Joey Agree: Continued discussion. The team is at 2 national retailers that you’re familiar with today and tomorrow, frankly, we’re constantly in dialogue trying to help break this [indiscernible] that’s occurring right now in the development of new stores. That said, we’re not going to do it, obviously, to the detriment of our shareholders. We’re going to get the appropriate spreads. So — the dialogue is ongoing. It is very fluid, as you can imagine, with the world going inside out in the fourth quarter. But we’re going to continue to have those conversations and I think our full-service value proposition is, I know it is. I know it is unique to retailers and they appreciate all of our capabilities, inclusive of our asset management capabilities.
Operator: Next question comes from Rob Stevenson of Janney.
Robert Stevenson: Can you talk about what the cash spread on leasing done in the fourth quarter and for ’23 as a whole was? And have the size of the bumps or other lease terms change given the persistently higher inflation these days?
Joey Agree: On the first one, Peter, do you have a number handy, I mean it’s fairly de minimis.
Peter Coughenour: Yes, Rob, I would just say first that we don’t have a ton of actually re-leasing activity in our portfolio. The vast majority of leases that are up for expiration so the tenant exercise an option which typically has an embedded bump within that option. That said, the recapture rate for Q4 and for the full year was north of 100%.
Robert Stevenson: Okay. And then what about the lease terms? Are you guys trying to push higher bumps, more frequent bumps, et cetera, given the higher inflation or trying to mitigate people to CPI. How are you guys thinking about that as you’re starting new leases on any of these development deals or any of the other stuff?
Joey Agree: Yes. So no national retailers will generally [indiscernible] CPI-based bumps. They want to know what the rent is going to be on a go-forward basis so they can plan — but yes, I mean, that’s thematic since we’ve seen inflation at 8%, 9%, let alone over 3%, that everybody is I think understanding that we’re in an inflationary environment. And so the frequency as well as the size of those bumps, I think most tenants are amenable to relooking at their lease terms there.
Robert Stevenson: Okay. And then can you talk about the difference between cap rates on ground leases in the fourth quarter for the year overall versus the fee simple acquisitions. Is that spread sort of stayed relatively consistent? Are you seeing better opportunities or less opportunities in ground leases today and going forward? How should we be thinking about that?
Joey Agree: Very, very consistent, if any, a de minimis spread between the ground leases and net leases, we’re generally working with our retail partners there. I think you’ll see more of the same in the first quarter. Some of them are shorter term, some of them are targeted by retailers in partnership with us.
Operator: Next question comes from Haendel St. Juste of Mizuho.
Haendel St. Juste: Joey, I think you mentioned earlier in the call that you’re anticipating, let’s see opportunities dispositions this year. Curious what categories you want client to call potentially how much you like to call in potential range of cap rates or any pricing color expectations?
Joey Agree: Yes. I would tell you, from a category perspective, we’re not overly interested in decreasing our Walmart exposure or anything like that. The opportunistic dispositions will generally be into the pretty tenuous [ph] market dominated in markets where you have significant capital, it seems to be significant capital, still chasing things at fairly low yields. We’ll look to deploy — redeploy that capital at approximately 150 basis point spreads. You can see it in the auto service space. You can see it amongst other categories, the farm and rural supply space, the car wash space, potentially, generally spaces where we’re very comfortable with our exposure but there is still opportunistic, maybe tax-motivated purchasers out there in geographies which seem to still have heat to them.
Haendel St. Juste: Got it. That’s helpful. And then just going back to the messaging here. Clearly, you’re guiding to a capital light deployment, earnings growth, minimum 3, probably looks like 4% now expecting interest rates to be higher for longer. So I guess I’m curious, kind of from your perspective, what’s the investment case for investors buying the stock here today, 3% to 4% earnings growth isn’t too shappy in this environment, I get it but still likely to lag a number of your peers, I think, are we basically in a wait-and-see mode to a degree here?
Joey Agree: So let’s take a step back. We have a 5% plus and growing dividend that’s covered at the low end of our target payout ratio of 75%. We have a 5-year CAGR of 6% AFFO growth while qualitatively improving the portfolio to now approaching 70% investment grade and 12% ground leases. It is the strongest retail portfolio, I think, without exception in the country and most investors and analysts would agree. We have a balance sheet that is fortified with $1 billion of liquidity has no material debt maturities until 2028, no floating rate exposure except anything outstanding on the line of credit. So if you take your 3% to 4%, you can go ahead and take the high end, then take the 5% and growing dividend, you’re at 9% total returns there alone, assuming no dividend growth which it will grow this year with an underlying fortress balance sheet and an underlying fortress portfolio.
