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Agree Realty Corp (ADC) Q1 2019 Earnings Call Transcript

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Agree Realty Corp  (NYSE: ADC)
Q1 2019 Earnings Call
April 23, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning and welcome to the Agree Realty First Quarter 2019 Conference Call. All participants will be in listen-only mode. (Operator Instructions) Please note this event is being recorded. I would now like to turn the conference over to Joey Agree, President and CEO. Please go ahead Joey.

Joey Agree -- President & Chief Executive Officer Director

Thank you operator. Good morning everyone and thank you for joining us for Agree Realty's First Quarter 2019 Earnings call. Joining me this morning is Clay Thelen, our Chief Financial Officer. I am pleased to report that we're off to a strong start to the year as we continue to capitalize on opportunities across all stages of our business. During the quarter we further strengthened our portfolio through strategic investment activity and proactive asset management, while continuing to fortify our balance sheet through capital markets activity. Subsequent to quarter end we commemorate our 25th anniversary as a public company by ringing the closing bell in the New York Stock Exchange. Our compounded average annual total shareholder returns since the IPO is 13.2%, an impressive accomplishment that sets the bar for our future performance.

Before we move on to our traditional update, I'd like to take a couple of minutes to clarify and expand upon our investment philosophy and underwriting standards given some of the recent discussions we've had with investors during this busy conference season. I think the simplest way to start is what we're avoiding. First private equity backed and other retailers with overleveraged balance sheet that lack the capacity to adapt to dynamic retail environment and invest in an omni-channel future.

Second, retailers that are overly susceptible to e-commerce due to commoditization in consumer price leverage. Third, retailers and traffic and highly discretionary and luxury goods, they are susceptible to recessionary pressures. Fourth, we're avoiding overemphasis on store-level performance as a barometer for real estate and tenant quality. It is a data point, not a driver of our underwriting. In today's omni-channel retail world store-level performance is becoming increasingly difficult to measure using traditional methods such as store sales, EBITDA and rent coverage. Retailers today are increasingly favoring locations that enable them to penetrate the markets through a variety of distribution methods including BOPUS, home delivery, in-store returns as well as maintain a physical presence.

The market penetration that our retailers can achieve through these methods is often misrepresented by historic four-wall (ph) performance metrics. The most successful 21st century retailers have effectively blurred the line between these different distribution channels. And lastly we avoid non-fundable single purpose boxes that limit the residual value, a very narrow retanating options that inhibit the future value of the real estate. This includes larger boxes where the tenant has entered into a traditional turnkey lease. Our risk mitigation here is best demonstrated to our ground lease portfolio where we own the land and the tenant has paid the constructor own improvements. The tenant's investment in the improvements decreases the likelihood that are looked to relocate, increases the probability of renewal as well as drive residual upside to retenating or out life creation at a very low basis.

As usual I will discuss our ground lease portfolio in more detail shortly. Now that I've addressed what we avoid, let's focus on our continued acquiring and developing of the highest quality retail net lease assets in the country. Today our proverbial sandboxes comprise primarily of 30 to 35 in the country's strongest retailer that have a comprehensive omni-channel strategy of value-oriented business model for a strong service-based component. We think about quality as a unique combination of industry-leading tenants, lease structure and strong underlying real estate. With almost 50 years of development expertise our emphasis is on fundamental retail real estate characteristics rather than simple spread investing or contract structure.

With that allow me to return to our standard update. During the first quarter we invested approximately $145 million in 57 high-quality retail net lease properties across our three external growth platforms. Of those 57 investments, 48 properties were sourced through our acquisition platform, representing aggregate acquisition volume of more than $141 million for the quarter.

The properties were acquired in the weighted average cap rate of 7% and had a weighted average of remaining lease term of 12.8. The acquired properties are located in 22 states and are leased to leading operators in 16 different retail sectors including off-price, convenience stores, auto parts, tire and auto service, home improvement, health and fitness, grocery, craft and novelties. Notable, we're very pleased to add our first Trader Joe's, Home (ph) as well as CarMax to our portfolio during the quarter. Other properties acquired during the quarter include O'Reilly Auto Parts, AutoZone, Bridgestone, NTB's tire and service centers, Hobby Lobby, TJ Maxx, ULTA, Tractor Supply, 7-Eleven and Gerber Collision.

