When investors purchase a real estate investment trust (REIT), they acquire the company itself and, because of the nature of the REIT’s leasing business, they also indirectly acquire the REIT’s tenants.
Before buying any REIT, it is prudent for an investor to investigate the quality, stability and diversity of the REIT’s tenants as well.
Take a look at a longstanding REIT with a solid performance and dividend growth history as well as the tenants that make up its business portfolio.
Agree Realty Corp. ADC is a Bloomfield Hills, Michigan-based net-lease REIT that focuses on retail properties. Its portfolio includes 1,908 properties totaling 40 million square feet across 48 states. Sixty-eight percent of its tenants are investment grade.
Agree Realty was founded as Agree Development Co. in 1971. In 1994, It went public as a REIT with the name Agree Realty Corp. and was listed on the New York Stock Exchange. It has a market cap of $6.1 billion. Joey Agree is the current president and CEO.
Agree Realty has been aggressive in its portfolio purchases. Over the past five years, it has acquired $5.9 billion in properties. In 2022, Agree Realty acquired 434 assets, worth approximately $1.59 billion. At the beginning of 2023, Agree Realty told shareholders it was looking to reach $1 billion in acquisitions in 2023. More recently it increased its full-year 2023 acquisition guidance to $1.2 billion.
In recent years, Agree Realty has branched out into investing in ground leasing, and its ground-lease portfolio is now 12.1% of its annualized base rent (ABR).
Top 20 Tenants
Agree Realty’s top 20 tenants include some of the most well-known and largest retail tenants in the U.S. Whatever the economy may do, these are some of the most stable, rent-paying retailers a REIT could have in its portfolio. Its largest tenants include Walmart, Dollar General, Tractor Supply Co., Best Buy, Kroger, CVS, Lowe’s and Home Depot.
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Its tenant base by sector is well-diversified among grocery stores, home improvement stores, automotive services, dollar stores, convenience stores and others. The largest sector is grocery stores with a 10.5% total of Agree Realty’s ABR. One of Agree Realty’s acquisition criteria is recession resistance. Come rain or shine, people still have to buy food, so grocery stores are usually among the most stable sectors. A store like Kroger also acts as an anchor for other stores in the strip malls.
The chart below provides a snapshot of Agree Realty’s breakdown of tenants and tenant sectors by ABR and percentage of ABR in its portfolio:
Tenant Profiles
Walmart Inc. WMT is a Bentonville, Arkansas-based American multinational retail corporation. Walmart operates a large chain of hypermarkets (combined department store and supermarket), discount department stores and stand-alone grocery stores worldwide. It has over 10,500 stores and Sam’s Clubs in 24 countries and employs 1.6 million people in the U.S.
Within its stores, Walmart also operates several services, such as auto care centers, financial and photo services and pharmacies. Its Walmart Plus program provides users with discounts on streaming services, free shipping, free delivery, early access to online deals and product releases and savings on gasoline.
Walmart was founded in 1962 by Sam and James Walton. Its initial public offering (IPO) at $16.50 per share was in August 1972. Today its annual revenue of $570 billion makes it the largest company by revenue in the world. Walmart accounts for 6.6% of Agree Realty’s annualized base rent.
Best Buy Co. Inc. BBY is a Richfield, Minnesota-based multinational consumer electronics retailer. Best Buy was founded in 1966 under the name Sound of Music. In 1983, the name changed to Best Buy. It went public in 1985 and debuted in 1987 on the New York Stock Exchange.
Best Buy has 1,044 stores in the U.S. and Canada. It also operates a number subsidiaries such as Geek Squad, Magnolia Audio Video and 50 Pacific Sales stores and outlets. Revenue for the 12 months ending Jan. 31 was $46.3 billion. Best Buy supplies about 4% of Agree Realty’s ABR.
Kroger Co. KR is a Cincinnati-based company with 2,720 grocery and 145 multidepartment stores, pharmacies and other types of stores in 35 states. It’s the largest supermarket operator in revenue and the fifth-largest general retailer. It’s ranked No. 17 on the Fortune 500 list of top revenue-producing corporations. Kroger was founded in 1883 and employs approximately 430,000 workers.
In October 2022, Kroger merged with Albertsons Companies Inc ACI, giving the combined company nearly 5,000 stores across 48 states. Kroger supplies about 3.3% of Agree Realty’s total ABR.
The chart below is a breakdown of Agree Realty’s ground-leasing portfolio, totaling 208 leases. The weighted average term of these leases is 11.1 years. Investment-grade companies account for 87% of the leases.
Looking at company debt, Agree Realty seems to be in good shape. Most of its debt is not due until 2028 or later. At the end of 2022, Agree Realty’s debt-to-equity ratio for the fourth quarter was 0.44. Any debt-to-equity ratio below 2 is considered to be good, so Agree Realty is doing well in its management of company debt.
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Recent News
On April 13, Agree Realty raised its monthly dividend from $0.24 per share to $0.243 per share. The new annual dividend is now $2.916, with a yield of 4.33% and funds from operations (FFO) payout ratio of 73.7%.
Agree Realty’s dividend growth has been steady and consistent. Between 2012 and the end of 2022, there were 134 consecutive common dividends paid, and the 10-year compound annual growth rate (CAGR) was 6%.
On May 4, Agree Realty reported its first-quarter operating results. Funds from operations of $0.98 beat the estimates by $0.02 and were a penny higher than FFO from the first quarter of 2022. Revenue of $126.62 million beat the estimates by $2.13 million and was 28.8% above revenue from the first quarter of 2022. The present portfolio occupancy rate is 99.7%, one of the highest among similar REITs.
On May 5, Agree Realty filed an 8-K form with the Securities and Exchange Commission (SEC) for a mixed shelf offering of up to $750 million in unsold common stock from a previous at-the-market shelf registration statement in September 2022. The equity distribution agreements at that time were with Wells Fargo Securities, Citigroup Inc., J.P. Morgan Securities Inc., Morgan Stanley and other firms. Agree Realty also entered into a new equity distribution agreement with Robert W. Baird & Company Inc. in substantially the same form as the previous one.
On May 8, RBC Capital Markets analyst Brad Heffern maintained an Outperform rating on Agree Realty and raised his price target from $74 to $75. Two weeks earlier, RBC Capital had cut its price target on Agree Realty from $76 to $74.
Performance History
Agree Realty’s performance over the years has been outstanding. Since its IPO in 1994 it’s provided investors with a 12.3% compound average total return.
Its 20-year total return is 399.8%, for an average annual total return of 8.37%. A starting investment of $10,000 in May 2003 would now be worth $49,953. Over the past five years, shareholders have made a 73.8% total return.
The 52-week range is $63.34 to $80.44, and the year-to-date total return is negative 2.69%. Its most recent closing price was $67.04.
Agree Realty is a longstanding quality net-lease retail REIT with profitable total returns and a stable and consistent dividend that grows every year. Agree Realty has been aggressively acquiring properties to add to its high-class portfolio. Its net-lease business model preserves its bottom line, diversified tenants in multiple sectors are investment-grade quality, and its occupancy rate is just a few ticks below 100%.
Recent earnings and revenue numbers beat the estimates as well as year-over-year numbers. And if that’s not enough, the dividend payments are monthly.
Over the past five years, private market real estate investments have outperformed the publicly traded REIT market by about 50%. Check out Benzinga’s Real Estate Offering Screener to discover the latest passive real estate investments.
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