I think that is a very compelling case in today’s environment to invest in ADC. And I think, as I said in our prepared remarks, insiders here, inclusive of myself, agree. What we have done and what we have built without diminishing the qualitative aspect of our portfolio, is, I think, is without peer. We haven’t loaded up on pharmacies. We’ve ran from Walgreens exposure. We don’t have double-digit pharmacy exposure and double-digit dollar store exposure. We’re not just out there checking the IG box. We’ve been talking about Walgreens now for years, reducing our Walgreens exposure to an inconsequential number, watching CBS overtake Walgreens in the pharmacy space. I think we have a proven track record now of not only being correct in our retail predictions and about the concerns in an omnichannel world but we also have the balance sheet management, the earnings growth profile to, frankly, to bank on.
And so I think there’s something to be said, especially in today’s environment for stability and predictability.
Operator: Next question comes from Mitch Germain of JP Securities.
Mitch Germain: I know it’s early in the year but I’m just curious if you’re seeing any changes to the buyer pool?
Joey Agree: Mitch, honestly no. I mean this market is so fragmented and large to begin with, that you stress it in a higher interest rate environment and a liquid credit environment, the buyer pool kind of becomes a toss-up in the air. So it’s very difficult. I mean sometimes I’ll be honest, I’ll ask an investment or disposition committee, who is this? Who is buying this? Who is selling this? And the answer turns into something like a riddle. And so I’ll be honest, it’s — there is — there are no parallels to be drawn. There is not a fluid market right now; it is hit or miss — it’s about being disciplined and it’s about throwing darts and being decisive in what you want to accomplish.
Operator: Next question comes from RJ Milligan of Raymond James.
Richard Milligan: So I just want to follow up. I think [indiscernible] asked this. I’m not sure if you provided an answer in terms of what the year-to-date activity has been so far?
Joey Agree: No. We haven’t provided any answer or any update on the year-to-date activity. Although I did mention that we anticipate cap rates jumping in Q1 by approximately 30 to 40 basis points on the acquisition side.
Richard Milligan: Got it. And so I know there’s a difference between capital previously raised, right, via the ATM last quarter versus trying to go out and raise new capital, equity capital today. So I’m just curious if you are seeing that or 7.5% average cap rate or that cap rate expansion, would the goal then be to deploy the Q4 ATM proceeds quickly I guess, what is the outlook for cap rates? Is it going to deploy at a 7.5% today, given that, that’s a pretty high absolute cap rate? Or is it still more of a wait and see even with the previously raised proceeds?
Joey Agree: Yes. Just to clarify, that’s not market. These are manufactured transactions where we work out there creating value. That is nowhere near market cap rates today on a like-kind product. We’re not out there buying lossy brochures here that are highly marketed and then through the auction process. And so if we can achieve those types of cap rates, we’ll look at that spread relative to our cost of capital, deploy that equity. But I think as we highlighted, we have $500 million in leverage-neutral buying power today, not inclusive of any disposition proceeds. And so as the year materializes, again, as the pipeline and the pipeline grows, we’ll look at all capital options for us but we don’t need to do anything today. I think that’s pretty clear with $1 billion of liquidity and that $500 million in leverage neutral power.
Richard Milligan: And just one follow-up. So Joey, you’ve talked a lot or very often about the lack of visibility 70 days However, you have been able to provide — despite that lack of visibility as sort of a guidepost at least for acquisition volume. I understand that we are in a volatile capital markets environment. I’m just curious, what do you need to see in the capital markets or the transaction market to get the confidence to resume an external growth guideposts?
Joey Agree: I think we have to get to a level of normalcy again. I think we have to get to a level of stability in the underlying macroeconomic environment. I mean I haven’t — I’d be honest, I haven’t seen an economist who’s gotten this right since we pumped $6.5 trillion into the economy and lowered rates to 0. And so for us to sit here and me specifically to sit here as a real estate guy and try to anticipate what’s going to materialize over the course of the next 11 months during this year, I would frankly be getting ahead of myself. And so we were able to provide those historic guidepost because we had a level of visibility into anything — aberration or geopolitical event or some type of crash today with the underlying volatility that we’re seeing in these markets and frankly, the lack of clarity we’re seeing in these markets, I mean, it’s a foggy world out there today.
And so when we get and if we get that level of clarity based upon that stability, we will 100% provide it. But I think anything — if we did anything else, we would just be getting ahead of ourselves.
Richard Milligan: One additional is clearly, you guys have been pretty proactive in selling down your Walgreens exposure over time. I’m curious if there’s any other categories that you’re looking to sort of get ahead of the curve over the next year or two?
