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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning, everyone, and welcome to the Agree Realty Fourth Quarter and Full Year 2018 Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [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.
Thank you, operator. Good morning, everyone, and thank you for joining us for Agree Realty’s fourth quarter and full year 2018 earnings call. Joining me this morning is Clay Thelen, our Chief Financial Officer.
2018 was an exceptional year for our growing company as we made tremendous progress further transforming Agree Realty into a leader of retail ownership. We achieved several significant milestones during the past year. Among them, we exceeded $3 billion in enterprise value, we added a record of over 230 high quality properties to our growing portfolio, we increased our exposure to leading investment grade retailers by approximately 800 basis points from 43% to 51% via leading tenants such as [indiscernible], TJX, Tractor Supply and Home Depot.
We further improved the diversification of our portfolio by investing across 38 states and 22 retail sectors. We received an investment grade credit ratings for Moody's investor service, we solidified our balance sheet by raising worth $750 million in permanent capital and we increased our wealth covered dividend by 6.4%.
While these metrics are quantifiable and visible to our shareholders, we simultaneously invested significantly in our very bright future, expanding our organization to 36 team members in counting as well as embarking on an expansion of our headquarters to accommodate our growing company.
During the past year, we invested $629 million, of which a record $607 million was through our record acquisition platform activities. The 225 properties acquired during the year span 22 but diverse retail sectors, over 61% of annualized basis rents acquiring during the year are derived from retailers that carry an investment grade credit rating.
While we achieved another record year of acquisition volume in 2018, we continue to adhere to our rigorous underwriting standards the parent emphasis on retail real estate fundamentals, with a top down focused on leading omnichannel retailers. Our robust and growing pipeline similarly represents best-in-class retailers in our targeted retail sectors.
We closed out this past year with a very busy final quarter, investing a record amount across our three external growth platforms, while executing several capital market transaction that serve to fortify our balance sheet for additional growth.
During the fourth quarter, we invested nearly $263 million in 139 high quality retail net lease properties. 129 of these investments were originated to our acquisition platform, representing total acquisition volume of a record $256 million for the quarter. A record 84% of annualized base rents acquired during the quarter are derived from investment grade retailers. Not solely because of their rating, but rather the combination of their market positioning in an omnichannel retail world as a superior risk adjusted real estate.
Most notable during the quarter was the completion of the Sherwin-Williams sale leaseback transaction, the world's largest paint and coatings retailer, which carries an investment grade credit rating from all major rating agencies. This was the unique transaction that demonstrated a differentiated capability from our traditional focus on granular sourcing activities. Since this transaction we have seen increased opportunities to continue to partner with leading retailers such as Sherwin-Williams.
Pursuant to the sale leaseback transaction with Sherwin, we acquired 98 properties across 29 states for a purchase price of approximately $142 million. The properties are subject to long-term triple net leases and had very fungible boxes averaging 5,800 square feet. The portfolio has extremely strong demographics with an average 5 mile population of 180,000 people and an average 5 mile household income of $72,000 with daily traffic counts averaging almost 30,000 vehicles.
Inclusive of the Sherwin-William transaction the properties acquired during the fourth quarter are leased to 28 sector leading retail tenants operating in 515 diverse sectors including Home Improvement, off price retail, auto parts, tire and auto service, discount grocery and convenience stores. Notable other retailers acquired during the quarter include Home depot, Ross Dress For Less, Auto Zone, O'Reilly Auto Parts, Bridgestone Firestone, and Sheets Convenience stores.
The properties were acquired at a weighted average cap rate of 6.7% and had a weighted average remaining lease term of approximately 12.5 years. Excluding the Sherwin-William sale leaseback transaction the company's fourth quarter acquisitions were completed at a weighted average cap rate of 7.2% and had a weighted average remaining lease term of approximately 13 years.
