Agree Realty(ADC) - 2025 Q2 - Quarterly Results

Agree Realty Corporation Second Quarter 2025 Results Financial and Operating Highlights The company reported AFFO per share growth and significant investment activity, bolstered by over $1 billion in capital raising Metric (Q2 2025) | Metric (Q2 2025) | Value | Change (YoY) | | :--- | :--- | :--- | | Investment | ~$350M in 110 properties | N/A | | Net Income per share | $0.43 | -18.5% | | Core FFO per share | $1.05 | +1.3% | | AFFO per share | $1.06 | +1.7% | | Monthly Dividend (June) | $0.256 per share | +2.4% | Metric (H1 2025) | Metric (H1 2025) | Value | Change (YoY) | | :--- | :--- | :--- | | Investment | ~$727M in 162 properties | N/A | | Net Income per share | $0.85 | -11.1% | | Core FFO per share | $2.09 | +2.2% | | AFFO per share | $2.12 | +2.4% | | Dividends Declared | $1.527 per share | +2.4% | - The company strengthened its balance sheet with significant capital activities, including a $400 million bond offering and raising approximately $603 million in forward equity, resulting in $2.3 billion of liquidity at quarter-end[5] CEO Comments The CEO highlighted strong performance driven by strategic capital raising, resulting in a "fortress" balance sheet with $2.3 billion in liquidity - Strategically raised over $800 million of debt and equity capital during the quarter[18] - The balance sheet is described as a "fortress" with $2.3 billion of liquidity, positioning it as fully funded for growth[18] 2025 Earnings Guidance The company raised its full-year 2025 guidance for AFFO per share and increased its target for investment volume | Guidance Metric | Prior 2025 | Revised 2025 | | :--- | :--- | :--- | | AFFO per share | $4.27 to $4.30 | $4.29 to $4.32 | | Investment volume | $1.3 to $1.5 billion | $1.4 to $1.6 billion | | Disposition volume | $10 to $50 million | $10 to $50 million | | Income and other tax expense | $3 to $4 million | $2.5 to $3 million | Financial Performance Key Financial Metrics (Q2 & H1 2025) Net Income per share declined year-over-year, while key non-GAAP metrics like Core FFO and AFFO per share demonstrated growth Metric (Q2 2025 vs Q2 2024) | Metric (Q2 2025 vs Q2 2024) | Amount (Q2 2025) | Change | | :--- | :--- | :--- | | Net Income | $47.3M | -10.5% | | Net Income per share | $0.43 | -18.5% | | Core FFO | $115.9M | +11.3% | | Core FFO per share | $1.05 | +1.3% | | AFFO | $117.7M | +11.7% | | AFFO per share | $1.06 | +1.7% | Metric (H1 2025 vs H1 2024) | Metric (H1 2025 vs H1 2024) | Amount (H1 2025) | Change | | :--- | :--- | :--- | | Net Income | $92.5M | -3.5% | | Net Income per share | $0.85 | -11.1% | | Core FFO | $228.6M | +10.9% | | Core FFO per share | $2.09 | +2.2% | | AFFO | $231.6M | +11.1% | | AFFO per share | $2.12 | +2.4% | Dividend The company declared a monthly dividend of $0.256 per share, a 2.4% year-over-year increase, maintaining a ~72% AFFO payout ratio - Declared monthly dividends of $0.256 per common share for Q2 2025, a 2.4% increase over the prior year's second quarter[12] - The dividend payout ratios for Q2 and H1 2025 were approximately 73% of Core FFO per share and 72% of AFFO per share[12][13] - Subsequent to quarter end, a monthly dividend of $0.256 was declared for July 2025, and a preferred stock dividend of $0.08854 per depositary share was also declared[14][15] Portfolio and Operations Portfolio Overview The portfolio consists of 2,513 properties across 50 states, featuring 99.6% occupancy and a high concentration of investment-grade tenants | Metric | Value | | :--- | :--- | | Properties | 2,513 | | States | 50 | | Gross Leasable Area | 52.0 million sq. ft. | | Occupancy | 99.6% leased | | Weighted-Avg. Lease Term | ~8.0 years | | Investment Grade ABR | 67.8% | Investment Activity The company invested heavily in acquisitions during H1 2025 while maintaining active development projects and minimal dispositions Acquisitions The company acquired over $686 million in properties during the first half of 2025 at a