Good morning, everyone, and welcome to the Agree Realty Third Quarter 2018 Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask Each questioner will be limited to 2 questions only. And 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 AIGU Realty's Q3 2018 earnings call. Joining me this morning is Clay Phelan, our Chief Financial Officer. I'm pleased to report that we had another very strong quarter with our 3 external growth platforms Producing record investment volume and significant capital markets activities that positions our company for continued growth. During the Q3, we invested $159,000,000 among 52 high quality retail net lease properties.
43 of these investments were sourced through our acquisition platform, representing aggregate acquisition volume of approximately $151,000,000 for the 3rd quarter. The properties were acquired at a weighted average cap rate of 7.2% and had a weighted average remaining lease term of 11.5 years. The acquired properties are located in 20 states and are leased to 20 leading retailers operating in 14 different sectors, Including off price retail, crafts and novelties, convenience stores, auto parts and tire and auto service. Notable retailers include TJ Maxx, Walmart, Best Buy, Hobby Lobby, Tractor Supply, 711, O'Reilly Auto Parts, National Tire Battery, AutoZone and Firestone. Through the 1st 9 months of the year, we've invested a record $366,000,000 into over 100 geographically diversified across 29 states.
As of ninethirty, we've acquired 96 properties for a total of $351,000,000 These assets are leased to 38 different leading retail tenants operating in over 20 secondtors. The properties were acquired at a weighted average cap rate of 7.2%, With a weighted average remaining lease term of 12.3 years. More than 46% of the annualized base rent acquired during 1st 9 months of the year comes from retailers with an investment grade credit rating. I would note that we do not imply ratings to high quality names such as Tractor Supply, Hobby Lobby and Publix. Given our robust acquisition volume for the 1st 3 quarters of the year and our strong pipeline, We are increasing our 2018 acquisition guidance to a range of $425,000,000 to $475,000,000 A component of that guidance includes transactions that we believe may close this year, but are subject to further conditionality.
In total, we feel this range is appropriate heading into the last 2 months of the year given today's visibility across our pipeline. Across all three external growth platforms, we anticipate investing over $500,000,000 during the course of 2018, Yet another record for our growing company. Though we're able to increase our acquisition guidance for the year, I want to again emphasize that our underwriting standards are As rigorous as they've ever been, our pipeline is a representation of the strongest retailers in our targeted lines of trade. The continued transformation of our top tenant roster is dynamic and emblematic of the high quality nature of our portfolio. This past quarter Smart and Final and Michaels were eliminated for our top tenant roster, while we increased exposure to other top tenants, including TJ Maxx, Walmart, O'Reilly Auto Parts, TractorZone, Tractor Supply and AutoZone.
Similarly, Academy Sports, Rite Aid, BJ's Wholesale, 24 Hour Fitness and Burger King franchisee Meridian Restaurant have all been eliminated from our top 10 enlist in the past year. Our portfolio will continue to evolve as we aggressively and proactively embrace today's changing retail environment. Turning to our Development and Partner Capital Solutions platforms. During the 1st 3 quarters of 2018, we had 13 development and .committedcapitalofapproximately $60,000,000 During the quarter, we completed 3 previously announced development in PCS projects. These include our second project with leading Burger King franchisee Tom's King in Aurora, Illinois, our first project with Burlington Coat Factory in Nampa, Idaho and the company's first PCS project with Aldi in Chickasha, Oklahoma.
These projects had total aggregate costs of approximately $11,000,000 We also commenced 3 new development and PCS projects during the Q3, With total anticipated cost of roughly $8,500,000 The project consists of our first two developments with Sunbelt Rentals in Batavia and Maumee, Ohio And the redevelopment of the former Kmart space in Mount Pleasant, Michigan for Hobby Lobby. As mentioned in previous calls, executed a 15 year lease with Hobby Lobby in Mount Pleasant for the construction of a new 50,000 square foot prototypical store. Construction continued during the Q3 on 2 projects with total anticipated costs of approximately $5,500,000 These projects include our 3rd and 4th developments with Mr. Car Wash, both located in the state of Florida. Moving on to our disposition efforts, we were extremely active in the 3rd quarter disposing of 6 properties for gross proceeds of approximately $30,000,000 These dispositions were completed at a weighted average cap rate of 7.3%.
