Agree Realty Corporation

Company Overview

Business Model: Agree Realty Corporation is a fully integrated Real Estate Investment Trust (REIT) primarily focused on the ownership, acquisition, development, and management of retail properties net leased to industry-leading tenants. The Company, founded in 1971, conducts its operations through Agree Limited Partnership, in which it held a 99.7% common interest as of December 31, 2025. Substantially all tenants operate under net lease agreements, making them responsible for minimum monthly rent and property operating expenses including taxes, insurance, and maintenance. Agree Realty Corporation operates in a manner intended to qualify as a REIT for federal income tax purposes, requiring it to distribute at least 90% of its REIT taxable income annually.

Market Position: As of December 31, 2025, Agree Realty Corporation's portfolio comprised 2,674 properties across all 50 states, totaling approximately 55.5 million square feet of Gross Leasable Area (GLA). The portfolio maintained a high occupancy rate of approximately 99.7% and had a weighted average remaining lease term of approximately 7.8 years. A significant majority of properties are leased to national tenants, with approximately 66.8% of annualized base rent derived from tenants, or their parent entities, holding an investment-grade credit rating. The Company strategically focuses on long-term, fee simple ownership of properties leased to national or large, regional retailers operating in sectors deemed e-commerce and recession-resistant. Investment criteria emphasize omni-channel criticality, recession resistance, avoidance of private equity sponsorship, and strong real estate fundamentals with fungible buildings.

Recent Strategic Developments:

• Investments: During 2025, Agree Realty Corporation completed approximately $1.57 billion in net leased retail real estate investments. This included the acquisition of 305 properties for an aggregate purchase price of approximately $1.44 billion and the completion of 21 development projects for an aggregate cost of approximately $131.2 million. These properties span 29 sectors and 41 states, with a weighted average lease term of approximately 11.5 years.
• Dispositions: The Company sold 22 assets and land parcels in 2025, generating net proceeds of $42.1 million and recording a net gain of $5.4 million.
• Leasing Activity: In 2025, excluding properties sold, Agree Realty Corporation executed new leases, extensions, or options on approximately 3,033,000 square feet of GLA, representing approximately $29.7 million in annualized base contractual rent.
• Dividends: The Company increased its monthly dividend per common share twice in 2025, from $0.253 to $0.256 in April, and further to $0.262 in October. The December 2025 dividend of $0.262 per share represents an annualized dividend of $3.144 per share and an annualized dividend yield of approximately 4.4% based on the December 31, 2025 closing stock price. The Company has paid 60 consecutive monthly dividends since 2021.
• Financing - Equity: In April 2025, Agree Realty Corporation completed a follow-on public offering of 5,175,000 common shares (including underwriters' option) via forward sale agreements, anticipated to raise approximately $385.8 million in net proceeds (unsettled as of December 31, 2025). The Company also settled all October 2024 forward sale agreements in 2025, realizing approximately $366.6 million in net proceeds. Total ATM activity in 2025 included the sale of 4,275,968 common shares and settlement of 7,633,519 common shares, yielding $538.3 million in net proceeds.
• Financing - Debt: In March 2025, the Company established a $625.0 million Commercial Paper Program. In May 2025, it completed a public offering of $400.0 million in 5.600% Notes due 2035, generating $397.2 million in proceeds and terminating $325.0 million in forward-starting interest rate swaps for a net receipt of $13.6 million. The Company also closed a $350.0 million 5.5-year delayed draw 2031 Unsecured Term Loan in November 2025 (undrawn as of December 31, 2025), which includes an accordion option up to $500.0 million and is hedged to a fixed rate of 3.22% using existing forward-starting interest rate swaps. Additionally, the Revolving Credit Facility and 2029 Unsecured Term Loan were amended to reduce the SOFR adjustment to zero basis points, and $50.0 million of 2025 Senior Unsecured Notes were repaid at maturity.

Geographic Footprint: Agree Realty Corporation's portfolio is geographically diversified across all 50 states. As of December 31, 2025, the top five states by annualized base rent were Texas (6.9%, 169 properties), Illinois (6.1%, 166 properties), Ohio (5.3%, 164 properties), Michigan (5.2%, 149 properties), and New York (5.0%, 103 properties).

