Agree Realty(ADC) - 2024 Q2 - Quarterly Results

Financial and Operating Highlights The company reported strong Q2 and first-half 2024 results, highlighted by significant investment activity, double-digit growth in Net Income per share, and robust increases in both Core FFO and AFFO per share Second Quarter 2024 Highlights | Metric | Value | | :--- | :--- | | Investment in retail net lease properties | ~$203 million (70 properties) | | Net Income per share | $0.52 (+25.6% YoY) | | Core FFO per share | $1.03 (+5.7% YoY) | | AFFO per share | $1.04 (+6.4% YoY) | | July monthly dividend | $0.250 per share (+2.9% YoY) | | Total Liquidity (Proforma) | ~$1.7 billion | | Proforma Net Debt to Recurring EBITDA | 4.1x | First Half 2024 Highlights | Metric | Value | | :--- | :--- | | Investment in retail net lease properties | ~$343 million (102 properties) | | Net Income per share | $0.95 (+11.3% YoY) | | Core FFO per share | $2.05 (+4.6% YoY) | | AFFO per share | $2.07 (+5.5% YoY) | | Declared dividends per share | $1.491 (+2.9% YoY) | Financial Performance The company demonstrated robust financial growth in Q2 and H1 2024, with Net Income, Core FFO, and AFFO all showing significant year-over-year increases in both absolute terms and on a per-share basis Financial Results (Net Income, Core FFO, AFFO) For Q2 2024, Net Income per share rose 25.6% to $0.52, Core FFO per share grew 5.7% to $1.03, and AFFO per share increased 6.4% to $1.04 Net Income Attributable to Common Stockholders (YoY Growth) | Period | Amount | Per Share | Per Share Growth | | :--- | :--- | :--- | :--- | | Q2 2024 | $52.9M | $0.52 | +25.6% | | H1 2024 | $95.9M | $0.95 | +11.3% | Core FFO (YoY Growth) | Period | Amount | Per Share | Per Share Growth | | :--- | :--- | :--- | :--- | | Q2 2024 | $104.2M | $1.03 | +5.7% | | H1 2024 | $206.2M | $2.05 | +4.6% | AFFO (YoY Growth) | Period | Amount | Per Share | Per Share Growth | | :--- | :--- | :--- | :--- | | Q2 2024 | $105.3M | $1.04 | +6.4% | | H1 2024 | $208.6M | $2.07 | +5.5% | Dividends The company declared a monthly dividend of $0.250 per share for Q2, a 2.9% year-over-year increase, resulting in a payout ratio of approximately 72% of AFFO - Declared a monthly cash dividend of $0.250 per common share for each month in Q2 2024, a 2.9% increase over Q2 2023[7] - The Q2 dividends represent payout ratios of approximately 73% of Core FFO per share and 72% of AFFO per share[7] - Subsequent to quarter end, a monthly dividend of $0.250 per common share was declared for July 2024[8] 2024 Guidance and CEO Outlook Driven by strong performance and a growing investment pipeline, the company raised its full-year 2024 guidance for both AFFO per share and acquisition volume Revised 2024 Guidance The company increased its 2024 AFFO per share guidance to a range of $4.11 to $4.14 and raised its acquisition volume target from approximately $600 million to $700 million Revised 2024 Guidance | Metric | Prior Guidance | Revised Guidance | | :--- | :--- | :--- | | AFFO per share | $4.10 to $4.13 | $4.11 to $4.14 | | Acquisition volume | ~$600 million | ~$700 million | | Disposition volume | $50 to $100 million | $60 to $100 million | CEO Comments The CEO highlighted the successful capital raising of nearly $650 million in the quarter, the proforma liquidity of $1.7 billion, and the growing investment pipelines as key factors supporting the increased full-year guidance for acquisitions and AFFO per share, which is now projected to grow 4.4% at the midpoint - The company raised nearly $650 million of capital during the quarter, bolstering the balance sheet[10] - Total liquidity is $1.7 billion proforma for the closing of the expanded Credit Facility[10] - Full-year acquisition guidance was increased to approximately $700 million due to growing pipelines across all three external growth platforms[10] Portfolio Overview As of June 30, 2024, the company's portfolio of 2,202 properties was 99.8% leased