Agree Realty Q2 2025 Earnings Report

Agree Realty EPS Results

• Actual EPS: $1.06
• Consensus EPS: $1.05
• Beat/Miss: Beat by +$0.01
• One Year Ago EPS: $1.04

Agree Realty Revenue Results

• Actual Revenue: $175.53 million
• Expected Revenue: $173.95 million
• Beat/Miss: Beat by +$1.58 million
• YoY Revenue Growth: +15.00%

Agree Realty Announcement Details

• Quarter: Q2 2025
• Date: 7/31/2025
• Time: After Market Closes
• Conference Call Date: Friday, August 1, 2025
• Conference Call Time: 9:00AM ET

Agree Realty (NYSE:ADC) is a publicly traded real estate investment trust that is RETHINKING RETAIL through the acquisition and development of properties net leased to industry-leading, omni-channel retail tenants. As of December 31, 2023, the Company owned and operated a portfolio of 2,135 properties, located in 49 states and containing approximately 44.2 million square feet of gross leasable area. The Company's common stock is listed on the New York Stock Exchange under the symbol "ADC".

Agree Realty Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Agree Realty raised its full-year external investment volume guidance to $1.4 billion–$1.6 billion, representing a 58% increase at the midpoint, after deploying over $725 million in the first half of 2025.
• Positive Sentiment: The company increased its full-year AFFO per share guidance by $0.02 to a range of $4.29–$4.32, implying over 4% growth at midpoint, supported by $2.3 billion of liquidity and a pro forma net debt to recurring EBITDA of just 3.1×.
• Positive Sentiment: In Q2, Agree invested more than $350 million to acquire 91 high-quality retail net lease assets at a weighted average cap rate of 7.1% and lease term of 12.2 years, with over 53% of ABR from investment-grade tenants and a strong acquisition pipeline underway.
• Positive Sentiment: Asset management delivered robust leasing results with ~950,000 sq ft of renewals and new leases in Q2 (1.5 million sq ft in H1) at a ~104% net effective recapture rate, lifting occupancy to 99.6%.
• Neutral Sentiment: The company maintains a fully loaded credit loss assumption of 25–50 bps in its guidance to account for any tenant payment or downtime risks amid ongoing macro uncertainties such as tariffs.

Presentation

[Operator]

Good morning, and welcome to the Agree Realty Second Quarter twenty twenty five Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please limit yourself to two questions during this call. And note, this event is being recorded.

[Operator]

I would now like to turn the conference over to Ruben Treatment, Senior Director of Corporate Finance. Please go ahead, Ruben.

[Reuben Treatman, Senior Director - Corporate Finance at Agree Realty]

Thank you. Good morning, everyone, and thank you for joining us for Agree Realty's second quarter twenty twenty five earnings call. Before turning the call over to Joey and Peter to discuss our results for the quarter, let me first run through our cautionary language. Please note that during this call, we will 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.

[Reuben Treatman, Senior Director - Corporate Finance at Agree Realty]

Please see yesterday's earnings release and our SEC filings, including our latest annual report on Form 10 ks 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 the most directly comparable GAAP measures can be found in our earnings release, website and SEC filings. I'll now turn the call over to Joey.

[Joey Agree, President, CEO & Director at Agree Realty]

Thanks, Ruben, and thank you all for joining us this morning. I am extremely pleased with our performance during the first half of the year, having invested over $725,000,000 across our three external growth platforms, while further solidifying what we believe to be the preeminent retail portfolio in the country. The $725,000,000 plus invested year to date represents more than twofold increase relative to the first half of last year. All three of our external growth platforms have broad and expansive pipelines and will see acceleration in the third quarter. Hence, we are raising our full year investment volume guidance once again to an updated range of 1,400,000,000.0 to $1,600,000,000 The midpoint of this range represents a 58% increase over total investment volume for last year.

[Joey Agree, President, CEO & Director at Agree Realty]

Most exciting is not the defensive nature of our portfolio or balance sheet in a dynamic world. It is now our dominant market position driven by a best in class team that executes on hundreds of transactions annually across our three growth platforms. This value proposition is unparalleled and when combined with our internal asset management platform and deep retailer relationships has built a differentiated and unmatched company. It has been fifteen years in the making since this vision was outlined in our one page operating strategy, December 2009 to be exact, and I'm delighted to say that it has been realized. I am confident that these factors will drive an increased earnings algorithm in the coming years without moving up the risk curve in any manner.

[Joey Agree, President, CEO & Director at Agree Realty]

We continue to expand our war chest during the quarter, now having raised over $1,000,000,000 of capital year to date with $1,300,000,000 of outstanding forward equity. With over $2,300,000,000 in total liquidity, no material debt maturities until 2028 and pro form a net debt to recurring EBITDA of just 3.1 times at quarter end, our balance sheet remains best in class and is positioned to support our growth well into next year. To support this growth, we've continued to scale our team, enhance our systems, and refine our processes, building a well oiled machine and widening our competitive moat. We've added over 20 new team members year to date across the organization, increasing the scale of our horizontally integrated platform to support current activities as well as growth for years to come. We have driven industry leading efficiencies with the deployment of additional systems, including AI and machine learning tools, as well as enhanced integrations and streamlined workflows.

[Joey Agree, President, CEO & Director at Agree Realty]

Additionally, we have commenced the next iteration of ARC, which will come online next year. We've already started to reap these benefits in 2025 as we're raising our full year AFFO per share guidance by 2¢ at the midpoint to a new range of $4.29 to $4.32. This represents over 4% growth at the midpoint and demonstrates our ability to provide consistent and reliable earnings growth without deviating from our investment strategy. Peter will provide further details on the guidance range and its key inputs shortly. We continue to see the biggest and best retailers take market share, which acts as a tailwind to all three of our external growth platforms.

[Joey Agree, President, CEO & Director at Agree Realty]

Even in today's uncertain macro environment, we are seeing the highest level of retailer demand for new brick and mortar locations since the great financial crisis. Nearly every retailer in our sandbox is focused on adding net new stores, underscoring the critical role that retail net lease assets play in an omnichannel retail world and is outlined in our previous commentary and white papers. Moving on to the second quarter in detail, we invested over $350,000,000 in 110 properties across all three platforms. This includes $328,000,000 of acquisition volume across 91 high quality retail net lease assets. Notable acquisitions during the quarter included a sale leaseback with the leading national auto parts retailer, a one off Walmart Supercenter in Ohio and a $75,000,000 grocery dominated portfolio representing one of our largest non sale leaseback transactions since the inception of our acquisition platform in 2010.

[Joey Agree, President, CEO & Director at Agree Realty]

This unique opportunity was owned by an elderly woman and was sourced through eighteen months of working in off market opportunity. These differentiated examples underscore the strength of our platform and its ability to source differentiated opportunities in a substantial and highly fragmented space. The acquired properties had a weighted average cap rate of 7.1% and a weighted average lease term of twelve point two years. Over 53% of base rent acquired was derived from investment grade retailers and we continue to add to our ground lease portfolio during the quarter. We anticipate selling a few lower yield non core assets from the aforementioned 75,000,000 grocery dominated portfolio, which will improve both acquisition cap rate and investment grade percentage for the quarter post disposition.

