Executive Summary / Key Takeaways

• Agree Realty Corporation ($ADC) has forged a unique competitive moat in the net lease sector through its integrated, multi-pronged growth strategy encompassing acquisitions, development, and a specialized developer funding platform.
• The company maintains a fortress balance sheet with over $2.3 billion in liquidity and no material debt maturities until 2028, enabling aggressive investment without reliance on new equity.
• Strategic investments in necessity-based, industry-leading retailers, coupled with proactive asset management and a "fully loaded" approach to credit loss, underpin consistent and reliable earnings growth.
• Technological differentiation, including advanced AI and machine learning tools, drives significant operational efficiencies and enhances the company's competitive edge in a fragmented market.
• With a raised 2025 investment guidance of $1.4 billion to $1.6 billion and AFFO per share guidance of $4.29 to $4.32, Agree Realty is poised for accelerated growth and continued market share gains.

The Foundation of a Differentiated Strategy

Agree Realty Corporation, a fully integrated Real Estate Investment Trust (REIT), has meticulously cultivated a distinctive position within the net lease retail landscape since its founding in 1971 and NYSE listing in 1994. The company's strategic pivot in 2010, marked by the launch of its acquisition platform, cemented a clear vision: to be a "differentiated real estate company" rather than merely a "spread investor." This philosophy centers on owning, acquiring, developing, and managing retail properties net leased to industry-leading, recession-resistant, and omni-channel tenants.

As of June 30, 2025, Agree Realty's portfolio spans 2,513 properties across all 50 states, encompassing approximately 52.0 million square feet of gross leasable area (GLA) with a robust 99.6% occupancy rate. Approximately 67.8% of its annualized base rent is derived from investment-grade retailers, a testament to its disciplined underwriting. This focus on "necessity goods and services" retailers, particularly those benefiting from the "trade down effect" in uncertain economic times, positions the company favorably. Management observes the "highest level of retailer demand for new brick-and-mortar locations since the great financial crisis," driven by the critical role of physical stores as the "hub" of omnichannel retail, essential for efficient fulfillment and returns.

Competitive Moat: Unparalleled Value Proposition

Agree Realty's competitive standing is fortified by a unique value proposition unmatched in the industry. While private peers often lack the necessary liquidity and access to capital, and public peers typically do not possess the ingrained real estate development and operational capabilities, Agree Realty offers a "one-stop shop" for acquisitions, development, and developer funding solutions. This integrated approach allows the company to capitalize on market dislocations and provide comprehensive solutions for retailers and struggling developers.

Comparing Agree Realty to its key publicly traded peers reveals distinct strengths and strategic positioning. Realty Income (O), a larger competitor with over 15,000 properties, generally exhibits higher revenue growth (O's 25% in 2024 versus ADC's 10-15%) and slightly better operating margins (O's 45-50% versus ADC's 40-45%). However, Agree Realty demonstrates superior capital efficiency with a slightly higher Return on Invested Capital (ROIC) of 7-8% compared to Realty Income's 6-7%, and maintains a lower debt-to-equity ratio of 0.6x versus Realty Income's 0.7-0.8x. This financial discipline provides Agree Realty with greater agility.

Against National Retail Properties (NNN), which boasts a more diversified tenant base and higher gross margins (NNN's 95% versus ADC's 85-90%), Agree Realty differentiates itself through its active development platform, allowing for faster market entry and potentially higher long-term yields. Compared to Spirit Realty Capital (SRC), Agree Realty's lower debt levels (0.6x D/E versus SRC's 1.0-1.1x D/E) and superior ROIC (7-8% versus SRC's 5-6%) provide a significant financial advantage, particularly in economic downturns. While Essential Properties Realty Trust (EPRT) shows slightly higher revenue growth (15% in 2024), Agree Realty leads in portfolio diversification, mitigating tenant concentration risks.

Overall, Agree Realty holds a mid-tier market share (5-10%) but excels in capital efficiency and strategic focus. Its competitive moat is built on a diversified tenant base, which contributes to higher occupancy rates and stronger margins, and its low debt levels, which enhance financial flexibility and innovation capacity. High capital requirements in the net lease sector also act as a significant barrier to entry, further protecting Agree Realty's market position.

Technological Differentiation and Operational Excellence

Agree Realty's competitive edge is not solely derived from its real estate strategy and financial strength; it is significantly bolstered by its commitment to technological innovation and operational efficiency. The company has invested heavily in proprietary systems and advanced tools, notably its internal "Arc" system.

