Good morning, and welcome to the Agree Realty Third Quarter 2021 Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touchtone phone. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Nicole Witteveen, Executive Vice President and Chief of Staff. Please go ahead, Nicole.
Thank you. Good morning, everyone, and thank you for joining us for Agree Realty's Third Quarter 2021 Earnings Call. Before turning the call over to Joey and Peter to discuss the results for the quarter, let me first run through the cautionary language. Please note that during this call, we will make certain statements that may be considered forward-looking under federal securities law. Our actual results may differ significantly from the matters discussed in any forward-looking statements for a number of reasons, including uncertainty related to the scope, severity, and duration of the COVID-19 pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and the containment measures of us and our tenants.
Please see yesterday's earnings release in our SEC filing, including our latest annual report on Form 10-K and subsequent reports for discussion of various risks and uncertainties underlying our forward-looking statements. In addition, we discuss non-GAAP financial measures, including Core Funds From Operations or Core FFO, Adjusted Funds From Operations or AFFO, and net debt to recurring EBITDA. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in our earnings release website and SEC filing. I will now turn the call over to Joey.
Thank you, Nicole. I'm very pleased to report that we achieved record investment volume of approximately $1.1 billion through the first nine months of 2021, with continued momentum heading into the fourth quarter of this year. While replicating these investment volume is a testament to the efforts of our talented team, I am most pleased with the exceptional quality of the investments that we have made in a challenging environment. While our investment activities further strengthen our best-in-class retail portfolio, we have also fortified our robust balance sheet with $1.5 billion of capital market transactions year- to- date, positioning our company for a dynamic growth in the quarters ahead. Notably, we completed our inaugural preferred equity offering during the third quarter, raising $175 million at a 4.25% coupon.
This represents the lowest non-PSA REIT preferred equity coupon in history and provides a new source of perpetual capital for our rapidly growing company. During the third quarter, we invested approximately $343 million in 83 high-quality retail net lease properties across our three external growth platforms. Eighty of these properties were sourced through our acquisition platform, representing acquisition volume of over $340 million. The eighty properties acquired during the third quarter are leased to 49 tenants operating in 20 distinct retail sectors, including best-in-class operators in off-price retail, convenience stores, tire and auto service, home improvement, auto parts, grocery, and general merchandise. The acquired properties had a weighted average cap rate of 6.2% and a weighted average lease term of 10.7 years.
As mentioned, through the first nine months of the year, we've invested a record $1.1 billion in 226 retail net lease properties spanning 40 states across the country and 26 retail sectors. While raising the lower end of our acquisition guidance for the year to $1.3 billion, our thoughtful and disciplined approach is evidenced by the nearly 1/3 of annualized base rents acquired year- to- date derived from ground lease assets, and roughly 70% of annualized base rents acquired derived from leading investment-grade retailers. During this past quarter, we executed on several unique transactions, including our third Amazon Fresh store in Illinois.
We're excited about the opportunity to add yet another Amazon Fresh store to the portfolio located in a prominent Chicago suburb with median household incomes of $110,000 and a daytime population of roughly 225,000 within a five-mile radius. Our acquisition team also continues to uncover compelling ground lease opportunities. During the quarter, we completed the acquisition of a 9-property portfolio of Thorntons convenience stores for approximately $21 million. The stores, which are paying an average annual rent of only $120,000 per year and have a weighted average lease term of close to 20 years, are all well located in the Nashville and Chicago MSAs.
Shortly after executing a letter of intent to purchase this portfolio, BP announced they're taking full ownership of Thorntons convenience store chain after two and a half years as part of a joint venture established in 2019. This transaction makes BP, which is an A-minus rated company by S&P, one of the leading convenience store operators in the Midwest with more than 200 stores across six states. Other notable ground lease acquisitions during the quarter including a Walmart and a Sam's Club in Lansing, Michigan, two Lowe's stores located in Wallingford, Connecticut, and Abington, Massachusetts, and a CVS in Springfield, Massachusetts. We've acquired 73 ground leases year- to- date for total investment spend of nearly $350 million, representing nearly 31% of acquisition spend for the entire year.
