Investors Have Taken Notice of This Net Lease REIT

chart01Although equity REITs did not fare so well in April, May seems to be a different story so far. Equity REITs managed a median return of 4.1 percent last week, with all sectors managing a positive return while 159 out of 170 REITs managed the same. Something that is particularly interesting because the performance of the S&P500 was flat across the same period of time.

As a result, it is no coincidence that more and more investors are taking note of equity REITs, with particular attention being focused on Agree Realty last week, which has made a comeback that delivered rich rewards for those that placed their trust in it. In short, Agree Realty is a net lease retail small cap alternative to ‘O’ and ‘NNN’, with a bad history associated with tenant concentration. Back when Borders declared bankruptcy in 2011, it harmed the REIT because Borders represented 20% of its annualized base rent. Since then, Agree Realty has worked on reducing its tenant concentration, though it is interesting to note that it has a pharmacy tenant concentration, as shown by the example of Walgreens, which still makes up 17 percent of its ABR.

Regardless, Agree Realty has managed to be one of the highest-performing net lease REITs with a 27 percent return in 2016, beaten out by Seritage Growth, which is a relatively new REIT that is still in its infancy. In general, net lease REITs have enjoyed impressive returns in spite of the fact that its sector experienced moderate growth, which was much more moderate than that of data centers, for example.

With that said, Agree Realty is not the only REIT of interest for curious investors. For example, Summit Hotel Properties managed a 11 percent increase in share price last week, partly because of its strong performance that was made public last week. The company reported a 13 percent increase in dividends and a 21 percent increase in AFFO per share in Q1. Similarly, Ashford Prime enjoyed a 9 percent increase in its share price last week. They reported a 46 percent increase in its AFFO per share in Q1 in spite of its ongoing struggle with one of its biggest shareholders over its future. In contrast, Winthrop Realty Trust lost 18 percent, which is no surprise since it is currently undergoing liquidation.

Source:Summit Hotel Properties, Inc.(NYSE:INN), Agree Realty Corp.(NYSE:ADC),Seritage Growth Properties(NYSE:SRG),Winthrop Realty Trust(NYSE:FUR)

Disclaimer: This is not a recommendation to buy or sell stocks. The highest-yield stocks are not necessarily the best portfolio investment choice. The purpose of this report — which is essentially a snapshot of information available on May 06, 2016 — is to reduce your stock analysis by enabling you to compare stock and sector performance. Please do your own due diligence before making any investment decision.

As of April 29, 2016, the equity REITs are constituent companies of the FTSE NAREIT All REITs Index. Companies whose equity market capitalization is lower than $100 million have been disregarded.

This report 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. 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.

U.S. REITs: Flight to Quality

 

net leaseThis year so far net lease retail has gotten a head start on being the best performing REIT sector. Realty Income, National Retail Properties, and Agree Realty have been the companies with top returns, ranging between 9% and 14%. Their rally, however, has decreased dividend yields, generating discontent from dividend investors who do not appreciate reduced yields.

Investors are turning to net lease because they tend to be less volatile than the financial markets. Realty Income, for instance, has a beta of 0.12 for the last 36 months. That is, when the S&P500 varies by 1%, the stock only varies by 0.12% on average.

Also, net lease retail has a good record of paying dividends year after year. Realty Income, National Retail Properties and Agree Realty have been distributing similar or increasing dividends for many consecutive years (18, 26 and 5 years, respectively).

In addition, landlords love net leases because they push costs of maintenance, taxes and insurance to the tenant. Landlords like the convenience of not having to spend time and money maintaining the property. In the end, they benefit from a leaner cost structure and more stable funds from operations.

For all the reasons that I mentioned above, the increasing demand for net leases can be interpreted as a flight to quality.

Single Family Homes

At the same time net lease retail is experiencing a thriving performance, single family homes have been the worst performing sector so far this year. Last year’s announcement of the merger between American Homes 4 Rent (AMH) and American Residential Properties (ARPI) didn’t seem to help their stock performance in 2016. Since January, both AMH and ARPI stocks have dropped by almost 15%.

During the fourth quarter, activist Land and Buildings have tripled their position on ARPI.  On 31 December 2015, ARPI represented Land and Buildings’ second largest investment and Land and Buildings were one of ARPI’s largest shareholders. We don’t know yet if the drop is associated with a potential exit of Land and Buildings, which have applauded the merger decision.

As to the newly formed Colony Starwood Homes, the stock has been holding up better. Their 2016 return has been virtually flat. They will release Q4 results this Monday.

This week’s performance

This past week was another good week for REITs. We saw some familiar faces as top performing stocks. For instance, NorthStar Realty (NRF) has climbed to the top after the company has announced the sale of various investments, as well as the creation of a special committee to explore the possibility of recombining with its external manager NorthStar Asset Management. NRF stocks went up by 23%.

NRF rally must have been a relief for shareholders following weeks of poor performance. Nonetheless, there is still a long way to go if the company really wants to regain its November prices.

Check the reports for Dividend Yield by Sector and Weekly Returns.

Source: Realty Income Corporation(NYSE:O), National Retail Properties, In(NYSE:NNN), Agree Realty Corp.(NYSE:ADC), NorthStar Realty Finance Corp.(NYSE:NRF), Northstar Asset Management Gro(NYSE:NSAM), American Residential Propertie(NYSE:ARPI), American Homes 4 Rent(NYSE:AMH), Colony Starwood Homes(NYSE:SFR), Yahoo!Finance, SEC, Fast Graphs, Land and Buildings

Disclaimer: This is not a recommendation to buy or sell stocks. The highest-yield stocks are not necessarily the best portfolio investment choice. The purpose of this report — which is essentially a snapshot of information available on February 26, 2016 — is to reduce your stock analysis by enabling you to compare stock and sector performance. Please do your own due diligence before making any investment decision.

As of January 31, 2016, the equity REITs are constituent companies of the FTSE NAREIT All REITs Index. Companies whose equity market capitalization is lower than $100 million have been disregarded.

This report 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. 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.

This Retail REIT Can Grow Dividends

chart

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.