Real estate investment trusts have been slammed so far in 2020 as investors grow increasingly concerned about risk to mortgage and commercial lease payments.
On Thursday, Joey Agree, president and CEO of Agree Realty ADC, joined Benzinga’s PreMarket Prep to discuss how he has managed Agree’s portfolio to make it more recession-resistant and how today's climate is different than the financial crisis in 2008 and 2009.
Updating Agree's Portfolio
Agree took over the REIT's portfolio in 2010 and immediately began adjusting its holdings after realizing that 70% of the company’s 70 properties were devoted to just three companies: Walgreens Boots Alliance Inc WBA, Borders and K-Mart.
“We know one of them is officially gone, another one is basically gone and Walgreens is obviously still around. So the tenant base was highly concentrated in three names,” the CEO said.
At the time, he said the Great Recession had created opportunities for REITs with strong balance sheets.
“There was also the need for us to take our portfolio and diversify it as quickly as possible. You can’t do that through development. The average development project takes 18 to 24 months."
Diversification, Growth At Agree Realty
Instead, Agree launched an acquisition strategy in April 2010. In the decade that followed, Agree’s equity valuation grew from around $256 million to north of $3 billion today.
“Today our portfolio is approaching 900 properties and it's 60% investment-grade,” he said.
With K-Mart and Borders gone, Agree’s largest tenant is now Walmart Inc WMT, which makes up 6.2% of its total rent.
“Our focus today is on the best retailers in the country, and that’s a sandbox of approximately 20 tenants that we are targeting to our three external growth platforms,” Agree said.
2020 Vs. 2009
Agree also compared today’s COVID-19-driven downturn to the 2008 and 2009 financial crisis.
“The pandemic that we are in and the recession that this pandemic has caused relative to the Great Recession that we went through over a decade ago are apples and oranges,” he said, noting that the 2008 crisis was centered on the financial sector and the housing market.
“This is a health crisis, and the outputs of that are dramatically different. We saw discretionary retailers lose approximately 50% of sales during the Great Recession. Today during this pandemic, they went to zero percent of sales,” Agree said.
As a result, the retail sector is experiencing much higher stress levels than in 2008 and 2009, he said.
The CEO said the ultimate severity of the situation will be determined by the duration of the health crisis and the speed at which retailers will be able to ramp up sales after it’s over.
“We will not snap back. There is no V-shaped recovery, and most likely not a U-shaped recovery. The retailers that I talked to today and yesterday and every day are talking about how they get to the new normal in a post-pandemic recessionary environment,” Agree said.
Watch to the full interview with Joey in the clip below, or listen to the podcast here.
PreMarket Prep is a daily trading show hosted by prop trader Dennis Dick and former floor trader Joel Elconin. You can watch PreMarket Prep live every day from 8-9 a.m. ET here. The replay can be found on Benzinga's YouTube channel, and the podcast is on iTunes, Google Play, Soundcloud, Stitcher and Tunein.
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