Our top tenant roster continues to be a list of the strongest retailers in the respective sectors and what we continue to view as a dynamically changing omnichannel retail world. During 2018, we added Sherwin-Williams, O'Reilly Auto Parts, Best Buy and Burlington Coat Factory as top tenants. Simultaneously we eliminated Smart & Final, Michaels, Academy Sports, Rite Aid, 24 Hour Fitness and Pets Mark for our top tenant list during the year. You will see us continue to evolve our portfolio as we proactively embrace today's changing omnichannel retail environment.
In addition to our roster of leading top tenants our ground lease portfolio continues to expand, evidenced by the more than 100 basis point year-over-year increase to now over 9% of our annualized base rents. During the quarter, we added eight ground lease assets, most notably a Walmart Supercenter in Franklin Ohio and a Home Depot at Forked River, New Jersey.
Our ground lease portfolio derive 89% of rents from investing grate tenants is comprised of leading retailers including Walmart, Home Depot, Lowe’s, Wawa, ALDI, AutoZone, Chick-fil-A, McDonald’s and Starbucks. We continue to see a number of high quality opportunity to add assets to this portfolio and look forward to updating you in the coming quarters.
Subsequent to year-end, we announced 2019 acquisition guidance of $350 million to $400 million and disposition guidance of $25 million to $75 million. I'm very pleased with both the volume, as well as the composition of our current pipeline. It contains several unique opportunities that are anticipated to close in the upcoming months.
Moving on to our development and partner capital solutions platform, I am pleased to announce that we commenced three new developments in PCS projects during the fourth quarter, with total anticipated costs of approximately $15 million. The projects consists of our first development with Gerber Collision in Round Lake, Illinois, our third project was Sunbelt Rentals in Georgetown, Kentucky.
During the quarter, we also commenced the redevelopment of the former Kmart space in Frankfort, Kentucky. We recently completed commenced demolition of the former Kmart building and are now very pleased to announce that ALDI, Big Lots and Harbor Freight Tools have executed new 10-year leases for the project. Our development team has been working diligently on this project for over a year and as you might recall, we recently added Chick-fil-A on a recently created out lot.
During the fourth quarter, we also made considerable progress in our five previously announced development in PCS projects, which represent committed capital of approximately $14 million. The projects include our third and fourth developments with Mister Car Wash in Orlando and Tavares, Florida. Our first two projects with Sunbelt Rentals in Batavia and Maumee, Ohio. And the redevelopment of the former Kmart space in Mount Pleasant, Michigan for Hobby Lobby.
For the full year 2018, we had 16 development PCS projects either completed or under construction that represent total spent or committed capital of approximately $74 million. 8 of those projects were completed during this past year, representing total investment volume of approximately $46 million.
I'm pleased with our progress during the years as we continue to focus on providing full service real estate solutions to leading omnichannel retailers. The relationships we build with these retailers have service significantly expand our investment opportunities across all three of our external growth platforms.
During this past year, we also strengthen and diversified our portfolio through proactive asset management and disposition efforts. We were again active on the disposition front during the fourth quarter selling four assets for gross proceeds of approximately $6 million.
For the full year we disposed of 21 properties for approximately $68 million in gross proceeds. Included in our 2018 disposition activity was the sale of three Walgreens assets reducing our exposure to 5.4% at year-end 2018, down from 7.7% at the end of 2017. Similarly, the company decreased its pharmacy exposure significantly during the year, reducing it approximately 380 basis points from 12.3% to 8.5%. We would anticipate further reduction in our pharmacy and specifically our Walgreens exposure from additional asset sales that are forthcoming.
Our asset management team has also been diligently focused on addressing our upcoming least maturities. At year-end, we had only 11 remaining lease maturities in 2019, representing just 1.6% of annualized base rents. During the fourth quarter, we executed new leases, extensions or options on approximately 90,000 square feet of gross leasable area throughout the existing portfolio.
