Agree Realty Corporation Q2 FY2025 earnings call

• Joey highlighted investing over $725 million year-to-date across 3 external growth platforms, with a twofold increase from last year, and raised full-year investment volume guidance to $1.4B-$1.6B. - Scaled the team by adding over 20 new members, deployed AI and machine learning tools, and commenced the next iteration of Arc. - In Q2, invested over $350 million in 110 properties, including notable acquisitions like a sale-leaseback with a leading auto parts retailer, a Walmart Supercenter, and a $75 million grocery-dominated portfolio. - Asset management team executed new leases, extensions, or options on ~950,000 sq ft of GLA, with occupancy at 99.6% post re-tenanting. - Disposition of At Home in Provo, Utah under contract to sell at 7% cap with unlevered IRR ~9%.

In the second quarter, Agree Realty invested over $350 million in 110 properties across 3 external growth platforms, including $328 million in acquisition volume across 91 high-quality retail net lease assets. The acquired properties had a weighted average cap rate of 7.1% and a weighted average lease term of 12.2 years. Over 53% of base rent acquired was from investment-grade retailers. The balance sheet was very active with over $800 million of debt and equity capital raised year-to-date, total capital markets activity over $1 billion, and a monthly dividend of $0.256 per common share declared for July, annualizing to over $3.07 per share.

• Raised full-year investment volume guidance to $1.4B-$1.6B, midpoint up 58% from last year. - Raised full-year AFFO per share guidance by $0.02 at midpoint to $4.29-$4.32, over 4% growth at midpoint. - Declared monthly cash dividend of $0.256 per common share for July, annualizing to over $3.07 per share, 2.4% year-over-year increase. - Anticipated $120 million in free cash flow after dividend this year, up over 15% from last year.

• Macro environment uncertainty affecting retail. - Credit loss definition including not just credit events but also downtime and related expenses, with guidance including 25-50 bps credit loss. - Watch list items like At Home, with anticipation of liquidation similar to other retailers like Party City, JOANN, Rite Aid.

Q: Can you give color about ATM activity in 2Q and overall timing given overnight equity offering in late April?

A: ATM activity during the quarter predated the overnight offering in April; during the overnight offering, promised investors inactivity and were fully funded.

Q: What's the magnitude of acquisition cap rates expanding and highlights on tenants targeted?

A: No new tenants targeted, Q3 acquisitions to be similar to first quarter but larger in volume, acquisition cap rates to expand with Q3 pipeline significant.

Q: Looking out at investment landscape, talk about opportunities in DFP business for developments?

A: Will break ground on minimum $100 million in projects before year-end, over 10 projects, geographically diversified with large retailers, development yields 50-150 basis points wide of equivalent acquisitions.

Q: On development platform, upper limit of investment and shift to development?

A: Not a capital allocation decision, will do deals across platforms meeting investment guidance, development achieves better returns/yields but not deterred from acquisitions, no upper limit set yet, development is nonspeculative with fixed returns.

Q: Update on watch list and what's baked in guide in terms of going-in yields?

A: Watch list very de minimis, mainly At Home and Big Lots now resolved, remaining credit issues de minimis, guide includes 25-50 bps credit loss as fully loaded economic impact.

Q: Update on Big Lots re-leasing and final outcome?

A: 1 or 2 left, one re-leased to a national retailer, Cedar Park re-leased to Aldi, Manassas re-leased with significant rent increase.

Q: Why demand for brick-and-mortar locations is strong?

A: Bigger retailers taking share, retailers realizing store is hub for omnichannel, specific sectors like auto parts having hub stores, convenience stores taking share due to convenience and EBITDA.

Q: Implication of development ramp on earnings algorithm and diversification?

A: Development and DFP are additive, build holistic relationship with retailers, differentiate from spread investors, achieve better returns/yields through development.

Q: Update on watch list and baked-in guide for going-in yields?

A: Watch list very small, credit loss guide is fully loaded economic impact, including outflows and lack of inflows during vacancy.

Q: Update on development starts and Arc iteration?

A: At minimum over $100 million in projects started between June 30 and end of year, Arc aims for self-service and dynamic reporting, AI used for lease abstraction and underwriting checklist, saving time and costs.