Agree Realty Corporation (ADC) Q4 2025 Earnings Call Transcript
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Overview
The earnings call summary reflects positive financial performance with increased investment guidance, AFFO per share growth, and dividend increase. The Q&A section indicates confidence in sustainable earnings growth and a strong balance sheet. Despite some uncertainties in development goals and new-to-market tenants, the overall sentiment remains positive. The company's strategic focus on strong tenants and effective use of forward equity further supports a positive outlook. Additionally, the raised guidance and dividend growth are likely to positively influence stock price.
Key Financial Performance
AFFO per share growth 4.5% year-over-year growth, attributed to disciplined investment and systematic process improvement.
Investment across 3 platforms $1.55 billion, representing more than 60% year-over-year growth, driven by strong portfolio positioning and team strength.
Capital raised $1.5 billion, including $715 million of forward equity, enhancing liquidity and balance sheet flexibility.
Net debt to recurring EBITDA 3.8x at year-end, reflecting strong financial positioning and ability to execute investment guidance.
Fourth quarter investment activity $377 million in 94 retail net lease properties, with a weighted average cap rate of 7.1% and lease term of 9.6 years, showcasing high-quality acquisitions.
Full year 2025 investments $1.6 billion in 338 properties, with a weighted average cap rate of 7.2% and lease term of 11.5 years, emphasizing investment-grade retailer focus.
Development and DFP platforms Record year with 34 projects and $225 million committed capital, reflecting increased activity and retailer partnerships.
Property dispositions 22 properties sold for $44 million at a weighted average cap rate of 6.9%, focusing on noncore assets and opportunistic sales.
Portfolio occupancy 99.7% at year-end, a 50 basis point improvement, indicating strong asset management.
Core FFO per share $4.28 for full year 2025, a 5.1% year-over-year increase, driven by disciplined growth and capital allocation.
AFFO per share $4.33 for full year 2025, a 4.6% year-over-year increase, reflecting strong operational performance.
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Operating Highlights
Development and DFP platforms: Record year with 34 projects either completed or under construction, representing approximately $225 million of committed capital. Four new projects commenced in Q4 with anticipated costs of $35 million, including partnerships with Boot Barn, Burlington, Five Below, Ross Dress for Less, Ulta, and 7-Eleven.
Retail net lease properties: Invested nearly $1.6 billion in 338 properties spanning 41 states in 2025. Acquisitions were completed at a weighted average cap rate of 7.2% and had a weighted average lease term of 11.5 years. Two-thirds of rents came from investment-grade retailers.
Ground lease acquisitions: Largest quarterly percentage since 2021 at over 18%, including notable transactions with Lowe's and Home Depot.
Balance sheet and liquidity: Raised $1.5 billion in capital, concluded 2025 with over $2 billion of liquidity, and achieved an A- credit rating from Fitch. No material debt maturities until 2028.
Operational efficiencies: Commenced IT undertakings, including the next iteration of ARC, driving efficiency gains and reducing G&A as a percentage of revenue.
Investment guidance for 2026: Increased to $1.4 billion to $1.6 billion, representing a 10% increase from prior range. Pipeline expanded significantly to over $0.5 billion.
Dividend growth: Declared monthly cash dividends equating to an annualized dividend of $3.14 per share, representing a 3.6% year-over-year increase.
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Risk or Challenges
Market Conditions: The company operates in a dynamic macro environment, which could pose challenges to maintaining consistent growth and execution.
Debt Management: While the company has no material debt maturities until 2028, its ability to manage and refinance debt effectively in the future remains a potential risk, especially if market conditions change.
Treasury Stock Method Dilution: The dilutive impact of unsettled forward equity offerings could affect AFFO per share, particularly if the stock price moves significantly above current levels.
Capital Recycling: The company’s capital recycling efforts focus on non-core assets and opportunistic dispositions, which may not always yield favorable outcomes or align with strategic objectives.
Supply Chain and Development Risks: The company is involved in development and DFP projects, which could face delays or cost overruns, impacting financial performance and timelines.
Economic Uncertainties: Economic conditions, including interest rate fluctuations and inflation, could impact the company’s cost of capital and overall financial performance.
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Guidance & Outlook
2026 Investment Guidance: Increased to a range of $1.4 billion to $1.6 billion, representing approximately a 10% increase from the prior range. The high end of the range is slightly above 2025 investment activity.
AFFO Per Share Guidance for 2026: Initiated at $4.54 to $4.58, representing 5.4% year-over-year growth at the midpoint and 2-year stacked growth of 10%.
Operational Return Target: Combined with the current dividend yield, the total operational return target is approximately 10%.
Balance Sheet Position: Pro forma net debt to recurring EBITDA at 3.8x, enabling execution on the high end of 2026 investment guidance without incremental equity while staying within the targeted leverage range of 4 to 5x.
Capital Availability: Over $2 billion of liquidity, including $715 million of outstanding forward equity, with no material debt maturities until 2028.
External Growth Platforms: All three external growth platforms are accelerating with increasing transactional opportunities, including acquisitions, sale leasebacks, and programmatic development.