[Joey Agree, President, CEO & Director at Agree Realty]

Although we only commenced one project in our development and DSP platforms during the quarter, don't be fooled. We continue to see increased activity and have a deep pipeline. We anticipate announcing several projects in the quarters ahead, while construction continued on 14 projects during the quarter with aggregate anticipated costs of over $90,000,000 We wrapped up four projects during the quarter, representing aggregate investment of over $13,000,000 These projects were with leading retail partners, including TGX, Burlington, seven Eleven, Boot Barn, Starbucks, Gerber Collision, and Sunbelt Rentals. In total, we had 25 projects either completed or under construction during the first half of the year, representing $140,000,000 of committed capital, including $98,000,000 of costs incurred through June 30. We anticipate development spend to be up at least 50% year over year as both platforms continue to ramp.

[Joey Agree, President, CEO & Director at Agree Realty]

Our asset management team continues to address upcoming lease maturities. We executed new leases, extensions or options on approximately 950,000 square feet of gross leasable area during the quarter. This included a Walmart Supercenter in Ohio, a Best Buy in California and five geographically diverse leases with the TJX companies. In the first half of the year, we executed new leases, extensions, or options at 1,500,000 square feet of GLA with recapture rates of approximately 104%. Notable examples in recent quarters include the releasing of our former Big Lots in Manassas, Virginia and Cedar Park, Texas, with net effective recapture rates of almost 170150% respectively, as well as the releasing of our former Party City in Port Arthur, Texas with a net effective recapture rate of 115%, demonstrating our emphasis on fungible boxes in dominant retail corridors.

[Joey Agree, President, CEO & Director at Agree Realty]

At quarter end, our best in class portfolio surpassed 2,500 properties spanning all 50 states. The portfolio includes two thirty two ground leases comprising over 10% of annualized base rents. Our investment grade exposure stood at 68% and occupancy rebound post the re tenanting of the former big lots by 40 basis points to 99.6%. Dispositions remain limited. However, our only at home located in Provo, Utah across from a new target is currently under contract to sell and non refundable at a seven cap.

[Joey Agree, President, CEO & Director at Agree Realty]

We purchased the at home as a pure real estate play in 2016 and have had interest in the site from multiple retailers and prospective purchasers. The disposition cap rate of 7% is nearly 50 basis points inside of where we acquired the asset and we anticipate realizing an unlevered IRR of approximately 9% upon closing this quarter. Although At Home recently exercised the five year option and the lease is anticipated to be in firm to bankruptcy, I'm confident that At Home will ultimately suffer the same fate as Party City, Joanne and Rite Aid and ultimately liquidate. With that said, I'll hand the call over to Peter to discuss our financial results for the quarter.

[Peter Coughenour, CFO at Agree Realty]

Thank you, Joey. Starting with the balance sheet, we had a very active quarter with over $800,000,000 of equity capital raised, bringing total capital markets activity year to date to over $1,000,000,000 We raised approximately $415,000,000 of forward equity in the quarter via our ATM program and a 5,200,000.0 share overnight offering in April. In May, we completed a $400,000,000 public bond offering comprised of 5.6% senior unsecured notes due in 02/1935. In connection with the offering, we terminated forward starting swap agreements of $325,000,000 receiving almost $14,000,000 upon termination and reducing our all in rate to 5.35%. During the quarter, we also settled close to 700,000 shares of forward equity for net proceeds of approximately $41,000,000 As of June 30, we had approximately 17,500,000.0 shares remaining to be settled under existing forward sale agreements for anticipated net proceeds of $1,300,000,000 At quarter end, total liquidity stood at $2,300,000,000 including cash on hand, forward equity as well as $1,000,000,000 of availability on our revolving credit facility, which is net of amounts outstanding on our commercial paper program at quarter end.

[Peter Coughenour, CFO at Agree Realty]

Pro form a for the settlement of all outstanding forward equity, our net debt to recurring EBITDA was approximately 3.1 times, representing the lowest level since 2022. Excluding the impact of unsettled forward equity, our net debt to recurring EBITDA was 5.2 times. Our total debt to enterprise value was approximately 28% and our fixed charge coverage ratio, which includes the preferred dividend, remains very healthy at 4.2 times. Our only floating rate exposure remains short term borrowings and we continue to have no material debt maturities until 2028. Our balance sheet is extremely well positioned to fund our growth in the next year as we've locked in an attractive cost of capital, which helps provide visibility into the acceleration in our multi year earnings algorithm, as Joey mentioned.

[Peter Coughenour, CFO at Agree Realty]

Core FFO per share was $1.05 for the second quarter, which represents a 1.3% increase compared to the second quarter of last year. AFFO per share was $1.06 for the quarter, representing a 1.7% year over year increase. As Joey highlighted, we have updated our full year 2025 earnings outlook to reflect a strong first half to the year. We raised both the lower and upper end of our full year AFFO per share guidance by $02 to a new range of $4.29 to $4.32 which implies year over year growth of over 4% at the midpoint. The increase in our earnings guidance is largely driven by higher investment activity as evidenced by our increased investment guidance as well as a lower assumption for treasury stock method dilution.

[Peter Coughenour, CFO at Agree Realty]

As a reminder, if ADC stock trades above the net price of our outstanding forward equity offerings, the dilutive impact of unsettled shares must be included in our share count in accordance with the treasury stock method. Our stock is trading at lower levels than in late April and if it continues to trade near current levels, we anticipate that treasury stock method dilution will have an impact of roughly $01 on full year 2025 AFFO per share. That said, the impact could be higher if our stock moves materially above current levels as was evident in last quarter's guidance or if we were to issue additional forward equity. Our guidance has been updated to include an assumption of 25 basis points of credit loss at the high end of our AFFO per share range and 50 basis points of credit loss at the low end of the range. I want to reiterate that our definition of credit loss is fully loaded.

[Peter Coughenour, CFO at Agree Realty]

It encompasses not only credit events, but downtime due to a tenant vacating at least maturity unrelated to credit issues and other partial or nonpayments for any and all reasons. It also includes any operating and tax expense that ADC is responsible for paying while a space is vacant in addition to lost rental revenue. We believe this is an important distinction versus narrower definitions of credit loss used by some of our peers as we're looking to provide a more comprehensive picture of not only credit events, but overall economic loss for modeling purposes. Our growing and well covered dividend continues to be supported by our consistent and reliable earnings growth. During the second quarter, we declared monthly cash dividends of $0.02 $56 per common share for April, May and June.

[Peter Coughenour, CFO at Agree Realty]

The monthly dividend equates to an annualized dividend of over $3.07 per share and represents a 2.4 year over year increase. Our dividend is very well covered with a payout ratio of 72% of AFFO per share for the second quarter. We anticipate approximately $120,000,000 in free cash flow after the dividend this year, up over 15 percent from last year. This provides us with another source of cost efficient capital to fund our growth while maintaining a growing and well covered dividend. Subsequent to quarter end, we announced a monthly cash dividend of $0.02 $56 per common share for July.

[Peter Coughenour, CFO at Agree Realty]

The monthly dividend also equates to an annualized dividend of over $3.07 per share and represents a 2.4% year over year increase. With that, I'd like to turn the call back over to Joey.

[Joey Agree, President, CEO & Director at Agree Realty]

Thanks, Peter. Operator, at this time, let's open it up for questions.

[Operator]

Thank you. We will now begin the question and answer Your first question comes from the line of Linda Tsai from Jefferies. Please go ahead.