Notable dispositions include a Wal in Delta Township, Michigan, the only ShopKo in our portfolio, a Smart and Final in Upland, California, a short term Hobby Lobby in Apopka, Florida as well as franchise restaurants. Year to date, we've disposed of 17 properties for gross proceeds of approximately $62,000,000 activity, our Walgreens exposure has been reduced to 6.2% as of ninethirty. This represents a year over year decrease of approximately Similarly, our pharmacy exposure broke through the 10% threshold and stood at 9.7% at quarter end, representing a decrease of approximately 3 50 basis points year over year and more than 2,700 basis points since the end of 2013. Our asset management team has been focused on addressing our minimal upcoming lease maturities. Because of these efforts, we just have 2 remaining lease maturities in 2018, representing 0.2% of annualized base rent.
Our ability to leverage our relationships with retail partners is best demonstrated by the redevelopment efforts taking place at our 2 legacy shopping centers in Mount Pleasant, Michigan and Frankfort, Kentucky. Kmart failed to exercise options at both locations and we are currently in varying stages of redevelopment at both sites. As previously mentioned, construction has commenced in Mount Pleasant to redevelop the former Kmart space into a prototypical 50,000 square foot store for Hobby Lobby. In Frankfurt, we're currently in lease negotiations with 3 leading retailers in the discount grocery, off price and home improvement sectors. We anticipate that these leases will be executed this quarter with demolition beginning shortly thereafter, and we look forward to updating you as this project progresses.
As of September 30, our rapidly expanding portfolio consisted of 520 properties located in 45 states. Our tenants are comprised primarily of industry leading retailers in over 28 diverse retail sectors with more than 47% Annualized base rents coming from tenants who carry an investment grade credit rating. The portfolio remains effectively fully occupied at 99.7% and has a weighted average remaining lease term of 10.1 years. On previous calls, we've highlighted the quality of our ground lease portfolio, which is comprised of leading retailers, including Home Depot, Lowe's, Walmart, Wawa, Aldi, AutoZone, Chick Fil A, McDonald's and Starbucks. This past quarter, we are very pleased to add a Walmart Supercenter in Manassas, Virginia and a Texas Roadhouse in Pittsburgh, Pennsylvania to our ground lease portfolio, which now represents almost 8% of annualized base rent.
At quarter end, nearly 90% of our ground lease portfolio derived its rent from retailers that carry an investment grade credit rating. Given the high quality nature of our ground lease portfolio and the unique reversionary interest in the improvements, we continue to believe that this Goliop presents an extremely attractive risk adjusted investment and we will continue to seek out opportunities to add to it. With that, I'll turn it over to Clay to discuss our financial results. 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 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 GAAP 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 3rd Quarter was $33,600,000 an increase of 23% compared to the same period last year. Year to date, total rental revenue has increased 26.1 percent to $96,700,000 General and administrative expenses in the 3rd quarter totaled $2,900,000 or 7.9 percent of total revenue.
We still anticipate G and A expenses will be approximately 8% of total revenues for the year. Income tax Expense for the quarter was $125,000 We anticipate total income tax expense for the year to be in the range of 5 $100,000 to $550,000 Funds from operations for the 3rd quarter was $23,500,000 representing an On a per share basis, FFO increased to $0.72 per A 4.3% increase as compared to the prior year period. Funds from operations for the 1st 9 months of 2018 was $67,800,000 representing an increase of 23.5% over the comparable period of 2017. On a per share basis, FFO increased to $2.13 per share, a 6.6% year over year increase. Adjusted funds from operations for the Q3 was $23,400,000 a 17.4 increase over the comparable period of 2017.