This includes 28 ground leases during the third quarter, representing investment volume of over $108 million. As of September 30th, our ground lease exposure reached a record of nearly 14% of annualized base rents. The ground lease portfolio now derives roughly 87% from investment-grade tenants and has a weighted average lease term of 12.1 years with an average rent of less than $10 per sq ft. This portfolio continues to represent an extremely attractive risk-adjusted investment for our shareholders. On recent earnings calls and discussions, there have been considerable dialogue regarding our ground lease portfolio and its valuation.
I would encourage everyone to take a look at the new slide we added on page 10 of our investor presentation, which compares our ground lease portfolio to the 10-year Bloomberg triple B index, which has been trading between 2%-3% over the past 12 months. This is a very compelling comparison when thinking about the value of our ground lease portfolio, which is a weighted average credit rating of triple B plus over two years of additional term in comparison to the Bloomberg triple B index and internal growth of nearly 1%. As of September 30th, our portfolio's total investment-grade exposure was approximately 67%, representing close to a 500 basis point year-over-year increase. On a 2-year stacked basis, our investment-grade exposure has improved by roughly 1,000 basis points. Moving on to our development and partner capital solutions program.
We continue to uncover compelling opportunities with our retail partners. We had seven development and PCS projects either completed or under construction during the first nine months of the year that represent total committed capital of approximately $40 million. I'm pleased to announce we commenced construction during the quarter on our third development with Gerber Collision & Glass in New Port Richey, Florida. Gerber Collision & Glass will be subject to a new 15-year lease upon completion, and we anticipate rent will commence in the second quarter of 2022. Construction continued during the third quarter on two development and PCS projects with anticipated costs of just over $5 million. The project consists of our first 7-Eleven development in Saginaw, Michigan, and a Gerber Collision & Glass in Pooler, Georgia.
We remain focused on leveraging our three external growth platforms and our differentiated asset management capabilities to expand our relationships with best-in-class retailers, providing comprehensive solutions that facilitate their real estate strategies and growth plans. While we continue to strengthen our best-in-class retail portfolio through record investment activity, we remain active on the disposition front during the third quarter. We continue to reduce exposure to franchise restaurants and non-core tenants through the disposition of three properties for total gross proceeds of approximately $11.8 million with a weighted average cap rate of 6.3%. As of 9/30, we've disposed of 13 properties for gross proceeds of just over $48 million and are maintaining our disposition guidance of $50 million-$75 million for the year.
Bolstered by the recent addition of David Darling as our Vice President of Real Estate, the asset management team continues to diligently address upcoming lease maturities. Their efforts have reduced our 2021 maturities to just four leases, representing 10 basis points of annualized base rents. During the third quarter, we executed new leases, extensions, or options in approximately 72,000 sq ft of gross leasable area. Through the first nine months of the year, we executed new leases, extensions, or options on approximately 347,000 sq ft of gross leasable space. Our 2022 lease maturities are de minimis, with only 19 leases maturing, representing less than 1% of annualized base rents expiring over the course of the next year.
As of September 30th, our expanding retail portfolio consisted of 1,338 properties across 47 states, including 162 ground leases, and remains effectively fully occupied at 99.6%. Notably, as pointed out in our press release, Walgreens and L.A. Fitness are no longer top tenants for our company. Both now represent less than 1.5% of annualized base rents. For those that have been following our company over the years, this reduction in Walgreens exposure is a true milestone, given our historical exposure, which once approached 40% of our portfolio. We have made a concerted effort to tailor our pharmacy exposure, given the high per square foot rental rates of many vintage pharmacy leases and the divergent approaches of CVS and Walgreens to a quickly changing landscape.
Before I turn the call over to Peter to discuss our financial results, I'd like to welcome Mike Judlowe to our board of directors. Many of you are familiar with Mike, as he most recently served as Chairman of the U.S. Real Estate, Gaming, and Lodging Investment Banking Practice at Jefferies. Over the course of his career, Mike has raised in excess of $50 billion of capital through numerous transactions. Having had the opportunity to work with Mike for many years, I am extremely excited to leverage his unique perspectives and experiences as our company continues to dynamically grow and evolve. With that, I'll hand the call over to Peter to discuss our financial results for the quarter. Peter?