[Linda Tsai, Senior Analyst at Jefferies]

Hi, good morning. Can you give us some color about your ATM activity in 2Q and overall timing given your overnight equity offering in late April?

[Joey Agree, President, CEO & Director at Agree Realty]

Hey. Good morning, Linda. You're breaking up a little bit, but I think you asked about the ATM activity during the quarter. Correct?

[Linda Tsai, Senior Analyst at Jefferies]

Yes. And your overnight offering in late April.

[Joey Agree, President, CEO & Director at Agree Realty]

Got it. Yes. The ATM activity during the quarter all predated the overnight offering in April. During the overnight offering at post commencement of launch, I I I promised investors that we would be inactive in the capital markets and we were fully funded, and we held that promise.

[Linda Tsai, Senior Analyst at Jefferies]

Thanks. And then I think you said acquisition cap rates would expand going forward. What's the magnitude and any highlights on the tenants you're targeting?

[Joey Agree, President, CEO & Director at Agree Realty]

No new tenants that we're targeting. We're going to stay within our sandbox. I would anticipate q three. Again, we just started sourcing for q four, but q three acquisitions could be, similar to the first quarter but larger in volume.

[Linda Tsai, Senior Analyst at Jefferies]

Just one last one. Just given all the macro headline volatility, how are you thinking about retailer and consumer health right now? Do you have a view of whether it's improved or deteriorated year to date?

[Joey Agree, President, CEO & Director at Agree Realty]

Well, I think consumer health has has undoubtedly deteriorated, at least at least consumer sentiment. We've seen the we've seen those numbers swing. I think this number's this morning's jobs report most likely affirms that conclusion. Ultimately, this this enters to the benefit of our portfolio, which is focused on core durable goods and necessity based retailers that are biggest in the comp in in the country. And that has been our focus, will continue to be our focus.

[Joey Agree, President, CEO & Director at Agree Realty]

We will stay away from experiential. We'll stay away from discretionary, and we're gonna buy things as you see in this quarter, whether it's auto parts or in grocery or tire and auto service that continue to be required by consumers to live their daily lives from the biggest and best operators cannot they can offer the lowest price. And we're seeing that throughout retailer earnings reports. Right? The biggest and best operators here are going to continue to gain market share, and simultaneously, we're gonna continue to gain market share.

[Linda Tsai, Senior Analyst at Jefferies]

You think retailer health is improving though overall?

[Joey Agree, President, CEO & Director at Agree Realty]

We'll see how retailer health is. I think you're gonna see small retailer. I think the big beautiful bill and what we're seeing going on in Washington ultimately is going to impact and tariffs are ultimately gonna impact the smaller retailers. Smaller retailers that have to deal with tariff pass throughs here, right, on goods that they're selling or components of the goods they're selling are gonna be have to either take margin or pass on and price themselves out. And so at the end of the day, the bigger retailers with the larger balance sheets, not dissimilar from a recessionary type environment, not predicting recession, but not dissimilar.

[Joey Agree, President, CEO & Director at Agree Realty]

The bigger retailers with the bigger balance sheets are gonna be able to have choices and alternatives, but in terms of passing through incremental costs and inflationary costs to consumers due to tariffs or to eat margin or better negotiating leverage with their ultimate suppliers. And that is just that's a fact. This bill hurts this bill and the tariffs hurt Main Street. Right? They help large retailers such as Walmart and Kroger and the biggest and best operators in the country.

[Linda Tsai, Senior Analyst at Jefferies]

Appreciate the color. Thank you, Joey.

[Joey Agree, President, CEO & Director at Agree Realty]

Thanks, Linda.

[Operator]

Your next question comes from the line of Ki Bin Kim with Truist Securities. Please go ahead.

[Ki Bin Kim, MD - US REIT Equity Research at Truist]

Thank you. Good morning.

[Ki Bin Kim, MD - US REIT Equity Research at Truist]

So looking at out at the investment landscape, Joey, can you just talk about some of the opportunities that you see, maybe in particular the DFT business for developments? And maybe you can just touch you know, volume, quality, and pricing, things like that. Thank you.

[Joey Agree, President, CEO & Director at Agree Realty]

So the opportunities, as I mentioned in the prepared remarks, this is the most excited that I've personally been since COVID. It's the culmination of fifteen years of a vision. In the net lease space, everyone loves to focus only on acquisition volumes. Our acquisition volume will be strong. Our third quarter pipeline is very significant.

[Joey Agree, President, CEO & Director at Agree Realty]

But in terms of development in our DFP business, we're going to break ground on a minimum of $100,000,000 before year end. It's over 10 projects. It's geographically diversified with some of the country's largest retailers. Coming behind that is a significant shadow pipeline. And I'll say this was the vision that we laid out fifteen years ago prior to the inception of the acquisition platform when we were still a micro cap.

[Joey Agree, President, CEO & Director at Agree Realty]

And it was to become a it was to be a real estate company in the net lease space and not what everyone in the space refers to as a simple spread investor. Anybody can do that to different degrees of success ultimately. Frankly, I'm not interested in being part of that, of that crew. I grew up on a real estate site. This company is a real estate company.

[Joey Agree, President, CEO & Director at Agree Realty]

And what you're going to see is all three external growth platforms, pipeline, scale, the results of those pipelines being scaled, and the culmination of that vision to be a full service real estate company to the biggest retailers in the country.

[Ki Bin Kim, MD - US REIT Equity Research at Truist]

And can you remind us what is the type of margin or spread that you're earning on the development versus a equivalent acquisition yield?

[Joey Agree, President, CEO & Director at Agree Realty]

Sure. All subject to duration and scope of the project. And so we benchmark those yields of of against where we can buy a like kind asset at pricing today, not where comps are, but where we could purchase it. If we're going to take an existing building and retrofit it for a tenant, they're gonna commence paying rent in a hundred and twenty days from rent commencement, that could be 50 basis points wide of where we'll acquire such an asset. If it's an eighteen month entitlement process and there's significant obstacles and hurdles that we're gonna overcome for true organic development, that can be as wide as a 150 basis points.

[Joey Agree, President, CEO & Director at Agree Realty]

So, again, duration and scope, internal allocation of time and overhead, are are critical there. So we're doing all different types of projects. You will see in the second half of this year roundup projects, retrofit projects. Many of them are $10,000,000 plus, and we are very close to commencement or have commenced post June 30.

[Ki Bin Kim, MD - US REIT Equity Research at Truist]

Okay. Thank you.

[Joey Agree, President, CEO & Director at Agree Realty]

Thanks, Ki Bin.

[Operator]

Your next question comes from the line of Smedes Rose with Citi. Please go ahead.

[Smedes Rose, Director at Citigroup]

Hi, thanks. On the development platform, I wanted to ask you kind of what do you think is kind of the or is there sort of an upper limit of where the investment there could go? And I guess just bigger picture, I think when people one of the reasons you traded at a pretty premium multiple is the sense that you can grow AFFO by at least kind of 4% plus a year, And that's driven by external acquisition opportunities and your spread to the cost of capital. And I'm just wondering, are you sort of suggesting that you'll be shifting more into this development platform over time because you think the spreads are better and you can grow AFFO, you know, faster that way? Or is it just just a growing kind of platform concurrent with your, you know, call it $1,500,000,000 of acquisition activity?

