AGREE REALTY CORP Q3 2025 earnings call

Thank you. Good morning, everyone, and thank you for joining us for Agree Realty's third quarter 2025 earnings call. Before turning the call over to Joey and Peter to discuss our results for the quarter, let me first run through the cautionary language. Please note that during this call, we'll make certain statements that may be considered forward-looking under federal securities law, including statements related to our updated 2025 guidance. Our actual results may differ significantly from the matters discussed in any forward-looking statements for a number of reasons. Please see yesterday's earnings release and our SEC filings, including our latest annual report on Form 10-K, for a discussion of various risks and uncertainties underlying our forward-looking statements. In addition, we discuss non-GAAP financial measures, including core funds from operations, or core FFO, adjusted funds from operations, or AFFO, and net debt to recurring EBITDA.

Reconciliations of our historical non-GAAP financial measures to the most directly comparable GAAP measures can be found at our earnings release, website, and SEC filings. I'll now turn the call over to Joey.

Thanks, Reuben, and thank you all for joining us this morning. I'm pleased to report another very strong quarter in Agree Realty Corporation as we further expanded and strengthened what we view to be the nation's leading retail portfolio. The unmatched value proposition of our three-pronged approach continues to drive a compelling opportunity set and expansive pipelines across all platforms. We achieved our largest quarterly investment volume since the depths of COVID five years ago, deploying over $450 million across all three platforms while maintaining a high level of discipline in our underwriting process. Given growing pipelines across our three external growth platforms, we are increasing our full-year 2025 investment guidance to a new range of $1.5-$1.65 billion. At the midpoint, this represents an increase of over 65% above last year's investment volume.

This exceptional level of activity demonstrates our ability to efficiently scale our investment platforms while partnering with the best retailers in the country. We will continue to be disciplined capital allocators while maintaining our stringent real estate quality underwriting standards. Our best-in-class portfolio is paired with a fortress balance sheet that is over $1.9 billion of liquidity and no material debt maturities until 2028. With pro forma net debt to recurring EBITDA of just 3.5x and over $1 billion of forward equity available to us, we enjoy significant runway and have pre-funded our growth well into next year. During the quarter, we received an A-minus issuer rating from Fitch Ratings, making us one of only 13 publicly listed U.S. REITs with an A-minus credit rating or better.

This was a significant milestone for our growing company and is a testament to over 15 years of disciplined growth and keen portfolio construction, having invested over $10 billion during that period while maintaining a preeminent balance sheet and leading the way on capital markets activities. Given our robust liquidity profile, fortress balance sheet, and strong portfolio performance, we are raising our AFFO per share guidance to a new range of $4.31-$4.33 for the year. The new midpoint represents approximately 4.4% year-over-year growth. Peter will provide more details on our guidance momentarily. Turning to our three external growth platforms, during the third quarter, we invested over $450 million in 110 high-quality retail net lease properties across our three platforms. This includes the acquisition of 90 assets for over $400 million.

The properties acquired during the quarter are leased to leading operators in home improvement, auto parts, grocery, off-price, farm and rural supply, convenience stores, and tire and auto service. The acquisitions had a weighted average cap rate of 7.2% and a weighted average lease term of 10.7 years. Investment-grade retailers accounted for 70% of the annualized base rent acquired, the highest mark so far this year. Notable transactions during the quarter included a sale-leaseback with a relationship tenant in the tire and auto service sector, multiple Aldi locations, a high-performing Kroger in Cincinnati, a Sherwin-Williams portfolio, a Home Depot in New York, as well as a Walmart Supercenter in Illinois. For the first nine months of the year, we've invested nearly $1.2 billion across 257 retail net lease properties spanning 40 states and 29 retail sectors.

Approximately $1.1 billion of our investment activities originated for our acquisition platform, with the remainder emanating from our development and developer funding platforms. During the third quarter, we commenced five development or developer funding projects with total anticipated costs of approximately $51 million. We are well on our way to commencing over $100 million of projects in the second half of the year, as discussed on last quarter's call. Through the first nine months of the year, we've committed approximately $190 million across 30 projects that are either completed or under construction, representing a significant increase in development and developer funding spend compared to prior years. We remain confident that we'll achieve our medium-term goal of $250 million commenced annually. In the third quarter alone, we invested a record of approximately $50 million across 20 development and developer funding projects, representing a twofold increase in capital deployment quarter-over-quarter.

These platforms are a growing component of our investment strategy, allowing us to partner with best-in-class retailers and private developers to add high-quality real estate to our portfolio at superior returns than we can achieve via acquisitions. Of note, during the quarter, we commenced construction on two of our first 7-Eleven developments. Located in Michigan and Ohio, we anticipate total costs for the two projects will be approximately $18 million. The Ohio location marks our first commercial fueling site for 7-Eleven, a compelling addition to our large format convenience store portfolio. These projects underscore the strategic depth of our relationship with yet another leading retailer. We're delivering our full complement of capabilities, ground-up development, developer funding projects, as well as acquisitions. I look forward to providing more details as we continue to roll out additional projects in the coming quarters.

