Agree Realty Corporation 2021 Form 10-K Summary
Business Context and Reporting Period
Agree Realty Corporation is an integrated U.S. REIT focused on owning, acquiring, developing and managing retail properties under predominantly single-tenant, net lease arrangements. This filing covers the fiscal year ended December 31, 2021, with fourth-quarter information included where disclosed.
- Portfolio at year-end: 1,404 properties in 47 states, approximately 29.1 million square feet, 99.5% leased and weighted-average remaining lease term of approximately 9.3 years.
- Approximately 67.0% of annualized base rent came from tenants or parent companies with investment-grade credit ratings.
- The Company held a 99.5% common interest in Agree Limited Partnership and operated as a REIT.
Financial Performance and Key Metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Total revenue | $339.3 million | $248.6 million | +36.5% |
| Rental income | $339.1 million | $248.3 million | +37.0% |
| Income from operations | $190.3 million | $133.1 million | +42.9% |
| Net income | $122.9 million | $92.0 million | +33.6% |
| Net income attributable to common stockholders | $120.1 million | $91.4 million | +31.4% |
| Diluted EPS | $1.78 | $1.74 | +2.3% |
| FFO per diluted share and partnership unit | $3.00 | $2.93 | +2.4% |
| Core FFO per diluted share and partnership unit | $3.58 | $3.23 | +10.8% |
| AFFO per diluted share and partnership unit | $3.51 | $3.20 | +9.7% |
| Net cash provided by operating activities | $246.3 million | $143.0 million | +$103.4 million |
Reported operating margin was approximately 56.1% and net margin was approximately 36.2%, based on total revenue. General and administrative expense increased 22% to $25.5 million, while G&A as a percentage of revenue improved to 7.5% from 8.4%.
- Net real estate investments increased to $4.37 billion from $3.30 billion.
- Total assets increased to $5.23 billion from $3.89 billion.
- Total gross debt was $1.70 billion at December 31, 2021, including $1.51 billion of senior unsecured notes, $160.0 million drawn on the revolving facility and $32.6 million of mortgage debt.
- Total debt represented approximately 24.5% of enterprise value and 30.4% of gross assets.
- Cash, cash equivalents and cash held in escrow totaled $45.3 million; $840.0 million remained available under the $1.0 billion revolving credit facility, subject to covenants.
- Annualized common dividend increased to $2.72 per share in the fourth quarter, up 9.7% from $2.48 in the fourth quarter of 2020. Series A preferred stock carries a 4.25% annual dividend rate.
Material Changes Versus the Prior Comparable Period
- The portfolio expanded from 1,129 to 1,404 properties and from approximately 22.7 million to 29.1 million square feet.
- The Company acquired 290 properties for approximately $1.39 billion and completed four development projects for approximately $31.0 million. Acquired assets were 100% leased with an approximately 11.5-year weighted-average lease term and a 6.2% underwritten capitalization rate.
- Property sales increased to 18 properties generating $56.0 million of net proceeds and a $14.9 million gain, versus $47.7 million of proceeds and an $8.0 million gain in 2020.
- In May 2021, the Company issued $350 million of 2.000% notes due 2028 and $300 million of 2.600% notes due 2033, then repaid all $240.0 million of unsecured term loans. The refinancing produced a $14.6 million charge, including $13.4 million of swap termination costs.
- In December 2021, the revolving credit facility was increased from $500 million to $1.0 billion, with an accordion permitting total commitments of up to $1.75 billion. The facility matures in January 2026, with extension options to January 2027.
- Equity financing included $548.4 million of net proceeds from two common stock offerings, approximately $197.0 million from predecessor ATM programs, approximately $170.3 million from the Series A preferred offering and anticipated proceeds from unsettled forward sales.
- COVID-19 rent deferrals did not materially affect 2021 revenue. Deferred COVID-19 rent receivables were $0.5 million at year-end, and substantially all rent payments originally contracted for during 2021 were collected.
Outlook, Management Commentary, Risks and Unusual Items
Management expects to fund short-term liquidity needs through operating cash flow and revolving borrowings and long-term needs through operating cash flow, debt issuance, common or preferred equity and other financing sources. The filing provides no formal earnings, acquisition-volume or dividend-growth guidance.
- Three development or Partner Capital Solutions projects remained under construction at year-end, with anticipated total costs of approximately $40.0 million for seven projects completed or commenced during 2021.
- Management stated that the Company was in compliance with all material loan covenants and obligations and that no conditions raised substantial doubt about going-concern status.
- Key risks include tenant defaults or bankruptcies, single-tenant property vacancies, retail-sector disruption and e-commerce migration, geographic and sector concentration, interest-rate increases, LIBOR transition, refinancing and capital-market access, debt covenants, environmental liabilities, cybersecurity, REIT qualification and dividend funding.
- Near-term debt maturities include approximately $29.2 million in 2023, $51.0 million in 2025 and $160.6 million in 2026, including the revolving facility balance. Most senior unsecured notes mature thereafter.
- Lease expiration exposure is limited in 2022 at 0.5% of annualized base rent; expirations rise to 12.0% in 2030, assuming tenants do not exercise renewal options.
- Grant Thornton issued unqualified opinions on the financial statements and internal control over financial reporting. Critical audit matters involved acquisition purchase-price allocation and impairment testing.
Most Important Facts for Investors to Verify
- Whether continued acquisition growth produces sufficient recurring AFFO growth after considering common-share dilution and preferred dividends.
- Tenant rent collection, renewal activity and exposure to concentrated sectors including grocery, home improvement, convenience stores and auto-related businesses.
- Liquidity available for acquisitions, development spending, dividends and the 2023-2026 debt maturities.
- The timing and economics of settling the approximately 2.1 million common shares subject to forward sale agreements and the remaining $349.7 million of 2021 ATM capacity.
- Interest-rate exposure under the floating-rate revolving facility and the effect of transitioning LIBOR-indexed contracts to alternative reference rates.
- Coverage of the $2.72 annualized common dividend by AFFO and operating cash flow, recognizing that dividend declarations remain subject to board discretion.