with a weighted-average lease term of 8.1 years Portfolio Statistics The portfolio consists of 2,202 properties across 49 states, totaling 45.8 million square feet Portfolio Snapshot (as of June 30, 2024) | Metric | Value | | :--- | :--- | | Properties | 2,202 | | States | 49 | | Gross Leasable Area | 45.8 million sq. ft. | | Leased % | 99.8% | | Weighted-Average Remaining Lease Term | 8.1 years | | Annualized Base Rents from Investment Grade Tenants | 68.4% | Ground Lease Portfolio The ground lease portfolio, representing 11.3% of total annualized base rents, is fully occupied with a 10.0-year weighted-average lease term - The ground lease portfolio consists of 223 leases and represents 11.3% of the company's total annualized base rents[12] - The portfolio is 100% occupied, has a weighted-average remaining lease term of approximately 10.0 years, and generates 87.3% of its annualized base rents from investment-grade retail tenants[12] Top Tenants The portfolio's top tenants are primarily high-quality, national retailers, ensuring stable cash flows Top 5 Tenants by % of Annualized Base Rent | Tenant | % of Annualized Base Rent | | :--- | :--- | | Walmart | 5.8% | | Tractor Supply | 4.9% | | Dollar General | 4.7% | | Best Buy | 3.5% | | CVS | 3.3% | Retail Sectors The portfolio is diversified across various defensive and essential retail sectors Top 5 Retail Sectors by % of Annualized Base Rent | Sector | % of Annualized Base Rent | | :--- | :--- | | Grocery Stores | 9.6% | | Home Improvement | 9.2% | | Tire and Auto Service | 8.0% | | Convenience Stores | 8.0% | | Dollar Stores | 7.7% | Geographic Diversification The company maintains a broad geographic footprint across 49 states, reducing concentration risk Top 5 States by % of Annualized Base Rent | State | % of Annualized Base Rent | | :--- | :--- | | Texas | 7.1% | | Illinois | 5.6% | | Florida | 5.6% | | Ohio | 5.4% | | North Carolina | 5.4% | Investment and Leasing Activity The company was highly active in Q2, investing $185.8 million in acquisitions and commencing $18.8 million in new development projects Acquisitions In Q2 2024, the company acquired 47 properties for $185.8 million at a 7.7% weighted-average capitalization rate, with 59.1% of acquired rent from investment-grade tenants Q2 2024 Acquisition Summary | Metric | Value | | :--- | :--- | | Volume | ~$185.8 million | | Properties | 47 | | Weighted-Average Cap Rate | 7.7% | | Weighted-Average Remaining Lease Term | ~9.3 years | | % of ABR from Investment Grade Tenants | 59.1% | - The full-year 2024 acquisition volume outlook was increased to approximately $700 million from a previous $600 million[14] Dispositions The company strategically recycled capital by selling 10 properties for $36.9 million in Q2 at a 6.4% weighted-average capitalization rate - During Q2, the company sold 10 properties for gross proceeds of approximately $36.9 million at a weighted-average capitalization rate of 6.4%[15] - The full-year 2024 disposition guidance range was updated to $60 million to $100 million[15] Development and DFP During Q2, five new development or Developer Funding Platform (DFP) projects were started with total committed capital of approximately $18.8 million - Commenced five new development or DFP projects in Q2 with total anticipated costs of approximately $18.8 million[16] H1 2024 Development & DFP Activity | Metric | Value | | :--- | :--- | | Projects Completed or Under Construction | 25 | | Anticipated Total Costs | ~$101.0 million | | Key Tenants | TJX Companies, Burlington, Starbucks, Gerber Collision, Sunbelt Rentals | Leasing Activity and Expirations In Q2, the company proactively managed its portfolio by executing new leases, extensions, or options on approximately 302,000 square feet, including a large Walmart Supercenter - Executed new leases, extensions, or options on approximately 302,000 square feet of gross leasable area in Q2, including a 183,000-square