Agree Leases Assets, Closes Sale

Zacks

Agree Realty Corporation (ADC), a real estate investment trust (:REIT), recently announced the signing of two lease agreements and completion of sale of an asset. The company’s strategic move is expected to enhance and diversify its portfolio of industry leading retailers, which in turn could be accretive to its earnings going forward.

The company has inked a deal with HomeGoods, an operational arm of The TJX Companies, Inc. (TJX), to lease a single-tenant property located in Monroeville, Pennsylvania. The deal marked the first lease agreement between Agree Realty and TJX. In addition to this, Agree Realty also entered into an agreement with the City of Lawrence to lease another single-tenant property located in Lawrence, Kansas.

Rent generation from both the properties is expected to begin one at a time, in the third quarter of 2013 and fourth quarter of 2012, respectively. Both the leased properties were previously occupied by Borders Books & Music - a subsidiary of Borders Inc.

Agree Realty mainly focuses on potential ground lease and built-to-suit opportunities for retailers under long-term net leases, thereby providing them with a consistent source of income. The company boasts a strong tenant base including retailers like - Walgreen Co. (WAG), Advance Auto Parts Inc. (AAP) and Kmart.

Agree Realty has undertaken to actively re-lease and divest the 14 properties which were previously occupied by Borders Inc. and its subsidiaries,  bankrupted in 2011. In addition to the twin lease deals, Agree Realty also announced that it has closed the sale of its remaining property leased to Borders. The single tenant property spanning 21,000 square foot and situated in Ohio, was sold for approximately $1.7 million. With the completion of the re-tenanting of two properties and sale of the assets, the company’s overall portfolio occupancy has now increased to 99%.

The company is dynamically fulfilling its strategic goal of repositioning its portfolio. It has divested assets that have limited opportunities and is acquiring properties which have the potential to generate higher returns. Of late, Agree Realty acquired three premium assets - a Family Dollar store in Spartanburg, South Carolina; a USAA Financial Services Center in Jacksonville, North Carolina; and an AutoZone store in Springfield, Illinois, for a combined purchase price of approximately $5.3 million. Currently, the company’s portfolio comprises of 96 properties situated across 25 states and spanning approximately 3.1 million square feet.

Agree Realty is expected to release its third quarter 2012 earnings on October 22, 2012. The Zacks Consensus Estimate for third quarter FFO (fund from operations) is currently pegged at 50 cents per share.

We have a long-term Neutral recommendation on the stock. However, it holds a short-term Zacks #4 Rank (Sell).

Note: FFO, a widely accepted and reported measure of the performance of REITs is derived by adding depreciation, amortization and other non-cash expenses to net income.

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