[Smedes Rose, Director at Citigroup]

That makes sense? I'm just trying to figure out like the

[Joey Agree, President, CEO & Director at Agree Realty]

Yeah. Yeah. Yeah. Many parts. Let's let's break it down.

[Joey Agree, President, CEO & Director at Agree Realty]

First, this is not a capital out these are not capital allocation. We have a war chest of a balance sheet with 2,300,000,000.0 in liquidity and $1,300,000,000 of forward equity that we built for a reason. Now we will do every deal that hurdles across our investment guidance and our in in internal, underwriting standards across all three platforms. So, again, our q three acquisition pipeline, we just started building q four, is quite significant. There's no material sale leasebacks in there a regular way. Q four, we'll see.

[Joey Agree, President, CEO & Director at Agree Realty]

Right? But that's, grows every day now. We're off to a good start since Monday. Ultimately, we achieve better returns and yields through development and our DFP program, but that will not dissuade us or not deter us from investing in acquisitions. So that is not a capital allocation decision.

[Joey Agree, President, CEO & Director at Agree Realty]

These are the same tenants that we are targeting and working with, our retail partners in the same sandbox. If you look at our earnings algorithm, which I mentioned in the prepared remarks, and you look at our five year historical AFFO growth trend, I think that's a good place to start. I'm I'm not sure that all investors realize we're coming off of 2024 investment volume, which was the lowest level since 2019, just over $900,000,000 due to the nature of the capital markets and our stock being in the fifties for approximately, I can't recall, the first six months of last year. You know, that obviously for that that earns through to the following year, this year's earnings, where we're at a midpoint of now of over 4%. You know, we we made a conscious decision last year to remain disciplined.

[Joey Agree, President, CEO & Director at Agree Realty]

We started with effectively to do nothing scenario. People will recall, we're not gonna we weren't gonna invest inside of 75 basis point, margins. We were gonna go up the risk curve and invest in real estate or credit that didn't meet our historic underwriting standards. And then additionally, this year, had to restart with the big lots vacancies after the first exit from chapter 11 failed with Nexus One purchasing the company. So we paused those leasing efforts in anticipation of all the big lots being affirmed.

[Joey Agree, President, CEO & Director at Agree Realty]

That deal fell apart the week it was supposed to close. It decreased occupancy during the first half of this year by 40 basis points. You've seen that rebound now to our re leasing efforts of 99.6% occupancy today at June 30. So I would look at our five year earnings algorithm. I think that's a good place to start.

[Joey Agree, President, CEO & Director at Agree Realty]

It is higher than our historic five year earnings algorithm. Excuse me. I think it is a good place to start. This is a down year for us, to be frank, in terms of AFFO growth. All three platforms will contribute to AFFO growth in the future.

[Joey Agree, President, CEO & Director at Agree Realty]

Obviously, development, if it's one of those longer duration projects, takes longer to contribute. But, again, this is not capital allocation decisions. This is not taking away from acquisitions. This is the envisioned future of having all three platforms firing on all cylinders being here and now.

[Smedes Rose, Director at Citigroup]

Okay. Thank you. I'll leave it I'll leave it there, but thanks for the incremental color.

[Joey Agree, President, CEO & Director at Agree Realty]

Sweets, did I miss anything there? Or that a multipart question? I don't know.

[Smedes Rose, Director at Citigroup]

No. I think it's good. I mean, I guess, like, you know, just on the on the developed platform, I mean, do you see sort of an upper limit of of how much you can invest there at one at what time? You know, at I mean, they have $1,000,000,000, 500,000,000.

[Joey Agree, President, CEO & Director at Agree Realty]

What we foreshadowed and set out about six months ago was our intermediate, we called it a three year goal of putting $250,000,000 in the ground per year. We have obviously made significant strides towards that goal. I will tell you our shadow of the shadow pipeline, we are working with new retailers that could come to fruition and have geographic territories assigned to us that could come to fruition. So I can't tell you about an upper limit. Every time I give a number of the size of the company or what we're able to achieve, frankly, we achieve it.

[Joey Agree, President, CEO & Director at Agree Realty]

So I don't wanna put that out there. My goal when I you know, when we launched the acquisition platform was to be a billion dollar diversified net lease company. So I don't I don't wanna put that number out there. I think there is we've made considerable investments and we'll I'm open to making more investments in people and processes and systems to continue to expand that. And, I wanna remind everybody, this is not speculative development.

[Joey Agree, President, CEO & Director at Agree Realty]

Right? We are not speculating on land. We're not speculating on vacant space. These are turnkey or ground lease projects that have guaranteed maximum price bids prior to us closing and returns that are effectively fixed. That is our business.

[Joey Agree, President, CEO & Director at Agree Realty]

Business. It is non speculative in nature and it is a margin of cushion above where we can acquire a like kind asset.

[Smedes Rose, Director at Citigroup]

Very good.

[Operator]

Your next question comes from the line of Michael Goldsmith with UBS.

[Michael Goldsmith, US REITs Analyst at UBS Group]

Just to follow-up on the development in the as it relates to the earnings algorithm, just the point that the you know, when you add in the development in DFP to kind of regular way acquisitions, it provides more consistency both from, like, a from a magnitude perspective and then also from a stability of that earnings algorithm? I'm trying to get just trying to understand, like, the the point with the diverse you know, the diversification of the different, of the three pronged approach here.

[Joey Agree, President, CEO & Director at Agree Realty]

I would I would I would think of it quite simply. We have one business that everyone focuses on net lease, one line of business, external growth, acquisitions. And that's what everyone wants to focus on in net lease acquisition volume. Our acquisition volume will be very strong. At the same time, we have been working for years now to build and scale development and then our development funding platform.

[Joey Agree, President, CEO & Director at Agree Realty]

These are just added. That that that's all they are. They are additive both qualitative, excuse me, and quantitative. And they ultimately build out a holistic relationship with retailers that we are a critical real estate partner, that we are working along multiple different fronts with them, and we are a differentiated real estate company. That has never been done in the net lease space.

[Joey Agree, President, CEO & Director at Agree Realty]

Again, the quote unquote spread investors, anyone can do it. We have no interest in being part of that. Our goal when we created our one page operating strategy in 02/2009, over fifteen years ago, was to be a differentiated real estate company in the net lease space. I am more than proud to say that this team has now achieved that goal. We're going to see in the coming months the fruition of the results of all those efforts.

[Michael Goldsmith, US REITs Analyst at UBS Group]

Thanks for that. And and just as a follow-up, you know, you've talked a lot about in the past about the importance of scale in grocery. Last quarter, did a sale leaseback of an Acme backed by Albertsons, and and now you're taking on, more Albertsons with with this portfolio deal. So does does that kind of put like, does that reflect, like, a view that Albertsons kind of fits into that, the scale that you're looking for and the stability within grocery that that you're interested in? Thanks.

[Joey Agree, President, CEO & Director at Agree Realty]

Just one correction. This was our first material. We did not do a sale leaseback. We've never done a sale leaseback with Albertsons. This was our our first we have one Albertsons, I believe, in the portfolio prior.

[Joey Agree, President, CEO & Director at Agree Realty]

This was our first transaction with on Albertsons leases. It was from a third party elderly woman in her eighties out of California whose family was historically in multifamily development and then 10/31 into a net net lease assets. The seventy five million hour diversified portfolio had had, I believe, was five Albertsons, Peter?