foot Walmart Supercenter[19] - As of June 30, 2024, lease maturities for the remainder of 2024 represented only 0.1% of annualized base rents[19][20] Capital Structure and Liquidity The company significantly strengthened its balance sheet and liquidity position during the quarter Capital Markets Activity In Q2, the company executed several strategic capital markets transactions, including a $450 million public bond offering of 5.625% senior unsecured notes due 2034 - Completed a $450 million public bond offering of 5.625% senior unsecured notes due 2034[29] - Received commitments to increase its Credit Facility from $1.0 billion to $1.25 billion and extend the maturity to August 2029[30] - Entered into forward sale agreements via its ATM program to sell 3.2 million shares for anticipated net proceeds of $194.5 million[31] Liquidity and Balance Sheet As of June 30, 2024, the company had over $1.4 billion in liquidity, which increases to approximately $1.7 billion proforma for the credit facility expansion - As of June 30, 2024, total liquidity was over $1.4 billion. Proforma for the closing of the expanded $1.25 billion Credit Facility, total liquidity is approximately $1.7 billion[33] Key Balance Sheet Metrics (as of June 30, 2024) | Metric | Value | | :--- | :--- | | Net Debt to Recurring EBITDA | 4.9x | | Proforma Net Debt to Recurring EBITDA | 4.1x | | Fixed Charge Coverage Ratio | 4.7x | | Total Debt to Enterprise Value | 29.6% | Consolidated Financial Statements (Unaudited) This section provides the unaudited consolidated financial statements for the period ended June 30, 2024, including the Balance Sheet, Statement of Operations, and reconciliations of GAAP Net Income to non-GAAP measures like FFO, Core FFO, and AFFO Consolidated Balance Sheet As of June 30, 2024, the company reported total assets of $8.00 billion, up from $7.77 billion at year-end 2023 Key Balance Sheet Figures ($ in thousands) | Account | June 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Net real estate investments | $6,952,629 | $6,743,320 | | Total Assets | $8,000,838 | $7,774,836 | | Total Liabilities | $2,837,760 | $2,574,683 | | Total Equity | $5,163,078 | $5,200,153 | Consolidated Statements of Operations and Comprehensive Income For the three months ended June 30, 2024, the company generated total revenues of $152.6 million, a significant increase from $129.9 million in the prior-year period Key Income Statement Figures - Q2 ($ in thousands) | Account | Q2 2024 | Q2 2023 | | :--- | :--- | :--- | | Total Revenues | $152,575 | $129,900 | | Income from Operations | $81,967 | $61,629 | | Net Income Attributable to Common Stockholders | $52,865 | $39,009 | | Diluted Net Income Per Share | $0.52 | $0.42 | Reconciliation of Net Income to FFO, Core FFO and Adjusted FFO For Q2 2024, Net Income of $54.9 million was reconciled to key non-GAAP performance metrics: Funds from Operations (FFO) of $95.8 million, Core FFO of $104.2 million, and Adjusted Funds from Operations (AFFO) of $105.3 million Reconciliation to AFFO - Q2 2024 ($ in thousands) | Metric | Amount | | :--- | :--- | | Net Income | $54,913 | | Adjustments (Depreciation, Amortization, etc.) | +$40,920 | | Funds from Operations (FFO) | $95,833 | | Amortization of lease intangibles, net | +$8,381 | | Core Funds from Operations (Core FFO) | $104,214 | | Adjustments (Straight-line rent, Stock comp, etc.) | +$1,094 | | Adjusted Funds from Operations (AFFO) | $105,308 | Reconciliation of Non-GAAP Financial Measures This reconciliation details the calculation of key leverage and performance metrics Net Debt and Recurring EBITDA Calculation - Q2 2024 ($ in thousands) | Metric | Amount | | :--- | :--- | | Total Debt | $2,697,393 | | Less: Cash and cash equivalents | ($24,254) | | Net Debt | $2,673,139 | | EBITDAre | $125,611 | | Adjustments for Run-Rate & Amortization | +$10,187 | | Recurring EBITDA | $135,798 | | Annualized Recurring EBITDA | $543,192 |