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.
Summary
• 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 |