Financial Performance

Revenue Analysis

Profitability Metrics:

• Gross Margin: 87.7%
• Operating Margin: 47.4%
• Net Margin: 28.5%

Investment in Growth:

• R&D Expenditure: Not explicitly detailed in the filing.
• Capital Expenditures: $1,583.5 million (comprising $1,438.1 million for acquisitions and $145.4 million for development of real estate investments and other assets).
• Strategic Investments: Total investment volume of $1.57 billion, including 305 property acquisitions for $1.44 billion and 21 completed development projects for $131.2 million.

Business Segment Analysis

Agree Realty Corporation operates as a single reportable segment, primarily engaged in the ownership, acquisition, development, and management of retail real estate. The Company's Chief Executive Officer, as the chief operating decision maker, assesses performance and allocates resources based on consolidated net income and does not distinguish operations on a geographic, tenant sector, or other basis for segment reporting.

Capital Allocation Strategy

Shareholder Returns:

• Share Repurchases: During 2025, the Company repurchased 51,324 common shares for approximately $3.74 million, primarily to satisfy estimated statutory income tax obligations related to vesting of restricted stock awards.
• Dividend Payments: Total dividend payments for 2025 amounted to $348.1 million, consisting of $340.7 million for common stock and $7.4 million for Series A Preferred Stock.
• Dividend Yield: The December 2025 dividend represents an annualized yield of approximately 4.4%.
• Future Capital Return Commitments: Agree Realty Corporation expects to continue its policy of paying regular dividends, subject to cash generated from operations, financial condition, capital requirements, and REIT distribution requirements.

Balance Sheet Position: (as of December 31, 2025)

• Cash and Equivalents: $20.6 million (including $4.3 million cash held in escrow).
• Total Debt: $3,323.4 million.
• Net Cash Position: -$3,302.8 million.
• Credit Rating: Not explicitly disclosed in the filing.
• Debt Maturity Profile:
  • 2026: $321.1 million (Commercial Paper Notes and Mortgage Notes Payable)
  • 2027: $50.0 million (Senior Unsecured Notes)
  • 2028: $410.0 million (Senior Unsecured Notes)
  • 2029: $492.3 million (Unsecured Term Loans, Mortgage Notes Payable, Senior Unsecured Notes)
  • 2030: $475.0 million (Senior Unsecured Notes)
  • Thereafter: $1,575.0 million (Senior Unsecured Notes)

Cash Flow Generation: (Year Ended December 31, 2025)

• Operating Cash Flow: $504.1 million.
• Free Cash Flow: Not explicitly detailed in the filing.
• Cash Conversion Metrics: Not explicitly detailed in the filing.

Operational Excellence

Production & Service Model: Agree Realty Corporation operates as a fully integrated REIT, managing all aspects of its retail property portfolio. Its development platform handles site selection, land acquisition, lease negotiation, due diligence, design, and construction, primarily for build-to-suit projects that result in fee simple ownership. The Developer Funding Platform (DFP) provides construction expertise and capital to facilitate in-process developments by other developers or retailers, typically taking fee simple ownership upon completion. Asset management emphasizes proactive leasing and capital improvement programs, focusing on quality construction and preventative maintenance to minimize capital expenditures, which are typically borne by tenants. The Company maintains a management information system for timely access to lease data, tenant sales history, and financial forecasts to optimize cash flow and monitor expenses.

Supply Chain Architecture: Key Suppliers & Partners:

• Environmental Consultants: Engages independent environmental consultants for Phase I (and sometimes Phase II) environmental studies on properties.
• Cybersecurity Services: Contracts a global third-party external Security Operations Center (SOC) for continuous 24/7 detection and response services, external audits, and assessments of cybersecurity posture.
• Development Partners: Collaborates with developers or retailers through its Developer Funding Platform.

Facility Network:

• Headquarters: The Company's principal executive offices are located at 32301 Woodward Avenue, Royal Oak, Michigan.
• Manufacturing/Research & Development/Distribution: Not applicable as a REIT focused on retail property ownership.