[Smedes Rose, Director at Citigroup]

Correct.

[Joey Agree, President, CEO & Director at Agree Realty]

Five Albertsons in it. It is aligned with our thesis of investing in the biggest and best grocers in the country. Albertsons is still sub 1% of, total rents here, total ABR. Obviously, Albertsons is a double b plus company, the third largest grocer in the country with approximately almost 2,300 stores. As an aside, our peers are investing in small regional and local operators and quoting a billion dollars in revenue for a grocer in a 2% business, which has obviously challenges right now because of just consumer sentiment like we've talked about.

[Joey Agree, President, CEO & Director at Agree Realty]

We're going in the opposite direction once again. We are building what we think is we have built what we think is the best grocery portfolio in the country. Alberts is a minority piece of that. The stores we acquired had average average sales of $740 approximately per square foot. Rent to sales below 2%.

[Joey Agree, President, CEO & Director at Agree Realty]

They are very strong performers. Weighted average lease term of approximately fourteen years and they're paying below $14 per square foot on average. Geographically diversified Texas, Illinois and Colorado. This is wholly consistent with our white paper on grocery that we're gonna invest in the country's largest grocers, again, in a 2% business. That's a 2% margin business, have the scale and the balance sheet to win on price.

[Joey Agree, President, CEO & Director at Agree Realty]

Otherwise, we think there's going to be significant fallout in the grocery space from those local operators with only a billion dollars in revenue. And let's do the math. A billion dollars in revenue at a 2% business is $20,000,000 in EBITDA. Start doing sale leasebacks and guess what? Your lease adjusted leverage and your, and and and and your cash flow start to deteriorate pretty quickly.

[Joey Agree, President, CEO & Director at Agree Realty]

And then I mentioned in the prepared remarks, this number, the depression of IG and then investment grade during the quarter and yield in the quarter due to the sourcing of this off market portfolio will ultimately be enhanced through the sale of the Dutch Brothers coffee shops at five caps that we'll dispose of that were included in the portfolio, the corporate Jiffy Lubs that were included in the portfolio that are non core and ten thirty one like assets, that we will dispose. And ultimately, our returns for the quarter and investment grade will be, more aligned with historic standards.

[Smedes Rose, Director at Citigroup]

Thanks for that. Good luck in the back half.

[Joey Agree, President, CEO & Director at Agree Realty]

Appreciate it. Thank you.

[Operator]

Your next question comes from the line of Jenna Gallen with Bank of America. Please go ahead.

[Jana Galan, Director at Bank of America]

Thank you. Good morning. Maybe a question for Peter.

[Jana Galan, Director at Bank of America]

On the bad debt in the guidance of 25 to 50 bps, is there anything identified or that does that just give you some room on the potential that the 0.4 of expirations doesn't renew?

[Peter Coughenour, CFO at Agree Realty]

Thanks for the question, Jana. I'd say through the first half of the year, credit loss, and again, in my prepared remarks, I mentioned that this is a fully loaded credit loss for us inclusive of not just credit events and lost rental revenue, but any other OpEx or or expenses that we're responsible for during the downtime of an asset that's vacant for any reason related to credit or otherwise. And in the first half of the year, we realized, credit loss relatively in line with the the lower end of that that 25 to 50 basis point range, so closer to the 25 basis point range. As we look to the back half of this year, I would say that based on known credit issues in the portfolio, we would anticipate operating closer to that 25 basis points or experiencing credit loss closer to that 25 basis points. So at the lower end or the higher end of the range at 50 basis points, that includes unknown credit events or cushion of approximately 20 to 25 basis points.

[Joey Agree, President, CEO & Director at Agree Realty]

And as as Peter let me just chime in, yeah. As Peter articulated in the prepared remarks, our definition of credit loss is fully loaded. So credit loss is any and all events where a tenant does not pay rent plus all of the nets being reimbursed not being reimbursed, excuse me, expense coming out from Agri Realty, right, and then maintaining the building itself during that period of vacancy. So when a building is vacant, you have to temper it, heat and cool it. We don't want mold.

[Joey Agree, President, CEO & Director at Agree Realty]

We don't want frozen pipes. You gotta arm it. You have fire suppression. You have maintenance of that building in order to release it. So it is fully loaded.

[Joey Agree, President, CEO & Director at Agree Realty]

And so once again, net lease companies have become been very creative in their definition of credit loss. Now credit loss is due specifically to a credit event and then it's pro form a for the lease up with the footnote one and footnote two. We are not going to go down that road. We are going to give, as Peter said, the true economic impact, 25 basis points to our total revenues for the year. And that is outflows as well as the lack of inflows to make this is real real estate economic underwriting.

[Joey Agree, President, CEO & Director at Agree Realty]

This is not putting things into position for investors to have to parse through words and guess in fancy decks.

[Operator]

Thank you. Your next question comes from the line of John Kielczewski with Wells Fargo. Please go ahead.

[Sheryl Kaul, Equity Research Associate at Wells Fargo]

Hi. This is Cheryl on for John. Thank you for taking my question. Could you provide us an update on your watch list and what is baked in your guide in terms of going in yields?

[Joey Agree, President, CEO & Director at Agree Realty]

Our watch list is very de minimis. At home was clearly on our watch list as I suggested during the prepared remarks. I fully anticipate the two step into bankruptcy like we've seen. Chapter 11, the unsecured creditors have no recoveries. They emerge like Party City, Joanne, Rite Aid, and then there's no ongoing business.

[Joey Agree, President, CEO & Director at Agree Realty]

And so then the unsecured creditors who take equity and move their nonrecoveries then liquidate the company. That's under contract for a seven flat. We could have worked through that, redeveloped it. Frankly, we have better use of our time given the aggressive offer we took there. So outside of that, our watch list is very immaterial, frankly, at this point.

[Joey Agree, President, CEO & Director at Agree Realty]

We continue to monitor the couple movie theaters we have in the portfolio. That's really that's it. I mean, we pared that back to 25 basis points, and that was really comprised of Big Lots this year, right, during the first half here.

[Peter Coughenour, CFO at Agree Realty]

Yeah. I think the the watch list, to Joey's point, historically, the two biggest components there were were At Home and Big Lots. And and with those now resolved, the the remaining credit issues in the portfolio are are fairly de minimis one offs, and there's nothing on the horizon of any material size that we see as imminent and the portfolio continues to perform very well.

[Sheryl Kaul, Equity Research Associate at Wells Fargo]

Thank you. That's helpful. And then one quick one on Big Lots. Can you remind us how many assets were sold or released and what was the final outcome? Thank you.

[Joey Agree, President, CEO & Director at Agree Realty]

Yes. We have one one or two left. One has been approved by we will disclose next quarter by a national retailer you're all familiar with that we will release to. Cedar Park, Texas was released to Aldi, as we mentioned in the, prepared remarks with a significant lift in net effective rent in a brand new term. Manassas, Virginia was released with a significant rent increase on a net effective basis.

[Joey Agree, President, CEO & Director at Agree Realty]

We disclosed that obviously in the prepared remarks. We have one or two we're continuing again to work through, but we we will work through those very quickly here.

[Sheryl Kaul, Equity Research Associate at Wells Fargo]

Thank you so much.

[Joey Agree, President, CEO & Director at Agree Realty]

Thank you.