This included our TJ Maxx in Logan, Utah which extended their lease to 2029 and for the full year 2018 we executed new leases extensions or options on approximately 331,000 square feet of gross leasable space. Other notable lease extensions or options include the Old Navy Grand Chute, Wisconsin and Harbor Freight Tools in Cedar Park, Texas.
As of December 31st, our rapidly growing retail portfolio consisted of 645 properties across 46 states. Our tenants are comprised primarily of industry leading retailers operating in more than 28 distinct retail sectors. And again, with more than 51% of annualized base rents coming from investment grade tenants.
Occupancy ticked up slightly during the fourth quarter to 99.8% and the portfolio had a weighted average remaining lease term of 10.2 years. Overall, our portfolio was in the strongest shape in the history of our company. I would like to take this opportunity to thank all of our loyal shareholders for their continued support during another fantastic year for our company.
With that said, I want to be clear that we are focused on creating the highest quality retail portfolio in the country and our past success only set the bar higher as we look forward to our bright future.
With that, I'll turn it over to Clay to discuss our financial results.
Thank you, Joey. Good morning, everyone. I'll begin by quickly running through the cautionary language. As a reminder, please note that during this call, we will make certain statements that may be considered forward-looking under federal securities law. Our actual results may differ significantly from the 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 fourth quarter was $36.4 million, an increase of 27.1% compared to the same period last year. For the full year 2018, total rental revenue increased 26.4% to $133.1 million. General and administrative expenses in the fourth quarter totaled $3.2 million or 7.8% of total revenue. For the full year 2018, general and administrative expenses totaled $12.2 million or 8.2% of total revenues. For 2019, we anticipate G&A expenses to contract roughly 50 basis points and be closer to 7.7% of total revenue.
Income tax expense for the fourth quarter was $125,000. For the full year 2018, income tax expense was approximately $516,000. For 2019, we anticipate total income tax expense for the year to be in the range of 525,000 to $575,000. Funds from operations for the fourth quarter was $25.6 million, representing an increase of 20% over the fourth quarter of 2017. On a per share basis, FFO increased to $0.72 per share, a 1.2% year-over-year increase.
Funds from operations for the full year was $93.4 million, representing an annual increase of 22.5%.On a per share basis FFO increased to $2.85 per share, a 4.9% annual increase. Adjusted funds from operations for the fourth quarter was $25.4 million, a 21.2% increase over the comparable period of 2017. On a per share basis, AFFO was $0.71, an increase a 2.2% year-over-year. Adjusted funds from operations for the full year 2018 was $92.7 million, a 22.4% annual increase. On a per share basis AFFO of $2.83 per share represented a 4.9% increase over 2017.
On a quarterly and full year basis, FFO per share and AFFO per share were impacted by dilution required under GAAP related to the forward equity offerings we completed in March and September of 2018. Treasury stock has to be included within our diluted share count in the event that prior to settlement, our stock trades above the deal price from the offerings. The aggregate dilutive impact related to these offerings was roughly a penny to both FFO and AFFO per share for the three months and $0.03 for the full year periods.
In 2019, there'll be no treasury stock dilution related to the march forward offering, given we settled the transaction in 2018. 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 related to that offering. To-date we have not settled any of the 3.5 million shares from our September forward and view this as a meaningful equity backstop to fund our future growth.
As a reminder beginning in the first quarter, we will modify our calculation of NAREIT FFO to exclude the add back of the amortization of above and below market least intangibles and introduce core FFO, which will include the add back of this non-cash item. Core FFO will be consistent with our historical reporting of FFO. And we believe the introduction of core FFO will more accurately compare our performance to our peers.
As Joey already mentioned, we had an active year on the capital markets front, raising a company record $750 million to continue to fund our dynamic growth, as well as position our company for 2019 and beyond. This capital raising is in addition to the almost $90 million generated through our disposition activity and free cash flow after dividend. In May, we're very pleased to receive an investment great credit rating a BAA2, with a stable outlook for Moody's investor service.
