed speak and all of the external noise that we have out there that we're subject -- all of us are subject to on a daily basis. Our #1 job is capital preservation. We believe that this transaction accomplishes not only that, but it also provides us complete optionality in regard to the balance sheet. And so the ATM is still able to be opened at any time, or traditional overnight offering is still accessible to us. I think there's a 3 clear takeaways for investors from the forward transaction. One, we're focused on delivering per share results for the short, intermediate and long term. We're significant shareholders sitting in this room, we're aligned, I think that shows. Two, we will think strategically and then execute tactically to mitigate those external risks that I spoke of and things that are outside of our control, to eliminate or mitigate those to the best of our ability. And then the three, and I think most importantly, this transaction shows that, frankly, I have complete confidence in our team to able -- to be able to source high-quality opportunities across our 3 investment platforms because we are not gratuitous capital raisers here. And so I think those 3 things are what we looked at, and forward solved for those 3 things. And so all tools remain in our tool belt. What this does is mitigate external risk, lock in our cost of capital for an intermediate term, and frankly, allow us to focus on what we do best, and that's source high-quality real estate transactions and actively manage our portfolio.

Our next question comes from Todd Stender of Wells Fargo.

Just back to Belle Tire. I think you gave the rent coverage, but how about the lease term and the initial lease yield that you entered at?

Yes. So these are a 20-year absolute net master lease. I can't give exact cap rates or dollar amount to it, Todd. But I'll tell you, it's in line with historical transactions for us, 7 stores, master lease, annual escalations. So it's a strong lease, again, 3x coverage like you said.

Okay. And then how about the Aldi? It's a build-to-suit project, so I think the lease term is 10 years, which seems a little shorter than what we're used to seeing from you guys. Maybe a little color around there?

Yes, sure. So it's really a retrofit of former Staples box that the developer is really driving the bus on. Those retrofits for backfill second-generation space, 10-year transactions with Aldi are standard. Frankly, they don't -- typically don't go beyond 10 years, except on their typical build-to-suits, which are typically ground lease structures, as I mentioned, which go out to 20 years. So it's a retrofit of a former Staples box, 10-year base term. Obviously, all the corporate credit. And has a lower basis due to the retrofit nature of the former Staples.

And you already own Aldis. Did I hear that right?

We do. I believe all of them are actually ground leases where Aldi constructed, they're building. And those were 20-year leases.

So no existing master lease that this would go into.

No. No existing master lease. And I would think it would be fair to bet that Aldi has absolutely no master leases. Frankly, they don't even really like to lease, generally speaking, unless they're backfilling. But they don't typically master lease.

This concludes our question-and-answer session. I would like to turn the conference back over to Joey Agree for any closing remarks.

Well, thank you for -- everybody, for joining us. Good luck for the remainder of earnings season. And we look forward to seeing everybody at the upcoming NAREIT conference. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.