Thursday, October 6, 2016

A current AIM equity holding: Agree Realty Corporation (ADC) by: Donnie Smiley, AIM /MSAE student. “We should agree to Agree Realty”

Agree Realty Corporation (ADC, $50.33): “Agreeing to Outperform”
By: Donnie Smiley, AIM student/MSAE Graduate program

Image result for Agree Realty Corporation logo

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 (ADC) is a Real Estate Investment Trust which focuses on the ownership, development, acquisition and management of net lease retail properties throughout the United States. ADC has 339 assets in 42 states summing up to ~6.5M SqFT of leasable space
  •          Net Income for Q2 2016 increased to $10.7M, a 3.9% increase from Q2 2015
  •        Total Rental Revenue for Q2 2016 increased to $19.9M, a 23.6% increase from Q2 2015
  •         Increased their dividend by 3.2% to $0.48 per share

Key Points: ADC is having a fantastic year experiencing a year to date stock price increase of 47.96%. The company reported Q2 EPS of $0.61 and a slight beat on Revenue. ADC Management increased 2016 acquisition guidance to $250-275M vs. prior $175-200M which assumes continued growth in economic activity and positive business trends. ADC was able to close on a $79.5M portfolio acquisition of 11 high quality lease properties. The properties are leased to companies such Lowe’s, Walmart neighborhood market and other national retailers. Throughout Q2 ADC has invested in 36 high quality net lease properties which will lead to an exciting pipeline of fantastic real estate opportunities that are leased to leading national retailers. The weighted average of remaining lease term in about 11 years.

Total acquisition volume for Q2 2016 was ~$151.5M and included 34 assets net leased to various operating retailers. Looking forward, the company has a number of projects under construction with name brand tenants such as Starbucks, Chick-Fil-a, Texas Roadhouse and Burger King. These projects will be a focal point of ADC’s growth looking into 2017 and beyond.

ADC top retails sectors is led by Pharmacy (19%), Fast Service Restaurants (6.8%) and Grocery stores (6.8%). ADC has a very impressive list of tenants which includes; Walgreens, Wal-Mart, Lowe’s, Dollar General, CVS, 24 hour fitness and many more.
What has the stock done lately?
ADC had a solid Q2 2016 which was highlighted by a 3.9% increase in Net Income, a follow on Public offering of 2,875,000 shares of common stock generating $109.7M and a 3.2% increase in their dividend. The company is a strong financial position relative to its peers and it has shown with its strong outperformance of its stock price, +47.96% YTD.

Past Year Performance: Over the past 12 months ADC Stock has increased 66.25% to $50.33. While there additional stock offering may negatively affect EPS, management is extremely optimistic and their portfolio of high quality lease properties remains to be diverse and strong.

My Takeaway
ADC has a fantastic 52 weeks and prospects for the future remain high. I am optimistic that the stock will continue to rise above its 52 week high of $51.30. Since ADC was added to the portfolio, it has easily passed the original price target of $40.22 and doesn’t seem to be slowing down. ADC has outperformed their competitors by a large margin and they are the leader in the retail leasing space. For these reasons, I believe ADC should remain in the AIM small cap portfolio.