The receipt of an investment-grade credit rating not only demonstrates the strength of our balance sheet and our conservative and disciplined approach to capital markets decisions, but also the strength of our real estate portfolio. The BAA2 credit rating improved the cost of borrowing on our revolving credit facility and unsecured term loans and will further enhance our long-term access to capital.
As previously mentioned, we also completed two forward equity offerings during the year. In March we completed a follow on public offering of 3,450,000 of common stock in connection with a forward sale agreement. We settled the entirety of the March forward equity offering in September and received net proceeds of roughly $160 million.
In conjunction with the settlement of our March forward offering we completed another follow on public offering of 3.5 million shares of common stock in connection with a forward sale agreement. Upon settlement to September forward is anticipated to raise net proceeds of approximately $190 million after deducting the underwriting discount.
To-date, the company has not received any proceeds from the sale shares of its common stock in connection with the September offering. We retain the ability to settle the transaction in whole or in tranches at any time between now and September 3, 2019. Most recently during the fourth quarter we raised gross proceeds of approximately $181 million through our ATM issuance of 3.1 million shares at an average price of $59.28.
Including the September forward offering, total common equity raised in 2018 totaled approximately $525 million. While we efficiently access the equity markets in 2018 we were also very active in the debt capital markets. In July, we exercised the accordion option on our unsecured revolving credit facility securing increased commitments of $75 million and increasing our total revolver capacity to $325 million. The increased capacity on a revolving credit facility reflects the continued growth of the company since our credit facility was last amended in December of 2016.
In September, we completed a private placement of $125 million of senior unsecured notes. The notes bear interest at a fixed rate of 4.32% and have a 12 year term maturing in September of 2030. In December, we closed on a $100 million unsecured term loan, the term loan has a seven year term and matures in January of 2026. The term loan has an interest rate that is effectively fixed at 4.36% and is based on the company’s credit rating.
At December 31, we had just $19 million outstanding on our unsecured revolving credit facility, reflecting additional capacity of $306 million. Our capital markets activities are emblematic of our disciplined approach to opportunistically accessing attractively priced capital and positioning our balance sheet for continued growing.
As of December 31, our net debt to recurring EBITDA was approximately 4.7 times well below our stated range. Pro forma for the settlement of the September forward equity offering our net debt to recurring EBITDA is approximately 3.3 times. Total debt to total enterprise value was approximately 24.4% and our fixed charge coverage ratio, which includes principal amortization remains at a very healthy level of 4 time.
Our balance sheet is in the strongest position it has dynamic company’s history. Pro forma for the full settlement of the September forward we have capacity to acquire upto $600 million of acquisitions without raising additional equity and staying within our stated leverage range of 5 to 6 times net debt to recurring EBITDA.
The company paid a dividend of $00.555 per share on January 4th to stockholders of record on December 21, 2018, representing a 6.7% year-over-year increase. This was the company’s 99th consecutive cash dividend since its IPO in 1994. For the full year 2018 the company declared dividends of $2.155 per share, a 6.4% year-over-year increase. Our quarterly payout ratios for the fourth quarter were conservative 77% of FFO per share and 78% of AFFO per share.
For the full year 2018 our per share payout ratios were 76% of both FFO and AFFO. These payout ratios are at the low end of the company’s targeted ranges in continue to reflect a well-covered dividend.
With that, I’d like to turn the call back over to Joey.
Thank you, Clay. To conclude, I'm very pleased with our record performance during the year. We’re in excellent position for 2019 and I look forward to seeing many of you in the upcoming weeks.
At this time operator, we will open it up for questions.
Thank you. We will now begin the question-and-answer session. [Operator Instructions] And the first question comes from Collin Mings with Raymond James. Please go ahead.
Good morning, Joey. Good morning, Clay.
Good morning, Collin. How you’re doing?
Good, good. First question for me, just going back to the prepared remarks on the Sherwin-Williams deal, as you look at your current deal pipeline, do you have any other sizeable sale leaseback portfolio opportunities you’re actively pursuing? And just along those lines do you expect these type of larger transactions will be an increasing share of your deal flow?