On a per share basis, AFFO was $0.72 an increase of 3.7% year over year. Adjusted funds from operations for the 1st 9 months of
the year
was $67,400,000 a 22.9% increase to the comparable period in 2017. On a per share basis, AFFO of $2.12 per share represented a 5.9% increase as compared to the 1st 9 months of On a quarterly and year to date FFO per share and AFFO per share were impacted By dilution required under GAAP related to the forward equity offerings we completed in March September. Treasury stock is to be included within our diluted share count in the event that prior to settlement, our stock trades above the deal price from the offerings. Since our average stock price For the Q3 was above the deal price of the March September forward equity offerings, we included dilution related to both transactions. The aggregate dilutive impact related to these offerings was a $0.01 to both FFO and AFFO per share for the 3 month period and roughly $0.02 for the 9 month period.
There will be no additional treasury stock dilution related to the March forward equity offering given We settled the transaction in September. Now moving to our capital markets activities. As Joey mentioned, we had an active third quarter Solidifying our balance sheet for future anticipated growth. On September 6, we settled the entirety of our March forward equity And received net proceeds of $160,200,000 In conjunction with the settlement of our March forward offering, we completed another follow on public Offering of 3,500,000 shares of common stock in connection with a forward sale agreement. Upon settlement, the offering is to raise net proceeds of approximately $190,000,000 after deducting fees and expenses.
To date, the company has not received any proceeds from the sale of its common stock in connection with the September offering. We retain the ability to settle the transaction in whole or in tranches at any time between now and September 3rd of 2019. The settlement of the March forward equity offering and the completion of the subsequent The September forward equity offering provides the company the capacity to invest an incremental amount of approximately $600,000,000 and remain within our stated leverage range of 5 to 6 times net debt to recurring EBITDA. We view the forward equity offerings as a prudent way to further fortify our balance sheet and lock in an accretive cost of capital while mitigating external risks and market volatility. During the quarter, we were also active in sourcing attractive Debt financing.
In July, we exercised the accordion option on our unsecured revolving credit facility, securing increased $75,000,000 and increasing our total revolver capacity to $325,000,000 The increased capacity on our revolving credit facility reflects the continued growth of the company since our credit facility was last amended in December of 2016. In September, we completed a private placement of $125,000,000 of senior unsecured notes. The notes bear interest at a fixed rate of 4 3 2 percent and have a 12 year term maturing on September 26, 2030. Net proceeds from the private placement were used to pay down amounts outstanding under the company's unsecured revolving credit facility. At September 30, we had just $14,000,000 outstanding on our unsecured revolving credit facility, reflecting additional capacity of $311,000,000 Our capital markets activities demonstrate our conservative approach to opportunistically accessing attractively priced capital and positioning our balance sheet for continued growth.
As of September 30, our net debt to recurring EBITDA was approximately 4.7 times, well below our stated range. Total debt to total enterprise value was approximately 25.1% and our fixed charge coverage ratio, which includes Principal amortization remains at a very healthy level of 4.1x. The company paid a dividend of $0.54 per share on October 12 to stockholders of record on September 28, representing a 6.9% year over year increase. This was the company's 98th consecutive cash dividend Since its IPO in 1994. For the 1st 9 months of the year, the company declared dividends of 1.60 per share, a 6.3% year over year increase.
Our quarterly payout ratios for the Q3 were conservative 75% of FFO and AFFO per share, respectively. For the 1st 9 months of 2018, our per share payout ratios were 75% of FFO and 76% of AFFO per share respectively. These payout ratios are at the low end of the company's targeted And reflect a very well covered dividend. With that, I'd like to turn the call back over to Joey.
Thank you, Clay. To conclude, I'm very pleased with our strong performance during the 1st three quarters. We're in a tremendous position for the remainder
of the year, and I
look forward to seeing many of you at the upcoming REIT World Conference in November. At this time, operator, we will open it up for questions.
Thank you. And we will now begin the question and answer And The first questioner today will be Rob Stevenson with Janney. Please go ahead with your question.
Good morning, guys. Joey, can you talk a little bit about the Cap rates on the 2 ground leases that you guys acquired versus the 7.2% blended for the overall acquisitions during the 3rd quarter and why buying ground leases at this point is still attractive to you? I assume that the cap rates were lower than the 7.2?