This technological differentiation is evident in several key areas:

• AI-Powered Lease Management: Agree Realty has been an early adopter of AI and machine learning, integrating these tools for critical functions like lease abstraction since 2022. This technology allows for the rapid and accurate abstraction of hundreds of leases annually, leading to substantial time savings.
• Automated Underwriting: The company has deployed AI for its lease underwriting checklists, a process that previously took attorneys approximately four hours per checklist. This has been reduced to mere seconds, resulting in over 400 hours of annual time savings and hundreds of thousands of dollars in cost reduction.
• Next-Generation Data Infrastructure: The upcoming "Arc 3.0" system, slated for release next year, will establish a comprehensive data warehouse, enabling the layering of more sophisticated AI tools. Internal tests have already shown AI's capability to predict Investment Committee approvals with 90% accuracy, demonstrating the strategic potential for future decision-making.

These technological advancements contribute directly to Agree Realty's competitive moat by driving industry-leading efficiencies, reducing operational and legal costs, and supporting the scalable growth of its platforms. This integrated, AI-driven operational capability is a key differentiator against peers who often lack such sophisticated internal systems.

Financial Performance: A Story of Disciplined Growth

Agree Realty's financial performance reflects its disciplined strategy and operational effectiveness. The company's real estate investment portfolio expanded significantly from approximately $6.95 billion (2,202 properties) as of June 30, 2024, to $7.96 billion (2,513 properties) at June 30, 2025. This growth has been a primary driver of revenue expansion.

For the three months ended June 30, 2025, total revenues reached $175.5 million, up from $152.6 million in the same period of 2024. For the first six months of 2025, total revenues were $344.7 million, compared to $302.0 million in the prior year period. While net income attributable to common stockholders saw a slight decrease to $47.3 million in Q2 2025 from $54.7 million in Q2 2024, and to $92.5 million in H1 2025 from $95.9 million in H1 2024, this was primarily influenced by higher interest expense due to increased borrowings and the non-comparable nature of impairment provisions and asset sale gains.

Despite these factors, Adjusted Funds From Operations (AFFO) per share, a key metric for REITs, demonstrated consistent growth. AFFO per share was $1.06 for Q2 2025, a 1.7% year-over-year increase, and $2.12 for H1 2025, up 2.4% year-over-year. The company's operating cash flow also saw a healthy increase, with net cash provided by operating activities rising to $246.3 million in H1 2025 from $212.0 million in H1 2024. Agree Realty anticipates generating approximately $120 million in free cash flow after dividends in 2025, representing a 15% increase over the prior year, providing a robust source of cost-efficient capital. The company's annualized common stock dividend, declared at $3.07 per share in Q2 2025, represents a 2.4% increase year-over-year and is well-covered with a payout ratio of 72% of AFFO.

Operational effectiveness is further highlighted by the asset management team's ability to re-lease properties with significant rent recaptures. For instance, a former Big Lots in Manassas, Virginia, was re-leased with a net effective rent lift of over 150%, and another in Cedar Park, Texas, was re-leased to Aldi with a nearly 50% net effective rent lift. This demonstrates the embedded value within the portfolio and the team's capability to mitigate tenant-specific challenges.

Liquidity and Capital Strategy: A Fortress Balance Sheet

Agree Realty's financial strength is anchored by its "fortress balance sheet," a strategic pillar that enables aggressive growth and resilience in volatile markets. As of June 30, 2025, the company boasted over $2.3 billion in total liquidity, comprising $8.9 million in cash and equivalents, $1.29 billion in unsettled forward equity, and $1.0 billion in availability under its revolving credit facility.

The company has been proactive in its capital-raising efforts, securing over $1 billion in capital year-to-date through Q2 2025. This includes approximately $415 million in forward equity raised during Q2 and a $400 million public bond offering of 5.6% senior unsecured notes due 2035. Notably, the all-in interest rate for these notes was reduced to 5.35% after the termination of $325 million in forward-starting swap agreements, which generated $14 million upon termination. Agree Realty has no material debt maturities until 2028, and its pro forma net debt to recurring EBITDA stood at an impressive 3.1x at quarter-end, the lowest level since Q4 2022. This strong leverage position, coupled with a fixed charge coverage ratio of 4.2x, provides substantial financial flexibility.