Yes. I think the Sherwin-Williams deal was a unique transaction. There was nothing in our pipeline of that nature of that size. As we mentioned in the prepared remarks, we’ve seen a significant flow of opportunities with our retail partners, smaller opportunities, but nothing of size of Sherwin-Williams that was really an atypical opportunity for us. But we continue to assess both typical granular sourcing activities, as well as larger opportunities as well.
Okay. And then moving to the JV and PCS business. Just as you think about the opportunity set with Gerber Collision, looks like they have over 400 locations already. Just moving forward, do you think that’s going to be a -- there is a runway there for more development opportunities. Just how are you thinking about that relationship?
Yes. We’re very pleased to have commenced our first project with Gerber in Round Lake. We’re working on a number of opportunities with a number of retailers inclusive of Gerber, Gerber of course is owned by the Boyd Group of Canada. We think they are the premier auto collision operator in the United States, very conservative company, very conservative balance sheet.
We’ll continue to work with them on all types of opportunities through all three external growth platforms, Partner Capital Solutions acquisition. And hopefully we’re able to also layer in more development activity in the future.
Okay. I’ll turn it over. Thank you, Joey.
Thanks, Collin.
The next question comes from Christy McElroy with Citi. Please go ahead.
Hi. Good morning, everyone. Joey, just going back to your comment about those several unique opportunities anticipated to close in coming months. Do you have anything under contract today? And as we sort of think about that guidance range of $350 million to $400 million, which is unchanged from six weeks ago, what is this kind of visibility mean for how front loaded you expect that level of volume could be?
Yes. Good morning, Christy. It’s a good question. Yes, I referenced some unique opportunities. I’d tell you we’re working on everything; some are under contract going through different diligence have different unique attributes. So everything from urban condos that we’re working on in core city center locations to smaller sale and leaseback transactions with our retail partners to our typical granular sourcing activity inclusive of early extensions or what we call blend and extend.
And so, the timing on a number of those transactions because of the complexities of them can be a little bit more difficult to pin down that are typical 71 days from LOI execution to closing. But at the same time we’re seeing a more and more of those unique real estate opportunities to fit into our pipeline.
In terms of timing between front-end or back-end loaded, it’s hard to pin down. I’d tell you our pipeline is of similar quality and a similar nature as we executed in Q4, albeit most likely not as big given the Sherwin-Williams transaction, but we think it’s a robust pipeline in a fragmented market and we see tremendous opportunity.
Okay. And then just going back to Collin’s question, I mean, you don’t do a lot of sale and leaseback. So when you think about the potential for doing more just philosophically, how do you think about the balance of paying lower cap rate for an investment grade tenant versus sort of moving your tenant mix in the direction that you want? And just given where your stock trades today at that lower implied cap rate, does that enable you to do more of these deals?
I think to your last point, sure, it enables us, but I’ll tell you our discipline from a 30,000 foot perspective and our perspective on an omnichannel retail world and our bottoms up underwriting analysis are really the drivers of our asset level of portfolio level transactions. And so, we are very selective in terms of granular, I’d tell you we’re even more selective in terms of sale and leaseback transactions and wouldn't want anybody to think that we're the corporate -- we’re the provider of finance for corporate America. That's just not our business model.
There are a handful of tenants where we have unique relationships they’re industry leaders such as Sherwin-Williams, where we will look at sale and leaseback transactions. But if and when we do look at those transactions, I think it's fair to assume we're also looking at granularly sourcing one-off opportunities, potentially developing for them or deploying our PCS capabilities simultaneously.
Thank you.
Thank you, Christy.
The next question comes from Ki Bin Kim with SunTrust. Please go ahead.
Thanks. Good morning guys. Can you talk about the replacement cost versus the price you pay for some of your deals and how that's trend over the past year?