Dividend Growth: Annualized dividend of over $3.14 per share, representing a 3.6% year-over-year increase, with a payout ratio of 71% of AFFO per share for the fourth quarter.
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Shareholder Return Plan
Dividend Growth: During the fourth quarter, monthly cash dividends of $0.262 per common share were declared for October, November, and December. This equates to an annualized dividend of over $3.14 per share, representing a 3.6% year-over-year increase.
Dividend Coverage: The dividend payout ratio was 71% of AFFO per share for the fourth quarter, indicating strong coverage.
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Key Q&A
Q:How was the increase in the 2026 investment guidance split across platforms, and were there any large transactions identified?
A:The increase in the 2026 investment guidance was primarily due to sale-leaseback transactions and single credit portfolio transactions. All three platforms (acquisition, development, and DFP) saw accelerated activity, with more confidence in projects commencing in Q1 and Q2.
Q:What makes some tenants more suitable for capital recycling than others?
A:Tenants are chosen for capital recycling based on opportunistic sales, lack of confidence in their future performance, or valuations driven by the 1031 market. Examples include Family Dollar, a fitness operator, and Goodyear stores.
Q:Where do you see cap rates trending, and are there any changes in escalators, lease terms, or options at expiration?
A:Cap rates are stable with no material deviations. Rent escalators remain consistent at 7.5% to 10% every 5 years, reflecting historic inflation trends. No significant changes in lease terms or options at expiration were noted.
Q:What is the current state of construction costs, and are there any efforts to mitigate them?
A:Construction costs remain high, consistent with last year, and are not decreasing. Efforts to mitigate costs include alternative engineering, prefabricated materials, and value engineering with retailers. Typical vertical costs for junior boxes have risen from $95 pre-pandemic to $160 per square foot.
Q:Is the increase in sale-leaseback deals timing-driven or indicative of broader interest from corporates?
A:The increase is specific to two sale-leaseback deals with existing top 20 tenants, not indicative of a broader trend or increased velocity in the market.
Q:What are the medium and long-term expectations for G&A savings as a percentage of revenue?
A:G&A savings are expected to be approximately 30 basis points relative to total revenues, driven by IT improvements, AI deployment, and operational efficiencies. The company anticipates single-digit hires this year and continues to benefit from its size and scale.
Q:Are the 4 DFPs commenced in the quarter one-off projects or part of larger store count expansions?
A:The 4 DFPs are not one-off projects but part of larger store count expansions by retailers like Home Depot, Walmart, and Tractor Supply. The company anticipates breaking ground on 10+ projects in Q1 and Q2.
Q:Are there purchase options on recent ground lease transactions, and what is the general state of the ground lease market?
A:There are no purchase options on recent ground lease transactions. The ground lease market is not a distinct market, and transactions often involve unique seller pools, including institutions and mom-and-pop owners.
Q:How much of the high end of the $1.6 billion investment guidance is dictated by available forward equity versus the true opportunity set?
A:The $1.6 billion investment guidance is not dictated by available forward equity. The company has over $2 billion in total liquidity and $1.6 billion in buying power without raising additional equity, allowing flexibility to execute on the high end of the guidance range.
Q:Why have yields not compressed more despite increased competition in the space?
A:Yields have remained stable due to the 10-year trading within a band and no material increase in competition within the company's operational sandbox. The company focuses on high-touch, real estate-specific transactions.
Q:Will the company achieve its medium-term goal of $250 million in development investment commitments this year?
A:The company is hesitant to confirm achieving the $250 million goal this year due to third-party timing issues like retailer and municipal approvals. However, the pipeline continues to grow.
Q:What are the assumed credit losses in the 2026 guidance, and how does it compare to 2025?
A:The 2026 guidance assumes 25 basis points of credit loss at the high end and 50 basis points at the low end, consistent with the 28 basis points recorded in 2025. The portfolio remains in great shape with 99.7% occupancy.
Q:How has the company's full suite real estate platform changed conversations with retailers?
A:The full suite platform allows holistic conversations with retailers, offering solutions across all phases of a transaction's lifecycle. This unique value proposition combines entrepreneurial DNA with a strong balance sheet and liquidity.
Q:Is there any timing requirement for settling the $700 million in forward equity?
A:The earliest tranche matures in June 2026, and the latest in May 2027. Most shares are expected to be settled in 2026, subject to uses and other capital sources.
Q:What is the visibility for Q1 and Q2 investment activity?
A:Q1 will include a sale-leaseback with a top 20 tenant, and Q2 will have another sale-leaseback. Other drivers include single credit portfolios with major retailers and one-off transactions.
Q:Are there any tenants or sectors that could become a bigger piece of the portfolio?
A:The company is targeting tenants like Boot Barn, Tractor Supply, and off-price retailers like TJX, Burlington, and Ross. Specific tenants on the periphery of their sandbox are also being considered.
Q:Has CVS' performance improved, and how does the company's exposure compare to CVS' broader store base?
A:CVS' performance has improved, but the company's pharmacy exposure is selective, focusing on high-performing stores with low rental bases. There is no plan for material growth in CVS exposure.
Q:What types of tenants are being targeted in the Quick Service Restaurant (QSR) sector?