[Operator]

Your next question comes from the line of Brad Heffern with RBC Capital Markets. Please go ahead.

[Brad Heffern, Director at RBC Capital Markets]

Yeah. Hi. Thanks, everybody. Joey, in the prepared comments, you talked about the highest level of demand for brick and mortar locations since the GSE. Obviously, we're still in a pretty uncertain environment.

[Brad Heffern, Director at RBC Capital Markets]

You have the potential tariff headwinds for retailers. I'm curious why you think that demand is so strong.

[Joey Agree, President, CEO & Director at Agree Realty]

Yeah. Brad, it's we haven't seen any retailer pull back, and it's not that they won't potentially do so due to the the tariff noise headwinds and the 85 different dates that have been handed out by the White House. We just haven't seen it. The biggest retailers in this country, and it's aligned with our thesis going back a decade in our white papers. I encourage everyone to look at them.

[Joey Agree, President, CEO & Director at Agree Realty]

There's there's two drivers here. One is the bigger operators are taking share. Two, the the bigger operators now all realize, and you've probably heard me say it before, that that the the store is is not a spoke, it's the hub. Right? The free delivery and free return same day don't work from an EBITDA perspective.

[Joey Agree, President, CEO & Director at Agree Realty]

Not unless you got AWS backing it up and cloud computing and advertising revenue and ancillary sources of revenue. But from a selling goods perspective, that doesn't work. And so retailers have all realized that. We have never seen Walmart, Home Depot, Target, Lowe's all growing their store count. It's all public information out there plus plus plus plus plus since prior to the great financial crisis.

[Joey Agree, President, CEO & Director at Agree Realty]

Sam's Club, Costco, you can keep going. All of these retailers invested for, let's call it, a seven year period in distribution and fulfillment and logistics. And then they realized these investments are great. They make us more efficient, but guess what? We still lose money.

[Joey Agree, President, CEO & Director at Agree Realty]

We need the customer to get their butt in the car and try to get them to pick up those goods from the store rather than delivering them to their house for free because they're accustomed to it now. And if we can get them to the store to pick up those goods or return those goods, which is an absolute disaster. Right? I mean, those get paletted and sold by the pound returned goods. We've actually done it as an exercise here from Amazon.

[Joey Agree, President, CEO & Director at Agree Realty]

Those returned good return them in store and maybe repurchase something else. So we've had a number of retailers speak to the team here. We have more retailers, national retailers, heads of real estate departments coming in and speaking to the team here that we're partners with and articulating how those impacts on the business. The other piece to it is, specifically in some in some sectors, let's use auto parts. Auto parts, we have seen the rise of the hub store.

[Joey Agree, President, CEO & Director at Agree Realty]

We have a white paper on this, I believe, well, Peter. Right? Yeah. Correct. The rise of the hub store.

[Joey Agree, President, CEO & Director at Agree Realty]

The rise of the hub store is to fulfill commercial, tired auto service, collisions, and dealerships demand for a part within thirty minutes. That is impossible from a central distribution facility. So auto parts retailers realize that the standard stores of 7,000 feet can't carry enough SKUs. So they need hub stores of 20 and mega hub stores up to 50,000 feet, which are effectively storefronts with warehouses in the back to carry all of the different SKUs to get that car off of the lift and get that part there within thirty minutes. That's the business.

[Joey Agree, President, CEO & Director at Agree Realty]

So we see all of these different areas. The convenience stores, let's take that. The rise of the large format convenience stores, which we're obviously very active in. In. The convenience stores are taking shares not because there's more fuel being pumped in this country.

[Joey Agree, President, CEO & Director at Agree Realty]

There's not more cars on the road. Convenience stores are taking share from fast food restaurants. They're taking share from the front end of pharmacies. They're taking share from convenience items. You run-in, grab milk, you'll overpay instead of go into Walmart, Kroger, Albertsons, and navigate a 100 or 200,000 square foot store.

[Joey Agree, President, CEO & Director at Agree Realty]

And they're taking share due to their service and offerings, food enough, beverage for off premises consumption, primarily breakfast and lunch. And so there's different drivers here, but it's about convenience, time, and EBITDA at the end of the day.

[Brad Heffern, Director at RBC Capital Markets]

Okay. Thank you for the detail there. Maybe one for Peter on the guidance. You know, the implication is a decent sized ramp in AFFO per share in the second half of the year. Is there anything lumpy expense side that maybe is driving some of that?

[Brad Heffern, Director at RBC Capital Markets]

Or is that purely just the ramp in acquisition volume?

[Peter Coughenour, CFO at Agree Realty]

No. Think that's largely driven by the ramp in acquisition volume. I also mentioned in my prepared remarks, the treasury stock method dilution and our assumption for roughly $01 of impact there, for full year 2025 versus $02 last quarter. But, there's nothing lumpy from an expense perspective anticipated in the back half of the year.

[Brad Heffern, Director at RBC Capital Markets]

Okay. Thank you.

[Joey Agree, President, CEO & Director at Agree Realty]

Thanks, Brett.

[Operator]

Your next question comes from the line of Wes Golladay with Baird. Please go ahead.

[Wes Golladay, Senior Research Analyst at Baird]

Hey, good morning guys. I just want to go back to the comment of $100,000,000 in starts and getting 200,000,000 into the ground. Can you clarify if that was for development or development and funding? And then for these assets you're gonna develop, would you plan on owning them afterwards?

[Joey Agree, President, CEO & Director at Agree Realty]

We do plan it over them. Everything all pieces of real estate are for sale. Ultimately, we have no intention of selling. We're not doing them you know, we're not doing these projects in a TRS or off balance sheet in any manner. We anticipate again starting over a $100,000,000 in projects between June 30 and the end of the year.

[Wes Golladay, Senior Research Analyst at Baird]

Okay. And then you did mention some yeah. At min yeah. Go ahead.

[Joey Agree, President, CEO & Director at Agree Realty]

At minimum.

[Wes Golladay, Senior Research Analyst at Baird]

Okay. And you also mentioned another version of ARC coming out next year. Can you elaborate on what's gonna be in the latest edition?

[Joey Agree, President, CEO & Director at Agree Realty]

Yeah. Peter understands technology way more than I do. I drew it on a piece of paper originally. Peter's handled it from there, but I will mention we have now fully built out our our IT team here, and we're thrilled with that team and the partners we're with. And, Peter, you, you're way smarter here than I am.

[Peter Coughenour, CFO at Agree Realty]

Sure. Specific to ARC, I think the the primary goal of that project is to build ARC on effectively a new backbone or system that will allow for more self-service and and more dynamic reporting that can be used across the organization, and and will drive efficiencies in that. We we can manipulate the data more and drive to, the decisions that we're trying to make across the organization. I think in addition to ARC, Joey mentioned some of the industry leading efficiencies, that we've gained through the implementation of AI. We implemented AI for lease abstraction, about three years ago now, and we've been using that tool to abstract hundreds of leases that we onboard each year with a high degree of accuracy that has, increased over time.

[Peter Coughenour, CFO at Agree Realty]

The the accuracy and the tool has resulted in in significant time savings for the team. More recently, we've launched an AI tool to complete what we call our lease underwriting checklist, which compares our initial underwriting to the lease and confirms there are no significant issues. With that tool, it used to take an attorney roughly four hours to complete each one of those and that's now a matter of seconds. So we've seen, you know, hundreds of hours of time savings there, four hundred plus hours from that on an annual basis, hundreds of thousands of dollars of savings just from the implementation of that implementation of that tool. And then looking forward, I think, you know, we'll look to combine AI and incorporate more of that into ARC from a decision making process moving forward.