Yes, I’ll tell you just given the growth of our ground lease portfolio, up to 9%, I mean we're paying significantly below replacement costs because of course we're not actually purchasing a building. And so the reversionary interest in the ground lease portfolio again adding another Walmart Supercenter, another Home Depot opportunity there is pretty unique.
And so, I would say the same as for some of the junior boxes that we've acquired most notably the TJ Maxxis and the Rosses and of course the Burlington here one of which we developed of course. But I think from a replacement cost perspective we are able to find the opportunities given our relationships with tenants and also the unique transactional structure in the ground lease portfolio, which is fairly significantly below replacement costs.
And the one kind of deal that caught my eye was like the Big Lots construction deal. Is a retailer like that and a dealer like that is that something that you want to hold on to your -- hold on in your balance sheet for a long period of time or is it more of a kind of shorter term opportunity?
Yes. So the Big Lots you're referencing is the redevelopment of the former Kmart in Capital Plaza our Frankfurt, Kentucky. And so demolition is almost complete, the team was on site yesterday demolition of the former Kmart box the 80,000 foot boxes is almost complete. We're building a three tenant all on net leases three tenant, three juniors lined up ALDI, which we're very excited to add, Harbor Freight Tools as well as Big Lots.
Big Lots is an investment grade operators, the overall asset upon completion will be comprised of those three tenants. The recently created Chick-fil-A out lot a freestanding Walgreens and a Family Dollar, which potentially will be converted to Dollar Tree. And so we're really pleased to be able to actually harvest the value we are very pleased to get the Kmart box back they were paying $2 net and there's some true incremental upside there.
In terms of holding it long term, I think we'll get it complete, we’ll get it open and operating. We anticipate rent commencing in 2020. And then, we'll make a decision whether or not it’s a core asset for us to hold in the portfolio.
Okay. And if I think about Agree over the past couple years, your cost of capital is in a very enviable position multiple grade. The market is actually giving a green light to invest in smaller cities, non-typical of like the core urban areas that we’re used to, like, Miami, Ohio, Chickasha, Oklahoma. So I'm just curious, how do you balance locational quality versus tenant quality and safety in a contract and things like that?
Everything -- every asset is unique, obviously credit quality, real estate, term, store performance, replacement costs, residual value, synergy access visibility are all critical. I think what people are going to -- and our job I should say is to articulate better throughout the course of this year is to understand the different sub portfolios in context of the overall portfolio, which today spans over 650 assets.
We talked a lot about our ground lease portfolio over 9%, we now have some additional ground lease assets we will be adding which are frankly very compelling. We have a number of -- as I mentioned earlier with Christy a number of urban condos, which are very interesting in our portfolio as well as our pipeline.
We have a hard corner portfolio and dominant intersections, we have junior boxes adjacent to Targets and Costco as in dominant retailers positioned within their market. And we also have Out lots to dominant power and grocery anchored centers.
And so, I think people are going to see we're going to do a better job of it. It's one of our goals this year the high quality nature of the portfolio and frankly the diversified nature of this portfolio because we believe it's the best retail portfolio not only from a credit perspective, but from a real estate quality perspective in the country today.
All right. Thanks guys.
Thank you, Ki Bin.
[Operator Instructions] The next question comes from Todd Stender with Wells Fargo. Please go ahead.
Thanks, guys. I just wanted to hear more details on the two ground leases you acquired. You got a Walmart, a Home Depot, so can we hear cost and cap rate and lease term? Thanks.
Sure. Good morning, Todd. So we specifically on the Walmart, that Walmart has approximately 10 years remaining high performing store, really a high quality asset great, fantastic underlying real estate. The Home Depot and Forked River, New Jersey I believe has 17 years, correct me if I'm wrong, 17 years -- 19 years of remaining term, so that's a long term Home Depot ground lease in New Jersey. So they'll be there for a while.
With that Home Depot ground lease, we also acquired an out lot, which was a Taco Bell ground lease in Forked River as well as in ALDI on a turnkey basis. And so, again, we're looking at high quality real estate here with best in breed tenants and we'll continue to look for those opportunities and we see them in our pipeline.