Our focus on industry-leading tenants is evidenced by the continued increase in our investment-grade concentration. More than 71% of annualized base rent acquired during the quarter was derived from investment-grade retailers. At quarter end our total investment-grade exposure was 52.4%,0 representing a year-over-year increase for approximately 680 basis point. Based on high-quality nature of our current acquisitions development pipeline, we anticipate our investment-grade concentration to continue this upward trajectory.

Given our strong acquisition volume in the first quarter and our robust in high-quality pipeline, we are increasing our 2019 acquisition guidance to a range of $450 million to $500 million for the year. While increasing our full year acquisition guidance, I want to again reiterate that we remain intently focused on constructing the highest quality retail portfolio in the country. Our acquisition team has done an outstanding job, originating best-in-class opportunities with industry-leading retailers. While significantly increasing our investment-grade concentration, we've also grown our ground lease portfolio by 140 basis points year-over-year to almost 9% of annualized base rent at quarter end. 7-Eleven is the newest addition to the many leading retailers that comprise our ground lease portfolio, including Home Depot, Lowe's, Walmart, Wawa, ALDI, AutoZone, McDonald's and Starbucks.

At quarter end approximately 88% of our ground lease portfolio's rents were derived from retailers that carry an investment-grade credit ratings and only 1% was leased to sub-investment grade retailers. The remaining 11% of the portfolio was leased to leading retailers that are unrated such as Chick-fil-A and Texas Roadhouse. We continue to see to expand this portfolio and currently have under control a number of assets that are ground leased to the countries best operators. In addition to our ground lease portfolio we've also several exceptional urban assets. One such asset is our Harris Teeter on West 6th Street in Charlotte, North Carolina. Notably, Harris Teeter recently announced that the 18,000 square foot store will be the first in the chain to implement self checkout to increase the number of lanes available to the customers and reduced checkout times.

We continue to look for similar opportunities to add unique urban assets to our portfolio. The strength of our portfolio was also evidenced by our changing tenant roster. During the quarter we added TBC Corporation to our top tenant list via six properties sale leaseback with National Tire and Battery Service Centers. Simultaneously AMC was eliminated from our top tenant list during the quarter.

Turning to our development in Partner Capital Solutions platforms, we had nine development in PCS projects either completed or under construction during the quarter that represents total committed capital of approximately $30 million. Three of those projects were delivered during this past quarter representing total capital deployed of almost $8 million. The project delivered during the quarter include the Company's third and fourth developments with Mister Car Wash in Orlando and Tavares, Florida and our first completed project was Sunbelt Rentals in Maumee, Ohio. Subsequent to quarter end the Company delivered a second project with Sunbelt Rentals in the Batavia, Ohio. In addition to our completed projects in Maumee and Batavia construction continued during the quarter at our third Sunbelt Rentals and our first ground-up project in Georgetown, Kentucky with them.

Finally, we're pleased to announce that we commenced construction our fourth Sunbelt Rentals projects during the first quarter in Carrizo Springs, Texas. The project is anticipated to complete by the fourth quarter of this year and we look forward to continue to expand our relationship with Sunbelt to the future. In addition to the Sunbelt Rentals projects in Georgetown, Kentucky construction continued during the quarter on three other development in PCS projects with total anticipated costs of nearly $16 million. The project consists of the Company's first development with Gerber Collision in Round Lake, Illinois. The Company's redevelopment of the former Kmart in Mount Pleasant, Michigan for Hobby Lobby and the Company's redevelopment of the former Kmart in Frankfurt, Kentucky for ALDI, Big Lots and Harbor Freight Tools.

While our year-to-date investment activity has improved the quality of our portfolio, we've also solidified and diversified our portfolio through proactive asset management and disposition efforts. These efforts continued during the first quarter as we sold two Walgreens assets for gross proceeds of approximately $10 million. As a result of our disposition efforts our Walgreens concentration has been reduced to 4.6% at quarter end. This represents the decrease of approximately 300 basis points year-over-year. Similarly our pharmacy exposure decreased 400 basis points year-over-year to 7.6%. We currently have an additional Walgreens asset under contract to sell, which is subject to customary due diligence and we anticipate closing in the next few weeks. Our asset management team also continues to focusing on addressing an upcoming lease maturities. As a result of these efforts at quarter end, we had only five remaining lease maturities in 2019, representing less than 1% of annualized base rents.

