ADC

Agree Realty Corporation

67.58
USD
2.80%
67.58
USD
2.80%
61.62 80.44
52 weeks
52 weeks

Mkt Cap 4.30B

Shares Out 63.57M

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Worried About a Recession? These 3 REITs Aren't.

Real estate tends to be a cyclical sector. As the economy slows, demand for real estate typically cools off, weighing on property values and rental rates. However, some segments of the real estate market are more resilient than others. Because of that, real estate investment trusts (REITs) focused on these property types could continue thriving even if the economy enters a downturn in this year. Three REITs that aren't worried about a recession are Agree Realty (NYSE: ADC), Equity Residential (NYSE: EQR), and Prologis (NYSE: PLD). Agree Realty grows its portfolio and its performance with a who's who of strong retail tenants Marc Rapport (Agree Realty): Agree Realty is a retail REIT, a sector that was hit hard by the pandemic and is still struggling to recover as a whole as inflation rages and recession concerns loom. But this is no ordinary REIT. Building on a long-term record of outperformance, Agree's stock has kept on rising, and is now up about 8.5% year to date as the benchmark Dow Jones US Retail REITs Index has fallen about 15.5% over the same time. And while recession warnings have been ringing throughout 2022, this REIT keeps building its war chest, adding 205 cash-producing properties during the first six months to grow its portfolio to 1,607 buildings and ground leases spread across 48 states. Those properties are leased to tenants in 25 retail sectors and represent total acquisition volume of about $828 million. By year-end, Agree says it expects the total to be $1.5 billion to $1.7 billion in portfolio expansion. Agree's lengthy tenant list is dominated by investment-grade companies, including these top five in order: Walmart, Tractor Supply, Dollar General, Best Buy, and TJX Companies. Long-term leases to a diverse portfolio of such generally recession-proof general merchandise, auto parts and service, home improvement, and consumer electronics retailers point to more income and more dividend growth. Agree has been public since 1994 and since then has more than doubled the total return of the S&P 500, and it just raised its dividend again, this time by nearly 8% to $0.234 per share per month. Add a payout ratio of just over 70% based on funds from operations (FFO) and all this growing income makes Agree a standout option among the 33 retail REITs tracked by the Nareit trade group and in the stock market overall. Equity Residential is well insulated from a recession Brent Nyitray: (Equity Residential): Equity Residential is an apartment REIT that concentrates on affluent renters in highly desirable urban areas. The company has properties in Southern California, the Bay Area, Seattle, New York City, and Washington, D.C. The company selects its markets based on a number of factors including high prices for single-family homes, fast job and wage growth, and limited supply of housing. Highly skilled knowledge workers are the typical tenant for Equity Residential and the competition for workers like that is fierce. On the earnings conference call for second-quarter earnings, CEO Mark Parrell mentioned, "the average incomes for our residents who sign[ed] new leases with us in the last 12 months is 13% higher than the group who signed with us in the 12 months ended June 2021." This 13% increase is not directly comparable with the 5.2% increase in average hourly earnings reported in last Friday's jobs report, but it is a pretty decent point of reference. Parrell also mentioned that these workers are paying under 20% of their income in rent. This means they are not rent-stressed, which has historically been considered to be over 30% of income. Aside from increasing incomes, most of Equity Residential's markets have seen rapid home price appreciation. And when home prices rise, rent increases usually follow. While rising affordability issues have caused demand to fall, home prices are still appreciating by double digits. Equity Residential has a high occupancy rate of 96.7%, and pricing has grown 10% since the beginning of the year. Note that much of this falls straight to the bottom line since the lion's share of its borrowing costs is in fixed-rate debt. Between its tenants and rising home prices, Equity Residential seems to be in a good position. No signs of a slowdown Matt DiLallo (Prologis): Shares of industrial REITs have tumbled this year on fears that demand for warehouse space will cool off as the economy slows down. Industry leader Prologis has lost a quarter of its value on those demand concerns. However, the industrial REIT isn't seeing any downturn in demand. Far from it. The company noted on its second-quarter earnings call that occupancy and leasing have continued to grow, driven by demand from a broad set of users. Demand is so robust these days that Prologis increased its forecast for rent growth this year. It sees warehouse rental rates rising 23% globally (and 25% in the U.S.), up from its initial estimate that worldwide rent growth would hit 20% this year. Even if there were a recession, it wouldn't have much impact on Prologis' growth prospects, thanks to the long-term nature of its