Good morning, and welcome to the Agree Realty First Quarter 2018 Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Each questioner will be limited to 2 questions only. 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 Aegis Realty's Q1 2018 earnings call. Joining me this morning is Clay Phelan, 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 markets transaction that further fortified our balance sheet, positioning us for continued growth.
Capital invested across our 3 external growth platforms totaled $102,700,000 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 $98,600,000 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, TJ 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 Bell Tire, A leading regional tire and auto service retailer with a 95 year operating history. The portfolio is comprised of 7 master leased properties, A very strong tire and auto service stores. Bell Tire is a local family owned company and the 11th largest entire 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 Bell's 1st 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 Bell 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 2nd and third tier operators, we continue to emphasize high quality retail real estate We have to industry leading operators that have a comprehensive omni channel strategy, a value oriented business model or a service based component. Our disciplined focus has served as strength in our best in class portfolio. Today, our portfolio is stronger and more diverse than it has ever been in our company's Turning to our Development and Partner Capital Solutions platforms.
In the Q1, we had 9 development and PCS Projects either completed or under construction that represent total committed capital of approximately $51,000,000 4 of those projects were completed during this past quarter, representing total investment activity of $26,700,000 The projects 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 two developments with Mr. Car Wash in Urbandale, Iowa and Bernalillo, New Mexico celebrated successful grand openings in the Q1 and rent has commenced at both locations. The projects are subject to new 20 year net leases and had aggregate total costs of approximately $6,300,000 Lastly, the company's first project with leading Burger King franchisee Tom's King was completed during the quarter and RED subsequently commenced.
The project is subject to a new 20 year net lease. During the Q1, we commenced 2 new development and PCS projects. These projects include the company's 1st PCS project with Aldi in Chickasha, Oklahoma and the company's 1st 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 includes the company's 3rd project with Camping World in Grand And our 3rd and 4th projects respectively with Mr. Car Wash in Orlando and Tavares, Florida. All three projects are subject to new 20 year net leases. While our investment activity year to date has 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 Q1 as we sold 5 properties for gross proceeds of approximately $16,700,000 During the quarter, Meyer exercised an option to purchase their store in Plainfield, Indiana.
Meyer had Previously ground leased the location from the company for the past 10 years. Following Myers exercised their option to purchase the property for $3,900,000 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 Meyer's exercise of their option to purchase in our disposition activities in the Q1 have resulted in a net gain of $4,600,000 Our disposition efforts, portfolio management and continued growth continue to strengthen the composition of our leading portfolio. Our exposure to our top 3 tenants now stands at 14.4 percent of rental income, a decrease of 360 basis points year over year. Similarly, our top 10 tenant concentration has been reduced to 32.4 percent of annualized base rents, A 360 basis point decrease from this point last year.
Our asset management team has also been proactively 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 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 for the construction of a new 50,000 square foot prototype.
Entitlements have been fully secured And we anticipate demolition on the former Kmart will begin in the Q3 of this year with rent commencing in the second half of twenty nineteen. 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 4 63 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 Great 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, 90% of our ground lease portfolio derived its rent from retailers that carry an investment grade credit rating. To conclude, the 1st 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 positions us to execute in 2018 and beyond. With that, I'll turn it over to Clay to discuss our financial results For the Q1. 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 Q1 of 2018 was $31,000,000 an increase of 27.8% over the Q1 of 2017. General and administrative expenses in the Q1 totaled approximately $2,900,000 G and A expenses were 8.3% of total revenue in the Q1 And we anticipate G and A expenses to be roughly 8% of total revenue for the year. Funds from operations for the Q1 was $22,000,000 representing an increase of 29.3 percent 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 Q1 of 2017. Adjusted funds from operations for the Q1 was 21,800,000 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 Q1 of 2017. Now moving to our capital markets activities. During the Q1, we completed a follow on public offering of 3,500,000 shares of common stock in connection with a forward sale agreement.
