This Retail REIT Can Grow Dividends

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It is difficult to avoid getting excited with Agree Realty, whose stock, as we agreed last month, is a high-potential dividend growth stock. In a sector featuring both National Retail Properties and Realty Income, it is refreshing to see a bold, but riskier, alternative to both options. Our ranking for best-performing Q2 equity REITs showed Agree to be a leading stock, and can probably be on the top of our Q3 ranking as well.

Strategy

Agree invests in net lease retail properties (with tenants covering most property costs), on which they have focused completely over the past years. The business has virtually become a pure play in the sector. Besides, the tenant roster is 54 percent investment grade. Except for Walgreens (19 percent of annualized base rent), its portfolio has no major tenants, nor any major lease expiration percentages in the upcoming years.

Moving from concentration

Though total market capitalization has not reached $1 billion, Agree has been composing as diverse a portfolio as possible. A hard-learned lesson from Borders, which filed for Chapter 11 bankruptcy protection in 2011 and represented 20 percent of the total annualized base rent, has influenced them. Agree has over 260 properties spread over the country. This year’s acquisitions are spread across 21 states, leased to 35 tenants operating in 19 diverse retail sectors. The underwritten average capitalization rate on the company’s acquisitions was about 8%.

Q3 results

Highlights have included almost 100 percent occupancy and 8 percent dividend-per-share increase year over year. Total revenues have increased 30 percent, while total debt-to-capitalization has been stable (mid-thirties). The one “disappointment” has been Adjusted FFO per share, whose growth from Q2 fell from 13 to 7 percent.

In conclusion, applying the same rules as those for Q2 ranking, Agree’s results have been as good as those of National Properties.

Companies: Agree Realty Corporation (NYSE:ADC), National Retail Properties (NYSE:NNN), Realty Income Corporation (NYSE:O)

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.

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