A:The company is not actively targeting the QSR sector, focusing instead on ground leases or unique opportunities. Recent acquisitions include ground leases for Panda Express, Wendy's, and Olive Garden.
Q:Does exposure to lower-income consumers present a downside risk?
A:The company views exposure to lower-income consumers as an advantage, benefiting from the trade-down effect. Retailers like Walmart, Dollar General, and Five Below are thriving in this environment.
Q:Is the 4.5% to 5.5% earnings growth cadence sustainable?
A:The company believes the earnings growth cadence is sustainable, driven by its earnings algorithm, lack of material debt maturities, and external growth platforms.
Q:What percentage of ABR came from new-to-market tenants in 2025, and will this increase in 2026?
A:New-to-market tenants contributed minimally to ABR in 2025, and no significant increase is expected in 2026.
Q:What is the company's comfort level with tenant exposure, particularly Walmart?
A:The company is comfortable with Walmart's 5.6% ABR exposure and is open to increasing it. Walmart is also a top ground lease tenant.
Q:What factors influence the use of forward equity, and is it a signal of pipeline growth?
A:Forward equity use is influenced by capital needs and pipeline growth. While it may correlate with pipeline growth, it is not a direct causation.
Q:Where is development and DFP activity taking place, and what types of projects are being pursued?
A:Development and DFP activity spans primary and tertiary markets, including greenfield projects, redevelopments, and hard corners for C-stores. Retailers like Lowe's, Home Depot, and off-price operators are driving growth.
Q:How does the company approach lease terms when underwriting acquisitions?
A:Lease terms are evaluated based on store performance, real estate fundamentals, and mark-to-market potential. Short-term leases are acceptable if the real estate and performance metrics are strong.
Q:What are the re-leasing spreads for investment-grade tenants?
A:Re-leasing spreads for investment-grade tenants have been consistent at 103% to 104% recapture rates over the past few years.
Q:What is the disposition guidance, and what factors influence it?
A:Disposition guidance is $25 million to $75 million, influenced by opportunistic sales, 1031 market demand, and tax-motivated purchasers. Cap rates for dispositions are expected to be in the 6% range.
Q:Review of Unclear Management Responses
A:Management avoided directly answering questions about achieving the $250 million development investment goal, citing third-party timing issues. They also provided vague responses regarding new-to-market tenants and the potential for increasing tenant exposure beyond Walmart.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
ADC value
AFFO share
ARC efficiency
Barn Burlington
Burlington Five
DFP project
Depot Michigan
Finance statement
Fitch paper
Fitch rating
Five Ulta
Kansas lease
REITs
construction capital
credit rating
debt end
end investment
equity capital
equity proceeds
fortress balance
improvement
increase AFFO
investment equity
lease property
loan term
paper program
partnership
percentage
position investment
project construction
property cap
property state
rate lease
rating Fitch
record
rent investment
rent property
saving
sheet capital
term capital
term loan
ADC Transcript
Agree Realty Corporation (ADC) Q4 2025 Earnings Call Transcript
Positive2-11
The earnings call summary reflects positive financial performance with increased investment guidance, AFFO per share growth, and dividend increase. The Q&A section indicates confidence in sustainable earnings growth and a strong balance sheet. Despite some uncertainties in development goals and new-to-market tenants, the overall sentiment remains positive. The company's strategic focus on strong tenants and effective use of forward equity further supports a positive outlook. Additionally, the raised guidance and dividend growth are likely to positively influence stock price.
Agree Realty Corporation (ADC) Q3 2025 Earnings Call Transcript
Positive10-22
The earnings call summary and Q&A session reveal a generally positive outlook. The company has raised its guidance for investment volume and AFFO per share, indicating confidence in future growth. The balance sheet is strong, with significant liquidity and no major debt maturities. Retailer demand is high, and dividend growth is well-supported. The Q&A session confirms strong tenant health and strategic alignment with market trends. While some uncertainties exist, such as cap rate predictions, overall sentiment is positive, suggesting a likely stock price increase in the short term.
Agree Realty Corporation (ADC) Q2 2025 Earnings Conference Call Transcript
Positive8-1
The earnings call summary and Q&A indicate a positive outlook. The company has increased its investment guidance and AFFO per share guidance, showing confidence in future growth. The strategic focus on necessity-based retailers and strong development projects further supports this. Despite consumer sentiment deterioration, the company benefits from its durable goods focus. The dividend increase and strong debt metrics add to the positive sentiment. The Q&A did highlight some uncertainties, but overall, the strategic growth plans and financial health suggest a positive stock price movement.
Agree Realty Corporation (NYSE:ADC) Q1 2025 Earnings Call Transcript
Unknown4-24
The earnings call reveals stable financial performance with a slight increase in AFFO per share and a raised investment guidance, which are positive indicators. However, the lack of share repurchase, unclear responses in the Q&A, and no significant new partnerships or strategic shifts lead to a neutral sentiment. The absence of negative trends or risks suggests limited downside, but the lack of strong positive catalysts or strategic insights keeps the outlook from being more optimistic.
ADC Slides
ADC Report
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