Yes. Good morning, Rob. I think it's fair to say that those cap rates were generally lower on the ground lease transactions. At the same time, the rent per square foot along with the underlying real estate reflects the ground lease nature of those transactions. The notable ground lease transaction during Quarter was the Walmart in Manassas, Virginia, which is a supercenter, a high performing store, paying really $3.54 a square foot.
And so I'll tell you, when we invest in larger boxes, Walmart, Home Depot, Lowe's, etcetera, We obviously prefer ground lease structure rather than have our capital invested into the building improvements itself. So we'll continue to find And execute opportunities, I'll tell you our pipeline has some more opportunities that are similar to the Walmart in Manassas as well as the Texas Roadhouse. And we think it's a great risk adjusted return.
Okay. And then if I look at the changes in your sector exposure over the last year, Tire and auto is up 2 50 basis points, auto parts is up 100. So you guys have materially increased your exposure to the auto space. Also the off price retail, I think is up about 2 20 basis points, where the only real notable decline is in the quick service restaurants. I mean, how are you guys thinking about those sectors going forward?
Is this the trend that you guys expect? Was it more driven by just opportunistic? Should we expect to see quick service continuing to decline that auto is continuing to increase? Or in aggregate, Is auto, it's sort of 12.5 percent of revenues or ABR About as high as you want on a combined basis, about as high as you want to get it.
Yes. No, it's a great question, Rob, and it goes straight to the heart of our strategy, frankly. The only correction I would make is obviously pharmacy has decreased year over year 3.50 plus basis points as well, but you're correct to point out the restaurant quick service Decrease of approximately 130 basis points. We prefer industry leading retailers in those omni channel sectors or Which had moats around their businesses that are frankly small box retailers that we're going to buy a few simple interests on a turnkey basis or frankly or develop for them. Tire and auto service specifically, there are some very high quality names that we have very good relationships with.
National Tire and Battery, Goodyear, And so we target those across all three of our external growth platforms. The same can be said for auto parts. We are very active. O'Reilly and AutoZone are both now top tenants for us. You're looking at the average box size of 6,000 to 8000 Square Feet, Main and Main retail corridors, investment grade balance sheets, low rents per square foot, easily fungible boxes for Retenanting if and when they were ever to vacate the premises.
And so those are sectors that we frankly we're very attracted to and we will continue to invest Rest of the week, as well as off price with T. J. Maxx, Marshalls, HomeGoods, Ross, as well as Burlington. So I think your question goes, as I said, right to the heart of our strategy. It's a strategy we've been executing on for a number of years and you'll continue to see us execute on in the future.
Where is the car wash located, the car wash stuff located? What sector is that classified under?
That's a good question. Car Wash is in auto service.
Okay. So that explains some of the increase from 5.5% to 8%.
Correct. But there's also a significant number of tire stores in there as well. National Tire Battery, Bridgestone, Firestone, Goodyear, Big O Tires and so and then the sale we expect with Bell Tire early in the year.
Okay. Thanks guys.
Thanks, Rob.
And the next questioner today will be Christy McElroy with Citi. Please go ahead.
Hey, good morning, everyone. Just hey, so in raising the acquisition guidance, you're looking at another $100,000,000 or so at the mid Point realizing we're only 3 weeks into the quarter, but you've got $350,000,000 completed. Can you say how much you may have completed in October so far or How much is under contract or LOI today? Just trying to get a sense for expected timing of deals in Q4, whether it's more front end loaded or back end loaded In terms of your expectation?
Yes. Close to date, in the 1st 3 weeks, Call it $10,000,000 to $15,000,000 nothing significant. It will be back end loaded. The team was really focused on the number of transactions here that we're closing at the end Q3, I think we had 16 closings the last week of Q3. And so the transaction team was very busy there.
