Agree Realty Corporation Reports Second Quarter 2023 Results

Increases 2023 Acquisition Guidance to At Least $1.3 Billion; Portfolio Surpasses 2,000 Properties

ROYAL OAK, Mich., Aug. 1, 2023 /PRNewswire/ -- Agree Realty Corporation (NYSE: ADC) (the "Company") today announced results for the quarter ended June 30, 2023. All per share amounts included herein are on a diluted per common share basis unless otherwise stated.

Second Quarter 2023 Financial and Operating Highlights:

• Invested approximately $324 million in 120 retail net lease properties
• Completed six development or Partner Capital Solutions ("PCS") projects representing total committed capital of over $18 million
• Net Income per share attributable to common stockholders decreased 7.2% to $0.42
• Core Funds from Operations ("Core FFO") per share of $0.98 was unchanged year-over-year
• Adjusted Funds from Operations ("AFFO") per share increased 1.1% to $0.98
• Declared a July monthly dividend of $0.243 per common share, a 3.8% year-over-year increase
• Announced an unsecured $350 million 5.5-year term loan at a 4.52% fixed rate inclusive of prior hedging activity
• Settled 3,070,997 shares of outstanding forward equity for net proceeds of approximately $205 million
• Balance sheet well positioned at 4.1 times proforma net debt to recurring EBITDA; 4.5 times excluding unsettled forward equity

First Half 2023 Financial and Operating Highlights:

• Invested approximately $638 million in 189 retail net lease properties
• Committed a record of nearly $126 million to 31 development or PCS projects completed or under construction
• Net Income per share attributable to common stockholders decreased 7.9% to $0.86
• Core FFO per share increased 0.1% to $1.96
• AFFO per share increased 1.3% to $1.96
• Declared dividends of $1.449 per share, a 4.8% year-over-year increase

Financial Results

Net Income Attributable to Common Stockholders

Net Income for the three months ended June 30, 2023 increased 14.3% to $39.0 million, compared to $34.1 million for the comparable period in 2022. Net Income per share for the three months ended June 30, 2023 decreased 7.2% to $0.42, compared to $0.45 per share for the comparable period in 2022.

Net Income for the six months ended June 30, 2023 increased 15.2% to $78.8 million, compared to $68.4 million for the comparable period in 2022. Net Income per share for the six months ended June 30, 2023 decreased 7.9% to $0.86, compared to $0.93 per share for the comparable period in 2022.

Core FFO

Core FFO for the three months ended June 30, 2023 increased 22.7% to $91.4 million, compared to Core FFO of $74.5 million for the comparable period in 2022. Core FFO per share for the three months ended June 30, 2023 of $0.98 was unchanged compared to the same period in 2022.

Core FFO for the six months ended June 30, 2023 increased 25.1% to $180.4 million, compared to Core FFO of $144.2 million for the comparable period in 2022. Core FFO per share for the six months ended June 30, 2023 increased 0.1% to $1.96, compared to Core FFO per share of $1.95 for the comparable period in 2022.

AFFO

AFFO for the three months ended June 30, 2023 increased 24.5% to $91.8 million, compared to AFFO of $73.7 million for the comparable period in 2022. AFFO per share for the three months ended June 30, 2023 increased 1.1% to $0.98, compared to AFFO per share of $0.97 for the comparable period in 2022.

AFFO for the six months ended June 30, 2023 increased 26.5% to $180.9 million, compared to AFFO of $142.9 million for the comparable period in 2022. AFFO per share for the six months ended June 30, 2023 increased 1.3% to $1.96, compared to AFFO per share of $1.94 for the comparable period in 2022.

Dividend

In the second quarter, the Company declared monthly cash dividends of $0.243 per common share for each of April, May and June 2023. The monthly dividends during the second quarter reflected an annualized dividend amount of $2.916 per common share, representing a 3.8% increase over the annualized dividend amount of $2.808 per common share from the second quarter of 2022. The dividends represent payout ratios of approximately 75% of Core FFO per share and 74% of AFFO per share, respectively.

For the six months ended June 30, 2023, the Company declared monthly cash dividends totaling $1.449 per common share, a 4.8% increase over the dividends of $1.383 per common share declared for the comparable period in 2022. The dividends represent payout ratios of approximately 74% of both Core FFO per share and AFFO per share.

Subsequent to quarter end, the Company declared a monthly cash dividend of $0.243 per common share for July 2023. The monthly dividend reflects an annualized dividend amount of $2.916 per common share, representing a 3.8% increase over the annualized dividend amount of $2.808 per common share from the third quarter of 2022. The dividend is payable August 14, 2023 to stockholders of record at the close of business on July 31, 2023.

Additionally, subsequent to quarter end, the Company declared a monthly cash dividend on its 4.25% Series A Cumulative Redeemable Preferred Stock of $0.08854 per depositary share, which is equivalent to $1.0625 per annum. The dividend was paid on August 1, 2023 to stockholders of record at the close of business on July 21, 2023.