Thank you, Joey. Starting with earnings, Core Funds From Operations for the third quarter was $0.92 per share, representing a 13% year-over-year increase. Adjusted Funds From Operations per share for the quarter increased 11.5% year-over-year to $0.89. As a reminder, treasury stock is included within our diluted share count prior to settlement if and when ADC stock trades above the deal price of our outstanding forward equity offerings. The aggregate dilutive impact related to these offerings was roughly half a penny in the third quarter. As mentioned on the last two calls, we expect to achieve high single digits earnings growth for full-year AFFO per share. Building upon our 6% AFFO per share growth in 2020, this implies two-year stacked growth in the mid-teens.
We view this level of per share growth as very compelling when combined with the strength of our portfolio and our fortress-like balance sheet. This consistent and reliable earnings growth continues to support a growing and well-covered dividend. During the third quarter, we declared monthly cash dividends of $0.217 per common share for July, August and September. On an annualized basis, the monthly dividends represent an 8.5% increase over the annualized dividend from the third quarter of last year. While meaningfully increasing the common dividend over the past year, we maintained conservative payout ratios for the third quarter of 71% of Core FFO per share and 73% of AFFO per share, respectively. Subsequent to quarter end, we again increased the monthly cash dividend by 4.6% to $0.227 per common share for October.
The monthly dividend reflects an annualized dividend amount of $2.72 per share, or a 9.8% increase over the annualized dividend amount of $2.48 per share from the fourth quarter of 2020. On a two-year stack basis, this reflects annualized dividend growth of more than 15%. General and administrative expenses for the third quarter, which were impacted by recent changes to the company's executive officers, totaled $5.7 million. G&A expense was 6.5% of total revenue, or 6% excluding the non-cash amortization of above and below market lease intangibles. While we continue to invest in people and systems to support our dynamic and growing business, we still anticipate that G&A, as a percentage of total revenue, will be roughly 7% for full year 2021.
This excludes the impact of lease intangible amortization on total revenues. As mentioned last quarter, G&A expense for our acquisitions team fluctuates based on acquisition volume for the year, and our current anticipation for G&A expense reflects acquisition volume within our new guidance range of $1.3 billion-$1.4 billion. Total income tax expense for the third quarter was approximately $390,000, which was slightly lower than our expectation due to a one-time refund. We continue to anticipate total income tax expense for 2021 to be close to $2.5 million. Moving on to our capital markets activities for the quarter. As Joey mentioned, in September, we completed our inaugural preferred equity offering, raising $175 million of gross proceeds at a record low coupon of 4.25%.
This attractive offering demonstrates our ability to opportunistically access yet another source of capital to support the continued growth of our company. During the third quarter, we entered into forward sale agreements in connection with our ATM program to sell an aggregate of approximately 367,000 shares of common stock for anticipated net proceeds of roughly $27 million. During the quarter, we also settled close to 886,000 shares under forward ATM sale agreements and received net proceeds of approximately $56 million. At quarter end, we had approximately 3.4 million shares remaining to be settled under existing forward sale agreements, which are anticipated to raise net proceeds of more than $226 million upon settlement.
Inclusive of the settlement of our outstanding forward equity, our fortified balance sheet stood at approximately 3.7 times net debt to recurring EBITDA. Excluding the impact of our unsettled forward equity, our net debt to recurring EBITDA was approximately 4.4 times. If you include our recent preferred equity offering in net debt, this adds roughly half a turn of leverage to our net debt to recurring EBITDA metrics. At 9/30, total debt to enterprise value was just under 25%, while our fixed charge coverage increased to a record 5.1 times. With full availability under our revolving credit facility and nearly $830 million in total liquidity, we have tremendous flexibility to execute on our growth plans. With that, I'd like to turn the call back over to Joey.
Thank you, Peter. At this time, operator, we'll open it up for questions.
We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your headset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Brad Heffern with RBC Capital Markets. Please go ahead.
Hey, good morning, everyone. I was wondering on the acquisition front, if you could talk through the relative attractiveness of the investment grade versus sub-investment grade this quarter. I noticed it was a little bit below the normal proportion for the portfolio overall, and it was down quite a bit sequentially. Thanks.