rental contracts. Rates on those leases are currently 56% below current market rents. Because of that, Prologis estimates that its net operating income will grow at a more than 8% annual rate through 2025 as its long-term leases expire and it captures current market rents even if they don't increase further. On top of that, Prologis has several other growth drivers. The REIT has a large pipeline of development projects that will help boost its rental income as they come online in the coming years. It also recently agreed to acquire fellow industrial REIT Duke Realty in a $26 billion deal. That acquisition will immediately boost Prologis' core funds from operations per share while enhancing its long-term growth prospects. While recessions typically impact demand for industrial real estate, there's such a massive backlog from the pandemic that it will drive the sector's growth for years to come. Add that to Prologis' other growth drivers, and this REIT isn't worried about a recession slowing it down. 10 stocks we like better than Agree Realty When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.* They just revealed what they believe are the ten best stocks for investors to buy right now... and Agree Realty wasn't one of them! That's right -- they think these 10 stocks are even better buys. *Stock Advisor returns as of July 27, 2022 Brent Nyitray, CFA has no position in any of the stocks mentioned. Marc Rapport has positions in Agree Realty and Prologis. Matthew DiLallo has positions in Prologis. The Motley Fool has positions in and recommends Best Buy, Prologis, and Walmart Inc. The Motley Fool recommends The TJX Companies and Tractor Supply. The Motley Fool has a disclosure policy. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc. Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off. Today’s Big Picture Asia-Pacific equity indexes ended today’s session down across the board. India’s Sensex ended the day essentially flat, down 0.06%, China’s Shanghai Composite and Australia’s ASX All Ordinaries declined 0.54% and 0.55%, respectively while Japan’s Nikkei fell 0.65%, Taiwan’s TAIEX dropped 0.74% and South Korea’s KOSPI declined 0.90%. Hong Kong’s Hang Seng led the way, down 1.96% on a broad selloff led by Health Technology and Health Services names while Transportation and Communications sectors provided the only relief. By mid-day trading, major European equity indices are down across the board and U.S. futures point to a positive open later this morning. At 8:30 AM ET, the much anticipated July Consumer Price Index (CPI) report was released: The headline figure for the month was expected to fall to 8.7% from June’s blistering 9.1% reading with core CPI that excludes food and energy ticking higher to 6.1% in July vs. 6.0% the prior month. The actual numbers show that inflation hit 8.5%, and core inflation was 5.9%. With the national average retail price for a gallon of gas falling through late June and July from its June 14 high of $5.016 per gallon per data from AAA, forecasters had expected the month over month decline in the headline CPI for July. The July Employment Report also showed wage inflation ran hotter than expected during the month. Let’s also keep in mind that we will be facing a “wash, rinse, repeat” cycle when it comes to inflation data and expectations for the Fed given tomorrow’s July Producer Price Index report. Data Download International Economy Producer prices in Japan rose by 8.6% YoY in July, compared with market forecasts of 8.4% and following an upwardly revised 9.4% the prior month. While marking the 17th straight month of producer inflation, the latest reading was the softest since last December. China's annual inflation rate rose to 2.7% in July from 2.5% in June and compared with market forecasts of 2.9% but even so the July figure marked the highest reading in the last year. The country’s Producer Price Inflation figure for July eased to a 17-month low of 4.2% YoY from 6.1% the prior month and less than the market consensus of 4.8%. Annual inflation rate in Germany was confirmed at 7.5% YoY for the month of July, down slightly from June’s 7.6% reading but still above the March and April figures of 7.3%-7.4%. The annual inflation rate in Italy slowed to 7.9% YoY in July from June’s 8% reading matching expectations for the month. While energy prices declined, prices for food and transportation rose at a faster pace. Domestic Economy This morning we have the usual Wednesday weekly reports for MBA Mortgage Applications and Crude Oil Inventories from the U.S. Energy Information Administration. At 10 AM ET, Wholesale Inventories for June will be published, and the figure is expected to rise 1.9%. While investors and economists will keep more than a passing interest in those reports and data, as we discussed above, it will be the July Consumer Price Index report at 8:30 AM ET that will shape not only how the US stock market opens today, but also expectations for the Fed’s next course of monetary policy action. The U.S. Energy Information Administration (EIA) expects domestic production of crude oil, natural gas and coal will all increase next year compared with this year. It forecast US crude production rising 6.7% to an all-time annual high 12.7M bbl/day in 2023 from 11.9M bbl/day in 2022, US natural gas