In terms of the guidance, we increase in guidance, we want to give people the straight shot. And so we see obviously visibility to that 4.25 At the 475, you can assume that's either under contract or letter of intent. The challenge today, and we have 70 days of visibility and we've talked about that on Prior calls with investors is that we don't know if some of these transactions could push into the Q1 of 2019, Depending upon often sellers as well as retailers providing estoppels and the like. So the only uncertainty we have there is the Timing of these transactions, I'll tell you, we're already building our Q1 pipeline. And so as these transactions progress, we'll get some more visibility.
Okay. And then just sort of related to that, you've got the September forward in your back pocket. As we look into 2019, How are you thinking about the settling of the $190,000,000 Would it be similar to the strategy around the $160,000,000 where you had sort of built up your Pipeline to the point where you are nearing 6 times and you pulled the trigger and understandably it was related to the issuance of the September forward. But Would you potentially use the same strategy next year as you're kind of building up your pipeline, you get to that 6 times and you kind of pull the trigger on all of it? Or would you potentially do it in tranches prior to September?
Hey, good morning, Christy. First off, I'd say ultimately the settlement of the September forward will be dependent on the uses of capital and the Timing of those uses of capital, I'd say we're committed to staying within our targeted leverage range of 5 to 6 times, and we'll continue to evaluate our leverage to make sure we're And amount reflective of the growth of the business and ensuring on a quarterly basis, we're within our stated range of 5 to 6 times.
Okay. And then just one last quick question on the Walgreens. Given the decline in the exposure in the quarter, can you give us how many of the 6 properties Sold were Walgreens. And can you tell us the average cap rate on those just to get a sense for where pharmacies are trading today with Walgreens BBB Credit?
Yes, sure. So one Walgreens was sold during the quarter. It was in Waterford, Michigan, approximately 10 years left remaining base term there. I'd tell you it's A BD- store and that's sold at approximately 6.25 percent cap.
Thank you very much.
Thanks, Christy.
And the next questioner today will be Collin Mings with Raymond James. Please go ahead.
Thanks. Good morning, Joey. Good morning, Clay.
Good morning. Good morning.
Just to start, Joey, can you just give us an update on your mattress firm exposure and how you're approaching their bankruptcy?
Sure. We spent some time with them just the last couple of weeks. I'll tell you, Mattress Firm first, we were wary of that business model to start. The store clustering never made Too much sense to me to have 2 or 3 stores in any given intersection or retail corridor. The real estate team, frankly, had a very poor reputation from the beginning.
We have a total of 9 stores in the portfolio. We sold 1 subsequent to quarter end. We have another store under contract to sell, so we anticipate having 8 stores here quite shortly. None of our stores have been closed or the lease rejected. I'll tell you that nearly all of our stores are outlets to Target, Walmart or TJ Maxx Anchored Centers.
So I think again, it's emblematic of our real estate underwriting. If you look at our stores, they're fantastic pieces of real estate. And so we haven't been part of any of the few 100 store closures or leases rejected that we've seen today.
Got you. So it sounds like it will be kind of maybe a combination of maybe some Physicians as well as just some re tenanting, is that fair or?
I think we have another disposition under I'll tell you, I don't think we'll have any re tenanting. I think it's fair to assume that our expectation is that all of our stores remain open.
Okay, okay. I appreciate the detail there. And then just going back to some of the prepared remarks, just can you maybe just Expand a little bit more on the opportunity and project the returns on the Sunbelt rental build to suit projects?
Yes. Well, our team was down at Sunbelt, our development team last week. It's a fantastic relationship. We're working with Sunbelt, obviously, on these two projects That we've announced as well as additional projects. The 2 projects we've announced are retenanting of existing structures.
We also anticipate Pursuing some ground up opportunities with Sunbelt as well as some potential acquisitions. And so we'll continue to execute across all three Returns will be in line with our historical thresholds.
Okay. And then I'll just sneak one last one in there. Kind of just on that note as far as asset pricing, I recognize, Joe, you've highlighted in the past that you're not necessarily the best gauge of broader market movements given your strategy. But can you just maybe update us on what you're seeing in terms of pricing Deal flow, just especially in context of the move in the 10 years since August?