It's just stuff that's sub-5 cap rate is this in that zip code?
No, no. But both of those transactions are in the mid-6s.
Okay. And just as a reminder, how do you capitalize these, you can predict a pretty high LTV long-term secured debt, but that's certainly not sure traditional balance sheet method, more on the unsecured side. How do you guys look at that stuff?
I'll leave it to Clay. But you can expect us to continue to be an unsecured borrower using -- leveraging that private placement market. Anything to add, Clay?
No. That's right, we'll continue to be an unsecured borrowers.
Thanks. And Clay just to stick with you the debt-to-EBITDA, you still sub-5 times, you kind of mentioned that you include the September forward equity agreement you're getting into the 3s. How does that factor and gets timing decision to settle those shares? Can we expect a delay potentially just because you're so low levered right now?
Sure. So where we ended the year really allows us to be opportunistic from a balance sheet perspective. As you said, we ended at 4.7 times the forward, the settlement of the forwards roughly a turn and half. So the settlement of the forward will really be dependent on the uses of capital, the timing of the uses of capital and we’ll continue to be strategic in settling those shares. But we'll always remain focused on maintaining our leverage within our stated range of 5 to 6 times and even operating below that range when opportunistic and when prudent to do so.
Okay, thank you. And then just finally, just to stick with you, Clay, you receive these pricing amendments on your term loans on the fourth quarter, was that triggered due to your better credit rating? Or is that something you guys proactively seek out?
So we proactively sought that out in -- was driven -- the pricing amendments were enhanced by our credit rating as well as just the timing of having some additional term burned off of what was originally a seven year loans re-modified to five year notes. So really two factors there, but certainly the investment grade credit rating was a significant boost to us.
Okay, thank you.
Thanks, Todd.
Okay. The next question comes from John Massocca with Ladenburg Thalmann. Please go ahead.
Good morning.
Good morning, John.
So ABR from general merchandise tenants came up by about $830,000 in the quarter, what drove that? And then, is there a possibility maybe for kind of a contrarian investment opportunity in that segment given kind of heard things about cap rates expanding for more traditional retail tenants?
Well, the general merchandise the driver there is the Walmart ground leases. So that is the driver in terms of general merchandise. To your second question in terms of contrarian, we just don't invest in opportunity, we just don't see that and I personally don't see that as a driver for our growth on a go forward basis.
Now if we find something with real estate fundamentals that has a tenant that doesn't fit within our proverbial sandbox, below market rents or an opportunity or we have a backfill candidate we’ll look at it, but I tell you that we see tremendous opportunity based just in the fragmentation of the market that’s in front of us and all of the opportunities that the team is uncovering through the three external growth platforms.
So I think you can expect more of the same from us consistency stability, but we are real estate opportunist at our heart and we’ll look at opportunities such as that.
Understood. And then, as you kind of have continued to reduce your pharmacy exposure and seem to look to reduce your pharmacy exposure, how have kind of cap rates drifted for that property type maybe over the course of last year and then as you kind of look out?
Yes, they really have not drifted and so we’ve sold effectively long-term Walgreens, medium term Walgreens we have really haven’t seen any drift. And just to give you an example, we have a couple of Walgreens right now that are under contract still subject to basic diligence requirements that are in the upper fives and low six cap. So we haven’t seen any cap rate drift. But we continue to look to prudently redeploy those proceeds and diversify the portfolio.
And then kind of a quick detail question, are there any additional portions of the Sherwin-Williams transaction that you plan to close or closed subsequent to quarter end? I know the original press release contemplated over 100 assets and over $150 million of investment?
Correct, so we’ve closed 98, there are -- I would tell you there are 10 plus or minus that are still going through diligence, title survey, environment or have some miscellaneous. The exact amount of the transaction in terms of the purchase price and number of assets that we will end up closing in the first quarter still a little bit open in the air I would anticipate plus or minus 10.