Operational Metrics:

• Portfolio Size: 2,674 properties, totaling approximately 55.5 million square feet of GLA.
• Occupancy Rate: Approximately 99.7% leased.
• Weighted Average Lease Term: Approximately 7.8 years.
• Development Projects: As of December 31, 2025, 13 development or DFP projects remained under construction, with anticipated total costs of approximately $94.1 million.

Market Access & Customer Relationships

Go-to-Market Strategy: Agree Realty Corporation's primary business objective is to expand and enhance its portfolio by identifying superior risk-adjusted investment opportunities across three external growth platforms: development, Developer Funding Platform (DFP), and acquisitions. The Company focuses on long-term, fee simple ownership of properties net leased to national or large, regional retailers operating in sectors believed to be e-commerce and recession-resistant. Investment criteria prioritize omni-channel critical businesses, recession resilience, avoidance of private equity sponsorship, and adherence to strong real estate fundamentals with fungible buildings.

Distribution Channels:

• Direct Relationships: The Company primarily engages in direct relationships with its tenants through long-term net lease agreements.
• Channel Partners: The DFP involves collaboration with developers or retailers on their in-process developments.
• Digital Platforms: While the Company acknowledges the impact of e-commerce on the retail industry, its direct go-to-market strategy does not involve digital sales platforms.

Customer Portfolio: Enterprise Customers: Agree Realty Corporation's tenant base is diversified, with no single tenant accounting for more than 10.0% of annualized base rent as of December 31, 2025. Key tenants by annualized base rent include:

• Walmart: 5.6%
• Tractor Supply: 4.9%
• Dollar General: 3.9%
• O'Reilly Auto Parts: 3.0%
• TJX Companies: 3.0%
• Best Buy: 3.0%
• CVS: 2.9%
• Kroger: 2.9%
• Lowe's: 2.9%
• Hobby Lobby: 2.9%

Geographic Revenue Distribution: The Company's revenue is diversified across all 50 states. The top five states by annualized base rent as of December 31, 2025, are Texas (6.9%), Illinois (6.1%), Ohio (5.3%), Michigan (5.2%), and New York (5.0%).

Competitive Intelligence

Market Structure & Dynamics

Industry Characteristics: The U.S. commercial real estate investment market is highly competitive. Agree Realty Corporation operates within the retail net lease sector, focusing on tenants in sectors believed to be more e-commerce and recession-resistant, such as grocery stores, home improvement, convenience stores, tire and auto services, auto parts, and dollar stores. The Company notes that current macroeconomic conditions, including elevated inflation and increased interest rates, have raised property acquisition costs and reduced financing availability.

Competitive Positioning Matrix:

Direct Competitors

Primary Competitors: Agree Realty Corporation competes with a broad range of investors for properties and financing, including other traded and non-traded public REITs, private equity firms, institutional investment funds, insurance companies, and private individuals. Many of these competitors may possess greater financial resources and a higher tolerance for risk.

Emerging Competitive Threats: The Company acknowledges risks from rapidly changing technology and business conditions, including shifts from in-store to online shopping and the potential for AI-driven cyber threats.

Competitive Response Strategy: Agree Realty Corporation aims to maintain its competitive advantage by capitalizing on its distinct market positioning in the retail net lease space, focusing on 21st-century industry-leading retailers through its external growth platforms (development, DFP, and acquisitions), leveraging its real estate acumen and relationships to identify superior risk-adjusted opportunities, and maintaining a conservative and flexible capital structure.

