Tuesday, May 2, 2017

A current AIM Fund holding: Agree Realty (ADC) by Robert Noble. “AIM Agrees to Hold ADC. Really"

Agree Realty Corporation (ADC, $50.02): “Agree to Buy”
By: Robert Noble, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

Agree Realty Corporation (NYSE:ADC) is a real estate investment trust that specializes in the acquisition and development of net lease retail properties. ADC operates in 43 states and maintains approximately 7.2 million square feet of leasable space. The company is headquartered in Bloomfield Hills, MI and was founded by CEO Richard Agree in 1971.

•ADC increased funds from operations per share to $0.65 in Q1 2017. This represents a 6.3% increase over the same period in 2016.

•ADC is positioned to surpass its 52 week high of $51.33 after it posting strong first quarter earnings.

•Many of ADC’s large tenants are not at risk to be driven out of business by internet retailers like Amazon.

Key points: Funds from operation is one of the most important statistics to track for real estate investment trusts (REITs). By subtracting depreciation, amortization, and gains from sale of property from earnings, it shows the cash flow of the REIT. ADC’s funds from operations increased 34.5% in Q1 2017 compared to the same period in 2016. This resulted in FFO of $17 million.

In Q1 2017, ADC posted increases in rental revenue, net income per share, FFO, adjusted FFO, and dividends. Rental revenue increased 29.7% to $24.2 million for the quarter, which saw many retailers struggle. Despite the current retail climate, ADC increased both its net income per share and funds from operations. According to FactSet, average analyst projections expect the stock price to reach $52.00.

ADC is uniquely positioned to thrive in the retail leasing environment because of its diverse group of tenants. Clients such as LA Fitness and 24 Hour Fitness will not be driven out of business by internet companies. Fast food chains (Burger King, Taco Belle) and pharmacies (Walgreens, Rite Aid, CVS) represent a significant portion of ADC’s tenants. They require retail space to operate, and are not easily substituted by ecommerce. Other major clients operating in retail driven industries include Mister Car Wash, Lowe’s, and AMC movie theatres. 

What has the stock done lately?
Agree Realty Corporation opened the month at $47.93 on April 3, 2017. On April 23, 2017 ADC closed at its 52-week high of $51.33 in anticipation of strong Q1 earnings. Following the earnings release on April 24, the stock price closed at $50.02. ADC’s Stock has performed well over the month of April, growing 4.36%

Past Year Performance:
Agree Realty Corporation’s stock price has increased 27.02% on the year. The 52-week high is $51.33 and the low is $38.59. It climbed steadily for the year before falling in November 2016 among increased borrowing. Since then, the price has continued its upward climb, recently reaching its 52-week high.

 Source: FactSet

My Takeaway
Agree Realty Corporation has shown steady growth over the last twelve months, increasing by over 27%. Solid 2017 performance has resulted in the stock trading near its 52-week high. I expect ADC to build upon their superb first quarter in 2017 and surpass their 52-week high. They have maintained consistent growth despite the many issues facing retailers. As the retail market continues to decline, I think ADC will be able to perform consistently, as they have over the last twelve months.

Source: FactSet

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