[Joey Agree, President, CEO & Director at Agree Realty]

So, Wes, we ran a test. Our our our IT team here ran a test looking backwards into deals that were approved in investment committee. And this is far but this is far out, this component. But I think it should demonstrate the future of what AI is capable of. Our team ran a test of deals that were brought into investment committee and what they would be approved with the percentage of approval using AI.

[Joey Agree, President, CEO & Director at Agree Realty]

They were 90% accurate, and it was just a test. It was a game to see if they could replicate investment committee's approval. We're using AI today, as Peter mentioned, for functional tasks and driving efficiencies. I want to take legal costs and cut them in half. That's my goal here.

[Joey Agree, President, CEO & Director at Agree Realty]

We have a great team and a great external team, but we don't need warriors extracting leases, summarizing leases. We can now do them in fifteen seconds using artificial intelligence that is is generative AI learning. And so the new arc, which will be unveiled next year, three point o, and I look forward to unveiling it, will enable our full data warehouse and multiple tools to be layered on in the future.

[Wes Golladay, Senior Research Analyst at Baird]

Alright. Thanks a lot for that.

[Joey Agree, President, CEO & Director at Agree Realty]

Thanks Wes.

[Operator]

Your next question comes from the line of Rich Hightower with Barclays. Please go ahead.

[Rich Hightower, MD - U.S. REIT Research at Barclays]

Hey, good morning guys. Thanks for taking the question here. Maybe just to shift gears a little bit on the asset management side of things. I guess, traditionally speaking, you know, one of the trade offs with, you know, very high credit quality in the tenant and and low escalators would be well, one would be low escalators and two would be relatively short vault. And so just as as you're, you know, renewing leases and and and tell us about any changing parts of the lease structure that might be interesting, especially given just the shortage of of good retail space in this country at this point?

[Joey Agree, President, CEO & Director at Agree Realty]

Well, the shortage of space due to construction costs in in this country, we see, and I think the shopping center reporters have demonstrated this, and we've demonstrated with our leasing efforts, is the second generation space that is is a b space is in high demand. With that said, c space, functional obsolescence is a challenge. Single purpose boxes are will always be challenges. Now I'll take issue with the first statement. Investment because the portrayal that investment grade has shorter weighted average lease terms and or less escalators, we have effectively, net of credit loss, approximately a 100 basis points of internal growth.

[Joey Agree, President, CEO & Director at Agree Realty]

When you look at the totality of those circumstances, I don't think that is frankly economically true. So anyone can sign a sale leaseback if you're a private operator or public operator for thirty years, fifty years. Remember Nick Scores had Red Lobster signed twenty five years sale leasebacks? Anybody can sign

[Rich Hightower, MD - U.S. REIT Research at Barclays]

A blast from the past.

[Joey Agree, President, CEO & Director at Agree Realty]

A blast from the past. But guess what? A lot of this stuff is coming back now into net lease with all out of the private credit and the private capital that's flowing in. You can sign a sale leaseback on your house. You can have escalators.

[Joey Agree, President, CEO & Director at Agree Realty]

You can sign a sale leaseback at anything. Escalators, you can do it for fifty years. The piece of paper isn't worth what it's printed on, though. Mean, ultimately, this is real estate, and can the tenant ultimately afford the compounding impacts of those annual escalators that you're gonna write into that lease? Sale leasebacks with noncredit tenants are simply financial structures that are akin to a lender.

[Joey Agree, President, CEO & Director at Agree Realty]

That is all it is. It is not our business. And when we talk about sale leasebacks being an alternative form of financing for these noncredit, small, middle market, private equity sponsored operators or small private operators. It is not an alternative form of financing. There is no other place where you can pull out a 100% of the proceeds from the building.

[Joey Agree, President, CEO & Director at Agree Realty]

If I am a car private equity sponsored car wash operator and I go to a conventional lender and I say I want a first mortgage, maybe they give me 50%, maybe they give me 60%. Then I go and I try to get mezz on that real estate. Maybe if I'm really lucky, can ramp that to those two combined to 75 percent. Good luck on that. It's gonna be expensive.

[Joey Agree, President, CEO & Director at Agree Realty]

Who's still in the last 25% in that primary method of financing this real estate? A hard money lender? A bookie? Nobody. Right?

[Joey Agree, President, CEO & Director at Agree Realty]

And so what we see is alternative markets aren't alternative markets to finance these assets. Look what we've seen in spaces like the car wash space, the experiential space. They are primary assets that don't provide for risk adjusted returns that are ultimately appropriate. If I'm gonna finance a full capital stack for any of those types of uses, I want a 14 cap, but I want my money out in six and a half years. And I wouldn't even do it there, don't think.

[Joey Agree, President, CEO & Director at Agree Realty]

I'd rather just run the business myself and own the equity.

[Rich Hightower, MD - U.S. REIT Research at Barclays]

Oh, helpful helpful comments. It'd fun to get you on another panel with, with your peers and kinda go at it, from multiple directions.

[Joey Agree, President, CEO & Director at Agree Realty]

Happy to do that. Let me By the way by the way, happy to do so. I think it is would be educational for investors. I think comparing and contrasting rather than isolation in earnings calls and in meetings, debating these things is healthy for investors. The siloed nature of what has transpired in our subsector as well as read them generally does not give investors a full picture of in transparency. You combine that with reporting, as I mentioned prior, that has all types of discrepancies and footnotes and pro formas.

[Joey Agree, President, CEO & Director at Agree Realty]

This is a simple business. The second side of our deck is consistency. We've done the same thing since we started this acquisition platform in 02/2010, and I took over operating this company. We're gonna continue to do it. Making nuanced arguments, let's do them in merit, Let let's debate the merits and considerations and ultimately let investors decide for themselves.

[Joey Agree, President, CEO & Director at Agree Realty]

But I will stand here and I will say buying those types of uses is a primary function source of real estate financing in the with a seven handle in front of it, I do not believe is risk adjusted appropriate, and I'm happy to articulate that further in any form.

[Rich Hightower, MD - U.S. REIT Research at Barclays]

Great. Why don't I leave it there? Thanks, Joey.

[Joey Agree, President, CEO & Director at Agree Realty]

Thank you.

[Operator]

Your next question comes from the line of Jim Kemmerer with Evercore ISI. Please go ahead.

[James Kammert, Managing Director at Evercore ISI]

Good morning. Thank you. Joey, just revisiting one more time the ramp in development activity. Would you say you're more likely just supplanting developer relationships that the retailers had or more strategically used to planting more of the in house development capability at those retailers?

[Joey Agree, President, CEO & Director at Agree Realty]

That's an interesting question, Jim. It we are definitely supplanting developers that can no longer perform due to capital constraints and volatility. There are also new relationships that we formed. I'm trying to figure out some retailers have internal capabilities. We have not seen them give up those internal capabilities.

[Joey Agree, President, CEO & Director at Agree Realty]

Frankly, retailers are trying to scale their internal capabilities, to be able to execute on their store growth plans to the street generally. So, it's not supplanting retailer self development. It is taking share.

