Agree Realty Corporation — Q1 2024 Form 10-Q Summary
Business context and reporting period
Agree Realty is a fully integrated REIT focused on owning, acquiring, developing and managing retail properties under predominantly net leases. This unaudited report covers the three months ended March 31, 2024, compared with the three months ended March 31, 2023.
- Portfolio: 2,161 properties across 49 states, approximately 44.9 million square feet of GLA, 99.6% leased and approximately 8.2 years of weighted-average remaining lease term.
- Approximately 68.8% of annualized base rent was derived from tenants or parent entities with investment-grade credit ratings.
- Net real estate investments were $6.82 billion at March 31, 2024, compared with $6.74 billion at December 31, 2023.
Financial performance and key metrics
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Total revenue | $149.5 million | $126.6 million | Up 18% |
| Rental income | $149.4 million | $126.6 million | Up 18% |
| Income from operations | $70.5 million | $60.5 million | Up 17% |
| Net income | $45.0 million | $41.8 million | Up 8% |
| Net income attributable to common stockholders | $43.0 million | $39.8 million | Up 8% |
| Basic and diluted EPS | $0.43 | $0.44 | Down $0.01 |
| Net cash from operating activities | $103.1 million | $94.2 million | Up $9.0 million |
| FFO attributable to OP common unitholders | $93.6 million | $80.3 million | Up 17% |
| Core FFO | $102.0 million | $89.0 million | Up 15% |
| AFFO | $103.3 million | $89.1 million | Up 16% |
- Operating margin was approximately 47.2%, compared with 47.8% in the prior-year quarter. Net margin was approximately 30.1%, compared with 33.0%, primarily reflecting higher interest expense and impairment expense.
- Diluted FFO, Core FFO and AFFO per common share and partnership unit were $0.93, $1.01 and $1.03, respectively, compared with $0.88, $0.98 and $0.98.
- Common dividends declared were $0.247 per share monthly, or $2.964 annualized, up 2.9% from the prior-year annualized rate. Series A preferred dividends were $0.08854 per depositary share monthly.
Cash flow, capital allocation, debt and liquidity
- Operating cash flow was $103.1 million. Investing cash outflow was $126.0 million, including $128.3 million for 31 acquisitions and $18.4 million for development investments, partially offset by $21.1 million of asset-sale proceeds.
- Financing cash flow was positive $23.7 million, including $103.0 million of net revolving-credit borrowings and $74.7 million of common dividends paid.
- Total gross debt was approximately $2.53 billion at March 31, 2024, consisting of $330.0 million under the revolving facility, $350.0 million term debt, $1.81 billion of senior unsecured notes and $44.6 million of mortgage debt.
- Total debt principal represented approximately 30.0% of total enterprise value. Cash, cash equivalents and escrow cash totaled $15.4 million; $670.0 million remained available under the revolving credit facility, subject to covenants.
- Near-term scheduled debt maturities include $50.0 million of senior notes in 2025 and $330.0 million of revolving debt in 2026, with the revolver having extension options to January 2027.
- The company was in compliance with all loan covenants at March 31, 2024. Management stated that no conditions raised substantial doubt about going-concern status.
Material changes versus the prior comparable period
- The company acquired 31 assets for $128.3 million, versus 66 assets for approximately $303.9 million in Q1 2023. The 2024 acquisitions had a 7.7% underwritten weighted-average capitalization rate and an 8.2-year weighted-average lease term.
- Six assets were sold for $21.1 million of net proceeds, producing a $2.1 million gain; there were no dispositions in Q1 2023.
- Interest expense increased 36% to $24.5 million, primarily due to higher borrowings, including the $350.0 million term loan completed in 2023, and higher revolving-facility balances and rates.
- A $4.5 million impairment provision was recorded in Q1 2024; none was recorded in the prior-year quarter.
- Depreciation and amortization increased 19% to $48.5 million, consistent with portfolio growth.
- The company established a new $1.0 billion 2024 ATM program in February 2024. No forward-sale agreements had been entered into under that program by March 31, 2024. Remaining shares under the prior 2022 ATM program must be settled by January 2025.
- Interest-rate swaps had a net fair-value asset position of approximately $7.0 million at quarter-end and generated $13.1 million of OCI gains during the quarter.
Outlook, commentary, risks and unusual items
- Management expects short-term liquidity needs to be funded with operating cash flow, existing cash and revolving-facility borrowings; long-term needs may also require debt or equity issuance.
- Eighteen development or Developer Funding Platform projects were under construction at quarter-end, with anticipated remaining project costs of approximately $73.9 million.
- Management highlighted risks from macroeconomic conditions, inflation, interest-rate volatility, refinancing and capital-market access, tenant defaults or bankruptcies, retail-sector disruption, lease renewals, property valuations, leverage and debt covenants, cybersecurity, environmental liabilities and maintaining REIT status.
- Three leases across three tenants were being accounted for on a cash basis because collection was not considered probable. Cash-basis adjustments increased rental income by $0.1 million in the quarter.
- Management reported no material litigation, no defaults on senior securities and no reportable subsequent events through the financial-statement issuance date.
- The filing does not provide formal earnings or acquisition guidance for 2024.
Important facts for investors to verify
- Reconcile AFFO and dividend coverage, including the effect of the 2.9% dividend increase and future capital requirements.
- Assess refinancing plans and interest-rate exposure around the $50.0 million 2025 note maturity and $330.0 million revolver maturity in 2026.
- Monitor the required settlement by January 2025 of remaining 2022 ATM forward-sale shares and potential dilution.
- Evaluate tenant credit quality, the three cash-basis leases, portfolio occupancy and the 8.2-year lease-duration profile.
- Review the $4.5 million impairment, assets held for sale and assumptions underlying real-estate valuations.
- Confirm continued covenant compliance, revolving-facility availability and funding for the $73.9 million of development commitments.