On the asset management front, we executed new leases, extensions, or options on approximately 860,000 square feet of gross leasable area during the quarter, including a 50,000 square foot TJX Companies and HomeGoods combo in Eugene, Oregon, a 27,000 square foot Burlington in Midland, Texas, and two Walmarts comprising over 310,000 square feet. For the first nine months of the year, we executed new leases, extensions, or options on 2.4 million square feet of gross leasable area with a recapture rate of approximately 104%. We are in an excellent position for the remainder of the year with just nine leases or 20 basis points of annualized base rent maturing. Dispositions this quarter totaled approximately $15 million and included our only At Home in Provo, Utah, as well as three AutoZone. The At Home disposition is emblematic of our underlying focus on real estate.

The disposition cap rate of approximately 7% is nearly 50 basis points inside of where we acquired the asset, resulting in an unlevered IRR of approximately 9%. Our best-in-class portfolio now spans over 2,600 properties across all 50 states, including 237 ground leases, representing 10% of total annualized base rents. Occupancy for the quarter remained very strong at 99.7%, and our investment-grade exposure remains sector-leading at 67%. Heading into the fourth quarter, I'm extremely excited to wrap up the year as we head into 2026 in a tremendous position as our earning algorithm kicks into gear. I'll now hand the call over to Peter, and then we can open it up for questions.

Thank you, Joey. Starting with earnings, core FFO per share for the third quarter of $1.09 was 8.4% higher than the same period last year. AFFO per share for the third quarter increased 7.2% year-over-year to $1.10, which is $0.02 above consensus. A portion of the beat is attributable to lease termination fees, which contributed roughly a penny to AFFO per share in the quarter. As Joey highlighted, we have updated our 2025 earnings outlook to reflect our strong performance year to date. We raised both the lower and upper end of our full-year AFFO per share guidance to a new range of $4.31-$4.33, which implies year-over-year growth of approximately 4.4% at the midpoint. Our new guidance range includes an assumption for approximately 25 basis points of credit loss for the year.

As a reminder, the Treasury stock method impact is included in our diluted share count prior to settlement if Agree Realty stock trades above the net price of our outstanding forward equity offerings. The aggregate dilutive impact related to these offerings was fairly de minimis in the third quarter. Our updated guidance range contemplates a minimal Treasury stock method dilution in the fourth quarter as well, though that remains subject to how the stock trades for the remainder of the year. For full-year 2025, we still anticipate roughly a penny of dilution related to the Treasury stock method, largely given the impact recognized in the first half of the year. In the third quarter, we declared monthly cash dividends of $0.2506 per share for July, August, and September. This represents a 2.4% year-over-year increase.

While raising our dividend twice over the past year, we maintain conservative payout ratios for the third quarter of 70% of core FFO per share and AFFO per share, respectively. Subsequent to quarter end, we again increased our monthly cash dividend to $0.2602 per share for October. The monthly dividend reflects an annualized dividend amount of over $3.14 per share, or a 3.6% increase over the annualized dividend amount of $3.04 per share from the fourth quarter of last year. Moving to the balance sheet, as Joey mentioned, in August, we achieved an A-minus issuer rating from Fitch Ratings with a stable outlook. This significant accomplishment is a testament to the strength of our portfolio, as well as our balance sheet, and reflects a thoughtful and disciplined way we have and will continue to grow the company.

The A-minus rating reduced the interest rate on our 2029 term loan by five basis points. In addition, the F1 short-term rating assigned by Fitch translated into a similar pricing improvement for our commercial paper notes. During the quarter, we settled approximately 3.5 million shares of forward equity for net proceeds of over $250 million. As of September 30, we had approximately 14 million shares remaining to be settled under existing forward sale agreements, which are anticipated to raise net proceeds of over $1 billion upon settlement. At quarter end, total liquidity stood at $1.9 billion, including cash on hand, forward equity, as well as over $850 million of availability on our revolving credit facility, which is net of amounts outstanding on our commercial paper program. Pro forma for the settlement of all outstanding forward equity, our net debt to recurring EBITDA was approximately 3.5x.

Excluding the impact of unsettled forward equity, our net debt to recurring EBITDA was 5.1x. Our total debt to enterprise value was approximately 29%, while our fixed charge coverage ratio, which includes principal amortization and the preferred dividend, remains very healthy at 4.2x. Subsequent to quarter end, we further strengthened our balance sheet, securing commitments for a $350 million 5.5-year delayed draw term loan that will mature in 2031. We anticipate closing later this quarter and have entered into $350 million of forward starting swaps to fix SOFR until maturity. Including the impact of the swaps, the interest rate on the term loan is fixed at approximately 4% based on our current A-minus credit rating. The term loan demonstrates continued strong support from our key banking partners and enables us to fill a gap in our debt maturity schedule while achieving opportunistic pricing in today's rate environment.

Upon closing, the term loan will increase our pro forma liquidity to approximately $2.2 billion, and we have now locked in attractively priced equity and debt capital to fund our growth well into 2026. With that, I'd like to turn the call back over to Joey.

Thank you, Peter. At this time, operator, we'll open it up for questions.