Good morning, Brad. Well, first off, look, we're focused on our sandbox of industry-leading retailers, that 25-30 retailers across the country that have, generally speaking, have investment-grade credit ratings and/or a ground lease asset where we see residual upside. Notably this quarter, we acquired a shorter-term outlet portfolio of unrated tenants. We don't impute any scores or rating to those. Included there is a Chipotle, Chick-fil-A, a KFC franchise, an Outback Steakhouse. Just for example, the Outback's paying $9.50 a foot on the two-acre site, $63,000 a year. We see tremendous upside if we were to able to get that asset back. We acquired a Publix. Obviously, it doesn't have a credit rating. You can impute an investment-grade credit rating to Publix if you'd like, in South Carolina.
Lastly, we acquired a BJ's in Wallingford, Connecticut, through immediately adjacent to the Lowe's we own in Wallingford as well, right on the toll road, great piece of real estate, high-performing store, low rent, and clear visibility into the residual of the real estate there. You'll see those numbers, investment grade and/or term ground lease, as well fluctuate from quarter to quarter, but I think over the course of the year it's pretty consistent.
Okay. Got it. On ground lease, you all continue to acquire sort of the 30% level every quarter. Is that what we should sort of think of as the long-term, you know, goal for ground lease as a percentage of the portfolio, or any color you could put around how big you want it to eventually be?
We see as I mentioned in our prepared remarks, tremendous opportunity. We think the valuation of that portfolio, when you comp it to something like the triple B index is extremely compelling. In terms of a go-forward basis, we're opportunists at our core. You know, the Outback that I just mentioned is the perfect example there. We'd love to get that asset back, and re-lease it for three times of the current rent. We'll see as those transactions continue to materialize, there's a number of them in Q4. Visibility into 2022 is still pretty light here at the beginning of November, we're focused on finding best-in-class opportunities on a risk-adjusted basis.
Okay, thank you.
Thanks, Brad.
Our next question comes from Katy McConnell with Citi. Please go ahead.
Thanks. Good morning. Can you discuss what the acquisition pipeline looks like today, and have you seen any notable changes in the opportunity set or pricing trends that might contribute to some conservatism that you're assuming for 2022?
Yeah. Good morning, Katy. I wouldn't read too much into the upper end of our guidance being raised. There's certainly no deceleration in our pipeline. We have a few hundred million dollars, close to 100 properties in our pipeline today. You know, it's really just a question of timing when those close. Does it close by year-end? Does it push into next year? A lot of that is under our control, subject to a seller and/or a retailer. I can say with confidence here, the pipeline is in place to continue to execute on the granular nature of our traditional transactions or a much larger transaction if that comes about or comes to fruition. You can combine the team here in conjunction with our ARC system, it's a powerful combination.
We'll continue to execute. I wouldn't read into any guidance not being raised at year end here, or the $1.4 billion not being raised. It's quite possible we will hit it or exceed it subject to timing.
Hey, Joey, it's Michael Bilerman. Good morning. Just going back to the ground lease portfolio, and you and I discussed this earlier when you started to, you know, really accelerate the ground lease assets. You know, if you're not gonna get a commensurate decline in your cost of capital, and I can understand, you know, the residual value that could be embedded in some of these, which are quite long duration, so it's not always immediate in terms of getting to that opportunity. I'm sure you're gonna tell me examples that you have. But in aggregate, you know, you're not gonna be able to get the residual value as quickly, and I'm not sure the market gives you value, especially if your cost of capital is not declining to the same degree to create the same level of accretive growth.
I guess, are you thinking at all about different structures for the ground lease portfolio, or how do you know, help us understand why buying a ground lease, even I understand the risk adjusted relative to triple Bs argument, but that's not how your stock sort of trades. I'm just trying to better understand why go after lower yielding, even if they are more secure longer term, how does that really drive your cash flow growth to which would get a higher multiple?
No, I appreciate the question. We've obviously made a focus here and an emphasis, put an emphasis on communicating and articulating the value proposition of the ground lease portfolio. First, we're not reaching for yield in terms of chasing cap rates or. In the ground lease portfolio, generally, the ground lease assets on an individual basis at acquisition are in line with our acquisition cap rates. What we've done is pivot with our capabilities, with our relationships with retailers and owners, developers, sellers, is really, you know, a flight to quality. We see tremendous upside. Now these aren't 99-year ground leases, i.e., leasehold interest or something of the like in the Safehold where, you know, 99-year ground leases and you're never getting the residual back.
