U.S. REITs — Wouldn’t You Agree Realty? (Part 2/2)


Click here if you haven’t read Part 1 of this article

Agree Realty’s (NYSE:ADC) dividend history is almost impeccable. Distributing dividends since 1994, it has not missed a single quarter. It has always increased or maintained its dividend rate, except for a roadblock in February, 2011. At that time, Borders Group filed for Chapter 11, raising concerns about the liquidity of Agree Realty, which leased 14 properties to Borders that were equivalent to 20 percent of Agree’s annualized base rent. For that reason, Agree decreased its quarterly dividend from $0.51 to $0.40. The dividend rate has never recovered completely (today it is at $0.465) and the company maintains a dividend payout of 75 percent, which is in line with its peers.

The Borders’ lesson was a hard one for Agree. Since 2011, the company decreased its exposure to Borders, disposing of their non-core assets of Borders, Kmart, and other retailers. While in 2009, its top three tenants–Walgreens, Borders, Kmart–were responsible for 70% of the ABR, the same is not true today. Now, the top three tenants–Walgreens, Wawa, CVS–represent about one quarter of the ABR. Its mix of tenants encompasses mostly national brands and a significant portion of super-regional retailers.


With aggressive growth pacing, the company has been able to maintain its total-debt to total-market capitalization in line with its peers (37 percent). In relation to other leverage metrics such as debt to EBITDA and interest coverage, the company has been more conservative than its peers, demonstrating its ability to adequately manage growth funding.pic06The good news is that Agree is trading at 6.1 percent dividend  yield –above the sector median of 5 percent–and its price to FFO is 13x, versus the 16x for its peers. If you are up to the risk of investing in a company under the $1 billion market capitalization, ADC seems to be a great investment and poses as a smaller alternative to O and NNN.

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