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AR

AGREE REALTY CORP (ADC)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 delivered modest top-line and per‑share growth with Core FFO/share up 1.3% to $1.05 and AFFO/share up 1.7% to $1.06, while diluted GAAP EPS fell 18.5% to $0.43 YoY as depreciation/interest rose with portfolio expansion .
  • Revenue slightly beat S&P consensus ($175.5M vs $173.1M), but GAAP EPS came in modestly below primary EPS consensus; Core FFO/share was essentially in line with the FFO/share consensus* [GetEstimates].
  • Management raised full‑year 2025 investment guidance to $1.4–$1.6B and lifted AFFO/share guidance to $4.29–$4.32, citing strong pipelines across acquisitions, development, and DFP and $2.3B of liquidity .
  • Balance sheet/capital markets remain a catalyst: ~$1.3B in outstanding forward equity and a May $400M 2035 note at 5.35% all‑in; pro forma net debt/Recurring EBITDA at 3.1x positions ADC to accelerate growth without raising risk .

What Went Well and What Went Wrong

What Went Well

  • Core FFO/share and AFFO/share increased YoY; Q2 Core FFO/share rose to $1.05 and AFFO/share to $1.06, reflecting portfolio expansion and disciplined cost of capital .
  • Guidance raised: AFFO/share to $4.29–$4.32 and investment volume to $1.4–$1.6B for 2025, supported by robust pipelines and $2.3B liquidity .
  • CEO highlighted “highest level of retailer demand for new brick‑and‑mortar locations since the GFC,” underpinned by omni‑channel economics favoring in‑store pickup/returns; this supports ADC’s core retail focus .

What Went Wrong

  • GAAP EPS fell 18.5% YoY to $0.43 as interest expense and depreciation rose with growth (interest expense up to $32.3M Q2 from $26.4M YoY) .
  • Investment‑grade ABR percentage on Q2 acquisitions was 53.3% (below portfolio IG mix), reflecting opportunistic portfolio purchases; management expects cap rate/IG mix to improve post planned dispositions .
  • Continued credit/event noise in specific names (e.g., Big Lots re‑tenanting, At Home under contract to sell at 7% cap, CFO maintaining credit loss assumptions); however, watchlist otherwise “de minimis” and credit loss guided 25–50 bps of revenues .

Financial Results

MetricQ4 2024Q1 2025Q2 2025
Revenue ($USD Millions)$160.7 $169.2 $175.5
Diluted EPS (GAAP) ($)$0.41 $0.42 $0.43
Core FFO per Share ($)$1.02 $1.04 $1.05
AFFO per Share ($)$1.04 $1.06 $1.06
Net Income Margin %28.2% 27.9% 28.1%

Segment and portfolio KPIs:

  • Occupancy: 99.6% at Q2 end; WALT ~8.0 years; investment‑grade ABR 67.8% .
  • Property count and GLA: 2,513 properties; ~52.0M sq ft .
  • Top retail sectors by ABR (Q2): Grocery ($71.5M, 10.6%), Home Improvement ($59.2M, 8.8%), Tire & Auto Service ($51.8M, 7.7%), Convenience ($51.3M, 7.6%), Auto Parts ($46.95M, 7.0%) .
  • Q2 acquisitions: $327.5M, 91 properties, weighted‑avg cap rate 7.1%, WALT ~12.2 years .
  • Leasing: 948k sq ft executed in Q2; notable Walmart (OH), Best Buy (CA), and five TJX leases .
  • Liquidity: ~$2.3B (revolver availability, forward equity, cash); net debt/Recurring EBITDA 5.2x actual, 3.1x pro forma .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
AFFO per shareFY 2025$4.27–$4.30 $4.29–$4.32 Raised
G&A (% of adjusted revenue)FY 20255.6%–5.9% 5.6%–5.9% Maintained
Non‑reimbursable RE expenses (% of adjusted revenue)FY 20251.0%–1.5% 1.0%–1.5% Maintained
Income & other tax expense ($)FY 2025$3–$4M $2.5–$3M Lowered
Investment volume ($)FY 2025$1.3–$1.5B $1.4–$1.6B Raised
Disposition volume ($)FY 2025$10–$50M $10–$50M Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024)Previous Mentions (Q1 2025)Current Period (Q2 2025)Trend
AI/technology & ARCDiscussed scaling; focus on multi‑platform execution, not AI specific .AI lease abstraction since 2022; ARC evolution; legal cost savings .ARC “3.0” next year; AI tools widely deployed for efficiency .Expanding use of AI/ARC to drive efficiencies.
Tariffs/macroPortfolio built to be tariff resistant; IG focus; volatility noted .Tariff risk discussed; biggest retailers to gain share; no pause in tenant demand .CEO expects tariffs to hurt smaller retailers; largest to gain share; demand highest since GFC .Heightened tariff discourse; ADC positioning reinforced.
Development/DFPRecord year; strong pipelines .Medium‑term target $250M/year; pipelines growing .Plan to break ground on ≥$100M before year‑end; 25 projects underway/completed H1 .Accelerating activity across development and DFP.
Credit loss/watchlistGuide included 50 bps CL in 2024; portfolio resilient .2025 guide assumes 50 bps CL; Big Lots resolution ongoing .25–50 bps CL embedded; watchlist “de minimis” beyond At Home/movie theaters .Conservatism maintained; improving resolution in specific names.
Market competition/cap ratesLimited competition; volatile 10‑yr complicates pricing .Cap rates hard to predict; door is open in dislocated markets .Q3 acquisitions expected similar to Q1 but larger; disposition of non‑core improving IG/cap rate mix .Healthy spreads vs cost of capital; disciplined underwriting.