Risk Assessment Framework

Strategic & Market Risks

Market Dynamics: The Company is exposed to risks from changes in global and national economic conditions, including tightening credit markets, lower liquidity, increased default rates, and reduced consumer/business spending. Elevated inflation and increased interest rates have raised acquisition costs and limited financing availability. Technology Disruption: The Company's assessment of certain businesses as e-commerce resistant may prove incorrect due to rapid technological innovation and changing consumer preferences. The expansion of e-commerce could adversely impact tenants' viability. Customer Concentration: While no single tenant exceeds 10% of annualized base rent, the portfolio has concentrations in specific retail sectors (e.g., grocery stores 10.3%, home improvement 9.0%, convenience stores 7.7%). Adverse conditions in these sectors could impair tenants' ability to meet lease obligations. Geographic Concentration: The portfolio has concentrations in certain states (e.g., Texas 6.9%, Illinois 6.1%, Ohio 5.3%, Michigan 5.2%, New York 5.0%). Economic downturns or adverse events in these areas could materially reduce cash flows or lead to losses.

Operational & Execution Risks

Supply Chain Vulnerabilities: Development and acquisition activities are subject to risks such as construction delays, supply chain disruptions, material price fluctuations, and cost overruns. Single Tenant Dependency: A significant portion of the portfolio consists of single-tenant properties. The financial failure or default of a single tenant could lead to substantial vacancies, reduced operating cash flows, significant property value impairment, and considerable re-leasing costs. Bankruptcy laws may limit remedies against defaulting tenants. Capacity Constraints: New project development faces risks related to obtaining zoning, occupancy, and other governmental permits and authorizations.

Financial & Regulatory Risks

Market & Financial Risks: The Company faces risks related to its ability to obtain debt or equity financing on favorable terms. Covenants in credit agreements and note purchase agreements could limit operational flexibility and trigger defaults. Rising interest rates could increase interest costs, hinder refinancing, and negatively impact the stock price. Hedging strategies may not fully mitigate interest rate risks or could result in losses. REIT Qualification: Failure to maintain REIT qualification would result in increased federal income taxation and reduced funds available for distributions. Compliance requirements may force the Company to forego otherwise attractive investment opportunities or liquidate assets. Tax Law Changes: Changes in U.S. federal tax laws, such as the One Big Beautiful Bill Act (OBBBA) and H.R. 1, could adversely impact the Company, its investors, and tenants. Uninsured Losses: Certain losses, including those from environmental liabilities, terrorist acts, or catastrophic natural events, may not be fully insured, potentially leading to significant financial losses and default on debt obligations. Regulatory & Compliance Risks: The Company is subject to environmental laws (e.g., strict liability for hazardous substances) and the Americans with Disabilities Act (ADA). Non-compliance could result in fines or damages, and while tenants are typically responsible, the Company may incur costs. Data Privacy: Reliance on information technology systems exposes the Company to cybersecurity attacks, loss of confidential information, and business disruptions. Compliance with evolving data privacy regulations can be costly, and breaches could lead to legal claims, penalties, and reputational damage. Artificial Intelligence: The adoption of AI tools presents risks including inaccuracy, bias, intellectual property infringement, data privacy concerns, and more sophisticated AI-driven cyber threats.

Geopolitical & External Risks

Geopolitical Exposure: Global economic and financial market downturns, rising geopolitical tensions (e.g., China/Taiwan, Ukraine, Middle East), and adverse impacts of tariffs on the retail sector could negatively affect the Company's business. Epidemic or Pandemic: Future epidemics or pandemics could lead to property closures, reduced economic activity, tenant defaults, difficulty accessing capital, negative impacts on credit ratings, and operational disruptions.

Leadership & Governance

Executive Leadership Team

Leadership Continuity: The board of directors has established a succession plan for the Chief Executive Officer to address emergencies and other occurrences.

Board Composition: Agree Realty Corporation's board of directors consists of ten directors, with eight identified as independent. Six new independent directors have been appointed since 2018, and a Lead Independent Director was appointed in 2019. Independent directors meet regularly without the presence of officers or team members. The board actively oversees risk management policies, including cybersecurity, with the audit committee having formal oversight responsibility and receiving quarterly updates from the Chief Information Officer.

Human Capital Strategy

Workforce Composition: As of December 31, 2025, Agree Realty Corporation had 90 full-time team members, an increase from 75 in 2024. The workforce covers key functions including accounting, acquisitions, asset management, development and construction, finance, information technology, legal, due diligence, and people and culture.

