Agree Realty Corporation (ADC) is a fully integrated real estate investment trust (REIT) primarily focused on the ownership, acquisition, development and management of retail properties net leased to industry leading tenants. The company has demonstrated impressive financial performance, reporting annual net income of $169,959,000, annual revenue of $537,495,000, and annual operating cash flow of $388,052,000 in its latest fiscal year.
Recent Developments
In the second quarter of 2023, Agree Realty reported revenue of $152.58 million, representing a 17.5% year-over-year increase. Earnings per share (EPS) for the quarter came in at $1.04, compared to $0.42 in the same period a year ago. The reported revenue figure represents a 1.50% surprise over the Zacks Consensus Estimate of $150.33 million, while the EPS figure exceeded the consensus estimate of $1.03 by 0.97%.
The company's strong performance was driven by its disciplined approach to capital allocation and its ability to identify and execute on attractive investment opportunities across its three external growth platforms: acquisitions, development, and its Developer Funding Platform (DFP).
Business Overview
During the second quarter, Agree Realty invested approximately $203 million in 70 high-quality retail net lease properties. This includes the acquisition of 47 assets for approximately $186 million, with a weighted-average cap rate of 7.7% and a weighted-average lease term of over nine years. The acquired properties are leased to leading retailers operating in sectors such as home improvement, off-price, auto parts, crafts and novelties, and grocery.
The company's development and DFP activities also contributed to its growth, with five new projects commenced and four projects completed during the quarter. In total, Agree Realty had 25 projects either completed or under construction during the first half of the year, representing $101 million of committed capital.
Financials
Agree Realty's fortress balance sheet provides the company with significant financial flexibility and liquidity to execute on its robust investment pipeline. As of June 30, 2023, the company had pro forma net debt to recurring EBITDA of 4.1x and approximately $1.7 billion of total liquidity, including $24.3 million in cash and cash equivalents and $1.7 billion available under the revolving credit facility.
The company's capital markets activities during the quarter further strengthened its balance sheet. In May 2023, Agree Realty completed a $450 million public bond offering of 5.625% senior unsecured notes due in 2033. Additionally, the company sold over 3.2 million shares of forward equity via its ATM program, raising net proceeds of approximately $195 million.
Outlook
Agree Realty's disciplined approach to capital allocation is evident in its updated full-year 2023 guidance. The company has increased its acquisition guidance to approximately $700 million, up from the previous guidance of $600 million. This revised guidance reflects the company's confidence in its ability to identify and execute on attractive investment opportunities while maintaining its stringent underwriting standards.
Furthermore, Agree Realty has raised its full-year 2023 AFFO per share guidance to a range of $4.11 to $4.14, representing a 4.4% year-over-year growth at the midpoint. This guidance takes into account the company's strong operational performance, its capital markets activities, and its disciplined approach to capital allocation.
Business Overview
Agree Realty's portfolio is well-diversified, with properties located across 49 states and leased to a variety of industry-leading tenants. As of June 30, 2023, the portfolio was approximately 99.8% leased and had a weighted-average remaining lease term of approximately 8.1 years. Notably, approximately 68.4% of the company's annualized base rent was derived from tenants, or parent entities thereof, with an investment-grade credit rating.
The company's focus on net lease retail properties has proven to be a successful strategy, as it has allowed Agree Realty to generate stable and predictable cash flows. The net lease structure, which requires tenants to be responsible for property-level expenses such as taxes, insurance, and maintenance, has helped the company maintain a high occupancy rate and minimize operational risks.
Conclusion
Agree Realty's strong balance sheet, diversified portfolio, and disciplined approach to capital allocation position the company well to continue its growth trajectory. The company's focus on acquiring high-quality retail properties leased to industry-leading tenants, coupled with its development and DFP activities, should enable it to deliver consistent earnings growth and provide attractive returns to its shareholders.
Overall, Agree Realty's robust financial performance, fortress balance sheet, and strategic initiatives make it a compelling investment opportunity in the REIT sector. The company's ability to navigate the dynamic retail landscape and identify attractive investment opportunities positions it for continued success in the years ahead.