[James Kammert, Managing Director at Evercore ISI]

Interesting. And then, you know, what would you say have you canvassed all of your retailers and said, hey. You know, we can do this for you, or have you still have new tenants that you haven't really even approached and said, hey. You didn't really explain to them Agree's full capabilities? Just think about how far this could expand for you.

[Joey Agree, President, CEO & Director at Agree Realty]

I'd say we have a scorecard and a scoreboard. It is in ARC. I would tell you there are very few. We have it there better not be more than a few, but there are not many that we haven't touched talked to. Time and place, economics has to be correct.

[Joey Agree, President, CEO & Director at Agree Realty]

We have new relationships that will will pull through in '27, and then existing relationships always. You know, a lot of it again is is time and place. Right? We need to right? We're ramping.

[Joey Agree, President, CEO & Director at Agree Realty]

We need help. You can be a critical partner for us. Our other partners are failing. Right? They're not they're they're not executing on their promises.

[Joey Agree, President, CEO & Director at Agree Realty]

When you have a $2,300,000,000 in liquidity and you pair that with expertise of a private real estate developer, you have a very unique combination that no one else can offer in terms of value proposition.

[James Kammert, Managing Director at Evercore ISI]

Got it. Thanks for your time.

[Joey Agree, President, CEO & Director at Agree Realty]

Thanks, Jim.

[Operator]

Your next question comes from the line of Upal Rana with KeyBanc Capital Markets. Please go ahead.

[Upal Rana, Senior Equity Research Analyst - US REITs at KeyBanc Capital Markets]

Great. Just a quick one for me. With the development and D and P pipeline ramping, how are you thinking about construction costs today? You mentioned building 50 basis points wide where you can acquire. So just wondering if construction costs continue to rise, could that potentially even to your 50 basis points? Thanks.

[Joey Agree, President, CEO & Director at Agree Realty]

I appreciate the question. We've done a full internal comprehensive study of the implications of all of these different types of tariffs led by Jeff Coggle here, our head of construction. And then we're very fortunate to have John Ricolta, the chairman of Walbridge, one of the biggest contractors in the country on our board. And his team ran also a a a a a study of the implications of tariffs in in the construction area. Now we estimate that that tariffs and if you look at project cost, generally vertical cost, right, moving dirt doesn't cost buying or acquiring land obviously, well, not yet, is in tariff.

[Joey Agree, President, CEO & Director at Agree Realty]

We're talking about vertical cost, are approximately 25% to 35 of entire projects. We think the implication in the current tariff environment is 1.5% of total costs. We generally have a contingency of 7% to 10% in projects. So we're not concerned about this tariff environment right now in projects, but it's certainly something that we'll pay attention to. Maybe not daily because can't we can't monitor the x and true social daily.

[Joey Agree, President, CEO & Director at Agree Realty]

But it's certainly something that we'll monitor, but no material impact in overall construction cost. Now if you look, there's different sourcing that we will, sourcing methodologies that will change. We'll buy domestic products. Retailers are also who designate different specifications for building components, HVAC units, things like that. They may have components that are tariff, shift building, architectural features and engineering features, structural engineering features even potentially to make it, most efficient and continue to drive efficiencies even bring that 1.5% down.

[Upal Rana, Senior Equity Research Analyst - US REITs at KeyBanc Capital Markets]

Okay, great. That was helpful. Thank you so much.

[Joey Agree, President, CEO & Director at Agree Realty]

Thank you.

[Operator]

Your next question comes from the line of Omotayo Okusanya with Deutsche Bank. Please go ahead.

[Samuel A.A. Ohiomah, Senior Research Associate - REITs at Deutsche Bank]

Hey, guys. This is, Sam on for Tayo. I hope I didn't miss this, but, what gave you guys, the confidence around increasing your investment outlook given the uncertainty presented by the macro backdrop as well as potential credit risk stemming from tariffs?

[Joey Agree, President, CEO & Director at Agree Realty]

Outside of sourcing acquisitions for q four between now and the, call it, the October, we already know it's there.

[Samuel A.A. Ohiomah, Senior Research Associate - REITs at Deutsche Bank]

Got it. All right. That's all I have on my end. Appreciate the time.

[Operator]

Your next question comes from the line of Ronald Camden with Morgan Stanley. Please go ahead.

[Ronald Kamdem, MD & Head - US REITs and CRE Research at Morgan Stanley]

Hey. Two quick ones. Just on ramping on the developments. Maybe can you talk a little more about the are the lease structures any different from the acquisitions in terms of duration, yield, contracts? Just curious there.

[Joey Agree, President, CEO & Director at Agree Realty]

Yeah. But generally, obviously, they're they're new leases. So these are ten, fifteen, twenty year leases, generally, the fresh face terms that are starting. Standard lease structures, nothing different, either ground leases or generally turnkey leases. The economics, again, will subject to project duration and scope will be 50 to a 150 basis points wide of where we could acquire and do acquire the like kind assets.

[Joey Agree, President, CEO & Director at Agree Realty]

Really, different there except the methodology of sourcing, obviously, and then the duration and the return requirements internally here.

[Ronald Kamdem, MD & Head - US REITs and CRE Research at Morgan Stanley]

Great. And then my second one, genuine parts company as the top tenant list. Just any color there on maybe the opportunity with them to continue to grow? And

[Joey Agree, President, CEO & Director at Agree Realty]

look. That's Napa. Obviously, it's an investment grade auto parts retailer. They've made it to the top tenant list. No.

[Joey Agree, President, CEO & Director at Agree Realty]

We're very fond of auto parts as we discussed and wrote in the white paper, fungible boxes, great business cars and every day setting a new record on the road. I'm not sure if anyone can be able to afford a car after all these tariffs, actually hit. We continue to like the space. We like Napa, but no plans to materially increase exposure from here.

[Ronald Kamdem, MD & Head - US REITs and CRE Research at Morgan Stanley]

Thanks so much. Thanks, Ron.

[Operator]

And that concludes our question and answer session. And I will now turn the conference back over to Joey for closing comments.

[Joey Agree, President, CEO & Director at Agree Realty]

I appreciate everybody's time today. Thank you for joining us. We look forward to seeing you in the near future, and good luck to the rest of the earning season. Thank you.

[Operator]

This concludes today's conference call. Thank you for your participation, and you may now disconnect.

Participants

Executives

• Reuben Treatman, Senior Director - Corporate Finance
• Joey Agree, President, CEO & Director
• Peter Coughenour, CFO

Analysts

• Linda Tsai, Senior Analyst at Jefferies
• Ki Bin Kim, MD - US REIT Equity Research at Truist
• Smedes Rose, Director at Citigroup
• Michael Goldsmith, US REITs Analyst at UBS Group
• Jana Galan, Director at Bank of America
• Sheryl Kaul, Equity Research Associate at Wells Fargo
• Brad Heffern, Director at RBC Capital Markets
• Wes Golladay, Senior Research Analyst at Baird
• Rich Hightower, MD - U.S. REIT Research at Barclays
• James Kammert, Managing Director at Evercore ISI
• Upal Rana, Senior Equity Research Analyst - US REITs at KeyBanc Capital Markets
• Samuel A.A. Ohiomah, Senior Research Associate - REITs at Deutsche Bank
• Ronald Kamdem, MD & Head - US REITs and CRE Research at Morgan Stanley