Further enhancing its capital structure, Agree Realty established a $625 million commercial paper program in March 2025, offering borrowing costs approximately 40 basis points lower than its revolving credit facility. The company also holds $325 million in forward-starting swaps, effectively fixing the base rate for a contemplated 10-year unsecured debt issuance at roughly 3.9%, providing crucial visibility into its intermediate cost of capital. This strategic pre-funding and hedging allow the company to deploy over $1.5 billion in 2025 while remaining within its target leverage range of 4x to 5x net debt to EBITDA, without the need for additional equity capital. The strength of this balance sheet was externally validated by S&P's upgrade of Agree Realty's credit rating to BBB+ from BBB in July 2024.

Strategic Growth Platforms: Beyond Acquisitions

Agree Realty's growth narrative is driven by its three integrated external growth platforms: acquisitions, development, and the Developer Funding Platform (DFP). These platforms are additive and designed to capture a wide array of opportunities, reinforcing the company's "differentiated real estate company" vision.

The Acquisition Platform remains a core driver. In Q2 2025, the company invested $329 million in 91 properties, with a weighted average cap rate of 7.1% and a weighted average lease term of 12.2 years. For the first half of 2025, total acquisitions amounted to $687 million across 137 properties. These investments primarily target necessity-based, industry-leading retailers, often sourced off-market. Notable acquisitions include a $75 million grocery-dominated portfolio and a Walmart Supercenter, aligning with the company's focus on "biggest and best" retailers. The company's strategy in the auto parts sector, for example, is driven by the aging car fleet and the rise of "hub stores" (20,000-50,000 sq ft) needed for rapid part delivery, valuing the fungibility of the underlying real estate.

The Development and Developer Funding Platforms are increasingly significant. These are non-speculative ventures, typically turnkey or ground lease projects with guaranteed maximum price bids and fixed returns. They offer yields ranging from 50 to 150 basis points higher than comparable acquisitions, depending on project duration and scope. In the first half of 2025, Agree Realty commenced 5 new projects and completed 10, with 15 projects currently under construction representing anticipated costs of $90 million. The company expects development spend to increase by at least 50% year-over-year and aims to break ground on a minimum of $100 million in new projects by year-end, with a medium-term goal of putting $250 million into the ground annually. These platforms address the challenges faced by retailers in executing store growth plans amidst elevated construction costs and limited liquidity for other developers.

Risk Assessment: Prudent Management in a Volatile World

While Agree Realty's strategy is robust, it operates within a dynamic retail and macroeconomic environment. The company's approach to risk is characterized by transparency and proactive mitigation. Its definition of "credit loss" is "fully loaded," encompassing not only lost rental revenue from credit events but also all associated operating expenses, taxes, and maintenance costs incurred during vacancy, providing a more conservative and comprehensive view than many peers. The 2025 AFFO guidance includes an assumption of 25 to 50 basis points for credit loss, with the higher end providing a cushion for unforeseen events.

The company's watchlist of troubled tenants is "very de minimis." A notable tenant on this list, At Home, is under contract for disposition at a 7% cap rate, with management anticipating its eventual liquidation, similar to past experiences with Party City, JOANN, and Rite Aid. Agree Realty has also proactively reduced its exposure to sectors like Dollar Stores and Pharmacies (e.g., Walgreens) in recent years, anticipating industry headwinds before they became widespread news, based on fundamental analysis of their business models and real estate relevance.

Management believes its portfolio of "biggest and best" retailers is "tariff resistant," as these larger entities possess the balance sheet strength and scale to absorb costs or negotiate favorable terms, unlike smaller retailers who are expected to be disproportionately impacted. The ongoing "shakeout" in the retail landscape, where businesses lacking a strong value proposition are struggling, is seen as an opportunity for market share consolidation by Agree Realty's core tenants. The company also acknowledges the challenges posed by elevated construction costs and interest rate volatility, which it mitigates through its diversified growth platforms and robust hedging strategies, including interest rate swaps and forward equity.

Conclusion

Agree Realty Corporation stands as a compelling investment in the net lease retail sector, distinguished by its deeply integrated and multi-faceted growth strategy. By combining a disciplined acquisition platform with robust development and developer funding capabilities, the company has cultivated a unique value proposition that resonates with industry-leading, necessity-based retailers. This strategic differentiation, coupled with a fortress balance sheet and a proactive approach to risk management, underpins its consistent financial performance and strong dividend coverage.

The company's commitment to technological innovation, particularly its leveraging of AI for operational efficiencies, further widens its competitive moat, setting it apart from peers. With ambitious investment guidance for 2025 and a clear roadmap for continued growth, Agree Realty is well-positioned to capitalize on market opportunities, reinforce its dominant market position, and deliver reliable returns for discerning investors.