During the quarter, we executed new leases extensions or options of approximately 111,000 square feet of gross leasable sales. As of March 31 our rapidly growing retail portfolio consisted of 694 properties across 46 states. Our tenants are comprised primarily industry-leading retailers operating in more than 28 distinct retail sectors, again with 52.4% of annualized base rents coming from investment-grade tenants. The portfolio remains effectively fully occupied in 99.7% and has a weighted average remaining lease term of 10.2 years. Thank you for your patience.

And with that I will turn it over to Clay to discuss our financials for the quarter. Clay?

Clay Thelen -- Chief Financial Officer

Thank you Joey. Good morning everyone. I will begin by quickly running through the cautionary language. Please note that during this call we will make certain statements that may be considered forward-looking under federal securities laws. Our actual results may differ significantly from the matters discussed in any forward-looking statements. In addition, we discussed 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.

As a reminder beginning in the first quarter we modified our calculation of NAREIT FFO to exclude the add back of the amortization of above and below market lease intangibles and introduced core FFO, which includes the add back of this non-cash item. Core FFO will be consistent with our historical reporting of FFO. Core funds from operations for the first quarter was $28.6 million, representing an increase of 29.8% over the first quarter of 2018. On a per-share basis, core FFO increased to $0.74 per share, a 4.7% year-over-year increase. Adjusted funds from operations for the first quarter was $27.7 million, a 27.3% increase over the comparable period of 2018. On a per-share basis AFFO with $0.72, an increase of 2.7% year-over-year.

In addition to the inclusion of core FFO this quarter and in accordance with the updated leased accounting standards, effective January 1st of this year, we've updated our presentation of revenues and the income statement and consolidated our historical reporting of revenue line items into a single line item, rental income. Additionally, we began including the amortization of above and below market lease intangibles as contra revenue in the new rental income line item. It is important to note that both of these changes are purely geographic and do not have an impact on our key earnings metrics.

The inclusion of amortization related to above and below market lease intangibles is simply a reclassification, as this was historically reported in depreciation and amortization expenses. To help with modeling we have added a new schedule to our press release table providing further detail as well as comparability with our historical reporting. General and administrative expenses in the first quarter totaled $4 million. G&A expenses was 9.5% of total revenue or 8. 8% excluding the non-cash amortization of above and below market lease intangibles. We continue to anticipate G&A as a percentage of total revenue to be an approximate 50 basis points improvement from 2018 or in the upper 7% range excluding the impact of above and below market lease intangibles amortization in total revenues. The inclusion of above and below market lease intangibles amortization is contra revenue increases G&A as a percentage of total revenue roughly 50 basis points for the full year. The Company recognized an income tax benefit of approximately $170,000 for the first quarter.

The benefit is the result of one-time tax credit related to the termination of one of the Company's taxable lease subsidiaries totaling $475,000. This credit was included in our calculation of core FFO and excluded for the purposes of calculating AFFO. For the full year 2019 inclusive of this onetime credit, we anticipate total income tax expense to be in the range of $350,000 to $400,000. On a quarterly basis, core FFO per share and AFFO per share were impacted by the dilution required under GAAP related to the forward equity offerings we completed in September of 2018. Treasury stock has been included within our diluted share counts in the event that prior to settlement, our stock trades above the deal price from the offering.

The dilutive impact related to the offering was almost $0.02 to both core FFO and AFFO per share for the three months period ended March 31st. To the extent that prior to settlement, our stock continues to trade above the deal price of the September forward offering, we will continue to record treasury stock dilution. Today we have not set out (ph) any of the 3.5 million shares and view this as a meaningful equity back stop to fund our investment pipeline.

Now moving on to of our capital markets activities. During the first quarter, we issued nearly 900,000 shares of common stock through our aftermarket equity program at an average price of $66.83, raising growth proceeds of $59.3 million. We continue to view the ATM as an efficient tool to raise equity given the granular nature of our investment activity. Our balance sheet continues to be in phenomenal position to execute. As on March 31st, our net debt to recurring EBITDA was approximately 5 times at the low end of our stated range of 5 times to 6 times. Pro forma for the settlement of the approximately $190 million in proceeds from of the September forward equity offering, our net debt to recurring EBITDA is approximate 3.7 times. Total debt to enterprise price value was approximate 22. 5% and our fixed charge coverage ratio, which includes principal amortization remains at a very healthy 4 times.