Yes. I would tell you that asset pricing, we haven't seen any move in the tenure or correlated to the tenure, as you mentioned, since August. High quality assets such as the assets that we're acquiring and developing continue to trade In a similar range throughout the year, even with that 70 basis point increase in the 10 years since the start of the year. We'll see what that correlates to in 2019. But I think we're going to continue to see the bifurcation of high quality versus low quality, similar to what we've seen in the shopping center and the mall space.
And There is a lot of capital chasing the high quality assets, typically 10.31 in private dollars.
All right. Thanks, Joey. I'll turn it over.
Thanks, Tom.
And our next questioner today will be R. J. Milligan with Baird. Please go ahead.
J. Milligan:]
Hey, good morning, guys. Joey, first, a Couple of years ago, probably the normal run rate for acquisitions, I think you guys had said excluding sort of the bigger portfolio deals It was about $200,000,000 a year. Obviously, you guys have grown the portfolio and grown the company and grown the headcount. We saw obviously Bigger acquisition volume last year, this year were over $400,000,000 I'm curious, what do you think the appropriate going Regular way run rate is for acquisition volume?
Look, I'll tell you, we look at Every transaction in its entirety and we're a true aggregator. So in terms of a run rate, And so our origination team today has 7 people. We just hired a new analyst that will also be joining the team. That team continues to produce fantastic In terms of go forward guidance, I'll be honest, I didn't think we would have $425,000,000 to $475,000,000 at the beginning of this year. We'll evaluate where we are.
We'll have some visibility into Q1 shortly. And as we've historically released, we'll release Our initial guidance, the 1st week of January as well as the total of our acquisitions in 2018.
And so was were there any larger portfolio attractions this quarter in terms of the activity?
Not really. I mean, there was a couple of portfolios called in $8,000,000 to $12,000,000 range, but outside that, it's truly aggregation. So it It becomes challenging to predict the timing. It becomes challenging to predict the volume. But the team here continues To produce high quality opportunities, just to give you a sense of our pipeline for Q4, a little bit back to Christy's question as well.
Over 70% of our pipeline as it stands right now for Q4 is investment grade retailers. It's dominated by Walmart, Home Depot, National Tire and Battery, O'Reilly, AutoZone, the highest quality names in those sectors. Those are all one off opportunities that some we've been working on for 6 months, We've been working on for 3 weeks or about. And so it really builds, it comes in waves typically. The summer months are normally quiet, but we're going to continue to be actively sourcing high quality opportunities.
Okay. That's helpful. And I guess my last question is, this quarter started 3 projects for $8,000,000 or just over $8,000,000 in the Capital Solutions. I'm just curious, how do you think about allocating resources in G and A To what's become a much smaller investment or pipeline relative to your acquisitions pipeline?
Yes. We're very pleased to have added to that team recently. So John Baumann joined us previously at Ramco Gersson. Josh Bratton moved over from the diligence side to Director of Development. And so Laith is doing a fantastic job building and growing that team.
We've invested or completed or commenced roughly $60,000,000 to date in 2018. We anticipate a couple more projects commencing quite shortly here in Q4 as well. In terms of allocation of resources and G and A, we're investing across all areas of the business Our headcount is up to 37. We're currently in process of expanding our footprint in terms of office. We're out of seats here.
We're investing aggressively in terms of people, processes and systems because we know we have the balance sheet and the capabilities that continue to grow across all three platforms. And then importantly, we have to support them from the lease administration, asset management and accounting perspective.
All right. Thanks guys.
Thanks RJ.
And our next questioner today will be Ki Bin Kim with SunTrust. Please go ahead.
Good morning. This is Alexis filling in for Ki Bin today. It looks like my first question has already been asked with regards The acquisition run rate, so I'll jump to my second question. Could you shed some light on what the impairment charge relates to this quarter?
Good morning, Alexei. We recorded $488,000 in impairment charge for the quarter. This is driven by the termination of a lease And the write off of the related intangible asset.
Okay, understood. And another quick follow-up. Just correct me if I'm wrong. I think you mentioned that you sold your last remaining Shopko this quarter. Is that correct?
Correct.