The offering included the full exercise of the underwriters option to purchase additional shares and is anticipated to raise net proceeds of approximately $163,000,000 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 March 1, 2019. The forward offering provides the company the capacity to invest in incremental $500,000,000 and stay within our stated leverage range of net debt to recurring EBITDA of 5 to 6 times.
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 4.8 times and below our stated range. Furthermore, our total debt to total enterprise value was approximately 27% and our fixed charge coverage ratio, which includes amortization remains at its highest level in the company's history at 4.2 times. These metrics continue to be amongst the strongest of our peers and demonstrate the ongoing strength of our balance sheet, which is an excellent position for 2018 and beyond with significant capacity and flexibility in regards to capital sources. Our conservative approach to leverage provides us The 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 on March 30, 2018. The quarterly dividend represents a 5.1% increase over the $0.495 Per share quarterly dividend declared in the Q1 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 Q1 2013 dividend. Our quarterly payout ratios for the Q1 of 2018 were 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're in a fantastic position to 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.
Thank you. We will now begin the question and answer session. Our first question comes from George Hoglund of Jefferies. Please go ahead.
Hi, good morning guys.
Good morning,
George. 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?
Yes. Generally, I think our asset sales fall into a couple of distinct buckets. 1st and foremost, we'll continue to target reduction of our Walgreens exposure. We pretty well telegraphed what we perceive that exposure to be at year end. And we sold 1 Walgreens in Grand Rapids, Michigan during the quarter.
And then we look both at opportunistic sales, most notably in the franchise restaurant space. But then opportunities to improve our portfolio as we talked about in the prepared remarks. I note our restaurant Exposure is down to 6.8%, that's 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 Casual dining exposure is 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 in any of the tenants that you have 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 depending Kmart lease expirations that we touched on there. Obviously, Kmart We'll 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 The team here is doing a fantastic job sourcing opportunities across all three of our external growth platforms. And I'll add, you're only going to see our 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.
Okay. Thanks guys.
Thanks, George.
Our next question comes from Collin Mings of Raymond James. Please go ahead.
Hey, good morning guys. Good morning, Colin. First question for me, just as
you think about the flexibility offered by the forward equity 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?
Hi, Collyn. This is Clay. I appreciate the question. Maybe start from a debt perspective in terms of just 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, per 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 takeout 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 use on the line of credit given that certainty and given the inherent cheaper cost of capital with the line of credit and wherever they 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 about maybe $100,000,000 $150,000,000 Call it in the back half of twenty eighteen that might be fair from your standpoint?
That's right. That's exactly right.
Okay.
And then just in terms of maybe how you 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 is 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's continued dialogue that we have. And so I anticipate pricing to be reflective of our continued growth and growth done in a meaningful and prudent way.
Thanks, Clay. I appreciate the detail there. Joey, just one big picture question for you real quick. Just 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. 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 Q1, 1 Cinemark and 1 Regal. So the portfolio is fairly diversified. Look, that said, we're real estate opportunists at our core.
When sentiment goes one way, we have no problem taking advantage of any locations that we see out there in the market. This quarter's transaction was a very good example. The AMC that we Wire does more than 2 times average revenue per screen, has fantastic coverage, very strong sales. We see 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 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 it's at its peak right now.
Okay. Appreciate the color there, Joey.
Thanks, Collyn.
Our next question comes from Nicholas Joseph of Citi. Please go ahead.
Thanks. 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. Good morning, 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 at a high And then frankly there's a significantly less capital chasing lower quality assets. 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 so we've seen what we call flowback, But in terms of material moving cap rates, we haven't seen anything of substance.
Have your underwriting standards or return hurdles changed at all?
They haven't. I would tell you, if anything, they 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 It's the right time to go up the risk curve and we have the ability to really execute with the best of the across our 3 external growth platforms and you see that across the acquisition development as well as partner capital solutions. So it's a highly fragmented market, it's a huge space.
Our focus continues to be very tight.