The Outback is a good example of that. I think it's, you know, there's two ways to go in an environment where you see continued cap rate compression. It's continue to drive toward quality and find asymmetric and unique opportunities, or you can go up the risk curve in terms of credit or term or single purpose buildings, which you won't see us do. I think the premise of that question, we're not going to reach for yield in terms of ground lease. They're going to be effectively in the same range as our standard net leases.
If we can just transition to the CFO side of the equation. You know, obviously, you and Simon Leopold sort of, I guess, broke up in mid-August. You know, he only had come into the CFO role in you know, six or seven months before that, was a board member for a period of time before that. Look, over the years, you've this will be CFO, I think number four or five over the last decade. Help us understand what's going on in that role. Why isn't there more?
I know you're gonna go, I know every situation is specific, but it's rare to see the turnover in a company that's growing as fast as yours and that has performed well and hasn't had the hiccups that you would normally see with a lot of executive turnover. What is it about that role that's not getting sticky within the company, and how are you thinking about filling the role going forward? Just take us through a little bit of what's happened.
Yeah. No, I appreciate the question. Peter, can you plug your ears or leave the room, please? Just kidding. Well, look, I think Simon and Joey didn't break up. That's first of all. There was no personal animosity. There was no challenge interpersonally or strategic, you know, strategic challenge there in terms of the performance of the company on a go-forward basis. You know, that was just a case of operating styles or operating models not syncing. It was obviously, it was disappointing for us. We quickly pivoted, and understood that we needed to separate. I think both parties, it's better off for both parties there. So that's what I'll say about Simon. We only wish him the best and continues to be a friend.
In terms of the CFO, look, we will continue to execute on this search. We will do our diligence. Peter's doing a tremendous job. You can unplug your ears now. Peter's doing a tremendous job here executing on the preferred offering and now earnings. We're gonna continue to do our diligence on this search. Look, it's been a unique circumstances and set of events with these CFOs. Two left on their own volition for one, for a personal reason, and one for a professional opportunity that didn't work out for them in another state. It's incumbent upon us to make the right choice for this seat, for this company.
Most importantly, this is an operating seat, and so it's, you know, we're not out there pontificating or thinking strategically about things that aren't aligned with our operating strategy. Everyone here in this 60-person company rolls up their sleeves and has to execute to a really disciplined operating strategy. That's most important. We've taken the last several months here, a few months, to really evaluate this seat. I've had a number of conversations with not only candidates, but existing REIT CEOs as well as other industries to think about how the CFO search here should culminate in a permanent successor. I mean, David Wolfe, our Chief Accounting Officer, is sitting here. We have a fantastic Chief Accounting Officer in David and accounting team that's really closing the books here in day-to-day accounting.
Now it's incumbent upon us to figure out what the right role and responsibilities for the CFO here at Agree Realty at a growing company like this are.
Right. I guess, is there any introspection that you have on yourself or the board? Because it is, you know, I know every situation has got their reasons or rationale.
Yeah.
It just has happened a little bit often, so I'm just wondering if there's a reflection of maybe your own management style or how you like to work with people, how the board's involved. I mean, it is rare, right? You obviously knew Simon well. He was a board member even for a short period of time. You know, these things don't happen that often, Joey, and I feel like it's come up. You've had to explain things away a few too many times, and so I'm just trying to understand if there's a larger thing going on that's not keeping the CFOs' butts in their seats.
The succinct answer to that question, the last part of the question is no. There is no larger thing going on. This isn't a personal dynamic with Joey. This is right. This is part of being a part of a broader leadership team at a growing and dynamic company. You know, even comparing the CFO seat today to two years ago, let alone three, four, five years ago here, require just such different skill sets. You know, 5.5 years ago, we moved into the current building that we're in with 14, 15 employees. Today, we're at 60 team members here. I think to the first part of your question, yeah, 100% there is an introspective look in the mirror.