Talent Management: Acquisition & Retention: The Company focuses on attracting external talent through social media, professional recruiters, and competency-based behavioral interviewing. Its compensation philosophy emphasizes market-competitive total rewards programs, including wages, incentives, health, welfare, and retirement benefits, designed to attract, retain, and motivate top talent. Compensation aligns executive and team member long-term interests with stockholders through restricted common stock and performance units. Diversity & Development: Agree Realty Corporation prioritizes professional development through technical and soft-skill training, on-the-job mentoring, knowledge sharing, continuing education, and "lunch-and-learn" programs. Talent management practices include core competency frameworks, professional development plans, career pathing, and succession planning. The "Agree Wellness Program" supports team member well-being through physical and financial wellness initiatives, including paid time off, on-site fitness amenities, and comprehensive insurance coverage (100% of short-term, long-term, and life insurance premiums for team members and families; 100% of medical premiums for two plan options).

Diversity & Development: Not explicitly detailed in the filing.

Environmental & Social Impact

Environmental Commitments: Climate Strategy: Agree Realty Corporation acknowledges its responsibility as an environmental steward and collaborates with retail partners on shared sustainability initiatives. The Company is actively working with its tenants and a third-party consultant to update its greenhouse gas emissions inventory. Supply Chain Sustainability: The Company engages with its retail partners on sustainability initiatives at its properties and systematically monitors ESG policies for current and prospective tenants. Social Impact Initiatives: The "Agree Wellness Program" promotes team member well-being through physical and financial wellness. The Company regularly sponsors local charities and has received awards for its corporate culture and wellness initiatives. It supports healthy living through enhanced health insurance, an on-site gym, training, education, and meal programs. The Agree Culture Committee organizes team-building and community contribution events.

Business Cyclicality & Seasonality

Demand Patterns: Agree Realty Corporation's business is sensitive to general economic conditions, consumer spending, and macroeconomic trends, including elevated inflation and increased interest rates. The Company strategically focuses on tenants in sectors believed to be resilient through economic cycles, such as grocery stores, home improvement, and convenience stores, to mitigate demand volatility. Planning & Forecasting: Not explicitly detailed in the filing.

Regulatory Environment & Compliance

Regulatory Framework: Industry-Specific Regulations: Agree Realty Corporation operates under the Internal Revenue Code's REIT provisions, requiring it to meet specific income, asset, and distribution tests (e.g., distributing at least 90% of REIT taxable income). Its charter limits individual ownership to 9.8% to preserve REIT status. The Company has elected Taxable REIT Subsidiary (TRS) status for certain subsidiaries, allowing them to earn non-qualifying REIT income, subject to corporate taxes. The aggregate value of TRSs is limited to 25% of the REIT's gross assets (effective 2026). Properties are subject to federal, state, and local environmental laws, including potential strict liability for hazardous substances, and the Americans with Disabilities Act (ADA). Legal Proceedings: The Company is involved in routine legal proceedings in the ordinary course of business but is not currently involved in any litigation expected to have a material adverse effect on its liquidity, results of operations, or financial condition.

Tax Strategy & Considerations

Tax Profile: Agree Realty Corporation has elected to be taxed as a REIT, generally exempting it from federal income taxes on distributed income. The Company's effective income and other tax rate for 2025 was 0.8%. It is subject to certain state and local income and franchise taxes. Tax Reform Impact: Recent U.S. federal tax reform legislation, including the One Big Beautiful Bill Act (OBBBA) and H.R. 1, has significantly impacted the taxation of individuals and corporations. OBBBA, effective July 4, 2025, made the 20% deduction for ordinary REIT dividends permanent for U.S. individual stockholders.

Insurance & Risk Transfer

Risk Management Framework: Agree Realty Corporation's leases generally require tenants to carry comprehensive liability and extended coverage insurance on its properties. However, certain losses, such as those from environmental liabilities, terrorist acts, or catastrophic natural events, may not be fully insured. The Company monitors its variable rate debt and uses interest rate derivatives, such as interest rate swap agreements, to manage exposure to interest rate movements and stabilize interest expense. These hedging strategies involve risks, including counterparty non-performance and potential ineffectiveness.