Thanks. And finally, what was the cap rate on the AMC theater this quarter?
I came to school because of some confidentiality provisions. I tell you it's in line with our historical acquisitions. We've got some confidentiality in both the purchase agreement as well as the lease. We'd love to give some more details, but we've been advised not to. Thanks.
Thanks, Nick.
Our next question comes from Rob Stevenson of Janney. Please go ahead.
Good morning, guys. 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 at 175 $1,000 a year in annual rent effectively on a gross lease. So Kmart on a net basis there Was really paying at the minimus of our 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 $4,000,000 Including the tenant improvement allowance for their reverse build to suit, and we're looking rents in the upper mid single digits there With growth every 5 years.
And 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 outparcel?
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. It was an original I checked 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 And 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 Frankfurt, Kentucky, we can come back to Mount Pleasant if you have another question. Moving on to Frankfurt, Kmart was paying $2 gross In Frankfort, Kentucky, so about $165,000 a year on a net basis. We anticipate Again, that lease expired, Kmart failed to exercise their option there.
We anticipate demolishing that building as well and are 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 is thinking about the dividend? I mean, looking at it today, I mean, and where you guys are versus taxable net earnings, Because you guys now have 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 there's a few important principles in terms of the dividend. 1 is predictability. 2 is transparency into our thinking. So I appreciate the question. And then 3 is sustainability, and current sustainability as well as growth The Board generally thinks about the dividend in line with AFFO growth.
We've moved effectively to A 2 times a year dividend raise, I don't think that's any secret where you could 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 Due from individual shareholders and retirees that live off the dividend to the other side of dedicated investors who see it as their cheapest form of capital and retained earnings. So We like to strike a balance there. Obviously, I'm a significant shareholder. My family is 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 maintains. And you're right, we are at the low end at 74% and there's obviously an opportunity to consistently be raising that dividend.
Okay. Thanks guys.
Thank you, Rob.
Our next question comes from Ki Bin Kim of SunTrust. Please go ahead.
Good morning. This is actually Ki Bin's associate, Alexey.
Good morning.
Two quick questions for you. First one is, How do you think about the deployment of capital? Do you prioritize acquisitions or developments? Or do you see developments A larger part of the business over time?
Well, I would tell you
we look at each individual opportunity across all three platforms As they stand on their own and so obviously they have different return thresholds, they have different parameters, different time horizons to on a development from an acquisition. Typical development takes from start to finish takes approximately 18 months. Our acquisition activity from LOI execution to closing Average is 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 as the partner capital solutions is the same.
Okay. Thank you. And a second follow-up. What kind of yield are you projecting on these developments?
So we really haven't changed Any yield to development, we're still targeting call it 9% returns on development or on a variable basis, 2 50 basis points wide of where we can buy like kind 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 1, a material amount of capital and then 2, bring true value to the table and be value add To all stakeholders there, including our tenants.
Okay, great. Thank you.
Thank you.
Our next question comes from RJ Milligan of Baird. Please go ahead.
Hey, good morning guys.
Most of my questions have been answered. But I was hoping, Joey, maybe Give us a little bit more color on Beltshire, 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 that you saw there going forward.
Sure. Good morning, RJ. So we're extremely Thrilled to add Bell 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 based on our fantastic Michigan roads with potholes all over them.
I'll tell you Bell is a top To your 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 Soft mood and you're in the tire automotive service business. The portfolio of 7 properties that we acquired, 1st transaction with Bell Tire, first time they've ever executed The sale leaseback, the company and the family owned effectively all 100 stores. Our master lease, they're very well covered at over Three times 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 frequently and seeing their commercials online.
That's helpful. Is it something that you See potential further opportunities for more sale leasebacks with the operator?
Potentially, we look forward to working with VEL across So 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 Bellfire and the Barnes family there.
That's helpful. Thanks, guys. That's it for me.
Thank you, RJ.
Our next question comes from John Massocca of Ladenburg Dalam, please go ahead.