Management Commentary

  • “We are very pleased with our strong performance during the first half of the year… increasing full‑year 2025 investment guidance to a range of $1.4 billion to $1.6 billion and raising 2025 AFFO per share guidance to a range of $4.29 to $4.32” — Joey Agree (CEO) .
  • “We are seeing the highest level of retailer demand for new brick and mortar locations since the great financial crisis…” — Joey Agree (CEO) .
  • “Core FFO per share was $1.05… AFFO per share was $1.06… treasury stock method dilution roughly $0.01 impact if stock trades near current levels” — Peter Coughenour (CFO) .
  • “Pro forma net debt to recurring EBITDA was approximately 3.1x… our balance sheet remains best in class” — Peter Coughenour (CFO) .

Q&A Highlights

  • Capital markets activity and ATM: Q2 ATM issuances predated April overnight offering; ~$800M raised in Q2 debt/equity; ~$1.3B outstanding forward equity provides pre‑equitized runway .
  • Acquisition cadence/cap rates: Expect Q3 volume similar to Q1 but larger; acquired portfolio cap rate 7.1% with follow‑on dispositions to improve IG/cap rate metrics .
  • Credit loss guidance: Operating nearer 25 bps in H2; 25–50 bps fully loaded definition (includes downtime/OpEx) clarifies conservative modeling .
  • Development/DFP spreads: 50–150 bps wider than like‑kind acquisitions depending on duration/scope; ≥$100M in starts before year‑end .
  • Big Lots resolution: Multiple assets re‑leased (e.g., Aldi in Cedar Park, VA location with 150% net effective lift); remaining assets progressing .
  • Tariffs/consumer health: Tariffs expected to hurt smaller retailers; ADC focuses on necessity retail with large operators gaining share .

Estimates Context

MetricQ1 2025Q2 2025
Revenue Consensus Mean ($USD)$166.5M*$173.1M*
Revenue Actual ($USD)$169.2M $175.5M
Primary EPS Consensus Mean ($)$0.427*$0.445*
Diluted GAAP EPS Actual ($)$0.42 $0.43
FFO / Share (REIT) Consensus Mean ($)$1.035*$1.054*
Core FFO per Share Actual ($)$1.04 $1.05
  • Q2 revenue: beat consensus (+$2.4M; +1.4%); Q2 GAAP EPS: modest miss vs primary EPS consensus; Core FFO/share essentially in line with FFO/share consensus*.
  • Target Price consensus mean: $82.21*; recommendation metadata not available in this pull.
    *Values retrieved from S&P Global.

Key Takeaways for Investors

  • Guidance raise and pre‑equitized balance sheet are near‑term catalysts; expect sustained investment activity across all three platforms supported by ~$2.3B liquidity and 3.1x pro forma net debt/Recurring EBITDA .
  • Narrative favors necessity‑based, omni‑channel retailers; management sees peak post‑GFC store demand, positioning ADC to grow with large‑cap operators while avoiding higher‑risk experiential/private‑equity‑backed categories .
  • Slight Q2 EPS miss vs consensus is largely accounting (depreciation/interest) amid growth; Core FFO/AFFO trends are intact and guidance implies ~4% AFFO/share growth at midpoint .
  • Expect capital recycling from non‑core assets to fine‑tune acquisition cap rate/IG mix; dispositions remain modest ($10–$50M) and opportunistic .
  • Credit loss assumptions (25–50 bps) are conservative and fully loaded; watchlist is limited beyond specific cases, with demonstrated re‑leasing uplifts (e.g., Big Lots, Aldi) .
  • Medium‑term, development/DFP ramp (≥$100M starts in H2) should widen returns versus acquisitions and diversify growth vectors .
  • Trading implications: raised guidance + robust pipelines = supportive; any tariff headlines could drive rotation toward ADC’s necessity retail focus and IG‑heavy portfolio .

Appendix: Additional Portfolio and Capital Data

  • Top Tenants by ABR: Walmart ($40.3M, 6.0%), Tractor Supply ($32.6M, 4.8%), Dollar General ($28.4M, 4.2%), Best Buy ($21.7M, 3.2%), etc. .
  • Forward equity outstanding: 17.48M shares remaining to settle; anticipated net proceeds ~$1.289B; settlement windows Aug 2025–Oct 2026 .
  • Recent debt: May 2025 $400M 2035 notes at 5.35% all‑in; debt staggered with no material maturities until 2028 .
  • Dividend: Monthly $0.256/share (annualized $3.072), ~72% AFFO payout in Q2; preferred $0.08854/month (Series A 4.25%) .