We ended the quarter with a price made $500 million of liquidity including cash on hand, capacity under our revolving credit facility, free cash flow and available proceeds from of the forward equity offering. The Company paid a dividend of $0.555 per share on April 12th to stockholders of record on March 29th, 2019, representing a 6.7% year-over-year increase. I am pleased to report that this was the Company's 100 consecutive cash dividend since its IPO just over 25 years ago. Our quarterly payout ratio for the first quarter were conservative at 75% of core FFO per share and 77% of AFFO per share. These payout ratios are at the low end of the Company's targeted ranges and continue to reflect as very well covered dividend.

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

Joey Agree -- President & Chief Executive Officer Director

Thank you Clay. To conclude, I'm very pleased with our performance to start the year. We're in excellent position for the remainder of 2019 and I look forward to seeing many of you at the upcoming RECon and NAREIT conferences. At this time operator, we will open it up for questions.

Questions and Answers:

Operator

Thank you. (Operator Instructions) Our next question comes from Collin Mings from Raymond James. Please go ahead.

Collin Mings -- Raymond James -- Analyst

Hey, good morning.

Joey Agree -- President & Chief Executive Officer Director

Good morning Collin.

Clay Thelen -- Chief Financial Officer

Good morning.

Collin Mings -- Raymond James -- Analyst

First from me, can you maybe just expand on the entry of TBC in your list of top tenants, maybe some more details around the sale leaseback that was completed during the quarter? And then just more broadly, just if you think about your tire and automotive exposure, what you feel like is the natural limit to that in terms of overall portfolio exposure there?

Joey Agree -- President & Chief Executive Officer Director

Sure. So obviously TBC is a subsidiary of Sumitomo Corporation. They are leader in the tire and automotive services industry for over 60 years with 3,200 plus stores. Primarily the exposure came through -- additional exposures came through portfolio of fixed assets under sale leaseback for just $14 million. And then we had a couple of one-off acquisitions as well in the quarter. So in terms of our aggregate exposure to tire and auto service again our focus is on the industry leaders here. So with National Tire and Battery, Goodyear, Bridgestone, Firestone, we are sitting today at approximately 8.8%. I think that's about the right place and we would have no problem taking up a couple of 100 basis points.

Collin Mings -- Raymond James -- Analyst

Okay. And then just a bigger picture, just curious your thought, just as the portfolio and team continue to grow and (inaudible) announcing it's entry into Europe yesterday, just curious to what extent could international expansion makes sense for the Company, just began out again today raising -- yesterday appraising acquisition guidance, continue to kind of grow that investment pipeline? How do you think about the potential international opportunities?

Joey Agree -- President & Chief Executive Officer Director

Yes, I think, look, it's not a focus for us. Our focus remains disciplined on our sandbox. There are 30 to 35 industry leaders, really in the Continental United States, a couple of trillion dollars in net lease assets in these country and we feel like, given our market positioning and the depth of the opportunity pool, we got a significant runway and domestically in this country.

Collin Mings -- Raymond James -- Analyst

All right. I'll turn it over. Thanks Joey.

Joey Agree -- President & Chief Executive Officer Director

Thanks Collin.

Operator

The next question comes from Rob Stevenson from Janney Capital Markets.

Robert Stevenson -- Janney Montgomery Scott LLC -- Analyst

Good morning guys. Joey, you spent some time early in the call talking about the investment-grade portfolio et cetera. Can you talk about -- a little bit about how you guys value the fact that somebody is an investment-grade tenant in the underwriting process in terms of what that's worked you when you underwrite an acquisition versus another acquisition that -- where the tenant may be good quality, but not investment grade?

Joey Agree -- President & Chief Executive Officer Director

Yes look, it's a good question. It is a data point for us. It isn't necessary a driver of our underwriting. Again the 30 to 35 retailers that we're focused on, the vast majority of those frankly happen to be investment grade because they're industry-leading traditionally or typically they're public entities, and the leading operators in their respective sector. That said, we have a number of tenants that are on that list, who are our top tenant list frankly that don't carry a rating. And then a couple that are some investment grade like Burlington, which we believe is the future of off-price retail, their business trajectory is on the upswing. So if you look at our tenant roster, Tractor Supply, a publicly traded company lease adjusted leverage around approximately 2 times or even lower, doesn't have a credit rating. We don't impung (ph) shadow credit rating, but I think it's fairly obvious that there would be an investment-grade retailers.