Good morning, gentlemen. Good morning, gentlemen.
Good morning, gentlemen. Good morning.
Good morning. I'm just going to follow on to Artis' question. Was there anything specific that kind of drove the burst of acquisitions in the tire auto service and auto parts sectors in 1Q 2018? Obviously, Bell was a big factor in that, but you seem to make a number of other acquisitions, similar acquisitions in the space outside of just that sale leaseback?
No, we look I'll tell
you we continue to work with all the top operators in the space. Jeff, in the broader space, I'll talk about that. But the Bell Tire transaction was the notable transaction for us in the tire and auto service space during the quarter. In regards to the auto space In tangential spaces generally, I think what you see is we're working with the best of the best. I mean, we're working with Mr.
Car Wash in the car wash space, Wiley and AutoZone in the auto parts space, Bell Tire today and Bridgestone and TBC in the tire auto service space historically. And now you see Gerber Collision in the collision space. Again, a company is owned by Boyd Group of Canada, conservative discipline, leader 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, I mean, it's the 2nd largest retail segment now. Do You think you can go beyond that 7.7 percent?
Oh, 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 trends the right transactions with the right operators for us. So it's up to 7 point 7% tired auto service generally from 5.6% year over year. We would have no problem growing that exposure going forward With the right transactions, right operators.
Understood. And then on the development side, how did you originate The 2 new developments less PCS deals and is there an opportunity to add more, Aldi's specifically given how much growth there is for them in North America?
Yes. Take your last question. Aldi is a fantastic operator. I think there are opportunities for us to add potentially additional Aldi's 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 growth In general, it's a space that we're very fond of and Aldi, we think is a leader in that space. We are first what was your first
Just kind
of maybe some color on
how you originated those 2 deals? Yes, it's a good question, Very different sources. I'll tell you that the all these Chickasha, 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 And obviously, they have some other areas of focus. And so it's a REIT that we've worked with 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 shifting gears to the balance sheet. Understanding that you probably kind of want to get through the entire forward Your issuance under the forward by March 2019, how does that affect your ability to utilize the ATM If your cost of capital is more attractive maybe than the forward price and you think So no Go ahead.
No, go ahead.
I'm sorry.
No, I just think 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 The cost of capital, frankly to avoid the Twitter battles, the trade wars, the Mueller investigation, the Fed speak and all of the No noise that we have out there that we're subject all of us are subject to on a daily basis. Our number one job is capital preservation. We believe that this transaction accomplishes not only that, but it also provides us complete in regard to the balance sheet and so the ATM is still able to be opened at any time or a traditional Overnight offering is still accessible to us. I think there's 3 clear takeaways for investors from the forward transaction. 1, 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. 2, 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 3, I think most importantly, as this transaction shows that frankly, I have complete confidence in our team 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 three things What we looked at and the forward solve for those three things. And so all tools remain in our tool belt. What this does is mitigate external risk, lock in a cost of capital for an intermediate term and frankly allow us to focus on what we do best And that source high quality real estate transactions and actively manage our portfolio.
Appreciate the color. That's it for me.
Thank you guys very
much. Thanks.
Our next question comes from Todd Stender of Wells Fargo. Please go ahead.
Hi, thanks guys. Just Back to Bill 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 20 year absolute net master lease. I can't give the exact Cap rates are a dollar amount to it, Todd. But I tell you, it's in line with historical transactions for us, 7 stores, master lease, Annual escalations, so it's a strong lease again 3 times coverage like you said.
Okay. Thank you. And then how about the Aldi? It's a build to suit project. 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 a former Staples box that the developer is really driving the bus on. Those retrofits for backfill 2nd generation space 10 year transactions with Aldi are standard. Frankly, they Typically don't go beyond 10 years except on their pro form a 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 all these, did I hear that right?
We do. I believe all of them are actually ground leases where all the 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 I 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 mass release.
Okay, great. Thank you.
Thanks, Don.
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.