This REIT Reported $91.4 Million In Earnings in 2020

In hosting its earnings report call for the fourth quarter and full-year 2020, Agree Realty Corp. embodied the old advice of how to react when life hands you lemons. Despite an unprecedented environment that saw a global health crisis and a frayed economy, the company ended 2020 in a position of incredible strength with a record-breaking year in every area of the business.

"Despite the incredibly challenging circumstances, our team had a tremendous year achieving a number of notable milestones, including record investment activity of $1.36 billion, nearly doubling our previous record in 2019 and adding 325 properties to our growing portfolio," said President and CEO Joey Agree. "The acquisition of 18 Walmart stores, cementing Walmart as our top tenant at 7.3% of annualized base rent; increasing our investment-grade exposure by 930 basis points to 67.5% of ABR; executing our inaugural public bond offering and receiving a triple BBB investment grade rating from S&P and, lastly, surpassing $4 billion in equity cap and $5 billion in total enterprise value."

A Vibrant Portfolio

As of New Year's Eve 2020, Agree Realty's ADC retail portfolio consisted of 1,129 properties across 46 states, a 38% increase in total property count from one year earlier. Agree observed that the company added 26 ground leases to its portfolio during 2020, which represented more than 12% of annualized base rents resulting in an increase of its overall ground lease exposure to 9.6% of the total portfolio. New leases, extensions or options were executed on approximately 518,000 square feet during the year.

"While we achieved yet another year of record acquisition volume of $1.31 billion, our continued focus on best-in-class omnichannel retailers is demonstrated by nearly 84% of annualized base rent acquired being derived from leading investment-grade retailers," Agree said. "Our laser-like focus is further cemented by the ground lease opportunities that we executed on during this past year."

Agree noted the company's "ground lease portfolio derives more than 92% of rents from investment-grade tenants and comprises the country's premier retailers." But the company also profited from targeted divestitures.

"We sold 17 properties for total gross proceeds of just more than $49 million in 2020," he said. "These dispositions were completed at a weighted average cap rate of 7.1%. Notably, we sold 12 franchise restaurants during this past year, reducing the company's franchise restaurant exposure to a mere 1.2% of annualized base rents at year's end."

For its fourth-quarter performance, Agree reported the company invested $363 million in 106 properties leased to 31 tenants operating 18 distinct sectors ranging from grocery stores and dollar stores to off-price retail and home improvement centers.

"The properties were acquired at a weighted average cap rate of 6.4% and had a weighted average lease term of 11.6 years," he added.

A Very Happy New Year

Agree Realty's momentum from 2020 continued to grow into 2021, with Agree reporting a 99% level of rent collection in January, which marked the fifth consecutive month of near-perfect collections.

"Our pipeline heading into 2021 is robust and I'm very pleased with our progress to date," Agree said. "As indicated by our initial acquisition guidance of $800 million to $1 billion, we are confident in our team's ability to aggregate high-quality transactions composed of leading omnichannel retailers."

January also saw the premiere of the company's Rethink Retail initiative, which Agree defined as an effort to "challenge the misperceptions about the future of brick-and-mortar retail and highlight why net lease properties and specifically our portfolio is exceptionally positioned in an omnichannel retail world." The initiative will include Agree Realty's first white paper on the importance of the omnichannel structure within the retail sector.

"In January, we also announced the conversion to a monthly dividend," Agree added. "The conversion to a monthly dividend is a testament to the reliability and consistency of our portfolios operating cash flow as well as the increased individual investor participation in the equity markets."

A New OP-portunity

Agree also used the earnings call to highlight the addition of Karen Dearing, the chief financial officer and executive vice president of Sun Communities, to the Agree board of directors, adding that Dearing's experience with operating partner (OP) transactions and preferred OP units could expand the company's strategic focus.

"I think with Karen's addition specifically to the board and Sun Communities history of using OP transactions and preferred OP units, brings an additional experience to the board of directors level," Agree said. "We've looked at a number of transactions. I think it's – frankly, I'm surprised that more sellers don't look for OP units of larger portfolios or larger assets, but we'll continue to evaluate opportunities to use them as currency."

Don't Just Take Our Word for It

Agree Realty was able to navigate all the difficulties that 2020 could throw at it, and as they head into 2021, they have solidified themselves as a leader within the REIT sector. Don't just take our word for it though, check out some Analyst reactions to Agree's earnings release.

"ADC remains one of our favorite names in the REIT space." – Robert Stevenson, Janney Montgomery Scott LLC.

"ADC posted a record year of high-quality acquisition volume, hitting the gas on external growth while others hit the brakes at the height of the pandemic… We reiterate our Strong Buy rating." – RJ Milligan, Raymond James & Associates, Inc.

"We continue to assign our highest rating to ADC shares due in part to the company's high investment grade tenant mix, strong rent collections, proven access to favorably priced equity capital, and relatively low leverage profile, all of which we believe can further support share valuation." – Todd Stender, Wells Fargo Securities, LLC.