Agree Realty Q1 2025 Earnings Update

• Agree Realty beat consensus estimates for AFFO by $.02.
• Guidance was slightly increased. It’s above consensus estimates, but the consensus was low.
• Good quarter.
• Valuation looks pretty high.

Agree Realty (ADC) recently reported Q1 2025 earnings.

Earnings Results

• Q1 2025 Core FFO: $1.04 (matches consensus)
• Q1 2025 Management AFFO: $1.06 (beat consensus by $.02)

Note: Consensus estimates for Core FFO and AFFO should not be identical. ADC regularly reports modestly higher Management AFFO than Core FFO because of the adjustments. Regardless, the consensus forecast was $1.04 for both numbers.

Guidance for 2025

• Full Year AFFO per share guidance raised. Old range: $4.26 to $4.30. New range: $4.27 to $4.30. Midpoint up $.005.
• Consensus estimate was $4.26, which feels a bit strange.

Issuing Shares

As a net lease REIT, ADC’s strategy involves issuing new shares to fund external growth. This growth is usually accretive to their “per share” metrics, which are the ones shareholders should care about. After all, you want to know how much money the company is generating for you.

ADC was using their forward ATM (at-the-market) program for forward offerings again. ADC issued about 2.4 million shares for $181.4 million in future net proceeds. That comes out to about $75.33 per share. This is excellent for ADC. They are issuing shares far above my estimate of NAV, and it is materially improving their growth rate in the “per share” metrics.

Forward Equity Offerings

This is repeated from prior commentary:

Using forward equity offerings is simply a way for the REIT to proactively lock in the price on issuing shares. They already know the valuation for the properties they are considering buying. They use the “forward equity offering” to lock in the price for issuing shares.That makes it easier for the REIT to negotiate to purchase additional properties since they know how many shares they are issuing to fund the transaction. Why not issue the shares in advance and then sit on cash? One reason is that it makes the financial statements harder to analyze. It’s ideal if the share count increases at precisely the same time as the properties are acquired. This method allows the REIT to put those dates much closer to each other.

Note: There are some complications with accounting and the “treasury stock method”. Guidance is already factoring in that these accounting rules may reduce 2025 AFFO per share by about $.01 to $.02. This isn’t big enough to be worth worrying about, but as an analyst it’s nice to see management address it proactively.

Acquisitions

These are the key stats for ADC’s acquisitions during the quarter:

• Properties: 46
• Total price: $358.9 million
• Cap rate: 7.3%
• Weighted-average remaining lease term: 13.4 years
• Annualized base rent from investment grade tenants: 68.7%

Full year guidance for acquisitions:

• Old guidance: $1.1 to $1.3 billion
• New guidance: $1.3 to $1.5 billion

That’s quite a boost to acquisition guidance. When management was providing initial guidance, they probably didn’t expect to have such a strong share price. The strength in their price enables them to issue new shares and be more aggressive in acquisitions. Meanwhile, the market disruption with tariffs may create a few more motivated sellers, allowing ADC to find some better bargains.

Dispositions

We typically expect dispositions to be pretty low.

Guidance for dispositions in 2025 is $10 to $50 million. ($30 million midpoint). No change from prior guidance.

Conclusion

Strong quarter for ADC. As usual, there are no huge surprises. Net lease REITs rarely report huge surprises. Fundamental performance could encourage a slight positive adjustment to targets, but with interest rates swinging wildly every day it’s too early to make any predictions about the net impact.

• Prior to the tariffs, ADC closed at $76.49. 
• Today, ADC closed at $79.12. 

That’s pretty impressive. Tariffs are not positive for ADC. They aren’t nearly as negative for ADC, but they certainly are not positive.

I find the valuation on ADC too high. Great REIT. Painfully high price. The latest consensus NAV estimate is $64.02. That puts the price-to-NAV at 1.236x.

However, I think consensus estimates for NAV may actually be a bit too high, so the price-to-NAV is probably even higher. I concur that ADC deserves a premium to NAV, but not this premium.

ADC is pretty close to setting a new 5-year high (needs to be a bit over $80). While ADC has performed well, the fundamentals only outperformed expectations modestly relative to early 2024. In early 2024, shares were trading slightly above their 5-year lows (mid fifties). 

Disclosure: No position in ADC.