Similarly Hobby Lobby, $900-plus million of EBITDA, a privately held company, founder doesn't believe in long-term debt. So again that would be an investment-grade retailer. So, it's a data point for us. Our focus is on again on those industry leaders in those retail categories where they are the omni-channel presence and/or significant mode around their business that precludes disruption in the future.

Robert Stevenson -- Janney Montgomery Scott LLC -- Analyst

Okay. And then your Walgreens is now down to 4.6%, the overall pharmacy is at 7.6%. How are you thinking about the non-Walgreens pharmacy, the CVS', the Rite Aids in relation to Walgreens? Are you selling Walgreens specifically to bring down the individual tenant exposure because for a long period of time it was outsized and you got hit by that? Are you looking to bring down the overall pharmacy exposure below the current 7.6% and will sell CVS and Rite Aid's as you go along as well?

Joey Agree -- President & Chief Executive Officer Director

I think it's all of the involvement. We sold Walgreens obviously because of the historic concentration and opportunistically recycle debt capital into other assets. As you mentioned, it's down to 4.6%. As I mentioned in my prepared remarks, we have another one under contract, which we anticipate closing in the next few weeks. I'd tell you pharmacy as a whole in this country I think similar to other spaces inclusive of grocery, furniture among others will continue to see ongoing disruption. Now, we're not overly fearful of the PillPack acquisition by Amazon or the online penetration at this time, but I think the pharmacy space in general really has some work to do on the front-end predominantly of those stores. And we'd like to see some ingenuity and creativity driving traffic into those stores and driving margins as well as top line revenue to the front end of the stores. So we're very comfortable with our pharmacy is today. Again it's a few years ago it was over 40%, today it's about 7.5%. We're very comfortable with that shift. So, we'll continue to optimistically dispose assets like we did in the first quarter.

Robert Stevenson -- Janney Montgomery Scott LLC -- Analyst

Okay, thanks guys.

Joey Agree -- President & Chief Executive Officer Director

Thanks Rob.

Operator

Our next question comes from Ki Bin Kim with SunTrust. Pleas go ahead.

Ki Bin Kim -- SunTrust Robinson Humphrey, Inc. -- Analyst

thanks. You earlier made some comments about this, but can you talk a little bit about how Hobby Lobby, Big Lots and Sunbelt Rentals, the thinking behind those investments and that fits into some of the parameters you already described or what you want to buy and what you don't want to buy?

Joey Agree -- President & Chief Executive Officer Director

Sure. Again what we're looking for those industry leaders in those respective sectors. You may have noticed this morning that (inaudible) Group prepared to Sunbelt got upgraded by S&P. So they have investment grades from three major rating agencies. The equipment rental business obviously has some barriers to entry through (ph) the leading operator along with United Rentals in a highly fragmented space in this country. We got a fantastic relationship with Sunbelt Rentals and we've executed across really all three of our platforms to create value, acquisition Partner Capital Solutions as well as development with our fourth projects. Hobby Lobby, a very interesting company, vertically integrated retailer that have frankly creates and manufactures many of their goods including their fixtures, really the 800-pound gorilla in the space today.

We are interested investing in operators such Jo-Ann with the fabric space has seen significant online penetration and margin erosion. And then Big Lots in Frankfort is a fantastic addition next to ALDI and Harbor Freight Tools. Again there is an experience component of Big Lots, people are shopping, bargain hunting in that off-price space. So we think all three of those retailers, two to three which carried about some credit rating makes sense in our portfolio today.

Ki Bin Kim -- SunTrust Robinson Humphrey, Inc. -- Analyst

Okay. And in terms of balance sheet -- obviously your balance sheet is in great shape. And if you include the forward equity offering, your leverage is price up 4% -- 4 times? So how does that -- how do you think about continued equity usage going forward? You topped the ATM this quarter, how should we think about your -- when this equity going forward?