CEO Comments

"We are extremely pleased with our performance during the first half of the year as we continued to execute on high-quality net lease opportunities and surpassed 2,000 properties in 49 states including Alaska," said Joey Agree, President and Chief Executive Officer. "Given our year-to-date acquisition activity and visibility into our pipeline, we are increasing our full-year acquisition guidance to at least $1.3 billion of high-quality retail net lease assets. Our balance sheet remains in excellent position with $1.3 billion of liquidity inclusive of the recent closing of our $350 million 5.5-year term loan."

Portfolio Update

As of June 30, 2023, the Company's portfolio consisted of 2,004 properties located in 49 states and contained approximately 41.7 million square feet of gross leasable area.

At quarter end, the portfolio was 99.7% leased, had a weighted-average remaining lease term of approximately 8.6 years, and generated 67.9% of annualized base rents from investment grade retail tenants.

Ground Lease Portfolio

During the second quarter, the Company acquired three ground leases for an aggregate purchase price of approximately $25.8 million, representing 8.1% of annualized base rents acquired.

As of June 30, 2023, the Company's ground lease portfolio consisted of 210 leases located in 34 states and totaled approximately 5.7 million square feet of gross leasable area. Properties ground leased to tenants represented 11.9% of annualized base rents.

At quarter end, the ground lease portfolio was fully occupied, had a weighted-average remaining lease term of approximately 10.9 years, and generated 87.1% of annualized base rents from investment grade retail tenants.

Acquisitions

Total acquisition volume for the second quarter was approximately $305.0 million and included 92 properties net leased to leading retailers operating in sectors including off-price retail, farm and rural supply, dollar stores, general merchandise, auto parts and tire and auto service. The properties are located in 31 states and leased to tenants operating in 18 sectors.

The properties were acquired at a weighted-average capitalization rate of 6.8% and had a weighted-average remaining lease term of approximately 9.9 years. Approximately 72.8% of annualized base rents acquired were generated from investment grade retail tenants.

For the six months ended June 30, 2023, total acquisition volume was approximately $607.4 million. The 158 acquired properties are located in 35 states and leased to tenants who operate in 21 retail sectors. The properties were acquired at a weighted-average capitalization rate of 6.7% and had a weighted-average remaining lease term of approximately 11.5 years. Approximately 73.8% of annualized base rents were generated from investment grade retail tenants.

The Company's outlook for acquisition volume for the full-year 2023 is being increased to at least $1.3 billion of high-quality retail net lease properties, from at least $1.2 billion previously.

Dispositions

During the three and six months ended June 30, 2023, the Company sold one property for gross proceeds of approximately $3.1 million. The disposition was completed at a capitalization rate of 6.4%.

Development and PCS

During the second quarter, the Company commenced two development and PCS projects, with total anticipated costs of approximately $10.3 million. Construction continued during the quarter on 20 projects with anticipated costs totaling approximately $87.0 million. The Company completed six projects during the quarter, which included a HomeGoods, a Sunbelt Rentals, and three Gerber Collision developments.

For the six months ended June 30, 2023, the Company had 31 development or PCS projects completed or under construction. Anticipated total costs are approximately $125.7 million, including $77.7 million of costs incurred as of quarter end.

The following table presents the Company's 31 development or PCS projects as of June 30, 2023:

Leasing Activity and Expirations

During the second quarter, the Company executed new leases, extensions or options on approximately 282,000 square feet of gross leasable area throughout the existing portfolio.

For the six months ended June 30, 2023, the Company executed new leases, extensions or options on approximately 793,000 square feet of gross leasable area throughout the existing portfolio.

As of June 30, 2023, the Company's 2023 lease maturities represented 0.3% of annualized base rents. The following table presents contractual lease expirations within the Company's portfolio as of June 30, 2023, assuming no tenants exercise renewal options:

The contractual lease expirations presented above exclude the effect of replacement tenant leases that had been executed as of June 30, 2023 but that had not yet commenced. Annualized Base Rent and gross leasable area (square feet) are in thousands; any differences are the result of rounding.
(1) Annualized Base Rent represents the annualized amount of contractual minimum rent required by tenant lease agreements as of June 30, 2023, computed on a straight-line basis. Annualized Base Rent is not, and is not intended to be, a presentation in accordance with generally accepted accounting principles ("GAAP"). The Company believes annualized contractual minimum rent is useful to management, investors, and other interested parties in analyzing concentrations and leasing activity.

Top Tenants

As of June 30, 2023, Goodyear is no longer among the Company's top tenants. The Company added 7-Eleven to its top tenants during the second quarter of 2023.The following table presents annualized base rents for all tenants that represent 1.5% or greater of the Company's total annualized base rent as of June 30, 2023:

Annualized Base Rent is in thousands; any differences are the result of rounding.
Bolded and italicized tenants represent additions for the three months ended June 30, 2023.
(1) Refer to footnote 1 on page 5 for the Company's definition of Annualized Base Rent.
(2) Includes tenants generating less than 1.5% of Annualized Base Rent.

Retail Sectors

The following table presents annualized base rents for all the Company's retail sectors as of June 30, 2023: