Agree Realty's Strategic Initiatives and Financial Performance in 2023
2024-03-05
Agree Realty, a real estate investment trust (REIT) specializing in retail properties, recently conducted a conference call to review their fourth quarter 2023 earnings. The call was overseen by Joey Agree, the President and Chief Executive Officer of the company, and featured key participants such as Brian Hawthorne, the Director of Corporate Finance.
During the call, Brian Hawthorne issued a cautionary statement, informing participants about the company's intention to make forward-looking statements and discuss non-GAAP financial measures. He directed participants to the earnings release and SEC filings for information on risks and uncertainties.
Joey Agree highlighted the strategic initiatives implemented by Agree Realty in 2023. These initiatives included raising $560 million of forward equity, adhering to their core strategy of investing in the nation's top retailers, and conducting insider purchases totaling nearly $12 million. Agree Realty's core strategy revolves around offering debt financing, investing in premium retailers, and steering clear of high-risk investments.
The company also underscored their focus on attaining significant investment spreads and identifying the best risk-adjusted opportunities in the new economic landscape. They stressed the importance of sustainable growth and the disciplined allocation of capital. Agree Realty outlined a scenario where they could achieve over 3% AFFO per share growth in 2024 with conservative assumptions and no external growth.
In terms of acquisition activity, Agree Realty's endeavors in 2023 accounted for one-third of their overall activity, a notable increase from just over 10% in the previous year. They completed or had under construction 37 projects within their development and DFP platforms, representing around $150 million of committed capital. Additionally, they divested five properties for approximately $10 million in gross proceeds.
By the end of 2023, the company's portfolio encompassed 2,135 properties across 49 states, with nearly 74% of annualized base rents acquired that year originating from investment-grade retailers. They engaged in sale-leaseback activity with prominent operators in the farm and rural supply as well as convenience store sectors.
Financially, Agree Realty observed a rise in their annualized dividend amount from the first quarter of 2023 to January and February 2024. They reported $709,000 of income tax expense during the fourth quarter and $2.9 million for the entire year. General and administrative expenses decreased quarter over quarter and accounted for 6.1% of adjusted revenue for the year.
Throughout the year, the company raised over $370 million of gross equity proceeds via their forward component of the ATM program. They also secured a $350 million term loan at a fixed rate of 4.52% for 5.5 years, extending the maturity into 2029. As of December 31, 2023, their net debt to recurring EBITDA stood at approximately 5.7x.
Regarding capital deployment, Agree Realty concentrated on achieving substantial accretive spreads and maintaining discipline in their investments. They evaluated their cost of capital using a forward AFFO yield and aimed to deploy capital 100 basis points wider than that cost. The company identified the development vertical as offering the best spreads and exercised caution in expanding their development pipeline unless it delivered appropriate levels of accretion on deployed capital.
The company encountered challenges in the market environment, including volatility, uncertainty, and a decline in transaction volume. They stressed the significance of stability, predictability, and being decisive and disciplined in transactions. They also emphasized the value of their stable retail portfolio, robust balance sheet, and dependable track record for investors.
Joey Agree, President and CEO of Agree Realty, addressed various topics during the call, such as their capital deployment approach, management of exposure to specific retailers like Walgreens and CVS, and the prevailing market conditions. He mentioned the company's pursuit of off-market and blend-and-extend opportunities, fostering enduring relationships with retail partners.
Joey Agree acknowledged the difficulties in achieving their objectives in the current environment and emphasized the importance of perseverance. He highlighted the company's 5%+ and growing dividend, 6% AFFO growth, fortified balance sheet, and robust retail portfolio as compelling reasons for investors to consider Agree Realty.
The call also delved into discussions about the company's outlook for transaction volume, improving cap rates, yields on new development funding deals, and the potential for rate hikes. They expressed confidence in their rental rates and the performance of retailers in their portfolio.
In conclusion, the conference call offered valuable insights into Agree Realty's fourth quarter 2023 earnings, strategic initiatives, financial performance, capital deployment strategy, and the challenges and opportunities present in the market environment.