Agree Realty: A Top-Tier Retail REIT with High Growth Potential

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uyong jain 2 months

I want to chat about a fascinating REIT that has caught my eye recently: Agree Realty (NYSE:ADC). If you're not familiar with REITs, they're Real Estate Investment Trusts that allow investors like us to get into the real estate game without actually buying properties ourselves.

Now, Agree Realty may not be the biggest REIT out there, but don't let its size fool you. It's a gem in the retail REIT world, with a top-notch portfolio and a healthy balance sheet. What sets it apart from the rest is its higher growth rates, which make it an exciting prospect for investors like me who are looking to expand our REIT watchlist.

ADC has been around since 1971, founded by Richard Agree himself. Since then, it has grown into a well-diversified triple-net-lease giant. What does that mean? Well, it focuses on maintaining a conservative capital structure that provides both growth and steady shareholder distribution growth.

One thing that impresses me about Agree Realty is its top tenants, which include heavy hitters like Walmart, Dollar General, Best Buy, and Kroger. These big names bring stability to the portfolio, even though they come with some subdued pricing power risks.

Moreover, a big chunk of the company's rent, 68% to be precise, comes from investment-grade companies, meaning they're less likely to fail anytime soon. That's a relief, isn't it?

Another smart move by ADC is engaging in ground leases. These agreements allow tenants to develop properties during the lease period, and once it's over, the improvements belong to the property owner. It's a win-win situation, and it's contributed to ADC's success in value-added projects.

Speaking of growth, Agree Realty is no stranger to making smart investments. It has reviewed a whopping $60 billion in potential deals since 2018, resulting in $5.9 billion in acquired growth. Impressive, right?

Now, let's talk dividends. ADC is known for its well-covered monthly dividend, yielding over 4%. Even better, it has a track record of never cutting its dividend and hiking it by 6% per year over the past decade. That's the kind of reliability I like in my investments.

As for valuation, Agree Realty is trading at a premium compared to its peers, but that's justified given its faster growth rate. Over the past five years, it has grown its adjusted funds from operations by an impressive 7.2% annually, outperforming the sector median by a considerable margin.

While I agree with the consensus price target of $76, I must admit that the stock has lost some momentum lately, thanks to concerns about elevated interest rates and rising oil prices. As for me, I'm willing to wait for a better entry point at around $60.

Agree Realty is a top-tier retail REIT with a promising blend of growth potential and stable income. Its careful approach to growth, well-diversified portfolio, and focus on ground leases have all contributed to its success, outperforming larger peers over the years.

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