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Msg  29 of 30  at  1/27/2022 6:10:46 PM  by

jerrykrause


COVID retail reckoning offers Agree opportunity: Landlord finds right mix through acquisitions


 
 

COVID retail reckoning offers Agree opportunity: Landlord finds right mix through acquisitions

 Pinho, Kirk.Crain's Detroit Business; Detroit Vol. 38, Iss. 3, (Jan 24, 2022): 1.
 
 

At the onset of the COVID-19 pandemic, a Bloomfield Hills-based real estate investment trust felt it was poised to capitalize on the upheaval the global health crisis had brought to retail real estate.

Turns out Agree Realty Corp. (NYSE: ADC) was right.

The company, run by President and CEO Joey Agree, has more than doubled its portfolio size and outgrown a headquarters it expanded less than three years ago, last week announcing it would redevelop a former Art Van Furniture Inc. store into its new base of operations across 50,000 square feet.

Focusing on retail properties leased to investment-grade tenants, Agree Realty has spent the last decade-plus growing and reconfiguring its portfolio with the second generation of the Agree family at the helm.

The company has done that by rapidly buying up properties with a diverse mix of tenants that have strength in all facets of the retail game, in stores, spaces in between.

"COVID-19 has reaffirmed our belief that the strongest retailers with the largest balance sheets are going to get even stronger," Agree said in an interview. "Their omni-channel, including buy-online, pick-up-in-store, click-and-collect and fulfillment initiatives, helped get consumers essential goods and services during the days of the lockdown. Now as we emerge from this pandemic, hopefully sooner rather than later, retailers' focus today is truly on omni-channel execution."

The company's portfolio of properties has ballooned to 1,404 across 47 states totaling a little over 29 million square feet, growing from the 660 properties and 11.5 million square feet it had less than three years ago and the 860 properties and 16.3 million square feet it had less than two years ago.

The growth is expected to continue in 2022, as the company's current estimation is an acquisition volume of $1.1 billion to $1.3 billion, although those estimations can change over the course of the year.

The company will announce its fourth quarter and full-year 2021 financials Feb. 22

Its core funds from operations for the third quarter were $64 million, up 44 percent from $44.5 million in the third quarter 2020, the company said in November. For the first three quarters of 2021, core FFO was $175.9 million, up 43.2 percent from $122.9 million from the same period in 2020.

Although today it has an enterprise value of about $6.7 billion and is in growth mode, the company ran into some bumps more than a decade ago as its revenue was tied to the fate of some ultimately doomed tenants.

Beyond Borders

Richard Agree, Joey Agree's father who remains executive chairman of the board, started the company's predecessor, Agree Development Corp., in 1971 and developed more than 40 shopping centers in the Midwest and Southeast over the course of two-plus decades. Then in 1994, Agree Realty Corp. went public as a real estate investment trust with an IPO of 2.5 million shares.

But in the years that followed, some of its key tenants suffered mightily.

Up until its 2010 acquisition and diversification strategy, Borders, the former Ann Arbor bookseller that filed for bankruptcy protection in 2011 and later liquidated its assets and closed its stores; and Kmart, the troubled Illinois-based subsidiary of Sears Holdings Corp., were two of Agree Realty's top sources of tenant income.

At the beginning of 2010, 29 percent of Agree Realty's rental revenue came from Borders, and 71 percent total combined came from Borders, Walgreens and Kmart.

Today, Borders is no more and Kmart, formerly based in Troy, is no longer a portfolio tenant.

Many eggs, many baskets

These days, according to an investor presentation this month, Agree's portfolio is far more diversified.

Walmart Inc. is its largest tenant, accounting for 6.7 percent of annualized base rent. That's followed by Tractor Supply Co. (3.9 percent), Dollar General Corp. (3.8 percent), Best Buy Co. Inc. (3.3 percent); O'Reilly Auto Parts (3.3 percent); TJX Companies Inc. (3.2 percent); Kroger Co. (3.1 percent); and Hobby Lobby Stores Inc. (3 percent).

"So it's the largest operators in the world who have the capital to continue to invest in price, labor and an omni-channel future," Agree said.

And the industries its tenants operate in are also more diversified, with grocery accounting for 10.6 percent of annualized base rents, followed by home improvement at 9.4 percent — both retail sectors that have stayed strong in part as a result of state requirements instituted early in the pandemic to stop the spread of the coronavirus.

"In many ways, a lot of the retail that Agree invested in, whether it is auto stores or quick-service restaurants or Sherwin-Williams, or on the bigger side, Michael's, Big Lots, most of the product that they invest in was either deemed essential or grew as a result of the smaller businesses being closed," said Steven Silverman, a retail real estate expert who is senior vice president of investment advisory services for Farmington Hills-based Friedman Real Estate.

Agree also managed to avoid tenants that have been highly affected by the COVID-19 pandemic, namely health and fitness centers (2 percent of annualized base rent), movie theaters (1.1 percent of annualized base rent) and entertainment retail like Dave & Buster's (0.7 percent of annualized base rent).

In some ways slowly and in other ways rapidly, retail will continue to evolve.

"When I talk to investors and sell-side, I tell them that when my children, who are 8 and 10 years old today, go to college, they won't know if Walmart started as a brick-and-mortar retailer or an online retailer and with Amazon, the same but vice versa," Agree said. "Omni-channel initiatives by legacy brick-and-mortar retailers and brick-and-mortar initiatives by legacy online or digitally native brands, are all converging faster than anyone anticipated due to the pandemic."

A new home base

Beginning next year, the company will start observing the retail industry and investing in its real estate from its new digs along Woodward Avenue north of Normandy Road.

Agree declined to disclose how much is being spent on the Art Van build-out, but described it as a "significant renovation that will convert a former retail furniture store into a 21st century modern workspace" adding things like training and development areas, a gym and locker rooms and other amenities for employees.

The building gives Agree Realty "significant capacity to grow on a single floorplate in one building," Agree said, also noting the property's centralized location in the region.

"We had a preference to stay within a five-mile radius of our existing headquarters," Agree said. "The opportunity here is extremely unique, to find a 50,000-square-foot floorplate on Woodward Avenue with covered parking in a tremendous location was compelling."

 
 
 
 
 


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