Clay Thelen -- Chief Financial Officer

Good morning Ki Bin. In terms of the forward, we have until September 3rd to settle the 3.5 million shares or $190 million in available proceeds. Given our stock price in the fourth and first quarters, issuing on the ATM was accretive, relative to the forward deal price and we're confident certainty in the future uses of capital given in evidence by our updated guidance. We'll continue to be opportunistic as it relates to the ATM, we raised $240 million since December. In terms of settling the forward between now and December, we'll settle the amount in order to standard stated leverage range, today, the balance sheet is 75% equity, 25% debt. We'll continue to match the uses of capital with this consistent disciplined approach and the future uses of capital merit, we'll continue to the opportunistic with the ATM as well.

Ki Bin Kim -- SunTrust Robinson Humphrey, Inc. -- Analyst

And so if the capital markets are there for you via attractive stock price, are you OK with maybe going -- maybe adjusting the range for your debt leverage that you're OK with? I mean I think it was 5 times or above a little bit previously, but are you OK with the lower-bound range at this point?

Clay Thelen -- Chief Financial Officer

Well, I think if you look at historically over the past couple of years, we really operated under 5 times. Now our stated range we haven't changed that from 5 times to 6 times. I think that's frankly fairly common in the net lease space. But again we look at all sources of capital the relative cost, both actual and virtual cost of those capital and the risk associated with those capital and then we look at the uses in our pipeline and we try to keep a conservative leverage profile and the flexibility that will continue to allow this Company to grow on a similar trajectory. So I would tell you that inclusive of the forward, our balance sheet is about 3.7 times, 3.7 times inclusive full settlement of the September forward, and so we got fantastic optionality to fund our growing pipeline.

Ki Bin Kim -- SunTrust Robinson Humphrey, Inc. -- Analyst

All right. Thank you.

Joey Agree -- President & Chief Executive Officer Director

Thanks Ki Bin.

Operator

Our next question comes from Todd Stender with Wells Fargo. Please go ahead.

Todd Stender -- Wells Fargo Securities, LLC -- Analyst

Thanks guys. Just looking at some of the tenants, I guess to go back to Sherwin-Williams, were there more properties that were closed in Q1? I know the bulk was done by Q4, but I thought a couple bled into the first quarter?

Joey Agree -- President & Chief Executive Officer Director

That's right. Good morning Todd. So the remaining five properties that were under contract is still subject to some diligence closed during the first quarter. So the the total transaction was approximately $152 million I believe in 103 properties.

Todd Stender -- Wells Fargo Securities, LLC -- Analyst

Okay, got it. And then you spoke about Trader Joe's. Did you close something in the first quarter and that's net for you guys, right?

Joey Agree -- President & Chief Executive Officer Director

We did. So during the first quarter we closed on our first CarMax in Columbia, South Carolina. A fantastic site, modernized facility, brand-new photo booth, approximately 20 acres on the freeway. So that was our first entry into that space with CarMax, obviously, the leading operator in the used-car sector in this country. And then we closed on our First Home since which is T.J. Maxx, which is TJX's newest concept, parallel to HomeGoods as well as the Trader Joe's in Paramus, New Jersey, so across the Lamborghini dealership there, right in the heart of Paramus. So our first CarMax and our first Trader Joe's, our first Home since again we think a fantastic operator and I think everyone is familiar with them.

Todd Stender -- Wells Fargo Securities, LLC -- Analyst

Is the Trader Joe's a sale leaseback or that was -- you acquired it from another landlord?

Joey Agree -- President & Chief Executive Officer Director

No, acquired from a third-party landlord. The only sale-leaseback during in the quarter was National Tire and Battery sale leaseback for about 14 plus -- $14.5 million that I referenced, everything else was acquired through third-party sellers through the traditional (inaudible).

Todd Stender -- Wells Fargo Securities, LLC -- Analyst

Great. Thank you.

Joey Agree -- President & Chief Executive Officer Director

Thanks Todd.

Operator

(Operator Instructions) Our next question comes from John Massocca with Ladenburg Thalmann. Please go ahead.

John Massocca -- Ladenburg Thalmann & Co. Inc. -- Analyst

Good morning.

Joey Agree -- President & Chief Executive Officer Director

Good morning John.