weighted-average cap rate of 7.2% - Q2 2025 acquisition volume was approximately $327.5 million for 91 properties at a weighted-average capitalization rate of 7.1% and a remaining lease term of 12.2 years[22][23] - H1 2025 acquisition volume totaled approximately $686.4 million for 137 properties at a weighted-average capitalization rate of 7.2% and a remaining lease term of 12.8 years[24] Dispositions Property dispositions were minimal in Q2, with full-year volume expected to remain low - Sold four properties for gross proceeds of approximately $6.2 million in Q2 2025[25] - Full-year 2025 disposition volume is anticipated to be between $10 million and $50 million[26] Development and Developer Funding Platform (DFP) The company managed 25 development and DFP projects in H1 2025 with total anticipated costs of approximately $139.6 million - In H1 2025, the company had 25 development or DFP projects completed or under construction, with total anticipated costs of approximately $139.6 million[28] - Key tenants for these development projects include TJX Companies, Burlington, 7-Eleven, Starbucks, and Sunbelt Rentals[28] Portfolio Composition The portfolio is diversified by tenant, sector, and geography, with a significant, high-quality ground lease component Ground Lease Portfolio The ground lease portfolio comprises 10.3% of total ABR and is characterized by 100% occupancy and high investment-grade tenancy - The ground lease portfolio consisted of 232 leases, representing 10.3% of total annualized base rents[20] - This portfolio segment was 100% occupied with a weighted-average remaining lease term of 9.4 years and 88.1% of its ABR from investment-grade tenants[21] Top Tenants The top tenant list is led by major national retailers like Walmart and Tractor Supply, with Genuine Parts Company added in Q2 - Genuine Parts Company (NAPA Auto Parts) was added to the top tenants list during Q2 2025, representing 1.7% of ABR[31][32] | Tenant | % of Annualized Base Rent | | :--- | :--- | | Walmart | 6.0% | | Tractor Supply | 4.8% | | Dollar General | 4.2% | | Best Buy | 3.2% | | O'Reilly Auto Parts | 3.1% | Retail Sectors The portfolio's largest sector exposures are to defensive retail categories like Grocery Stores and Home Improvement | Sector | % of Annualized Base Rent | | :--- | :--- | | Grocery Stores | 10.6% | | Home Improvement | 8.8% | | Tire and Auto Service | 7.7% | | Convenience Stores | 7.6% | | Auto Parts | 7.0% | Geographic Diversification The portfolio is geographically diversified across the US, with Texas representing the largest single-state exposure by ABR | State | % of Annualized Base Rent | | :--- | :--- | | Texas | 7.2% | | Illinois | 6.0% | | Michigan | 5.4% | | Ohio | 5.1% | | Pennsylvania | 5.0% | Leasing Activity and Expirations The company executed significant leasing volume in H1 2025 while facing minimal lease expirations for the remainder of the year - Executed new leases, extensions, or options on ~948,000 sq. ft. in Q2 and ~1.5 million sq. ft. in H1 2025[29][30] - Notable Q2 leasing activity included a 218,000-square foot Walmart Supercenter and five leases with TJX Companies totaling over 125,000-square feet[29] - Lease expirations for the remainder of 2025 are very low, accounting for only 0.4% of annualized base rent[30] Capital Structure and Liquidity Capital Markets Activity The company actively managed its capital structure in Q2 through a significant bond offering and forward equity agreements - Completed a follow-on public offering of ~5.2 million shares in connection with forward sale agreements, anticipating net proceeds of $387.2 million[37] - Completed a $400 million public bond offering of 5.60% senior unsecured notes due 2035. The all-in rate is 5.35% after considering terminated swap agreements[38] - As of June 30, 2025, the company had 17.5 million shares remaining to be settled under forward equity offerings, representing approximately $1.3 billion in anticipated net proceeds[39][69] Balance Sheet