output climbing to 100B cubic feet (cf)/day from 97B cf/day, and US coal production inching up to 601M short tons in 2023 from an expected 599M this year. The EIA also modestly increased its 2022 average nationwide gasoline price forecast to $4.07/GALLON vs. $4.05 if called for last month. It now also sees 2023 prices at $3.59/GAL vs. its previous forecast of $3.57. Markets Stocks continued in their holding pattern waiting for the latest CPI print save for some fundamental stories pushing Technology names and small caps around. The Dow and the S&P 500 were down slightly at 0.18% and 0.42%, respectively while the Nasdaq Composite dropped 1.19% and the Russell 2000 closed down 1.46% on the day. Energy names led the way yesterday but were overpowered by Technology and Consumer Discretionary sectors. Here’s how the major market indicators stack up year-to-date: Dow Jones Industrial Average: -9.81% S&P 500: -13.51% Nasdaq Composite: -20.14% Russell 2000: -15.83% Bitcoin (BTC-USD): -52.08% Ether (ETH-USD): -55.38% Stocks to Watch Before trading kicks off, CyberArk (CYBR), Fox Corp. (FOXA), Jack in the Box (JACK), Nomad Foods (NOMD), Vita Coco (COCO), Tufin Software (TUFN), and Wendy’s (WEN) will be among the companies issuing their latest quarterly results and guidance. At 9 AM ET, Samsung (SSNLF) will hold its Galaxy Unpacked 2022 at which it is expected to introduce new Galaxy foldable smartphone models, a new Galaxy Watch, and Galaxy Buds. Shares of advertising technology platform company The Trade Desk (TTD) jumped after the company reported quarterly results that topped expectations and guided current quarter revenue above the consensus forecast. The RealReal (REAL) reported a smaller than expected bottom line loss for its June quarter as revenue for the period rose 47.2% YoY to %154.44 million, topping the $153.99 million consensus. However, the company issued downside guidance for both the current quarter and 2022. Revenue for the September quarter is now expected to be $145-$155 million vs. the $164.3 million consensus; for the full year of 2022, revenue is forecasted to be $615-$635 million vs. the $653.7 million consensus. Shares of Coinbase Global (COIN) moved lower after it reported June quarter results that missed top and bottom line expectations. Revenue for the quarter fell 63.7% YoY as Total trading volume fell 53.0% YoY and 29.8% sequentially to $217 billion. Monthly Transacting Users (MTUs) grew 2.3% YoY but fell 2.2% sequentially to 9.0 million. For the current quarter, Coinbase sees the number of MTUs trending lower sequentially and total trading volume to be lower compared to the June quarter. Shares of Sweetgreen (SG) tumbled in aftermarket trading last night after the company missed quarterly revenue expectations, lowered its 2022 forecast, announced it will lay off 5% of its workforce, and downsize to smaller offices. ChipMOS TECHNOLOGIES (IMOS) reported its July revenue was $65.1 million, a decrease of 19.4% YoY and down 7.7% MoM. Taiwan Semiconductor (TSM) reported its July revenue increased 49.9% YoY to NT$186.76 billion, which equates to a 6.2% MoM improvement. Electric vehicle subscription startup Autonomy placed a $1.2 billion order for 23K electric vehicles with 17 global automakers, including BMW (BMWYY), Canoo (GOEV), Fisker (FSR), Ford (F), General Motors (GM), Hyundai (HYMTF), Lucid Group (LCID), Mercedes-Benz (DDAIF), Polestar (PSNY), Rivian (RIVN), Stellantis (STLA), Subaru (FUJHY), Tesla (TSLA), Toyota Motor (TM), VinFast, Volvo Car (VLVOF) and Volkswagen (VLKAF). IPOs As of now, no IPOs are slated to be priced this week. Readers looking to dig more into the upcoming IPO calendar should visit Nasdaq’s Latest & Upcoming IPOs page. After Today’s Market Close Bumble (BMBL), CACI International (CACI), Coherent (COHR), Dutch Bros. (BROS), Red Robin Gourmet (RRGB), and Walt Disney (DIS) are expected to report their quarterly results after equities stop trading today. Those looking for more on which companies are reporting when, head on over to Nasdaq’s Earnings Calendar. On the Horizon Thursday, August 11 Germany: Thomson Reuters Ipsos Monthly Global Primary Consumer Sentiment Index - August US: Weekly Initial & Continuing Jobless Claims US: Producer Price Index – July US: Weekly EIA Natural Gas Inventories Friday, August 12 Japan: Thomson Reuters Ipsos Monthly Global Primary Consumer Sentiment Index - August China: China Thomson Reuters Ipsos Monthly Global Primary Consumer Sentiment Index - August Eurozone: Industrial Production - June US: Import/Export Prices – July US: University of Michigan Consumer Sentiment Index (Preliminary) – August Thought for the Day “The release date is just one day, but the record is forever.” ~ Bruce Springsteen Disclosures Tufin Software (TUFN), CyberArk (CYBR) are constituents of the Foxberry Tematica Research Cybersecurity & Data Privacy Index Canoo (GOEV), Fisker (FSR), Lucid Group (LCID), Rivian (RIVN), Tesla (TSLA), Vita Coco (COCO) are constituents of the Tematica BITA Cleaner Living Index Canoo (GOEV), Fisker (FSR), Lucid Group (LCID), Rivian (RIVN), Tesla (TSLA), Vita Coco (COCO) are constituents of the Tematica BITA Cleaner Living Sustainability Screened Index The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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