John Massocca -- Ladenburg Thalmann & Co. Inc. -- Analyst

So just to clarify on the disposition front in the quarter those were all Walgreens, correct?

Joey Agree -- President & Chief Executive Officer Director

Yes, two Walgreens, very different stores. One had about 16 years left that we sold that, effectively a size 6 cap in Florida. The other one was a dark store that Walgreens had purchased from Rite Aid, which just over four years left. So, two very different assets blended together at (inaudible) cap, just over 11 years of weighted average lease term.

John Massocca -- Ladenburg Thalmann & Co. Inc. -- Analyst

So wouldn't we fair to extrapolate that cap rate to the rest of the Walgreens portfolio or is probably more weighted toward the five, obviously?

Joey Agree -- President & Chief Executive Officer Director

Correct. The dark stores with over four years, which is the former Rite Aid that Walgreens purchased, that was a high single digit cap rate, so I wouldn't extrapolate.

John Massocca -- Ladenburg Thalmann & Co. Inc. -- Analyst

The other story, I think it is on either end of the bell curve as you will, the other store. The first one you sold was more typical of the portfolio?

Joey Agree -- President & Chief Executive Officer Director

Correct.

John Massocca -- Ladenburg Thalmann & Co. Inc. -- Analyst

Okay. And then on the kind of PCS and development pipeline front, what percentage of current projects being developed is the Kmart redevelopments versus the Gerber and Sunbelt development?

Clay Thelen -- Chief Financial Officer

In terms of total costs?

John Massocca -- Ladenburg Thalmann & Co. Inc. -- Analyst

Yes.

Joey Agree -- President & Chief Executive Officer Director

So you're looking at approximately $30 million in total cost and total committed capital there. I would tell you that approximately as third is the Kmart in Mount Pleasant and Frankfort, redevelopment and then 20 is the announced projects that are either heavy that are going through the process or (inaudible).

John Massocca -- Ladenburg Thalmann & Co. Inc. -- Analyst

And how far do you think you can expand the Sunbelt kind of development program you've been able to put in place?

Joey Agree -- President & Chief Executive Officer Director

Good question. It depends on the multiple number of factors. Our team is working aggressively. They are fantastic partner for us. We're pleased we commenced the fourth store. If you need that we're buying existing buildings and doing retrofit and redevelopments with the existing structures and that will commence the ground up in Georgetown, Kentucky. But our team is working in a number of states with Sunbelt and hopefully we'll continue to expand that relationship as we go forward in the year.

John Massocca -- Ladenburg Thalmann & Co. Inc. -- Analyst

Actually one more. On the last call you talked a little bit urban condos and other kind of unique opportunities. Was that something you were able to close in the current quarter or is that still stuff is maybe further along -- further out in the pipeline?

Joey Agree -- President & Chief Executive Officer Director

No nothing closed during the quarter. As I mentioned, the news about the Harris Teeter in the fourth quarter (inaudible) was very interesting them instituting the first store with self checkout. Again that's an 18,000 square feet store, an urban condo and a multi-storey mixed-use complex, small stores selling primarily prepared wine, food for off-premises consumptions, not traditional grocery. So that's a very unique asset. We have our Walgreens and (inaudible) which is a very unique asset and then we're working on multiple fronts to continue to find value in those are urban environment. So nothing notable during the quarter, but we continue to explore all different types of net lease retail opportunities with those industry leaders.

John Massocca -- Ladenburg Thalmann & Co. Inc. -- Analyst

That's it from me. Thank you very much.

Joey Agree -- President & Chief Executive Officer Director

Thank you John.

Operator

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

Joey Agree -- President & Chief Executive Officer Director

Well, thank you operator and thank you everybody for joining us. And we look forward to seeing many of you as the upcoming RECon and NAREIT conferences. Talk to you soon. Thank you.

Operator

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

Duration: 35 minutes

Call participants:

Joey Agree -- President & Chief Executive Officer Director

Clay Thelen -- Chief Financial Officer

Collin Mings -- Raymond James -- Analyst

Robert Stevenson -- Janney Montgomery Scott LLC -- Analyst

Ki Bin Kim -- SunTrust Robinson Humphrey, Inc. -- Analyst

Todd Stender -- Wells Fargo Securities, LLC -- Analyst

John Massocca -- Ladenburg Thalmann & Co. Inc. -- Analyst

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