and Liquidity The company maintained substantial liquidity of $2.3 billion and a proforma net debt to recurring EBITDA of 3.1x - Total liquidity was $2.3 billion at quarter-end, including $1.0 billion of availability on the revolving credit facility and $1.3 billion of outstanding forward equity[40] | Metric (as of June 30, 2025) | Value | | :--- | :--- | | Net Debt to Recurring EBITDA | 5.2x | | Proforma Net Debt to Recurring EBITDA | 3.1x | | Fixed Charge Coverage Ratio | 4.2x | | Total Debt to Enterprise Value | 28.2% | Financial Statements Consolidated Balance Sheet Total assets grew to $9.08 billion, driven by real estate investments, with a corresponding increase in liabilities and equity | Balance Sheet Item | June 30, 2025 ($ in thousands) | Dec 31, 2024 ($ in thousands) | | :--- | :--- | :--- | | Net real estate investments | $7,958,625 | $7,418,108 | | Total Assets | $9,084,744 | $8,486,446 | | Total Liabilities | $3,430,340 | $2,975,785 | | Total Equity | $5,654,404 | $5,510,661 | Consolidated Statements of Operations Revenues increased year-over-year, but higher operating expenses led to a decline in net income for the second quarter Income Statement (Three months ended June 30) | Income Statement (Three months ended June 30) | 2025 ($ in thousands) | 2024 ($ in thousands) | | :--- | :--- | :--- | | Total Revenues | $175,527 | $152,575 | | Total Operating Expenses | $95,031 | $77,784 | | Income from Operations | $82,006 | $81,967 | | Net Income Attributable to Common Stockholders | $47,339 | $52,865 | | Diluted EPS | $0.43 | $0.52 | Income Statement (Six months ended June 30) | Income Statement (Six months ended June 30) | 2025 ($ in thousands) | 2024 ($ in thousands) | | :--- | :--- | :--- | | Total Revenues | $344,687 | $302,029 | | Total Operating Expenses | $186,268 | $158,781 | | Income from Operations | $160,701 | $152,465 | | Net Income Attributable to Common Stockholders | $92,476 | $95,865 | | Diluted EPS | $0.85 | $0.95 | Non-GAAP Reconciliations and Definitions Reconciliation of Net Income to FFO, Core FFO, and AFFO This section reconciles Net Income to FFO, Core FFO, and AFFO by adjusting for non-cash items like depreciation and amortization | Reconciliation (Q2 2025, $ in thousands) | Amount | | :--- | :--- | | Net Income | $49,353 | | Adjustments (Depreciation, Amortization, etc.) | ... | | Funds from Operations (FFO) | $107,322 | | Amortization of lease intangibles, net | $8,620 | | Core Funds from Operations (Core FFO) | $115,942 | | Straight-line rent, Stock comp, etc. | ... | | Adjusted Funds from Operations (AFFO) | $117,677 | Reconciliation of Non-GAAP Financial Measures (Debt & EBITDA) This section details the calculation of Net Debt and Recurring EBITDA, arriving at a proforma leverage ratio of 3.1x | Debt & EBITDA Calculation (Q2 2025, $ in thousands) | Amount | | :--- | :--- | | Total Debt per Balance Sheet | $3,219,545 | | Net Debt | $3,241,488 | | Anticipated Net Proceeds from Forward Equity | ($1,289,392) | | Proforma Net Debt | $1,952,096 | | Recurring EBITDA | $155,335 | | Annualized Recurring EBITDA | $621,340 | Supplemental Information (Rental Income) This table details the components of rental income, including minimum rents, reimbursements, and non-cash adjustments | Rental Income Source (Q2 2025, $ in thousands) | Amount | | :--- | :--- | | Minimum rents | $160,205 | | Operating cost reimbursement | $19,383 | | Straight-line rental adjustments | $3,789 | | Amortization of (above) below market lease intangibles | ($8,537) | | Total Rental Income | $175,397 | Definitions of Non-GAAP Measures Key non-GAAP financial measures such as FFO, Core FFO, and AFFO are defined to clarify performance analysis - FFO: Net income excluding gains/losses from property sales and real estate depreciation[61] - Core FFO: FFO adjusted for non-cash amortization of above/below-market lease intangibles[63] - AFFO: Core FFO further adjusted for non-cash items like straight-line rent and stock-based compensation[64]