Is Agree Realty a Buy?
The Federal Reserve's drastic interest rate increases during the past 15 months have upended valuations in the real estate investment trust (REIT) sector. REITs tend to be highly sensitive to interest rates, as they generally borrow a lot of money and rising rates increase the cost of debt. Meanwhile, rental increases tend to be a function of the supply-demand dynamics in the real estate niche where the REIT operates.
REITs must pay out almost all of their net income in dividends, and they tend to have above-market yields and often trade like bonds -- meaning their prices tend to fall when interest rates rise as they have recently. At the same time, there is mounting evidence of problems in the commercial real estate market, particularly office and retail. Agree Realty (NYSE: ADC) is a retail REIT with defensive characteristics, meaning it tends to hold up in economic downturns. Is it a buy?
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Source Fool.com