And the next questioner today will be Todd Stender with Wells Fargo.
In the release, you guys highlighted the Old Navy lease. This was extended in Q3. Can you provide some of the economics around that lease and maybe others that either were extended or new and maybe just Look at Q4 and early part of next year? Thanks.
Sure. Good morning, Todd. So Old Navy exercised their contractual option In Wisconsin, that was a 20,000 square foot store paying approximately $320,000 a year annually, A 5 year option, CPI bump embedded in that option. In terms of the remaining two leases expiring This quarter, 1 is a small dress The Kmart in Capital Plaza of Frankfort, Kentucky, which their option has lapsed and I talked About the redevelopment that is underway at that project.
Great. You don't have much Renewing next year, but can you just address maybe what you're looking at as far as rents, if they're below market? And maybe any
Sure. We only have about 1.8% coming up Next year, the 2 biggest pieces of that are Dave and Buster's in Austin, Texas, which paid percentage rent and the store was recently remodeled and so we're confident there. The second piece is our only remaining Kmart in Grayling, Michigan, which we look forward to recapturing at some point if and when that lease gets rejected through This year's bankruptcy. So those are the 2 big pieces for us. The Kmart was an initial asset from the IPO of the 16 that We'll put in 1994.
We think there's opportunities there to re tenant and potentially redevelop that asset similar to the Mount Pleasant and Frankfort
All
right, great. Just one last one. Looking at Tractor Supply, just as a refresher, are these sale leasebacks with the company Are you buying them? They are. They are.
Okay.
No, they're not. No, they're not sale leaseback. So Track, we're big fans of Tractor Supply, hence the jump this quarter. The company has a very conservative company. We have a fantastic With the real estate team, the business is really thriving.
We have no national competition. They also have the highest rated e commerce web If any retailer, profits have increased an average of 9% since 2012. Sales per square foot are approaching $260 a foot. Just for Just for context, Macy's is at about 195. And lastly, they have a lease adjusted leverage ratio of approximately 2 times.
So it's tough to beat It's tough to beat that.
How big are these lots? What's the size of the lot and maybe the length of the lease as well?
Typically, Tracker SupplySign executes 15 year initial base terms on approximately an acre and a half to 2 acres. Total typical stores are approximately 19,000 square feet, plus an outdoor storage area. And so they are a force to be
And our next questioner today will be John Massocca with Aldenberg Thalmann. Please go ahead. Good morning.
Good morning, Johnny.
So, what was the cap rate on dispositions ex the Shopko sale?
The cap rate ex the Shopko sale of 6.9%. 6.9%.
That's a GAAP cap rate, John. Okay.
And then what maybe drove the increase in kind of rent from off price retail? I know some of that was Couple of additions to TJ Maxx, but what was maybe the rest of that?
Yes. So that's TJ Maxx. We acquired an asset in Logan, Utah. The Burlington in Nampa, Idaho came online. So that was the development project in Nampa that we completed during the quarter.
And so really off Off price retail is comprised typically of 3 tenants for us. TJ Maxx, that's Marshalls HomeGoods as well as the namesake, Ross as well as Burlington and we're looking for opportunities and frankly are executing on opportunities to continue to add exposure there.
Okay, makes sense. And then Dave and Buster's also came up about $1,000,000 in rent, can you provide more color on that transaction?
Sure. We acquired a third party transaction, again, not a sale leaseback, Acquired a Dave and Buster's in Kansas, Overland Park. So great demographics, high quality asset, And so we're excited to add to that exposure. That brings our total Dave and Buster's exposure to 3 assets, Downtown New Orleans, the Austin, Texas one I mentioned previously and now The Overland Park store.
All right. That's it for me. Thank you guys very much.
Great. Thanks, John.
And There look to be no further questions. So this will conclude our question and answer session. I would like to turn the conference back over to Joey Agree for any closing remarks.
Well, thank you everybody for joining us. Good luck on earnings season and we look forward to speaking with you in NAREIT in California. Talk to you soon. Thank you.
And the conference has now concluded. Thank you for attending today's presentation and you may now disconnect your lines.