Makes sense, that’s it for me. Thank you very much.
Thanks, John.
The next question comes from Tayo Okusanya with Jefferies. Please go ahead.
Hi, good morning. When I think about your acquisition outlook, I remember in the past we talked about you weren’t seeing a lot of competition for deals the non-shredded REIT were not actively participating, would you kind of say that still the same environment you’re in today or whether you’re kind of facing more competition?
No, it’s a great question and holds true today. Blackstone obviously with their non-traded vehicle has led the fund raising efforts and proportionally has generated the majority if not vast majority of fund raising. We don’t see them playing in the $4 million to $5 million space, which is our typical granular activity really in retail in their non-traded vehicle.
And so, the competition -- institutional competition that we faced is fairly diminish. Our typical competitors are private individuals 1031 buyers and we don’t run into the same competitor regularly or even two times. And so, again, the fragmentation of the market are positioning our cost of capital, our balance sheet and most importantly I’d tell you our relationships and the quality of the team here continues to just ramp our pipeline and uncover opportunities that we think are really unique.
Okay, that’s helpful. So just a follow up on that then, so kind of given that backdrop again you have acquisition guidance of $350 million to $400 million, you did over $600 million in 2018 just kind of curious a little bit about how did you kind of cope with the guidance number that’s about a third lower versus what you did in 2018? Or is that just ex- Sherwin-Williams you’re kind of doing similar number this year versus last year?
Yes, I think that is the starting point ex-Sherwin-Williams that transaction, effectively materialized in 30 days at the end of last year. And then, we start every year clean. I mean we have 60 to 70 days of visibility, we put a number out there to start the year that frankly we’re fairly confident that we’ll be able to achieve. We don’t want to set our bar too high or the bar too low. Again we’re opportunistic in a huge space in a fragmented market. And so, I would tell you as the year progresses we get more visibility right now, we have visibility where Q1 is based generally going to end up and we’re working into Q2 and Q3.
And I wouldn’t preclude raising that as we progress through the year and get increased visibility that acquisition target volume.
Fair enough. Thank you, sir.
Thank you, Tayo.
The next question is a follow up from Ki Bin Kim with SunTrust. Please go ahead.
Thanks. So in 2018 you guys finished the year 4.9% higher AFFO per share. If I think about the parameter that you gave for 2019 guidance in terms of acquisitions and dispositions and the run rate you’re at already, it feels -- I mean it feels like that you should reaccelerate earnings growth in 2019. And because a lot of the equity needs are prefunded already, is that sound right to you, or is there something and that we should expect in 2019 maybe is more forward equity or early funding that could hamper that growth rate from reaccelerating.
No I think that's a generally a fair proposition and I would tell you that the 4.9% earnings growth that you quoted was post treasury impact from -- the treasury impact required by the forward equity offering. The opportunistic capital markets transactions the March and the September forward and then the ETM activity put ourselves in a position to continue to ramp and accelerate that growth in 2019.
Our stated goal is to provide double digit growing shareholders returns, that's a comprised of two pieces in my mind AFFO as well as a growing and well covered dividend. And so, I think the premise of your question is true, that being said, when there is opportunities for access long-term capital at attractive pricing, we'll execute on those opportunities or at lease assessment.
And we never want to be caught off thinking quarter-to-quarter over year-over-year. But the company, the investment spreads that we have, the smaller base that we have, the high quality assets that we're looking at and acquiring through all three platforms provides for meaningful and we think on a relative basis significantly meaningful risk adjusted returns for our shareholders that are outstretched from our peers.
All right. Thanks, Joey.
Thank you, Ki Bin.
Okay. This concludes our question-and-answer session. I would like to turn the conference back over to Joey Agree for any closing remarks.
Well, I thank you everybody for your patience and for joining us today. We look forward to seeing hopefully many of you in the upcoming conference season. Thanks, again.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.