Agree Realty: Great Way To Diversify From Realty Income

seekingalpha06-29

Agree Realty (ADC) has gained a lot of traction in the market lately by offering a great alternative for Realty Income investors.While ADC trades at higher multiples and offers slightly lower dividend...

Source Link

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Comments

We need your insight to fill this gap

Leave a comment

{"i18n":{"language":"en_US"},"isChannel":false,"data":{"share":"https://ttm.financial/m/news/2447385416?lang=en_US&edition=fundamental","thumbnail":"https://static.seekingalpha.com/cdn/s3/uploads/getty_images/172225608/image_172225608.jpg","is_english":true,"pubTime":"2024-06-29 00:23","share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","id":"2447385416","market":"sg","top_or_hot":-1,"title":"Agree Realty: Great Way To Diversify From Realty Income","media":"seekingalpha","content":"<div>\n<p>Agree Realty (ADC) has gained a lot of traction in the market lately by offering a great alternative for Realty Income investors.While ADC trades at higher multiples and offers slightly lower dividend...</p>\n\n<a href=\"https://seekingalpha.com/article/4701523-agree-realty-great-way-to-diversify-from-realty-income\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Agree Realty: Great Way To Diversify From Realty Income</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nAgree Realty: Great Way To Diversify From Realty Income\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-06-29 00:23 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4701523-agree-realty-great-way-to-diversify-from-realty-income><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Agree Realty (ADC) has gained a lot of traction in the market lately by offering a great alternative for Realty Income investors.While ADC trades at higher multiples and offers slightly lower dividend...</p>\n\n<a href=\"https://seekingalpha.com/article/4701523-agree-realty-great-way-to-diversify-from-realty-income\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"EPRT","symbol_name":"Essential Properties Realty Trust Inc.","start_time":0,"source_url":"https://seekingalpha.com/article/4701523-agree-realty-great-way-to-diversify-from-realty-income","article_id":"2447385416","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/172225608/image_172225608.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2447385416","pubTimestamp":1719591795,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Agree Realty (ADC) has gained a lot of traction in the market lately by offering a great alternative for Realty Income investors.While ADC trades at higher multiples and offers slightly lower dividend","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"EPRT":"Essential Properties Realty Trust Inc.","ADC":"艾格里房产","BK4160":"多样化房地产投资信托v","BK4585":"ETF&股票定投概念","O":"Realty Income Corp","BK4588":"碎股","BK4080":"零售业房地产投资信托","CFA.SI":"NikkoAM-STC Asia REIT","NYSE":"纽交所","BK4231":"零售房地产信托"},"translate_title":"Agree Realty：房地产收入多元化的好方法","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"ADC":1,"EPRT":1,"NYSE":1,"O":1,"CFA.SI":0.9},"content_text":"Agree Realty (ADC) has gained a lot of traction in the market lately by offering a great alternative for Realty Income investors.While ADC trades at higher multiples and offers slightly lower dividend yield than O, the enhanced defensive characteristics justify these drawbacks.Having said that, there is also a merit of holding O in the portfolio.In this article I elaborate on the key reasons why from now on I will be investing in ADC.   buzbuzzerAgree Realty (NYSE:NYSE:ADC) is a retail net lease REIT that has recently gained a lot of traction in the investor community. While its underlying operations are rather straightforward and do not differ that much from the other retail net lease REIT such as Realty Income Corporation (NYSE:O) and Essential Properties Realty Trust (NYSE:EPRT), there are several characteristics that render ADC interesting. The key driver behind the increased chatter around ADC as an enticing investment play has been the increasing interest rates that have negatively affected almost the entire REIT space (e.g., depressed multiples, higher borrowing costs, challenging M&A market). This environment has introduced slightly different focus points in REIT investing compared to the period when interest rates were extremely accommodative. Currently, the focus in on back-end loaded debt maturity profiles, robust capital structures and, in general, a high degree of margin of safety that has to be embedded in REIT vehicles. For ADC investors specifically, the discussions have been more active around the comparison of widely popular Realty Income in relation to ADC itself, which presumably now has a better risk/reward profile. In my portfolio I own O, but not ADC. With that being said, I have decided that from now on, I will be building a stake in ADC including from the proceeds that would come from O's dividend distributions. Let me explain this. Thesis If we compare the multiples and dividend yields, we will notice that, at least optically, O is more enticing. The FWD P/FFO for ADC is 15.1x and the dividend yield is at 4.9%. For O, however, the FWD P/FFO stands at 12.4 and the dividend yield is 6%. The difference is not that huge, but it is still there and just looking from these two metrics, the early conclusion would be to go long Realty Income. In the chart below we can see how the divergence between price returns have started to occur since the outbreak of COVID-19. After the first notable drop in price levels of O and ADC in early 2020, ADC has managed to recover more quickly. In my view, this has to do with the increased focus by the financial market participants on defense and high quality names.   YchartsThe question is whether the aforementioned divergence is justified. There are two distinct reasons why I believe this to be the case. First, from the balance sheet perspective, ADC is clearly better positioned. The current net debt to EBITDA for ADC is 4.5x, while for O this metric stands at 5.3x. Typically, the sweet spot in the net lease REIT segment is 5x, which implies that ADC has some spare capacity to assume incremental leverage to fuel growth, whereas for O the capacity to source fresh debt is largely exhausted. Granted, theoretically, both of these REITs could lever up their balance sheets to 6x or even beyond that, but it is extremely improbable given the criteria stemming from the credit rating agencies. Furthermore, the debt maturity profile for ADC is superior as there are no meaningful borrowings coming due by 2028.    ADC Investor PresentationSuch a back-end loaded structure, allows ADC to mitigate the refinancing risk and enjoy greater cash flow predictability. This also means that ADC will be able to avoid the increasing financing costs that would stem from cheap debt rollovers during a higher interest rate environment. In O's case, however, there are meaningful (above $1 billion) debt maturities each year starting from 2024, when the total debt ticket size that has to be refinanced is $1.8 billion.  Second, for ADC an additional layer of defense comes from the high concentration in investment grade tenants. Currently, ADC has ~69% of its tenant roster carrying investment grade balance sheets, which is one of the highest levels not only in the retail net lease REIT space, but also in the overall REIT universe. Such a pronounced tilt towards high quality tenant list enables ADC to de-risk its underlying cash flows by keeping the build-up of non-accruals minimal. Moreover, the notion of IG capital structures warrants a favorable environment for these tenants to expand their operations, thereby keeping the demand levels for ADC solutions (i.e., net lease property identification and development) strong. For O, the investment grade tenants account for approximately 40% of the total rent flows, which is not bad, but significantly below the levels that ADC enjoys. So from this angle, ADC is again better positioned than O. The bottom line In my humble opinion, the difference between Realty Income and Agree Realty multiples is justified. From the risk perspective, ADC is a better choice than O given the stronger balance sheet and healthier tenant roster. So, if the objective is to capture attractive dividend streams that are truly de-risked, investors should consider opening a position in ADC. With that being said, by no means I am arguing to avoid O or sell everything that is invested in O to gravitate towards ADC. As opposed to Agree Realty, Realty Income embodies greater probability to deliver outsized returns going forward, especially in the scenario of dropping interest rates. There is an embedded potential to capture returns from the multiple convergence that should take place if interest rates decrease as during such scenario the extra benefit that stems from back-end loaded debt maturity profiles and lower net debt to EBITDA would reduce.  Moreover, while waiting for the thesis to play out for O, investors can access higher dividend yield, while maintaining the risk levels balanced as it can also be implied by the upper investment grade balance sheet.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.28.3","shortVersion":"4.28.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2447385416"}