Agree Realty Leaves Investors in the Cold

Shareholders of Agree Realty (ADC Quote) have been left with no explanation why the company snubbed a buyout bid that offered a sharp premium to its current trading price.

On Tuesday, Agree rejected an unsolicited $38.75-a-share cash offer from Compson Holding, a private Florida real estate developer that owns about 3.1% of the company's stock.

Shareholders are now looking at their $33 stock and wondering when they'll get that 17% pop that the Compson bid immediately offers. (Investors can be partly consoled by the REIT's $1.96 annual dividend.)

The company, which is run by founder Richard Agree, is a small-cap real estate investment trust with a national portfolio of mostly single-tenant retail sites leased to chains such as Borders, Walgreen's and Kmart.

"The board has concluded that continuing to implement the company's business plan will provide the best long-term value to its stockholders and has informed Compson that the company is not for sale," Agree said in a short statement.

The abrupt rejection isn't sitting well with Joe Chan, an analyst with Central Asset Investments, a Hong Kong hedge fund that owns Agree shares.

"As a shareholder, I am very upset about the decision from the board of directors," Chan wrote in an email to TheStreet.com. "The board has been rejecting offers without notifying shareholders until Compson made it public. Compson's offer is worth considering and the board should take it to the shareholders."

Agree is expected to grow its funds from operations, a proxy for REIT earnings, 2% this year and another 2% in 2007. For that growth, the stock is currently being rewarded a multiple of 14 times its expected 2006 FFO. In comparison, Simon Property Group(SPG Quote), the country's largest mall owner and a blue-chip REIT stock, trades at 14.8 times its estimated 2006 FFO -- but it is expected to post 7% to 8% annual growth over the next two years.