We would be, we'd be ignorant, frankly, not to look in the mirror and say, "What do we have to do differently?" What can we do better, but also how has this role changed in context of the overall growth of this company? We're a $7 billion or approaching $7 billion enterprise, more likely than not soon to be $10 billion enterprise with a dynamic team here. The introspective piece here is both looking backwards but also looking forwards. Again, I would emphasize that this is a team that is committed to producing consistent results and also is committed to working both in and on the business. You know, we aren't golfers here. We take this thing seriously.
We operate it like it's a private company in the sense that we have an ownership mentality. That's probably our most important core value.
Great. Thanks for the time, Joey.
Thank you, Michael.
Our next question comes from Linda Tsai with Jefferies. Please go ahead.
Hi. Good morning. Looking at slide 16 of your IR deck, Sandbox offers runway for growth, and you show the different retailer categories. Where are you seeing the best opportunities from a risk-adjusted basis, as you continue to build the pipeline for 2022?
Yeah. Good morning, Linda. I think it's across the full spectrum for us. We saw the surge in grocery due to the Kroger transaction and the Wegmans transaction in Q2. You know, this quarter we see divergence again. We've emphasized the Amazon Fresh, the third in the portfolio, but it's really across the sectors that we're targeting, but most importantly across the sandbox of retailers. Obviously, the ground lease opportunities span the full spectrum, all the way from a casual dining opportunity like the Outback I highlighted to a Walmart, Costco, Lowe's, or Home Depot. It's pretty fragmented this quarter. The C-store emphasis with the Thorntons transaction, as well as the ground lease to Royal Farms that we also acquired, were very unique. The most interesting part about this business is the pipeline changes every day.
Again, I emphasize there's no rhyme or reason for that change. It's what the origination team continues to dig up. I tell you it's extremely divergent.
Got it. Just given the lift that retailers have seen across the board in 2021, has your underwriting changed at all to accommodate for this more positive environment? I know you mostly have material exposure to necessity-based investment-grade retailers, but even these guys have done a little bit better than usual.
No, I tell you, it hasn't changed our underwriting. If anything, it's emphasized that we have a firm belief that the strong or the big are getting bigger. The access to capital, their balance sheets, their ability to invest in price, even in a supply constrained environment and compete, as well as their ability to invest in an omni-channel future. Look, we've seen sales surges, pent-up demand across categories. We've seen some idiosyncrasies that, you know, in different sectors. You know, everyone's got a bike or a shotgun or whatever they're buying in Academy Sports today. We've seen some unique changes there, but we think those are cyclical and will normalize here, hopefully sooner rather than later in terms of consumer behavior.
You know, the environment continues to be what we expect. The bigs have access to capital. They have the ability to invest in those two most important pieces of their business today, competitive on price and an omni-channel future, which obviously is paramount.
Thanks. Just one last one. On the past couple of earnings calls, you've verbalized your earnings growth expectations for the year, for 2022. Should we expect the same type of communication?
Good question. Look, we're looking at all options, including providing formal earnings guidance all the way to a similar strategy we've executed this year. I'll tell you, our expectation is a continued upper single digits earnings growth profile in terms of AFFO. We have the ability to do that with an extremely strong balance sheet, investing in the best retailers in the country with superior real estate. That's what you're gonna see us execute and do.
Thank you.
Thanks, Linda.
Our next question comes from Tayo Okusanya with Credit Suisse. Please go ahead.
Hi. Yes, good morning, everyone. Joey, you guys are, you know, still pretty bullish on your acquisition outlook. A bunch of your peers put out 2022 guidance this morning as well with very strong acquisition outlooks. I guess what I'm curious about is, number one, you know, what's kind of really, you know, driving everyone still being so bullish, and being able to kind of match or even beat kind of what are record acquisition volumes this year, especially given the backdrop of everyone getting concerned about higher interest rates, higher inflation, and things of that sort?
Yeah, good morning, Tayo. I wouldn't wanna answer for our peers. Ours is opportunistic. It's 100 transactions approximately, right, at any given time, moving through our pipeline, average price points of $4 million-$5 million, ranging from $1 million-$80 million. I wouldn't wanna speak for our peers. I'll tell you across REITs, then, when you see favorable cost of capitals, you see, generally speaking, companies deploy them in terms of external growth. You know, the next question is what is the quality of the underlying real estate credit residual that people are acquiring. I know what our strategy is specifically here. It starts with that omni-channel critical e-commerce resistance, necessity-based approach on a granular basis, open to larger opportunities that fit within the context of this portfolio and obviously are accretive.
I can't speak for what other REITs or other peers are acquiring. I think given the favorable cost of capital, you see them continuing to achieve spreads that they think make sense in context of their overall portfolios.
Okay, that's helpful. Just a quick second question. I mean, you guys have, you know, relatively low leverage at this point. Why the decision to go down the prepay route rather than just kind of issue straight up, you know, debt that would have been a lower interest rate?
I'll turn that question over to Peter. I tell you when we saw 4.25%, you know, as Peter mentioned in the prepared remarks, a non-PSA record at 4.25%, it was extremely attractive. Now, obviously, debt, you know, preferred equity is a hybrid security. You know, we think perpetual paper at 4.25% with a callability feature after five years was extremely attractive and again, non-PSA record. I'll turn that over to Peter. He really executed on that deal.
Yeah. Thanks, Joey. Tayo, I would just mention when we've historically looked at the preferred market, to Joey's point, the pricing hasn't always made sense in the context of other capital sources. This past summer, we saw several REITs print very low coupons relative to what they've been able to achieve historically, and thought it made sense for us to explore that market further. The market dynamics when we were taking a look seemed favorable. There's a lot of demand for high quality investment grade paper. Given that anticipated pricing and strong demand, as well as the fact we really didn't have a need for a $300 million index eligible bond, we thought that it made sense to issue our inaugural preferred offering and really open up another source of capital for the company as we continue to grow.
In terms of the execution of that offering, the demand was stronger than we anticipated. We were able to upsize the deal from $100 million-$175 million and tighten pricing down to 4.25%, as Joey mentioned, with a really strong order book and strong institutional demand. It was great execution for the company.
Makes sense. Thank you.
Thanks, Tayo.
Our next question comes from Wes Golladay with Baird. Please go ahead.
Hey. Good morning, guys. I just wanna stick with the preferred. I mean, when I look at the portfolio, it's very high quality and the company's balance sheet is very strong with low leverage, and it is a risk on environment. I wanna see what your appetite is to get a little bit more leverage to the common via the preferred.
Well, I think the preferred equity inherently, if you look at net debt plus preferred EBITDA, inherently levers us up an additional half a turn. Now, again, with no maturity and a callability feature with actual paper, our stated range of 4-5 times is exclusive of that preferred and that half turn that it adds to our current leverage profile. It does provide for us to quote-unquote lever up. Obviously, we look at it both in both directions here, both as an equity substitute as well as the ability to add incremental leverage without a maturity.
Would, I guess, a half a turn be where you'd be comfortable with as you grow the company?
Certainly. I mean, Again, our stated range of 4x-5x is exclusive of the preferred, but we're certainly comfortable at 5.5x with the preferred. Inclusive of the preferred. You can look at it, and we understand investors and sell-side look at it both ways, preferred as well as the rating agencies we've had continued dialogue with. You know, as Peter mentioned, the ability to raise $175 million at 4.25%, effectively right on our weighted average cost of capital, and then invested with 200 basis point spreads into perpetuity there. We think that was extremely attractive for us.
Got it. I guess when you talk to existing tenants, I guess, what is their appetite for new projects to go into the development and PCS project pipeline for next year?
It varies across the board by tenant and generally by sector. We see a lot of activity, obviously, in the off-price space. We see a lot of activity in the auto and tire service space. It truly varies. At the same time, we see the home improvement retailers, most notably Home Depot and Lowe's, not looking for net new stores, but investing in their omni-channel distribution initiatives. It varies across retailers. There are definitely retailers on a freestanding basis that are expanding throughout this country. Our third Amazon Fresh store, obviously they're expanding, and people read the news. It really varies by retailer and by sector today. You have guys that are contracting and guys that are growing aggressively.
Got it. Thanks for the time.
Thanks, Wes.
This concludes the question and answer session. I would like to turn the conference back over to Joey Agree for any closing remarks.
Well, thank you for joining us, everybody, today. We look forward to catching up virtually at the upcoming Nareit in about 10 days. We'll talk to you soon. Thank you.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.